Document ID: SEC-2013-0937-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2013-05-20T04:00Z

[Federal Register Volume 78, Number 97 (Monday, May 20, 2013)]
[Notices]
[Pages 29422-29424]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11898]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69574; File No. SR-CBOE-2013-047]

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 14, 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 May 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to ament [sic] 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 Footnote 24 of its Fees Schedule.

[[Page 29423]]

Specifically, the Exchange would like to add to Footnote 24 the 
statement that, if a Market-Maker or its affiliate (``affiliate'' 
defined as having at least 75% common ownership between the two 
entities as reflected on each entity's Form BD, Schedule A) receives a 
credit under the Exchange's Volume Incentive Program (``VIP''), that 
Market-Maker will receive a credit on its Market-Maker Trading Permit 
fees corresponding to the VIP tier reached (10% Market-Maker Trading 
Permit fee credit for reaching Tier 2 of the VIP, 20% Market-Maker 
Trading Permit fee credit for reaching Tier 3 of the VIP, and 30% 
Market-Maker Trading Permit fee credit for reaching Tier 4 of the VIP). 
This credit will not apply to Market-Maker Trading Permits used for 
appointments in SPX, SPXpm, VIX, OEX and XEO.
    For example, consider a Market-Maker holds 23 Market-Maker Trading 
Permits (excluding those used with appointments in SPX, SPXpm, VIX, OEX 
and XEO) and has an affiliate that electronically transacts 2.50% of 
the national customer volume in multiply-listed options classes over 
the course of a month (putting that affiliate at Tier 3 on the VIP). 
Currently, that Market-Maker would be assessed a fee of $102,500 for 
that month for the Market-Maker's 23 Market-Maker Trading Permits 
($5,500 for each of the first ten permits, $4,000 for each of the next 
ten permits, and $2,500 for the final three permits).\3\ However, under 
the proposed change, the Market-Maker would receive a 20% credit 
($20,500) on its Market-Maker Trading Permit fees (because its 
affiliate reached Tier 3 of the VIP), and therefore would only be 
assessed a fee of $82,000 for the 23 Market-Maker Trading Permits 
($102,500-$20,500).
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    \3\ See CBOE Fees Schedule, Market-Maker Trading Permit Sliding 
Scale table.
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    The purpose of the proposed change is to incentivize the sending of 
orders to CBOE by firms that have both Market-Maker and order-router 
arms. In the options industry, many options orders are routed by 
consolidators, which are firms that have both order router and Market-
Maker arms. CBOE wants to be aware not only of the importance of 
providing credits on the order side in order to encourage the sending 
of orders to CBOE but also costs of operation on Market-Maker side. The 
Exchange has determined to address both sides by providing relief both 
on the order flow side (via the credits provided in the VIP) and the 
Market-Maker side (with the credits proposed herein). The resulting 
increased volume should benefit all CBOE market participants. Further, 
other options exchanges also provide credits to Market-Makers if a 
Market-Maker's affiliate's adds a certain amount of customer liquidity 
to that exchange.\4\ The Exchange proposes to exclude Market-Maker 
Trading Permits used for appointments in SPX, SPXpm, VIX, OEX and XEO 
from this credit because such permits are excluded from the Market-
Maker Trading Permit Sliding Scale, and because the Exchange expended 
considerable resources developing those products and therefore desires 
not to give a credit related to those products in order to recoup those 
expenditures.
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    \4\ See The NASDAQ Stock Market, LLC Options Market (``NOM'') 
Options Pricing, specifically Tier 3 of the table describing The NOM 
Market Maker Rebate to Add Liquidity in Penny Pilot Options. Under 
Tier 3, a NOM Market Maker receives a credit if that Market Maker 
and its affiliate under Common Ownership qualify for Tier 8 of NOM's 
Customer and Professional Rebate to Add Liquidity in Penny Pilot 
Options. See also NYSE Arca, Inc. (``Arca'') Fees and Charges, 
specifically the table describing the Market Maker Monthly Posting 
Credit Super Tier, under which transaction volume from a Market 
Maker's affiliates count towards the Market Maker's ability to 
qualify for higher credit tiers.
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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.\5\ Specifically, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\6\ 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. The Exchange believes that the proposed 
change is reasonable because it will allow qualifying Market-Makers to 
receive a credit on their Market-Maker Trading Permit fees. The 
Exchange believes that this proposed change is equitable and not 
unfairly discriminatory because Market-Makers are valuable market 
participants that provide liquidity in the marketplace and incur costs 
that other market participants do not incur. Market-Makers have a 
number of obligations, including quoting obligations, that other market 
participants do not have. The purpose of the proposed change is to 
incentivize the sending of orders to CBOE by firms that have both 
Market-Maker and order-router arms. In the options industry, many 
options orders are routed by consolidators, which are firms that have 
both order router and Market-Maker arms. CBOE wants to be aware not 
only of the importance of providing credits on the order side in order 
to encourage the sending of orders to CBOE but also costs of operation 
on Market-Maker side. The Exchange has determined to address both sides 
by providing relief both on the order flow side (via the credits 
provided in the VIP) and the Market-Maker side (with the credits 
proposed herein). By incentivizing a Market-Maker or its affiliate to 
achieve higher tiers on the VIP, the Exchange seeks to add greater 
Customer liquidity, and the resulting increased volume benefits all 
market participants (including Market-Makers or affiliates who do not 
achieve the higher tiers on the VIP; indeed, this increased volume may 
allow them to reach these tiers). This increased volume will also 
assist other Trading Permit Holders in achieving higher tiers on the 
VIP, including those that do not have affiliated Market-Makers. 
Further, other options exchanges also provide credits to Market-Makers 
if a Market-Maker's affiliate's adds a certain amount of customer 
liquidity to that exchange.\7\ Finally, the proposed credit is 
available to all Market-Makers who qualify. The Exchange believes that 
it is equitable and not unfairly discriminatory to exclude Market-Maker 
Trading Permits used for appointments in SPX, SPXpm, VIX, OEX and XEO 
from this credit because such permits are excluded from the Market-
Maker Trading Permit Sliding Scale, and because the Exchange expended 
considerable resources developing those products and therefore desires 
not to give a credit related to those products in order to recoup those 
expenditures.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4).
    \7\ See Footnote 4.
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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 the purposes of the Act. The Exchange does not believe 
that the proposed change will impose an unnecessary or inappropriate 
burden on intramarket competition because Market-Makers are valuable 
market participants that provide liquidity in the marketplace and incur 
costs that other market participants do not incur. Market-Makers have a 
number of obligations, including quoting obligations, that other market 
participants do not have. By incentivizing a Market-Maker or its 
affiliate to achieve higher tiers on the VIP, the Exchange seeks to add 
greater Customer liquidity, and the resulting

[[Page 29424]]

increased volume benefits all market participants (including Market-
Makers or affiliates who do not achieve the higher tiers on the VIP; 
indeed, this increased volume may allow them to reach these tiers). 
This increased volume will also assist other Trading Permit Holders in 
achieving higher tiers on the VIP, including those that do not have 
affiliated Market-Makers. The Exchange does not believe that the 
proposed change will impose an unnecessary or inappropriate burden on 
intermarket competition because it only applies to CBOE. To the extent 
that this rebate, or the resulting increased volume, proves attractive 
to market participants on other options exchanges, such market 
participants may elect to become market participants at CBOE.

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 \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 Number SR-CBOE-2013-047 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-2013-047. 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-2013-047 and should be 
submitted on or before June 10, 2013.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11898 Filed 5-17-13; 8:45 am]
BILLING CODE 8011-01-P