[Federal Register Volume 70, Number 89 (Tuesday, May 10, 2005)]
[Notices]
[Pages 24663-24665]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2239]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51650; File No. SR-CBOE-2005-34]


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. Amending Its Marketing Fee 
Relating to Remote Market-Makers

May 3, 2005.
    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 April 25, 2005, the Chicago Board 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 CBOE. On April 26, 
2005, the CBOE submitted Amendment No. 1 to the proposed rule 
change.\3\ The CBOE has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by the CBOE under Section 
19(b)(3)(A)(ii) of the Act,\4\ and Rule 19b-4(f)(2) thereunder,\5\ 
which renders the proposal effective upon filing with the Commission. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the CBOE made technical corrections to 
the rule text of the proposed rule change.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its marketing fee to impose the fee 
on transactions of Remote Market-Makers (``RMMs''). The marketing fee 
will be assessed at the rate of $.22 per contract on all classes of 
equity options, options on HOLDRs[reg], and options on SPDRs[reg]. The 
fee will not apply to Market-Maker-to-Market-Maker transactions. Below 
is the text of the proposed rule change, as amended. Proposed new 
language is italicized.

CHICAGO BOARD OPTIONS EXCHANGE, INC.

FEE SCHEDULE

    1. No change.
    2. MARKET-MAKER, RMM, e-DPM & DPM MARKETING FEE (in option classes 
in which a DPM has been appointed)(6).........................$.22
    3.-4. No change.
    NOTES:
    (1)-(5) No change.
    (6) The Marketing Fee will be assessed only on transactions of 
Market-Makers, RMMs, e-DPMs and DPMs at the rate of $.22 per contract 
on all classes of equity options, options on HOLDRs[reg], and options 
on SPDRs[reg]. The fee will not apply to Market-Maker-to-Market-Maker 
transactions. This fee shall not apply to index options and options on 
ETFs (other than options on SPDRs). Should any surplus of the marketing 
fees at the end of each month occur, the Exchange would then refund 
such surplus at the end of the month if any, on a pro rata basis based 
upon contributions made by the Market-Makers, RMMs, e-DPMs and DPMs.
    (7)-(15) No change.
* * * * *

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 its proposal and discussed any 
comments it had received regarding the proposal. 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

1. Purpose
    On October 29, 2004, the CBOE amended its marketing fee program.\6\ 
The current marketing fee is assessed upon Designated Primary Market-
Makers (``DPMs''), electronic Designated Primary Market-Makers (``e-
DPMs''), and Market-Makers at a rate of $.22 for every contract they 
enter into on the Exchange other than Market-Maker-to-Market-Maker 
transactions (which includes all transactions between any combination 
of DPMs, e-DPMs, and Market-Makers). The marketing fee is assessed in 
all equity option classes, options on HOLDRs[reg],\7\ and options on

[[Page 24664]]

SPDRs[reg].\8\ The Exchange recently established a new membership 
status called RMMs.\9\ The RMM program allows individuals and member 
organizations to stream quotes into designated Hybrid 2.0 classes from 
locations outside of the Exchange's physical trading crowds. RMMs may 
create customized class appointments, called virtual trading crowds 
(``VTCs''), which allow them to cover a range of classes irrespective 
of their geographic locations on the CBOE trading floor.\10\
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    \6\ For a description of the CBOE's marketing fee program, see 
Securities Exchange Act Release No. 50736 (Nov. 24, 2004), 69 FR 
69966 (Dec. 1, 2004) (SR-CBOE-2004-68).
    \7\ HOLDRs are trust-issued receipts that represent an 
investor's beneficial ownership of a specified group of stocks. See 
Interpretation .07 to CBOE Rule 5.3.
    \8\ See Securities Exchange Act Release No. 51052 (Jan. 18, 
2005), 70 FR 3757 (Jan. 26, 2005) (SR-CBOE-2005-05).
    \9\ See Securities Exchange Act Release No. 51366 (Mar. 14, 
2005), 70 FR 13217 (Mar. 18, 2005) (SR-CBOE-2004-75).
    \10\ On April 19, 2005, the SEC granted accelerated approval to 
SR-CBOE-2005-23, amending CBOE Rule 8.4 to remove the Physical 
Trading Crowd appointment alternative for RMMs. See Securities 
Exchange Act Release No. 51543 (Apr. 14, 2005), 70 FR 20952 (Apr. 
22, 2005) (SR-CBOE-2005-23).
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    This proposed rule change amends the marketing fee program to 
include RMMs in the classification of Exchange members subject to the 
marketing fee. The Exchange states that the purpose of the marketing 
fee plan is to provide the members of the Exchange with the ability to 
compete for the opportunity to trade with those orders that may 
otherwise be routed to other exchanges. The marketing fee will be 
assessed whereby DPMs, e-DPMs, RMMs, and Market-Makers will be debited 
$.22 for every contract they enter into on the Exchange other than 
Market-Maker-to-Market-Maker transactions (which includes all 
transactions between any combination of DPMs, e-DPMs, RMMs, and Market-
Makers).
    According to the Exchange, all funds generated by the marketing fee 
will be collected by the Exchange and recorded according to the DPM, 
station, and class (``Trading Crowds'') where the options subject to 
the fee are traded. The money collected will be disbursed by the 
Exchange according to the instructions of the DPM. The CBOE states that 
those funds will be available to the DPM solely for those Trading 
Crowds where the fee was assessed and may only be used by that DPM to 
attract orders in the classes of options where the DPM is appointed. 
Funds collected from RMMs and e-DPMs will be used to attract order flow 
for the classes in which the RMM and e-DPM are appointed. The Exchanges 
notes that its Board of Directors has previously established a 
Marketing Fee Oversight Committee, which will conduct a quarterly 
review to determine the effectiveness of the marketing fee and which 
may recommend to the Exchange that it modify the fee in the future 
based upon its effectiveness.
    As in the current marketing fee program, the Exchange states that 
it will not be involved in the determination of the terms governing the 
orders that qualify for payment with any payment accepting firm or the 
amount of any such payment. The Exchange will provide administrative 
support for the program in such matters as maintaining the funds, 
keeping track of the number of qualified orders each firm directs to 
the Exchange, and making the necessary debits and credits to the 
accounts of the traders and the payment accepting firms to reflect the 
payments that are made. The Exchange states that fees collected during 
a calendar month shall only be available to the DPM for payment for 
that calendar month's order flow.
    The Exchange believes that it is important to note that Exchange 
Market-Makers, RMMs, DPMs, and e-DPMs will have no way of identifying 
prior to execution whether a particular order is from a payment-
accepting firm, or from a firm that does not accept payment for their 
order flow.
    Consistent with the current marketing fee, the Exchange states that 
it will continue to refund any surplus at the end of the month on a pro 
rata basis based upon contributions made by the Market-Makers, RMMs, e-
DPMs, and DPMs.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \11\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \12\ in particular, in 
that it is designed to provide for the equitable allocation of 
reasonable dues, fees, and other charges among the CBOE's members.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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, as 
amended, 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

    The CBOE neither solicited nor received written comments with 
respect to the proposed rule change, as amended.

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

    Because the foregoing rule change, as amended, establishes or 
changes a due, fee, or other charge imposed by the Exchange, it has 
become effective pursuant to Section 19(b)(3)(A)(ii) of the Act \13\ 
and subparagraph (f)(2) of Rule 19b-4 thereunder.\14\ Accordingly, the 
proposal will take effect upon filing with the Commission. At any time 
within 60 days of the filing of the proposed rule change, as amended, 
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.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 17 CFR 240.19b-4(f)(2).
    \15\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change, as 
amended, under Section 19(b)(3)(C) of the Act, the Commission 
considers the period to commence on April 26, 2005, the date on 
which the Exchange submitted Amendment No. 1. See 15 U.S.C. 
78s(b)(3)(C).
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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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-CBOE-2005-34 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-CBOE-2005-34. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule

[[Page 24665]]

change, as amended, 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 also will be available for 
inspection and copying at the principal office of the CBOE. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2005-34 and should be 
submitted on or before May 31, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2239 Filed 5-9-05; 8:45 am]
BILLING CODE 8010-01-P