[Federal Register Volume 77, Number 175 (Monday, September 10, 2012)]
[Notices]
[Pages 55515-55517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-22141]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67777; File No. SR-CBOE-2012-084]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Establish Transaction Fees for CBOE Range 
Options on the S&P 500 Index

September 4, 2012.
    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 August 28, 2012, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') 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 self-regulatory organization. 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.
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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 establish fees for 
transactions in CBOE Range Options on the S&P 500 Index (``SROs''). 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, the self-regulatory organization 
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 those 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 parts 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 received approval to list and trade cash-settled, 
European-style Range Options that overlie any index eligible for 
options trading on the Exchange.\3\ Range Options pay an exercise 
settlement amount if the settlement value of the underlying index at 
expiration falls within the specified Range Length. As stated in the 
Range Option approval order:
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    \3\ See Securities Exchange Act Release No. 57376 (February 25, 
2008), 73 FR 11689 (March 4, 2008) (order approving SR-CBOE-2007-
104).

    The Commission believes that Range Options would provide 
investors with a potentially useful investment choice. The 
Commission notes that investors now can replicate the features and 
structures of Range Options through the use of currently available 
options traded on the Exchange.\13\ [NB: This superscript ``13'' 
represents footnote 13 in the Range Option approval order that was 
published in the Federal Register, which is quoted below in text; it 
does not represent a footnote in this filing.] The payout structure 
of a Range Option can be replicated by purchasing four calls or puts 
with varying strike prices. Range Options will enable investors to 
obtain the same payout structure by purchasing one option, with the 
potential of significantly reducing investors' transaction costs.\4\ 
(emphasis added).
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    \4\ 73 FR at 11692.

    The Exchange will list Range Options on the S&P 500 Index (Ticker: 
SRO) beginning on August 28, 2012. The purpose of this filing is to 
establish transaction fees for SROs. In considering the appropriate and 
equitable amount of transaction fees for SROs, the Exchange considered 
the fact that the exposure provided by Range Options is equivalent to 
four option positions. Consistent with the spirit of the Commission's 
observation noted above, the Exchange will not be assess [sic] a 
transaction fee equal to the transaction fees for four options 
positions, but rather will, in general, assess a transaction fee equal 
to the transaction fees for two option positions. The Exchange believes 
that this transaction cost level strikes the appropriate balance 
between establishing reasonable fees and the Exchange's goal of 
introducing new products to the marketplace that are competitively 
priced.
    The amount of transaction fees for SROs \5\ will be as follows:
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    \5\ CBOE is adding ``SRO'' to the title of the Index Options 
Rate Table, which will exclude SROs from the fees set forth in that 
table and adding ``SRO'' to the Proprietary Index Options Rate 
Table, which will set forth the fees for SROs in that table, to the 
Fees Schedule. See pages 19 [sic] and 20 [sic] to Exhibit 5.
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     Customer, Professional Customer and Voluntary Professional 
Customer: $0.80 per contract for customer, professional customer and 
voluntary professional customer transactions.\6\ The Exchange notes 
that the customer, professional customer and voluntary professional 
customer fees for standard S&P 500 Index (``SPX'') options are: (a) 
$0.44 per contract if the premium is greater than or equal to $1, and 
(b) $0.35 per contract if the premium is less than $1. For ease of use, 
the Exchange is proposing to establish a single fee for customer, 
professional customer and voluntary professional customer transactions 
in SROs regardless of the premium amount. The Exchange is not proposing 
to double the amount of either existing standard SPX option fee, but 
rather used those fees as a measure for setting the proposed $0.80 per 
contract fee. The Exchange also proposes to layer SROs into the 
existing Customer Large Trade Discount regime for other S&P products, 
which will limit the amount of customer transaction fees to the first 
10,000 contracts.\7\
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    \6\ See page 20 [sic] to Exhibit 5.
    \7\ See proposed addition of ``SRO'' to the Customer Large Trade 
Discount Table to the Fees Schedule. See page 22 [sic] to Exhibit 5.
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     CBOE Market-Maker, Designated Primary Market-Maker 
(``DPM''), E-DPM and Lead Market-Maker (``LMM''): $0.40 per contract 
for CBOE Market-Maker DPM, E-DPM and LMM transactions, which is equal 
to double the transaction fee equal for a single standard SPX 
option.\8\ As with some other S&P products, transactions in SROs will 
be excluded from the Liquidity Provider Sliding Scale.\9\
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    \8\ See page 20 [sic] to Exhibit 5.
    \9\ See proposed addition of ``SRO'' to the Liquidity Provider 
Sliding Scale Table to the Fees Schedule. See page 20 [sic] to 
Exhibit 5. As explained in SR-CBOE-2012-008, the Exchange excludes 
certain proprietary, singly-listed products from the Liquidity 
Provider Sliding Scale because the Exchange has ``expended 
considerable resources developing its singly-listed products.'' See 
Securities Exchange Act Release No. 66277 (January 30, 2012), 77 FR 
5595 (February 3, 2012).
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     Clearing Trading Permit Holder Proprietary: $0.50 per 
contract for Clearing Trading Permit Holder Proprietary transactions, 
which is equal to double the transaction fee for a single standard SPX 
option.\10\ As with some other S&P products, transactions in SROs will 
be excluded from the Clearing Trading Permit Holder Fee Cap.\11\ The 
Exchange also proposes to

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exclude SROs from the CBOE Proprietary Products Sliding Scale.\12\ 
Because the CBOE Proprietary Products Sliding Scale is structured on a 
per contract basis and because SROs provide the exposure of four 
contracts, the Exchange believes that it is appropriate to exclude 
SROs. As with other S&P products, firm facilitations for SROs will not 
be free. To reflect this, the Exchange is adding ``SROs'' to this 
provision in the ``Notes'' section to the Clearing Trading Permit 
Holder Fee Cap Table.\13\ Products such as SROs are assessed fees for 
firm facilitations because they are proprietary and the Exchange has 
expended considerable resources developing its singly-listed products.
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    \10\ See page 20 [sic] to Exhibit 5.
    \11\ See proposed addition of ``SRO'' to Clearing Trading Permit 
Holder Fee Cap Table and to footnote 11 to the Fees Schedule. See 
pages 21 [sic] and 32 [sic] to Exhibit 5. See Securities Exchange 
Act Release No. 63701 (January 11, 2011), 76 FR 2934 (January 18, 
2011) (notice of SR-CBOE-2010-116 which filing, among other things, 
established a multiply-listed options fee cap and a CBOE proprietary 
products sliding scale).
    \12\ See proposed addition of the sentence ``SROs are excluded 
from the CBOE Proprietary Products Sliding Scale'' to the CBOE 
Proprietary Products Sliding Scale Table. See page 21 [sic] to 
Exhibit 5.
    \13\ See proposed addition of ``SRO'' to the CBOE Trading Permit 
Holder Fee Cap Table. See page 21 [sic] to Exhibit 5.
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     Broker-Dealer and Non-Trading Permit Holder Market-Maker: 
$0.80 per contract for Broker-Dealer and Non-Trading Permit Holder 
Market-Maker transactions, which is equal to double the transaction fee 
for a single standard SPX option.\14\
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    \14\ See page 20 [sic] to Exhibit 5.
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     Marketing Fee: $0.00 per contract. As with certain other 
S&P products, the Exchange proposes to add SROs to footnote 6 to the 
Fees Schedule so that the Exchange's marketing fee will not apply to 
SROs.\15\
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    \15\ See page 31 [sic] to Exhibit 5.
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     Floor Brokerage Fees: $0.08 for non-crossed orders and 
$0.04 for crossed orders, which is equal to double the respective Floor 
Brokerage fees for a single standard SPX option.\16\ SROs will be 
excluded from the calculation of the additional monthly fee assessed to 
any Floor Broker Trading Privilege Holder that executes more than 
20,000 standard SPX options during the month.\17\
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    \16\ See proposed addition of ``SRO'' and ``SRO Crossed Orders'' 
to the Floor Brokerage and PAR Official Fees Table to the Fees 
Schedule. See page 24 [sic] to Exhibit 5.
    \17\ See proposed addition of the sentence ``For purposes of 
determining the 20,000 contract per month threshold, SRO executions 
are excluded for purposes of the calculation of executed SPX 
contracts during the month'' to footnote 25 to the Fees Schedule at 
page 34 [sic] to Exhibit 5.
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     Surcharge Fee (Index License): $0.20 on all non-public 
customer transactions in SROs.\18\ The Index License fee helps the 
Exchange recoup some of the license fees that the Exchange pays to the 
reporting authority.
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    \18\ See proposed addition of ``SRO'' to the Surcharge Fee 
section of the Proprietary Index Options Rate Table to the Fees 
Schedule. See page 20 [sic] to Exhibit 5.
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     AIM Contract Execution Fee: As with other certain S&P 
products, applicable standard transaction fees will apply to AIM, SAM, 
FLEX AIM and FLEX SAM transactions in SROs.\19\
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    \19\ See proposed addition of ``SRO'' to footnote 18 to the Fees 
Schedule. See page 33 [sic] to Exhibit 5.
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    CBOE notes that SROs are eligible for trading on the Exchange as 
Flexible Exchange (``FLEX'') options, although FLEX option trading 
functionality is currently disabled.\20\ When FLEX trading is enabled 
for SROs, CBOE will submit a filing to establish FLEX fees.
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    \20\ See CBOE Rule 20.12 (FLEX Trading) and CBOE Regulatory 
Circular RG12-056 (CFLEX 2.0 Rollout Schedule and Settings) at page 
4, issued on April 20, 2012.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Securities Exchange Act of 1934 (``Act''),\21\ in 
general, and furthers the objectives of Section 6(b)(4) \22\ of the Act 
in particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among CBOE 
Trading Permit Holders and other persons using its facilities.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4).
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    In setting the proposed transaction fees for SROs, the Exchange 
considered the fact that the exposure provided by Range Options is 
equivalent to four option positions. Consistent with the spirit of the 
Commission's observation in the Range Option approval order (that Range 
Options may reduce investor transaction costs), the Exchange determined 
not to propose a transaction fee equal to the fees for four options 
positions, but rather has proposed, in general, to assess a transaction 
fee equal to the fees for two option positions. The Exchange believes 
that this transaction cost level strikes the appropriate balance 
between establishing reasonable fees and the Exchange's goal of 
introducing new products to the marketplace that are competitively 
prices [sic].
    The Exchange believes that the fees are equitable and do not 
unfairly discriminate because they provide comparable pricing among 
similar categories of market participants. The Exchange believes that a 
fee of $0.80 per contract for Customer, Professional Customer, 
Voluntary Professional Customer, Broker-Dealer and Non-Trading Permit 
Holder Market-Maker transactions is equitable since those market 
participants will effectively pay half of the transactions costs 
associated with the exposure of four options.
    The Exchange believes that a fee of $0.40 per contract for CBOE 
Market-Make, DPM, E-DPM and LMM transactions is equitable since those 
market participants provide a valuable market service by adding 
liquidity to the Exchange and since they are subject to liquidity 
provider obligations. This standard rate is not subject to the 
Liquidity Provider Sliding Scale as set forth in Footnote 10 to the 
Fees Schedule. Excluding SROs from the Liquidity Provider Sliding Scale 
is equitable and not unfairly discriminatory because all similarly-
situated market participants trading in the product will be charged the 
same fees for such transactions and because the Exchange expended 
significant resources developing SROs.
    The Exchange also believes that a fee of $0.50 per contract for 
Clearing Trading Permit Holders is equitable since they contribute 
capital to facilitate customer orders, which in turn provides a deeper 
pool of liquidity that benefits all market participants. Excluding SROs 
from the CBOE Proprietary Products Sliding Scale is equitable and not 
unfairly discriminatory because that scale is structured on a per 
contract basis and because SROs provide the exposure of four contracts. 
Accordingly, the Exchange believes that it is appropriate to exclude 
SROs. As with other S&P products, firm facilitations for SROs will not 
be free. Products such as SROs are assessed fees for firm facilitations 
because they are proprietary and the Exchange has expended considerable 
resources developing its singly-listed products.

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 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 proposed rule change is designated by the Exchange as

[[Page 55517]]

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 \23\ and subparagraph (f)(2) of Rule 19b-4\24\ thereunder. 
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.
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 C.F.R. 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 email to [email protected]. Please include 
File Number SR-CBOE-2012-084 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-2012-084. 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 
10:00 a.m. and 3:00 p.m. 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 publicly available. All 
submissions should refer to File Number SR-CBOE-2012-084 and should be 
submitted on or before October 1, 2012.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22141 Filed 9-7-12; 8:45 am]
BILLING CODE 8011-01-P