Document ID: SEC-2007-1712-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2007-12-17T05:00Z

[Federal Register: December 17, 2007 (Volume 72, Number 241)]
[Notices]               
[Page 71465-71467]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17de07-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56937; File No. SR-CBOE-2007-127]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendment No. 1 Thereto Relating to Cancellation Fees

December 10, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 71466]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 1, 2007, the Chicago Board Options Exchange, Incorporated 
(the ``CBOE'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been substantially 
prepared by the CBOE. On November 30, 2007, CBOE filed Amendment No. 1 
to the proposed rule change. The CBOE has filed the proposed rule 
change as one establishing or changing a due, fee, or other charge 
imposed by the Exchange 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, as amended, 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 (i) reduce the book execution fee in classes 
trading on the ``Hybrid 3.0 Platform'', and (ii) amend its Order 
Routing System (``ORS'') order cancellation fee. The text of the 
proposed rule change is available at CBOE, the Commission's Public 
Reference Room, and http://www.cboe.org/legal.

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 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. 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 Exchange proposes to implement the following fee changes on 
November 1, 2007.
Hybrid 3.0 Book Execution Fee
    On June 7, 2007, the Commission approved the Exchange's ``Hybrid 
3.0'' trading platform.\5\ The remaining non-Hybrid classes trading on 
the Exchange have moved to the Hybrid 3.0 platform.\6\ The new Hybrid 
3.0 classes no longer utilize the services of an Exchange Order Book 
Official (``OBO'') \7\. Pursuant to Section 7 of the CBOE Fees 
Schedule, the Exchange assessed per contract fees on orders in non-
Hybrid index option classes resting in the electronic book that were 
executed on the floor by the OBO (``OBO Execution Fees''). These OBO 
Execution Fees are $.25 per contract excluding market orders and 
certain limit orders entered prior to the opening rotation, and $.10 
per contract for accommodation liquidations (cabinet trades).\8\
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    \5\ See Securities Exchange Act Release No. 55874 (June 7, 
2007), 72 FR 32688 (June 13, 2007).
    \6\ The classes that trade on the Hybrid 3.0 platform are 
options on the S&P 100 Index (``OEX''), options on the S&P 500 Index 
(``SPX'') and options on the Morgan Stanley Retail Index (``MVR'').
    \7\ An ``Order Book Official'' is defined in CBOE Rule 7.1 as an 
Exchange employee designated pursuant to CBOE Rule 7.3 who is 
responsible for (i) maintaining the book with respect to the classes 
of options assigned to him; (ii) effecting proper executions of 
orders placed with him; (iii) displaying bids and offers pursuant to 
CBOE Rule 7.7 of these Rules; and (iv) monitoring the market for the 
classes of options assigned to him.
    \8\ An ``accommodation'' or ``cabinet'' trade refers to trades 
in listed options on the Exchange that are worthless or not actively 
traded. Cabinet trading is conducted in accordance with CBOE Rule 
6.54.
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    The Exchange proposes to reduce the $.25 per contract fee to $.18 
per contract, rename the fee ``Hybrid 3.0 Book Execution Fee'', and 
eliminate the $.10 per contract fee for accommodation liquidations. The 
fee would apply to book executions in Hybrid 3.0 classes (currently, 
OEX, SPX and MVR). Specifically, orders in Hybrid 3.0 classes resting 
in the electronic book that are executed would be assessed a fee of 
$.18 per contract. This fee would not apply to orders in SPX options 
resting in the SPX electronic book that are executed during opening 
rotation on the final settlement date of CBOE Volatility Index 
(``VIX'') options and futures, as orders entered to participate in such 
opening rotation help to facilitate the calculation of a settlement 
price for VIX options and futures.\9\
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    \9\ The opening rotation procedures in options series used to 
calculate the final settlement price of volatility indexes are 
described in CBOE Rule 6.2B.01.
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    The Hybrid 3.0 book execution system has helped to improve 
execution time as well as service and efficiency. The Hybrid 3.0 Book 
Execution Fee is designed to help the Exchange recover its costs of 
developing the system and offset the cost of maintaining and enhancing 
the system in the future.
ORS Order Cancellation Fee
    CBOE currently assesses an executing clearing member $1.50 for each 
cancelled public customer ORS order in excess of the number of public 
customer orders that the executing clearing member executes in a month 
for itself or for a correspondent firm. The purpose of the fee is to 
ease order backlogs on ORS and related systems. The fee is not charged 
if less than 500 public customer orders are cancelled in a month by the 
executing clearing member for itself or for a correspondent firm. The 
Exchange aggregates and counts as one executed order for purposes of 
the fee all public customer options orders from the same executing 
clearing member for itself or for a correspondent firm that are 
executed in the same series on the same side of the market at the same 
price within a 30 second period. The following ORS order activity is 
exempt from the fee: (i) Cancelled ORS orders that improve the 
Exchange's prevailing bid-offer (BBO) market when received; and (ii) 
fill and cancellation activity occurring within the first one minute of 
trading following the opening of each option class.
    The Exchange proposes to amend the fee by additionally exempting 
the following activity: (i) Complex order \10\ fills and cancels; (ii) 
unfilled Fill-or-Kill (``FOK'') orders \11\, and (iii) unfilled 
Immediate-or-Cancel (``IOC'') orders. \12\ Because this activity does 
not contribute excessively to system congestion the Exchange believes 
it is appropriate to exclude this activity from the calculation of the 
fee.
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    \10\ ``Complex Order'' is defined in CBOE Rule 6.53C(a).
    \11\ ``Fill-or-Kill'' order is defined in CBOE Rule 6.53(j) as 
an order which is to be executed in its entirety as soon as it is 
represented in the trading crowd, and such order, if not so 
executed, is to be treated as cancelled.
    \12\ ``Immediate-or-Cancel'' order is defined in CBOE Rule 
6.53(k) as a market or limit order which is to be executed in whole 
or in part as soon as such order is represented in the trading 
crowd. Any portion not so executed is to be treated as cancelled.
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    Additionally, the Exchange proposes to exempt from the fee fill and 
cancellation activity in Mini-SPX Index Options (XSP). CBOE intends to 
undertake a marketing re-launch of the XSP product due in part to the 
inclusion of XSP options in the expanded penny pilot program recently 
approved by the Commission.\13\ In conjunction with the marketing re-
launch, CBOE has

[[Page 71467]]

determined to exclude activity in XSP options from the calculation of 
the fee.
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    \13\ See Securities and Exchange Act Release No. 56565 
(September 27, 2007), 72 FR 56403 (October 3, 2007).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\14\, in general, and furthers the objectives of Section 6(b)(4) \15\ 
of the Act in particular, in that it is designed to provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
CBOE members and other persons using its facilities.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(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 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 proposed 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 \16\ and Rule 19b-
4(f)(2) \17\ thereunder. At any time within 60 days of the filing of 
the proposed rule change the Commission may summarily abrogate such 
proposed 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.\18\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 19b-4(f)(2).
    \18\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the abrogation period to have commenced on 
November 30, 2007.
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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-2007-127 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-2007-127. 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, 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 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-2007-127 and should be 
submitted on or before January 7, 2008.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-24310 Filed 12-14-07; 8:45 am]

BILLING CODE 8011-01-P