[Federal Register Volume 66, Number 152 (Tuesday, August 7, 2001)]
[Notices]
[Pages 41281-41282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19701]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44628; File No. SR-CBOE-2001-35]


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

July 31, 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 June 18, 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 July 20, 2001. 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 deduct a one-time supplemental administrative 
charge from fiscal year 2000 interest payments to the marketing fee 
accounts of Designated Primary Market Makers (``DPMs'') to offset some 
of the administrative costs that the CBOE incurred in fiscal year 2000 
in paying interest and issuing rebates on marketing fee account 
balances.

[[Page 41282]]

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, 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 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 has implemented a one-time 
rebate of excess funds to the DPMs and market makers who contributed 
the funds. The CBOE intends periodically to refund account balances of 
$50 or more to those who contributed the fees.\4\
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    \4\ Id.
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    In collecting these fees over the course of the program, the CBOE 
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 credited the accounts with interest earned 
retroactive to the start of the program, based on the average daily 
balance of each DPM account. According to the CBOE, the calculation and 
administration of interest payments and rebates requires it to make 
substantial expenditures on an ongoing basis. Therefore, effective July 
1, 2001, the CBOE has imposed a prospective 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 
intends to reduce the aggregate interest payments to members by each 
member's pro rata share of the $10,000 per month administrative fee. 
According to the CBOE, this procedure will ensure that the fee is 
assessed to the various DPM accounts fairly, based on the relative size 
of each DPM account.\5\
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    \5\ Id.
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    The CBOE states that it has already incurred costs in excess of 
$10,000 per month in fiscal year 2000 to establish the payment of 
interest and issuance of rebates under the marketing fee program. In 
order to offset some of these costs, the CBOE proposes in this rule 
change proposal to offset the interest to be credited to the DPM 
accounts for fiscal year 2000 account balances by deducting an 
additional one-time supplemental administrative charge of $120,000.\6\ 
As with the prospective administrative fee, the charge will be divided 
among the accounts of the various DPM trading stations trading equity 
options (currently numbering approximately 68) on a pro-rata basis 
according to the size of the accounts.
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    \6\ The CBOE arrived at the $120,000 figure by taking the 
$10,000 per month prospective administrative fee that became 
effective upon the filing of SR-CBOE-2001-25 and multiplying it by 
the twelve months of fiscal year 2000. See letter from Christopher 
R. Hill, Attorney, CBOE, to Nancy Sanow, Assistant Director, 
Commission, dated July 19, 2001.
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    The CBOE believes that the proposed rule change is consistent with 
section 6(b) of the Act \7\ and furthers the objectives of section 
6(b)(4) of the Act \8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 CBOE neither solicited nor received comments with respect to 
the proposed rule change.

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

    Within 35 days of the publication of this notice in the Federal 
Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve the proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 SR-CBOE-2001-35 and should be 
submitted by August 22, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-19701 Filed 8-6-01; 8:45 am]
BILLING CODE 8010-01-M