Document ID: SEC-2014-0521-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-03-31T04:00Z

[Federal Register Volume 79, Number 61 (Monday, March 31, 2014)]
[Notices]
[Pages 18104-18106]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-07054]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71789; File No. SR-CBOE-2014-023]

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

March 25, 2014.
    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 March 12, 2014, 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 Fees Schedule. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fees Schedule, specifically 
regarding the CBOE Command Connectivity Charges. Currently, for every 
15 Trading Permits that a Trading Permit Holder (``TPH'') that access 
CBOE Command via CMI holds, that TPH receives one CAS Server (plus one 
total backup CAS Server regardless of the number of Trading Permits 
that the TPH holds). This would mean that a TPH who had, say, 29 
Trading Permits would only receive one CAS Server (plus the backup). 
The Exchange proposes to instead add a chart listing the amounts of 
Trading Permits and corresponding CAS Servers: \3\
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    \3\ Corresponding to this change, the Exchange proposes to 
delete from the ``Notes'' section regarding this fee the language 
``For every 15 Trading Permits that a TPH that accesses CBOE Command 
via CMI holds, that TPH receives one CAS Server (plus one total 
backup CAS Server regardless of the number of Trading Permits that 
the TPH holds).'' That language will be replaced with the statement: 
``TPHs will receive CAS Servers based on the number of trading 
permits a TPH holds.''

------------------------------------------------------------------------
                                                              Total CAS
          Trading Permits                  CAS Servers         Servers
------------------------------------------------------------------------
1-15...............................  1 + 1 backup..........            2
16-30..............................  2 + 1 backup..........            3
31-45..............................  3 + 1 backup..........            4
46-60..............................  4 + 1 backup..........            5
61-75..............................  5 + 1 backup..........            6
76-90..............................  6 + 1 backup..........            7
91+................................  7 + 1 backup..........            8
------------------------------------------------------------------------

The effect of this change would be to increase the number of CAS 
Servers that many TPHs receive (for example, a TPH that has 29 permits 
would now receive two CAS Servers (plus a backup) before having to pay 
for an extra CAS Server (which costs $10,000 per month), so TPHs may be 
able to save $10,000.
    The Exchange also proposes to change its calculation of the volume 
thresholds for its Liquidity Provider Sliding Scale, which provides for 
reduced transaction fees for Market-Makers that reach certain volume 
thresholds.\4\ Currently, the volume thresholds are based on total 
national Market-Maker multiply-listed options volume. However, this 
does not account for products traded solely on

[[Page 18105]]

CBOE (except the Excluded Products), but it does include volume from 
multiply-listed options that may not be traded on CBOE. Because the 
Liquidity Provider Sliding Scale provides for transaction fees for 
transactions that occur on CBOE, the Exchange believes that it makes 
sense to include towards the volume thresholds transaction volume that 
occurs on CBOE (even if it is in products traded only on CBOE) and not 
include towards the volume thresholds transaction volume in products 
that may not be listed on CBOE. As such, the Exchange proposes to state 
that, for the Liquidity Provider Sliding Scale, volume thresholds are 
based on total national Market-Maker volume of any options classes 
listed on CBOE with traded volume on CBOE during the calendar month. 
This will continue to exclude the Excluded Products.
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    \4\ The Liquidity Provider Sliding Scale applies in all products 
except mini-options, SPX, SPXpm, SRO, VIX or other VOLATILITY 
INDEXES, OEX or XEO (the ``Excluded Products''). For more 
information regarding the Liquidity Provider Sliding Scale, see the 
CBOE Fees Schedule.
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    The Exchange always strives for clarity in its rules and Fees 
Schedule, so that market participants may best understand how rules and 
fees apply. As such, the Exchange proposes a number of changes to 
clarify its Fees Schedule.
    Footnote 22 of the Exchange Fees Schedule states that ``For all 
non-facilitation business executed in AIM or open outcry, or as a QCC 
or FLEX transaction, transaction fees for Clearing Trading Permit 
Holder Proprietary and/or their Non-Trading Permit Holder Affiliates 
(as defined in footnote 11) in all products except SPX, SPXpm, VIX or 
other volatility indexes, OEX or XEO, in the aggregate, are capped at 
$75,000 per month per Clearing Trading Permit Holder.'' The Exchange 
has never considered surcharges to be ``transaction fees'', as 
surcharges are assessed on top of transaction fees and often are 
adopted to offset the costs of licensing and/or developing specific 
Exchange products and systems. Additionally, surcharges appear 
separately on the invoices the Exchange provides to TPHs. As such, the 
Exchange proposes to explicitly state in Footnote 22 that ``Surcharge 
fees do not count towards the cap.''
    The Exchange also proposes to clarify its CBOE Proprietary Products 
Sliding Scale (the ``Sliding Scale''), pursuant to which Clearing 
Trading Permit Holder Proprietary transaction fees and transaction fees 
for Non-Trading Permit Holder Affiliates in OEX, XEO, SPX, SPXpm, VIX 
and VOLATILITY INDEXES in a month will be reduced provided a Clearing 
Trading Permit Holder reaches certain ADV thresholds in multiply-listed 
options on the Exchange in a month. Effective January 2, 2014, the 
Exchange amended the Sliding Scale to change the different tier 
thresholds from nominal contracts per month thresholds to relative 
contracts per month thresholds.\5\ Indeed, the Exchange added to the 
``Notes'' section of the Sliding Scale table the following language: 
``Transaction fees in OEX, XEO, SPX, SPXpm, VIX and VOLATILITY INDEXES 
will be reduced based on reaching the percentage thresholds in OEX, 
XEO, SPX, SPXpm, VIX and VOLATILITY INDEXES listed in the table.'' 
However, the Exchange feels that more clarity can be achieved by more 
accurately describing what those percentages are of (the denominator in 
the percentage calculation). As such, the Exchange proposes to add the 
following language: ``Percentages are calculated by accounting for all 
volume in OEX, XEO, SPX, SPXpm, VIX and VOLATILITY INDEXES executed 
with an ``F'' or ``L'' Origin Code.''
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    \5\ See Securities Exchange Act Release No. 71295 (January 14, 
2014), 79 FR 3443 (January 21, 2014) (SR-CBOE-2013-129).
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    The Exchange also proposes to clarify a statement in Footnote 11. 
The end of Footnote 11 reads: ``For facilitation orders (other than 
SPX, SPXpm, SRO, VIX or other volatility indexes, OEX or XEO) 
(``facilitation orders'' for this purpose to be defined as any paired 
order in which a Clearing Trading Permit Holder (F) origin code or Non-
Trading Permit Holder Affiliate (``L'' origin code) is contra to any 
other origin code, provided the same executing broker and clearing firm 
are on both sides of the order) executed electronically (including in 
AIM), open outcry, or as a QCC or FLEX transaction, CBOE will assess no 
Clearing Trading Permit Holder Proprietary transaction fees.'' However, 
there are a number of clarifications necessary to that statement. 
First, there is no way, systematically, for orders that are executed in 
open outcry to be identified as being ``paired''. The only way to 
identify an open outcry order as being ``facilitated'' is for it to 
have the same executing broker and clearing firm on both sides. 
However, it is inaccurate to say ``both sides of the order'' when 
referring to open outcry, as, since they are not paired, they come in 
separately and therefore the word ``order'' should be replaced with the 
word ``transaction''.
    Further, the only way for a non-FLEX, non-QCC paired facilitation 
order to be executed electronically is via AIM. The current language 
could be read to indicate that there are other manners to 
electronically execute a paired facilitation order. Similarly, the only 
way for a FLEX paired order to be executed electronically is via the 
Exchange's CFLEX system. As such, the Exchange proposes to amend the 
statement at the end of Footnote 11 to read: ``For facilitation orders 
(other than SPX, SPXpm, SRO, VIX or other volatility indexes, OEX or 
XEO) executed in open outcry, or electronically via AIM or as a QCC or 
CFLEX transaction, CBOE will assess no Clearing Trading Permit Holder 
Proprietary transaction fees. ``Facilitation orders'' for this purpose 
to be defined as any order in which a Clearing Trading Permit Holder 
(F) origin code or Non-Trading Permit Holder Affiliate (``L'' origin 
code) is contra to any other origin code, provided the same executing 
broker and clearing firm are on both sides of the transaction (for open 
outcry) or both sides of a paired order (for orders executed 
electronically).''
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\6\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \7\ 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. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The Exchange also believes the 
proposed rule change is consistent with Section 6(b)(4) of the Act,\9\ 
which requires that Exchange rules provide for the equitable allocation 
of reasonable dues, fees, and other charges among its Trading Permit 
Holders and other persons using its facilities.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed change regarding CAS 
Servers is reasonable because it will not cause

[[Page 18106]]

any TPHs to be assessed a greater fee than they currently are, and will 
allow some TPHs to pay lower fees by avoiding having to purchase an 
extra CAS Server. The Exchange believes that this change is equitable 
and not unfairly discriminatory because it will apply to all TPHs 
equally. The reason that a TPH that has more Trading Permits is 
provided more CAS Servers is to better distribute and manage bandwidth 
capacity (as each Trading Permit affords a TPH more bandwidth) in order 
to ensure better CAS Server performance.
    The Exchange believes that the change to the calculation of the 
volume thresholds for the Liquidity Provider Sliding Scale is 
reasonable because the current calculation does not account for 
products traded solely on CBOE (except the Excluded Products), but it 
does include volume from multiply-listed options that may not be traded 
on CBOE. Because the Liquidity Provider Sliding Scale provides for 
transaction fees for transactions that occur on CBOE, the Exchange 
believes that it is reasonable and makes sense to include towards the 
volume thresholds transaction volume that occurs on CBOE (even if it is 
in products traded only on CBOE) and not include towards the volume 
thresholds transaction volume in products that may not be listed on 
CBOE. The Exchange believes that this change is equitable and not 
unfairly discriminatory because it will apply to all market 
participants who qualify for the Liquidity Provider Sliding Scale. The 
Exchange believes that it is equitable and not unfairly discriminatory 
to offer the Liquidity Provider Sliding Scale to Market-Makers only 
because Market-Makers take on obligations, such as quoting obligations, 
that other market participants do not have.
    The Exchange believes that the proposed changes to clarify the Fees 
Schedule will serve to eliminate potential confusion regarding the fee 
programs described. This, in turn, will remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest.

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. CBOE does not believe that the 
proposed rule change will impose any burden on intramarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act because the proposed changes apply to all CBOE market 
participants equally. To the extent that the Liquidity Provider Sliding 
Scale is offered only to Market-Makers, the Exchange believes that this 
does not impose a burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because Market-Makers take on obligations, such as quoting obligations, 
that other market participants do not have. CBOE does not believe that 
the proposed rule change will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the proposed changes only apply to CBOE. 
Further, many of the proposed changes are being made not for 
competitive purposes, but in order to clarify the Fees Schedule. To the 
extent that the proposed changes may make CBOE a more attractive 
marketplace for market participants at other exchanges, such market 
participants may elect 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 \10\ and paragraph (f) of Rule 19b-4 \11\ 
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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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-2014-023 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-2014-023. 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 only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtmlv). 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-2014-023 and should be 
submitted on or before April 21, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07054 Filed 3-28-14; 8:45 am]
BILLING CODE 8011-01-P