[Federal Register Volume 80, Number 126 (Wednesday, July 1, 2015)]
[Notices]
[Pages 37685-37690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16090]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75302; File No. SR-CBOE-2015-062]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Front-End Order Entry and Management 
Tools in Connection With Purchase of Livevol Assets

June 25, 2015.
    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 June 23, 2015, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b 4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The purpose of this filing is to describe the functionality and 
adopt fees for the use of two new front-end order entry and management 
applications. 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 purpose of this filing is to describe the functionality and 
adopt fees for the use of two new front-end order entry and management 
applications. On June 1, 2015, CBOE IV, LLC (``Newco'') (a wholly owned 
subsidiary of CBOE's parent company, CBOE Holdings, Inc.) entered into 
a definitive asset purchase agreement with Livevol \5\ pursuant to 
which Newco agreed to purchase certain software and technology, 
including Livevol X (``LVX'') and Livevol Core X (``LVCX''

[[Page 37686]]

and, together with LVX, the ``applications'').\6\
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    \5\ Livevol, Inc. has an additional subsidiary, Livevol 
Securities, Inc. (``LVS''), which is a registered U.S. broker-dealer 
(but not a Trading Permit Holder of the Exchange). CBOE will not 
acquire any assets related to this broker-dealer business.
    \6\ Pursuant to the asset purchase agreement, Newco will also 
purchase from Livevol market data analytical products. See infra 
note 10.
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    The applications are front-end order entry and management tools for 
listed stocks and options that support both simple and complex 
orders.\7\ LVX is a software application that is installed locally on a 
user's desktop terminal, and LVCX is a web-based application integrated 
into the application programming interface of the user's proprietary 
system. The applications provide users with the capability to send 
option orders to U.S. options exchanges and stock orders to U.S. stock 
exchanges (and other trading centers \8\). Additionally, the 
applications allow users to input parameters to control the size, 
timing and other variables of their trades.\9\ Both applications 
include access to real-time options and stock market data; LVX also 
includes access to historical data. The applications provide their 
users with the ability to maintain an electronic audit trail and 
provide detailed trade reporting.\10\ Use of the applications is 
completely optional.
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    \7\ Newco may add functionality to permit users to submit orders 
for commodity futures, commodity options and other non-security 
products to be sent to designated contract markets, futures 
commission merchants, introducing brokers or other applicable 
destinations of the users' choice.
    \8\ A ``trading center,'' as provided under Rule 600(b)(78) of 
Regulation NMS, 17 CFR 242.600(b)(78), means a national securities 
exchange or national securities association that operates a self-
regulatory organization trading facility, an alternative trading 
system, an exchange market-maker, an over-the-counter market-maker, 
or any other broker or dealer that executes orders internally by 
trading as principal or crossing orders as agent.
    \9\ LVX also provides position and risk management capabilities. 
The LVX risk management functionality allows users to, among other 
things, set pre-trade customizable risk controls. Users of these 
risk controls set the parameters for the controls (to the extent a 
firm sublicenses LVX applications to its customers (see below), the 
firm will set risk controls on behalf of its customers). Users have 
the option to instead use other third-party risk control software, 
including risk control software or technology (LVCX users are 
responsible for obtaining their own risk control software or 
technology). The Exchange notes that entering broker-dealers 
(including Trading Permit Holders) must ensure that any orders that 
come from the applications to their systems will be subject to all 
applicable pre-trade risk control requirements in accordance with 
Rule 15c3-5 of the Securities Exchange Act of 1934 (the ``Act''). 
See 17 CFR 240.15c3-5. Please note that, in the adopting release for 
Rule 15c3-5 under the Act, the Securities and Exchange Commission 
(the ``Commission'') indicated that a broker-dealer relying on risk 
management technology developed by third parties should perform 
appropriate due diligence to help assure the controls are reasonably 
designed, effective, and otherwise consistent with Rule 15c3-5. Mere 
reliance on representations of the third-party technology developer, 
even if an exchange or other regulated entity, is insufficient to 
meet this due diligence standard.
    \10\ The functionality of the applications that formats users' 
stock and option orders entered into those applications for broker-
dealers, which then submit those orders to exchanges for execution, 
is the basis for this rule filing. The applications include other 
functionality. LVCX provides users with certain basic data analysis 
tools for real-time data, including market scanners, watchlists and 
alerts. LVX provides users with these tools for both real-time and 
historical data as well as other advanced analytical tools, 
including time and sales analytics, charting capabilities, live and 
historical skews, volatility comparisons, data queries and 
filtering, and ``Greek'' calculations. The Exchange notes that Newco 
will also acquire technology products separate from the applications 
that offer these and other market data and analytical tools to 
customers, as well as an add-on tool that extracts data from the 
data analysis products (including the applications) and enters it 
into a Microsoft Excel spreadsheet. These data analysis tools are 
not subject to a rule filing requirement.
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    The applications are designed so that orders entered into an 
application may be sent to CBOE or other U.S. exchanges (and trading 
centers) through an ``LV Routing Intermediary.'' An ``LV Routing 
Intermediary'' is a CBOE Trading Permit Holder that has connectivity 
to, and is a member of, other options and/or stock exchanges (or 
trading centers). If a user sends an order through an application to an 
LV Routing Intermediary, the LV Routing Intermediary will route that 
order to a market for execution on behalf of the entering user.\11\ 
Users cannot directly route orders through the applications to an 
exchange or trading center. For users' convenience, CBOE will make 
available upon request a list of LV Routing Intermediaries that provide 
third-party routing services for orders entered through LVX or LVCX. 
The Exchange notes that a firm's decision to function as an LV Routing 
Intermediary is within that firm's sole discretion.\12\
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    \11\ A user may also be an LV Routing Intermediary if the user 
is CBOE Trading Permit Holder that has connectivity to, and is a 
member of, other options and/or stock exchanges (or trading 
centers).
    \12\ To the extent a firm sublicenses LVX applications to its 
customers (see below), the firm will determine which LV Routing 
Intermediary to use for applications used by the firm and its 
customers.
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    Certain LV Routing Intermediaries may permit application users to 
designate a market to which an LV Routing Intermediary is to route an 
order received from an application. Other LV Routing Intermediaries may 
employ ``smart router'' functionality, which, generally, determines 
where to route an order based on pre-set algorithmic logic. LV Routing 
Intermediaries may also provide users with the ability to either 
designate a destination market (an order-by-order basis or by default) 
or use the smart router functionality. Which LV Routing Intermediary a 
user chooses to use (and thus which type of routing permissions are 
available to a user) is entirely within a user's discretion.\13\
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    \13\ Currently, there are seven broker-dealers that are expected 
to function as LV Routing Intermediaries as of the closing date of 
the acquisition (LVS will not be one of the LV Routing 
Intermediaries).
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    The Exchange represents that the applications are merely new front-
end order entry and management systems that interface to the systems of 
LV Routing Intermediaries. The applications are not integrated into and 
have no connectivity to CBOE's trading system (or the trading systems 
of any other U.S. exchange or trading center). Thus, orders submitted 
through the applications will ultimately come to CBOE or other 
exchanges for execution through third-party routing technology. There 
will be no change to, or impact on, the Exchange's market structure as 
a result of offering the applications. As a result, the Exchange 
represents that the applications do not require any changes to the 
Exchange's surveillance or communications rules.
    Use of the applications is completely voluntary. CBOE will make the 
applications available to users (and in certain cases, their customers, 
as further described below) as a convenience for entering and managing 
orders, but neither application is an exclusive means for any user to 
send orders to CBOE or intermarket. Orders entered into the 
applications that are ultimately routed to CBOE for execution will 
receive no preferential treatment as compared to orders electronically 
sent to CBOE in any other manner. Orders entered into an application 
that get routed to CBOE will be subject to current trading rules in the 
same manner as all other orders sent to the Exchange, which is the same 
as orders that are sent through an application to the Exchange today.
    CBOE will begin making the applications available to users 
following the closing of the acquisition of the applications and other 
technology products from Livevol.\14\ Newco will grant users licenses 
to use LVX and LVCX. The Exchange notes that a firm or individual does 
not need to be a Trading Permit Holder to license LVX or LVCX, because, 
as discussed above, neither application is directly connected to CBOE 
(or any other U.S. exchange), and orders submitted into either

[[Page 37687]]

application for execution must be routed through the connectivity of an 
LV Routing Intermediary.\15\ Newco will also provide technical support, 
maintenance and user training for the applications. LVX users that pay 
the standard monthly fee per log-in ID set forth in the standard 
pricing table below may not sublicense to [sic] LVX to their customers 
(``LVX Standard Users''). LVX users that pay the monthly enterprise fee 
set forth in the enterprise pricing table below and commit to licensing 
LVX for a period of two years (which period will begin on the date on 
which the user enters into an agreement for an applicable enterprise 
tier with Newco that permits sublicensing) may sublicense LVX to their 
customers (``LVX Enterprise Users'').\16\
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    \14\ CBOE expects the closing date to be July 31, 2015 and will 
announce the closing date via press release or its Web site 
(including via circular). The proposed rule change will be operative 
on the later of August 1, 2015 (assuming a July 31, 2015 closing 
date) or the first business day immediately following the closing 
date (if the closing date occurs later than July 31, 2015).
    \15\ Rule 6.23A provides that only Trading Permit Holders and 
associated persons with authorized access may directly enter orders 
into CBOE's trading system.
    \16\ The Exchange notes that it expects Newco to assume 
agreements between Livevol and their current LVX and LVCX customers 
at the closing of the acquisition, provided that the fees those 
customers pay under those agreements as of the closing date are 
consistent with the fees for LVX set forth in this rule filing. 
Additionally, Newco intends to prepare a form license agreement for 
each application and, no later than three months following the 
closing of the acquisition, ensure each customer has executed such 
agreement so that all LVX customers and LVCX customers use the 
product pursuant to the same terms and conditions. CBOE expects LVS 
will enter into a license agreement with Newco at the closing of the 
acquisition and be an LVX Enterprise User. LVS would be responsible 
for entering into any user agreements with any new customers to whom 
it sublicenses LVX after the closing in accordance with the terms 
and conditions in its license agreement, as would be required with 
respect to any customer that is permitted to sublicense LVX.

------------------------------------------------------------------------
                     LVX Standard User Pricing Table
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                                                           Monthly Fee/
                  Number of Log-In IDs                       Log-In ID
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1-15....................................................            $500
16 +....................................................            $400
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                    LVX Enterprise User Pricing Table
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                                                              Monthly
                  Number of Log-Ins IDs                   Enterprise Fee
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1-499...................................................         $50,000
500 +...................................................         $80,000
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     LVX Standard User Pricing Example: If a customer wants to 
license 20 log-ins, it would pay $500 x 15 + $400 x 5, or $9,500 per 
month for those log-ins. That monthly fee would increase or decrease 
for each additional or cancelled, respectively, log-in ID by the 
applicable amount set forth in the above table.
     LVX Enterprise User Pricing Example: A firm enters into an 
agreement with Newco on August 1, 2015, pursuant to which the firm can 
sublicense these log-ins to its customers. The firm must pay $50,000 
each month through July 31, 2017 as long as it has no more than 499 
log-in IDs. However, suppose, as of January 1, 2016, the firm wants to 
increase its log-in ID total to 500. At that time, because the firm 
would be entering into the next tier, the firm would need to enter into 
a new two-year commitment (through December 31, 2018) and begin paying 
$80,000/month. If the firm needed fewer than 500 log-ins during that 
two-year period, it would continue to pay $80,000 each month for that 
two-year period. At the end of the two-year commitment, if an LVX 
Enterprise User wants to continue to license LVX, the firm could either 
enter into a new two-year commitment to remain an LVX Enterprise User 
(with the monthly fee to be based on how many log-ins the firm has at 
that time) or instead go to standard log-in ID pricing without 
sublicensing rights for its outstanding log-ins.
    For LVCX, the Exchange proposes a monthly fee of $100 per log-in 
ID. CBOE will pass through to the LVCX user its actual costs of any 
LVCX installation fees, which costs will be determined on a time and 
materials (per hour) basis. LVCX users may sublicense LVCX to their 
customers.
    Additionally, the Exchange proposes an LV Routing Intermediary fee 
of $0.02 per executed contract or share equivalent for the first 
million contracts or share equivalent executed in a month and $0.03 per 
executed contract or share equivalent for each additional contract or 
share equivalent executed in the same month. This fee is based on the 
aggregate number of executions on all markets (including CBOE) from all 
LVX Standard Users for which an LV Routing Intermediary serves in that 
capacity. The Exchange notes that this fee will be charged to an LV 
Routing Intermediary whether it is routing application orders on behalf 
of itself or on behalf of another application user.\17\ There will be 
no LV Routing Intermediary fee charged for executions from LVX 
applications of LVX Enterprise Users or from LVCX applications.
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    \17\ The Exchange notes the LV Routing Intermediary fee is the 
same amount as the routing intermediary fee for PULSe; however, the 
LV Routing Intermediary fee applies to routing to any market, 
including CBOE, while the PULSe fee applies to away-market routing 
only.
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    The monthly log-in ID fees for standard LVX tier log-in IDs and for 
LVCX log-in IDs, as well as LV Routing Intermediary fees, will allow 
for Newco's recoupment of the costs of developing, maintaining, 
supporting and enhancing the applications and the related Routing 
Intermediary functionality as well as for income from the value-added 
services being provided through use of the applications. The Exchange 
believes the fee structure represents an equitable allocation of 
reasonable fees because the same monthly log-in ID fees apply to all 
LVX Standard Users and all LVCX users, and the same LV Routing 
Intermediary fee applies the same to all broker-dealers that elect to 
become LV Routing Intermediaries for LVX Standard Users. The Exchange 
believes these fees are reasonable and appropriate as they are 
competitive with similar applications available throughout the market 
and are based on Livevol's costs and fee structure currently in place 
for the applications. The Exchange believes the LV Routing Intermediary 
fee is also reasonable in light of the fact that it is small in 
relation to the total costs typically incurred in routing and executing 
orders. The Exchange also notes that use of the applications, and the 
decision to function as an LV Routing Intermediary, are discretionary 
and not compulsory. Users can choose to route orders without the use of 
either of the applications. The Exchange is offering the applications 
as a convenience; they are not an exclusive means available to send 
orders to CBOE or intermarket.
    The Exchange believes the requirement to enter into a two-year 
commitment to become an LVX Enterprise User (and thus to be able to 
sublicense LVX to customers) is appropriate, because providing ongoing 
support for a firm's customer base (which may be large) would likely 
require the Exchange to expend significant additional resources, 
including potentially adding personnel to provide training and support 
for these customers as well as increasing equipment and infrastructure 
commitments. Without the two-year commitment, Newco would be at 
significant risk of making these expenditures, only to have the firm no 
longer need them and not have the opportunity to recoup the costs 
related to those resources. While the initial cost to add a log-in ID 
for a customer is smaller as the number of log-ins licensed by a single 
firm increases due to the scalability of costs, sublicensing to a 
larger number of customers will generally require Newco to bear these 
longer-term costs. The Exchange believes other providers in the 
industry offer certain rights in exchange for longer term commitments 
for similar

[[Page 37688]]

sublicensing rights. Additionally, given the high monthly cost and 
long-term commitment to become an LVX Enterprise User and given that 
the Exchange charges integration [sic] costs to LVCX users but not LVX 
Standard Users, because the Exchange understands that LV Routing 
Intermediaries will generally pass-through the LV Routing Intermediary 
fee to their customers, the Exchange believes it is reasonable and 
appropriate to not apply the LV Routing Intermediary fee to orders that 
come through an LVX Enterprise User's applications or LVCX 
applications. It is also reasonable for the Exchange to protect its 
intellectual property related to LVX by requiring payment for the right 
to sublicense, which could create additional risk as Newco will not 
control to which users a firm may sublicense LVX. The Exchange believes 
this commitment requirement represents an equitable allocation of 
reasonable fees because any user that wants sublicensing rights is 
subject to the same fees and time commitment.
    The Exchange believes the installation fee for LVCX is reasonable 
because the Exchange believes the related installation work will vary 
per customer due to the necessity of integration of the software into a 
customer's own system. The Exchange believes this fee to be equitable 
because it directly passes through those costs to the user based on a 
time and materials basis that will apply to all users in the same 
manner.
    The Exchange notes that Newco will provide additional technology 
products and services and may in the future engage in other business 
activities, which may include the provision of other technology 
products and services to broker-dealers and non-broker-dealers in 
addition to the applications.\18\ In this regard:
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    \18\ See supra note 10. Newco is not and, at least initially, 
will not be registered as a broker-dealer under Section 15(a) of the 
Act. In this regard, the Exchange notes the following: (a) CBOE and 
Newco will be responsible for the marketing of the applications. 
Newco will be the party to any agreements with customers for these 
products. (b) CBOE and Newco will be responsible for providing, 
supporting and maintaining the technology for the applications. CBOE 
will be responsible for ensuring that Newco's provision of the 
applications, to the extent they are deemed facilities of CBOE, 
meets CBOE's self-regulatory organization obligations. (c) Unless it 
registers as a broker-dealer under Section 15(a) of the Act, Newco 
will not hold itself out as a broker-dealer, provide advice related 
to securities transactions, match orders, make decisions about 
routing orders, facilitate the clearance and settlement of executed 
trades, prepare or send transaction confirmations, screen 
counterparties for creditworthiness, hold funds or securities, open, 
maintain, administer or close brokerage accounts, or provide 
assistance in resolving problems, discrepancies or disputes related 
to brokerage accounts. Should Newco seek to register as a broker-
dealer in the future, the Exchange represents that the broker-dealer 
would not perform any operations without first discussing with the 
Commission staff whether any of the broker-dealer's operations 
should be subject to an Exchange rule filing required under the Act.
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     There will be procedures and internal controls in place 
that are reasonably designed so that Newco will not unfairly take 
advantage of confidential information it receives as a result of its 
relationship with CBOE in connection with the applications or any other 
business activities.
     The books, records, premises, officers, directors, agents 
and employees of Newco, with respect to the products that may be deemed 
facilities of CBOE, will be deemed to be those of CBOE for purposes of 
and subject to oversight pursuant to the Act.
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.\19\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \20\ 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 
facilitating 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) \21\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. Additionally, the Exchange 
also believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\22\ 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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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ Id.
    \22\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes that offering the applications 
to market participants protects investors and is in the public 
interest, because it will allow the Exchange to directly offer users 
order entry and management applications in addition to the technology 
products it currently offers (such as the PULSe workstation), which 
applications include access to data as well as analytical tools. LVX 
and LVCX are currently offered and used in the marketplace and compete 
with similar products offered by other technology providers as well as 
other exchanges.\23\ Additionally, firms can create their own 
proprietary front-end order entry software and routing technology.
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    \23\ For example, International Securities Exchange, LLC 
(``ISE'') offers a front-end order entry workstation called PrecISE 
to its customers, which the Exchange believes has similar 
functionality as the applications.
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    The Exchange believes the proposed rule change does not 
discriminate among market participants because use of the applications, 
as well as being an LV Routing Intermediary, is completely voluntary. 
The Exchange is making the applications available as a convenience to 
market participants, who will continue to have the option to use any 
order entry and management system available in the marketplace to send 
orders to the Exchange and other exchanges; the applications are merely 
alternatives that will be offered by the Exchange rather than its 
current owner. Neither application is an exclusive means available to 
market participants to send orders to CBOE or other markets. Any orders 
sent through an application to CBOE for execution will receive no 
preferential treatment. Additionally, the applications will be 
available to all market participants, and the Exchange expects to 
license the applications to market participants pursuant to the same 
terms and conditions.
    The Exchange believes the applications remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because users have discretion to determine which LV Routing 
Intermediary they will use, and thus what type of routing parameters 
will be available to them (whether it is the ability to designate a 
destination market or use smart router functionality). Each user must 
enter into an agreement with an LV Routing Intermediary, which can 
provide for routing to U.S. options and stock exchanges (and trading 
centers). Only Trading Permit Holders will continue to be permitted to 
directly route orders received from an application to CBOE, and only 
members of other U.S. exchanges will be able to enter orders for 
execution at those exchanges that they receive from an application. The 
Exchange also notes that broker-dealers must continue to

[[Page 37689]]

ensure that orders they receive from applications will be subject to 
applicable pre-trade risk control requirements of the broker-dealer 
that directly submits the orders to an exchange in accordance with Rule 
15c3-5 under the Act.\24\
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    \24\ See 17 CFR 240.15c3-5.
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    The standard monthly log-in ID fees for LVX log-in ID and monthly 
fees for LVCX log-in IDs, as well as LV Routing Intermediary fees, will 
allow for Newco's recoupment of the costs of developing, maintaining, 
supporting and enhancing the applications and the related Routing 
Intermediary functionality as well as for income from the value-added 
services being provided through use of the applications. The Exchange 
believes the fee structure represents an equitable allocation of 
reasonable fees because the same monthly log-in ID fees apply to all 
LVX Standard Users and all LVCX users, and the same LV Routing 
Intermediary fee applies the same to all broker-dealers that elect to 
become LV Routing Intermediaries for LVX Standard Users. The Exchange 
believes these fees are reasonable and appropriate as they are 
competitive with similar applications available throughout the market 
and are based on Livevol's costs and fee structure currently in place 
for the applications. The Exchange believes the LV Routing Intermediary 
fee is also reasonable in light of the fact that it is small in 
relation to the total costs typically incurred in routing and executing 
orders. The Exchange also notes that use of the applications, and the 
decision to function as an LV Routing Intermediary, are discretionary 
and not compulsory. Users can choose to route orders without the use of 
either of the applications. The Exchange is offering the applications 
as a convenience; they are not an exclusive means available to send 
orders to CBOE or intermarket. Additionally, given the high monthly 
cost and long-term commitment to become an LVX Enterprise User and 
given that the Exchange charges integration [sic] costs to LVCX users 
but not LVX Standard Users, because the Exchange understands that LV 
Routing Intermediaries will generally pass-through the LV Routing 
Intermediary fee to their customers, the Exchange believes it is 
reasonable and appropriate to not apply the LV Routing Intermediary fee 
to orders that come through an LVX Enterprise User's applications or 
LVCX applications.
    The Exchange believes the requirement to enter into a two-year 
commitment to become an LVX Enterprise User (and thus to be able to 
sublicense LVX to customers) is appropriate, because providing ongoing 
support for a firm's customer base (which may be large) would likely 
require the Exchange to expend significant additional resources, 
including potentially adding personnel to provide training and support 
for these customers as well as increasing equipment and infrastructure 
commitments. Without the two-year commitment, Newco would be at 
significant risk of making these expenditures, only to have the firm no 
longer need them and not have the opportunity to recoup the costs 
related to those resources. While the initial cost to add a log-in ID 
for a customer is smaller as the number of log-ins licensed by a single 
firm increases due to the scalability of costs, sublicensing to a 
larger number of customers will generally require Newco to bear these 
longer-term costs. The Exchange believes other providers in the 
industry offer certain rights in exchange for longer term commitments 
for similar sublicensing rights. It is also reasonable for the Exchange 
to protect its intellectual property related to LVX by requiring 
payment for the right to sublicense, which could create additional risk 
as Newco will not control to which users a firm may sublicense LVX. The 
Exchange believes this commitment requirement represents an equitable 
allocation of reasonable fees because any user that wants sublicensing 
rights is subject to the same fees and time commitment.
    The Exchange believes the installation fee for LVCX is reasonable 
because the Exchange believes the related installation work will vary 
per customer due to the necessity of integration of the software into a 
customer's own system. The Exchange believes this fee to be equitable 
because it directly passes through those costs to the user based on a 
time and materials basis that will apply to all users in the same 
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 will make the 
applications available to market participants on the same terms and 
conditions, and use of either application will be completely voluntary. 
Additionally, the decision to act as an LV Routing Intermediary is 
completely voluntary, and users have discretion to determine which LV 
Routing Intermediary to use. Market participants will continue to have 
the flexibility to use any order entry and management technology they 
choose. The Exchange will merely be directly offering the applications 
as alternatives to a product that the Exchange currently makes 
available in the market (PULSe). If market participants believe that 
other products available in the marketplace are more beneficial than 
either application, they will simply use those products instead. Orders 
sent to the Exchange through an application for execution will receive 
no preferential treatment. The Exchange notes that the applications are 
already available and used in the marketplace today. This acquisition 
merely changes the party that will own and license to users the 
applications going forward.
    CBOE believes that the proposed rule change will relieve any burden 
on, or otherwise promote, competition. CBOE will be offering a type of 
product that is widely available throughout the industry, including 
from some exchanges. Market participants can also develop their own 
proprietary products with the same functionality. ISE currently offers 
a similar front-end order entry application. CBOE believes that the 
applications will be additions to its current suite of technology 
products it offers to market participants to enter and manage orders 
for routing to U.S. exchanges. Any market participant will be able to 
use the applications.
    The Exchange notes that when Congress charged the Commission with 
supervising the development of a ``national market system'' for 
securities, a premise of its action was that prices, products and 
services ordinarily would be determined by market forces.\25\ 
Consistent with this purpose, Congress and the Commission have 
repeatedly stated their preference for competition, rather than 
regulatory intervention, to determine prices, products and services in 
the securities markets.\26\ Many

[[Page 37690]]

exchanges and other market participants make technology products, 
including products similar to the applications, available to the 
industry. Other market participants that offer these products can 
adjust pricing or add functionality to attract users to their products 
to compete with the Exchange-offered products based on all competitive 
forces in the marketplace, as the Exchange expects these other market 
participants currently do. The Exchange believes that other market 
participants that offer these products will continue to remain 
competitive in the market for order-entry, management and routing 
products, as they currently are in this market in which at least two 
exchanges (including CBOE) offer similar technology products. For 
example, CBOE currently offers PULSe, and ISE currently offers PrecISE. 
The Exchange believes that many investors will continue to elect to use 
competing products available from non-exchange technology providers.
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    \25\ See, e.g., H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.) 
(stating Congress's intent that the ``national market system evolve 
through the interplay of competitive forces as unnecessary 
regulatory restrictions are removed'').
    \26\ See S. Rep. No. 94-75, 94th Cong., 1st Sess. 8 (1975) 
(``The objective [in enacting the 1975 amendments to the Exchange 
Act] would be to enhance competition and to allow economic forces, 
interacting within a fair regulatory field, to arrive at appropriate 
variations in practices and services.''); Order Approving Proposed 
Rule Change Relating to NYSE Arca Data, Securities Exchange Act 
Release No. 59039 (December 2, 2008), 73 FR 74770 (Dec. 9, 2008) at 
74781 (``The Exchange Act and its legislative history strongly 
support the Commission's reliance on competition, whenever possible, 
in meeting its regulatory responsibilities for overseeing the SROs 
and the national market system. Indeed, competition among multiple 
markets and market participants trading the same products is the 
hallmark of the national market system.'') (SR-NYSEArca-2006-21); 
Regulation NMS, 70 FR at 37499 (observing that NMS regulation ``has 
been remarkably successful in promoting market competition in [the] 
forms that are most important to investors and listed companies'').
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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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \27\ and Rule 19b-
4(f)(6) \28\ thereunder.
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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

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-2015-062 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-2015-062. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2015-062, and should be 
submitted on or before July 22, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-16090 Filed 6-30-15; 8:45 am]
BILLING CODE 8011-01-P