[Federal Register Volume 66, Number 62 (Friday, March 30, 2001)]
[Notices]
[Pages 17459-17460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7895]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44095; File No. SR-CBOE-01-09]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Incorporated Relating to Exchange Marketing Fees

March 23, 2001.
    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 February 28, 2001, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``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 CBOE proposes to make a change to its Marketing Fee, under its 
Fee Schedule, to exempt call/put ``combo'' transactions from the 
Marketing Fee. The text of the proposed rule change is available at the 
Office of the Secretary, CBOE and at the Commission.

II. Self-Regulatory Organization's Statements 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Last year, the Exchange imposed a $0.40 per contract marketing fee 
to collect funds to be used by the appropriate Designated Primary 
Market

[[Page 17460]]

Maker (``DPM'') for marketing its service and attracting order flow to 
the CBOE.\3\
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    \3\ See Securities Exchange Act Release No. 43112 (August 3, 
2000), 65 FR 49040 (August 10, 2000) File No. SR-CBOE-00-28).
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    Currently, this marketing fee is applicable to all market-markers 
to market-maker options transactions.\4\ It has, however, recently come 
to the attention of the Exchange that this marketing fee makers it 
unprofitable for market makers to do reversals and conversions in which 
a market maker trades a given amount of an underlying security against 
an equivalent number of call/put ``combos,'' i.e., buying the call and 
selling the put (or vice versa) of the same option class in equal 
quantities with the same strike price in the same expiration month. In 
the case of conversion, the market maker buys the put, sells the call, 
and buys the underlying security. For reversals, the market maker sells 
the put, buys the call, and sells the underlying security.
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    \4\ See id.
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    Conversions and reversals are popular trading strategies that 
contribute to market liquidity, but they usually have to be done at a 
smaller profit margin that other types of trades. When the $0.40 
marketing fee is imposed upon the call/put ``combo'' transactions, the 
trades frequently cease to be profitable to execute on the Exchange.
    Consequently, the Exchange has decided to exempt from the Marketing 
Fee section of its Fee Schedule all such call/put ``combo'' 
transactions. The Exchange represents that it will use trade data to 
determine qualifying transactions. While the Exchange has no current 
plans to require documentation to show that specific trades qualify for 
this exemption, the Exchange reserves the right to do so in the future.
2. Statutory Basis
    The Exchange believes 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 provides 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 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

    The Exchange had neither solicited nor received written comments on 
the proposed rule change.

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

    The foregoing rule change establishes or changes a due, fee, or 
other charge imposed by the Exchange and, therefore, has become 
effective pursuant to section 19(b)(3)(A)(ii) of the Act \7\ and Rule 
19b-4(f)(2) thereunder,\8\ upon filing. 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 purpose 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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 will also be 
available for inspection and copying at the principal office of the 
CBOE. All submissions should refer to File No. SR-CBOE-01-09 and should 
be submitted by April 20, 2001.
    For the Commission by the Division of Market Regulation, pursuant 
to delegated authority.\9\
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    \9\ 17 CFR 200.30-2(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-7895 Filed 3-29-01; 8:45 am]
BILLING CODE 8010-01-M