Document ID: SEC-2016-0626-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2016-04-12T04:00Z

[Federal Register Volume 81, Number 70 (Tuesday, April 12, 2016)]
[Notices]
[Pages 21611-21614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08306]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77547; File No. SR-CBOE-2016-021]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Establish Fees for Options That Overlie a 
Reduced Value of the FTSE 100 Index and the FTSE China 50 Index

April 6, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b 4 thereunder,\2\ notice is hereby given that 
on March 24, 2016, Chicago Board Options Exchange, Incorporated (the 
``Exchange'' or ``CBOE'') 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 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to establish fees for options that overlie a 
reduced value of the FTSE 100 Index and the FTSE China 50 Index. 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, effective March 
29, 2016. Specifically, commencing March 29, 2016, the Exchange will 
list new options on two FTSE Russell indexes. More specifically, the 
Exchange proposes to establish fees for options that overlie a reduced 
value of the FTSE 100 Index (``UKXM'') and the China 50 Index 
``(FXTM'').
    By way of background, a specific set of proprietary products are 
commonly included or excluded from a variety of programs, qualification 
calculations and transaction fees. In lieu of listing out these 
products in various sections of the Fees Schedule, the Exchange uses 
the term ``Underlying Symbol List A'' to represent these products. 
Currently, Underlying Symbol List A is defined in Footnote 34 and 
represents the following proprietary products: OEX, XEO, RUT, RLG, RLV, 
RUI, SPX (including SPXw), SPXpm, SRO, VIX, VOLATILITY INDEXES and 
binary options. The Exchange notes that the reason the products in 
Underlying Symbol List A are often collectively included or excluded 
from certain programs, qualification calculations and transactions fees 
is because the Exchange has expended considerable resources developing 
and maintaining its proprietary, exclusively-listed products. Similar 
to the products currently represented by ``Underlying Symbol List A,'' 
UKXM and FXTM are not listed on any other exchange. As such, the 
Exchange proposes to exclude or include UKXM and FXTM in the same 
programs as the other products in Underlying Symbol List A, as well as 
add UKXM and FXTM to the definition of Underlying Symbol List A in 
Footnote 34. Specifically, like the other products in Underlying Symbol 
List A, the Exchange proposes to except UKXM and FXTM from the 
Liquidity Provider Sliding Scale, the Volume Incentive Program (VIP), 
the Marketing Fee, the Clearing Trading Permit Holder Fee Cap (``Fee 
Cap'') and [sic] exemption from fees for facilitation orders, and the 
Order Router Subsidy (ORS) and Complex Order Router Subsidy (CORS) 
Programs. Like all other products in Underlying Symbol List A (with the 
exception of SROs), the Exchange proposes to apply to UKXM and FXTM

[[Page 21612]]

the CBOE Proprietary Products Sliding Scale. The Exchange does intend 
to keep UKXM and FXTM volume in the calculation of qualifying volume 
for the rebate of Floor Broker Trading Permit fees. The Exchange notes 
that although UKXM and FXTM are being added to ``Underlying Symbol List 
A'', it wishes to include UKXM and FXTM in the calculation of the 
qualifying volume for the rebate of Floor Broker Trading Permit fees. 
The Exchange wishes to continue to encourage Floor Brokers to execute 
open-outcry trades in these classes and believes that including them in 
the qualifying volume will provide such incentive.
    The Exchange next proposes to establish transaction fees for UKXM 
and FXTM. Particularly, the Exchange proposes to assess the same fees 
for UKXM and FXTM as apply to RUT, RUI, RLV and RLG options. 
Transaction fees for UKXM and FXTM options will be as follows (all 
listed rates are per contract):

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Customer................................................           $0.18
Clearing Trading Permit Holder Proprietary..............            0.25
CBOE Market-Maker/DPM...................................            0.20
Joint Back-Office, Broker-Dealer, Non-Trading Permit                0.65
 Holder Market-Maker, Professional/Voluntary
 Professional (non-AIM Electronic)......................
Joint Back-Office, Broker-Dealer, Non-Trading Permit                0.25
 Holder Market-Maker, Professional/Voluntary
 Professional (Manual and AIM)..........................
------------------------------------------------------------------------

    The Exchange also proposes to apply to UKXM and FXTM, like RUI, 
RLV, and RLG, and RUT, the Floor Brokerage Fee of $0.04 per contract 
($0.02 per contract for crossed orders). The Exchange also proposes to 
apply to UKXM and FXTM the CFLEX Surcharge Fee of $0.10 per contract 
for all UKXM and FXTM orders executed electronically on CFLEX, capped 
at $250 per trade (i.e., first 2,500 contracts per trade). The CFLEX 
Surcharge Fee assists the Exchange in recouping the cost of developing 
and maintaining the CFLEX system. The Exchange notes that the CFLEX 
Surcharge Fee (and $250 cap) also applies to other proprietary index 
options, including products in Underlying Symbol List A.
    The Exchange currently assesses an Index License Surcharge for RUT 
of $0.45 per contract for all non-customer orders. Because the fees 
associated with the license for UKXM and FXTM are lower than the 
license fees for RUT, the Exchange proposes to assess a Surcharge of 
$0.10 per contract in order to recoup the costs associated with the 
UKXM and FXTM license.
    In order to promote and encourage trading of UKXM and FXTM, the 
Exchange proposes to waive all transaction fees (including the Floor 
Brokerage Fee, Index License Surcharge and CFLEX Surcharge Fee) for 
UKXM and FXTM transactions through September 30, 2016. In order to 
promote and encourage trading of RUI, RLV and RLG, the Exchange also 
proposes to extend the waiver of transaction fees (including the Floor 
Brokerage Fee, Index License Surcharge and CFLEX Surcharge Fee) for 
RUI, RLV and RLG. The Exchange proposes to amend Footnote 40 to the 
Fees Schedule to make clear that transaction fees for RUI, RLV, RLG, 
UKXM and FXTM will be waived through September 30, 2016.
    The Exchange is also offering a compensation plan to the Designated 
Primary Market-Maker(s) (``DPM(s)'') appointed in FXTM or UKXM to 
offset the initial DPM costs. The Exchange proposes to add Footnote 43 
to the Fees Schedule that provides that DPM(s) appointed for an entire 
month in either FXTM or UKXM will receive a payment of $5,000 per class 
per month through December 31, 2016. Because FXTM and UKXM are 
scheduled to be listed on March 29, 2016, the appointed DPM(s) will not 
have an appointment in FXTM or UKXM for the entire month of March; 
thus, the DPM(s) will not receive compensation for March 2016. The 
DPM(s) appointed for the entire month of April, May, etc. will receive 
compensation of $5,000 for each entire month the DPM is appointed in 
FXTM or UKXM through December 31, 2016.
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.\3\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \4\ 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 facilitating 
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. Additionally, 
the Exchange believes the proposed rule change is consistent with 
Section 6(b)(4) of the Act,\5\ which requires that Exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its Trading Permit Holders and other persons using 
its facilities.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78f(b)(4).
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    Particularly, the Exchange believes it is reasonable to charge 
different fee amounts to different user types in the manner proposed 
because the proposed fees are consistent with the price differentiation 
that exists today for other index products, including RUT, RUI, RLV, 
and RLG. The Exchange also believes that the proposed fee amounts for 
UKXM and FXTM orders are reasonable because the proposed fee amounts 
are the same already assessed for similar products (e.g., RUT, RUI, 
RLV, and RLG), as well as are within the range of amounts assessed for 
the Exchange's other proprietary products.\6\
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    \6\ See CBOE Fees Schedule, Specified Proprietary Index Options 
Rate Table.
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    The Exchange believes that it is equitable and not unfairly 
discriminatory to assess lower fees to Customers as compared to other 
market participants because Customer order flow enhances liquidity on 
the Exchange for the benefit of all market participants. Specifically, 
customer liquidity benefits all market participants by providing more 
trading opportunities, which attracts Market-Makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. The fees offered to customers are 
intended to attract more customer trading volume to the Exchange. 
Moreover, the options industry has a long history of providing 
preferential pricing to Customers, and the Exchange's current Fees 
Schedule currently does so in many places, as do

[[Page 21613]]

the fees structures of many other exchanges. Finally, all fee amounts 
listed as applying to Customers will be applied equally to all 
Customers (meaning that all Customers will be assessed the same 
amount).
    The Exchange believes that it is equitable and not unfairly 
discriminatory to, [sic] assess lower fees to Market-Makers as compared 
to other market participants other than Customers because Market-
Makers, unlike other market participants, take on a number of 
obligations, including quoting obligations, that other market 
participants do not have. Further, these lower fees offered to Market-
Makers are intended to incent Market-Makers to quote and trade more on 
the Exchange, thereby providing more trading opportunities for all 
market participants. Additionally, the proposed fee for Market-Makers 
will be applied equally to all Market-Makers (meaning that all Market-
Makers will be assessed the same amount). This concept also applies to 
orders from all other origins. It should also be noted that all fee 
amounts described herein are intended to attract greater order flow to 
the Exchange in UKXM and FXTM which should therefore serve to benefit 
all Exchange market participants. Similarly, it is equitable and not 
unfairly discriminatory to assess lower fees to Clearing Trading Permit 
Holder Proprietary orders than those of other market participants 
(except Customers and Market-Makers) because Clearing Trading Permit 
Holders also have a number of obligations (such as membership with the 
Options Clearing Corporation), significant regulatory burdens, and 
financial obligations, that other market participants do not need to 
take on. The Exchange also notes that the UKXM and FXTM fee amounts for 
each separate type of market participant will be assessed equally to 
all such market participants (i.e. all Broker-Dealer orders will be 
assessed the same amount, all Joint Back-Office orders will be assessed 
the same amount, etc.).
    The Exchange believes the proposed AIM transaction fees for Brokers 
Dealers, Non-Trading Permit Holder Market-Makers, Professionals/
Voluntary Professionals, JBOs and Customers are reasonable because the 
amounts are still lower than assessed for AIM transactions in other 
proprietary products.\7\ The Exchange believes it's equitable and not 
unfairly discriminatory to assess lower fees for AIM executions as 
compared to electronic executions because AIM is a price-improvement 
mechanism, which the Exchange wishes to encourage and support.
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    \7\ Id.
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    Assessing the Floor Brokerage Fee of $0.04 per contract for non-
crossed orders and $0.02 per contract for crossed orders to Floor 
Brokers (and not other market participants) trading UKXM and FXTM 
orders is equitable and not unfairly discriminatory because only Floor 
Brokers are statutorily capable of representing orders in the trading 
crowd, for which they charge a commission. Moreover, this fee is 
already assessed, in the same amounts, to the other products in 
Underlying Symbol List A, including RUT, RUI, RLV, and RLG.
    The Exchange believes that assessing an Index License Surcharge Fee 
of $0.10 per contract to UKXM and FXTM transactions is reasonable 
because the Surcharge helps recoup some of the costs associated with 
the license for UKXM and FXTM options. Additionally, the Exchange notes 
that the Surcharge amount is the same as, and in some cases lower than, 
the amount assessed as an Index License Surcharge to other index 
products. The proposed Surcharge is also equitable and not unfairly 
discriminatory because the amount will be assessed to all market 
participants to whom the Surcharge applies. Not applying the UKXM and 
FXTM Index License Surcharge Fee to Customer orders is equitable and 
not unfairly discriminatory because this is designed to attract 
Customer UKXM and FXTM orders, which increases liquidity and provides 
greater trading opportunities to all market participants. Additionally, 
it is equitable and not unfairly discriminatory to assess a lower 
License Index Surcharge amount to UKXM and FXTM transactions as 
compared to RUT transactions because the costs of the license 
associated with RUT is greater.
    Similarly, the Exchange believes assessing a CFLEX Surcharge Fee of 
$0.10 per contract for all UKXM and FXTM orders executed electronically 
on CFLEX and capping it at $250 (i.e., first 2,500 contracts per trade) 
is reasonable because it is the same amount currently charged to other 
proprietary index products for the same transactions.\8\ The proposed 
Surcharge is also equitable and not unfairly discriminatory because the 
amount will be assessed to all market participants to whom the CFLEX 
Surcharge applies.
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    \8\ See CBOE Fees Schedule, Index Options Rate Table--All Index 
Products Excluding Underlying Symbol List A, CFLEX Surcharge Fee and 
Specified Proprietary Index Options Rate Table--Underlying Symbol 
List A, CFLEX Surcharge Fee.
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    Excepting UKXM and FXTM from the Liquidity Provider Sliding Scale, 
VIP, the Marketing Fee, the Fee Cap, and [sic] the exemption from fees 
for facilitation orders and the ORS and CORS Programs is reasonable 
because other Underlying Symbol List A products (i.e., other products 
that are exclusively-listed) are excepted from those same items. This 
is equitable and not unfairly discriminatory for the same reason; it 
seems equitable to except UKXM and FXTM from items on the Fees Schedule 
from which other proprietary products are also excepted.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to waive all transaction fees, including the Floor 
Brokerage fee, the License Index Surcharge and CFLEX Surcharge Fee 
because it promotes and encourages trading of these new products and 
applies to all Trading Permit Holders (``TPHs'').
    Applying to UKXM and FXTM to the CBOE Proprietary Products Sliding 
Scale is reasonable because it also applies to other Underlying Symbol 
List A products. This is equitable and not unfairly discriminatory for 
the same reason; it seems equitable to apply to UKXM and FXTM the same 
items on the Fees Schedule that apply to Underlying Symbol List A 
options classes (i.e., proprietary options classes that are not listed 
on other exchanges).
    The Exchange believes it's reasonable, equitable and not unfairly 
discriminatory to continue to include UKXM and FXTM in the calculation 
of the qualifying volume for the Floor Broker Trading Permit Fees 
rebate because the Exchange wishes to support and encourage open-outcry 
trading of UKXM and FXTM, which allows for price improvement and has a 
number of positive impacts on the market system.
    Finally, the Exchange believes that it is equitable and not 
unfairly discriminatory to compensate DPM(s) that are appointed for an 
entire month in either FXTM or UKXM. DPM(s) incur costs when receiving 
an appointment, and in the case of FXTM and UKXM, the Exchange believes 
it is appropriate to provide compensation to the DPM(s) to offset those 
costs.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because, while different fees 
are

[[Page 21614]]

assessed to different market participants in some circumstances, these 
different market participants have different obligations and different 
circumstances as discussed above. For example, Market-Makers have 
quoting obligations that other market participants do not have. The 
Exchange does not believe that the proposed rule change to waive all 
transaction fees through September 30, 2016 will impose any burden on 
intramarket competition because it applies to all TPHs and encourages 
trading in these new products.
    The Exchange does not believe that the proposed rule changes will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because UKXM and 
FXTM will be exclusively listed on CBOE. To the extent that the 
proposed changes make CBOE a more attractive marketplace for market 
participants at other exchanges, such market participants are welcome 
to become CBOE market participants.

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 \9\ and paragraph (f) of Rule 19b-4 \10\ 
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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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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-2016-021 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-2016-021. 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 the 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-2016-021 and should be 
submitted on or before May 3, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08306 Filed 4-11-16; 8:45 am]
 BILLING CODE 8011-01-P