Document ID: SEC-2010-0983-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2010-07-02T04:00Z

[Federal Register Volume 75, Number 127 (Friday, July 2, 2010)]
[Notices]
[Pages 38566-38569]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-16141]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62386; File No. SR-CBOE-2010-060]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to the Establishment of the Initial Fees for Post-
Demutualization Trading Permits, Tier Appointment and Bandwidth Packets

June 25, 2010.
    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 21, 2010, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or the ``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 CBOE. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to establish the initial fees for CBOE's initial 
post-demutualization Trading Permits, tier appointment and bandwidth 
packets. 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, at the Commission's Public Reference Room, and 
on the Commission's Web site at 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, CBOE 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. 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
    In connection with the demutualization of the Exchange through 
which the Exchange is restructuring from a non-stock corporation to a 
stock corporation and a wholly-owned subsidiary of CBOE Holdings, Inc., 
the Exchange has amended its Rules to provide for the use of Trading 
Permits, instead of memberships, to access the Exchange.
    CBOE Rule 2.20 grants the Exchange the authority to, from time to 
time, fix the fees and charges payable by Trading Permit Holders. The 
purpose of this proposed rule change is to establish the initial fees 
for CBOE's initial post-demutualization Trading Permits, tier 
appointment and bandwidth packets. These post-demutualization Trading 
Permits, tier appointment and bandwidth packets will become effective 
immediately following the close of trading on the date of the closing 
of the Exchange's demutualization transaction, and CBOE members on the 
date of the closing of the demutualization transaction will retain 
their then current access to the Exchange until the close of trading on 
that date. The Exchange also proposes to amend the CBOE Stock Exchange, 
LLC (``CBSX'') \3\ Fees Schedule to cross-reference that CBSX Trading 
Permit access fees are set forth in the CBOE

[[Page 38567]]

Fees Schedule. As further described below, there is no access fee 
proposed for CBSX-only Trading Permit Holders.
---------------------------------------------------------------------------

    \3\ CBSX is a facility of CBOE for the trading of non-option 
securities, and trading on CBSX is governed by CBOE Rules.
---------------------------------------------------------------------------

    Trading Permit Fees:
    CBOE Rule 1.1(ggg) defines a Trading Permit as a license issued by 
the Exchange that grants the holder or the holder's nominee the right 
to access one or more of the facilities of the Exchange for the purpose 
of effecting transactions in securities traded on the Exchange without 
the services of another person acting as broker, and otherwise to 
access the facilities of the Exchange for purposes of trading or 
reporting transactions or transmitting orders or quotations in 
securities traded on the Exchange, or to engage in other activities 
that, under CBOE Rules, may only be engaged in by Trading Permit 
Holders, provided that the holder or the holder's nominee, as 
applicable, satisfies any applicable qualification requirements to 
exercise those rights. A Trading Permit does not convey any ownership 
interest in the Exchange, is only available through the Exchange, and 
is subject to the terms and conditions set forth in CBOE Rule 3.1. 
Holders of Trading Permits fall within the definition of ``member'' in 
Section 3(a)(3)(A) of the Securities Exchange of 1934, as amended 
(``Act'').\4\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78c(a)(3)(A).
---------------------------------------------------------------------------

    CBOE Rule 3.1 provides, among other things, that the Exchange may 
issue different types of Trading Permits and determine the fees for 
those Trading Permits. Specifically, under Rule 3.1(a)(iv), the 
Exchange may issue different types of Trading Permits that allow 
holders to trade one or more products authorized for trading on the 
Exchange and to act in one or more trading functions authorized by CBOE 
Rules. The Exchange will have four initial types of Trading Permits 
immediately following its demutualization. These Trading Permits will 
be issued in accordance with the provisions of CBOE Rule 3.1A which 
addresses the initial issuance of post-demutualization Trading Permits 
and Rule 3.1 which sets forth the general provisions that are 
applicable to post-demutualization Trading Permits. In addition, Rule 
3.1(a)(v) provides, in relevant part, that Trading Permits will be 
subject to such fees and charges as are established by the Exchange 
from time to time pursuant to CBOE Rule 2.20 and the Exchange Fees 
Schedule.
    The first type of Trading Permit is a Market-Maker Trading Permit 
that entitles the holder to act as a Market-Maker (including a Market-
Maker trading remotely), DPM, eDPM or LMM. This permit provides an 
appointment credit of 1.0, a quoting and order entry bandwidth 
allowance, up to three logins, trading floor access and Trading Permit 
Holder status. A Market-Maker Trading Permit also provides trading 
access to CBSX. The Exchange is proposing to establish the initial fee 
for a Market-Maker Trading Permit at $7,500 per month, commencing July 
1, 2010. However, for the remainder of 2010, CBOE will provide a 20% 
discount on this fee, such that the fee for a Market-Maker Trading 
Permit will be $6,000 per month between July 2010 and December 2010.
    The quoting bandwidth allowance for a Market-Maker Trading Permit 
is equivalent to a maximum of 31,200,000 quotes over the course of a 
trading day. The quoting bandwidth allowance for a Market-Maker Trading 
Permit in which the holder has a Market-Maker appointment in a Hybrid 
3.0 option class shall be proportionately reduced by the appointment 
cost of the class. To the extent that a Market-Maker is able to submit 
electronic quotes in a Hybrid 3.0 class (such as an LMM that streams 
quotes in the class), the Market-Maker shall receive the quoting 
bandwidth allowance attributable to that Hybrid 3.0 class to quote in, 
and only in, that class. For example, the appointment cost for SPX, 
which is a Hybrid 3.0 class, is .95. Accordingly, the quoting bandwidth 
for a Market-Maker Trading Permit in which the holder has a Market-
Maker appointment in SPX would be .05 of the quoting bandwidth for non-
Hybrid 3.0 classes, unless the Market-Maker is an LMM and is using a 
Market-Maker Trading Permit to stream quotes in SPX. With the exception 
of LMMs, Market-Makers do not quote electronically in Hybrid 3.0 
classes so they are not allocated quoting bandwidth with respect to 
Market-Maker appointments in those classes. This is consistent with 
CBOE's pre-demutualization quoting bandwidth allocations to SPX Market-
Makers.
    The second type of Trading Permit is a Floor Broker Trading Permit 
that entitles the holder to act as a Floor Broker. This permit provides 
an order entry bandwidth allowance, up to three logins, trading floor 
access and Trading Permit Holder Status. A Floor Broker Trading Permit 
also provides access to CBSX. The Exchange is proposing to establish 
the initial fee for a Floor Broker Trading Permit at $7,500 per month, 
commencing July 1, 2010. However, for the remainder of 2010, CBOE will 
provide a 20% discount on this fee, such that the fee for a Floor 
Broker Trading Permit will be $6,000 per month between July 2010 and 
December 2010.
    The third type of Trading Permit is the Electronic Access Permit 
that entitles the holder to electronic access to the Exchange. 
Electronic Access Permit holders must be broker-dealers registered with 
the Exchange in one or more of the following capacities: (a) Clearing 
Trading Permit Holder; (b) TPH organization approved to transact 
business with the public; (c) Proprietary Trading Permit Holder;\5\ and 
(d) order service firm. The Electronic Access Permit does not grant 
access to the trading floor. This permit provides an order entry 
bandwidth allowance, up to three logins and Trading Permit Holder 
status. An Electronic Access Permit also provides access to CBSX. The 
Exchange is proposing to establish the initial fee for an Electronic 
Access Permit at $2,000 per month, commencing July 1, 2010. However, 
for the remainder of 2010, CBOE will provide a 20% discount on this 
fee, such that the fee for an Electronic Access Permit will be $1,600 
per month between July 2010 and December 2010.
---------------------------------------------------------------------------

    \5\ A Proprietary Trading Permit Holder is a proprietary broker-
dealer engaged in principal trading. A proprietary broker-dealer may 
not use an Electronic Access Permit to submit Market-Maker orders 
(i.e., M orders) for its own account or an affiliated Market-Maker 
account.
---------------------------------------------------------------------------

    The fourth type of Trading Permit is a CBSX Trading Permit that 
entitles the holder to perform any of the trading functions of a 
Trading Permit Holder on CBSX and to receive the CBSX login and 
bandwidth allowances. The CBSX Trading Permit provides trading access 
only to CBSX. The proposed initial CBSX Trading Permit fee is the same 
as the access fee that applied with respect to the CBSX trading permits 
that granted trading access to CBSX prior to CBOE's demutualization in 
that there was no access fee charged for pre-demutualization CBSX 
trading permits (just as there is no access fee initially proposed to 
be charged with respect to post-demutualization CBSX Trading Permits). 
Because CBSX is a relatively new trading venue, CBSX has sought to 
encourage broker-dealers to become participants in CBSX's market in 
order to build volume and market share by, among other things, not 
assessing an access fee. This proposed rule change continues that 
approach with respect to the initial CBSX Trading Permit access fee 
following CBOE's demutualization.
    Trading Permit fees will be assessed by the Exchange commencing on 
July 1, 2010. The Exchange is delaying the commencement of the fee 
until then because the leases for the transferable memberships that 
existed prior to CBOE's demutualization generally provided for monthly 
lease payments

[[Page 38568]]

and the Exchange assessed temporary members and Interim Trading Permit 
holders monthly access fees. Therefore, most post-demutualization 
Trading Permit holders have already paid to access the Exchange for the 
month of June 2010 in some form. As a result, the Exchange will not 
charge an additional amount for access to the Exchange during that 
month. Trading Permit fees are non-refundable and will be assessed 
through the integrated billing system during the first week of the 
following month.\6\ If a Trading Permit is issued during a calendar 
month after the first trading day of the month, the access fee for the 
Trading Permit for that calendar month is prorated based on the 
remaining trading days in the calendar month. Trading Permits will be 
renewed automatically for the next month unless the Trading Permit 
Holder submits by the 25th day of the prior month (or the preceding 
business day if the 25th is not a business day) a written notification 
\7\ to cancel the Trading Permit effective at or prior to the end of 
the applicable month.\8\
---------------------------------------------------------------------------

    \6\ Thus, Trading Permit Fees for access during July 2010 will 
be assessed through the integrated billing system during the first 
week of August 2010.
    \7\ Written notification may be submitted to the Registration 
Services Department by e-mail to tradingpermits@cboe.com or by other 
means of written notification, including, but not limited to, a 
hand-delivered letter or facsimile to the Registration Services 
Department.
    \8\ Thus, if a Trading Permit Holder has a Trading Permit in 
July 2010, notice must be provided by July 23, 2010 (the preceding 
business day prior to July 25, 2010 since July 25, 2010 is not a 
business day) if the Trading Permit Holder would like to terminate 
the Trading Permit by the end of July 2010 and not be assessed the 
applicable Trading Permit Fee for August 2010.
---------------------------------------------------------------------------

    The Exchange proposes to amend the CBOE Fees Schedule effective on 
June 21, 2010 to set forth the initial access fees for these four 
initial Trading Permit types by including in the Fees Schedule the 
initial access fee applicable to each Trading Permit type, the 
description of each Trading Permit type included above, and the 
procedural provisions included above describing the manner in which 
Trading Permit access fees will be assessed by the Exchange.
    Tier Appointment Fee:
    CBOE Rule 8.3(e) provides that the Exchange may establish one or 
more types of tier appointments. In accordance with CBOE Rule 8.3(e), a 
tier appointment is an appointment to trade one or more options classes 
that must be held by a Market-Maker to be eligible to act as a Market-
Maker in the options class or options classes subject to that 
appointment. The Exchange will have one type of tier appointment 
immediately following its demutualization, the SPX Tier Appointment. A 
Market-Maker Trading Permit Holder must obtain an SPX Tier Appointment 
to act as a Market-Maker in SPX. Further, consistent with the 
provisions of Rule 8.3(e), each SPX Tier Appointment may only be used 
with one designated Market-Maker Trading Permit. The Exchange is 
proposing that the initial fee for an SPX Tier Appointment be set at 
$3,000 per month, commencing July 1, 2010, the same date as the 
commencement of the Trading Permit fees. The SPX Tier Appointment fee 
is not eligible for the 20% discount for the remainder of 2010 that is 
applicable to the Trading Permit fees.
    SPX Tier Appointment fees are non-refundable and will be assessed 
through the integrated billing system during the first week of the 
following month. The SPX Tier Appointment fee will be assessed to any 
Market-Maker Trading Permit Holder, registered with the Exchange to 
conduct business on the Exchange as a Market-Maker, that either (a) has 
an SPX Tier Appointment at any time during a calendar month; or (b) 
conducts any open outcry transactions in SPX at any time during a 
calendar month. SPX Tier Appointments will be renewed automatically for 
the next month unless the Trading Permit Holder submits by the 25th day 
of the prior month (or the preceding business day if the 25th is not a 
business day) a written notification to cancel the SPX Tier Appointment 
effective at or prior to the end of the applicable month.
    Bandwidth Packet Fees:
    CBOE is also proposing to establish fees for bandwidth packets. 
Bandwidth packets provide Trading Permit Holders with additional 
bandwidth to use to electronically access the Exchange. Market-Makers 
will be offered the opportunity to purchase one or more Quoting and 
Order Entry Bandwidth Packets. Each Quoting and Order Entry Bandwidth 
Packet will entitle the Trading Permit Holder to up to three additional 
logins and contain the standard Market-Maker quoting and order entry 
bandwidth allowance, which may then be added onto the total bandwidth 
pool for a Market-Maker's acronym(s) and Trading Permit(s) without the 
Market-Maker having to obtain additional Trading Permits. All Trading 
Permit Holders will have the opportunity to purchase one or more Order 
Entry Bandwidth Packets. Each Order Entry Bandwidth Packet will entitle 
the Trading Permit Holder to up to three additional logins and an order 
entry bandwidth allowance.
    The Exchange is proposing that the initial fee for a Quoting and 
Order Entry Bandwidth Packet be set at $3,750 per month. In addition, 
the Exchange is proposing that the initial fee for an Order Entry 
Bandwidth Packet be set at $2,000 per month. Bandwidth packet fees will 
be assessed by the Exchange commencing on July 1, 2010, the same date 
as the commencement of the Trading Permit and SPX Tier Appointment 
fees. However, for the remainder of 2010, CBOE will provide a 20% 
discount on these fees, such that, between July 2010 and December 2010, 
the fee for a Quoting and Order Entry Bandwidth Packet will be $3,000 
per month and the fee for an Order Entry Bandwidth Packet will be 
$1,600 per month. Bandwidth packet fees are non-refundable and will be 
assessed through the integrated billing system during the first week of 
the following month. If a bandwidth packet is issued during a calendar 
month after the first trading day of the month, the bandwidth packet 
fee for that calendar month is prorated based on the remaining trading 
days in the calendar month. Bandwidth packets will be renewed 
automatically for the next month unless the Trading Permit Holder 
submits by the 25th day of the prior month (or the preceding business 
day if the 25th is not a business day) a written notification to cancel 
the bandwidth packet effective at or prior to the end of the applicable 
month.
    The same quoting and order entry bandwidth allowance will be 
provided for each Market-Maker Trading Permit and each Quoting and 
Order Entry Bandwidth Packet (except to the extent described above with 
respect to each Market-Maker Trading Permit in which the holder has a 
Market-Maker appointment in a Hybrid 3.0 option class). Similarly, the 
same order entry bandwidth allowance will be provided for each Floor 
Broker Trading Permit, Electronic Access Permit, and Order Entry 
Bandwidth Packet and the same bandwidth allowance will be made 
available for each CBSX Trading Permit. Accordingly, bandwidth will be 
available to all Trading Permit Holders on an equal basis. The Exchange 
has provided the Commission with a detailed description of the 
foregoing bandwidth allowances pursuant to a Freedom of Information Act 
confidential treatment request. To the extent that the Exchange changes 
these bandwidth allowances in the future, the Exchange will comply with 
the rule filing requirements of Section 19 of the Act.\9\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s.
---------------------------------------------------------------------------

    In addition to the proposed changes to the Fees Schedule described 
above, CBOE is proposing to revise its regulatory circular that sets 
forth the existing Trading Permit Holder

[[Page 38569]]

application and other related fees. The Exchange proposes to revise 
this circular to incorporate the Trading Permit, tier appointment and 
bandwidth packet fees. The proposed changes to the circular are 
included as Exhibit 2 to the Form 19b-4.
    CBOE believes that the proposed fees are reasonable when compared 
to the average access fee previously charged to CBOE temporary members 
and interim trading permit holders by the Exchange over the last twelve 
months. Specifically, the average of these access fees between July 
2009 and June 2010 was $8,967. Additionally, these access fees were 
above $10,000 between July 2009 and November 2009, peaking at $11,900 
in October 2009.
    The Exchange may adjust the proposed Trading Permit, tier 
appointment and bandwidth packet fees in the future if the Exchange 
determines that it would be appropriate to do so based upon the 
circumstances at the time. The Exchange may also make future additions 
or changes to the types of Trading Permits, tier appointments or 
bandwidth packets in accordance with Exchange Rules. Any future Trading 
Permit, tier appointment or bandwidth packet fee changes and the fees 
for any new or modified types of Trading Permits, tier appointments or 
bandwidth packets will be reflected in amendments to the CBOE Fees 
Schedule that will be submitted to the Commission through further rule 
filings pursuant to Section 19(b)(3)(A)(ii) of the Act \10\ (provided 
that the fee changes will only apply to Trading Permit Holders and 
their associated persons). Any other such fee changes, including those 
that will be applicable to persons that are not Trading Permit Holders 
or associated persons of Trading Permit Holders, will be submitted to 
the Commission through further rule filings pursuant to Section 
19(b)(2) of the Act.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

2. Statutory Basis
    The proposed rule change will treat similarly situated Trading 
Permit Holders in the same manner by assessing the same Trading Permit, 
tier appointment and bandwidth packet fees (and applying the same 
discount to the trading permit and bandwidth packet fees) to all 
Trading Permit Holders based on the type of Trading Permit(s), tier 
appointment and bandwidth packet(s) requested and by assessing no 
Trading Permit fee to all Trading Permit Holders with access solely to 
CBSX. Accordingly, the Exchange believes that the proposed rule change 
is consistent with Section 6(b) of the Act,\12\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \13\ in 
particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among persons 
using its facilities for the reasons described above.\14\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ The Exchange also believes that it is equitable to assess 
different access fees for trading permits that provide differential 
access as long as the same access fee is assessed to all Holders of 
the same type of Trading Permit.
---------------------------------------------------------------------------

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.

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

    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the Exchange, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \15\ and subparagraph (f)(2) 
of Rule 19b-4 \16\ thereunder. At any time within 60 days of the filing 
of the 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 interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2010-060 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-2010-060. 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 No. SR-CBOE-2010-060 and should be 
submitted on or before July 23, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16141 Filed 7-1-10; 8:45 am]
BILLING CODE 8011-01-P