[Federal Register Volume 81, Number 106 (Thursday, June 2, 2016)]
[Notices]
[Pages 35421-35423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12873]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77926; File No. SR-CBOE-2016-045]


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

May 26, 2016.
    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 May 16, 2016, 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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fees Schedule.\3\ Specifically, 
the Exchange proposes to allow Market-Makers to designate a Trading 
Permit Holder with agency operations (``Order Flow Provider'' or 
``OFP'') and Order Flow Providers to designate a Market-Maker for 
purposes of being able to take advantage of credits available under the 
Affiliate Volume Plan (``AVP'').
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    \3\ The Exchange initially filed the proposed fee change on May 
2, 2016 (SR-CBOE-2016-044). On May 16, 2016, the Exchange withdrew 
that filing and submitted this filing.
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    By way of background, the Exchange currently has in place various 
incentive programs that benefit ``affiliated'' Trading Permit Holders 
(``TPHs''). Particularly, under AVP, if a TPH Affiliate of a Market-
Maker (including a Designated Primary Market-Maker (``DPM'') or Lead 
Market-Maker (``LMM'')) qualifies under the Volume Incentive Program 
(``VIP''), that Market-Maker will also qualify for a discount on that 
Market-Maker's Liquidity Provider Sliding Scale (``Sliding Scale'') 
transaction fees (``Liquidity Provider Sliding Scale Credit''). More 
specifically, if a Market-Maker's Affiliate reaches Tier 2, Tier 3 or 
Tier 4 of VIP, that Market-Maker will receive a Liquidity Provider 
Sliding Scale Credit of 10%, 20% or 30%, respectively. Additionally, if 
a Market-Maker's Affiliate receives a credit under VIP, that Market-
Maker will also receive a credit on its Market-Maker Trading Permit 
fees \4\ corresponding to the VIP tier reached (10% Market-Maker 
Trading Permit fee credit for reaching Tier 2 of the VIP, 20% Market-
Maker Trading Permit fee credit for reaching Tier 3 of the VIP, and 30% 
Market-Maker Trading Permit fee credit for reaching Tier 4 of the VIP) 
(``Access Credit''). ``Affiliate'' for purposes of AVP (i.e., the 
Liquidity Provider Sliding Scale Credit and Access Credit) is currently 
defined as having at least 75% common ownership between the two 
entities as reflected on each entity's Form BD, Schedule A.
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    \4\ This credit does not apply to Market-Maker Trading Permits 
used for appointments in SPX, SPXpm, RUT, VIX, OEX and XEO.
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    The Exchange now proposes to expand the availability of the credits 
under AVP. Specifically, the Exchange proposes to allow any Market-
Maker to designate an OFP as its ``Appointed OFP'' and any OFP to 
designate a Market-Maker to be its ``Appointed Market-Maker'' for 
purposes of qualifying for credits under AVP. TPHs would effectuate the 
designation by submitting a form to the Exchange.\5\ The form would 
need to be submitted to the Exchange by 3:00 p.m. on the first business 
day of a month in order to be eligible to qualify for credits under AVP 
for that month. The Exchange would view transmittal of the completed 
form as acceptance of such an appointment and would only recognize one 
such designation for each party once every calendar month, which 
designation would remain [sic] automatically renew each month and 
remain in effect unless or until the Exchange receives an email from 
either party indicating that the appointment has been terminated.
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    \5\ The Appointed Affiliate Form may be submitted to 
[email protected].
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    The Exchange notes that the proposal would be available to all 
Market-Makers and OFPs, even those who already have an ``Affiliate'' 
under the current definition. More specifically, the proposed change 
would enable a Market-Maker without an Affiliate OFP (i.e., an OFP with 
at least 75% common ownership between itself and that Market-Maker as 
reflected on each entity's Form BD, Schedule A)--or with an Affiliate 
OFP--to enter into a relationship with an Appointed OFP. Similarly, an 
OFP with or without an Affiliate Market-Maker would be able to enter 
into a relationship with an Appointed Market-Maker. The proposed change 
increases opportunities for TPHs to qualify for credits under AVP, as 
it would enable TPHs that are not currently eligible for AVP (i.e., 
doesn't have an ``Affiliate'') to avail themselves of AVP, as well as 
assist TPHs that are currently eligible for AVP (i.e., has an 
Affiliate) to potentially achieve a higher AVP tier, thus qualifying 
for higher credits. The Exchange notes that a Market-Maker that has 
both an Affiliate OFP and Appointed OFP may only qualify based upon the 
volume of its

[[Page 35422]]

Appointed OFP. Similarly, the volume of an OFP that has both an 
Affiliate Market-Maker and Appointed Market-Maker may only count 
towards qualifying the Appointed Market-Maker, not Affiliate Market-
Maker, for credits under AVP (by virtue of the volume reaching 
qualifying VIP tiers). The Exchange believes enabling additional 
Market-Makers and OFPs to take advantage of the AVP credits will 
attract more volume and liquidity to the Exchange, which will benefit 
all Exchange participants through increased opportunities to trade as 
well as enhancing price discovery.
    The Exchange lastly proposes to eliminate two references to the 
word ``affiliated'' in the Notes section of the AVP table. The Exchange 
believes that using the term ``affiliated Market-Maker'' in these 
locations may be confusing in light of the proposal to also allow 
``Appointed Market-Makers''. Additionally, the Exchange believes 
preceding ``Market-Maker'' with ``affiliated'' is unnecessary and as 
such proposes to delete it in these two instances.
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.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ 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. The Exchange 
also believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\8\ which provides that Exchange rules may provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its Trading Permit Holders.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed change is reasonable because it 
would be available to all Market-Makers and OFPs and the decision to be 
designated as an ``Appointed OFP'' or ``Appointed Market-Maker'' is 
completely voluntary and TPHs may elect to accept this appointment or 
not. Additionally, the proposed change increases opportunities for 
Market-Makers to qualify for credits under AVP, as it enables Market-
Makers that are not currently eligible for AVP credits to avail 
themselves of AVP, as well as enables Market-Makers that are currently 
eligible for AVP to rely on volume that potentially achieves a higher 
VIP tier (and thus results in higher AVP credits). The Exchange also 
notes that other Exchanges have adopted a similar concept for their own 
affiliate-based incentive programs.\9\
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    \9\ See NYSE MKT LLC, Amex Options Fee Schedule, Section D, 
Prepayment Program and Section E, Amex Customer Engagement (``ACE'') 
Program. See also Bats EDGX Exchange, Inc., Bats EDGX Options 
Exchange Fees Schedule, Definitions, ``Appointed MM'' and 
``Appointed OEF''.
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    The Exchange believes the proposed change is reasonable, equitable 
and not unfairly discriminatory because although only Market-Makers 
receive credits under AVP, Market-Makers are valuable market 
participants that provide liquidity in the marketplace and incur costs 
that other market participants do not incur. For example, Market-Makers 
have a number of obligations, including quoting obligations that other 
market participants do not have. Additionally, the Exchange notes that 
incentivizing an Appointed OFP to achieve higher tiers under VIP can 
result in greater customer liquidity, and the resulting increased 
volume benefits all market participants. The Exchange also notes that 
the credits under AVP would be available to all Appointed Market-Makers 
whose Affiliate or Appointed OFP qualify. The Exchange believes 
enabling additional Market-Makers to take advantage of the AVP credits 
(not just those with ``Affiliates'' under the current definition) will 
attract more volume and liquidity to the Exchange, which will benefit 
all market participants.
    The Exchange believes it is equitable and not unfairly 
discriminatory to permit only one designation of an Appointed Market-
Maker and Appointed OFP per calendar month because it imposes a measure 
of exclusivity allowing both parties to rely upon each other's volume 
executed on the Exchange and potentially increase such volume to the 
benefit of all Exchange participants for that month. The Exchange also 
believes that while it encourages parties to rely upon each other's 
volume, limiting the exclusivity to one month also gives the parties 
the flexibility to make changes if the parties' circumstances change 
(e.g., if one party terminates).
    The Exchange lastly believes that eliminating the two references to 
the word ``affiliated'' in the Notes section of the AVP table reduces 
potential confusion, which 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.

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. Specifically, the Exchange 
believes that the proposed changes are pro-competitive as they would 
increase opportunities for additional TPHs to qualify for AVP, which 
may increase intermarket and intramarket competition by incenting 
Appointed OFPs and Appointed Market-Makers to bring increased volume 
(including customer liquidity in order to reach higher VIP tiers, which 
results in higher AVP credits), and the resulting increased volume 
benefits all market participants (including Market-Makers and OFPs that 
do not have Affiliates or Appointed Market-Makers or OFPs) through 
increased trading opportunities and enhanced price discovery. The 
Exchange also notes that limiting AVP credits to Market-Makers does not 
impose an unnecessary or inappropriate burden on intermarket 
competition because Market-Makers are valuable market participants that 
provide liquidity in the marketplace and incur costs that other market 
participants do not incur. Market-Makers also have a number of 
obligations, including quoting obligations that other market 
participants do not have.
    Additionally, 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, as stated above, the proposed changes are intended to promote 
competition and better improve the Exchange's competitive position and 
make CBOE a more attractive marketplace in order to encourage market 
participants to bring increased volume to the Exchange. Further, the 
proposed changes only affect trading on CBOE. To the extent that the 
proposed changes make CBOE a more attractive marketplace for market 
participants at other exchanges, such

[[Page 35423]]

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 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 \10\ and paragraph (f) of Rule 19b-4 \11\ 
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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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-2016-045 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-2016-045. 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-2016-045, and should be 
submitted on or before June 23, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-12873 Filed 6-1-16; 8:45 am]
 BILLING CODE 8011-01-P