Document ID: SEC-2006-0989-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2006-08-03T04:00Z

[Federal Register: August 3, 2006 (Volume 71, Number 149)]
[Notices]               
[Page 44062-44064]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03au06-84]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54236; File No. SR-CBOE-2006-68]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Its Marketing Fee Program

July 28, 2006.
    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 July 18, 2006, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``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 the 
Exchange. CBOE has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by CBOE under Section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
which renders the proposal effective upon filing with the Commission. 
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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 marketing fee program. Below is the text 
of the proposed rule change. Proposed new language is in italics; 
deleted language is in [brackets].

CHICAGO BOARD OPTIONS EXCHANGE, INC. FEES SCHEDULE [JUNE 30]JULY 18, 
2006

    1. No Change.
    2. MARKETING FEE (6)(16)--$.65
    3.-4. No Change.

FOOTNOTES:

    (1)-(5) No Change.
    (6) The Marketing Fee will be assessed only on transactions of 
Market-Makers, RMMs, e-DPMs, DPMs, and LMMs resulting from orders for 
less than 1,000 contracts (i) from payment accepting firms, or (ii) 
that have designated a ``Preferred Market-Maker'' under CBOE Rule 8.13 
at the rate of $.65 per contract on all classes of equity options, 
options on HOLDRs, options on SPDRs, options on DIA, options on NDX, 
and options on RUT. The fee will not apply to: Market-Maker-to-Market-
Maker transactions including transactions resulting from orders from 
non-member market-makers; transactions resulting from inbound P/A 
orders or a transaction resulting from the execution of an order 
against the DPM's account if an order directly related to that order is 
represented and executed through the Linkage Plan using the DPM's 
account; transactions resulting from accommodation liquidations 
(cabinet trades); and transactions resulting from dividend strategies, 
merger strategies, and short stock interest strategies as defined in 
footnote 13 of this Fees Schedule. This fee shall not apply to index 
options and options on ETFs (other than options on SPDRs, options on 
DIA, options on NDX, and options on RUT). A Preferred Market-Maker will 
only be given access to the marketing fee funds generated from a 
Preferred order if the Preferred Market-Maker has an appointment in the 
class in which the Preferred order is received and executed.
    [DPM/LMM] Rebate/Carryover Process. If less than 80% of the 
marketing fee funds collected in a given month [are]is paid out by the 
DPM/

[[Page 44063]]

LMM or Preferred Market-Maker in a given month, then the Exchange would 
refund such surplus at the end of the month on a pro rata basis based 
upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs and 
LMMs in that month. However, if 80% or more of the funds collected in a 
given month [are]is paid out by the DPM/LMM or Preferred Market-Maker, 
there will not be a rebate for that month and the excess funds will be 
included in an Excess Pool of funds to be used by the DPM/LMM or 
Preferred Market-Maker in subsequent months. The total balance of the 
Excess Pool of funds for a DPM/LMM cannot exceed $25,000, and the total 
balance of the Excess Pool of funds for a Preferred Market-Maker cannot 
exceed $80,000. [i]If in any month the DPM/LMM Excess Pool balance were 
to exceed $25,000, or the Preferred Market-Maker Excess Pool balance 
were to exceed $80,000, the funds in excess of $25,000 or $80,000, 
respectively, would be refunded on a pro rata basis based upon 
contributions made by the Market-Makers, RMMs, DPMs, e-DPMs and LMMs in 
that month.
    [Preferred Market-Maker Rebate/Carryover Process. If less than 80% 
of the marketing fee funds are paid out by the Preferred Market-Maker 
in a given month, then the Exchange would refund such surplus at the 
end of the month on a pro rata basis based upon contributions made by 
the Market-Makers, RMMs, e-DPMs, DPMs and LMMs in that month. However, 
if 80% or more of the accumulated funds in a given month are paid out 
by the Preferred Market-Maker, there will not be a rebate for that 
month and the funds will carry over and will be included in the pool of 
funds to be used by the Preferred Market-Maker the following month. At 
the end of each quarter, the Exchange would then refund any surplus, if 
any, on a pro rata basis based upon contributions made by the Market-
Makers, RMMs, DPMs, e-DPMs and LMMs in the final month of the quarter.] 
CBOE's marketing fee program as described above will be in effect until 
June 2, 2007.

Remainder of Fees Schedule--No change.

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. CBOE 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
    CBOE recently amended its marketing fee to modify the manner in 
which marketing fee funds collected during a calendar quarter are 
refunded.\5\ Specifically, with respect to DPMs and LMMs, CBOE amended 
the marketing fee to provide that, if less than 80% of the marketing 
fee funds collected in a given month is paid out by the DPM/LMM, then 
CBOE will refund such surplus at the end of the month on a pro rata 
basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, 
DPMs, and LMMs in that month. However, if 80% or more of the funds 
collected in a given month is paid out by the DPM/LMM, there will not 
be a rebate for that month and the excess funds will be included in an 
Excess Pool of funds to be used by the DPM/LMM in subsequent months. 
The total balance of the Excess Pool of funds cannot exceed $25,000 
and, if in any month the balance exceeded $25,000, the funds in excess 
of $25,000 would be refunded on a pro rata basis based upon 
contributions made by the Market-Makers, RMMs, DPMs, e-DPMs, and LMMs 
in that month.
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    \5\ See Securities Exchange Act Release No. 54153 (July 14, 
2006), 71 FR 41485 (July 21, 2006) (SR-CBOE-2006-63).
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    CBOE now proposes to amend the marketing fee as it relates to the 
rebate process for Preferred Market-Makers by making the rebate process 
identical to the rebate process for DPMs and LMMs, with one exception. 
Specifically, CBOE proposes to cap the Excess Pool of funds for 
Preferred Market-Makers at $80,000, rather than the $25,000 cap for 
DPMs/LMMs. CBOE believes that having a higher limit on the Excess Pool 
of funds for Preferred Market-Makers is reasonable given that the total 
amount of marketing fee funds made available to and used by Preferred 
Market-Makers to pay for order flow on a monthly basis generally is 
significantly higher than the amount of marketing fee funds made 
available to and used by DPMs/LMMs to pay for order flow. Thus, CBOE 
believes that it is appropriate to allow a Preferred Market-Maker to 
potentially carry over more funds than a DPM/LMM on a monthly basis, up 
to the limit on the Preferred Market-Maker Excess Pool. CBOE notes 
that, like DPMs/LMMs, Preferred Market-Makers would have to expend 80% 
or more of the marketing fee funds collected in a given month in order 
for any excess funds not used to pay for order flow to be included in 
an Excess Pool.
    CBOE states that it is not amending its marketing fee program in 
any other respects.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act,\7\ in particular, in that it 
is designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among CBOE members.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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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.

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 
proposal.

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

    The foregoing proposed rule change has been designated as a fee 
change pursuant to Section 19(b)(3)(A)(ii) of the Act \8\ and Rule 19b-
4(f)(2) \9\ thereunder, because it establishes or changes a due, fee, 
or other charge imposed by the Exchange. Accordingly, the proposal will 
take effect upon filing with the Commission. At any time within 60 days 
of the filing of such proposed rule change the Commission may summarily 
abrogate 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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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 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:

[[Page 44064]]

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-2006-68 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-CBOE-2006-68. 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. 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-2006-68 and should be submitted on or before August 24, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-12519 Filed 8-2-06; 8:45 am]

BILLING CODE 8010-01-P