Document ID: SEC-2014-1452-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-08-28T04:00Z

[Federal Register Volume 79, Number 167 (Thursday, August 28, 2014)]
[Notices]
[Pages 51381-51383]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20468]

[[Page 51381]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72903; File No. SR-CBOE-2014-065]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the Fees Schedule

August 22, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 12, 2014, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's 
Office of the Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fees Schedule. First, the 
Exchange proposes to delete from Footnote 5 of the Fees Schedule the 
sentence ``If a market-maker executes an order for an account in which 
the market-maker is not a registered participant as reflected in the 
TPH Department records, the market-maker will be assessed a floor 
brokerage fee.'' Exchange Rule 8.9 currently prohibits a Market-Maker 
from executing an order for an account in which the market-maker is not 
a registered participant.\3\ As such, the Exchange does not wish to 
have a statement in its Fees Schedule assessing a fee for such 
activity, as this would seem to imply that such activity is permitted.
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    \3\ See CBOE Rule 8.9.
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    Next, the Exchange proposes to amend the Floor Brokerage Fees 
table. Currently, the Floor Brokerage Fees table sets forth the fees 
per contract for the following products: (i) ``OEX, SPX and SPXpm Index 
Options; (ii), ``SROs'' and (iii) ``VIX, VXST and Volatility Index 
Options.'' Additionally, the Floor Brokerage Fees table groups together 
like products and differentiates between fees for ``Non-Crossed 
Orders'' and ``Crossed Orders.'' Although OEX, an American-Style 
Exercise S&P 100 Index option, is explicitly referenced in the Floor 
Brokerage Fees table, XEO, the European-Style Exercise S&P 100 Index 
option, is not separately spelled out in the Floor Brokerage Fees 
table. The Exchange is proposing to make clear in the text of the Fees 
Schedule that XEO is a product in which floor brokerage fees apply. The 
Exchange notes that the only difference between OEX and XEO options is 
the manner in which the respective contracts are exercised (i.e. 
American-style versus European-style). The Exchange believes the 
proposed addition of rule text will provide greater clarity for 
customers and will allow market participants to better understand how 
fees are applied.
    Next, the Exchange proposes to amend Footnote 7 of the Fees 
Schedule. Footnote 7 of the current Fees Schedule provides ``After 
three months, all fees as assessed by the Exchange are considered final 
by the Exchange.'' The purpose of this statement is to encourage 
Trading Permit Holders (``TPHs'') to promptly review their Exchange 
invoices so that any disputed charges can be addressed in a timely 
manner. The Exchange notes that the footnote is not intended to 
preclude the Exchange from assessing fees more than three months after 
they were incurred. Indeed, the Exchange is required to enforce 
compliance by its TPHs and persons associated with its TPHs the rules 
of the Exchange, including its Fees Schedule.\4\ As such, the Exchange 
must ensure that it assesses the fees set forth in its Fees Schedule so 
long as the fee(s) were required to be paid pursuant to the CBOE Fees 
Schedule in effect at the time the fees were incurred, even if the 
Exchange must assess the fees more than three months after they have 
been incurred. The Exchange believes it would be beneficial to make 
this clear in the Fees Schedule and provide further clarifying language 
regarding the finality of fees. Specifically, the Exchange seeks to 
amend Footnote 7 to state ``Any potential billing errors relating to 
fees assessed by CBOE must be brought to the attention of CBOE's 
Accounting Department within three months from the invoice date. All 
fees assessed shall be deemed final and non-refundable after three 
months from the invoice date. The Exchange is not precluded from 
assessing fees more than three months after they were incurred if those 
fees were required to be paid pursuant to the CBOE Fees Schedule in 
effect at the time the fees were incurred.'' The Exchange notes that 
this has always been the case, and the clarification is simply 
reflecting how the current language of the CBOE Fees Schedule applies. 
The Exchange also notes that its practice is to assess fees in a timely 
manner at the time such fees are incurred. However, the Exchange 
requires the ability to assess any fee upon discovering an error 
regardless of how much time has passed since the fee was incurred.
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    \4\ 15 U.S.C. 78f(b)(1).
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    The Exchange next proposes to make an amendment to the CBOE Command 
Connectivity Charges table. Currently, the Exchange charges TPHs a $500 
per month Network Access Port fee for 1 gigabit (``1 Gbps'') network 
access connectivity and $3,000 per month for 10 Gbps network 
connectivity. The Network Access Ports provide direct access to CBOE 
Command. Additionally, in order to be able to connect to the Exchange's 
disaster recovery systems in case of a disaster, the Exchange offers a 
Disaster Recovery Network Access Port in Chicago for a $250 per month 
fee. The Exchange currently offers only a 1 Gbps Disaster Recovery 
Network Access Port connection. Network Access Ports are used to 
receive unicast (i.e., orders and quotes) and multicast (i.e., market 
data) traffic. The Exchange notes that a 1 Gbps port may receive both 
unicast and multicast traffic, whereas a 10 Gbps port may only receive 
either multicast or unicast traffic. The Exchange seeks to clarify that 
the Network Access Port fee

[[Page 51382]]

is assessed separately for unicast and multicast connectivity. 
Accordingly, if a TPH has 1 Gbps connectivity and receives both unicast 
and multicast traffic through a single port, the TPH would be charged 
$1,000 dollars per month (i.e., $500 per month for unicast connectivity 
and $500 per month for multicast connectivity). Similarly, if a TPH has 
one 1 Gbps Network Access Port for unicast connectivity only and 
another 1 Gbps Network Access Port for multicast connectivity only, the 
TPH would be charged $1,000 dollars per month (i.e. $500 per month for 
each port). Additionally, if a TPH has a single 1 Gbps Disaster 
Recovery Network Access Port and receives both unicast and multicast 
traffic through the single port, the TPH would be charged $500 dollars 
per month (i.e., $250 per month for unicast connectivity and $250 per 
month for multicast connectivity). Similarly, if a TPH has one 1 Gbps 
Disaster Recovery Network Access Port for unicast connectivity only and 
another 1 Gbps Disaster Recovery Network Access Port for multicast 
connectivity only, the TPH would be charged $500 dollars per month 
(i.e. $250 per month for each port). As noted above, a single 10 Gbps 
Network Access Port cannot receive both unicast and multicast traffic. 
Accordingly, if a TPH wants a 10 Gbps connection, in order to receive 
both traffic types the TPH would need to purchase two 10 Gbps Network 
Access Ports (i.e., one to be used for multicast connectivity and one 
to be used for unicast activity) and would therefore be charged $6,000 
per month (i.e., $3,000 per month for each port)
    Lastly, the Exchange proposes to make a clarification to the 
``Notes'' section of the Clearing Trading Permit Holder Position Re-
Assignment Rebate Program (``Rebate Program''). By way of background, 
the Rebate Program allows the Exchange to rebate assessed transaction 
fees to a Clearing Trading Permit Holder (``CTPH'') who, as a result of 
a trade adjustment on any business day following the original trade, 
re-assigns a position established by the initial trade to a different 
CTPH. In such a circumstance, the Exchange will rebate, for the party 
for whom the position is being re-assigned, that party's transaction 
fees from the original transaction as well as the transaction in which 
the position is re-assigned. Because the Exchange may not always be 
able to automatically identify these situations, in order to receive a 
rebate, the Exchange requires a written request with all supporting 
documentation (trade detail regarding both the original and re-
assigning trades) and a summary of the reasons for the re-assignment to 
be submitted within 60 days after the last day of the month in which 
the error occurred. In SR-CBOE-2002-013 \5\ and again in SR-CBOE-2013-
058,\6\ the Exchange describes a situation involving a member's clerk, 
or other similar personnel, inputting the wrong clearing firm code into 
the appropriate form or program. As a result, the Exchange noted that 
the trade would be cleared through the wrong clearing firm and, in 
order to correct the situation, corrective transactions would be 
entered to reverse the error trades and then new trades would be 
submitted to reflect the original intentions of the parties. Without 
the keypunch error rebate program, the clearing firm whose code was 
erroneously entered would have to pay Exchange transaction fees for any 
transactions necessary to reverse the initial trade (despite not having 
been a party to such trade). The Exchange proposes to clarify that it 
is the ``executing'' CTPH that would be rebated, as opposed to a CTPH 
that received a trade via a Clearing Member Trade Agreement (CMTA).\7\ 
The Exchange believes the proposed clarification to the Notes section 
of the Rebate Program will provide greater clarity for market 
participants and reduce potential confusion.
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    \5\ See Securities Exchange Act Release No. 34-45675 (March 29, 
2002), 67 FR 16480 (April 5, 2002) (SR-CBOE-2002-013).
    \6\ See Securities Exchange Act Release No. 34-69760 (June 13, 
2013), 78 FR 36805 (June 19, 2013) (SR-CBOE-2013-058).
    \7\ Under a CMTA agreement, an Options Clearing Corporation 
clearing member (``carrying clearing member'') authorizes another 
clearing member (``executing clearing member'') to give up the name 
of the carrying clearing member with respect to any trade executed 
on a specific exchange (i.e., the re-assignment of a trade to a 
different Clearing firm occurs post-trade at the OCC).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitation 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. The Exchange 
also believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\10\ which provides that Exchange rules may provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its Trading Permit Holders.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes that the proposed 
clarifications to the Fees Schedule will make the Fees Schedule easier 
to read and alleviate potential confusion. The alleviation of potential 
confusion will remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, 
protect investors and the public interest. Specifically, the Exchange 
believes that the proposed change to delete the sentence in Footnote 5 
will alleviate any potential confusion regarding whether such activity 
is permitted. The Exchange believes that the amendments to Footnote 7 
provides further clarification as to the finality of assessed fees and 
prevents potential confusion as to whether or not the Exchange may 
assess fees more than three months after they were incurred.
    The Exchange believes the amendment to the Floor Brokerage fees 
table will promote just and equitable principles of trade by clarifying 
to Trading Permit Holders that floor brokerage fees apply to the 
European-Style Exercise S&P 100 Index option (XEO) as well as the 
American-Style Exercise S&P 100 Index option (OEX), thereby eliminating 
potential confusion and removing impediments to and perfecting the 
mechanism of a free and open market and a national market system. 
Providing a clearer representation of fees in the Exchange Fees 
Schedule will remove any confusion that may exist as to which products 
may be subject to certain fees. The Exchange believes it is reasonable, 
equitable and not unfairly discriminatory to apply the same floor 
brokerage fees to XEO options as currently applied to OEX options, 
because both are S&P 100 Index options. As noted above, the only 
difference between the two options is the manner in which the options 
are exercised (i.e. American-style versus European-style).
    The Exchange also believes that the proposed change to specify that 
separate Network Access Fees are assessed for unicast and multicast 
connectivity also alleviates potential confusion regarding

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how the Network Access Fee is assessed, thereby removing impediments to 
and perfecting the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest. The Exchange believes the proposed rule change is reasonable 
because the amount assessed for unicast connectivity and multicast 
connectivity to TPHs using 1 Gbps Network Access Port(s) is the same. 
Additionally, the Exchange believes this change is equitable and not 
unfairly discriminatory because it will apply to all TPHs who use a 1 
Gbps Network Access Port equally. The Exchange notes that whether a TPH 
receives unicast and multicast connectivity via a single 1 Gbps Network 
Access Port, two separate 1 Gbps Network Access Ports or two separate 
10 Gbps Network Access Ports, in each instance, the TPH would be 
charged for each type of access regardless of how many physical ports 
they use.
    Lastly, the Exchange believes it will be beneficial to market 
participants to make it explicitly clear that it is the ``executing'' 
CTPH that would be rebated under the Clearing Trading Permit Holder 
Position Re-Assignment Rebate Program. The Exchange believes this 
proposed rule change reduces confusion as to which CTPHs are entitled 
to a rebate under the Rebate Program, thereby removing impediments to 
and perfecting the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed changes to 
alleviate confusion are not intended for competitive reasons and only 
apply to CBOE.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and paragraph (f) of Rule 19b-4 \12\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR. 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2014-065 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2014-065. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2014-065 and should be 
submitted on or before September 18, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20468 Filed 8-27-14; 8:45 am]
BILLING CODE 8011-01-P