[Federal Register Volume 81, Number 53 (Friday, March 18, 2016)]
[Notices]
[Pages 14910-14912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06092]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77365; File No. SR-CBOE-2016-018]


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

March 14, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 11, 2016, Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
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 the 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 amend the Fees Schedule.\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
February 29, 2016 (SR-CBOE-2016-015). On March 11, 2016, the 
Exchange withdrew that filing and submitted this filing.
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    On March 2, 2015 and March 9, 2015, the Exchange commenced Extended 
Trading Hours \4\ (``ETH'') for VIX and SPX/SPXW options, respectively. 
The Exchange also established fees for the ETH session as well as 
adopted a rebate for Lead Market-Markers (``LMMs'').\5\
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    \4\ The Extended Trading Hours session is from 2:00 a.m. to 8:15 
a.m. Chicago time, Monday through Friday.
    \5\ Pursuant to subparagraph (e)(iii)(A) of Rule 6.1A (Extended 
Trading Hours), the Exchange may approve one or more Market-Makers 
to act as LMMs in each class during Extended Trading Hours in 
accordance with Rule 8.15A for terms of at least one month. On 
September 22, 2014, the Exchange issued Regulatory Circular RG14-
134, which announced that the Exchange had appointed 3 LMMs in SPX 
options and 3 LMMs in VIX options during ETH. The LMM appointments 
are effective for a one-year period and began on the launch date for 
ETH trading of the applicable class. On February 24, 2016, the 
Exchange issued Regulatory Circular RG16-038, which announced that 
the Exchange made new LMM appointments for a one-year period 
beginning after the current one-year period ends.
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    By way of background, ETH LMMs, like any ETH Market-Maker, must 
maintain continuous two-sided quotes in 60% of the series with less 
than nine months to expiration in their appointed products for at least 
90% of the time they are quoting during ETH (to be determined on a 
monthly basis) and satisfy all other Market-Maker obligations set forth 
in Rule 8.7 during ETH (see CBOE Rule 8.7). Additionally, for SPX and 
VIX, if an LMM (1) provides continuous electronic quotes in at least 
the lesser of 99% of the non-adjusted series or 100% of the non-
adjusted series minus one call-put pair in an ETH allocated class 
(excluding intra-day add-on series on the day during which such series 
are added for trading) during ETH in a given month and (2) ensures an 
opening of the same percentage of series by 2:05 a.m. for at least 90% 
of the trading days during ETH in a given month, the LMM will receive a 
rebate for that month and will receive a pro-rata share of a 
compensation pool equal to $25,000 times the number of LMMs in that 
class. For example, if three LMMs are appointed in SPX, a compensation 
pool will be established each month totaling $75,000. If each LMM meets 
the heightened continuous quoting standard in SPX during a month, each 
will

[[Page 14911]]

receive $25,000. If two LMMs meet the heightened continuous quoting 
standard in SPX during a month, those two LMMs would each receive 
$37,500 and the third LMM would receive nothing. If only one LMM meets 
the heightened continuous quoting standard in SPX during a month, that 
LMM would receive $75,000 and the other two would receive nothing.
    The Exchange proposes to reduce the rebate that the LMMs would 
receive if they meet the heighted quoting standard effective March 2, 
2016 for VIX LMMs and March 9, 2016 for SPX LMMs (which dates 
correspond to the beginning of the new appointment term for LMMs). 
Specifically, the Exchange proposes to provide that if an LMM meets the 
heightened quoting standard in a month, the LMM will receive a pro-rata 
share of a compensation pool equal to $15,000 times the number of LMMs 
in that class.\6\ Accordingly, under the proposed new rebate amount, if 
three LMMs are appointed in SPX, a compensation pool will be 
established each month totaling $45,000. If each LMM meets the 
heightened continuous quoting standard in SPX during a month, each will 
receive $15,000. If two LMMs meet the heightened continuous quoting 
standard in SPX during a month, those two LMMs would each receive 
$22,500 and the third LMM would receive nothing. If only one LMM meets 
the heightened continuous quoting standard in SPX during a month, that 
LMM would receive $45,000 and the other two would receive nothing. The 
Exchange proposes to replace the current example in Footnote 38 with 
the example described above. The Exchange notes that although it is 
reducing the rebate, it still believes the amount provided will incent 
appointed LMMs to increase liquidity during ETH.
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    \6\ The compensation pool equal to $25,000 times the number of 
LMMs in a class remained in effect through March 1, 2016 for VIX and 
March 8, 2016 for SPX, which dates correspond to the end of the 
current appointment term. In other words, the three previous LMMs 
were eligible to receive a share of a $75,000 compensation pool, 
prorated through the end of their appointment, and the three new 
LMMs are eligible to receive a share of a $45,000 compensation pool 
(which will be prorated for the month of March 2016).
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    Additionally, the Exchange proposes, if an appointment begins after 
the first [sic] day of the month or ends prior to the last [sic] day of 
the month, the amount of the rebate will be prorated for that month.\7\ 
For example, the appointments for the original LMMs in SPX ended on 
March 8, 2016, and the new appointments began on March 9, 2016. If the 
three previous LMMs each satisfied the heightened continuous quoting 
standard through March 8, they will each receive a pro-rata share of a 
$75,000 compensation pool, which pool will be prorated based on the 
number of trading days through March 8. Similarly, if the three new 
LMMs (whose appointments began on March 9) each satisfy the heightened 
continuous quoting standard during the period of March 9 through March 
31, they will each receive a pro-rata share of a $45,000 compensation 
pool, which pool will be prorated based on the remaining trading days 
in March.
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    \7\ If an appointment begins after the first trading day of the 
month, the compensation pool will be prorated based on the remaining 
trading days in the calendar month. If an appointment ends prior to 
the last trading day of the month, the compensation pool will be 
prorated based on the number of trading days in the calendar month 
the appointment was in effect.
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    The proposed rule change also makes nonsubstantive changes to 
delete two apostrophes inadvertently included in this fee provision.
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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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 
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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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to offer LMMs that meet a certain heightened quoting 
standard (described above) a pro-rata share of a compensation pool 
equal to $15,000 times the number of LMMs in that class given the 
potential added costs that an LMM may undertake in order to satisfy 
that heightened quoting standard. Additionally, the Exchange believes 
that the proposed amount is reasonable, because although it is less 
than previously offered, appointed LMMs that meet the heightened 
quoting standard still receive a rebate for doing so. The Exchange also 
notes that if an LMM does not satisfy the heightened quoting standard, 
then it will not receive the proposed rebate. The Exchange believes it 
is equitable and not unfairly discriminatory to only offer the rebate 
to LMMs because it benefits all market participants in ETH to encourage 
LMMs to satisfy the heightened quoting standards, which may increase 
liquidity during those hours and provide more trading opportunities and 
tighter spreads. The Exchange believes it is reasonable for the 
previous rebate amount to have remained in place through the end of the 
appointment term for the previous LMMs so that the same rebate amount 
applied through the entire term for those LMMs. Additionally, the 
Exchange believes it is reasonable to prorate the amount of the 
compensation pool if an LMM appointment only covered part of a month so 
that the amount of any rebate made to LMMs corresponds to the number of 
trading days on which it was quoting during that month.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because, while the LMM rebate is 
offered only to certain market participants (i.e., LMMs that meet a 
heightened quoting standard), those market participants must meet 
heightened quoting standards and the rebate encourages those market 
participants to bring liquidity to the Exchange during ETH (which 
benefits all market participants).
    The Exchange does not believe that the proposed rule changes will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because SPX/SPXW 
and VIX, are proprietary products that will only be traded on CBOE. To 
the extent that the proposed changes make CBOE a more attractive 
marketplace for market

[[Page 14912]]

participants at other exchanges, such market participants are welcome 
to become CBOE market participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Other

    The Exchange neither solicited nor received comments on the 
proposed rule change.

II. 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 \11\ and paragraph (f) of Rule 19b-4 \12\ 
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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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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-2016-018 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2016-018. 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-2016-018, and should be 
submitted on or before April 8, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Robert W. Errett,
Deputy Secretary.
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    \13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-06092 Filed 3-17-16; 8:45 am]
 BILLING CODE 8011-01-P