Document ID: SEC-2017-0238-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2017-02-15T05:00Z

[Federal Register Volume 82, Number 30 (Wednesday, February 15, 2017)]
[Notices]
[Pages 10846-10848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02997]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80003; File No. SR-CBOE-2017-011]

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

February 9, 2017.
    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 January 27, 2017, 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule. The text of the 
proposed rule change is also 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 Marketing Fee program, effective 
February 1, 2017. By way of background the Marketing Fee is assessed on 
certain transactions of Market-Makers resulting from (i) customer 
orders from payment accepting firms, or (ii) customer orders that have 
designated a ``Preferred Market-Maker'' (``PMM'') under CBOE Rule 8.13. 
The funds collected via this Marketing Fee are then put into pools 
controlled by DPMs and PMMs. The DPM or PMM controlling a certain pool 
of funds can then determine the order flow provider(s) to which the 
funds should be directed in order to encourage such order flow 
provider(s) to send orders to the Exchange. On each order, an order 
flow provider can designate the Preferred Market-Maker to which the 
funds generated from the order sent by the order flow provider should 
be allocated (a ``Preferred order'').
    The Exchange proposes to expand the Marketing Fee program to Lead 
Market-Makers (``LMMs''). Under the proposed rule change, LMMs would be 
given access to the Marketing Fee funds generated from those orders on 
which the LMM was preferred (i.e., designated) and those funds would be 
collected by CBOE and disbursed by CBOE according to the instructions 
of the LMM. The Exchange notes that expanding the Marketing Fee program 
to LMMs allows LMMs to amass a pool of funds with which to use to 
incent order flow providers to send order flow to the Exchange. This 
increased order flow would benefit all market participants on the 
Exchange. The Exchange also notes that as with DPMs and PMMs, an LMM 
may have access to the Marketing Fee funds generated from a Preferred 
order regardless of whether that LMM has an appointment in the class in 
which the

[[Page 10847]]

Preferred order is received and executed.
    The Exchange also proposes to make certain clarifications to 
Footnote 6 of the Fees Schedule, which governs the Marketing Fee 
program. The Exchange notes that it inadvertently only references 
Market-Makers and DPMs as being subject to the fee, even though LMMs, 
like DPMs, are also Market-Makers and the fee has therefore always 
applied (i.e., all orders with origin code ``M'' are subject to the fee 
in accordance with above). As such, the Exchange proposes to explicitly 
note in the first line that the Marketing Fee is assessed to 
transactions of ``Market-Makers (including DPMs and LMMs)'' and 
thereafter refer only to ``Market-Makers'' in the Footnote, instead of 
``Market-Makers and DPMs'' since Market-Makers is defined as including 
DPMs and LMMs. The Exchange notes this is not a substantive change, but 
rather a change to make this point clear in the Fees Schedule to avoid 
potential confusion. The Exchange next proposes to include a reference 
to ``DPMs under CBOE Rule 8.80'' in the first sentence to explicitly 
note that customer orders may also have a designated DPM (i.e., the DPM 
may be given access to Marketing Fee funds generated from a Preferred 
order on which it was designated). In order to avoid potential 
confusion, the Exchange also proposes to add a new term, ``Preferenced 
Market-Makers.'' Preferenced Market-Makers will refer collectively to 
any DPM, PMM or LMM that is designated on a Preferred order (which the 
Exchange also proposes to rename as a ``Preferenced order'' for 
consistency).\3\ The Exchange believes using the general term 
``Preferred Market-Maker'' for designated DPMs, PMMs or LMMs can be 
confused with PMMs under CBOE Rule 8.13. The Exchange believes the 
proposed change therefore, provides clarity in the rules and makes the 
Fees Schedule easier to read.
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    \3\ The Commission notes that the Exchange's new text in 
footnote 6 of the Fees Schedule refers in several places to ``DPM or 
Preferenced Market-Maker.'' Though the term ``Preferenced Market-
Maker'' includes DPMs (as well as LMMs and PMMs), use of the phrase 
``DPM or Preferenced Market-Maker'' recognizes that DPMs also may be 
given access to marketing fee funds collected on orders preferenced 
to them in any class in addition to funds collected from non-
preferenced orders in the DPM's assigned classes.
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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.\4\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \5\ 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,\6\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes expanding the Marketing Fee program to LMMs 
is reasonable, equitable and not unfairly discriminatory because it 
will allow LMMs to amass a pool of funds with which to use to incent 
order flow providers to send order flow to the Exchange. This increased 
order flow would benefit all market participants on the Exchange. 
Additionally, the Exchange believes it is equitable and not unfairly 
discriminatory to expand the Marketing Fee program to LMMs because, 
like PMMs under CBOE Rule 8.13, LMMs have increased obligations that 
other market participants do not such an heightened quoting 
standards.\7\
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    \7\ See CBOE Rule 8.15 (Lead Market-Makers).
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    The Exchange also believes that clarifying that the reference to 
``Market-Makers'' in Footnote 6 actually includes both DPMs and LMMs 
maintains clarity in the Fees Schedule and avoids potential confusion. 
Similarly, the Exchange believes that clarifying that customer orders 
may also designate a DPM (who would then have access to the Marketing 
Fees generated from that Preferred order) alleviates potential 
confusion. Lastly, the Exchange believes introducing the term 
``Preferenced Market-Maker'' to denote any DPM, PMM or LMM that is 
designated on a Preferred (or as proposed, ``Preferenced'') order 
alleviates potential confusion and makes the Fees Schedule easier to 
read. The alleviation of confusion removes impediments to and perfects 
the mechanism of a free and open market and a national market system, 
and, in general, to protects investors and the public interest.

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 the proposed 
change allows LMMs to also amass a pool of funds with which to use to 
incent order flow providers to send order flow to the Exchange, LMMs, 
like PMMs, have heightened quoting standards. Moreover, the proposed 
change provides LMMs an opportunity to incent order flow providers to 
send order flow to the Exchange, which benefits all market 
participants.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed change only affects trading 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 \8\ and paragraph (f) of Rule 19b-4 \9\ 
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

[[Page 10848]]

change should be approved or disapproved.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 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-2017-011 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-2017-011. 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-2017-011 and should be 
submitted on or before March 8, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02997 Filed 2-14-17; 8:45 am]
BILLING CODE 8011-01-P