[Federal Register Volume 76, Number 90 (Tuesday, May 10, 2011)]
[Notices]
[Pages 27108-27110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11362]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64405; File No. SR-CBOE-2011-042]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to Retroactive Waiver of PAR Official Fees
May 4, 2011.
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 April 25, 2011, Chicago Board Options Exchange, Incorporated
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by CBOE. 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
Chicago Board Options Exchange, Incorporated (``CBOE'' or
``Exchange'') proposes to retroactively waive PAR Official Fees for the
month of February 2011. The text of the proposed rule change is
available on the Exchange's Web site (http://www.cboe.org/legal), 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, CBOE 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. CBOE 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 retroactively waive PAR Official Fees for
the month of February 2011.
Background
The Exchange established PAR Official \3\ Fees in January 2011.\4\
These fees apply to all orders executed by a PAR Official, except for
customer orders (``C'' origin code) that are not directly routed to the
trading floor (an order that is directly routed to the trading floor is
directed to a PAR Official for manual handling by use of a field on the
order ticket). The PAR Official Fees established in January 2011 were
$.02 per contract and a discounted rate of $.01 per contract for
crossed orders.\5\ PAR Official Fees help to offset the Exchange's
costs of providing PAR Official services (e.g., salaries, etc).
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\3\ A PAR Official is an Exchange employee or independent
contractor whom the Exchange may designate as being responsible for
(i) operating the PAR workstation in a Designated Primary Market-
Maker trading crowd with respect to the classes of options assigned
to him/her; (ii) when applicable, maintaining the book with respect
to the classes of options assigned to him/her; and (iii) effecting
proper executions of orders placed with him/her. The PAR Official
may not be affiliated with any Trading Permit Holder that is
approved to act as a Market-Maker. See CBOE Rule 7.12.
\4\ See Securities Exchange Act Release No. 67301 (January 11,
2011), 76 FR 2934 (January 18, 2011) (SR-CBOE-2010-116).
\5\ PAR Official Fees for crossed orders, like Floor Brokerage
Fees, are assessed at a discounted rate because these fees are
assessed ``per side'' and thus, these fees are equal to the amount
assessed for one standard (non-crossed) order.
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After establishing PAR Official Fees, the Exchange became concerned
that the PAR Official Fee structure did not allocate these fees to take
into consideration the amount that Trading Permit Holders rely on PAR
Officials such that those Trading Permit Holders that incidentally use
PAR Officials were assessed the same fee as Trading Permit Holders that
routinely conduct their business through PAR Officials and rely heavily
on PAR Officials for the execution of orders. Reliance on PAR Officials
as the primary means of execution is inconsistent with the Exchange's
intent to provide PAR Official services as a supplementary means of
execution for incidental orders. Heavy reliance on PAR Officials
subjects the Exchange to the additional expense and undue strain of
providing the additional staffing of PAR Officials.
PAR Official Fees compensate the Exchange for providing overflow
services to order originating firms or, as applicable, executing firms,
particularly Floor Brokers,\6\ when they do not have personnel
available to act as agent. Some Trading Permit Holders or TPH
organizations obtain only one or two Floor Broker Trading Permits,
making it unlikely that, regardless of business level, they could cover
all locations on the Exchange and thus rely on CBOE personnel as part
of the Floor Broker's daily, ongoing business operations. The Exchange
believes that those firms that rely heavily on PAR Officials to conduct
their floor brokerage business, such that PAR Officials execute more
than an incidental number of orders on their behalf, may obtain a
minimum number of Trading Permits to access the floor. Thus, these
firms subsidize their floor brokerage operations at CBOE's expense in
that PAR Officials are either contractors paid by CBOE or CBOE
employees. Trading Permit Holders that adequately staff their business
operations and rely incidentally on PAR Officials incur higher costs to
retain a sufficient number of Trading Permits.\7\ The Exchange
determined such Trading Permit Holders should not be subject to the
same amount for PAR Official Fees incurred by a Trading Permit Holder
that relies disproportionately on PAR Officials to conduct its floor
brokerage business because it does not maintain
[[Page 27109]]
an adequate number of Trading Permits to conduct its floor brokerage
business and further, is not subject to the cost of the additional
Trading Permits required to adequately staff its business.
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\6\ CBOE Rule 6.70 provides: ``A Floor Broker is an individual
(either a Trading Permit Holder or a nominee of a TPH organization)
who is registered with the Exchange for the purpose, while on the
Exchange floor, of accepting and executing orders received from
Trading Permit Holders or from registered broker-dealers. A Floor
Broker shall not accept an order from any other source unless he is
the nominee of a TPH organization approved to transact business with
the public in accordance with Rule 9.1. In the event the
organization is approved pursuant to Rule 9.1, a Floor Broker who is
the nominee of such organization may then accept orders directly
from public customers where (i) the organization clears and carries
the customer account or (ii) the organization has entered into an
agreement with the public customer to execute orders on its behalf.
Among the requirements a Floor Broker must meet in order to register
pursuant to Rule 9.1 is the successful completion of an examination
for the purpose of demonstrating an adequate knowledge of the
securities business.''
\7\ For example, pursuant to Section 10 of CBOE's Fees Schedule,
Floor Broker Trading Permit Holders are subject to a $6,000 per
month Trading Permit Fee. A Floor Broker Trading Permit Holder that
requires ten Floor Broker Trading Permits to adequately staff its
business is subject to a cost of $60,000 per month for Trading
Permit Fees (totaling $720,000 per year). By comparison, a Trading
Permit Holder that routes the majority of its orders to PAR
Officials for execution and maintains one Trading Permit is subject
to a $6,000 per month Trading Permit Fee ($72,000 annually).
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For the reasons above, the Exchange determined to change the manner
in which it assessed PAR Official Fees such that PAR Official Fees
would be reduced or eliminated for those Trading Permit Holders that
maintain sufficient staff to manage their floor brokerage operations
and thus, do not rely heavily on PAR Officials to execute their orders.
On February 1, 2011, the Exchange filed a proposed rule change to waive
PAR Official Fees for any affiliated Trading Permit Holders that have
ten or more Floor Broker Trading Permits throughout the calendar
month.\8\ The change did not become effective. To minimize disruption
while the Exchange continued to consider changes to the PAR Official
Fees, the Exchange announced that it would not collect any PAR Official
Fees for the month of February 2011.\9\
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\8\ See CBOE Regulatory Circular RG11-021.
\9\ See CBOE Regulatory Circular RG11-026 dated February 9,
2011. The Exchange collects PAR Official Fees in arrears at the end
of each month.
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CBOE subsequently amended its Fees Schedule effective March 1,
2011, to assess PAR Official Fees in Volatility Index Options in the
amount of $.03 per contract for standard (non-crossed) orders and $.015
per contract for all crossed orders (per side) and to waive PAR
Official Fees for all classes except Volatility Index Options for March
2011.\10\ The Exchange amended its Fees Schedule effective April 1,
2011 to establish volume threshold tiers for the assessment of PAR
Official Fees based on the percentage of volume that is effected by a
PAR Official on behalf of an order originating firm or, as applicable,
an executing firm.\11\
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\10\ See Securities Exchange Act Release No. 64070 (March 11,
2011), 76 FR 15025 (March 18, 2011) (SR-CBOE-2011-022).
\11\ See Securities Exchange Act Release No. 64217 (April 6,
2011), 76 FR 20793 (April 13, 2011) (SR-CBOE-2011-030).
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Fee Waiver
As described above, the Exchange did not collect any PAR Official
Fees for February 2011 as it was considering changes in the manner in
which it would assess the fees. Accordingly, the Exchange proposes to
waive PAR Official Fees in all options classes for all firms for the
month of February 2011. Since the Exchange did not collect any PAR
Official Fees for February 2011, the Exchange is not proposing to
rebate any fees.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Securities Exchange Act of 1934 (``Act'') \12\, in
general, and furthers the objectives of Section 6(b)(4) \13\ of the Act
in particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees, and other charges among CBOE
Trading Permit Holders. The Exchange believes that the proposed rule
change is equitable, reasonable and not unfairly discriminatory in
that, in general, the Exchange decided to waive PAR Official Fees for
the month of February 2011 while it considered a way to more equitably
and reasonably assess the PAR Official Fees to those Trading Permit
Holders that rely more heavily on PAR Officials to conduct their floor
brokerage business. After establishing flat per contract PAR Official
Fees, the Exchange became concerned that the flat per contract fees did
not provide an incentive for firms to adequately staff their business
as each Trading Permit Holder was currently assessed the same PAR
Official Fees. To minimize disruption while the Exchange continued to
consider changes to the PAR Official Fees, and to avoid assessing fees
that the Exchange believed could be more equitably and reasonably
assessed, the Exchange announced that it would not collect any PAR
Official Fees for the month of February 2011.\14\ The Exchange
ultimately amended its Fees Schedule effective April 1, 2011 to
establish volume threshold tiers for the assessment of PAR Official
Fees based on the percentage of volume that is effected by a PAR
Official on behalf of an order originating firm or, as applicable, an
executing firm.\15\
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
\14\ Supra Footnote 9.
\15\ Supra Footnote 11.
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Specifically, the Exchange believes that the proposal to
retroactively waive PAR Official Fees for the month of February 2011 is
equitable and reasonable in that the waiver will apply in all options
classes and to all firms. No PAR Official Fees will be collected for
the month of February 2011 from any firm. The Exchange notes that CBOE
Trading Permit Holders were provided with notice of the fee waiver on
February 9, 2011, and were thus aware for most of the month of February
that PAR Official Fees would not be assessed for that month.\16\ The
Exchange believes that during the time period from February 1 to
February 9, 2011, it is unlikely that any Trading Permit Holder made a
trading decision based on a belief that the PAR Official Fees would be
assessed during that time period. For these reasons, the Exchange
believes that retroactive waiver of the fee will not result in any
unfair discrimination with respect to any firm or group of firms.
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\16\ Supra Footnote 9.
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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 purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to 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 \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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. CBOE has provided
the Commission written notice of its intent to file the proposed rule
change, along with a brief description and text of the proposed rule
change, at least five business days prior to the date of filing of the
proposed rule change.
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:
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Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-CBOE-2011-042 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2011-042. This file
number should be included on the subject line if e-mail 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
a.m. and 3 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-2011-042 and should be
submitted on or before May 31, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11362 Filed 5-9-11; 8:45 am]
BILLING CODE 8011-01-P