Document ID: SEC-2011-0652-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2011-05-10T04:00Z

[Federal Register Volume 76, Number 90 (Tuesday, May 10, 2011)]
[Notices]
[Pages 27108-27110]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11362]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64405; File No. SR-CBOE-2011-042]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Retroactive Waiver of PAR Official Fees

May 4, 2011.
    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 April 25, 2011, Chicago Board Options Exchange, Incorporated 
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by CBOE. 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

    Chicago Board Options Exchange, Incorporated (``CBOE'' or 
``Exchange'') proposes to retroactively waive PAR Official Fees for the 
month of February 2011. 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'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, CBOE 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. 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
    The Exchange proposes to retroactively waive PAR Official Fees for 
the month of February 2011.

Background

    The Exchange established PAR Official \3\ Fees in January 2011.\4\ 
These fees apply to all orders executed by a PAR Official, except for 
customer orders (``C'' origin code) that are not directly routed to the 
trading floor (an order that is directly routed to the trading floor is 
directed to a PAR Official for manual handling by use of a field on the 
order ticket). The PAR Official Fees established in January 2011 were 
$.02 per contract and a discounted rate of $.01 per contract for 
crossed orders.\5\ PAR Official Fees help to offset the Exchange's 
costs of providing PAR Official services (e.g., salaries, etc).
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    \3\ A PAR Official is an Exchange employee or independent 
contractor whom the Exchange may designate as being responsible for 
(i) operating the PAR workstation in a Designated Primary Market-
Maker trading crowd with respect to the classes of options assigned 
to him/her; (ii) when applicable, maintaining the book with respect 
to the classes of options assigned to him/her; and (iii) effecting 
proper executions of orders placed with him/her. The PAR Official 
may not be affiliated with any Trading Permit Holder that is 
approved to act as a Market-Maker. See CBOE Rule 7.12.
    \4\ See Securities Exchange Act Release No. 67301 (January 11, 
2011), 76 FR 2934 (January 18, 2011) (SR-CBOE-2010-116).
    \5\ PAR Official Fees for crossed orders, like Floor Brokerage 
Fees, are assessed at a discounted rate because these fees are 
assessed ``per side'' and thus, these fees are equal to the amount 
assessed for one standard (non-crossed) order.
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    After establishing PAR Official Fees, the Exchange became concerned 
that the PAR Official Fee structure did not allocate these fees to take 
into consideration the amount that Trading Permit Holders rely on PAR 
Officials such that those Trading Permit Holders that incidentally use 
PAR Officials were assessed the same fee as Trading Permit Holders that 
routinely conduct their business through PAR Officials and rely heavily 
on PAR Officials for the execution of orders. Reliance on PAR Officials 
as the primary means of execution is inconsistent with the Exchange's 
intent to provide PAR Official services as a supplementary means of 
execution for incidental orders. Heavy reliance on PAR Officials 
subjects the Exchange to the additional expense and undue strain of 
providing the additional staffing of PAR Officials.
    PAR Official Fees compensate the Exchange for providing overflow 
services to order originating firms or, as applicable, executing firms, 
particularly Floor Brokers,\6\ when they do not have personnel 
available to act as agent. Some Trading Permit Holders or TPH 
organizations obtain only one or two Floor Broker Trading Permits, 
making it unlikely that, regardless of business level, they could cover 
all locations on the Exchange and thus rely on CBOE personnel as part 
of the Floor Broker's daily, ongoing business operations. The Exchange 
believes that those firms that rely heavily on PAR Officials to conduct 
their floor brokerage business, such that PAR Officials execute more 
than an incidental number of orders on their behalf, may obtain a 
minimum number of Trading Permits to access the floor. Thus, these 
firms subsidize their floor brokerage operations at CBOE's expense in 
that PAR Officials are either contractors paid by CBOE or CBOE 
employees. Trading Permit Holders that adequately staff their business 
operations and rely incidentally on PAR Officials incur higher costs to 
retain a sufficient number of Trading Permits.\7\ The Exchange 
determined such Trading Permit Holders should not be subject to the 
same amount for PAR Official Fees incurred by a Trading Permit Holder 
that relies disproportionately on PAR Officials to conduct its floor 
brokerage business because it does not maintain

[[Page 27109]]

an adequate number of Trading Permits to conduct its floor brokerage 
business and further, is not subject to the cost of the additional 
Trading Permits required to adequately staff its business.
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    \6\ CBOE Rule 6.70 provides: ``A Floor Broker is an individual 
(either a Trading Permit Holder or a nominee of a TPH organization) 
who is registered with the Exchange for the purpose, while on the 
Exchange floor, of accepting and executing orders received from 
Trading Permit Holders or from registered broker-dealers. A Floor 
Broker shall not accept an order from any other source unless he is 
the nominee of a TPH organization approved to transact business with 
the public in accordance with Rule 9.1. In the event the 
organization is approved pursuant to Rule 9.1, a Floor Broker who is 
the nominee of such organization may then accept orders directly 
from public customers where (i) the organization clears and carries 
the customer account or (ii) the organization has entered into an 
agreement with the public customer to execute orders on its behalf. 
Among the requirements a Floor Broker must meet in order to register 
pursuant to Rule 9.1 is the successful completion of an examination 
for the purpose of demonstrating an adequate knowledge of the 
securities business.''
    \7\ For example, pursuant to Section 10 of CBOE's Fees Schedule, 
Floor Broker Trading Permit Holders are subject to a $6,000 per 
month Trading Permit Fee. A Floor Broker Trading Permit Holder that 
requires ten Floor Broker Trading Permits to adequately staff its 
business is subject to a cost of $60,000 per month for Trading 
Permit Fees (totaling $720,000 per year). By comparison, a Trading 
Permit Holder that routes the majority of its orders to PAR 
Officials for execution and maintains one Trading Permit is subject 
to a $6,000 per month Trading Permit Fee ($72,000 annually).
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    For the reasons above, the Exchange determined to change the manner 
in which it assessed PAR Official Fees such that PAR Official Fees 
would be reduced or eliminated for those Trading Permit Holders that 
maintain sufficient staff to manage their floor brokerage operations 
and thus, do not rely heavily on PAR Officials to execute their orders. 
On February 1, 2011, the Exchange filed a proposed rule change to waive 
PAR Official Fees for any affiliated Trading Permit Holders that have 
ten or more Floor Broker Trading Permits throughout the calendar 
month.\8\ The change did not become effective. To minimize disruption 
while the Exchange continued to consider changes to the PAR Official 
Fees, the Exchange announced that it would not collect any PAR Official 
Fees for the month of February 2011.\9\
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    \8\ See CBOE Regulatory Circular RG11-021.
    \9\ See CBOE Regulatory Circular RG11-026 dated February 9, 
2011. The Exchange collects PAR Official Fees in arrears at the end 
of each month.
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    CBOE subsequently amended its Fees Schedule effective March 1, 
2011, to assess PAR Official Fees in Volatility Index Options in the 
amount of $.03 per contract for standard (non-crossed) orders and $.015 
per contract for all crossed orders (per side) and to waive PAR 
Official Fees for all classes except Volatility Index Options for March 
2011.\10\ The Exchange amended its Fees Schedule effective April 1, 
2011 to establish volume threshold tiers for the assessment of PAR 
Official Fees based on the percentage of volume that is effected by a 
PAR Official on behalf of an order originating firm or, as applicable, 
an executing firm.\11\
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    \10\ See Securities Exchange Act Release No. 64070 (March 11, 
2011), 76 FR 15025 (March 18, 2011) (SR-CBOE-2011-022).
    \11\ See Securities Exchange Act Release No. 64217 (April 6, 
2011), 76 FR 20793 (April 13, 2011) (SR-CBOE-2011-030).
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Fee Waiver

    As described above, the Exchange did not collect any PAR Official 
Fees for February 2011 as it was considering changes in the manner in 
which it would assess the fees. Accordingly, the Exchange proposes to 
waive PAR Official Fees in all options classes for all firms for the 
month of February 2011. Since the Exchange did not collect any PAR 
Official Fees for February 2011, the Exchange is not proposing to 
rebate any fees.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Securities Exchange Act of 1934 (``Act'') \12\, in 
general, and furthers the objectives of Section 6(b)(4) \13\ of the Act 
in particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among CBOE 
Trading Permit Holders. The Exchange believes that the proposed rule 
change is equitable, reasonable and not unfairly discriminatory in 
that, in general, the Exchange decided to waive PAR Official Fees for 
the month of February 2011 while it considered a way to more equitably 
and reasonably assess the PAR Official Fees to those Trading Permit 
Holders that rely more heavily on PAR Officials to conduct their floor 
brokerage business. After establishing flat per contract PAR Official 
Fees, the Exchange became concerned that the flat per contract fees did 
not provide an incentive for firms to adequately staff their business 
as each Trading Permit Holder was currently assessed the same PAR 
Official Fees. To minimize disruption while the Exchange continued to 
consider changes to the PAR Official Fees, and to avoid assessing fees 
that the Exchange believed could be more equitably and reasonably 
assessed, the Exchange announced that it would not collect any PAR 
Official Fees for the month of February 2011.\14\ The Exchange 
ultimately amended its Fees Schedule effective April 1, 2011 to 
establish volume threshold tiers for the assessment of PAR Official 
Fees based on the percentage of volume that is effected by a PAR 
Official on behalf of an order originating firm or, as applicable, an 
executing firm.\15\
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ Supra Footnote 9.
    \15\ Supra Footnote 11.
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    Specifically, the Exchange believes that the proposal to 
retroactively waive PAR Official Fees for the month of February 2011 is 
equitable and reasonable in that the waiver will apply in all options 
classes and to all firms. No PAR Official Fees will be collected for 
the month of February 2011 from any firm. The Exchange notes that CBOE 
Trading Permit Holders were provided with notice of the fee waiver on 
February 9, 2011, and were thus aware for most of the month of February 
that PAR Official Fees would not be assessed for that month.\16\ The 
Exchange believes that during the time period from February 1 to 
February 9, 2011, it is unlikely that any Trading Permit Holder made a 
trading decision based on a belief that the PAR Official Fees would be 
assessed during that time period. For these reasons, the Exchange 
believes that retroactive waiver of the fee will not result in any 
unfair discrimination with respect to any firm or group of firms.
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    \16\ Supra Footnote 9.
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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 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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
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    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. CBOE has provided 
the Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing of the 
proposed rule change.

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:

[[Page 27110]]

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-2011-042 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-2011-042. 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 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-2011-042 and should be 
submitted on or before May 31, 2011.

    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11362 Filed 5-9-11; 8:45 am]
BILLING CODE 8011-01-P