[Federal Register Volume 70, Number 209 (Monday, October 31, 2005)]
[Notices]
[Pages 62355-62356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-6000]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52660; File No. SR-CBOE-2005-80]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendment No. 2 Thereto Relating to Crediting of 
Certain DPM Principal Acting as Agent Order Transaction Fees

October 24, 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 September 30, 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 
Exchange. On October 17, 2005, the Exchange filed Amendment No. 1 to 
the proposed rule change.\3\ On October 20, 2005, the Exchange filed 
Amendment No. 2 to the proposed rule change.\4\ CBOE has designated 
this proposal as one establishing or changing a due, fee, or other 
charge imposed by a self-regulatory organization pursuant to Section 
19(b)(3)(A) of the Act,\5\ and Rule 19b-4(f)(2) thereunder,\6\ 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    \3\ Amendment No. 1 was withdrawn by CBOE on October 20, 2005.
    \4\ In Amendment No. 2, the Exchange made non-substantive 
changes to the purpose of the proposed rule change and to the 
proposed rule text, clarified the apportionment of the $.20 credit, 
and added a reimbursement obligation on the part of DPMs in 
connection with the Linkage Fee Credit described herein.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 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

    CBOE proposes to amend its Fees Schedule to enhance the credit to 
Designated Primary Market-Makers (``DPMs'') for transaction fees they 
incur related to the execution of outbound ``principal acting as 
agent'' (``P/A'') Orders. The text of the proposed rule change is 
available on CBOE's Web site, http://www.cboe.com, at CBOE's principal 
office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, CBOE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposal. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange, pursuant to Section 21 of the CBOE Fees Schedule, 
credits DPMs for transaction fees they incur related to the execution 
of outbound P/A Orders, as defined in the Plan for the Purpose of 
Creating and Operating an Intermarket Option Linkage (``Linkage''). 
This ``Linkage Fee Credit'' is accomplished via a rebate and a credit: 
(i) the Exchange rebates transaction fees that DPMs incur when they 
trade against a customer order that underlies a P/A Order the DPM sent 
through the Linkage; and (ii) the Exchange credits the DPMs up to an 
additional 50% of such transaction fees (``50% Credit'') to help offset 
some of the fees the DPMs incur for submitting P/A Orders through the 
Linkage.\7\ Thus, at current rates in equity options, a DPM receives a 
rebate of the $.12 per contract CBOE transaction fee, and up to an 
additional $.06 per contract under the 50% Credit, for a total payment 
of up to $.18 per contract.
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    \7\ See Securities Exchange Act Release Nos. 49341 (March 1, 
2004), 69 FR 10492 (March 5, 2004) (SR-CBOE-2004-08) and 49769 (May 
25, 2004), 69 FR 31145 (June 2, 2004) (SR-CBOE-2004-13).
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    The Exchange proposes to enhance the Linkage Fee Credit by 
replacing the 50% Credit with a credit of up to $.20 per contract. As 
under the current program, the aggregate amount of the $.20 per 
contract credit for all DPMs will be limited to no more than the total 
amount of fees that the Exchange earns from fees generated by inbound 
Linkage transaction fees. The foregoing credit is apportioned to DPMs 
pro-rata based on the number of contracts executed by each DPM at other 
exchanges via P/A Orders. A DPM will be expected to reimburse the 
Exchange to the extent that the funds received by the DPM via the 
Linkage Fee Credit program exceed the DPM's actual costs incurred in 
executing linkage-related transactions.
    The Exchange also proposes to modify Section 23 of the Fees 
Schedule, which includes a cross-reference to Section 21, to reflect 
the changes to Section 21.
    The purpose of the enhanced Linkage Fee Credit program is to 
further assist DPMs in offsetting the additional costs they incur in 
routing orders to other exchanges in order to obtain the National Best 
Bid or Offer. The proposed Linkage Fee Credit program will be effective 
October 1, 2005 through December 30, 2005.

[[Page 62356]]

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \8\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \9\ in particular, in that it 
is designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among its members.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE believes that the proposed rule change would impose no 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

    CBOE did not solicit or receive any written comments with respect 
to the proposal.

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

    The foregoing proposed rule change has been designated as a fee 
change pursuant to Section 19(b)(3)(A)(ii) of the Act \10\ and Rule 
19b-4(f)(2) \11\ thereunder. Accordingly, the proposal is effective 
upon filing with the Commission. 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
    \12\ The effective date of the original proposed rule change is 
September 30, 2005, and the effective date of Amendment No. 2 is 
October 20, 2005. 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 October 20, 2005, the 
date on which the Exchange submitted Amendment No. 2. 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 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-2005-80 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-CBOE-2005-80. 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 Exchange. 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-2005-80 and should be submitted on or before 
November 21, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-6000 Filed 10-28-05; 8:45 am]
BILLING CODE 8010-01-P