Document ID: SEC-2014-0676-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-04-24T04:00Z

[Federal Register Volume 79, Number 79 (Thursday, April 24, 2014)]
[Notices]
[Pages 22838-22840]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09293]

[[Page 22838]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71971; File No. SR-CBOE-2014-037]

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

April 18, 2014.
    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 10, 2014, 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 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, at the Commission's Public 
Reference Room, and on the Commission's Web site (http://www.sec.gov).

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. On April 10, 
2014, the Exchange begins trading options on the CBOE Short-Term 
Volatility Index (``VXST''). VXST is calculated in the same manner as 
the CBOE Volatility Index (``VIX''); the substantive differences 
between VXST and VIX are related to the fact that VXST is on a shorter 
timeframe (VXST's implied volatility period is nine days while VIX's is 
thirty, and VXST options expire weekly while VIX options expire 
monthly).\3\ Due to the similarities between VXST and VIX, the Exchange 
proposes to apply the same fees structure to VXST as is currently 
applied to VIX. As such, the Exchange proposes to apply to VXST the 
same fees, fee programs, and fee exceptions that apply to VIX (with two 
exceptions). Wherever VIX is mentioned in the Fees Schedule, the 
Exchange proposes to add VXST (aside from the two exceptions). The two 
exceptions are that the Exchange assesses a monthly VIX Tier 
Appointment fee of $2,000 to any Market-Maker Trading Permit Holder 
that either (a) has a VIX Tier Appointment at any time during a 
calendar month and trades at least 100 VIX options contracts 
electronically while that appointment is active; or (b) trades at least 
1,000 VIX options contracts in open outcry during a calendar month.\4\ 
The Exchange also assesses a monthly Floor Broker VIX Surcharge of 
$2,000 per month to any Floor Broker Trading Permit Holder that 
executes more than 20,000 VIX contracts during the month.\5\ The 
Exchange does not propose to assess these fees in regards to VXST. The 
Exchange has expended significant resources in developing VXST and 
believes that not assessing these fees in regards to VXST will 
encourage trading in VXST.
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    \3\ For more information about VXST and the differences between 
VXST options and VIX options, see Securities Exchange Act Release 
No. 71764 (March 21, 2014), 79 FR 17212 (March 27, 2014) (SR-CBOE-
2014-003).
    \4\ See the Exchange Fees Schedule's listing of the VIX Tier 
Appointment fee for more information.
    \5\ See the Exchange Fees Schedule's listing of the Floor Broker 
VIX Surcharge for more information.
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    On a VIX settlement day, the Exchange waives the Hybrid 3.0 
Execution Surcharge for orders in SPX options in the SPX electronic 
book that are executed during opening rotation on the final settlement 
date of VIX options and futures. This is because the only way to 
participate in the settlement process is electronically; there is no 
open outcry alternative. Therefore, the Exchange does not want to 
assess a surcharge for the only possible method of participation in the 
VIX settlement process. VXST, because it expires weekly instead of 
monthly, uses SPXW options to determine the 9-day VXST settlement value 
except for the one week a month for which there are not expiring SPXW 
options. That week is the standard third-Friday expiration, and for 
that week, VXST uses SPX options to determine the 9-day VXST settlement 
value.
    Therefore, similar to the manner described above, in which the 
Hybrid 3.0 Execution Surcharge for orders in SPX options in the SPX 
electronic book that are executed during opening rotation on the final 
settlement date of VIX options and futures is waived on VIX settlement 
day, the Exchange proposes to waive the Hybrid 3.0 Execution Surcharge 
for orders in SPX options in the SPX electronic book that are executed 
during opening rotation on the final settlement date of VXST options 
and futures in which SPX options are being used to determine the final 
settlement value. This concept also applies, in relation to VXST, to 
the Customer Priority Surcharge for SPXW. The Exchange proposes to 
waive the SPXW Customer Priority Surcharge for orders in SPXW options 
in the SPXW electronic book that are executed during opening rotation 
on the final settlement date of VXST options and futures in which SPXW 
options are being used to determine the final settlement value. The 
Exchange does not want to assess a surcharge for the only possible 
method of participation in the VXST settlement process. The Exchange 
proposes to add these exceptions to those listed in footnotes 21 and 31 
of the Fees Schedule.
    The Exchange always strives for clarity in its rules and Fees 
Schedule, so that market participants may best understand how rules and 
fees apply. As such, the Exchange proposes to clarify its Fees 
Schedule. First, the Exchange proposes to move the listing of its 
Continuing Education and Qualification Examination Waiver Fee into the 
Web CRD\SM\ section, as these fees are actually fees that are collected 
and retained by FINRA via the Web CRD\SM\ registration system (like the 
other Web CRD\SM\ fees listed on the Fees Schedule). This is not a 
substantive fee change.

[[Page 22839]]

    Next, the Exchange proposes to delete the listing of the CBSX \6\ 
Trading Permit fee from the CBOE Fees Schedule. For one thing, the Fees 
Schedule does not list a fee for this type of Trading Permit (the 
listing says ``No Access Fee''), so it is unnecessary to list the CBSX 
Trading Permit. Moreover, CBSX has its own Fees Schedule that lists 
access fees, and therefore any future fee that would be assessed for a 
CBSX Trading Permit could be listed on the CBSX Fees Schedule. Finally, 
CBSX intends to cease market operations on April 30, 2014,\7\ which 
further reduces any rationale for listing the CBSX Trading Permit on 
the CBOE Fees Schedule. This is not a substantive fee change.
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    \6\ ``CBSX'' stands for CBOE Stock Exchange.
    \7\ See CBOE/CBSX Regulatory Circular RG14-053 (April 7, 2014).
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    The Exchange also proposes to remove all fees associated with In-
House Pagers from its Fees Schedule.\8\ The Exchange no longer provides 
these services (In-House Pagers) and therefore no longer assesses the 
fees associated with such services. This is not a substantive fee 
change.
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    \8\ Currently, the CBOE Fees Schedule lists fees for the 
Purchase, Purchase with Trade-in of Old System Pager, Annual 
Maintenance, and Abusive Damage Repair of pagers.
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    The Exchange also proposes, in footnote 6 of its Fees Schedule, to 
move the listing of XEO to after the listing of OEX in order to have 
VIX, VXST and VOLATILITY INDEXES together in order (due to their 
relation). This is not a substantive fee change.
    The Exchange also proposes to make a non-substantive change to 
achieve continuity in its Fees Schedule. VIX is a VOLATILITY INDEX, and 
most references to VIX and VOLATILITY INDEXES in the Fees Schedule read 
``VIX and VOLATILITY INDEXES''. However, in a few places, only 
``VOLATILITY INDEXES'' are listed, and such listings implicitly include 
VIX (unless VIX is explicitly excepted out). As such, the Exchange 
proposes to amend the Fees Schedule to read ``VIX and VOLATILITY 
INDEXES'' in all places that VIX is currently only implicitly included 
in the listing of VOLATILITY INDEXES (and, following this proposed rule 
change, VXST will now also be listed explicitly in these places) in 
order to achieve continuity in the Fees Schedule and eliminate 
confusion. This way, in the few places where VIX (and now, VXST) is 
subject to different fees than the other VOLATILITY INDEXES, it will be 
more clear. This is not a substantive fee change.
    Finally, the Exchange proposes to make a clarifying change to the 
Notes section regarding the Hybrid Agency Liaison (``HAL'') Step-Up 
Rebate. Currently, the Notes section states: ``The Exchange shall 
rebate to a market-maker against transaction fees generated from a 
transaction on the HAL system in a penny pilot class, provided that at 
least 70% 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 exclusion language in the parenthetical 
means that the Exchange does not rebate against fees for mini-options 
transactions on the HAL system in a penny pilot class, and does not 
include mini-options quotes or quotes in LEAPS series towards the 70% 
threshold (hence the blanket exclusion of mini-options and the specific 
exclusion of quotes in regards to LEAPS). That said, while the Exchange 
has never received any questions regarding the wording in this section 
or the applicability of the HAL Step-Up Rebate to mini-options or 
LEAPS, the Exchange recognizes that this language is somewhat 
confusing. As such, the Exchange proposes to amend this language to 
state: ``The Exchange shall rebate to a market-maker against 
transaction fees generated from a transaction on the HAL system in a 
penny pilot class (excluding mini-options transactions), provided that 
at least 70% of the market-maker's quotes in that class (excluding 
quotes in LEAPS series and mini-options) in the prior calendar month 
were on one side of the NBBO.'' This is not a substantive fee change.
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.\9\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \10\ 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. 
Additionally, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\11\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to apply the same fees and fees structure to 
VXST options as currently apply to VIX options because both are 
volatility indexes and they share significant similarities in 
underlying products and product structure. The Exchange believes that 
it is reasonable to not assess the VIX Tier Appointment fee and Floor 
Broker VIX Surcharge in regards to VXST because those market 
participants trading VXST will not be assessed such fees. The Exchange 
believes that this is equitable and not unfairly discriminatory because 
the Exchange has expended significant resources in developing VXST and 
believes that not assessing these fees in regards to VXST will 
encourage trading in VXST. The Exchange believes that the VXST-related 
changes to footnote 21 related to the Hybrid 3.0 Execution Surcharge 
and footnote 31 related to the SPXW Customer Priority Surcharge are 
reasonable because they will result in market participants at times not 
being required to pay these Surcharges for SPX and/or SPXW transactions 
in the circumstances described. The Exchange believes that this is 
equitable and not unfairly discriminatory because, first, the Exchange 
makes similar exceptions in relation to VIX. Further, the Exchange does 
not want to assess a surcharge for the only possible method of 
participation in the VXST settlement process. Also, the Exchange has 
expended significant resources in developing its proprietary products 
and desires to encourage the uses of such products.
    The Exchange believes that the removal of the listing of the CBSX 
Trading Permit and In-House Pager fees from the CBOE Fees Schedule will 
prevent any potential confusion, as these are not fees that are 
currently assessed by the Exchange. Similarly, the Exchange believes 
that moving the listing of its Continuing Education and Qualification 
Examination Waiver Fee into the Web CRD\SM\ section will also prevent 
any potential confusion, as these fees are actually fees that are 
collected and retained by FINRA via the Web CRD\SM\ registration system 
(like the other Web CRD\SM\ fees listed on the Fees Schedule). The 
Exchange also believes that cleaning up the exclusion language

[[Page 22840]]

in the HAL Step-Up Rebate will prevent any possible confusion. The 
Exchange also believes that moving the listing of XEO in footnote 6 and 
specifically listing out VIX separate from the other VOLATILITY INDEXES 
will prevent any possible confusion. Indeed, the Exchange believes that 
all of the non-substantive changes proposed herein will prevent 
possible confusion. The prevention of possible confusion serves 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.

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. The Exchange does not believe 
that the proposed application of the VIX options fees structure to VXST 
options will impose any burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because market participants will be assessed the same fees for VXST 
options as are assessed to VIX options (with the two exceptions 
described above), and all qualifying market participants will be 
assessed the relevant fees equally. The Exchange does not believe that 
the proposed application of the VIX options fees structure to VXST 
options will impose any burden on intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because VXST options will only be listed on CBOE, and the proposed fees 
only apply to trading on CBOE. The Exchange does not believe that the 
non-substantive changes proposed herein will impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because these are merely non-substantive clarifying 
changes intended to prevent confusion and are not intended for 
competitive purposes.

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 \12\ and paragraph (f) 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. 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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 proposal 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-2014-037 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 Number SR-CBOE-2014-037. 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 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-2014-037 and should be 
submitted on or before May 15, 2014.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09293 Filed 4-23-14; 8:45 am]
BILLING CODE 8011-01-P