[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.
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Product Execution type Previous fee New fee
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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:
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Current volume Proposed volume
Tier threshold (contracts threshold (contracts Current fee Proposed fee
per month) per month) (per contract) (per contract)
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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
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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)
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Booth Size Per Sq. Ft.
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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.
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\20\ See CBOE Fees Schedule, page 1.
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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).
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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.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f).
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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-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