[Federal Register Volume 74, Number 6 (Friday, January 9, 2009)]
[Notices]
[Pages 972-975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-156]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59193; File No. SR-CBOE-2008-128]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to Exchange Fees for Fiscal Year 2009
January 2, 2009.
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 24, 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, 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 applicable only to a member under
Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2)
thereunder,\4\ 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).
\4\ 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
Chicago Board Options Exchange, Incorporated (``CBOE'' or
``Exchange'') proposes to amend its Fees Schedule to make various
changes for Fiscal Year 2009. The text of the proposed rule change is
available on the Exchange's Web site (http://www.cboe.org/legal), at
the Exchange's Office of the Secretary 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, 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, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend the CBOE Fees
Schedule to make various fee changes. The proposed changes are the
product of the Exchange's annual budget review. The fee changes were
approved by the Exchange's Board of Directors pursuant to CBOE Rule
2.22 and will take effect on January 1, 2009.
The Exchange proposes to amend the following fees:
A. Liquidity Provider Sliding Scale
The Exchange's Liquidity Provider Sliding Scale program reduces a
Liquidity Provider's per contract transaction fee based on the number
of contracts the Liquidity Provider trades in a month.\5\ The sliding
scale applies to all Liquidity Providers (CBOE Market-Maker, Designated
Primary Market-Maker (``DPM''), Electronic DPM (``e-DPM'') and Lead
Market-Maker (``LMM'')) for transactions in all products.\6\
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\5\ See Section 1 and Footnote 10 of the CBOE Fees Schedule.
\6\ Contract volume resulting from dividend, merger and short
stock interest strategies as defined in Footnote 13 of the Fees
Schedule does not apply towards reaching the sliding scale volume
thresholds.
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Under the current program, a Liquidity Provider's standard $.20 per
contract transaction fee is reduced if the Liquidity Provider reaches
the volume thresholds set forth in the sliding scale in a month. As a
Liquidity Provider's monthly volume increases, its per contract
transaction fee decreases. The first 75,000 contracts traded in a month
(first tier) are assessed at $.20 per
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contract. The next 1,125,000 contracts traded (up to 1.2 million total
contracts traded--second tier) are assessed at $.18 per contract. The
next 1.8 million contracts traded (up to 3 million total contracts
traded--third tier) are assessed at $.15 per contract and the next 1.8
million contracts traded (up to 4.8 million total contracts traded--
fourth tier) are assessed at $.10 per contract. The next 5.2 million
contracts traded (up to 10 million total contracts traded--fifth tier)
are assessed at $.03 per contract. All contracts above 10 million
contracts traded in a month (sixth tier) are assessed at $.01 per
contract. The Exchange aggregates the trading activity of separate
Liquidity Provider firms for purposes of the sliding scale if there is
at least 75% common ownership between the firms as reflected on each
firm's Form BD, Schedule A.\7\
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\7\ A Liquidity Provider's monthly contract volume is determined
at the firm affiliation level, e.g., if five Liquidity Provider
individuals are affiliated with member firm ABC as reflected by
Exchange records for the entire month, all of the volume from those
five individual Liquidity Providers count towards firm ABC's sliding
scale transaction fees for that month. If a Liquidity Provider firm
has nominees that trade independently and have their own profit-loss
accounts that are separate and distinct from those of other nominees
of the firm, the independent nominee's individual contract volume
shall not be grouped with the contract volume of the firm for
purposes of calculating the firm's sliding scale monthly volume
total.
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The Exchange proposes to increase the sliding scale volume
thresholds for fiscal year 2009 due to increased volume on the
Exchange. Specifically, the Exchange proposes to change the first tier
volume threshold from 75,000 contracts to 85,000 contracts, the second
tier volume threshold from 1,125,000 contracts to 1,265,000 contracts
(up to 1.35 million total contracts traded), the third tier threshold
from 1.8 million contracts to 2,075,000 contracts (up to 3,425,000
total contracts traded), the fourth tier threshold from 1.8 million
contracts to 2,050,000 contracts (up to 5,475,000 total contracts
traded), the fifth tier threshold from 5.2 million contracts to
5,025,000 contracts (up to 10.5 million total contracts traded), and
the sixth tier threshold from above 10 million contracts to above 10.5
million contracts. The Exchange does not propose to change any of the
tier fee rates.
Currently, the Exchange provides Liquidity Providers with two
incentives to prepay annual transaction fees. First, in order to be
eligible to participate in the sliding scale above 1.2 million
contracts (i.e., at the $.15 per contract rate and lower), a Liquidity
Provider is required to prepay their transaction fees for the first two
tiers of the sliding scale for the entire year (i.e., $2.61 million).
Second, if a Liquidity Provider prepays annual fees for the first four
tiers of the sliding scale, the Liquidity Provider receives a $600,000
prepayment discount (total amount of the prepayment would be $7.41
million instead of $8.01 million). As a result of the volume threshold
changes described above, the $2.61 million prepayment amount for the
first two tiers would be revised to $2,936,400. The discount for
prepaying the first four tiers of the sliding scale would increase from
$600,000 to $685,000 (total amount of the prepayment would be
$8,446,400 instead of $9,131,400).
B. Member Firm Proprietary Sliding Scale
The Exchange's Member Firm Proprietary Sliding Scale program
reduces a member firm's standard $.20 per contract transaction fee if
the member firm reaches the volume thresholds set forth in the sliding
scale in a month.\8\ As a member firm's monthly volume increases, its
per contract transaction fee decreases. The first 400,000 contracts
traded in a month are assessed at $.20 per contract. The next 200,000
contracts traded (up to 600,000 total contracts traded) are assessed at
$.15 per contract. The next 150,000 contracts traded (up to 750,000
total contracts traded) are assessed at $.10 per contract and the next
100,000 contracts traded (up to 850,000 total contracts traded) are
assessed at $.05 per contract. All contracts above 850,000 contracts
traded in a month are assessed at $.02 per contract.
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\8\ See Section 1 and Footnote 11 of the CBOE Fees Schedule.
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The Exchange proposes to increase the sliding scale volume
thresholds for fiscal year 2009 due to increased volume on the
Exchange. Specifically, the Exchange proposes to change the first tier
volume threshold from 400,000 contracts to 450,000 contracts, the
second tier volume threshold from 200,000 contracts to 225,000
contracts (up to 675,000 total contracts traded) and the third tier
threshold from 150,000 contracts to 175,000 contracts (up to 850,000
total contracts traded). The fourth tier threshold would remain at
100,000 contracts (up to 950,000 total contracts traded) and the fifth
tier threshold would change from above 850,000 contracts to above
950,000 contracts. The Exchange does not propose to change any of the
tier fee rates.
Due to the Exchange's obligation to pay license fees on certain
products, the Exchange currently assesses a $.10 per contract license
fee (a total of 10 cents per contract less any surcharge fees already
assessed) on all licensed products when a firm reaches the fifth tier
of the sliding scale. The Exchange proposes to increase this charge to
$.15 per contract for options on the Russell 2000 index (RUT), mini-
Nasdaq-100 index (MNX) and Nasdaq-100 index (NDX) due to the increase
in the surcharge fees for these products as described in the next
section below.
C. Surcharge Fees
The Exchange currently charges a $.10 per contract surcharge fee on
all transactions in MNX, NDX and RUT options and on options on the Dow
Jones Industrial Average (DJX and DXL), excluding public customer
orders and including voluntary professional and linkage orders.\9\ The
Exchange proposes to increase the surcharge fee to $.15 per contract
for transactions in MNX, NDX and RUT options, excluding public customer
orders and including voluntary professional and linkage orders. The
surcharge fee is assessed to help the Exchange recoup license fees the
Exchange pays to index licensors for the right to list these products
for trading and is similar to surcharge fees charged by other
exchanges.
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\9\ See CBOE Fees Schedule, Section 1 (Index Options) and
Footnote 14.
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D. XSP Transaction Fee
The Exchange waived transaction fees for all market participants in
options on the mini-SPX (XSP) beginning on November 19, 2007 for an
indefinite time period in conjunction with a marketing ``re-launch'' of
the XSP product.\10\ The Exchange has reevaluated the fee waiver and
determined to reinstate XSP transaction fees effective January 1,
2009.\11\
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\10\ See Securities Exchange Act Release No. 56862 (November 29,
2007), 72 FR 68918 (December 6, 2007).
\11\ XSP option transaction fees are assessed pursuant to the
Index Options transaction fee schedule set forth in Section 1 of the
Fees Schedule.
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E. Floor Broker Workstation Fees
The Floor Broker Workstation (FBW) is a system for electronically
entering and electronically managing orders on the Exchange floor. The
Exchange currently assesses a fee of $425 per month for FBW
functionality that is placed on a desktop terminal. The Exchange
assesses an additional $100 per month ($525 total per month) if the FBW
application resides on a workstation that also includes certain market
data functionalities. The Exchange charges a fee of $100 per month per
login ID for mobile FBWs used in index option trading crowds. No
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fee is assessed for mobile FBWs used in equity option trading crowds.
Additionally, the Exchange assesses DPMs a fee of $100 per month per
login ID for use of an FBW, whether it is a desktop FBW or a mobile
FBW.
The Exchange proposes to eliminate all of the distinctions
described above and charge a fee of $355 per month per login ID for use
of any FBW, whether a mobile FBW or a desktop (stationary) FBW. FBW
fees are charged to assist the Exchange in offsetting the cost of
making FBWs available to members.
F. Position Transfer Fee
CBOE Rule 6.49A provides for a special procedure to permit option
positions to be offered on the floor of the Exchange in the event that
the positions are being transferred as part of a sale or disposition of
all or substantially all of the assets or options positions of the
transferring party where the transferring party would not continue to
be involved in managing or owning the transferred positions. The rule
also provides for off-floor transfers of positions based on certain
specified exemptions, as well as with the approval of the Exchange's
President under extraordinary circumstances.
The Exchange regularly accommodates both on-floor and off-floor
transfers of positions. The primary reason that members prefer to
transfer positions as opposed to trading out of them is that
transferring positions affords a reduction in administrative overhead
and cost. In the typical situation, a member is undergoing a structural
change and a one-time movement of positions offers efficiency in that
process.
Exchange Trading Floor Liaison and Help Desk staff participate in
on-floor transfers by reviewing, preparing and executing the process,
which can take several hours depending upon the size and number of
classes involved.\12\ Off-floor transfers are reviewed and approved by
management of the Exchange's Market Regulation Department. Reviewing
the position transfer data may take little time or several hours, again
depending upon the size and number of classes involved.
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\12\ The procedure for on-floor transfers of positions is set
forth in Rule 6.49A(c).
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The Exchange proposes to establish a fee for options position
transfers to help offset the Exchange's costs to provide the services
described above. The Exchange proposes to charge $.02 per contract side
for all options contracts transferred pursuant to Rule 6.49A. The fee
would be capped at $25,000 per transfer. The Exchange believes the
proposed position transfer fee is reasonable in that even with the
proposed fee the position transfer process provides members with
significant cost savings as compared to the transaction fee costs that
a member would incur by trading out of the positions.
G. PAR Workstation Fee
PAR Workstations are touch screen terminals designed to allow
electronic representation of orders routed to it. PAR Workstations have
been in service for many years with no user fee assessed by the
Exchange. The Exchange proposes to assess a $100 per month fee for use
of a PAR Workstation, in order to help offset hardware costs incurred
by the Exchange in making PAR Workstations available to members.
H. Miscellaneous Changes
The Exchange proposes the following housekeeping changes to its
Fees Schedule. The Exchange proposes to delete a sentence in Footnote 1
of the Fees Schedule relating to a transaction fee waiver for binary
options that expired on October 1, 2008.\13\ The Exchange also proposes
to delete certain charges under the Trade Processing section (Section
9) of the Fees Schedule because those fees are no longer charged.
Specifically, the Exchange proposes to delete the RAES Market Maker
Input charge because the RAES system is no longer in use, and the CBOE
Hand Held Terminal Input charge because such terminals also are no
longer in use.
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\13\ See Securities Exchange Act Release No. 58127 (July 9,
2008), 73 FR 41140 (July 17, 2008).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Securities Exchange Act of 1934 (``Act'') \14\
in general, and furthers the objectives of Section 6(b)(4) of the Act
\15\ in particular, 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. The Exchange believes
the Liquidity Provider and Member Firm Proprietary Sliding Scale fee
discounts are reasonable and appropriate in that they are based on the
amount of business transacted on the Exchange. The Exchange believes
the other proposed fee changes are equitable and reasonable in that
they are designed to recoup or help offset costs incurred by the
Exchange in making products and services available to members.
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\14\ 15 U.S.C. 78f(b).
\15\ 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 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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \16\ and subparagraph (f)(2) of Rule 19b-4 \17\
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.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(2).
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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-2008-128 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2008-128. 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
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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 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-2008-128 and should be submitted on
or before January 30, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E9-156 Filed 1-8-09; 8:45 am]
BILLING CODE 8011-01-P