Document ID: SEC-2011-1559-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2011-10-13T04:00Z

[Federal Register Volume 76, Number 198 (Thursday, October 13, 2011)]
[Notices]
[Pages 63680-63682]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26378]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65491; File No. SR-CBOE-2011-093]

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

October 6, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 63681]]

``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 3, 2011, the 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 the Fees Schedule regarding the 
Customer Large Trade Discount. 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, the self-regulatory organization 
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 those 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 parts 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 clarify the process for the qualification 
of a customer order for the Discount.\3\ The Discount is intended to 
cap fees on large customer trades (the quantity of contracts necessary 
for a large customer trade to qualify for the Discount varies by 
product).
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    \3\ See Exchange Fees Schedule, Section 18.
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    The Floor Broker Workstations and PULSe Workstations, as well as 
any other front end system used to transmit orders to the Exchange 
(together, the ``Workstations'') are order repositories into which 
orders can be entered prior to being sent to CBOEdirect, which is a 
trade engine through which orders are processed. Sometimes a broker 
will receive a customer order large enough to qualify for the Discount 
(a ``Large Customer Order'') and have to break up the order into a 
number of smaller orders to trade throughout the day due to lack of 
available volume when the order originally comes in. When this occurs, 
the broker sometimes may not first enter the entire order quantity into 
one of the Workstations (thereby giving the various smaller orders the 
same order ID), instead breaking up the Large Customer Order himself 
and entering the smaller orders individually into one of the 
Workstations or directly into CBOEdirect. Because CBOEdirect cannot 
link separate orders, if the broker does not first enter the entire 
order quantity into one of the Workstations before sending the smaller 
individual orders to CBOEdirect, there is no way for the Exchange to 
know that all of these smaller orders were part of a Large Customer 
Order that should qualify for the Discount. The broker can notify the 
Exchange of this occurrence, and must send documentation, but sometimes 
the broker fails to do so. When this happens, the customer may not end 
up getting the Discount. Even when the broker does notify the Exchange 
that all the small trades were part of a Large Customer Order, if the 
broker did not enter the entire order in one System, the Exchange must 
manually go back and review the trade data to verify that all of the 
small trades were part of one Large Customer Order that would qualify 
for the Discount.
    The Exchange now proposes to improve this process to direct brokers 
on how to ensure that their Large Customer Orders receive for the 
Discount. Brokers are directed to enter the entirety of a Large 
Customer Order that would qualify for the Discount into one of the 
Workstations (or CBOEdirect, if the broker is not going to break up the 
Large Customer Order into smaller orders) so that the entire order 
quantity may be tied to a single order ID. This will allow the Exchange 
to clearly identify the total size of the order. For a Large Customer 
Order entered into the CBOEdirect system, merely entering the Large 
Customer Order, in its entirety, into the CBOEdirect system will still 
be (and always has been) enough for the Large Customer Order to receive 
the Discount (though this Large Customer Order will not be able to be 
broken up into smaller orders).
    For any Large Customer Order entered via one of said Workstations 
that gets broken up into smaller orders prior to being sent to 
CBOEdirect, the broker must still submit a customer large trade 
discount request, identifying all necessary information, including the 
order ID and related trade details, within three days of the 
transaction. This is necessary because the Exchange only automatically 
receives order information from CBOEdirect (which we have already 
explained cannot link the separate smaller orders), so the Exchange 
needs this information to verify that the smaller orders were part of a 
Large Customer Order. For the same reason, the Exchange is changing 
qualification for the Discount to be based on the trade date and order 
ID on each order (which can be entered into one of the Workstations), 
as opposed to trade records (which are only produced by CBOEdirect and 
therefore would not demonstrate that separate smaller orders may be 
part of a Large Customer Order). Further, for Large Customer Orders 
sent to the Exchange from a Workstation other than a Floor Broker 
Workstation or PULSe Workstation (i.e., a Workstation that is not 
operated through the Exchange) to qualify for the Discount, the 
Exchange must be granted access to effectively audit such front end 
system. This is necessary to ensure that such smaller orders sent to 
the Exchange are indeed part of a Large Customer Order.
    The proposed rule change would clear up any confusion regarding the 
entry and verification of Large Customer Orders and thereby make it 
easier for brokers to ensure that their Large Customer Orders Qualify 
for the Discount.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\4\ in general, and furthers the objectives of Section 6(b)(5) \5\ of 
the Act in particular, in that it is designed 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. By establishing a clear process for the entry of Large 
Customer Orders in order for them to qualify for the Discount, the 
proposed rule change eliminates confusion, thereby removing an 
impediment to and perfecting the mechanism of a free and open market 
system. The establishment of this process will also make it easier for 
CBOE to administer the Discount and ensure that it is appropriately 
assessed when it is applicable.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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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 not necessary or

[[Page 63682]]

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

    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 proposed rule change is designated by the Exchange as 
establishing or changing a due, fee, or other charge, thereby 
qualifying for effectiveness on filing pursuant to Section 19(b)(3)(A) 
of the Act \6\ and subparagraph (f)(2) of Rule 19b-4 \7\ 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.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 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:

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-2011-093 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-2011-093. 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 such filing will also 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 No. SR-CBOE-2011-093 and should be 
submitted on or before November 3, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26378 Filed 10-12-11; 8:45 am]
BILLING CODE 8011-01-P