Document ID: SEC-2016-0632-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2016-04-13T04:00Z

[Federal Register Volume 81, Number 71 (Wednesday, April 13, 2016)]
[Notices]
[Pages 21928-21931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08427]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77554; File No. SR-CBOE-2016-023]

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

April 7, 2016.
    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 April 1, 2016, 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 adopt the Frequent Trader Program. The 
text of the proposed rule change is available on the Exchange's Web 
site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at

[[Page 21929]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fees Schedule, effective April 
1, 2016. Specifically, the Exchange proposes to adopt a program that 
offers transaction fee rebates to Customers (origin code ``C'') that 
meet certain volume thresholds in CBOE VIX Volatility Index options 
(``VIX options'') and S&P 500 Index options (``SPX''), weekly S&P 500 
options (``SPXW'') and p.m.-settled SPX Index options (``SPXpm'') 
(collectively referred to as ``SPX options'') provided the Customer 
registers for the program (the ``Frequent Trader Program'' or 
``Program''). A Customer for purposes of this program would be any non-
Trading Permit Holder, non-broker dealer non-Professional.
    To participate in the Frequent Trader Program, Customers would have 
to register with the Exchange at the Frequent Trader Web site by 
providing certain information such as their name and contact 
information. Once registered, the Customer would be provided a unique 
identification number (``FTID'') that can be affixed to each of its 
orders.\3\ The FTID allows the Exchange to identify and aggregate all 
electronic and manual trades during both the Regular Trading Hours and 
Extended Trading Hours sessions from that Customer for purposes of 
determining whether the Customer meets any of the various volume 
thresholds. The Customer would have to provide its FTID to the Trading 
Permit Holder (``TPH'') submitting that Customer's order to the 
Exchange (``executing agent'' or ``executing TPH'') and that executing 
TPH would have to enter the Customer's FTID on each of that Customer's 
orders. The Exchange notes that it would be the responsibility of the 
Customer to request that the executing TPH affix its FTID to its 
order(s), but that it would be voluntarily for the executing TPH to do 
so. The Exchange would then aggregate the Customer's volume (for which 
their FTID was entered) on a monthly basis for each of VIX and SPX 
options. If the Customer meets the thresholds shown below, it would 
receive a rebate on its VIX and/or SPX options transaction fees, 
respectively, as indicated below.\4\ The Exchange notes that although 
all executed contracts with an FTID will count towards the qualifying 
volume thresholds, the rebates will be based on the actual amount of 
fees assessed in accordance with the Fees Schedule (e.g., if a Customer 
submits a VIX order for 30,000 contracts, pursuant to the current Fees 
Schedule, that customer would be assessed fees for only the first 
15,000 contracts under the Customer Large Trade Discount Program. 
Therefore, while all 30,000 contracts would count when determining the 
tier, the customer's rebate would be based on the amount of the fees 
assessed for 15,000 contracts, not on the value of the total 30,000 
contracts executed). The thresholds and rebates are as follows:
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    \3\ The Exchange notes that it will not disclose the list or 
details of customers who have a FTID to any party, and there will be 
no public record of FTID owners. Any personal information provided 
to the Exchange in connection with the Frequent Trader Program will 
be handled in a manner consistent with the Frequent Trader Program 
Privacy Policy, a copy of which can be accessed through the Frequent 
Trader Program Web site at https://www.cboe.com/ftid/registration.aspx.
    \4\ The Exchange notes that only transaction fees would be 
discounted (i.e., no other surcharges, such as the Customer Priority 
Surcharges, would be rebated or discounted).

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                              VIX                                               SPX, SPXW, SPXpm
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                                                                                   Monthly SPX,     SPX, SPXW,
                                Monthly VIX    VIX fee  rebate                     SPXW, SPXpm       SPXpm fee
            Tier                 contracts         (percent)          Tier          contracts         rebate
                                   traded                                             traded         (percent)
----------------------------------------------------------------------------------------------------------------
1...........................  5,000-9,9999...               5   1..............  12,000-19,999..               5
2...........................  10,000-19,999..              10   2..............  20,000-49,999..              10
3...........................  20,000 and                   15   3..............  50,000 and                   15
                               above.                                             above.
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    The Exchange notes that the highest achieved threshold rebate rate 
will apply from the first executed contract (e.g., if a Customer 
executes 14,000 VIX contracts in a month, the Tier 2 10% rebate rate 
would apply to all 14,000 VIX contracts). The Exchange believes the 
tiered program incentivizes the sending of Customer orders to the 
Exchange while maintaining an incremental incentive for Customer's to 
strive for the highest tier level. The Exchange also notes that the 
volume thresholds for SPX options is higher than for VIX in light of 
its mature and established position in the industry.
    Lastly, the Exchange proposes to provide that it will distribute a 
customer's rebate pursuant to the customer's instructions, which may 
include receiving the rebate as a direct payment or via a distribution 
to one or more of its executing Clearing Trading Permit Holders.
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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
section 6(b)(5) \6\ 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

[[Page 21930]]

investors and the public interest. The Exchange also believes the 
proposed rule change is consistent with section 6(b)(4) of the Act,\7\ 
which provides that Exchange rules may provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
Trading Permit Holders.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78f(b)(4).
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    The adoption of the Frequent Trader Program is reasonable because 
it will allow Customers who register for the program an opportunity to 
receive certain rebates for reaching certain trading volume thresholds. 
The Exchange notes that it is voluntary for Customers to choose whether 
or not to register for the program and whether to request that their 
unique FTID be appended to their orders. The Program is also voluntary 
for executing TPHs who have the option of choosing not to participate 
(i.e., they may decline to append FTID numbers on Customer orders). 
Additionally, the Exchange notes that incentive programs based on 
Customer volume already exist elsewhere within the industry.\8\
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    \8\ See e.g., CBOE Fees Schedule, the Volume Incentive Program; 
and NASDAQ PHLX LLC Pricing Schedule, Section B. Customer Rebate 
Program.
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    The Exchange believes it's equitable and not unfairly 
discriminatory to establish the program for Customers only because this 
is designed to attract a greater number of customer VIX and SPX orders. 
This increased volume creates greater trading opportunities that 
benefit all market participants. Specifically, while only Customer 
orders qualify for the proposed rebates under the Frequent Trader 
Program, an increase in customer order flow will bring greater volume 
and liquidity, which benefit all market participants by providing more 
trading opportunities and tighter spreads. Moreover, the options 
industry has a long history of providing preferential pricing to 
Customers. In addition the Exchange believes the proposed program is 
equitable and not unfairly discriminatory because any Customer (that is 
not a CBOE TPH, broker-dealer or Professional) may avail itself of this 
program provided it registers with the Exchange.
    The Exchange believes limiting the Program to VIX and SPX options 
is equitable and not unfairly discriminatory because the Exchange has 
expended considerable time and resources in developing these products. 
The Frequent Trader Program is designed to encourage greater customer 
VIX and SPX options trading, which, along with bringing greater VIX and 
SPX options trading opportunities to all market participants, would 
bring in more fees to the Exchange, and such fees can be used to recoup 
the Exchange's costs and expenditures from developing and maintaining 
VIX and SPX options. The Exchange believes it's equitable and not 
unfairly discriminatory to establish higher threshold tiers for the SPX 
product group because the SPX product group has reached a mature and 
established level while VIX has not.
    The Exchange believes it's reasonable, equitable and not unfairly 
discriminatory to include all of a customer's VIX and SPX executed 
contracts with an FTID towards the respective qualifying thresholds 
because the Exchange wishes to support and encourage customers to 
provide greater order flow in these classes, which allows for price 
improvement and has a number of positive impacts on the market system. 
The Exchange also believes however, that it's reasonable, equitable and 
not unfairly discriminatory to base the rebate off the amount of 
transaction fees that would be assessed pursuant to the Fees Schedule 
(as opposed to being based off the ``theoretical'' fee value of all 
contracts executed) because the Exchange does not want to provide 
rebates on contracts for which it is not also collecting transaction 
fees.
    Lastly, the Exchange believes it's reasonable, equitable and not 
unfairly discriminatory to provide Customers a choice as to how their 
payment is delivered. Providing Customers with the option of requesting 
to receive their rebates under the Frequent Trader Program as separate 
direct payments or via a distribution to one or more of its executing 
Clearing Trading Permit Holders will provide Customers with a 
convenient manner in which to receive their rebates, which perfects the 
mechanism for a free and open market.

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 the purposes of the Act because, while the rebates apply 
only to Customers, the Program is designed to encourage increased 
Customer VIX and SPX options volume, which provides greater trading 
opportunities for all market participants. Additionally, there is a 
history in the options markets of providing preferential treatment to 
Customers. The Exchange believes that the proposed rule change will not 
cause an unnecessary burden on intermarket competition because VIX and 
SPX products are only traded 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-2016-023 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-2016-023. 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

[[Page 21931]]

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-2016-023, and should be 
submitted on or before May 4, 2016.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08427 Filed 4-12-16; 8:45 am]
 BILLING CODE 8011-01-P