[Federal Register Volume 76, Number 236 (Thursday, December 8, 2011)]
[Notices]
[Pages 76783-76785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31483]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65875; File No. SR-CBOE-2011-112]


 Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to FLEX Transaction Fees

December 2, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 23, 2011, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or the ``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 CBOE. The Exchange has designated this proposal as one establishing 
or changing a due, fee, or other charge imposed by CBOE under Section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder.\4\ 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

    The Exchange is proposing to amend its Fees Schedule as it relates 
to Flexible Exchange Options (``FLEX Options'').\5\ 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.
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    \5\ FLEX Options provide investors with the ability to customize 
basic option features including size, expiration date, exercise 
style, and certain exercise prices. FLEX Options can be FLEX Index 
Options or FLEX Equity Options. In addition, other products are 
permitted to be traded pursuant to the FLEX trading procedures. For 
example, credit options are eligible for trading as FLEX Options 
pursuant to the FLEX rules in Chapters XXIVA and XXIVB. See CBOE 
Rules 24A.1(e) and (f), 24A.4(b)(1) and (c)(1), 24B.1(f) and (g), 
24B.4(b)(1) and (c)(1), and 28.17. The rules governing the trading 
of FLEX Options on the FLEX Request for Quote (``RFQ'') System 
platform (which consists of open outcry based trading) are generally 
contained in Chapter XXIVA. The rules governing the trading of FLEX 
Options on the FLEX Hybrid Trading System platform (which combines 
both open outcry and electronic based trading) are generally 
contained in Chapter XXIVB. Currently, all FLEX Options are traded 
on the FLEX Hybrid Trading System platform.
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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 revise the CBOE Fees 
Schedule as it relates to FLEX Options. In particular, the Exchange is 
proposing to amend the fees schedule to provide that FLEX transactions 
for the account of non-Trading Permit Holder broker-dealers (which use 
the ``C'' order origin code) are subject to the same transaction fee 
rates that are applicable to public customers (which also use the ``C'' 
order origin code).\6\ This change will be effective immediately.
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    \6\ The FLEX transaction fees for public customers are currently 
as follows: $0.00 per contract for equity options; $0.44 per 
contract for SPX options where the premium is greater than or equal 
to $1; $0.35 per contract for SPX options where the premium is less 
than $1; $0.40 per contract for OEX, XEO, S&P500 Dividend Index and 
Volatility Index options (except OEX and XEO Weeklys); $0.30 per 
contract for OEX and XEO Weeklys; $0.00 for QQQQ options; $0.18 per 
contract for all other index, exchange-traded fund (``ETF''), 
exchange-traded note (``ETN'') and HOLDRS options; and $0.85 per 
contract for credit default options and credit default basket 
options. In addition, a ``CFLEX Surcharge Fee'' of $0.10 per 
contract applies to all orders (all origin codes) executed 
electronically on the FLEX Hybrid Trading System. The CFLEX 
Surcharge Fee is charged up to the first 2,500 contracts per trade. 
See CBOE Fees Schedule Section 1 and Footnotes 1 and 17.
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    Currently, the FLEX trading procedures and principles contained in 
Rule 24B.5 provide for certain allocation priorities to public 
customers and non-Trading Permit Holder broker-dealers.\7\ To 
accomplish this, both public customer orders and non-Trading Permit 
Holder broker-dealer orders in FLEX Options are currently identified 
through using the order origin code ``C''. However, use of the same 
code may result in billing discrepancies because the public customer 
fee rates currently differ from broker-dealer fee rates.\8\ For

[[Page 76784]]

ease of administration, the Exchange is therefore proposing that the 
same FLEX Option transactions fees that apply to transactions for the 
account of public customers should apply to transactions for the 
account on non-Trading Permit Holder broker-dealers. The Exchange also 
believes that applying the same fee for FLEX Option transactions on 
behalf of the account of public customer orders and non-Trading Permit 
Holder broker-dealers is a reasonable and equitable allocation of fees 
in that the same fees are applicable to all Trading Permit Holders 
representing public customer and non-Trading Permit Holder broker-
dealer orders. The Exchange also generally believes that the level of 
activity associated with FLEX Options trading overall,\9\ and with FLEX 
Options trading on behalf of non-Trading Permit Holder broker-dealer 
activity in particular, is deminimis and it is therefore 
administratively convenient to assess transaction fees for non-Trading 
Permit Holder broker-dealers in this manner.\10\
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    \7\ Under the FLEX electronic request for quotes (``RFQ'') 
process, an incoming RFQ order is eligible to trade with FLEX RFQ 
responses (referred to as ``FLEX Quotes'') and FLEX Orders at a 
single clearing price that leaves bids and offers which cannot trade 
with each other (referred to as a ``BBO clearing price'') In 
determining priority, the FLEX system gives priority to FLEX Quotes 
and FLEX Orders whose price is better than the BBO clearing price, 
then to FLEX Quotes and FLEX Orders at the BBO clearing price. 
Generally, allocation among multiple FLEX Quotes and FLEX Orders at 
the BBO clearing price are first to FLEX Quotes subject to a FLEX 
Appointed Market-Maker participant entitlement, if applicable; 
second to FLEX Orders resting in the FLEX electronic book; third to 
FLEX Quotes for the account of public customers and non-Trading 
Permit Holder broker-dealers, with multiple interest ranked based on 
time priority, and finally all other FLEX Quotes, with multiple 
interest ranked based on time priority. See Rule 24B.5(a)(1)(C); see 
also Rule 24B.5(a)(1)(C) and (D) for various on the allocation 
algorithm when the RFQ market is locked or crossed or when the 
Trading Permit Holder that initiated the RFQ has indicated an 
intention to cross.
    \8\ The Exchange notes that, to the extent there may be any 
billing discrepancy with respect to FLEX Options transactions for 
the account of a non-Trading Permit Holder broker-dealers, such 
discrepancy would result in an under collection by the Exchange for 
such transactions. In that regard, the FLEX transaction fees for 
broker-dealers are currently as follows: $0.25, $0.45 and $0.20 per 
contract for equity options respectively for manual, electronic and 
QQQ transactions; $0.40 per contract for OEX, XEO, SPX, S&P 500 
Dividend Index and Volatility Index options; $0.25 per contract for 
other indexes, ETFs, ETNs, and HOLDRS for manual transactions; $0.45 
per contract for other indexes, ETFs, ETNs, and HOLDRS options for 
electronic transactions; $0.20 per contract for QQQ; $0.25 per 
contract for credit default options and credit default basket 
options for manual transactions; and $0.45 per contract for credit 
default options and credit default basket options for electronic 
transactions. In addition, certain ``Surcharge Fees'' apply to all 
non-public customer transactions (i.e., CBOE and non-Trading Permit 
Holder market-maker, Clearing Trading Permit Holder and broker-
dealer) including to Voluntary Professionals and Professionals. 
These surcharges include an index license fee of $0.10 per contract 
for OEX, XEO, SPX, S&P500 Dividend Index, DJX and Volatility Index 
options (except GVZ), and $0.15 per contract for MNX, NDX and RUT 
options; and a product research and development fee of $0.10 per 
contract for GVZ options. As noted above, a ``CFLEX Surcharge Fee'' 
of $0.10 per contract also applies to all orders (all origin codes) 
executed electronically on the FLEX Hybrid Trading System. The CFLEX 
Surcharge Fee is charged up to the first 2,500 contracts per trade. 
See CBOE Fees Schedule Section 1 and Footnotes 1, 14 and 17.
    \9\ For example, during September 2011, all FLEX Options trading 
activity accounted for approximately 0.08% of the Exchange's average 
daily volume.
    \10\ The Exchange is evaluating whether to introduce a separate 
order origin code for FLEX Orders that are entered for the account 
of non-Trading Permit Holder broker-dealers. If the Exchange would 
introduce such a code in the future, we anticipate that the Exchange 
may considering revising the fee schedule to assess transaction fees 
rates for non-Trading Permit Holders broker-dealers that differ from 
the transaction fee rates applicable to public customers. Any such 
change to the fees schedule would be addressed through a separate 
rule change filing.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (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 Trading 
Permit Holders. The proposed change is reasonable because the 
transaction fee rates for the account of non-Trading Permit Holder 
broker-dealers are the same as the rates that apply to public 
customers. The proposed change is equitable and not unfairly 
discriminatory because the same fees are applicable to all Trading 
Permit Holders representing public customers and non-Trading Permit 
Holder broker-dealers. Further, the Exchange generally believes that 
level of activity associated with FLEX Options trading overall,\13\ and 
with FLEX Options trading on behalf of non-Trading Permit Holder 
broker-dealer activity in particular, is deminimis and it is therefore 
administratively convenient to assess transaction fees for non-Trading 
Permit Holder broker-dealers in this manner.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
    \13\ See note 9, supra.
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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

    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 proposed rule change is designated by the Exchange as 
establishing or changing a due, fee, or other charge, thereby 
qualifying for effectiveness on filing pursuant to Section 19(b)(3)(A) 
of the Act \14\ and subparagraph (f)(2) of Rule 19b-4 \15\ thereunder.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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.

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 email to [email protected]. Please include 
File Number SR-CBOE-2011-112 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2011-112. This file 
number should be included on the subject line if email 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 Web site viewing and 
printing 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 will also 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 No. SR-CBOE-2011-112 and should be 
submitted on or before December 29, 2011.


[[Page 76785]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31483 Filed 12-7-11; 8:45 am]
BILLING CODE 8011-01-P