Document ID: SEC-2011-0701-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc
Posted Date: 2011-05-16T04:00Z

[Federal Register Volume 76, Number 94 (Monday, May 16, 2011)]
[Notices]
[Pages 28264-28265]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11838]

[[Page 28264]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64454; File No. SR-CBOE-2011-043]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to the Strategy Fee Cap and Clarifications to the 
CBOE Fees Schedule

May 10, 2011.
    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 April 28, 2011, the 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 
substantially prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Chicago Board Options Exchange, Incorporated (``CBOE'' or 
``Exchange'') proposes to amend its strategy fee cap program and 
clarify its Fees Schedule in certain respects. 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 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 currently caps market-maker and broker-dealer 
transaction fees at $1,000 for all reversals,\3\ conversions \4\ and 
jelly roll \5\ strategies executed on the same trading day in the same 
Flexible Exchange (FLEX) option class, excluding any option class on 
which the Exchange charges the surcharge fee under Footnote 14 of the 
CBOE Fees Schedule.\6\ Such transaction fees are further capped at 
$25,000 per month per initiating member or firm. To qualify 
transactions for the cap a rebate request with supporting documentation 
must be submitted to the Exchange within 3 business days of the 
transactions.
---------------------------------------------------------------------------

    \3\ A reversal strategy is established by combining a short 
security position with a short put and a long call position that 
shares the same strike and expiration.
    \4\ A conversion strategy is established by combining a long 
position in the underlying security with a long put and a short call 
position that shares the same strike and expiration.
    \5\ A jelly roll strategy is created by entering into two 
separate positions simultaneously. One position involves buying a 
put and selling a call with the same strike price and expiration. 
The second position involves selling a put and buying a call, with 
the same strike price, but a different expiration from the first 
position.
    \6\ See CBOE Fees Schedule, Footnote 13 and Securities Exchange 
Act Release No. 61915 (April 15, 2010), 75 FR 21076 (April 22, 
2010). In addition to the fee cap for reversals, conversions and 
jelly rolls, Footnote 13 provides for a similar but separate fee cap 
for dividend, merger and short stock interest strategies.
---------------------------------------------------------------------------

    The Exchange proposes to amend Footnote 13 of the Fees Schedule to 
expand the fee cap for reversals, conversions and jelly roll strategies 
to non-FLEX options classes. Thus, reversals, conversions and jelly 
roll strategy transactions in non-FLEX options classes would also be 
eligible for the fee cap, except that any option class on which the 
Exchange charges the Index License surcharge fee under Footnote 14 of 
the CBOE Fees Schedule would continue to be excluded from the cap.\7\ 
Other exchanges also cap transaction fees resulting from reversals, 
conversions and jelly roll strategies in non-FLEX options classes.\8\
---------------------------------------------------------------------------

    \7\ The Exchange recently renamed the surcharge fee under 
Footnote 14 of the Fees Schedule the ``Index License surcharge 
fee''. See Securities Exchange Act Release No. 64304 (April 15, 
2011), 77 FR 22427 (April 21, 2011).
    \8\ See the options fee schedules of NYSE Amex, LLC and NYSE 
Arca, LLC.
---------------------------------------------------------------------------

    In addition, the Exchange proposes several clarifying changes to 
the Fees Schedule relating to the strategy fee cap program. First, the 
Exchange proposes to amend Footnote 13 of the Fees Schedule to change 
references to ``surcharge fee'' and ``license fee'' to Index License 
surcharge fee, and to clarify that Index License surcharge fees 
associated with dividend, merger and short stock interest strategies 
(and not reversal, conversion and jelly roll strategies) will be passed 
through to trading participants on these strategies on a pro-rata 
basis. This is because options classes subject to the Index License 
surcharge fee are not included under the fee cap for reversals, 
conversions and jelly rolls. Second, the Exchange proposes to further 
amend Footnote 13 by adding the definitions of reversal strategy, 
conversion strategy and jelly roll strategy.\9\ Third, the Exchange 
proposes to amend Footnote 10 of the Fees Schedule relating to the 
Liquidity Provider Sliding Scale to clarify that contract volume 
resulting from any of the strategies defined in Footnote 13 (and not 
just dividend, merger and short stock interest strategies) will not 
apply towards reaching the sliding scale volume thresholds because such 
contracts have already received the benefit of the strategy fee 
cap.\10\ Finally, for the same reason, the Exchange proposes to amend 
Footnote 11 of the Fees Schedule relating to the Multiply-Listed Option 
Fee Cap and CBOE Proprietary Products Sliding Scale for Clearing 
Trading Permit Holder Proprietary Orders to clarify that transaction 
fees and contract volume resulting from any of the strategies defined 
in Footnote 13 will not apply towards reaching the fee cap and the 
sliding scale volume thresholds.\11\
---------------------------------------------------------------------------

    \9\ Supra footnotes 1, 2, 3 and 4.
    \10\ The Commission notes that CBOE's practice has been to not 
apply contract volume resulting from any of the strategies defined 
or identified in Footnote 13 (dividend, merger, short stock 
interest, reversals, conversions and jelly roll strategies) towards 
reaching the Liquidity Provider Sliding Scale volume thresholds. See 
e-mail from Jaime Galvan, Assistant Secretary, CBOE, to Andrew 
Madar, Senior Special Counsel, Division of Trading and Markets 
(``Division''), Commission, dated May 9, 2011.
    \11\ The Commission notes that CBOE's practice has been to not 
apply transaction fees and contract volume resulting from dividend, 
merger and short stock interest strategies as defined in Footnote 13 
towards reaching the Multiply-Listed Options Fee Cap and CBOE 
Proprietary Products Sliding Scale. See e-mail from Jaime Galvan, 
Assistant Secretary, CBOE, to Andrew Madar, Senior Special Counsel, 
Division, Commission, dated May 9, 2011. In addition, the Multiply-
Listed Options Fee Cap and CBOE Proprietary Products Sliding Scale 
applies only to ``firm'' orders, which are not elibigle for the fee 
cap program for reversals, conversions and jelly rolls. Id.
---------------------------------------------------------------------------

    The Exchange also proposes a clean-up change to the Fees Schedule. 
On December 10, 2010, the Exchange filed a proposed rule change to 
increase the Options Regulatory Fee from $.004 per

[[Page 28265]]

contract to $.0045 per contract.\12\ The new ORF was to take effect on 
January 3, 2011, therefore the old ORF rate of $.004 per contract was 
not removed from Section 12(A) of the Fees Schedule at that time. The 
Exchange proposes to delete the reference to the old rate of $.004 per 
contract from Section 12(A) of the Fees Schedule.
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 63524 (December 10, 
2010), 75 FR 78780 (December 16, 2010).
---------------------------------------------------------------------------

    The proposed fee changes will take effect on May 2, 2011.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Securities Exchange Act of 1934 (``Act''),\13\ in 
general, and furthers the objectives of Section 6(b)(4) \14\ 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 the proposed rule change is equitable, reasonable and 
not unfairly discriminatory in that it would further lower fees for 
market participants that trade these strategies by expanding the fee 
cap for reversal, conversion and jelly roll strategies to apply to all 
options classes traded on the Exchange except those which are subject 
to the Index License surcharge fee. In addition, the proposed rule 
change would allow the Exchange to remain competitive with other 
exchanges that offer similar fee cap programs.\15\ The proposed rule 
change would also clarify portions of the Fees Schedule relating to the 
strategy fee cap program and the Options Regulatory Fee.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ Supra footnote 6.
---------------------------------------------------------------------------

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.

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)(ii) of the Act \16\ and subparagraph (f)(2) of Rule 19b-
4.\17\ 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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2011-043 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-2011-043. 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 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-2011-043 and should be 
submitted on or before June 6, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-11838 Filed 5-13-11; 8:45 am]
BILLING CODE 8011-01-P