[Federal Register Volume 68, Number 12 (Friday, January 17, 2003)]
[Notices]
[Pages 2596-2597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1108]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47169; File No. SR-CBOE-2002-73]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Incorporated Relating to Pass-Through of Periodic License or 
Royalty Fees

January 13, 2003.
    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 December 26, 2002, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') the proposed rule change as 
described in Items I, II and III below, which Items have been prepared 
by the Exchange. CBOE has designated this proposal as one establishing 
or changing a due, fee, or other charge imposed by the Exchange under 
Section 19(b)(3)(A)(ii) of the Act,\3\ which renders the proposal 
effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to make a change to its fee schedule related 
to the pass-through of periodic license or royalty fees for DPM-traded 
products. 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 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 its proposal and discussed any 
comments it received regarding the proposal. The text of these 
statements may be examined at the places specified in Item IV below. 
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

1. Purpose
    In connection with the trading of certain option classes and other 
securities on the Exchange, the Exchange is beginning to be confronted 
with a new cost, namely, a requirement to pay a periodic (e.g., annual) 
license or royalty fees to third parties as a condition to listing and 
trading certain securities. These periodic license or royalty fees may 
be imposed on the Exchange in addition to any per contract license or 
royalty fees, and they differ from such per contract fees in that the 
required cost to the Exchange is fixed and does not vary based upon the 
trading volume in the applicable security. One example is the fee for 
listing and trading the Russell 2000[reg], which is an annual fee 
payable on a quarterly basis.\4\ It is therefore not workable for the 
Exchange to assess per contract fees on variable trading volume in the 
products in order to recoup such fixed periodic costs.
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    \4\ Telephone conversation between Chris Hill, Attorney II, 
CBOE, and Gordon Fuller, Counsel to the Assistant Director, Division 
of Market Regulation, Commission and Ian Patel, Attorney, Division 
of Market Regulation, Commission (January 9, 2003).

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[[Page 2597]]

    The Exchange therefore proposes to establish a policy whereby it 
will pass any periodic license or royalty fees through the DPM 
allocated to a security for which the Exchange pays such fees. This 
policy, which would be memorialized in the Exchange fee schedule under 
``Miscellaneous Fees,'' would apply to any securities traded on the 
Exchange, whether a listed security or a security traded pursuant to 
unlisted trading privileges, that are allocated to a DPM and for which 
the Exchange pays a periodic license or royalty fee to authorize 
trading at the Exchange, including options, structured products, 
exchange-traded funds (``ETFs'') based on a stock index,\5\ and Trust 
Issued Receipts (``TIRs'') (as described in Interpretation .04 to CBOE 
Rule 1.1). At the present time, the Exchange does not foresee any 
periodic license or royalty fees being imposed upon products that are 
not allocated to a DPM. If and when that occurs, however, the Exchange 
would address it by submitting to the Commission a separate proposed 
rule change that, like this one, would treat all such similarly 
situated products in the same manner.
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    \5\ For ease of reference, this rule filing uses the term ETF to 
describe both Index Portfolio Receipts (``IPRs''), as described in 
Interpretation .02 to CBOE Rule 1.1, and Index Portfolio Shares 
(``IPSs'') as described in Interpretation .03 to CBOE Rule 1.1.
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    The Exchange represents that any fee passed through to the DPM 
pursuant to this filing will reflect only the actual costs incurred by 
the Exchange for a periodic license or royalty fee in connection with 
Exchange trading of the security allocated to the DPM, and which are 
not otherwise offset by any other fees imposed by the Exchange. The 
Exchange also represents that it will inform any applicants for the DPM 
position in such products that they will have the periodic license or 
royalty fee passed through to them if they are awarded the DPM position 
for that product, and that this periodic pass through may be separate 
from any additional per contract license or royalty fee that may also 
be charged to the DPM and/or other market participants in connection 
with the trading of such product.
    The Exchange believes this fee is reasonable and justified because 
DPMs for products with a periodic license or royalty fee have been 
awarded special status for the product (i.e. the DPM status) and thus, 
stand to gain the most from continued CBOE listing of the product, 
which will be dependent upon the payment of the periodic license or 
royalty fee. It also is more logistically workable to pass a periodic 
fee through to the single DPM entity, which consistently participates 
in a substantial percentage of the trading in such products, rather 
than attempting to identify and assess all the other market 
participants in such trading, which can vary in identity and the extent 
of their participation in such trading over time.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \6\ in general and furthers the objectives of Section 
6(b)(4) of the Act \7\ in particular in that it is designed to provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among CBOE members.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 that is 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

    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the Exchange, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act and subparagraph (f) of Rule 
19b-4 thereunder. 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 purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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 CBOE. All submissions 
should refer to file number SR-CBOE-2002-73 and should be submitted by 
February 7, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1108 Filed 1-16-03; 8:45 am]
BILLING CODE 8010-01-P