Document ID: SEC-2011-0834-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2011-06-15T04:00Z

[Federal Register Volume 76, Number 115 (Wednesday, June 15, 2011)]
[Notices]
[Pages 35066-35067]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-14848]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64642; File No. SR-CBOE-2011-052]

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

 June 10, 2011.
    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 June 1, 2011, the 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 Linkage fees. 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, the self-regulatory organization 
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 those 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 parts of such statements.

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

1. Purpose
    On March 1, 2011, the Exchange ceased passing through or otherwise 
charging orders, including non-customer orders, routed to other 
exchanges in connection with the Options Order Protection and Locked/
Crossed Market Plan (``Linkage'') that were originally transmitted to 
the Exchange from the trading floor through an Exchange-sponsored 
terminal (e.g. a Floor Broker Workstation).\3\ However, the institution 
of this waiver had the unintended consequence of brokers-dealers 
submitting large-volume non-customer orders to the Exchange that CBOE 
ended up routing through the Linkage system to other exchanges. The 
Exchange was then forced to incur the costs of this process without 
making up for those costs in the collection of transaction fees. 
Therefore, the Exchange proposes to limit this Linkage Fees exception 
to customer orders. As a result, the $0.50 per contract Linkage Fee 
under Section 20 of the Fees Schedule, plus customary CBOE execution 
charges, will apply to all non-customer orders. Customer orders 
originally transmitted to the Exchange from the trading floor through 
an Exchange-sponsored terminal (e.g. a Floor Broker Workstation) will 
still be exempt from such fees. This change is consistent with the 
Exchange's philosophy regarding the handling of non-customer Linkage 
orders, which is that the Exchange should not be responsible for 
covering non-customer Linkage costs. The change will allow the Exchange 
to equitably assess reasonable fees incurred for processing such 
orders, and permit the Exchange to recoup administrative and other 
costs.
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    \3\ See Securities Exchange Act Release No. 64057 (March 8, 
2011), 76 FR 13690 (March 14, 2011) (SR-CBOE-2011-019).
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    This fee change is to take effect as of June 1, 2011.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\4\ in general, and furthers the objectives of Section 6(b)(4) \5\ 
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 Trading Permit Holders and other persons using its facilities. The 
Exchange believes limiting the exception from Linkage Fees to customer 
orders is equitable, reasonable and not unfairly discriminatory because 
non-customer (e.g., broker-dealer proprietary) orders originate from 
broker-dealers who are by and large more sophisticated than public 
customers and can readily control the exchange to which their orders 
are routed. While there may be some sophisticated customers who are 
capable of directing the exchange to which their orders are routed, 
generally, retail customers submit orders to their brokerages but do 
not or cannot specify the exchange to which a customer order is sent. 
Therefore, non-customer order flow can, in most cases, more easily 
route directly to other markets if desired and thus avoid Linkage Fees. 
This includes the ability of broker-dealers to sweep better-priced away 
markets in connection with routing large orders to CBOE's floor for 
handling by floor brokers. Moreover, the Commission has a long history 
of permitting differential treatment of customers and non-customer 
investors.\6\ Therefore, it is equitable to assess a reasonable fee to 
cover the costs incurred for processing non-customer Linkage orders 
while continuing to exempt such customer orders.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4).
    \6\ See the Exchange Fees Schedule, which provides for 
differential treatment of customer and non-customer orders in at 
least 14 places, and has been permitted by the Commission, and more 
directly, the BATS Exchange, Inc. (``BZX''), BATS Y-Exchange, Inc. 
(``BYX''), NASDAQ Options Market (``NOM'') and NYSE Amex LLC (``NYSE 
Amex'') Fee Schedules, which provide for different pricing for the 
routing of customer and non-customer orders through Linkage.
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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 not necessary or appropriate in furtherance of 
the 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.

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

    The proposed rule change is designated by the Exchange as 
establishing or changing a due, fee, or other charge, thereby 
qualifying for effectiveness on filing pursuant to Section 19(b)(3)(A) 
of the Act \7\ and

[[Page 35067]]

subparagraph (f)(2) of Rule 19b-4 \8\ 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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR [sic] 240.19b-4(f)(2).
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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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2011-052 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.

All submissions should refer to File Number SR-CBOE-2011-052. 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 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 
a.m. and 3 p.m. Copies of such 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-2011-052 and should be 
submitted on or before July 6, 2011.

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-14848 Filed 6-14-11; 8:45 am]
BILLING CODE 8011-01-P