Document ID: SEC-2011-1411-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2011-09-19T04:00Z

[Federal Register Volume 76, Number 181 (Monday, September 19, 2011)]
[Notices]
[Pages 58063-58065]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-23897]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65325; File No. SR-CBOE-2011-085]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Concerning the Clearing Trading Permit Holder 
Proprietary Transaction Fee Waiver for Orders in Multiply-Listed FLEX 
Options Classes

September 12, 2011.
    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 August 31, 2011, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') 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 by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's Office of the Secretary, and at 
the Commission.

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

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

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

1. Purpose
    On August 1, 2011, the Exchange implemented a waiver of the 
Clearing Trading Permit Holder (``CTPH'') Proprietary Transaction Fee 
(the ``Fee'') for CTPHs executing facilitation orders in multiply-
listed FLEX Options classes (the ``Waiver'').\3\ At that time, the 
Exchange intended to exclude from the Waiver such orders originating 
from joint back-office (``JBO'') participants, but due to an oversight, 
such orders were not excluded. Therefore, the Exchange now proposes to 
amend the Waiver to exclude such orders originating from JBO 
participants.
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    \3\ See Securities Exchange Act Release No. 34-65007 (August 2, 
2011), 76 FR 48190 (August 8, 2011) (SR-CBOE-2011-071).
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    A JBO is an arrangement whereby a broker/dealer maintains a nominal 
ownership interest in its clearing firm. The clearing firm will issue a 
special class of non-voting preferred stock to other broker/dealers 
that clear their proprietary positions through the clearing firm. JBO 
participants are not considered self-clearing for any purpose other 
than the extension of credit under CBOE Rule 12.3 or under comparable

[[Page 58064]]

rules of another self-regulatory organization.\4\
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    \4\ See CBOE Rule 13.4, Interpretation and Policy .01.
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    JBOs are separate entities from the CTPHs with which they maintain 
an arrangement, and do not have a complete common identity of ownership 
with the CTPHs. JBOs take advantage of the exposure across the market 
that CTPHs afford and use CTPHs for margin relief. While JBO trades 
come into market with the same origin code as CTPHs, these trades are 
executed on behalf of the JBO and not the CTPHs. CTPHs have various 
obligations, such as clearing accounts and settling trades, and must 
abide by certain requirements, such as those regarding books and 
records, and risk analysis, that JBOs do not. Moreover, unlike CTPHs, 
JBOs do not guarantee performance on contracts, and if a JBO backs out 
of a position or otherwise cannot maintain a position that the JBO had 
taken, the CTPH is still on the hook to maintain that JBO position. 
Also, unlike CTPHs, JBOs are not self-clearing for the purposes of 
facilitation.\5\ Further, CTPHs must work with the Options Clearing 
Corporation (``OCC'') to clear trades and satisfy OCC requirements on 
subjects such as capital requirements, which JBOs do not need to 
satisfy. In recognition of the obligations and liabilities that CTPHs 
possess and which JBOs do not possess, and because JBOs are not self-
clearing for the purposes of facilitation, the Exchange does not at the 
present time desire to provide the Waiver to JBOs, and therefore 
proposes to exclude JBOs from the Waiver. Finally, the Exchange 
currently excludes JBO orders from the Fee Cap and Sliding Scale.\6\ 
Excluding JBOs from the Waiver helps to achieve a level of consistency 
in the Fees Schedule.
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    \5\ See CBOE Rule 13.4, Interpretation and Policy .01.
    \6\ See Exchange Fees Schedule section regarding the Multiply-
Listed Options Fee Cap and the CBOE Proprietary Products Sliding 
Scale for Clearing Trading Permit Holder Proprietary Orders.
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    As previously stated, JBO trades come into the market with the same 
origin code as CTPHs. However, CTPHs may possess different clearing 
firm numbers; each CTPH has a number for its own trades, and a 
different number for each JBO. Therefore, JBO trades will be identified 
and differentiated from CTPH trades by these different numbers.
    The proposed rule change would take effect on September 1, 2011.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\7\ in general, and furthers the objectives of Sections 6(b)(4) \8\ 
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 and other persons using Exchange 
facilities. The Exchange believes that amending the Waiver to exclude 
JBO orders is reasonable because the amount of the fee, either $0.20 or 
$0.25 per contract (depending on the product), is within the range of 
fees assessed by the Exchange for other orders charged to other market 
participants for the same product.\9\ Indeed, up until August 1, 2011 
(one month ago), when the Waiver was instituted and unintentionally 
included JBO trades, JBOs paid this amount for firm facilitation orders 
in multiply-listed FLEX Options classes.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
    \9\ See Exchange Fees Schedule, Section 1.
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    The Exchange believes amending the Waiver to exclude JBO orders is 
equitable and not unfairly discriminatory because, unlike CTPHs, JBOs 
are not self-clearing for the purposes of facilitation,\10\ and because 
CTPHs have a number of obligations, responsibilities and liabilities 
that JBOs do not possess. These obligations include clearing accounts, 
settling trades, and must abide by certain requirements, such as those 
regarding books and records, and risk analysis. Moreover, unlike CTPHs, 
JBOs do not guarantee performance on contracts, and if a JBO backs out 
of a position or otherwise cannot maintain a position that the JBO had 
taken, the CTPH is still on the hook to maintain that JBO position. 
Further, CTPHs must work with the OCC to clear trades and satisfy OCC 
requirements on subjects such as capital requirements, which JBOs do 
not need to satisfy. In recognition of the obligations and liabilities 
that CTPHs possess and which JBOs do not possess, and because JBOs are 
not self-clearing for the purposes of facilitation, the Exchange 
believes it is equitable and not unfairly discriminatory to exclude 
JBOs from the Waiver. Finally, the Exchange currently excludes JBO 
orders from the Fee Cap and Sliding Scale.\11\ Excluding JBOs from the 
Waiver helps to achieve a level of consistency in the Fees Schedule.
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    \10\ See CBOE Rule 13.4, Interpretation and Policy .01.
    \11\ See Exchange Fees Schedule section regarding the Multiply-
Listed Options Fee Cap and the CBOE Proprietary Products Sliding 
Scale for Clearing Trading Permit Holder Proprietary Orders.
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    The Exchange operates in a highly competitive market in which 
sophisticated and knowledgeable market participants readily can, and 
do, send order flow to competing exchanges based on fee levels. The 
Exchange believes that the fees it assesses must be competitive with 
fees assessed on other options exchanges. The Exchange believes that 
this competitive marketplace impacts the fees present on the Exchange 
today and influences the proposals set forth above.

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change is designated by the Exchange as 
establishing or changing a due, fee, or other charge, thereby 
qualifying for effectiveness on filing pursuant to Section 19(b)(3)(A) 
of the Act\12\ and subparagraph (f)(2) of Rule 19b-4\13\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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

[[Page 58065]]

Number SR-CBOE-2011-085 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-2011-085. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing 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-2011-085 and should be 
submitted on or before October 11, 2011.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-23897 Filed 9-16-11; 8:45 am]
BILLING CODE 8011-01-P