[Federal Register Volume 70, Number 107 (Monday, June 6, 2005)]
[Notices]
[Pages 32855-32858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2870]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51746; File No. SR-CBOE-2005-32]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendment No. 1 Relating to Remote Market-Maker 
Transaction Fees

May 26, 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 20, 2005, the Chicago Board Options Exchange, Incorporated 
(``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 May 18, 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 from interested parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange: (1) clarified how the 
fixed annual fee alternative for DPMs and e-DPMs would be applied 
when an entity that has elected the fixed annual fee alternative 
merges or combines operations with an entity that has not elected 
the fixed annual fee alternative; and (2) revised the date of the 
Fees Schedule.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

    The Exchange proposes to amend its Fees Schedule to (i) establish 
transaction fees for Remote Market-Makers (``RMMs''), (ii) amend its 
Designated Primary Market-Maker (``DPM'') and Electronic DPM (``e-
DPM'') fixed annual fee program to

[[Page 32856]]

include a fixed fee alternative for RMM transaction fees, and (iii) 
explain how DPM or e-DPM consolidations will affect the fixed annual 
fee. Below is the text of the proposed rule change, as amended. 
Proposed new language is italicized; proposed deletions are in 
[brackets].

           CHICAGO BOARD OPTIONS EXCHANGE, INC.--FEES SCHEDULE
                         [MARCH 2] MAY 18, 2005
------------------------------------------------------------------------
                                                           Per contract
                                                             (cents)
------------------------------------------------------------------------
1. OPTIONS TRANSACTION FEES (1)(3)(4)(7):
    EQUITY OPTIONS (13):
        I. CUSTOMER....................................             .00
        II. MARKET-MAKER (MM) (standard rate)(10)......             .22
        III. MEMBER FIRM PROPRIETARY:(11)
            FACILITATION OF CUSTOMER ORDER.............             .20
            NON-FACILITATION ORDER.....................             .24
        IV. BROKER-DEALER..............................             .25
        V. NON-MEMBER MARKET MAKER.....................             .26
        VI. DESIGNATED PRIMARY MARKET-MAKER (DPM)                   .12
         (10)(14)......................................
        VII. ELECTRONIC DPM (e-DPM) (14)...............             .25
        VIII. LINKAGE ORDERS (8).......................             .24
        IX. REMOTE MARKET-MAKER (14)...................             .26
     QQQQ and SPDR OPTIONS:
        I. CUSTOMER:
            QQQQ.......................................             .00
            SPDR.......................................             .15
        II. MARKET-MAKER (MM) AND DPM (standard                     .24
         rate)(10).....................................
        III. MEMBER FIRM PROPRIETARY: (11).............
        FACILITATION OF CUSTOMER ORDER.................             .20
        NON-FACILITATION ORDER.........................             .24
        IV. BROKER-DEALER..............................             .25
        V. NON-MEMBER MARKET MAKER.....................             .26
        VI. LINKAGE ORDERS (8).........................             .24
        VII. REMOTE MARKET-MAKER.......................             .26
    INDEX OPTIONS:
        I.-VIII. Unchanged.............................
------------------------------------------------------------------------

    2. MARKET-MAKER, e-DPM & DPM MARKETING FEE (in option classes in 
which a DPM has been appointed)(6) Unchanged.
    3. FLOOR BROKERAGE FEE (1)(5): Unchanged.
    4. RAES ACCESS FEE (RETAIL AUTOMATIC EXECUTION SYSTEM) (1)(4): 
Unchanged.

    Notes: (1)-(13) Unchanged.

    (14) [Effective October 1, 2004, DPMs and e-DPMs may elect to pay a 
fixed annual fee of $1.75 million instead of being assessed transaction 
fees on a per contract basis for their DPM and e-DPM transactions only 
in all equity option classes. The fixed fee does not cover any floor 
brokerage fees. DPMs electing to pay the fixed fee will neither be 
charged CBOE transaction fees for CBOE transactions related to such 
outgoing P/A orders, nor will they receive the credit back for such 
fees as set forth in Section 21 of this Fee Schedule. However, pursuant 
to the second phase of linkage fee set forth in Section 21 of this Fee 
Schedule, all CBOE DPMs, including those electing the fixed annual fee, 
who pay transaction fees at other exchanges to execute P/A orders 
there, will receive a credit of up to 50% of CBOE DPM transaction 
charges for each such order (currently up to $.06 per contract, with 
the total of such credits not to exceed the total amount of inbound 
linkage transaction fees received by CBOE) to help offset the 
transaction fees of other exchanges that CBOE DPMs incur in filling P/A 
orders at those exchanges.] Please see Section 23 for details of the 
Fixed Annual Fee Alternative for DPMs and e-DPMs.
    (15) Unchanged.
    5.-21. Unchanged.
    22. Reserved.
    23. FIXED ANNUAL FEE ALTERNATIVE FOR DPMs and e-DPMs 
    Effective October 1, 2004, DPMs and e-DPMs may elect to pay a fixed 
annual fee of $1.75 million instead of being assessed transaction fees 
on a per contract basis for their DPM and e-DPM transactions only in 
all equity option classes. The fixed fee does not cover any floor 
brokerage fees. DPMs electing to pay the fixed fee will neither be 
charged CBOE transaction fees for CBOE transactions related to outgoing 
P/A orders, nor will they receive the credit back for such fees as set 
forth in Section 21 of this Fee Schedule. However, pursuant to the 
second phase of linkage fee relief set forth in Section 21 of this Fee 
Schedule, all CBOE DPMs, including those electing the fixed annual fee, 
who pay transaction fees at other exchanges to execute P/A orders 
there, will receive a credit of up to 50% of CBOE DPM transaction 
charges for each such order (currently up to $.06 per contract, with 
the total of such credits not to exceed the total amount of inbound 
linkage transaction fees received by CBOE) to help offset the 
transaction fees of other exchanges that CBOE DPMs incur in filling P/A 
orders at those exchanges. Effective July 1, 2005, DPMs and e-DPMs who 
elect the fixed annual fee alternative described above may elect to pay 
an RMM fixed annual fee of $250,000 instead of being assessed 
transaction fees on a per contract basis for their RMM transactions 
only in all equity options.
    If a DPM or e-DPM who has elected the fixed annual fee alternative 
merges or combines operations with a DPM or e-DPM who has not elected 
the fixed annual fee alternative, then the fixed annual fee will be 
increased and assessed to the surviving DPM/e-DPM entity. The amount of 
the increase will be based on the number of contracts traded and 
transaction fees paid during

[[Page 32857]]

the previous twelve months by the DPM or e-DPM organization who had not 
previously elected the fixed annual fee alternative. The amount of the 
increase will be prorated based on the amount of time remaining in the 
then current year of the fixed annual fee program. If two DPMs or e-
DPMs who elected the fixed annual fee alternative merge or combine 
operations, the fixed fee paid to CBOE by these two organizations will 
be unaffected. No adjustments or refunds will be made to either entity.
* * * * *

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

1. Purpose
    The Exchange proposes to amend its Fees Schedule to (i) establish 
transaction fees for RMMs, (ii) amend its DPM and e-DPM fixed annual 
fee program to include a fixed fee alternative for RMM transaction 
fees, and (iii) explain how DPM or e-DPM consolidations will affect the 
fixed annual fee.
    RMM Transaction Fees
    The Commission approved the Exchange's RMM program on March 14, 
2005.\6\ An RMM is an individual member or member organization 
registered with the Exchange that makes transactions as a dealer-
specialist from a location other than the physical trading station for 
the subject option class.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 51366 (March 14, 
2005), 70 FR 13217 (March 18, 2005).
---------------------------------------------------------------------------

    The Exchange proposes to set transaction fees for RMMs in equity, 
QQQQ and SPDR options at $.26 per contract. The Exchange believes the 
proposed RMM transaction fee is appropriately set higher than those of 
on-floor market-makers because the Exchange will incur additional 
systems and other logistical costs both initially and on an ongoing 
basis in order to establish and maintain the infrastructure needed to 
enable market participation as an RMM.
    RMM Fixed Fee Alternative
    On October 1, 2004, the Exchange implemented a fixed annual fee 
program for DPMs and e-DPMs.\7\ The program offers DPMs and e-DPMs the 
alternative of choosing a fixed annual fee of $1.75 million instead of 
being assessed transaction fees on a per contract basis for its DPM and 
e-DPM transactions in equity options classes.\8\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 50058 (July 22, 
2004), 69 FR 45861 (July 30, 2004).
    \8\ See CBOE Fees Schedule, Note 14.
---------------------------------------------------------------------------

    The Exchange proposes to amend the program to permit DPMs and e-
DPMs who elect the fixed annual fee alternative to pay an additional 
fixed annual fee of $250,000 as an alternative to being assessed 
transaction fees on a per contract basis for their RMM transactions. 
Like the existing program, the RMM fixed fee alternative would apply 
only to equity options transactions. Since trading by RMMs will not 
commence until sometime in the second quarter of 2005, the Exchange 
proposes to begin the RMM fixed fee alternative program on July 1, 2005 
and prorate the amount of the fixed annual fee to $125,000 for calendar 
year 2005. The amount of the RMM fixed annual fee and the option to 
elect the fixed fee will be reviewed annually and may change from year 
to year. Any changes to the RMM fixed annual fee would be required to 
be filed with the Commission.
    The Exchange proposes to create a new Section 23 in the Fees 
Schedule that describes the DPM and e-DPM fixed annual fee program (by 
adding to it the text from Note 14 of the Fees Schedule) and the RMM 
fixed annual fee alternative. Note 14 is revised to delete the current 
text and to add a cross reference to Section 23.
    Effect of DPM or e-DPM Consolidations on the Fixed Annual Fee 
    The Exchange also proposes to add to Section 23 of the Fees 
Schedule an explanation of how the fixed annual fee would be affected 
when a DPM or e-DPM organization merges or combines operations with 
another DPM or e-DPM. Specifically, if a DPM or e-DPM who has elected 
the fixed annual fee alternative merges or combines operations with a 
DPM or e-DPM who has not elected the fixed annual fee alternative, the 
fixed annual fee will be increased and assessed to the surviving DPM/e-
DPM entity. The amount of the increase will be based on the number of 
contracts traded and transaction fees paid during the previous twelve 
months by the DPM or e-DPM organization who had not previously elected 
the fixed annual fee alternative. For example, if in the previous 
twelve months a DPM or e-DPM organization who had not previously 
elected the fixed annual fee alternative traded 4 million equity option 
contracts and paid $500,000 in transaction fees, the surviving DPM or 
e-DPM entity would be assessed an increase to their fixed annual fee in 
the amount of $500,000.
    The amount of the increase will be prorated based on the amount of 
time remaining in the then current year of the fixed annual fee 
program. For example, if the firms in the example above merge six 
months into the then current year of the program, the surviving DPM or 
e-DPM entity would be assessed an increase to their fixed annual fee in 
the amount of $250,000 to cover the remaining six months of the year. 
The Exchange notes that in any subsequent year of the program, the 
surviving entity will pay just one fixed annual fee (i.e., the fixed 
annual fee that is then in effect).
    If two DPMs or e-DPMs who elected the fixed annual fee alternative 
merge or combine operations, the fixed fee paid to the CBOE by these 
two organizations will be unaffected. No adjustments or refunds will be 
made to either entity.
2. Statutory Basis
    The CBOE believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\9\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act,\10\ in particular, in 
that it is designed to provide for the equitable allocation of 
reasonable dues, fees, and other charges among CBOE members.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE 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

    No written comments were solicited or received with respect to the 
proposed rule change.

[[Page 32858]]

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 \11\ and subparagraph (f)(2) 
of Rule 19b-4 thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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.\13\
---------------------------------------------------------------------------

    \13\ See 15 U.S.C. 78s(b)(3)(C). For purposes of calculating the 
60-day period within which the Commission may summarily abrogate the 
proposed rule change under Section 19(b)(3)(C) of the Act, the 
Commission considers the period to commence on May 18, 2005, the 
date on which the Exchange submitted Amendment No. 1.
---------------------------------------------------------------------------

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-2005-32 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-2005-32. 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 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 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-2005-32 and should be submitted on or before June 
27, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2870 Filed 6-3-05; 8:45 am]
BILLING CODE 8010-01-P