Document ID: SEC-2017-0810-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2017-05-19T04:00Z

[Federal Register Volume 82, Number 96 (Friday, May 19, 2017)]
[Notices]
[Pages 23118-23121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10126]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80671; File No. SR-CBOE-2017-039]

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

May 15, 2017.
    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 May 1, 2017, 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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[[Page 23119]]

I. Self-Regulatory Organization's Statement of the Terms of the 
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 to adopt a new 
Supplemental CBOE Volatility Index (``VIX'') Total Firm Volume Discount 
for Clearing Trading Permit Holders' (``TPHs'') proprietary orders 
(``Supplemental VIX Discount''). The Supplemental VIX Discount allows 
VIX options transaction fees for Clearing TPHs' (including its Non-TPH 
affiliates) proprietary orders to be discounted provided a Clearing TPH 
(including its Non-TPH affiliates) reaches certain VIX firm volume 
percentage thresholds during a calendar month.
    The proposed transaction fee discounts for the different volume 
percentage tiers for the Supplemental VIX Discount are as follows:

------------------------------------------------------------------------
                                                             Transaction
                VIX firm volume percentage                       fee
                                                             discount %
------------------------------------------------------------------------
11.00-12.99...............................................            20
13.00-14.99...............................................            30
Above 14.99...............................................            40
------------------------------------------------------------------------

    The VIX Discount applies to orders bearing the origin codes ``F'' 
and ``L.'' The purpose of the VIX Discount is to encourage greater 
Clearing TPH proprietary trading of VIX options while maintaining an 
incremental incentive for Clearing TPHs to strive for the highest 
discount level.
    To determine a Clearing TPH's applicable discount, the Exchange 
will calculate a Clearing TPH's total proprietary order volume in VIX 
as a percentage of all Clearing TPHs' total proprietary order volume in 
VIX during a calendar month. Total proprietary order volume is 
calculated by accounting for all volume in VIX with an ``F'' or ``L'' 
Origin Code, with volume in the Extended Trading Hours (ETH) aggregated 
with Regular Trading Hours (RTH) volume for the same calendar month 
included for purposes of calculating the VIX firm volume threshold and 
applicable transaction fee discount. The transaction fee discount 
percentage will apply to all of a Clearing TPH's transaction fees 
assessed for proprietary order volume in VIX during the calendar month.
    In conjunction with the adoption of the Supplemental VIX Discount, 
the Exchange proposes to amend Footnote 11 of its Fees Schedule to 
reference the Supplemental VIX Discount. Like the Clearing TPH Fee Cap, 
CBOE Proprietary Products Sliding Scale, and the Proprietary VIX 
Sliding Scale, the VIX Discount will apply to (i) Clearing TPH 
proprietary orders (``F'' origin code), and (ii) orders of Non-TPH 
Affiliates of a Clearing TPH.\3\ A ``Non-TPH Affiliate'' would be 
defined for the purposes of the VIX Discount the same way it is defined 
for the Clearing TPH Fee Cap, CBOE Proprietary Products Sliding Scale, 
and the Proprietary VIX Sliding Scale: A 100% wholly-owned affiliate or 
subsidiary of a Clearing TPH that is registered as a United States or 
foreign broker-dealer and that is not a CBOE TPH. As with the Clearing 
TPH Fee Cap, CBOE Proprietary Products Sliding Scale, and the 
Proprietary VIX Sliding Scale, only proprietary orders of the Non-TPH 
Affiliate (``L'' origin code) effected for purposes of hedging the 
proprietary over-the-counter trading of the Clearing TPH or its 
affiliates will be included in calculating the VIX Discount, and such 
orders must be marked with a code approved by the Exchange identifying 
the orders as eligible for the VIX Discount. As with the Clearing TPH 
Fee Cap, CBOE Proprietary Products Sliding Scale, and the Proprietary 
VIX Sliding Scale, each Clearing TPH is responsible for notifying the 
TPH Department of all of its affiliations so that fees and contracts of 
the Clearing TPH and its affiliates may be aggregated for purposes of 
the VIX Discount and is required to certify the affiliate status of any 
Non-TPH Affiliate whose trading activity it seeks to aggregate. In 
addition, each Clearing TPH is required to inform the Exchange 
immediately of any event that causes an entity to cease to be an 
affiliate.
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    \3\ See CBOE Fees Schedule, Footnote 11.
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    As with the Clearing TPH Fee Cap, the CBOE Proprietary Products 
Sliding Scale, and the Proprietary VIX Sliding Scale, the Exchange will 
aggregate the fees and trading activity of separate Clearing TPHs for 
the purposes of the VIX Discount if there is at least 75% common 
ownership between the Clearing TPHs as reflected on each Clearing TPH's 
Form BD, Schedule A. A Clearing TPH's fees and contracts executed 
pursuant to a CMTA agreement (i.e., executed by another clearing firm 
and then transferred to the Clearing TPH's account at the OCC) are 
aggregated with the Clearing TPH's non-CMTA fees and contracts for 
purposes of the VIX Discount.
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 and, in particular, the requirements of Section 6(b) of the 
Act.\4\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \5\ 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 
facilitating 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. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \6\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The Exchange also believes the 
proposed rule change is consistent with Section 6(b)(4) of the Act,\7\ 
which requires that Exchange rules 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ Id.
    \7\ 15 U.S.C. 78f(b)(4).
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    The adoption of the Supplemental VIX Discount is reasonable because 
it

[[Page 23120]]

will allow Clearing TPHs who engage in VIX options trading the 
opportunity to obtain a discount on its transaction fees. Similarly, 
aggregating the fees and trading activity of separate Clearing TPHs for 
the purposes of the Supplemental VIX Discount if there is at least 75% 
common ownership between the Clearing TPHs and aggregating a Clearing 
TPH's fees and contracts executed pursuant to a CMTA agreement with the 
Clearing TPH's non-CMTA fees and contracts for the purpose of the 
Supplemental VIX Discount is reasonable because this will allow more 
Clearing TPHs to qualify for the discount at the higher rates in the 
Supplemental VIX Discount table.
    Applying the Supplemental VIX Discount to Clearing TPH (and their 
affiliates, in the manner described above) proprietary orders only is 
equitable and not unfairly discriminatory because, as noted above, 
Clearing TPHs take on a number of obligations and responsibilities 
(such as membership with the Options Clearing Corporation), significant 
regulatory burdens, and financial obligations that other market 
participants are not required to undertake. Further, the Supplemental 
VIX Discount is designed to encourage increased Clearing TPH 
proprietary VIX options volume, which provides increased VIX options 
volume and greater trading opportunities for all market participants. 
Similarly, applying higher discount rates for Clearing TPHs who hit the 
higher percentage of total VIX options contract proprietary volume of 
all Clearing TPHs on the VIX Discount is equitable and not unfairly 
discriminatory because this is designed to encourage increased TPH 
proprietary VIX options volume, which provides increased VIX options 
volume and greater trading opportunities for all Clearing TPHs, 
including those who are not able to reach the higher volume 
percentages. Moreover, the Exchange already offers other fee-lowering 
programs (such as the Fee Cap, CBOE Proprietary Products Sliding Scale, 
and Proprietary VIX Sliding Scale) which entail lower fees for Clearing 
TPHs (and their affiliates, in the manner described above) and are 
limited to Clearing TPHs (and their affiliates, in the manner described 
above).
    Applying the Supplemental VIX Discount to VIX options and not to 
other products is equitable and not unfairly discriminatory because the 
Exchange would like to encourage more trading in VIX.
    The Exchange believes adding references to the Supplemental VIX 
Discount in Footnote 11 of the Fees Schedule alleviates potential 
confusion by investors reading the Fees Schedule in light of the 
proposed change. This avoidance of confusion removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system, and, in general, protects investors and the public interest.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because, while the Supplemental 
VIX Discount applies only to Clearing TPH proprietary orders, Clearing 
TPHs take on a number of obligations and responsibilities (such as 
membership with the Options Clearing Corporation), significant 
regulatory burdens, and financial obligations that other market 
participants are not required to undertake. Further, the Supplemental 
VIX Discount is designed to encourage increased Clearing TPH 
proprietary VIX options volume, which provides increased VIX options 
volume and greater trading opportunities for all market participants. 
Therefore, the Exchange believes that any potential effects on 
intramarket competition that the proposed adoption of the Supplemental 
VIX Discount may cause are therefore justifiable. The Exchange does not 
believe that the proposed rule changes will impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed rule change 
applies only to CBOE. To the extent that the proposed changes make CBOE 
a more attractive marketplace for market participants at other 
exchanges, such market participants are welcome to become CBOE market 
participants.

B. 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 \8\ and paragraph (f) of Rule 19b-4 \9\ 
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.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 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. 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 No. SR-CBOE-2017-039 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-CBOE-2017-039. 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

[[Page 23121]]

inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-CBOE-2017-039, and should be 
submitted on or before June 9, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10126 Filed 5-18-17; 8:45 am]
 BILLING CODE 8011-01-P