Document ID: SEC-2016-1726-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2016-09-28T04:00Z

[Federal Register Volume 81, Number 188 (Wednesday, September 28, 2016)]
[Notices]
[Pages 66706-66708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23322]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78907; File No. SR-CBOE-2016-068]

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

September 22, 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 September 13, 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 amend its 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 
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.\3\ Specifically, 
the Exchange proposes to expand its Frequent Trader Program. By way of 
background, on April 1, 2016, the Exchange adopted 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'').\4\
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    \3\ The Exchange initially filed the proposed change on 
September 1, 2016 (SR-CBOE-2016-065). On September 13, 2016, the 
Exchange withdrew that filing and submitted this filing.
    \4\ See Securities Exchange Act Release No. 77554 (April 7, 
2016), 81 FR 21928 (April 13, 2016) (SR-CBOE-2016-023).
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    To participate in the Frequent Trader Program, Customers register 
with the Exchange. Once registered, the Customer is provided a unique 
identification number (``FTID'') that can be affixed to each of its 
orders. 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 has 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 first proposes to expand the program to allow 
Professional Customers and Voluntary Professionals (``W'' origin code) 
(``Professionals'') to qualify for the Program. The same terms and 
conditions would apply to Professionals as currently does to Customers. 
The Exchange believes this proposed change would provide additional 
incentive to direct Professional order flow to the Exchange, which 
benefits all market participants through increased liquidity and 
enhanced price discovery. The Exchange next proposes to provide that, 
in addition to SPX and VIX options, the Program would apply to Russell 
2000 Index (``RUT'') options. As with SPX and VIX, the Exchange would 
aggregate a Customer's (or Professional's) volume (for which their FTID 
was entered) on a monthly basis for RUT options. If the Customer or 
Professional meets the thresholds proposed below, it would receive a 
rebate on its RUT options transaction fees, also indicated below.\5\ 
Also, as is currently the case with SPX and VIX, 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 RUT order for 10,000 contracts, pursuant to the current Fees 
Schedule, that customer would be assessed fees for only the first 5,000 
contracts under the Customer Large Trade Discount Program. Therefore, 
while all 10,000 contracts would count when determining the tier, the 
Customer's rebate would be based on the amount of the fees assessed for 
5,000 contracts, not on the value of the total 10,000 contracts 
executed). The thresholds and rebates are as follows:
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    \5\ The Exchange notes that only transaction fees would be 
discounted (i.e., no other surcharges, such as the Index License 
Surcharge Fee, would be rebated or discounted).

                                   RUT
------------------------------------------------------------------------
                                                                RUT fee
           Tier                Monthly RUT contracts traded      rebate
                                                                  (%)
------------------------------------------------------------------------
1.........................  4,000-7,999......................          5
2.........................  8,000-14,999.....................         10
3.........................  15,000 and above.................         15
------------------------------------------------------------------------

    The Exchange notes that the highest achieved threshold rebate rate 
will apply from the first executed contract (e.g., if a Customer or 
Professional executes 10,000 RUT contracts in a month, the Tier 2 10% 
rebate rate would apply to all 10,000 RUT contracts). The Exchange 
believes the tiered program

[[Page 66707]]

incentivizes the sending of Customer and Professional orders to the 
Exchange while maintaining an incremental incentive for Customers and 
Professionals to strive for the highest tier level. The Exchange also 
notes that the volume thresholds for SPX options and VIX options are 
higher than for RUT in light of their more mature and established 
positions in the industry.
    Next, the Exchange proposes to make some clarifying, non-
substantive and organizational changes to the Frequent Trader table and 
Notes section in light of the proposed changes described above. First, 
the Exchange proposes to add a reference to Professional Customers and 
Voluntary Professionals in the Notes section and define ``customer'' as 
including both Customers (``C'' origin) and Professional Customers and 
Voluntary Professionals (``W'' origin). Additionally, the Exchange 
proposes to eliminate from the definition of ``customer'' in the Notes 
section the reference to ``non-Professionals'', as reference to 
``customer'' will include both Customers and Professionals going 
forward. The Exchange also proposes to change the last reference to 
customer in the Notes section to lower case to avoid confusion as to 
which ``customer'' is being referenced. The Exchange also proposes to 
eliminate obsolete language pertaining to the handling of the Frequent 
Trader Program--Volume Corrections Form for the month of April 2016, as 
such language is unnecessary to maintain. Additionally, the Exchange 
proposes to relocate the language of the Notes section to below the 
Frequent Trader Program table in order to accommodate the new RUT 
scale. Lastly, the Exchange proposes to amend the Frequent Trader 
Program--Volume Corrections Form (``Form'') to reflect that the Program 
also applies to RUT.\6\
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    \6\ The updated Frequent Trader Program--Volume Corrections 
Form, which will replace the current Frequent Trader Program--Volume 
Corrections Form, is attached as Exhibit 3.
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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.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ 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. The Exchange 
also believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\9\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78f(b)(4).
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    The expansion of the Frequent Trader Program to Professionals is 
reasonable because it will allow Professionals 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 
Professionals 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 Professional orders).
    The Exchange believes it's equitable and not unfairly 
discriminatory to expand the program to Professionals because this is 
designed to attract a greater number of Professional VIX, SPX and RUT 
orders. This increased volume creates greater trading opportunities 
that benefit all market participants. Specifically, while only Customer 
and Professional orders qualify for the proposed rebates under the 
Frequent Trader Program, an increase in Customer and Professional 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. Like Customers, Professionals are 
non-TPH, non-broker dealers and have historically also been given 
preferential pricing. Indeed, the Exchange notes that incentive 
programs based on Customer and Professional volume already exist 
elsewhere within the industry.\10\ In addition the Exchange believes 
the proposed program is equitable and not unfairly discriminatory 
because any Professional may avail itself of this program provided it 
registers with the Exchange and its executing TPH participates.
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    \10\ See e.g., NYSE Arca Options Fees and Charges, Customer and 
Professional Customer Incentive Program and Customer and 
Professional Customer Posting Credit Tiers in Penny and Non Penny 
Pilot Issues. See also NASDAQ Options Market (``NOM'') Options 
Pricing, Sec. 2 NASDAQ Options Market--Fees and Rebates, Customer 
and Professional Penny Pilot Options Rebate to Add Liquidity.
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    Expanding the Frequent Trader Program to RUT options is reasonable 
because it will allow Customers and Professionals who register for the 
program an opportunity to receive certain rebates for reaching certain 
trading volume thresholds in RUT, as well as VIX and SPX. The Exchange 
believes adding RUT options to the Program is equitable and not 
unfairly discriminatory because the Exchange has expended considerable 
time and resources in maintaining RUT, along with VIX and SPX. The 
proposed rule change is designed to encourage greater Customer and 
Professional RUT options trading, which, along with bringing greater 
RUT 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 maintaining RUT options. The 
Exchange believes it's equitable and not unfairly discriminatory to 
establish lower threshold tiers for RUT than for the SPX product group 
and VIX because the SPX product group and VIX have reached a more 
mature and established level than RUT.
    The Exchange believes it's reasonable, equitable and not unfairly 
discriminatory to include all of a Customer's and Professional's RUT 
executed contracts with an FTID towards the respective qualifying 
thresholds because the Exchange wishes to support and encourage 
Customers and Professionals to provide greater order flow in this 
class, 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.
    The Exchange believes it's reasonable, equitable and not unfairly 
discriminatory to provide Professionals a choice as to how their 
payment is delivered. Providing Professionals with the option of 
requesting to receive their rebates under the Frequent Trader Program 
as separate direct payments or

[[Page 66708]]

via a distribution to one or more of its executing Clearing Trading 
Permit Holders will provide Professionals with a convenient manner in 
which to receive their rebates, which perfects the mechanism for a free 
and open market.
    Lastly, the Exchange believes the proposed update to the Frequent 
Trader Program--Volume Corrections Form along with the clarifying, non-
substantive and organizational changes maintains clarity in the Form 
and Fees Schedule, respectively, and avoids potential confusion given 
the proposed changes to expand the Frequent Trader Program. Alleviation 
of confusion removes impediments to, and perfects the mechanism for a 
free and open market and a national market system, and, in general, 
protects investors and the public interest of market participants.

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 and Professionals, the proposed change is designed to 
encourage increased Customer and Professional VIX, SPX and RUT options 
volume, which provides greater trading opportunities for all market 
participants. Additionally, the Exchange notes that incentive programs 
based on Customer and Professional volume already exist elsewhere 
within the industry.\11\ 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 and RUT products 
are only traded on CBOE and C2 Options Exchange, Incorporated. 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.
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    \11\ Id.
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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 \12\ and paragraph (f) of Rule 19b-4 \13\ 
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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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-2016-068 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-2016-068. 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-2016-068, and should be 
submitted on or before October 19, 2016.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Brent J. Fields,
Secretary.
[FR Doc. 2016-23322 Filed 9-27-16; 8:45 am]
 BILLING CODE 8011-01-P