Document ID: SEC-2009-0498-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Cancellation Fees
Posted Date: 2009-04-09T04:00Z

[Federal Register: April 9, 2009 (Volume 74, Number 67)]
[Notices]               
[Page 16243-16245]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09ap09-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59690; File No. SR-CBOE-2009-019]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Cancellation Fees

April 2, 2009.
    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 March 18, 2009, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or the

[[Page 16244]]

``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by CBOE. 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 Substance 
of the Proposed Rule Change

    CBOE proposes to amend its Fees Schedule regarding its cancellation 
fee. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.cboe.org/legal), at the Exchange's 
Office of the Secretary and at the Commission.

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

    In its filing with the Commission, CBOE 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. CBOE has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspets 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 currently charges an executing clearing member $1.50 
for each cancelled public customer Order Routing System (``ORS'') order 
in excess of the number of public customer orders that the executing 
clearing member executes in a month for itself or for a correspondent 
firm. The purpose of the fee is to ease order backlogs on ORS and 
related systems and help the Exchange recoup its increased costs in 
processing increased order flow traffic. The fee is not charged if less 
than 500 public customer orders are cancelled in a month by the 
executing clearing member for itself or for a correspondent firm. The 
Exchange aggregates and counts as one executed order for purposes of 
the fee all public customer options orders from the same executing 
clearing member for itself or for a correspondent firm that are 
executed in the same series on the same side of the market at the same 
price within a 30 second period. The following ORS order activity is 
exempt from the fee: (i) Cancelled ORS orders that improve the 
Exchange's prevailing bid-offer (BBO) market when received; (ii) fill 
and cancellation activity occurring within the first one minute of 
trading following the opening of each options class; (iii) complex 
order fills and cancels; (iv) unfilled Fill-or-Kill (``FOK'') orders; 
(v) unfilled Immediate-or-Cancel (``IOC'') orders, and (vi) fill and 
cancellation activity in Mini-SPX Index Options (XSP).
    The level of canceled orders continues to remain quite high. Some 
customers are seeking to avoid the fee by executing large quantities of 
small orders in out-of-the-money options to offset their cancellation 
activity in more actively traded options.
    The Exchange proposes the following changes to the fee to help ease 
system congestion resulting from such activity. First, the Exchange 
proposes to amend the manner by which it calculates the fee by 
aggregating together and counting as one cancelled order orders that 
are executed at the same price in the same underlying symbol, instead 
of aggregating orders that are executed at the same price in the same 
series on the same side of the market. The Exchange believes this 
change should prevent customers from breaking up their orders into a 
range of options series in the same underlying symbol that trade at the 
same premium in order to avoid the fee.
    Second, the Exchange proposes to extend the current 30 second 
aggregation interval to 300 seconds. The Exchange believes that 
extending the aggregation interval to 300 seconds should result in a 
reduction in the number of orders that are sent to create offsetting 
trades.
    Third, the Exchange proposes to increase the fee from $1.50 to 
$2.00 per cancelled order. The proposed cancellation fee is similar to 
the cancellation fee of the International Securities Exchange.\3\
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    \3\ See Securities Exchange Act Release Nos. 58692 (September 
30, 2008), 73 FR 59006 (October 8, 2008); 58898 (November 4, 2008), 
73 FR 67238 (November 13, 2008); and 59072 (December 10, 2008), 73 
FR 76689 (December 17, 2008).
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    In addition, the Exchange proposes to eliminate the exemption for 
fill and cancellation activity in XSP options. The Exchange had 
exempted activity in XSP options from the fee for an indefinite time 
period in conjunction with a marketing ``re-launch'' of the XSP 
product.\4\ The Exchange has reevaluated the exemption and determined 
to reapply the fee to activity in XSP options.
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    \4\ See Securities Exchange Act Release No. 56937 (December 10, 
2007), 72 FR 71465 (December 17, 2007).
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    Finally, the Exchange proposes to change the name of the fee from 
``ORS (Order Routing System) Cancellation Fee'' to ``OHS (Order 
Handling System) Cancellation Fee'', to reflect the fact that the ORS 
functionality has been replaced by new OHS functionality built on the 
CBOEdirect platform.
    The proposed fee changes will be operative on April 1, 2009.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\5\ in general, and furthers the objectives of 
Section 6(b)(4) \6\ of the Act in particular, in that it is designed to 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among CBOE members and other persons using its 
facilities. In particular, the Exchange believes the proposed fee 
change is justified to address the current level of cancellation 
activity and its effect on system congestion and Exchange systems 
costs.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of purposes of the Act.

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

    No written comments were solicited or received with respect to the 
proposed rule change.
    Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action.
    Because the foregoing proposed rule change establishes or changes a 
due, fee, or other charged imposed by the Exchange, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(2) \8\ thereunder. At any time within 60 days of the filing of the 
proposed rule change the Commission may summarily abrogate such 
proposed 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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 19b-4(f)(2).

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[[Page 16245]]

III. 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2009-019 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2009-019. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of CBOE. 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-2009-019 and 
should be submitted on or before April 30, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-7998 Filed 4-8-09; 8:45 am]