Document ID: SEC-2008-0249-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-02-14T05:00Z

[Federal Register: February 14, 2008 (Volume 73, Number 31)]
[Notices]               
[Page 8729-8731]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14fe08-106]                         

[[Page 8729]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57293; File No. SR-CBOE-2008-12]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to the Temporary Membership Status Access Fee

February 8, 2008.
    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 January 31, 2008, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') 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 prepared 
substantially by the Exchange. CBOE has designated this proposal as one 
establishing or changing a due, fee, or other charge imposed by the 
Exchange under section 19(b)(3)(A),\3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposal effective upon filing with 
the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to adopt a monthly access fee for persons granted 
temporary CBOE membership status pursuant to Interpretation and Policy 
.02 under CBOE Rule 3.19 (``Rule 3.19.02''). The text of the proposed 
rule change is provided below. Additions are indicated by italics, and 
deletions are [bracketed].
* * * * *

Chicago Board Options Exchange, Incorporated

Fees Schedule

February 1, 2008 [January 1, 2008]

    1.--21. Unchanged.
    22. TEMPORARY MEMBERSHIP STATUS ACCESS FEE $7,354 [4,700] per 
month.*
    * This access fee is assessed to each person granted temporary CBOE 
membership status under CBOE Rule 3.19.02 [3.19.01]. The access fee is 
due and payable for each calendar month on the first day of that 
calendar month. The first month for which the access fee will be 
assessed is February 2008 [September 2007]. The access fee is non-
refundable [except as specified below]. The access fee and any other 
applicable monthly fees will be assessed for a calendar month unless 
the person provides written notice to the Membership Department [at 
least five business days] prior to the start of that month that the 
person is relinquishing temporary membership status effective on a date 
prior to the start of that month. The access fee will be assessed 
through the integrated billing system. [The access fee will terminate 
when the SEC takes final action on SR-CBOE-2006-106. All access fees 
shall be payable to and held in an interest-bearing escrow account 
maintained by the Exchange until the SEC takes such final action. The 
Exchange will retain such fees if the SEC approves SR-CBOE-2006-106, 
and such fees will be returned to the payor, with interest, if the SEC 
disapproves SR-CBOE-2006-106.]
    Remainder of Fee Schedule: Unchanged.
* * * * *

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 proposal. 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
    Rule 3.19.02 became operative on January 15, 2008 \5\ upon the 
approval by the Commission of CBOE rule filing SR-CBOE-2006-106.\6\ At 
that time, the temporary CBOE membership status (``Temporary 
Membership'') provided to certain former exerciser members of CBOE 
(``Temporary Members'') pursuant to Interpretation and Policy .01 under 
CBOE Rule 3.19 (``Rule 3.19.01'') expired \7\ and Rule 3.19.02 granted 
continued Temporary Membership status to those persons under Rule 
3.19.02.\8\
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    \5\ Rule 3.19.02 was adopted in CBOE rule filing SR-CBOE-2007-
107. Although SR-CBOE-2007-107 became effective upon filing pursuant 
to Section 19(b)(3)(A)(i) of the Act, 15 U.S.C. 78s(b)(3)(A)(i), on 
September 10, 2007 when SR-CBOE-2007-107 was submitted to the 
Commission, SR-CBOE-2007-107 provided that it would not become 
operative unless and until the Commission approved CBOE rule filing 
SR-CBOE-2006-106. See Securities Exchange Act Release No. 56458 
(September 18, 2007), 72 FR 54309 (September 24, 2007) (SR-CBOE-
2007-107).
    \6\ In SR-CBOE-2006-106, CBOE proposed an interpretation of 
Article Fifth(b) of the CBOE Certificate of Incorporation (``Article 
Fifth(b)'') to address the impact of the then-proposed acquisition 
of The Board of Trade of the City of Chicago, Inc. (``CBOT'') by 
Chicago Mercantile Exchange Holdings Inc. (``CME/CBOT Transaction'') 
on the eligibility of persons who were members of CBOE (``exerciser 
members'') pursuant to Article Fifth(b). Under that interpretation, 
the consummation of the CME/CBOT Transaction on July 12, 2007 
resulted in no person any longer qualifying as a member of the CBOT 
within the meaning of Article Fifth(b) and therefore resulted in the 
elimination of any person's eligibility thereafter to become or 
remain an exerciser member of CBOE. The Commission approved SR-CBOE-
2006-106 on January 15, 2008. See Securities Exchange Act Release 
No. 57159 (January 15, 2008), 73 FR 3769 (January 22, 2008) (SR-
CBOE-2006-106).
    \7\ Rule 3.19.01 granted temporary CBOE membership status to 
Temporary Members from the date of the consummation of the CME/CBOT 
Transaction on July 12, 2007 until the Commission took final action 
on SR-CBOE-2006-106 on January 15, 2008. See Securities Exchange Act 
Release No. 56016 (July 5, 2007), 72 FR 38106 (July 12, 2007) (SR-
CBOE-2007-77).
    \8\ Rule 3.19.02 extended the Temporary Membership status 
provided to each Temporary Member under Rule 3.19.01 until the 
earlier of (i) the voluntary termination of that Temporary 
Membership status by the Temporary Member, (ii) the approval by the 
Commission of a further proposed rule change that provides for the 
termination of that status and the granting of trading permits or 
another form of trading access to Temporary Members, or (iii) the 
consummation of a transaction pursuant to which either CBOE is 
converted into a stock corporation or memberships in CBOE are 
converted into stock.
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    Specifically, Rule 3.19.02 provides that a Temporary Member shall 
continue in the Temporary Membership status previously granted under 
Rule 3.19.01 following the Commission's approval of SR-CBOE-2006-106 as 
long as the person: (i) Did not previously terminate that Temporary 
Membership status and remained in good standing as of the close of 
business on the trading day immediately before the date of approval of 
SR-CBOE-2006-106 (i.e., January 14, 2008); (ii) thereafter remains in 
good standing and continues to pay all applicable fees, dues, 
assessments, and other like charges that are assessed against CBOE 
members; and (iii) pays CBOE a monthly access fee set by CBOE, which 
shall be due and payable in accordance with the provisions of the CBOE 
Fee Schedule. Unlike the access fee under Rule 3.19.01, the proposed 
access fee to be charged under Rule 3.19.02 is to be paid directly to 
the Exchange and will not be escrowed.

[[Page 8730]]

    In CBOE rule filing SR-CBOE-2007-107,\9\ which adopted Rule 
3.19.02, the Exchange stated that it was going to submit a subsequent 
rule filing pursuant to section 19(b)(3)(A)(ii) of the Act \10\ to 
specify the access fee to be charged under Rule 3.19.02. The Exchange 
also indicated in SR-CBOE-2007-107 that the access fee would be an 
amount reasonably related to the current lease market rate for 
transferable CBOE memberships.\11\ The purpose of this rule filing is 
to specify that access fee.
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    \9\ See Securities Exchange Act Release No. 56458 (September 18, 
2007), 72 FR 54309 (September 24, 2007) (SR-CBOE-2007-107).
    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ See Securities Exchange Act Release No. 56458 (September 
18, 2007), 72 FR 54309 (September 24, 2007) (SR-CBOE-2007-107).
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    For the reasons described below, the Exchange proposes to set the 
access fee under Rule 3.19.02 at $7,354 per month.
    CBOE clearing firms are currently involved in facilitating most 
transferable membership leases by assisting in bringing together CBOE 
lessors and CBOE trading members for whom these clearing firms provide 
clearing services. Most transferable membership leases currently have 
floating monthly rates. In most of these cases, the floating monthly 
rate is the rate designated by the clearing firm for the floating rate 
leases that the clearing firm assisted in facilitating and is based on 
a percentage of the average of the last three transferable membership 
sale amounts.\12\
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    \12\ As used herein, the term ``Clearing Firm Floating Monthly 
Rate'' means the floating monthly rate that a clearing firm 
designates, in connection with transferable membership leases that 
the clearing firm assisted in facilitating, for leases that utilize 
that floating monthly rate.
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    In light of the foregoing, the Exchange used the following process 
to set the proposed access fee. The Exchange polled each of the 
clearing firms that assists in facilitating at least 10% of the 
transferable membership leases and obtained the Clearing Firm Floating 
Monthly Rate designated by each of these clearing firms for the month 
of February, 2008. The Exchange then set the proposed access fee at an 
amount equal to the highest of these Clearing Firm Floating Monthly 
Rates. The Exchange used the highest of these amounts (instead of, for 
example, an average of these amounts) because otherwise the Exchange 
would be undercutting the lease rates of a large number of transferable 
membership leases.
    Because the clearing firms that facilitate at least 10% of the 
transferable membership leases facilitate in total over 80% of the 
transferable membership leases and because the proposed access fee is 
representative of the lease rate for a significant number of the 
transferable membership leases, the Exchange believes that the proposed 
access fee is reasonably related to the current lease market rate for 
transferable memberships consistent with SR-CBOE-2007-107.\13\
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    \13\ As reflected in SR-CBOE-2007-107, the Exchange believes 
that the proposed access fee for Temporary Members under Rule 
3.19.02 constitutes an equitable allocation of reasonable dues, 
fees, and other charges among persons using its facilities. The 
proposed fee is equivalent to the lease rate paid by a large 
percentage of lessees of transferable CBOE memberships. Accordingly, 
the proposed access fee eliminates the previous disparity that 
existed under Rule 3.19.01 between the access fee charged by the 
Exchange to Temporary Members (which was based upon a lease rate 
paid on CBOT by lessees of what CBOT denominates as a full CBOT 
membership) and the lease rates paid on CBOE by lessees of 
transferable memberships (which generally were significantly higher 
than the previous Temporary Member access fee). Because Temporary 
Members' access to the Exchange is terminable only under limited 
circumstances, while the Exchange access of lessees of transferable 
memberships is terminable by lessors, the Exchange believes that it 
would be equitable to assess Temporary Members an access fee higher 
than the current lease market rate for transferable memberships. 
However, at the present time, the Exchange is only seeking to 
eliminate the current disparity, as the Exchange committed to do in 
SR-CBOE-2007-107. See Email from Arthur B. Reinstein, Deputy General 
Counsel, CBOE, to Richard Holley III, Senior Special Counsel, 
Division of Trading and Markets, Commission, dated February 8, 2008 
(adding the preceding text to footnote 13).
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    The first month for which the access fee will be assessed is 
February, 2008. Temporary Members already paid an access fee under Rule 
3.19.01 for the month of January, 2008 that was held in escrow pending 
Commission action on SR-CBOE-2006-106 and was then retained by the 
Exchange upon the approval of SR-CBOE-2006-106 in accordance with the 
provisions of Rule 3.19.01. Because this access fee for the month of 
January, 2008 under Rule 3.19.01 is non-refundable, the Exchange is 
commencing assessment of the proposed access fee under Rule 3.19.02 
starting with the month of February, 2008 in the interest of fairness 
so that Temporary Members are not charged two access fees for the same 
month.
    The proposed access fee will remain in effect until such time that 
the Exchange submits a further rule filing pursuant to section 
19(b)(3)(A)(ii) of the Act \14\ to modify the access fee or the 
Temporary Membership status under Rule 3.19.02 is terminated. 
Accordingly, the Exchange will retain the flexibility to adjust the 
proposed access fee in the future if the Exchange determines that it 
would be appropriate to do so taking into consideration lease rates for 
transferable CBOE memberships prevailing at that time.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    With two exceptions, the provisions of the CBOE Fee Schedule 
related to the assessment of the proposed access fee under Rule 3.19.02 
are the same as the provisions related to the assessment of the access 
fee under Rule 3.19.01. Thus, like with the access fee under Rule 
3.19.01: (i) The proposed access fee under Rule 3.19.02 will be due and 
payable each calendar month on the first day of the calendar month; 
(ii) the proposed access fee will be non-refundable; and (iii) the 
proposed access fee will be assessed through the integrated billing 
system.
    The two differences between the provisions of the CBOE Fee Schedule 
related to the assessment of the proposed access fee under Rule 3.19.02 
and the provisions related to the assessment of the access fee under 
Rule 3.19.01 are: (i) The provisions related to the escrowing of the 
access fees that were collected under Rule 3.19.01 have been removed 
and (ii) the proposed access fee and any other applicable monthly fees 
will now be assessed for a calendar month unless the Temporary Member 
provides written notice to the Membership Department prior to the start 
of that month (instead of five business days prior to the start of that 
month as was previously the case) that the Temporary Member is 
relinquishing Temporary Membership status effective on a date prior to 
the start of that month. With respect to the second change, the 
Exchange has found in this context that it presently does not need the 
additional lead time to process these relinquishments of Temporary 
Membership status.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\15\ in general, and furthers the 
objectives of section 6(b)(4) of the Act,\16\ in particular, in that it 
is designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among persons using its facilities.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
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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 that is not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 8731]]

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

    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the Exchange, it has become effective 
pursuant to section 19(b)(3)(A) of the Act \17\ and subparagraph (f)(2) 
of Rule 19b-4 \18\ thereunder. At any time within 60 days of the filing 
of the proposed rule change, the Commission may summarily abrogate 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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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-2008-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2008-12. 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 inspection and 
copying 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 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 No. SR-CBOE-2008-12 and should be 
submitted on or before March 6, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-2696 Filed 2-13-08; 8:45 am]

BILLING CODE 8011-01-P