[Federal Register Volume 73, Number 55 (Thursday, March 20, 2008)]
[Notices]
[Pages 15018-15019]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-5590]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57498; File No. SR-CBOE-2008-27]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Clarify Its Description of an Existing Program Under 
Which It Makes Subsidy Payments to CBOE Members That Provide Certain 
Order Routing Functionalities to Other CBOE Members and/or Use Such 
Functionalities Themselves

March 14, 2008.
    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 6, 2008, 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 and II below, which Items have been substantially prepared by 
CBOE. The Exchange filed the proposed rule change pursuant to Section 
19(b)(3)(A)(i) of the Act,\3\ and Rule 19b-4(f)(1) thereunder,\4\ as 
constituting a stated policy, practice, or interpretation with respect 
to the meaning, administration, or enforcement of an existing rule, 
which renders the proposed rule change effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested parties.
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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)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to clarify subsidy arrangements with CBOE members 
that provide certain order routing functionalities to other CBOE 
members and/or use such functionalities themselves. This rule change 
does not provide for any modifications to the text of CBOE's rules. The 
proposed rule change is available on the Exchange's Web site (http://www.cboe.com), at the Exchange's Office of the Secretary, 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 proposed rule change. 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, Proposed Rule Change

1. Purpose
    CBOE proposes to clarify the description in SR-CBOE-2007-34 of a 
program under which CBOE enters into subsidy arrangements with CBOE 
members that provide certain order routing functionalities to other 
CBOE members and/or use such functionalities themselves.\5\ Under the 
program, CBOE makes payments to participating CBOE members to subsidize 
their costs of providing routing services to route orders to CBOE. CBOE 
believes that clarifying its description of the program is desirable in 
view of questions that it has received about the program since SR-CBOE-
2007-34 became effective. This rule change does not make any 
substantive modification to the program.\6\
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    \5\ See Securities Exchange Act Release No. 55629 (April 13, 
2007), 72 FR 19992 (April 20, 2007) (SR-CBOE-2007-34).
    \6\ CBOE has administered the program consistent with the 
description of the program as clarified in this rule change since 
the inception of the program.
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    SR-CBOE-2007-34 includes a description of the features that an 
order routing functionality must have to qualify for the program. One 
required feature is a preferencing feature such that CBOE is the 
default destination exchange for individually executed marketable 
orders if CBOE is at the national best bid or offer (``NBBO''), 
regardless of size or time, subject to the ability of any user to 
manually override CBOE as the default destination on an order-by-order 
basis.
    SR-CBOE-2007-34 stated that CBOE's payment to participating CBOE 
members to subsidize their costs of providing routing services ``would 
be $0.05 per contract for orders routed to CBOE through a participating 
member's system.'' Questions that CBOE has received have shown that 
this statement should be clarified in two respects. First, CBOE makes 
payments under the program only with respect to executed contracts 
routed to CBOE through a participating member's system; no payment is 
made with respect to orders that are routed to CBOE but not executed. 
Second, CBOE does not make payments under the program with respect to 
executed contracts in single-listed options classes traded on CBOE, or 
with respect to complex orders or spread orders. Single-listed options 
classes and complex orders or spread orders are not subject to 
preferencing to a default destination exchange, and CBOE therefore does 
not take them into account in calculating subsidy payments.\7\
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    \7\ Quotations are not disseminated through the Options Price 
Reporting Authority for complex orders or spread orders, and there 
is no NBBO for such orders.
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    SR-CBOE-2007-34 also stated that a ``participating member would 
have to agree that it would not be entitled to receive any other 
revenue for the use of its system specifically with respect to orders 
routed to CBOE.'' Questions that CBOE has received have shown that this 
statement also should be clarified. CBOE never intended that members 
participating in the program would be precluded from receiving payment 
for order flow if they choose to do so.
    CBOE stated in SR-CBOE-2007-34: That nothing about the subsidy 
program would relieve any CBOE member that is using an order routing 
functionality provided by another member or its own functionality from 
complying with its best execution obligations; that, just as with any 
customer order and any other routing functionality, a member has an 
obligation to consider the availability of price improvement at various 
markets and whether routing a customer order through a functionality 
that qualifies for the program would allow for access to such 
opportunities if readily available; and that a member needs to conduct 
best execution evaluations on a regular basis, at a minimum quarterly, 
that include its use of any router qualifying for the program. These 
statements all remain true with respect to the program.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to national 
securities exchanges and, in particular, the requirements of Section 
6(b) of the Act \8\ because it will assist members in understanding the 
terms of CBOE's order router subsidy program. Specifically, the 
Exchange believes the proposed rule change is consistent with

[[Page 15019]]

the objectives of Section 6(b)(4) of the Act \9\ in that it is designed 
to provide for the equitable allocation of reasonable dues, fees, and 
other charges among CBOE members and other persons using its 
facilities.
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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 does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of purposes of the Act.

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

    The Exchange neither solicited nor received comments on the 
proposal.

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

    Because the foregoing proposed rule change constitutes a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule, it has become 
effective pursuant to Section 19(b)(3)(A)(i) of the Act \10\ and Rule 
19b 4(f)(1) thereunder.\11\ 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(i).
    \11\ 17 CFR 240.19b-4(f)(1).
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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-2008-27 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-CBOE-2008-27. 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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of 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-2008-27 and should be 
submitted on or before April 10, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-5590 Filed 3-19-08; 8:45 am]
BILLING CODE 8011-01-P