Document ID: SEC-2012-1817-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2012-11-08T05:00Z

[Federal Register Volume 77, Number 217 (Thursday, November 8, 2012)]
[Notices]
[Pages 67032-67034]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27265]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68131; File No. SR-CBOE-2012-101]

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

November 1, 2012.
    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 October 25, 2012, 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, and at the Commission.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its marketing fee. The marketing fee 
is assessed on certain transactions of Market-Makers, Designated 
Primary Market-Makers (``DPMs'') and e-DPMs.\3\ The funds collected via 
this marketing fee are then put into pools controlled by DPMs and 
Preferred Market-Makers (``PMMs'').\4\ The DPM or PMM controlling a 
certain pool of funds can then determine the order flow provider(s) to 
which the funds should be directed in order to encourage such order 
flow provider(s) to send orders to the Exchange. On each order, an 
order flow provider that receives marketing fee funds can designate the 
PMM to which the funds generated from the order sent by the order flow 
provider should be allocated (a ``Preferred order'').
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    \3\ See CBOE Fees Schedule, table entitled ``Marketing Fee'' and 
Footnote 6 for more details regarding the marketing fee.
    \4\ See CBOE Rule 8.13 for details of the PMM program.
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    Currently, Footnote 6 to the Exchange Fees Schedule, which relates 
to the marketing fee, states that a PMM will only be given access to 
the marketing fee funds generated from a Preferred order if the PMM has 
an appointment in the class in which the Preferred order is received 
and executed. However, CBOE recently learned that other options 
exchanges allow a PMM (or similar positions) to have access to the 
marketing fee funds generated from a Preferred order (or similar order 
type) regardless of whether the PMM has an appointment in the class in 
which the Preferred order is received and executed. As such, the 
Exchange decided to examine permitting this activity on CBOE.\5\
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    \5\ See NASDAQ OMX Phlx, LLC (``Phlx'') Pricing Schedule, 
section on Payment for Order Flow Fees, and NYSE Amex Options Fee 
Schedule, Footnote 10, and also International Securities Exchange, 
LLC (``ISE'') Schedule of Fees, Section IV(D), none of which contain 
requirements that a PMM (or similar position) have an appointment in 
the class in which a Preferred order (or similar order type) is 
received and executed in order to have access to the marketing fee 
funds generated from that Preferred order.
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    Permitting a PMM to access marketing fee funds generated from a 
Preferred order, regardless of whether the order is for a class in 
which the PMM has an appointment, may allow PMMs to encourage greater 
order flow to be sent to the Exchange. A PMM could be able to amass a 
greater pool of funds with which to use to incent order flow providers 
to send order flow to the Exchange. This increased order flow would 
benefit all market participants on the Exchange. Indeed, a PMM would 
likely often not even be the direct beneficiary of the increased order 
flow, since the PMM would not trade with that order (as the PMM is not 
appointed in that class). The market participants

[[Page 67033]]

who can trade with that order would be the direct beneficiaries. 
Allowing a PMM to access marketing fee funds generated from a Preferred 
order, regardless of whether the order is for a class in which the PMM 
has an appointment, would provide a PMM with an incentive to encourage 
the routing of order flow into classes in which the PMM otherwise would 
not (classes in which the PMM is not appointed and quoting). Further, 
this will also provide PMMs with more flexibility to change their 
appointments, as they will not have to be concerned with whether or not 
they have made arrangements to pay for order flow in a specific class 
prior to changing appointments.
    Therefore, the Exchange proposes to eliminate the requirement that 
a PMM will only be given access to the marketing fee funds generated 
from a Preferred order if the PMM has an appointment in the class in 
which the Preferred order is received and executed. The Exchange 
proposes to amend the relevant sentence in Footnote 6 to simply state 
that a PMM will be given access to the marketing fee funds generated 
from a Preferred order. The purpose of this change is to encourage the 
direction of increased order flow to the Exchange, allow PMMs more 
flexibility to change classes to which they are appointed, and place 
the Exchange on even competitive footing with other exchanges.
    The proposed change is to take effect on November 1, 2012.
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.\6\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \7\ requirements that the rules of 
an exchange be designed to promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest. By removing a requirement that other exchanges do 
not possess, CBOE puts its PMMs on an even footing with PMMs (or 
similar positions) on other exchanges. This evening of the playing 
field removes an impediment to and perfects the mechanism for a free 
and open market and a national market system.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that permitting a PMM to access 
marketing fee funds generated from a Preferred order, regardless of 
whether the order is for a class in which the PMM has an appointment, 
is consistent with Section 6(b)(4) of the Act,\8\ which provides that 
Exchange rules may provide for the equitable allocation of reasonable 
dues, fees, and other charges among its Trading Permit Holders and 
other persons using its facilities. The proposed change is reasonable 
because it will allow PMMs greater access to marketing fee funds. The 
proposed change is equitable and not unfairly discriminatory because it 
is designed to allow PMMs to encourage greater order flow to be sent to 
the Exchange. A PMM could be able to amass a greater pool of funds with 
which to use to incent order flow providers to send order flow to the 
Exchange. This increased order flow would benefit all market 
participants on the Exchange. Further, allowing a PMM to access 
marketing fee funds generated from a Preferred order, regardless of 
whether the order is for a class in which the PMM has an appointment, 
would provide a PMM with an incentive to encourage the routing of order 
flow into classes in which the PMM otherwise would not (classes in 
which the PMM is not appointed and quoting).
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    \8\ 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 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 
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) \9\ of the Act and paragraph (f) of Rule 19b-4 \10\ 
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.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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-2012-101 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-2012-101. 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-2012-101 and should be 
submitted on or before November 29, 2012.

[[Page 67034]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27265 Filed 11-7-12; 8:45 am]
BILLING CODE 8011-01-P