Document ID: SEC-2013-1585-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2013-09-10T04:00Z

[Federal Register Volume 78, Number 175 (Tuesday, September 10, 2013)]
[Notices]
[Pages 55305-55310]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-21933]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70315; File No. SR-CBOE-2013-083]

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 4, 2013.
    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 August 22, 2013, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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. First, the 
Exchange proposes to waive the CMI and FIX Login ID fees for CMI and 
FIX Login IDs used to access the Exchange's FLEX Hybrid Trading System 
(the ``CFLEX System'') for FLEX Options \3\ trading (the ``Waiver''). 
CMI Client Application Servers and FIX Ports are used by Exchange 
Trading Permit Holders (``TPHs'') to access CBOE Command, which is the 
platform provided by the Exchange to connect to Exchange systems. The 
Exchange assesses a fee of $500 per month for each CMI or FIX Login ID 
that a TPH uses to access CBOE Command. The Exchange has enhanced the 
CFLEX System in order to further integrate it with the Exchange's 
existing CBOE Command technology platform.\4\ As part of these 
enhancements, TPHs connect to the CFLEX System through CBOE Command, 
and need to get either a CMI or FIX Login ID to do so.\5\ As such, the 
Exchange proposes the Waiver in order to encourage TPHs to trade on the 
CFLEX System. The Exchange has, in the past, waived the CMI and FIX 
Login ID fees.\6\
---------------------------------------------------------------------------

    \3\ Flexible Exchange Options (``FLEX Options'') provide 
investors with the ability to customize basic option features 
including size, expiration date, exercise style, and certain 
exercise prices. FLEX Options can be FLEX Index Options or FLEX 
Equity Options. In addition, other products are permitted to be 
traded pursuant to the FLEX trading procedures. For example, credit 
options are eligible for trading as FLEX Options pursuant to the 
FLEX rules in Chapters XXIVA and XXIVB. See CBOE Rules 24A.1(e) and 
(f), 24A.4(b)(1) and (c)(1), 24B.1(f) and (g), 24B.4(b)(1) and 
(c)(1), and 28.17. The rules governing the trading of FLEX Options 
on the FLEX Request for Quote (``RFQ'') System platform (which is 
limited to open outcry trading only) are contained in Chapter XXIVA. 
The rules governing the trading of FLEX Options on the FLEX Hybrid 
Trading System platform (which combines both open outcry and 
electronic trading) are contained in Chapter XXIVB. The Exchange 
notes that, currently, all FLEX Options are traded on the FLEX 
Hybrid Trading System platform.
    \4\ See Securities Exchange Act Release No. 66769 (April 6, 
2012), 77 FR 22012 (April 12, 2012) (SR-CBOE-2012-033).
    \5\ TPHs may also access the CFLEX System using an internet-
based application. There is currently no login fee associated with 
the internet-based application.
    \6\ See Securities Exchange Act Release No. 66812 (April 16, 
2012), 77 FR 23767 (April 20, 2012) (SR-CBOE-2012-037).
---------------------------------------------------------------------------

    Next, the Exchange proposes to amend its Hybrid Agency Liaison 
(``HAL'') Step-Up Rebate (the ``Rebate''). Currently, the Exchange 
rebates to a Market-Maker $0.10 per contract against transaction fees 
generated from a transaction on the HAL system in a penny pilot class, 
provided that at least 60% of the Market-Maker's quotes in that class 
(excluding mini-options and quotes in LEAPS series) in the prior 
calendar month were on one side of the NBBO. The Exchange proposes to 
amend the Rebate to raise the threshold to 70%, effective September 1 
(the Exchange initially submitted this proposed change one month prior 
to the effective date in order to notify Market-Makers about the 
change; since the Rebate is provided based on the prior calendar 
month's trading, this action will have given Market-Makers notification 
that they must hit the 70% threshold in August in order to qualify for 
the Rebate in September). The Exchange proposes increasing this 
threshold for economic reasons; providing the Rebate is less 
economically viable, and the Exchange is willing to continue to provide 
it, but only if it will encourage even greater quoting on one side of 
the NBBO by Market-Makers. Indeed, the Exchange believes that the 
increased threshold will incentivize Market-Makers to provide more 
competitive quoting.
    The Exchange proposes to amend its Fees Schedule to increase the 
Surcharge Fee for the Russell 2000 Index (``RUT'') from $0.15 per 
contract to $0.30 per contract. Surcharge Fees charged by the Exchange 
reflect the pass-through charges associated with the licensing of 
certain products, including RUT. The proposed increase in the Surcharge 
Fee for RUT from $0.15 to $0.30 per contract is a reflection of the 
increased cost the Exchange has incurred in securing a license 
agreement from the index provider. Absent the license agreement, the 
Exchange and its participants would be unable to trade RUT options and 
would lose the ability to hedge small cap securities with a large 
notional value, European-style cash-settled index option. Other 
exchanges have recently

[[Page 55306]]

increased their RUT surcharge fees to an even greater extent than the 
Exchange.\7\
---------------------------------------------------------------------------

    \7\ See SR-NYSEMKT-2013-65, which increased the NYSE MKT LLC 
(``AMEX'') Royalty Fee for RUT from $0.15 per contract to $0.40 per 
contract.
---------------------------------------------------------------------------

    The Exchange proposes to amend its Fees Schedule with regards to 
strategy executions.\8\ First, the Exchange proposes to include 
Clearing Trading Permit Holder and joint back-office (``JBO'') 
participant transaction fees towards qualifying for the cap (described 
in Footnote 13 to the Fees Schedule) on transaction fees for all 
reversals, conversions and jelly roll strategies executed on the same 
trading day in the same option class, excluding any option class on 
which the Exchange charges the Index License surcharge fee. The purpose 
of this proposed change is to encourage Clearing Trading Permit Holders 
and JBO participants to execute such strategy transactions (the 
execution of which will add volume and provide trading opportunities 
for all market participants, especially those on the other side of such 
transactions). Further, other exchanges apply a similar cap to similar 
market participants.\9\ The Exchange also proposes to lower from $1000 
to $700 this cap. The Exchange proposes this change for similar 
reasons; in order to encourage qualifying market participants to 
execute such strategy transactions (the execution of which will add 
volume and provide trading opportunities for all market participants, 
especially those on the other side of such transactions). Further, 
other exchanges apply similar caps in these amounts.\10\
---------------------------------------------------------------------------

    \8\ For details about strategy executions, see CBOE Fees 
Schedule, Footnote 13.
    \9\ See NASDAQ OMX PHLX (``PHLX'') Pricing Schedule, ``Strategy 
Caps'' chart, which includes ``firms'' in their cap on such 
transactions (``firms'' and ``Clearing Trading Permit Holders'' 
being similar market participants).
    \10\ See PHLX Pricing Schedule, ``Strategy Caps'' chart.
---------------------------------------------------------------------------

    The Exchange also proposes to exclude JBO participants from the 
$25,000 per month cap on transaction fees for strategies. JBO 
participants trade only their own proprietary orders via a Clearing 
Trading Permit Holder; they do not do any agency trading (trading for 
customers or other market participants). They do not have some of the 
obligations, such as being a Trading Permit Holder, that other 
beneficiaries of the $25,000 per month cap on transaction fees for 
strategies have.
    The Exchange also proposes to exclude from the $1,000 cap on all 
merger strategies and short-stock interest strategies executed in the 
same trading day in the same option class transactions in any option 
class on which the Exchange charges the Index License surcharge fee 
under Footnote 14 of the Fees Schedule because there is no such thing 
as an index merger or a short stock index situation. No such trades 
could be executed.
    The Exchange also proposes to amend Footnote 11 of the Fees 
Schedule to state that transaction fees resulting from any of the 
strategies defined in Footnote 13 will apply towards reaching the 
Clearing Trading Permit Holder Proprietary Fee Cap (the ``Fee Cap'') 
(contract volume resulting from such strategies will still not apply 
towards the CBOE Proprietary Products Sliding Scale for Clearing 
Trading Permit Holder Proprietary Orders). This will put the strategy 
executions on the same footing as other transactions that count towards 
the Fee Cap. Further, the Exchange believes this change will encourage 
the transaction of strategy executions, and the resulting increased 
volume should benefit all market participants.
    The Exchange also proposes to exclude Clearing Trading Permit 
Holders from the $25,000 per month cap on transaction fees for 
strategies because the Exchange has determined to include strategy 
transaction fees in the Fee Cap, which includes many other types of 
Clearing Trading Permit Holder transaction fees and is more 
advantageous for Clearing Trading Permit Holders. Further, it would not 
make economic sense to include strategy transaction fees towards two 
different monthly fee caps (the Fee Cap and the $25,000 per month 
strategy transaction fee cap). The Exchange also proposes to explicitly 
state this $25,000 cap applies to TPH organizations as well as Trading 
Permit Holders (while TPH organizations are Trading Permit Holders and 
therefore already qualify for this cap, the Exchange proposes this 
clarification in order to clear up any possible confusion). \11\
---------------------------------------------------------------------------

    \11\ Following adoption of the proposed changes to strategies 
fees, the first three sentences of Footnote 13 of the Fees Schedule 
will read: Market-maker, Clearing Trading Permit Holder, broker-
dealer and non-Trading Permit Holder market-maker transaction fees 
are capped at $1,000 for all (i) merger strategies and (ii) short 
stock interest strategies and at $700 for all reversals, conversions 
and jelly roll strategies executed on the same trading day in the 
same option class, excluding any option class on which the Exchange 
charges the Index License surcharge fee under footnote 14 of this 
Fees Schedule. Such transaction fees for these strategies are 
further capped at $25,000 per month per initiating Trading Permit 
Holder or TPH Organization (excluding Clearing Trading Permit 
Holders).
---------------------------------------------------------------------------

    Finally, the Exchange proposes to amend its Customer Large Trade 
Discount (the ``Discount'') with regards to complex orders. The 
Discount is a cap on customer (``C'' origin code) transaction fees for 
certain options classes. Footnote 27 to the Fees Schedule, which 
describes the Discount, states that ``For complex orders, the total 
contracts of an order (all legs) are counted for purposes of 
calculating the fee cap. To qualify for the discount, the entire order 
quantity must be tied to a single order ID either within the CBOE 
Command system or in FBW or PULSe or in the front end system used to 
enter and/or transmit the order . . .'' However, Exchange system 
limitations prevent the entry of a complex order with more than four 
legs (for orders entered via PULSe, FBW, or for electronic processing) 
or twelve legs (for orders entered via a TPH's front-end system that 
has capability for such orders (PULSe and FBW will soon be capable of 
the entry of 12-leg complex orders)) into the Exchange system. As such, 
complex orders with more than the applicable leg limitations must be 
split up and entered in multiple orders (each order with a different 
order ID) that each have four legs (for orders entered via PULSe, FBW, 
or for electronic processing) or twelve legs (for orders entered via a 
TPH's front-end system that has capability for such orders) or less. 
Because such complex orders then cannot be tied to a single order ID, 
under the current language of Footnote 27, they would not qualify for 
the Discount. The Exchange does not intend to exclude such complex 
orders from qualification for the discount; they are only excluded due 
to the system limitations. As such, The Exchange proposes to amend 
Footnote 27 to state that to ``qualify for the discount, the entire 
order quantity must be tied to a single order ID (unless the order is a 
complex order with a number of legs that exceeds system 
limitations)[hellip]'' In order to verify that a complex order with a 
number of legs that exceeds system limitations that has been broken up 
into multiple orders (with multiple order IDs) is indeed a single 
complex order, the Exchange also proposes to amend the last sentence of 
Footnote 27 to state that for an order entered via FBW, PULSe or 
another front end system, or a complex order with multiple order IDs, a 
customer large trade discount request must be submitted to the Exchange 
within 3 business days of the transactions and must identify all 
necessary information, including the order ID and related trade 
details.
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

[[Page 55307]]

and, in particular, the requirements of Section 6(b) of the Act.\12\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\13\ which provides that 
Exchange rules may provide for the equitable allocation of reasonable 
dues, fees, and other charges among its TPHs and other persons using 
its facilities. The Exchange believes that the Waiver is reasonable 
because it will allow all TPHs trading FLEX Options on the CFLEX System 
to avoid having to pay a fee that they would otherwise have to pay. The 
Exchange believes that the Waiver is equitable and not unfairly 
discriminatory because the Waiver applies to all types of market 
participants. Further, the Exchange believes that the Waiver will 
encourage TPHs to transact business in FLEX Options using the CFLEX 
System and encourage trading of customized options in an exchange 
environment.\14\ The Exchange believes such increased business will 
provide greater FLEX Options trading opportunities for all market 
participants. Also, the transaction fees collected from this increased 
business will allow the Exchange to recoup costs expended in building 
and developing the CFLEX System.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ The Exchange believes that FLEX Options provide TPHs and 
investors with an improved but comparable alternative to the over-
the-counter (``OTC'') market in customized options, which can take 
on contract characteristics similar to FLEX Options. The Exchange 
believes market participants benefit from being able to trade 
customized options in an exchange environment in several ways, 
including, but not limited to the following: (i) Enhanced efficiency 
in initiating and closing out positions; (ii) increased market 
transparency; and (iii) heightened contra-party creditworthiness due 
to the role of The Options Clearing Corporation as issuer and 
guarantor of FLEX Options.
---------------------------------------------------------------------------

    The Exchange believes that raising the threshold for the Rebate is 
reasonable because Market-Makers will still be able to receive a rebate 
for trading activity that they would not otherwise receive (as opposed 
to levying a fee), and those that cannot reach the new higher threshold 
will merely be required to pay regular transaction fees. The Exchange 
believes that raising the threshold for the Rebate is equitable and not 
unfairly discriminatory because it will encourage more competitive 
quoting from Market-Makers, which will benefit all market participants. 
Further, Market-Makers have certain obligations, such as quoting 
obligations, that other market participants do not have.
    The Exchange believes that the proposed increase in the Surcharge 
Fee from $0.15 to $0.30 per contract for options on RUT is reasonable 
because Surcharge Fees charged by the Exchange reflect the pass-through 
charges associated with the licensing of certain products, including 
RUT. The proposed increase is therefore a direct result of an increase 
in the licensing fee charged to the Exchange by the index provider and 
the owner of the intellectual property associated with the index. This 
increase is equitable and not unfairly discriminatory because the 
increased amount will be assessed to all market participants to whom 
the RUT Surcharge Fee applies. Also, other exchanges have recently 
increased their RUT surcharge fees to an even greater extent than the 
Exchange.\15\
---------------------------------------------------------------------------

    \15\ See SR-NYSEMKT-2013-65, which increased the AMEX Royalty 
Fee for RUT from $0.15 per contract to $0.40 per contract.
---------------------------------------------------------------------------

    The Exchange believes that the proposal to include Clearing Trading 
Permit Holder and JBO participant transaction fees towards qualifying 
for the cap (described in Footnote 13 to the Fees Schedule) on 
transaction fees for all reversals, conversions and jelly roll 
strategies executed on the same trading day in the same option class, 
excluding any option class on which the Exchange charges the Index 
License surcharge fee is reasonable because it will allow Clearing 
Trading Permit Holders and JBO participants executing such trades to 
have a cap on fees for such executions. The Exchange believes that this 
is equitable and not unfairly discriminatory because Clearing Trading 
Permit Holders take on a number of obligations, (such as membership 
with the Options Clearing Corporation), significant regulatory burdens, 
and financial obligations, that some other market participants do not 
take on. While this cap does not apply to Customer transactions, 
Customers pay significantly lower transaction fees (including for 
trades that may include such transactions) (and in many circumstances, 
no fee). Further, the Exchange believes that this will encourage 
Clearing Trading Permit Holders and JBO participants to execute such 
strategy transactions (the execution of which will add volume and 
provide trading opportunities for all market participants, especially 
those on the other side of such transactions). Further, other exchanges 
apply a similar cap to similar market participants.\16\
---------------------------------------------------------------------------

    \16\ See PHLX Pricing Schedule, ``Strategy Caps'' chart, which 
includes ``firms'' in their cap on such transactions (``firms'' and 
``Clearing Trading Permit Holders'' being similar market 
participants).
---------------------------------------------------------------------------

    The Exchange believes that lowering the cap from $1,000 to $700 on 
transaction fees for all reversals, conversions and jelly roll 
strategies executed on the same trading day in the same option class, 
excluding any option class on which the Exchange charges the Index 
License surcharge fee, is reasonable because it will allow qualifying 
market participants executing such trades to have a lower cap on fees 
for such executions (thereby saving money). The Exchange believes that 
this is equitable and not unfairly discriminatory because the proposed 
lowering of the cap does not affect which market participants qualify 
for the cap; this lowered cap applies to the same market participants 
as the $1,000 cap (with the exception of Clearing Trading Permit 
Holders and JBO participants, who now qualify as described above). 
Further, the Exchange proposes this change in order to encourage 
qualifying market participants to execute such strategy transactions 
(the execution of which will add volume and provide trading 
opportunities for all market participants, especially those on the 
other side of such transactions). Also, other exchanges apply similar 
caps in these amounts.\17\
---------------------------------------------------------------------------

    \17\ See PHLX Pricing Schedule, ``Strategy Caps'' chart.
---------------------------------------------------------------------------

    The Exchange believes that excluding JBO participants from the 
$25,000 per month cap on transaction fees for strategies (as described 
above) is reasonable because this change will merely require JBO 
participants to pay regular transaction fees on all such transactions. 
The Exchange believes that this change is equitable and not unfairly 
discriminatory because JBO participants do not have the obligations 
(such as becoming Trading Permit Holders, clearing trades, financial or 
regulatory burdens, quoting obligations, and books and records 
obligations) that other market participants who benefit from the 
$25,000 per month cap on transaction fees for strategies have, and they 
only trade for own accounts.
    The Exchange believes that excluding from the fee cap on merger 
strategies and short stock interest strategies transactions in any 
option class on which the Exchange charges the Index License surcharge 
fee under Footnote 14 of the Fees Schedule is reasonable, equitable and 
not unfairly discriminatory because there is no such thing as an index 
merger or a short stock index situation (because these strategies are 
only applicable to single stock options transactions). Therefore, since 
it would not be possible to do these strategies for index options, 
there could not be a discriminatory impact. Further, even if this were 
not the case, market participants trading merger strategies and short 
stock interest strategies in any

[[Page 55308]]

of those classes would merely be required to pay the regular 
transaction fees for such trades.
    The Exchange believes that excluding Clearing Trading Permit 
Holders from the $25,000 per month strategies fees cap is reasonable, 
equitable and not unfairly discriminatory because the Exchange is 
proposing to apply strategy transaction fees towards the Fee Cap, which 
includes many other types of Clearing Trading Permit Holder transaction 
fees and is more advantageous for Clearing Trading Permit Holders. 
Further, it would not make economic sense to include strategy 
transaction fees towards two different monthly fee caps (the Fee Cap 
and the $25,000 per month strategy transaction fee cap). Moreover, the 
Exchange believes that including strategy transaction fees in the Fee 
Cap will encourage Clearing Trading Permit Holders to execute more 
strategy trades (more than would applying Clearing Trading Permit 
Holder strategy transaction fees towards a strategies cap), with the 
resulting increased volume benefitting all market participants. 
Finally, without having transaction fees from strategy trades count 
towards a strategies cap, Clearing Trading Permit Holders will merely 
be required to pay regular transaction fees for such transactions.
    The Exchange believes that explicitly stating that the $25,000 per 
month strategies fees cap applies to TPH organizations as well as 
Trading Permit Holders is consistent with the Section 6(b)(5) \18\ 
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 facilitation 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. By clearing up any possible 
confusion, this proposed change removes impediments to and perfects the 
mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed change to include 
transaction fees resulting from such strategies to count towards the 
Fee Cap is reasonable because it will allow qualifying market 
participants who execute strategy transactions to benefit from the Fee 
Cap for doing so. The Exchange believes that this is equitable and not 
unfairly discriminatory because it will apply to all market 
participants who qualify for the Fee Cap. While the Fee Cap only 
applies to Clearing Trading Permit Holders, those market participants 
take on obligations, such as membership with the Options Clearing 
Corporation, significant regulatory burdens, and financial obligations, 
that some other market participants do not take on. Further, the 
Exchange believes that this will incentivize qualifying market 
participants to engage in such strategy executions, and the resulting 
increase in volume will benefit all market participants. Finally, this 
will put the strategy executions on the same footing as other 
transactions that count towards the Fee Cap.
    The Exchange believes that specifying that a complex order with a 
number of legs that exceeds system limitations to be tied to a single 
order ID qualifies for the Discount is reasonable because the Exchange 
does not intend to exclude such orders from qualification for the 
Discount; Exchange systems merely prevent such orders from being tied 
to a single order ID. Complex orders qualify for the Discount, this 
proposed change is merely intended to make up for an Exchange system 
limitation. This change is equitable and not unfairly discriminatory 
because it provides complex orders with more than the number of legs 
permitted for entry with a single order ID with the ability to qualify 
for the Discount, just as complex orders with a small enough number of 
legs as to permit such orders to be tied to a single order ID may 
qualify for the Discount.

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 Waiver will impose any burden on intramarket competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act because the Waiver will apply to all market participants accessing 
the CFLEX System via CMI or FIX Login IDs. Further, the Exchange 
believes that the Waiver will encourage TPHs to transact business in 
FLEX Options using the CFLEX System and encourage trading of customized 
options in an exchange environment. The Exchange believes such 
increased business will provide greater FLEX Options trading 
opportunities for all market participants, and the Exchange believes 
that the transaction fees collected from this increased business will 
allow the Exchange to recoup costs expended in building and developing 
the CFLEX System. CBOE does not believe that the proposed Waiver will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed change only applies to accessing the CFLEX System, which is 
only available on CBOE. To the extent that waived fees for CMI or FIX 
Login IDs for accessing the CFLEX System makes CBOE a more attractive 
trading venue for market participants at other exchanges, such market 
participants may elect to become CBOE market participants.
    CBOE does not believe that the proposed increase in the Rebate 
threshold will impose any burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because the increase does not change which market participants to whom 
the Rebate applies; it merely changes the threshold for qualification 
for the Rebate. Further, while the Rebate applies to Market-Makers, 
Market-Makers have certain obligations, such as quoting obligations, 
that other market participants do not have. CBOE does not believe that 
the proposed increase in the Rebate threshold will impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed change only 
applies to trading on CBOE, and only CBOE has a HAL Step-Up Rebate.
    CBOE does not believe that the proposed increase in the RUT 
Surcharge Fee will impose any burden on intramarket competition that is 
not necessary or appropriate in furtherance of the purposes of the Act 
because the increase does not change which market participants to whom 
the RUT Surcharge Fee applies; it merely changes the fee's amount. CBOE 
does not believe that the proposed increase in the RUT Surcharge Fee 
will impose any burden on intermarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act because the 
proposed change only applies to trading of RUT on CBOE. The Exchange 
further notes that the licensing agreement it has secured is not an 
exclusive agreement as at least two other options exchanges continue to 
trade RUT options and charge a fee related to such license (and indeed, 
the Exchange's proposed increased fee is still lower than that offered 
on other exchanges). As such, the Exchange believes that there is no 
unnecessary or

[[Page 55309]]

inappropriate burden on competition among exchanges for the trading of 
RUT options.
    The Exchange does not believe that the proposal to include Clearing 
Trading Permit Holder and JBO participant transaction fees towards 
qualifying for the cap (described in Footnote 13 to the Fees Schedule) 
on transaction fees for all reversals, conversions and jelly roll 
strategies executed on the same trading day in the same option class, 
excluding any option class on which the Exchange charges the Index 
License surcharge fee, will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because Clearing Trading Permit Holders take on a 
number of obligations, (such as membership with the Options Clearing 
Corporation), significant regulatory burdens, and financial 
obligations, that some other market participants do not take on. While 
this cap does not apply to Customer transactions, Customers pay 
significantly lower transaction fees (including for trades that may 
include such transactions) (and in many circumstances, no fee). 
Further, the Exchange believes that this will encourage Clearing 
Trading Permit Holders and JBO participants to execute such strategy 
transactions (the execution of which will add volume and provide 
trading opportunities for all market participants, especially those on 
the other side of such transactions). The Exchange does not believe 
that this will impose any burden on intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because the change only applies to trading on CBOE. Further, other 
exchanges apply a similar cap to similar market participants,\19\ so 
this change should make CBOE more competitive with other exchanges. To 
this extent, if this change makes CBOE more attractive to market 
participants on other exchanges, such market participants may elect to 
become CBOE market participants.
---------------------------------------------------------------------------

    \19\ See PHLX Pricing Schedule, ``Strategy Caps'' chart, which 
includes ``firms'' in their cap on such transactions (``firms'' and 
``Clearing Trading Permit Holders'' being similar market 
participants).
---------------------------------------------------------------------------

    The Exchange does not believe that the proposed change to lower 
from $1,000 to $700 the cap (described in Footnote 13 to the Fees 
Schedule) on transaction fees for all reversals, conversions and jelly 
roll strategies executed on the same trading day in the same option 
class, excluding any option class on which the Exchange charges the 
Index License surcharge fee, will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the proposed lowering of the cap does not 
affect which market participants qualify for the cap; this lowered cap 
applies to the same market participants as the $1,000 cap (with the 
exception of Clearing Trading Permit Holders and JBO participants, who 
now qualify as described above). Further, the Exchange proposes this 
change in order to encourage qualifying market participants to execute 
such strategy transactions (the execution of which will add volume and 
provide trading opportunities for all market participants, especially 
those on the other side of such transactions). The Exchange does not 
believe that this will impose any burden on intermarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act because the change only applies to trading on CBOE. Further, 
other exchanges apply similar caps in these amounts,\20\ so this change 
should make CBOE more competitive with other exchanges. To this extent, 
if this change makes CBOE more attractive to market participants on 
other exchanges, such market participants may elect to become CBOE 
market participants.
---------------------------------------------------------------------------

    \20\ See PHLX Pricing Schedule, ``Strategy Caps'' chart.
---------------------------------------------------------------------------

    The Exchange does not believe that the proposed change to exclude 
JBO participants from the $25,000 per month cap on transaction fees for 
strategies (as described above) will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because JBO participants do not have the 
obligations (such as becoming Trading Permit Holders, clearing trades, 
financial or regulatory burdens, quoting obligations, and books and 
records obligations) that other market participants have, and they only 
trade for own accounts. The Exchange does not believe that this will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
change only applies to trading on CBOE.
    The Exchange does not believe that the proposed change to exclude 
from the fee cap on merger strategies and short stock interest 
strategies transactions in any option class on which the Exchange 
charges the Index License surcharge fee under Footnote 14 of the Fees 
Schedule will impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because there is 
no such thing as an index merger or a short stock index situation.
    The Exchange does not believe that the proposed changes to include 
transaction fees resulting from such strategies to count towards the 
Fee Cap will impose any burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because they will apply to all market participants who qualify for the 
Fee Cap. While the Fee Cap only applies to Clearing Trading Permit 
Holders, those market participants take on obligations, such as 
membership with the Options Clearing Corporation, significant 
regulatory burdens, and financial obligations, that some other market 
participants do not take on. Further, the Exchange believes that this 
will incentivize qualifying market participants to engage in such 
strategy executions, and the resulting increase in volume will benefit 
all market participants. The Exchange does not believe that this will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because it only 
affects trading on CBOE. Further, to the extent that these changes may 
make CBOE a more attractive trading venue for market participants on 
other exchanges, such market participants may elect to become CBOE 
market participants.
    The Exchange does not believe that the proposed change to exclude 
Clearing Trading Permit Holders from the $25,000 per month strategies 
fees cap will impose any burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because the Exchange is proposing to apply transaction fees from 
strategies trades towards the Fee Cap, which includes many other types 
of Clearing Trading Permit Holder transaction fees and is more 
advantageous for Clearing Trading Permit Holders. Further, it would not 
make economic sense to include strategy transaction fees towards two 
different monthly fee caps (the Fee Cap and the $25,000 per month 
strategy transaction fee cap). Further, the Exchange believes that 
including strategy transaction fees in the Fee Cap will encourage 
Clearing Trading Permit Holders to execute more strategy trades (more 
than would applying Clearing Trading Permit Holder strategy transaction 
fees towards a strategies cap), with the resulting increased volume 
benefitting all market participants. The Exchange does not believe that 
this will impose any burden on intermarket competition that is not

[[Page 55310]]

necessary or appropriate in furtherance of the purposes of the Act 
because the change only applies to trading on CBOE.
    The Exchange does not believe that the proposal to explicitly state 
that the $25,000 per month strategies fees cap applies to TPH 
organizations as well as Trading Permit Holders will impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act because this is not a substantive change, but 
merely intended to clear up any potential confusion.
    CBOE does not believe that the proposed amendment to Footnote 27 
permitting complex orders that cannot be tied to a single order ID to 
qualify for the Discount will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because this proposed change does not affect which 
types of market participants qualify for the Discount; it is merely 
intended to make up for an Exchange system limitation. This change 
provides complex orders that cannot be tied to a single order ID with 
the ability to qualify for the Discount, just as complex orders that 
can be tied to a single order ID may qualify for the Discount. CBOE 
does not believe that this proposed change will impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act for much of the same reasons. 
The change is not made for competitive reasons, but instead to correct 
for an Exchange system limitation. Further, this proposed change 
applies only to trading on CBOE. To the extent that the proposed change 
may make CBOE a more attractive trading venue 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 \21\ and paragraph (f) of Rule 19b-4 \22\ 
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.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2013-083 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-2013-083. 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 such filing also will be available 
for inspection and copying at the principal offices 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-2013-083, 
and should be submitted on or before October 1, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-21933 Filed 9-9-13; 8:45 am]
BILLING CODE 8011-01-P