[Federal Register Volume 79, Number 203 (Tuesday, October 21, 2014)]
[Notices]
[Pages 62988-62990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24942]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73354; File No. SR-CBOE-2014-075]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the CBOE Order Routing Subsidy Program 
and the Complex Order Routing Subsidy Program

October 15, 2014.
    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 October 1, 2014, 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 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's Public Reference Room.

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 Order 
Routing Subsidy (ORS) and Complex Order Routing Subsidy (CORS) Programs 
(collectively ``Programs''). By way of background, the ORS and CORS 
Programs allow CBOE to enter into subsidy arrangements with any CBOE 
Trading Permit Holder (``TPH'') (each, a ``Participating TPH'') or Non-
CBOE TPH broker-dealer (each a ``Participating Non-CBOE TPH'') that 
meet certain criteria and provide certain order routing functionalities 
to other CBOE TPHs, Non-CBOE TPHs and/or use such functionalities 
themselves.\3\ (The term ``Participant'' as used in this filing refers

[[Page 62989]]

to either a Participating TPH or a Participating Non-CBOE TPH). 
Participants in the ORS Program receive a payment from CBOE for every 
executed contract for simple orders routed to CBOE through their 
system. CBOE does not make payments under the ORS Program with respect 
to executed contracts in single-listed options classes traded on CBOE, 
or with respect to complex orders or spread orders. Participants in the 
CORS Program receive a payment from CBOE for every executed contract 
for complex orders routed to CBOE through their system. CBOE does not 
make payments under the CORS Program with respect to executed contracts 
in single-listed options classes traded on CBOE or with respect to 
simple orders. The Exchange currently pays a subsidy of $0.04 per 
contract for regular orders and a subsidy of $0.004 per contract for 
mini-options orders under both the ORS and CORS programs in order to 
subsidize Participants' costs associated with providing order routing 
functionalities.
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    \3\ See CBOE Fees Schedule, ``Order Router Subsidy Program'' and 
``Complex Order Router Subsidy Program'' tables for more details on 
the ORS and CORS Programs.
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    The Exchange first proposes to eliminate the $0.04 per contract 
subsidy in both Programs and establish instead different subsidies for 
customer and non-customer orders. Specifically, the Exchange proposes 
to introduce a separate subsidy per contract for customer (C origin 
code) orders and increase the current subsidy per contract for all non-
customer orders. The Exchange proposes to pay a subsidy of $0.02 per 
contract for all customer (C) orders and a subsidy of $0.06 per 
contract for all non-customer orders. The proposed change is applicable 
to both Programs. Additionally, the Exchange proposes to cease making 
payments under both Programs with respect to executed contracts in 
mini-option classes. The Exchange no longer believes it is 
competitively necessary to incentivize the sending of mini-options to 
the Exchange and accordingly does not wish to offer a subsidy for mini-
options under the ORS and CORS Programs. The Exchange notes that a 
similar subsidy program offered by NYSE Amex Options (``Amex'') also 
excludes mini-options.\4\
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    \4\ See NYSE Amex Options Fee Schedule (``Fee Schedule''), 
Market Access and Connectivity (``MAC'') Subsidy.
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    The Exchange next proposes to eliminate from the ORS and CORS 
Programs payment of subsidies for contracts executed via the Automated 
Improvement Mechanism (``AIM''). Contracts that execute via AIM already 
have an opportunity to earn various rebates and discounts and thus the 
Exchange believes it is appropriate to exclude AIM executions from the 
Programs.\5\ The Exchange notes that the subsidy program offered by 
Amex excludes contracts executed via Amex's auction mechanism.\6\
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    \5\ See e.g., CBOE Fees Schedule, Volume Incentive Program. 
Additionally, the Exchange notes Facilitation orders executed via 
AIM are not assessed transaction fees.
    \6\ See NYSE Amex Options Fee Schedule (``Fee Schedule''), 
Market Access and Connectivity (``MAC'') Subsidy.
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    Next, the Exchange seeks to eliminate Marketing and Billing 
Services Elections from the ORS Program. By way of background, a 
Participant of the ORS Program may elect to have CBOE perform certain 
additional marketing services on its behalf. If a Participant elected 
to have CBOE perform these services, the amount that CBOE would pay the 
Participant for orders routed to CBOE through the Participant's system 
would be reduced from $0.04 per executed contract to $0.03 per executed 
contract. A Participant of the ORS Program can also elect to have CBOE 
perform the service of billing other CBOE TPHs with respect to the use 
of the Participant's router. A Participant that elects to have CBOE 
perform this service would pay CBOE a service fee of one percent of the 
fees collected by CBOE for that TPH. The Exchange notes that currently 
there are no Participants that are using either election. The Exchange 
no longer wishes to offer either election and as such seeks to 
eliminate them from the ORS Program and Fees Schedule. The Exchange 
also notes that the CORS Program does not offer these optional 
services.
    Finally, the Exchange proposes to explicitly clarify in Footnote 30 
that CBOE does not make payments under the CORS program with respect to 
executed contracts in single-listed option classes traded on CBOE. Such 
a statement is already included in Footnote 29, which governs the ORS 
Program, but was inadvertently not included in Footnote 30 when the 
CORS Program was adopted. The Exchange believes the proposed change 
will reduce potential confusion.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange also believes the proposed rule 
change is consistent with Section 6(b)(4) of the Act,\10\ which 
requires that Exchange rules 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
    \10\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed amendments to the 
ORS and CORS Programs are reasonable because the proposed changes still 
afford Participants an opportunity to receive payments to subsidize the 
costs associated with providing certain order routing functionalities 
that would otherwise go unsubsidized. Additionally, the Exchange 
believes the increased $0.06 per contract subsidy for non-customer 
orders is reasonable because it is within the range of subsidies paid 
by another exchange under a similar subsidy program.\11\
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    \11\ See NYSE Amex Options Fee Schedule, Market Access and 
Connectivity (``MAC'') Subsidy.
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    The Exchange believes that limiting the subsidy payments to those 
that provide order routing functionalities is equitable and not 
unfairly discriminatory because the Participants of the Programs have 
devoted resources to provide the order routing functionalities. The 
Programs further encourages CBOE TPHs and broker-dealers that are not 
CBOE TPHs to provide order routing functionalities.
    In addition, the Exchange believes that the proposed changes are 
equitable and not unfairly discriminatory because the changes are 
applicable to all Participants and any CBOE TPH or broker-dealer that 
is not a CBOE TPH may continue to avail itself of the arrangements 
under the Programs, provided that their routing functionality 
incorporates the respective requirements of each Program.

[[Page 62990]]

    The Exchange also believes it is equitable and not unfairly 
discriminatory to establish separate subsidies for customer and non-
customer orders under the Programs. Particularly, the Exchange notes 
that customer orders already have the opportunity to earn various 
rebates, discounts or fee caps.\12\ As such, the Exchange believes it 
is fair and equitable to provide a lesser subsidy for customer orders 
as compared to non-customer orders. The Exchange also notes that Amex 
does not provide a subsidy for any Customer volume under its MAC 
Subsidy Program.\13\
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    \12\ See e.g., CBOE Fees Schedule, Customer Large Trade Discount 
and Volume Incentive Program.
    \13\ See Securities Exchange Act Release No. 71532 (February 12, 
2014), 79 FR 9563 (February 19, 2014) (SR-NYSEAmex-2014-12).
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    The Exchange believes the elimination of subsidies for mini-options 
under the Programs is reasonable, equitable and not unfairly 
discriminatory because the Exchange believes it is no longer 
competitively necessary to encourage the sending of mini-options to the 
Exchange and thus does not believe it's necessary to provide a subsidy 
for mini-option orders. Additionally, as noted in the purpose section, 
Amex's MAC Program also excludes mini-options. The Exchange believes it 
is equitable and not unfairly discriminatory to exclude AIM contracts 
from both Programs because, like customer orders, orders executed via 
AIM already have an opportunity to earn various rebates or 
discounts.\14\
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    \14\ See supra note 5.
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    The Exchange believes the clarification that the CORS Program 
excludes single-listed options will alleviate potential confusion. The 
alleviation of potential confusion will remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest. 
Finally, the Exchange believes the elimination of the Marketing and 
Billing Services Elections from the ORS Program is reasonable, 
equitable and not unfairly discriminatory because it merely eliminates 
optional services, which currently are not being used by any 
Participant.

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 does not believe 
that the proposed changes will impose an unnecessary burden on 
intramarket competition because they will apply equally to all 
participating parties. Although the subsidy for orders routed to CBOE 
through a Participant's system only applies to Participants of the 
Programs, the subsidies are designed to encourage the sending of more 
orders to the Exchange, which should provide greater liquidity and 
trading opportunities for all market participants. Further, the 
Exchange does not believe that such changes will impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that, should 
the proposed changes make CBOE more attractive for trading, market 
participants trading on other exchanges can always elect to provide 
order routing functionality to CBOE. Additionally, to the extent that 
the proposed changes to the ORS and CORS Programs result in increased 
trading volume on CBOE and lessened volume on other exchanges, the 
Exchange notes that market participants trading on other exchanges can 
always elect to become TPHs on CBOE to take advantage of the trading 
opportunities.

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 \15\ and paragraph (f) of Rule 19b-4 \16\ 
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. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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-2014-075 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2014-075. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2014-075 and should be 
submitted on or before November 12, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2014-24942 Filed 10-20-14; 8:45 am]
BILLING CODE 8011-01-P