[Federal Register Volume 78, Number 17 (Friday, January 25, 2013)]
[Notices]
[Pages 5548-5554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-01496]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68702; File No. SR-CBOE-2013-002]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the Fees Schedule

January 18, 2013.
    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 January 7, 2013, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
Exchange. 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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 Exchange 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. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to make a number of amendments to its Fees 
Schedule. First, the Exchange proposes to amend the fees applicable to 
orders for a joint back office (``JBO'') account to be cleared into the 
Firm range at the Options Clearing Corporation (``JBO Orders''). Until 
November 1, such orders were marked with the ``F'' origin code and were 
included within the category of Clearing Trading Permit Holder 
Proprietary orders (and assessed fees as if they were Clearing Trading 
Permit Holder Proprietary orders). As of November 1, the Exchange 
assigned a new origin code (``J'') to JBO Orders,\3\ but continued to 
assess the same fees for JBO Orders as if they were Clearing Trading 
Permit Holder Proprietary orders.\4\
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    \3\ See CBOE Regulatory Circulars RG12-118 (August 27, 2012) and 
RG12-136 (October 5, 2012).
    \4\ See Securities Exchange Act Release No. 68163 (November 6, 
2012), 77 FR 67701 (November 13, 2012) (SR-CBOE-2012-098).
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    The Exchange now proposes to increase the fees for JBO Orders to 
the same amounts as are assessed to Professional and Voluntary 
Professional orders (except for SPX trades).\5\ This would involve 
increasing the following fees for JBO Orders (fee amounts are per-
contract):
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    \5\ SPX is traded on the Exchange's Hybrid 3.0 system, which 
does not recognize Professional and Voluntary Professional orders. 
As such, Professional and Voluntary Professional orders in SPX are 
assessed the same fees as Customer SPX orders. The Exchange instead 
proposes to assess the same fees for JBO Orders in SPX that the 
Exchange proposes to assess for JBO Orders in other proprietary 
index options.

----------------------------------------------------------------------------------------------------------------
                    Product                              Execution type            Previous fee       New fee
----------------------------------------------------------------------------------------------------------------
Equity, ETF, ETN, HOLDRs and Index Options \6\  Manual (Penny and Non-Penny                $0.20           $0.25
                                                 Classes).
Equity, ETF, ETN, HOLDRs and Index Options \7\  Electronic (Penny and Non-Penny          \9\0.20            0.30
                                                 Classes) \8\.
Proprietary Index Options \10\................  All.............................            0.25            0.40
SPX Range Options (SRO).......................  All.............................            0.50            0.80
Credit Default Options and Credit Default       All.............................            0.20            0.85
 Basket Options.
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    The Exchange proposes assessing JBO Orders these increased fee 
amounts because JBOs do not have the obligations (such as membership 
with the Options Clearing Corporation), significant regulatory burdens, 
or financial obligations, that Clearing Trading Permit Holders must 
take on. Further, unlike Clearing Trading Permit Holders, JBOs do not 
need to be Exchange Trading Permit Holders. Instead, JBOs are able to 
effect transactions on the Exchange through a Clearing Trading Permit 
Holder. As such, JBOs operate more like Professional customers, in that 
they do not possess these obligations and are merely trading for 
themselves.
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    \6\ Excluding SPX, SPXW, SRO, OEX, XEO, VIX and VOLATILITY 
INDEXES.
    \7\ Excluding SPX, SPXW, SRO, OEX, XEO, VIX and VOLATILITY 
INDEXES.
    \8\ Including CFLEX AIM executions (``AIM'' stands for the 
Exchange's Automated Improvement Mechanism).
    \9\ This proposed rule change filing also proposes to increase 
the fee for Clearing Trading Permit Holder Proprietary electronic 
executions (including CFLEX AIM executions) in equity, ETF, ETN, 
HOLDRs and index options (excluding SPX, SPXW, SRO, OEX, XEO, VIX 
and VOLATILITY INDEXES) from $0.20 to $0.25 per contract. As such, 
the fee for JBO Orders for such executions would only be $0.05 more 
per contract than for similar Clearing Trading Permit Holder 
Proprietary executions.
    \10\ SPX, SPXW, SRO, OEX, XEO, VIX and VOLATILITY INDEXES.
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    The acts of assigning JBO Orders their own origin code and 
assessing them different fee amounts from Clearing Trading Permit 
Holder Proprietary orders (and thereby listing JBO Orders separately 
from Clearing Trading Permit Holder Proprietary orders) necessitate a 
number of other changes to the Fees Schedule. First, footnote 11 of the 
Fees Schedule states that the Clearing Trading Permit Holder Fee Cap in 
all products except SPX, SRO, VIX or other volatility indexes, OEX or 
XEO (the ``Fee Cap'') and CBOE Proprietary Products Sliding Scale for 
Clearing Trading Permit Holder Proprietary Orders (the ``Sliding 
Scale'') applies to Clearing Trading Permit Holder

[[Page 5549]]

Proprietary orders (``F'' origin code), except for orders of joint 
back-office (``JBO'') participants. Footnote 12 of the Fees Schedule 
also states that the Clearing Trading Permit Holder Proprietary 
Transaction Fee shall be waived for Clearing Trading Permit Holders, 
except JBO participants, executing facilitation orders in multiply-
listed FLEX Options classes. Because JBO Orders are no longer included 
in or listed with Clearing Trading Permit Holder Proprietary orders on 
the Fees Schedule, there is no reason for them to be excepted out in 
this manner (and indeed, it would be confusing to do so). Therefore, 
the Exchange proposes to remove these references to JBOs from footnotes 
11 and 12.
    Similarly, footnote 13 caps transaction fees for a number of market 
participants (including Clearing Trading Permit Holders) at $1,000 for 
all (i) merger strategies and (ii) short stock interest strategies 
executed on the same trading day in the same options class. Footnote 13 
also caps transaction fees for a number of market participants 
(including initiating Clearing Trading Permit Holders) at $25,000 per 
month for all merger strategies, short stock interest strategies, 
reversals, conversions and jelly roll strategies (together, the 
``Strategy Caps''). As both of these Strategy Caps apply to Clearing 
Trading Permit Holders, they also applied to JBO Orders. The Exchange 
wishes to continue to apply such Strategy Caps to JBO Orders. As such, 
the Exchange proposes to explicitly state that these Strategy Caps 
apply to JBO participants.
    Footnote 14 states that the 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 
voluntary professionals, and professionals. Because JBOs are not 
currently stated explicitly in footnote 14 (as they were included 
within the category of Clearing Trading Permit Holder), the Exchange 
now proposes to add a reference in this footnote in order to clarify 
that the Surcharge Fees apply to JBO Orders.
    Footnote 19 applies the AIM Agency/Primary Fee to a variety of 
market participants (including Professionals and Voluntary 
Professionals) for orders in all products, except volatility indexes, 
executed in AIM, SAM (the Exchange's Solicitation Auction Mechanism), 
FLEX AIM and FLEX SAM auctions, that were initially entered as an 
Agency/Primary Order. Because JBO Orders could be entered on the 
Agency/Primary side of AIM, SAM, FLEX AIM and FLEX SAM auctions, the 
Exchange proposes to add a reference to JBO participant orders to 
footnote 19 to state that such orders will be subject to the AIM 
Agency/Primary Fee.
    The Exchange also proposes to amend its fees for customer 
transactions in VIX volatility index options (``VIX options''). 
Currently, all customer VIX options transactions incur a fee of $0.40 
per contract. The Exchange proposes to lower the fee for customer 
transactions in VIX options whose premium is less than $1.00 to $0.25 
per contract, and raise the fee for customer transactions in VIX 
options whose premium is greater than or equal to $1.00 to $0.45 per 
contract. The purpose of these proposed changes is to provide greater 
incentives for customers to trade VIX options. Most of the VIX options 
currently trading are below a premium of $1.00 (due to the low price of 
the underlying index), so the lowered fee will encourage more trading 
of such options. The increase of the fee for customer transactions in 
VIX options whose premium is greater than or equal to $1.00 is being 
utilized in order to achieve some level of revenue balance in 
connection with the lowered fee for customer transactions in VIX 
options whose premium is less than $1.00. On the whole, the Exchange 
expects the per-contract fee for all customer VIX options transactions 
to decrease due to these two changes.
    The Exchange proposes to increase the SPX (including SPXW) Index 
License Surcharge Fee (the ``SPX Surcharge'') from $0.10 per contract 
to $0.13 per contract (and from $0.20 per contract to $0.26 per 
contract for SPX Range Options).\11\ The Exchange licenses from 
Standard & Poor's the right to offer an index option product based on 
the S&P 500 index (that product being SPX and other SPX-based index 
option products). In order to recoup the costs of the SPX license, the 
Exchange assesses the SPX Surcharge. However, the cost of that license 
works out to more than the current SPX Surcharge amount of $0.10 per 
SPX contract traded (or even the proposed SPX Surcharge amount of $0.13 
per contract), so the Exchange ends up subsidizing that SPX license 
cost. The Exchange therefore proposes to increase the SPX Surcharge 
from $0.10 per contract to $0.13 per contract in order to recoup more 
of the costs associated with the SPX license. The Exchange will still 
be subsidizing the costs of the SPX license.
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    \11\ The exposure provided by Range Options is equivalent to 
four option positions. As such, the Exchange determined to assess an 
SPX Range Options Surcharge Fee of twice the amount of the SPX 
Surcharge (See Securities Exchange Act Release No. 67777 (September 
4, 2012), 77 FR 55515 (September 10, 2012) (SR-CBOE-2012-084)). As 
the Exchange hereby proposes to increase the amount of the SPX 
Surcharge, the Exchange correspondingly proposes to increase the SPX 
Range Options Surcharge Fee by the same proportion.
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    The Exchange also proposes increasing the fee assessed to Clearing 
Trading Permit Holder Proprietary orders for electronic executions 
(including CFLEX AIM and FLEX Options) in equity, ETF, ETN HOLDRs and 
index options \12\ from $0.20 per contract to $0.25 per contract. This 
change is proposed due to competitive reasons and to better reflect the 
costs associated with supporting a larger number of option classes, 
option series, and overall transaction volumes that have grown over 
time. Further, this increased amount is within the range of fees 
assessed for similar transactions on other exchanges.\13\
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    \12\ Excluding SPX, SPXW, SRO, OEX, XEO, VIX and VOLATILITY 
INDEXES.
    \13\ The International Securities Exchange, LLC (``ISE'') 
assesses a Taker fee of $0.33 per contract for firm proprietary 
orders in select symbol (see ISE Schedule of Fees, Section 1). The 
NASDAQ OMX PHLX LLC (``PHLX'') assesses a Taker fee of $0.45 per 
contract for firm orders (see PHLX Pricing Schedule, Section 1A).
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    The Exchange also proposes to amend its Liquidity Provider Sliding 
Scale, which applies to Liquidity Provider (CBOE Market-Maker, DPM, e-
DPM and LMM) transaction fees in all products except SPX, SRO, VIX or 
other volatility indexes, OEX or XEO. A Liquidity Provider's standard 
per-contract transaction fee shall be reduced to the fees shown on the 
Liquidity Provider Sliding Scale as the Liquidity Provider reaches the 
contract volume thresholds shown on the Liquidity Provider Sliding 
Scale in a month. The Exchange proposes to amend the tier volume 
thresholds and fees for each tier as follows:

----------------------------------------------------------------------------------------------------------------
                                        Current volume        Proposed volume
               Tier                 threshold  (contracts  threshold  (contracts    Current fee    Proposed fee
                                          per month)             per month)       (per contract)  (per contract)
----------------------------------------------------------------------------------------------------------------
1.................................  1-51,000.............  1-100,000............           $0.20           $0.25
2.................................  51,001-810,000.......  100,001-2,000,000....            0.18            0.17

[[Page 5550]]

 
3.................................  810,001-2,055,000....  2,000,001-4,000,000..            0.15            0.10
4.................................  2,055,001-3,285,000..  4,000,001-6,000,000..            0.10            0.05
5.................................  3,285,001-6,300,000..  6,000,001+...........            0.03            0.03
6.................................  6,300,001+...........  Tier 6 eliminated....            0.01  Not applicable
----------------------------------------------------------------------------------------------------------------

    The purpose of amending the tier volume thresholds and fees for 
such tiers is to adjust for current volume trends and demographics 
across the Liquidity Provider population and to rationalize fees across 
that population.
    The Exchange also proposes to amend some of the language in 
footnote 10 of the Fees Schedule regarding prepayment for the Liquidity 
Provider Sliding Scale. First, the Exchange proposes to delete the 
prepayment amounts listed in footnote 10, as they will not be relevant 
due to the proposed changes to the tier volume thresholds and fees for 
each tier that are discussed above. Those prepayment amounts listed 
functionally required prepayment of annual fees for the first two tiers 
of the Liquidity Provider Sliding Scale in order to qualify for tiers 3 
and above of the Liquidity Provider Sliding Scale. The Exchange 
proposes to delete the listed prepayment amounts and instead just list 
the tier numbers themselves. The Exchange also proposes to remove the 
requirement that a prepayment for the entire year be made for the first 
two tiers of the Liquidity Provider Sliding Scale in order for a 
Liquidity Provider to be eligible for the fees applicable to tiers 3-5 
of the Liquidity Provider Sliding Scale. This means that a Liquidity 
Provider will no longer be prohibited from being eligible for the fees 
applicable to tiers 3-5 if the Liquidity Provider did not prepay for 
the first two tiers for the entire year. Instead, a prepayment can be 
made for the first two tiers of the Liquidity Provider Sliding Scale at 
any time during the year to be eligible for the fees applicable to 
tiers 3-5 for the remainder of the year. The amended statement will 
read that ``A Liquidity Provider can elect to prepay to be eligible for 
the fees applicable to tiers 3-5 of the sliding scale for the remainder 
of the year at any time during the year, but such prepayment (and 
eligibility) will only be applied prospectively for the remainder of 
the year.'' The purpose of this proposed change is to make it easier 
for Liquidity Providers to qualify for the lower fees in tiers 3-5 
without having to pre-commit to the entire year. The Exchange also 
proposes to delete the statement that ``If a Liquidity Provider prepays 
annual fees for the first four tiers of the sliding scale, the 
Liquidity Provider will receive a $410,960 prepayment discount (total 
amount of the prepayment will be $5,067,840)''. The Exchange proposes 
deleting this prepayment discount for economic reasons and to allow the 
Exchange to retain fees in order to manage Exchange administrative and 
regulatory expenses.
    The Exchange proposes to amend any references in the Fees Schedule 
to CBOEdirect to refer to CBOE Command, as the manner through which 
Trading Permit Holders (``TPHs'') connect to the CBOE System is now 
called CBOE Command. Such references can be found in the title of the 
table describing Connectivity Charges, in the notes to the Volume 
Incentive Plan table, and in footnote 27. All will be updated to refer 
to CBOE Command instead of CBOEdirect.
    The Exchange also proposes to amend its connectivity fees. In order 
to connect to CBOE Command, which allows a TPH to trade on the CBOE 
System, a TPH must connect via either a CMI or FIX interface (depending 
on the configuration of the TPH's own systems). For TPHs that connect 
via a CMI interface, they must use CMI CAS Servers. The Exchange 
proposes to state that, for every 15 Trading Permits that a TPH that 
accesses CBOE Command via CMI holds, that TPH receives one CAS Server 
(plus one total backup CAS Server regardless of the number of Trading 
Permits that the TPH holds). If a TPH elects to connect via an extra 
CMI CAS Server (in order to segregate TPH users for business or 
availability purposes) beyond the TPH's allotted number of CMI CAS 
Servers (based on the number of Trading Permits the TPH holds), that 
TPH will be assessed a fee of $10,000 per month for each extra CMI CAS 
Server. The Exchange will aggregate the Trading Permits from affiliated 
TPHs (TPHs with at least 75% common ownership between the firms as 
reflected on each firm's Form BD, Schedule A) for purposes of 
determining the number of Trading Permits a TPH holds. The purpose of 
this proposed change is to manage the allotment of CMI CAS Servers in a 
fair manner and to prevent the Exchange from being required to expend 
large amounts of resources (the provision and management of the CMI CAS 
Servers can be costly) in order to provide TPHs with an unlimited 
amount of CMI CAS Servers. The purpose of the fee for extra CMI CAS 
Servers is to cover the costs related to the provision, management and 
upkeep of such CMI CAS Servers.
    The Exchange also proposes to amend its Non-Standard Booth Rental 
Fees for booths on the trading floor as follows:

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                                                              1 year          1 year          2 years         2 years         3 years         3 years
                     Length of lease                         (current)      (proposed)       (current)      (proposed)       (current)      (proposed)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                       Booth Size                                                                   Per Sq. Ft.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Extra-Large (1000 sq. ft. or greater)...................           $5.50            2.83            5.34            2.75            5.23            2.69
Large (800-999 sq. ft.).................................            8.00            4.12            7.76            4.00            7.60            3.91
Medium (401-799 sq. ft.)................................            9.50            4.89            9.22            4.74            9.03            4.65
Small (400 sq. ft. or less).............................           15.00            7.72           14.55            7.49           14.25            7.33
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    As previously [sic], the fees for committing to a longer lease are 
lower than those for committing to a one-year lease (the fee for a two-
year lease is 97% of the fee for a one-year lease, and the fee for a 
three-year lease is 95% of the fee for a one-year lease; the 
proportions remain the same for the lowered proposed fees). The 
Exchange proposes lowering the Non-Standard Booth Rental fees in order 
to encourage rental of booth space on and around the Exchange trading 
floor.
    The Exchange also proposes to amend the WebCRD\SM\ fees listed on 
its Fees

[[Page 5551]]

Schedule. Such fees are collected and retained by the Financial 
Industry Regulatory Authority, Inc. (``FINRA'') via the WebCRD\SM\ 
registration system for the registration of associated persons of 
Exchange TPHs and TPH organizations that are not also FINRA members. 
The Exchange merely lists such fees on its Fees Schedule. FINRA 
recently filed a proposed rule change to increase a number of these 
fees (the ``FINRA Fee Change'').\14\ The FINRA Fee Change increases the 
FINRA Non-Member Processing Fee from $85 to $100, the FINRA Annual 
System Processing Fee Assessed only during Renewals from $30 to $45, 
and the FINRA Disclosure Processing Fee from $95 to $110. The FINRA Fee 
Change also applies the FINRA Disclosure Processing Fee (which already 
applied to Form U-4 and U-5 filings and their amendments) to Form BD 
filings and corresponding amendments.
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    \14\ See Securities Exchange Act Release No. 67247 (June 25, 
2012) 77 FR 38866 (June 29, 2012) (SR-FINRA-2012-030). These new 
fees and fee amounts are discussed in FINRA Regulatory Notice 12-32, 
available at http://www.finra.org/Industry/Regulation/Notices/2012/P127240, and are listed in the listing of FINRA's 2013 Regulatory 
Fees, available on the FINRA Web site at http://www.finra.org/Industry/Compliance/Registration/CRD/FilingGuidance/P197266.
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    The FINRA Fee Change also amended FINRA's Fingerprint Processing 
Fees. In 2012, FINRA only offered one set of fees ($27.50 for the 
initial submission, $13.00 for the second submission, and $27.50 for 
the third submission). For 2013, FINRA is offering two sets of fees. 
For fingerprints submitted on paper card, the fees will be $44.50 per 
initial submission, $30.00 per second submission, and $44.50 per third 
submission. For fingerprints submitted electronically, the fees will be 
$29.50 per initial submission, $15.00 per second submission, and $29.50 
per third submission. The FINRA Fee Change also increases from $13.00 
to $30.00 the fingerprint processing fee for those submitted by TPHs or 
TPH organizations on behalf of their associated persons who had had 
their prints processed through a self-regulatory organization other 
than FINRA.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\15\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \16\ requirements that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitation transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The Exchange also believes the proposed rule change is consistent with 
Section 6(b)(4) of the Act,\17\ which provides that Exchange rules may 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its Trading Permit Holders and other persons using 
its facilities.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ 15 U.S.C. 78f(b)(4).
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    Increasing the fee amounts for JBO Orders, as described in Item 
3(a) above, is reasonable because the amounts of all such fees are 
within the range of fees assessed to other market participants for the 
same types of transactions. Specifically, the proposed amounts of the 
increased fees are equivalent to the amounts of such fees assessed to 
Professionals and Voluntary Professionals (except for SPX trades). 
Assessing JBO Orders the increased fee amounts (the same amounts as 
Professionals and Voluntary Professionals) is equitable and not 
unfairly discriminatory because JBOs do not have the obligations (such 
as membership with the Options Clearing Corporation), significant 
regulatory burdens, or financial obligations, that Clearing Trading 
Permit Holders must take on. Further, unlike Clearing Trading Permit 
Holders, JBOs do not need to be Exchange Trading Permit Holders. 
Instead, JBOs are able to effect transactions on the Exchange through a 
Clearing Trading Permit Holder. As such, JBOs operate more like 
Professional customers, in that they do not possess these obligations 
and are merely trading for themselves.
    Removing references in footnotes 11 and 12 of the Fees Schedule 
that except JBO Orders out of Clearing Trading Permit Holder 
Proprietary orders for the sake of the Fee Cap and the Sliding Scale 
eliminates potential investor confusion, since JBO Orders no longer are 
marked with the ``F'' origin code, included within the category of 
Clearing Trading Permit Holder Proprietary orders, or assessed fees as 
if they were Clearing Trading Permit Holder Proprietary orders. This 
elimination of investor confusion removes impediments to and perfects 
the mechanism of a free and open market and a national market system, 
and, in general, protects investors and the public interest. Similarly, 
explicitly stating that JBO Orders (which, because they were marked 
with the ``F'' origin code and assessed fees as if they were Clearing 
Trading Permit Holder Proprietary orders, have been subject to the 
Strategy Caps and Surcharge Fees) will still be subject to the Strategy 
Caps and Surcharge Fees also prevents investor confusion, thereby 
removing impediments to and perfecting the mechanism of a free and open 
market and a national market system, and, in general, protecting 
investors and the public interest.
    Applying the AIM Agency/Primary Fee to the orders of JBO 
participants (JBO Orders) is reasonable because the amount of the AIM 
Agency/Primary Fee will be the same for JBO Orders as it is for the 
orders of other market participants to whom the AIM Agency/Primary Fee 
applies. Applying the AIM Agency/Primary Fee to the orders of JBO 
participants is equitable and not unfairly discriminatory because the 
AIM Agency/Primary Fee applies to other market participants who 
reasonably could be foreseen as entering an order on the Agency/Primary 
side of AIM, SAM, FLEX AIM and FLEX SAM auctions.
    The proposed changes to the customer VIX options transaction fees 
are reasonable because the amounts of the new fees are within the range 
of fees assessed for customer transactions in other CBOE proprietary 
products. Indeed, the fee for customer transactions in SPX options 
whose premium is less than $1.00 is $0.35 per contract, and the fee for 
customer transactions in SPX options whose premium is greater than or 
equal to $1.00 is $0.44 per contract. The proposed changes to the 
customer VIX options transaction fees are equitable and not unfairly 
discriminatory because they are designed to attract greater customer 
order flow to the Exchange. This would bring greater liquidity to the 
market, which benefits all market participants. Customer fees for VIX 
options will still be below than those assessed to broker-dealers and 
non-Trading Permit Holder Market-Makers (among other market 
participants) because customers are not assessed a Surcharge Fee for 
VIX options transactions.
    Assessing a higher fee for customer transactions in VIX options 
whose premium is greater than or equal to $1.00 than for customer 
transactions in VIX options whose premium is less than

[[Page 5552]]

$1.00 is equitable and not unfairly discriminatory because the Exchange 
expects the per-contract fee for all customer VIX options transactions 
to decrease due to these two changes. Most VIX options have a premium 
below $1.00, so the lowered fee will encourage more trading of such 
options. The increase of the fee for customer transactions in VIX 
options whose premium is greater than or equal to $1.00 is being 
utilized in order to achieve some level of revenue balance in 
connection with the lowered fee for customer transactions in VIX 
options whose premium is less than $1.00. Further, the Exchange 
currently offers different fees depending on the premium for customer 
transactions in SPX options (as described in the previous paragraph).
    Increasing the SPX Surcharge (and SPX Range Options Surcharge Fee) 
is reasonable because the Exchange still pays more for the SPX license 
than the amount of the proposed SPX Surcharge (meaning that the 
Exchange is, and will still be, subsidizing the costs of the SPX 
license). This increase is equitable and not unfairly discriminatory 
because the increased amount will be assessed to all market 
participants to whom the SPX Surcharge applies. Also, in proposing to 
increase the SPX Surcharge by 30%, the Exchange merely also proposes to 
increase the SPX Range Options Surcharge Fee in the same proportion.
    The proposed increase in the fee assessed to Clearing Trading 
Permit Holder Proprietary orders for electronic executions (including 
CFLEX AIM and FLEX Options) in equity, ETF, ETN HOLDRs and index 
options \18\ is reasonable because the increased amount ($0.25 per 
contract) is within the range of fees assessed to other market 
participants for the same type of transactions (for example, broker-
dealers are assessed a fee of as much as $0.60 per contract for such 
transactions, and Professionals are assessed a fee of $0.30 per 
contract for such transactions). This proposed increase is equitable 
and not unfairly discriminatory because it will be applied to all 
Clearing Trading Permit Holder Proprietary orders. The amount of the 
fee will still be lower than that assessed to all other CBOE market 
participants (except customers), as Clearing Trading Permit Holders 
have a number of obligations (such as membership with the Options 
Clearing Corporation), significant regulatory burdens, and financial 
obligations, that those other market participants do not need to take 
on. Finally, the proposed increased fee amount is within the range of 
fee amounts assessed by other exchanges for similar transactions by 
similar market participants.\19\ Assessing a different fee amount for 
electronic executions than for manual executions is equitable and not 
unfairly discriminatory because the Exchange has expended considerable 
resources to develop its electronic trading platforms and seeks to 
recoup the costs of such expenditures. Moreover, the business models 
surrounding electronic orders and open outcry orders are different, and 
as such, the Exchange offers different incentives to encourage the 
entry of electronic and open outcry orders. Further, in assessing what 
fee amounts to assess, the Exchange experiences different competitive 
pressures from other exchanges with respect to electronic orders than 
it does with respect to open outcry orders. The Exchange also believes 
that assessing a different fee for electronic orders than it does for 
open outcry orders is equitable and not unfairly discriminatory because 
other exchanges distinguish between delivery methods for certain market 
participants and pay different rebates depending on the method of 
delivery. This type of distinction is not novel and has long existed 
within the industry.
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    \18\ Excluding SPX, SPXW, SRO, OEX, XEO, VIX and VOLATILITY 
INDEXES.
    \19\ ISE assesses a Taker fee of $0.33 per contract for firm 
proprietary orders in select symbol (see ISE Schedule of Fees, 
Section 1). PHLX assesses a Taker fee of $0.45 per contract for firm 
orders (see PHLX Pricing Schedule, Section 1A).
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    The amendments to the tier volume thresholds and corresponding fees 
for the Liquidity Provider Sliding Scale are reasonable because even 
the amount of the highest fee (assessed at the lowest tier) is within 
the range of fees assessed to other CBOE market participants \20\ and 
because, as a Liquidity Provider executes more contracts in a month, 
that Liquidity Provider will pay lower fees for such executions. 
Assessing lower fees for executing more contracts is equitable and not 
unfairly discriminatory because it provides Liquidity Providers with an 
incentive to execute more contracts on the Exchange. This brings 
greater liquidity and trading opportunity, which benefits all market 
participants (including those Liquidity Providers only reaching the 
lower tiers of the Liquidity Provider Sliding Scale). Offering lower 
fees for Liquidity Providers than for other CBOE market participants 
(such as Broker-Dealers, Professionals, Voluntary Professionals, and 
Non-Trading Permit Holder Market-Makers) is equitable and not unfairly 
discriminatory because, as CBOE Market-Makers, Liquidity Providers take 
on certain obligations, such as quoting obligations, that these other 
market participants do not.
---------------------------------------------------------------------------

    \20\ See CBOE Fees Schedule, page 1.
---------------------------------------------------------------------------

    Eliminating the prepayment discount from the Liquidity Provider 
Sliding Scale is reasonable because it merely eliminates a discount and 
will require Liquidity Providers to pay the fee amounts they normally 
would. Indeed, they will still be able to pay lowered fee amounts by 
executing more contracts, per the Liquidity Provider Sliding Scale; 
they just will not be able to receive a discount for committing to do 
so beforehand. This is equitable and not unfairly discriminatory 
because the elimination of the prepayment discount will apply to all 
Liquidity Providers, and therefore no Liquidity Providers will be able 
to receive the prepayment discount. Eliminating the requirement that a 
Liquidity Provider must prepay the annual fees for the first two tiers 
of the Liquidity Provider Sliding Scale in order to be eligible for the 
fees applicable to tiers 3-5, and instead allowing a Liquidity Provider 
to elect to prepay to be eligible for the fees applicable to tiers 3--5 
of the sliding scale for the remainder of the year at any time during 
the year is reasonable because it will make it easier for a Liquidity 
Provider to be eligible for the lower fees applicable to tiers 3-5. 
This change is equitable and not unfairly discriminatory because it 
will be applied equally to all Liquidity Providers. Further, prepayment 
allows CBOE to more safely conceptualize Exchange finances for the 
future. This allows the Exchange to offer the lower fees related to 
prepayment, and such lower fees incentivize greater trading and 
liquidity provision by Liquidity Providers, which benefits all market 
participants (including Liquidity Providers who do not prepay).
    The change of the reference from ``CBOEdirect'' to ``CBOE Command'' 
eliminates confusion, thereby removing impediments to and perfecting 
the mechanism of a free and open market and a national market system, 
and, in general, protecting investors and the public interest.
    The proposed allotment of one CMI CAS Server for every 15 Trading 
Permits that a TPH holds (plus one total backup CAS Server regardless 
of the number of Trading Permits that a TPH holds) is reasonable 
because one CMI CAS Server should be capable of handling the bandwidth 
needs of at least 15 Trading Permits. This proposed allotment is 
equitable and not unfairly discriminatory because it will be applied to 
all TPHs accessing CBOE Command via a CMI connection. The proposed fee 
of $10,000 for each extra

[[Page 5553]]

CMI CAS Server that a TPH requests is reasonable because it is 
necessary to recoup the costs related to the provision, maintenance and 
upkeep of such Servers, and is equitable and not unfairly 
discriminatory because it the fee will be applied to all TPHs that 
request an extra CMI CAS Server.
    The proposed lower Non-Standard Booth Rental Fees are reasonable 
because they will allow any market participants paying the Non-Standard 
Booth Rental Fee to pay less than such market participants are 
currently paying. These changes are equitable and not unfairly 
discriminatory because they will apply to all market participants who 
rent Non-Standard Booths. The lowered fees for committing to a longer 
lease are equitable and not unfairly discriminatory because they 
encourage greater commitment to booth rental and trading from the floor 
and on the Exchange, which benefits all market participants. Moreover, 
the Exchange currently offers lower fees for committing to a longer 
lease, and merely proposes to decrease these fees in the same 
proportion as they currently exist.
    The proposed changes to the listings of the FINRA WebCRD\SM\ fees 
are reasonable from the Exchange's position because the amounts are 
those provided by FINRA, and the Exchange does not collect or retain 
these fees. The proposed fee changes are equitable and not unfairly 
discriminatory from the Exchange's position because the Exchange will 
not be collecting or retaining these fees, and therefore will not be in 
a position to apply them in an inequitable or unfairly discriminatory 
manner.

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. The Exchange believes that the 
proposal to increase fees for JBO Orders will not cause an unnecessary 
burden on intramarket competition because the amounts of all such fees 
are within the range of fees assessed to other market participants for 
the same types of transactions. Specifically, the proposed amounts of 
the increased fees are equivalent to the amounts of such fees assessed 
to Professionals and Voluntary Professionals (except for SPX trades). 
Assessing JBO Orders the increased fee amounts (the same amounts as 
Professionals and Voluntary Professionals) does not cause an 
unnecessary burden on intramarket competition because JBOs do not have 
the obligations (such as membership with the Options Clearing 
Corporation), significant regulatory burdens, or financial obligations, 
that Clearing Trading Permit Holders must take on. Further, unlike 
Clearing Trading Permit Holders, JBOs do not need to be Exchange 
Trading Permit Holders. Instead, JBOs are able to effect transactions 
on the Exchange through a Clearing Trading Permit Holder. As such, JBOs 
operate more like Professional customers, in that they do not possess 
these obligations and are merely trading for themselves. Therefore, the 
Exchange does not believe that the proposal to increase fees for JBO 
Orders will not impose any burden on intramarket competition, but to 
the extent that such increase may result in any change in intramarket 
competition, it is justifiable for the reasons stated above. The 
Exchange believes that the proposal to increase fees for JBO Orders 
will not cause an unnecessary burden on intermarket competition because 
the Exchange was not motivated by intermarket competition in proposing 
such changes and because many other exchanges do not list out separate 
fees for JBO Orders and therefore it is difficult to even determine the 
amounts of fees for JBO Orders on other exchanges.
    The Exchange does not believe that the proposed changes to customer 
VIX options transaction fees will cause any unnecessary burden on 
intramarket competition because, while customers are assessed 
differently, and often lower, fee rates than other market participants, 
this is a common practice within the options marketplace, and customers 
often do not have the sophisticated trading algorithms and systems that 
other market participants often possess. Further, to the extent that 
any change in intramarket competition may result from the proposed 
changes to customer VIX options transaction fees, such possible change 
is justifiable and offset because the changes to such fees are designed 
to attract greater customer order flow to the Exchange. This would 
bring greater liquidity to the market, which benefits all market 
participants. The Exchange does not believe that the proposed changes 
to customer VIX options transaction fees will cause any unnecessary 
burden on intermarket competition because VIX options is a proprietary 
product that is traded solely on CBOE.
    The Exchange does not believe that the increase of the SPX 
Surcharge will cause any unnecessary burden on intramarket competition 
because the increased amount will be assessed to all market 
participants to whom the SPX Surcharge applies. The Exchange does not 
believe that the increase of the SPX Surcharge will cause any 
unnecessary burden on intermarket competition because SPX is a 
proprietary product that is traded solely on CBOE.
    The Exchange does not believe that the proposed increase in the fee 
assessed to Clearing Trading Permit Holder Proprietary orders for 
electronic executions (including CFLEX AIM and FLEX Options) in equity, 
ETF, ETN HOLDRs and index options \21\ will cause any unnecessary 
burden on intramarket competition because the amount of the fee will 
still be lower than that assessed to all other CBOE market participants 
(except customers), as Clearing Trading Permit Holders have a number of 
obligations (such as membership with the Options Clearing Corporation), 
significant regulatory burdens, and financial obligations, that those 
other market participants do not need to take on. As such, to the 
extent that the proposed increase could cause any change in intramarket 
competition, it is justifiable for these reasons. The Exchange does not 
believe that the proposed increase will cause any unnecessary burden on 
intermarket competition because the proposed increased fee amount is 
within the range of fee amounts assessed by other exchanges for similar 
transactions by similar market participants.\22\
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    \21\ Excluding SPX, SPXW, SRO, OEX, XEO, VIX and VOLATILITY 
INDEXES.
    \22\ ISE assesses a Taker fee of $0.33 per contract for firm 
proprietary orders in select symbol (see ISE Schedule of Fees, 
Section 1). PHLX assesses a Taker fee of $0.45 per contract for firm 
orders (see PHLX Pricing Schedule, Section 1A).
---------------------------------------------------------------------------

    The Exchange does not believe that the proposed changes to the 
Liquidity Provider Sliding Scale will cause an unnecessary burden on 
intramarket competition because, while offering lower fees for 
Liquidity Providers than for other CBOE market participants (such as 
Broker-Dealers, Professionals, Voluntary Professionals, and Non-Trading 
Permit Holder Market-Makers) may affect such competition, this impact 
is justified by the fact that as CBOE Market-Makers, Liquidity 
Providers take on certain obligations, such as quoting obligations, 
that these other market participants do not. Further, assessing lower 
fees for executing more contracts will provide Liquidity Providers with 
an incentive to execute more contracts on the Exchange. This brings 
greater liquidity and trading opportunity, which benefits all market 
participants (including those Liquidity Providers only reaching the 
lower tiers of the Liquidity Provider Sliding Scale). The Exchange does 
not believe that the

[[Page 5554]]

proposed changes to the Liquidity Provider Sliding Scale will cause an 
unnecessary burden on intermarket competition because, while the 
proposed changes are designed to attract greater liquidity and trading 
volume, market participants trading on other exchanges can always elect 
to become TPHs on CBOE. Further, the Exchange exists in a competitive 
marketplace, and to the extent that these proposed changes make other 
exchanges less competitive with CBOE, market participants trading on 
those other exchanges can elect to trade on CBOE.
    The Exchange does not believe that the proposed allotment of one 
CMI CAS Server for every 15 Trading Permits that a TPH holds (plus one 
total backup CAS Server regardless of the number of Trading Permits 
that a TPH holds) and the proposed fee of $10,000 for each extra CMI 
CAS Server that a TPH requests will cause an unnecessary burden on 
intramarket competition because such allotment and fee will be applied 
to all TPHs accessing CBOE Command via a CMI connection. The Exchange 
does not believe such proposed allotment and fee will cause an 
unnecessary burden on intermarket competition because different 
exchanges have different systemic setups for connection to such 
exchanges and are likely not comparable or competitive.
    It is not within the Exchange's position to determine whether the 
proposed changes to the listings of the FINRA WebCRD \SM\ will cause 
any unnecessary burden on competition, as the Exchange does not 
establish, assess or collect such fees (FINRA does). The Exchange 
merely lists such fees on its Fees Schedule. That said, such increased 
fees will apply to all market participants (as they did before), and, 
to the Exchange's knowledge, apply to all other exchanges as well.
    The Exchange does not believe that the proposed lower Non-Standard 
Booth Rental Fees will cause an unnecessary burden on intramarket 
competition because they will apply to all market participants who rent 
Non-Standard Booths. The Exchange does not believe that such fees will 
cause an unnecessary burden on intermarket competition because, while 
they are designed to encourage booth rental on and around the Exchange 
trading floor, which could encourage market participants to rent booths 
on CBOE's trading floor instead of that of other exchanges, each 
exchange has a different setup for its trading floor (some exchanges do 
not have trading floors at all), which makes a competitive comparison 
difficult. Further, market participants on such other exchanges can 
always elect to trade on CBOE and rent such space here at CBOE.
    The Exchange also notes that it operates in a highly-competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive. The proposed rule change reflects a competitive pricing 
structure designed to incent market participants to direct their order 
flow to the Exchange, and the Exchange believes that such structure 
will help the Exchange remain competitive with those fees and rebates 
assessed by other venues.

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 
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 \23\ and paragraph (f) 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2013-002 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-2013-002. 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 offices 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-2013-002, 
and should be submitted on or before February 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01496 Filed 1-24-13; 8:45 am]
BILLING CODE 8011-01-P