[Federal Register Volume 66, Number 128 (Tuesday, July 3, 2001)]
[Notices]
[Pages 35301-35302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16636]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44469; File No. SR-CBOE-2001-25]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Chicago Board Options Exchange, Inc. Relating to Marketing and 
Administrative Fees

June 22, 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 
May 21, 2001, the Chicago Board Options Exchange, Inc. (CBOE) filed 
with the Securities and Exchange Commission the proposed rule change as 
described in Items I, II, and III below, which Items the CBOE has 
prepared. The CBOE submitted Amendment No. 1 to the proposed rule 
change on June 18, 2001. The Commission is publishing this notice to 
solicit comments from interested persons on the proposed rule change, 
as amended.
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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 pay interest on the funds collected through 
its marketing fee program, to obtain the authority to refund 
periodically the excess collected balances in the marketing fee 
accounts, and to assess an administrative fee, effective July 1, 2001, 
to cover the costs of implementing these steps and to offset the 
overall cost of administering the marketing fee program. The text of 
the proposed rule change is available at the principal offices of the 
CBOE 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 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

    In August 2000, the CBOE instituted a marketing fee program that 
imposed a $.40 per contract marketing fee on various options 
transactions executed on the CBOE. Under the plan, the proceeds from 
the fee were to be used by the appropriate Designated Primary Market 
Maker (``DPM'') for marketing its services and attracting order flow to 
the CBOE.\3\ The funds have been placed in separate accounts for each 
DPM according to the class of options involved in each transaction in 
which the fee was imposed. The fees collected in a particular class of 
option are applied only to the marketing expenses applicable to that 
class of option.
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    \3\ Securities Exchange Act Release No. 43112 (August 3, 2000) 
65 FR 49040 (August 10, 2000) (File No. SR-CBOE-2000-28).
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    At times, some accounts have taken in more money than the DPMs have 
chosen to spend for marketing. The CBOE wishes periodically to refund 
account balances of $50 or more to those who contributed the fees. 
Moreover, in collecting these fees over the last nine months, the CBOE 
has found that the proceeds from the fee are typically received into 
separate DPM accounts and kept there for at least several days before 
the DPM uses them. At the request of the association representing the 
CBOE's DPMs, the CBOE has determined to credit the accounts with 
interest earned from the collected funds. Finally, effective July 1, 
2001, the CBOE intends to impose a monthly $10,000 administrative fee 
to fund the implementation of these steps and to offset the overall 
costs related to its marketing fee program.
    The CBOE proposes periodically to refund proceeds collected through 
the marketing fee program that exceed a specific percentage of the 
amounts collected in the previous three months. The refunds would be 
made on a pro rata basis to the market makers that contributed the 
funds. Currently, the CBOE anticipates refunding account balances that 
exceed 15% of the amount collected in each account from February 1, 
2001 through April 30, 2001. The CBOE also proposes to implement any

[[Page 35302]]

future refunds in similar fashion, if and when the circumstances 
warrant. Recommendations as to the specific timing and amounts of any 
future refunds would be made by the CBOE's Financial Planning 
Committee, subject to approval by the Board of Directors.
    In order to reduce the costs and administrative burdens placed upon 
the CBOE and the clearing firms in processing refunds, the CBOE would 
not issue refunds of less than $50. The CBOE believes that the cost of 
processing refunds of such small amounts would likely exceed the value 
of the refunds.
    The CBOE also proposes to credit interest to the DPM accounts 
retroactively from the beginning of the marketing fee program, based on 
the average daily balance of each DPM account and the interest rate 
(currently about 5.5%) that the CBOE earns on its own excess cash.
    In addition, effective July 1, 2001, the CBOE proposes to impose a 
monthly $10,000 administrative fee to cover its costs of administering 
the marketing fee program and the refund program. The monthly $10,000 
administrative fee would be divided among the accounts of the various 
DPM stations trading equity options (currently numbering approximately 
68). Under the proposal, each DPM would be assessed its pro rata share 
of the monthly $10,000 administrative fee, which would be offset 
against the amount of interest the CBOE will pay to each DPM account. 
The CBOE believes that this procedure will ensure that the fee is 
imposed on each DPM account fairly, based on each account's relative 
size.
    The CBOE believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \4\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \5\ in particular, in that 
it is designed to provide for the equitable allocation of reasonable 
dues, fees, and other changes among CBOE members.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE 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 CBOE neither solicited nor received written comments 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 CBOE, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-4(f)(2) 
thereunder.\7\ At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate the 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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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 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 fix 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 the filing will also be 
available for inspection and copying at the principal office of the 
CBOE. All submissions should refer to the file number SR-CBOE-2001-25 
and should be submitted by July 24, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
Margaret H. McFarland,
Deputy Secretary.
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    \8\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 01-16636 Filed 7-2-01; 8:45 am]
BILLING CODE 8010-01-M