[Federal Register Volume 67, Number 66 (Friday, April 5, 2002)]
[Notices]
[Pages 16480-16481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8211]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45675; File No. SR-CBOE-2002-13]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Relating to the Rebate of Fees Assessed on Certain 
Trades Submitted for Matching and Clearing Solely To Correct Trades 
That Clear Incorrectly Due to Manual Data Entry Errors

March 29, 2002.
    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 March 19, 2002, the Chicago Board of Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes authorize a rebate of fees that are assessed 
on trades submitted for matching and clearing solely to correct trades 
that clear incorrectly due to manual data entry or ``key punch'' 
errors. The text of the proposed rule change appears below. New text is 
in italics; deletions are in brackets.
FEE SCHEDULE
MARCH 01, 2002
    MEMBER TRANSACTION FEE POLICIES AND REBATE PROGRAMS MEMBER 
TRANSACTION FEES--INDEX OPTIONS (Unchanged)
* * * * *
    MEMBER TRANSACTION FEES--EQUITY & INDEX OPTIONS (Unchanged)
* * * * *
    ERROR ACCOUNT TRANSATIONS (Unchanged)
* * * * *
    MISCLEARED TRANSACTIONS
    On occasion, options transactions are matched and cleared as a 
result of certain keypunch errors and members are forced to execute 
subsequent transactions to achieve the originally intended results. A 
qualifying keypunch error is any error that is inadvertent and creates 
a duplicate fee or fees to be charged in the matching and clearing of 
corrective options trades. The CBOE shall have the discretion to rebate 
any duplicate transaction and trade match fees incurred in the course 
of correcting such errors. Only those transactions that require a 
minimum of 500 contracts to correct the error or errors shall be 
eligible for this rebate.
    A written request with all supporting documentation (trade date, 
options class, executing firm and broker, opposite firm and broker, 
premium, and quantity) and a summary of the reasons for the error must 
be submitted to the CBOE Accounting Department within 60 days after the 
last day of the month in which the error occurred. This rebate program 
shall apply to all applicable fees collected under Section 1 (Options 
Transaction Fees), Section 2 (Trade Match Fee), and Section 3 (Floor 
Brokerage Fee) of the Chicago Board Options Exchange, Inc. Fee 
Schedule, as amended from time to time.

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 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    The Exchange collects transaction fees and trade match fees for the 
many different types of equity and index option orders that are 
executed on the Exchange.\3\ In the course of collecting these fees, 
the Exchange has discovered that, in certain situations, these fees 
should be rebated to members. On rare occasions, the Exchange finds 
that an options trade will be matched and cleared inappropriately as a 
result of a manual data entry or ``key punch'' error. In order to put 
the parties in the originally desired position, another transaction (or 
transactions) must be submitted through the trade match and clearing 
process to accurately reflect the intended transactions on the Exchange 
in accordance with Exchange rules. The Exchange states that these 
corrective transactions, like any other transaction submitted for 
matching and clearing, are subject to and will be assessed the 
appropriate fees in accordance with the Exchange's fee schedule. 
Depending on the size of the trades involved, the Exchange further 
states that the cost to the affected parties can be considerable. As 
such, the Exchange believes that it is appropriate to refund, with 
limitations, to the affected parties the fees generated by the 
transactions required to correct this type of error.
---------------------------------------------------------------------------

    \3\ See ``Chicago Board Options Exchange, Inc. Fee Schedule'' as 
amended from time to time.
---------------------------------------------------------------------------

    To qualify for this rebate, the error in question must be of a 
narrow scope. Specifically, the trade must be directly related to the 
entering of pertinent trade information for clearing purposes. For 
instance, the Exchange states that the typical situation would involve 
a member's clerk, or other similar personnel, inputting the wrong 
clearing firm code into the appropriate form or program. As a result, 
the trade is cleared through the wrong clearing firm and, in order to 
correct the situation, corrective transactions are entered to reverse 
the error trades and then new trades are submitted to reflect the 
original intentions of the parties. Because the fee assessment process 
is automated, transaction fees are unavoidably incurred through the 
subsequent execution of the corrective transactions. As a matter of 
economy, the Exchange has established a de minimis standard for 
qualifying members for a rebate. Only those transactions that require a 
minimum of 500 contracts to correct the error, or errors, would be 
eligible for

[[Page 16481]]

this rebate. The Exchange further notes that the member will only be 
refunded the amount of fees above what is necessary to execute the 
originally intended transactions.
    Additionally, the party seeking the rebate must provide in writing, 
at a minimum, a summary of the reasons for the error and all supporting 
information (trade date, options class, executing firm and broker, 
opposite firm and broker, premium, and quantity) and the written 
request must be submitted to the CBOE Accounting Department within 60 
days after the last day of the month in which the error occurred. The 
Exchange will retain the discretion to determine, on a case-by-case 
situation, whether the transactions in question qualify for the rebate. 
This rebate program will be reflected on the Chicago Board Options 
Exchange, Inc. Fee Schedule and, upon Commission approval, members will 
be notified of the rebate program through an informational circular.
(2) Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\4\ in general, and furthers the 
objectives of Section 6(b)(4),\5\ in particular, in that it is designed 
to provide for the equitable allocation of reasonable dues, fees, and 
other charges among CBOE members.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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 the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to 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 
charge imposed by the Exchange and, therefore, has become effective 
upon filing pursuant to Section 19(b)(3)(A)(ii) of the Act \6\ and Rule 
19b-4(f)(2) hereunder.\7\ At any time within 60 days of the filing of 
such 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \7\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 
Exchange. All submissions should refer to File No. SR-CBOE-2002-13 and 
should be submitted by April 26, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-8211 Filed 4-4-02; 8:45 am]
BILLING CODE 8010-01-P