Under the Proposal, CBOE market makers would pay the subsidies to the OBO and floor brokers from trading revenues earned from the difference in bid and ask quotations. Wider spreads would result in consumers buying and selling options at prices inferior to those at which they could purchase options absent the Proposal. While any adverse effect on securities prices might be offset by reduced commission payments if floor brokers pass through their subsidies, a rule that would allow competitors to create a subsidy that may increase one consumer cost in order to reduce another needs more justification than the CBOE has provided. If market makers acting under the Proposal were to discourage limit orders, limit order discipline on market maker spreads may be reduced and spreads may widen. In addition, there is no guarantee that the Proposal will reduce consumer commission costs.
Floor brokers are under no obligation to reduce their commission rates.
Further, the off-floor broker would have an incentive to route orders to the CBOE because the commissions he or she pays to the CBOE floor brokers or OBO's may be less than that charged by competing exchanges. Customers may be harmed if off-floor brokers route their orders to CBOE because of the payments when they would receive a better execution if routed elsewhere. By weighing each Resident Market Maker's vote by market share, the Proposal creates an opportunity for market makers with substantial order flow to set fees that competing market makers on the CBOE must also pay. Page 4 Finally, the CBOE's objectives may well be achievable through less anticompetitive means. At a minimum, the CBOE should be required to show that other non-collaborative methods could not achieve the same ends.