Document ID: SEC-2006-0924-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2006-07-21T04:00Z

[Federal Register: July 21, 2006 (Volume 71, Number 140)]
[Notices]               
[Page 41485-41487]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jy06-81]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54153; File No. SR-CBOE-2006-63]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Its Marketing Fee Program

July 14, 2006.
    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 June 30, 2006, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') 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 CBOE has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by the CBOE under Section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
which renders the proposal effective upon filing with the Commission. 
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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend its marketing fee program. Below is the 
text of the proposed rule change. Proposed new language is in italics; 
deleted language is in [brackets].

Chicago Board Options Exchange, Inc.

Fees Schedule

June [2]30, 2006
    1. No Change.
    2. MARKETING FEE (6)(16)--$.65
    3.-4. No Change.

Footnotes:

    (1)-(5) No Change.
    (6) The Marketing Fee will be assessed only on transactions of 
Market-Makers, RMMs, e-DPMs, DPMs, and LMMs resulting from orders for 
less than 1,000 contracts (i) from payment accepting firms, or (ii) 
that have designated a ``Preferred Market-Maker'' under CBOE Rule 8.13 
at the rate of $.65 per contract on all classes of equity options, 
options on HOLDRs, options on SPDRs, options on DIA, options on NDX, 
and options on RUT. The fee will not apply to: Market-Maker-to-Market-
Maker transactions including transactions resulting from orders from 
non-member market-makers; transactions resulting from inbound P/A 
orders or a transaction resulting from the execution of an order 
against the DPM's account if an order directly related to that order is 
represented and executed through the Linkage Plan using the DPM's 
account; transactions resulting from accommodation liquidations 
(cabinet trades); and transactions resulting from dividend strategies, 
merger strategies, and short stock interest strategies as defined in 
footnote 13 of this Fees Schedule. This fee shall not apply to index 
options and options on ETFs (other than options on SPDRs, options on 
DIA, options on NDX, and options on RUT). A Preferred Market-Maker will 
only be given access to the marketing fee funds generated from a 
Preferred order if the Preferred Market-Maker has an appointment in the 
class in which the Preferred order is received and executed.
    DPM/LMM Rebate/Carryover Process. If less than 80% of the marketing 
fee funds collected in a given month are paid out by the DPM/LMM [or 
Preferred Market-Maker in a given month], then the Exchange would 
refund such surplus at the end of the month on a pro rata basis based 
upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs and 
LMMs in that month. However, if 80% or more of the [accumulated] funds 
collected in a given month are paid out by the DPM/LMM [or Preferred 
Market-Maker], there will not be a rebate for that month and the excess 
funds will [carry over and will] be included in [the] an Excess [p]Pool 
of funds to be used by the DPM/LMM [or Preferred Market-Maker the 
following] in subsequent months. The total balance of the Excess Pool 
of funds cannot exceed $25,000, and if in any month the balance were to 
exceed $25,000, the funds in excess of $25,000 would be refunded[At the 
end of each quarter, the Exchange would then refund any surplus, if 
any,] on a pro rata basis based upon contributions made by the Market-
Makers, RMMs, DPMs, e-DPMs and LMMs in that month.
    Preferred Market-Maker Rebate/Carryover Process. If less than 80% 
of the marketing fee funds are paid out by the Preferred Market-Maker 
in a given month, then the Exchange would refund such surplus at the 
end of the month on a pro rata basis based upon contributions made by 
the Market-Makers, RMMs, e-DPMs, DPMs and LMMs in that month. However, 
if 80%

[[Page 41486]]

or more of the accumulated funds in a given month are paid out by the 
Preferred Market-Maker, there will not be a rebate for that month and 
the funds will carry over and will be included in the pool of funds to 
be used by the Preferred Market-Maker the following month. At the end 
of each quarter, the Exchange would then refund any surplus, if any, on 
a pro rata basis based upon contributions made by the Market-Makers, 
RMMs, DPMs, e-DPMs and LMMs in the final month of the quarter. CBOE's 
marketing fee program as described above will be in effect until June 
2, 2007.
    Remainder of Fees Schedule--No change.

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 CBOE 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 CBOE proposes to amend its marketing fee to modify the manner 
in which marketing fee funds collected during a calendar quarter are 
refunded. The CBOE states that its marketing fee currently provides 
that if less than 80% of the marketing fee funds are paid out by the 
DPM/LMM or Preferred Market-Maker in a given month, then the Exchange 
would refund such surplus at the end of the month on a pro rata basis 
based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs, 
and LMMs. However, if 80% or more of the accumulated funds in a given 
month are paid out by the DPM/LMM or Preferred Market-Maker, there will 
not be a rebate for that month and the funds will carry over and will 
be included in the pool of funds to be used by the DPM/LMM or Preferred 
Market-Maker the following month. At the end of each quarter, the 
Exchange would then refund any surplus, if any, on a pro rata basis 
based upon contributions made by the Market-Makers, RMMs, DPMs, e-DPMs, 
and LMMs.
    The CBOE states that the purpose of this rule change is to modify 
the rebate process as it relates to DPMs. As amended, if less than 80% 
of the marketing fee funds collected in a given month are paid out by 
the DPM/LMM, then the Exchange would refund such surplus at the end of 
the month on a pro rata basis based upon contributions made by the 
Market-Makers, RMMs, e-DPMs, DPMs, and LMMs in that month. However, if 
80% or more of the funds collected in a given month are paid out by the 
DPM/LMM, there would not be a rebate for that month and the excess 
funds would be included in an excess pool (``Excess Pool'') of funds to 
be used by the DPM/LMM in subsequent months. The CBOE states that the 
total balance of the Excess Pool of funds could not exceed $25,000, and 
if in any month the balance were to exceed $25,000, the funds in excess 
of $25,000 would be refunded on a pro rata basis based upon 
contributions made by the Market-Makers, RMMs, DPMs, e-DPMs, and LMMs 
in that month. As before, in the event a DPM/LMM is also marked as a 
Preferred Market-Maker on a particular order, the funds collected from 
the order will be allocated to the DPM in its capacity as a DPM and not 
as a Preferred Market-Maker.
    The Exchange states that the rebate and carryover process for 
Preferred Market-Makers will continue to operate on a quarterly basis. 
However, CBOE proposes to make one clarification to the rebate process 
for Preferred Market-Makers in the text of the Fees Schedule to make it 
consistent with the current process and procedure for rebating excess 
funds. As noted above, if less than 80% of the marketing fee funds are 
paid out by the Preferred Market-Maker in a given month, then the 
Exchange would refund such surplus at the end of the month on a pro 
rata basis based upon contributions made by the Market-Makers, RMMs, e-
DPMs, DPMs, and LMMs. CBOE states that it refunds the money based on 
the contributions made by these market participants in that specific 
month.
    If there are surplus funds at the end of the quarter, CBOE 
represents that it refunds the money on a pro rata basis based upon 
contributions made by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs 
in the final month of the quarter. CBOE believes that refunding surplus 
funds to market participants on a pro rata basis based upon 
contributions made in the final month of the quarter, as opposed to 
based upon contributions made during the preceding three months, would 
be an equitable allocation of dues and fees due to the manner in which 
the marketing fee funds collected are paid out and how CBOE accounts 
for the funds on a month-to-month basis. For example, if at least 80%, 
but less than 100%, of the funds collected in the 1st month of a 
quarter is paid out, the balance that carries over to the 2nd month is 
paid out first in that 2nd month. Similarly, if at least 80%, but less 
than 100%, of the funds collected in the 2nd month is paid out, the 
balance that carries over to the 3rd month is paid out first in that 
3rd month. As a result, any surplus of funds at the end of the quarter 
(the 3rd month) was contributed by the Market-Makers, RMMs, e-DPMs, 
DPMs, and LMMs who were assessed the fee in that month.
    CBOE states that it is not amending its marketing fee program in 
any other respects.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\5\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act,\6\ in particular, in that it 
is designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among CBOE members.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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.

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 
proposal.

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

    The foregoing proposed rule change has been designated as a fee 
change pursuant to Section 19(b)(3)(A)(ii) of the Act \7\ and Rule 19b-
4(f)(2) \8\ thereunder, because it establishes or changes a due, fee, 
or other charge imposed by the Exchange. Accordingly, the proposal will 
take effect upon filing with the Commission. At any time within 60 days 
of the filing of such proposed rule change the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public

[[Page 41487]]

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)(ii).
    \8\ 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 Number SR-CBOE-2006-63 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2006-63. 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 inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the CBOE. 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-2006-63 and should be submitted on or before August 
11, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E6-11568 Filed 7-20-06; 8:45 am]

BILLING CODE 8010-01-P