Document ID: SEC-2013-0325-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2013-02-14T05:00Z

[Federal Register Volume 78, Number 31 (Thursday, February 14, 2013)]
[Notices]
[Pages 10647-10649]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03394]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68887; File No. SR-CBOE-2013-017]

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

February 8, 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 February 1, 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.
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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 the 
Substance of the Proposed Rule Change

    The Exchange is proposing to amend the 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.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fees Schedule. Specifically, the 
Exchange proposes to amend its Volume Incentive Program (``VIP''), 
through which the Exchange credits each Trading Permit Holder (``TPH'') 
the per contract amount resulting from each public customer (``C'' 
origin code) order transmitted by that TPH which is executed 
electronically on the Exchange in all multiply-listed option classes 
(excluding Qualified Contingent Cross (``QCC'') trades and executions 
related to contracts that are routed to one or more exchanges in 
connection with the Options Order Protection and Locked/Crossed Market 
Plan referenced in Rule 6.80), provided the TPH meets certain volume 
thresholds in a month. The proposed changes are to take effect on 
February 1, 2013.
    First, the Exchange proposes to change the different fee tier 
thresholds in the VIP. Currently, qualification for the different fee 
rates at different tiers in the VIP is based on a TPH's percentage of 
national customer volume in multiply-listed options monthly. The 
current qualification tiers are set to, in ascending order, 0 through 
0.75%,\3\ above 0.75% through 2.25%, above 2.25% through 3.50%, above 
3.50% through 5.00%, and above 5.00%. The purpose of the change is to 
eliminate the fifth qualification tier and adjust the threshold 
percentages for tier one through tier four. The Exchange is proposing 
to amend the tiers to be, in ascending order, 0 through 0.75%, above 
0.75% through 2.00%, above 2.00% through 2.75%, and above 2.75%. 
Lowering the upper thresholds in the second and third tiers, along with 
the corresponding lower thresholds in the third and fourth tiers, 
allows for a greater number or participants to achieve a higher payment 
in the VIP Program.
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    \3\ Each tier is based on the percentage of total national 
customer volume in multiply-listed options monthly.
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    The Exchange also proposes to change the amounts of the credits in 
the tiers of the VIP. The credit in the second tier will be increased 
from $0.07 per contract to $0.10 per contract, the credit in the third 
tier will be decreased from $0.12 per contract to $0.11 per contract, 
and the credit in the fourth tier will decrease from $0.18 to $0.14 per 
contract. Going forward, the relative volume thresholds and credit 
amounts will be as follows:

------------------------------------------------------------------------
  Percentage thresholds of  national customer volume in    Per contract
       multiply-listed options  classes (monthly)             credit
------------------------------------------------------------------------
0%-0.75%................................................           $0.00
Above 0.75%-2.00%.......................................            0.10
Above 2.00%-2.75%.......................................            0.11
Above 2.75..............................................            0.14
------------------------------------------------------------------------

The purpose of increasing the credit in the second tier and decreasing 
the credits in the third and fourth tiers is to rationalize the 
opportunity to receive a credit under the VIP across a broader set of 
participants. Lowering the credit in the third and fourth tiers allows 
the Exchange to make up for lowering the thresholds in tier two through 
tier four.
    Next, the Exchange is proposing to eliminate the VIP credit of 
$0.10 per contract at every tier in VIP. Currently this $0.10 credit is 
given at every tier, including the $0.00 tier, on each leg, for 
customer, complex multiply-listed options contracts, when executed 
electronically against a non-public customer origin. The Exchange is 
proposing to eliminate this additional credit. Eliminating this credit 
allows the Exchange to make up for threshold and credit adjustments as 
proposed above.
    Finally, the Exchange is proposing to add to the notes on the VIP 
table. The Exchange is proposing to amend the section of the ``Notes'' 
on the VIP table to state that the VIP payment will be calculated from 
the first executed contract at the applicable threshold per contract 
credit. Stated in a different way, VIP payments will be made at the 
highest achieved tier for each contract executed in that month. Under 
the current VIP, VIP payments are made for the number of applicable 
contracts executed in each tier. For example, if TPH Firm XYZ executes 
2.50% of the total national customer volume in the month of April, XYZ 
would receive a $0.00 credit for the contracts at 0.75% of the market 
and below, a credit of $0.10 \4\ for the contracts above 0.75% through 
2.00% of the market, and $0.11 for each contract above 2.00% of the 
market through the total 2.50% of the market. In the proposed VIP 
Program, XYZ will receive a credit of $0.11 for each contract executed 
in the month of

[[Page 10648]]

April. The purpose of the proposed change is to provide a greater 
incentive to direct greater customer trade volume to the Exchange to 
achieve a greater monthly percentage and receive a greater credit for 
all executed contracts at the greatest level achieved.
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    \4\ For sake of the example, credit amounts being applied are 
the proposed credit changes as mentioned above.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\6\ which provides that Exchange rules may provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its Trading Permit Holders and other persons using its 
facilities.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed changes to amend the fee 
tier thresholds in the VIP are reasonable. Specifically, decreasing the 
upper thresholds in the second and third tiers, and thus the 
corresponding lower thresholds in third and fourth tiers, is reasonable 
because the slight changes are designed to provide TPHs a greater 
ability to reach higher tiers. These changes are equitable and not 
unfairly discriminatory because they will be applied to all TPHs. The 
Exchange believes that the proposed changes to increase the credit in 
the second tier of the VIP and decrease the credits in the third and 
fourth tiers each are reasonable. In the case of the increase in the 
credit for the second tier, the change will allow TPHs who reach the 
percentage threshold in that tier to receive an increased credit for 
doing so. In the case of the decrease in the credit for the third and 
fourth tiers, the change will still allow TPHs who reach the percentage 
threshold in that tier to receive a credit which is higher than such 
TPH would receive in the tier immediately below it. These changes are 
equitable and not unfairly discriminatory because they will be applied 
to all TPHs.
    The proposed changes to eliminate the VIP credit of $0.10 per 
contract at every tier in VIP is reasonable given the other proposed 
lower threshold and credits in the VIP. Though the Exchange is 
eliminating the additional credit, through the proposed changes, TPHs 
have a greater ability to reach higher tiers. Thus, eliminating the fee 
[sic] is reasonable when coupled with the other changes to the VIP. The 
elimination of this credit is equitable and not unfairly discriminatory 
as it applies to all TPHs. Finally, the Exchange believes that amending 
the Notes Section of the VIP is reasonable because it allows TPHs to 
receive a greater credit by applying the greatest credit obtained to 
all trades done in that particular month. This change is equitable and 
not unfairly discriminatory because it will be applied to all TPHs.
    Moreover, the purpose of all of the proposed changes is to 
encourage the sending and electronic execution of customer multiply-
listed options volume to the Exchange. This increased volume creates 
greater trading opportunities that benefit all market participants 
(including TPHs that do not reach the higher-credit tiers in the VIP). 
Further, the increased volume and improved trading opportunities will 
provide such TPHs with a better opportunity to reach the higher-credit 
tiers in the VIP.

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. To the extent that some of the 
changes to the VIP may attract greater trading volume to CBOE (and away 
from other exchanges), the Exchange does not believe the proposed 
changes will impose any burden on intermarket competition. The Exchange 
notes that, should the proposed changes make CBOE more attractive for 
trading, market participants trading on other exchanges can always 
elect to become TPHs on CBOE. Further, the Exchange exists in a 
competitive marketplace, and to the extent that these proposed changes 
make other exchanges less competitive with CBOE, market participants 
trading on those other exchanges can elect to trade on CBOE.
    The Exchange does not believe the proposed changes will impose any 
burden on intramarket competition. Though the proposed changes only 
benefit TPHs that meet the VIP thresholds, the purpose of all of the 
proposed changes is to encourage the sending and electronic execution 
of customer multiply-listed options volume to the Exchange. This 
increased volume creates greater trading opportunities that benefit all 
market participants (including TPHs that do not reach the higher-credit 
tiers in the VIP). Further, the proposed changes apply to all TPHs.
    The Exchange does not believe that the proposed changes to 
eliminate the VIP credit of $0.10 per contract at every tier in VIP 
will impose any burden on intermarket competition because the change is 
minimal and the VIP program already gives a credit to qualifying TPHs. 
Further, to the extent that any change in intramarket competition may 
result from this change, such possible change is justifiable and offset 
because the changes to such fees are designed to attract greater 
customer order flow to the Exchange. This would bring greater liquidity 
to the market, which benefits all market participants. The Exchange 
does not believe that the elimination of the additional $0.10 credit 
will cause any unnecessary burden on intermarket competition because 
the changes are minimal and only apply to certain TPHS that qualify for 
the VIP.
    The Exchange also notes that it operates in a highly-competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive. The proposed rule change reflects a competitive pricing 
structure designed to incent market participants to direct their order 
flow to the Exchange, and the Exchange believes that such structure 
will help the Exchange remain competitive with those fees and rebates 
assessed by other venues.

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 \7\ and paragraph (f) of Rule 19b-4 \8\ 
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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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act.

[[Page 10649]]

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-2013-017 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-2013-017. 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 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-2013-017, and should be 
submitted on or before March 7, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03394 Filed 2-13-13; 8:45 am]
BILLING CODE 8011-01-P