[Federal Register Volume 76, Number 181 (Monday, September 19, 2011)]
[Notices]
[Pages 58063-58065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-23897]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65325; File No. SR-CBOE-2011-085]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Concerning the Clearing Trading Permit Holder
Proprietary Transaction Fee Waiver for Orders in Multiply-Listed FLEX
Options Classes
September 12, 2011.
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 August 31, 2011, the 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 its Fees Schedule. 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.
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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
On August 1, 2011, the Exchange implemented a waiver of the
Clearing Trading Permit Holder (``CTPH'') Proprietary Transaction Fee
(the ``Fee'') for CTPHs executing facilitation orders in multiply-
listed FLEX Options classes (the ``Waiver'').\3\ At that time, the
Exchange intended to exclude from the Waiver such orders originating
from joint back-office (``JBO'') participants, but due to an oversight,
such orders were not excluded. Therefore, the Exchange now proposes to
amend the Waiver to exclude such orders originating from JBO
participants.
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\3\ See Securities Exchange Act Release No. 34-65007 (August 2,
2011), 76 FR 48190 (August 8, 2011) (SR-CBOE-2011-071).
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A JBO is an arrangement whereby a broker/dealer maintains a nominal
ownership interest in its clearing firm. The clearing firm will issue a
special class of non-voting preferred stock to other broker/dealers
that clear their proprietary positions through the clearing firm. JBO
participants are not considered self-clearing for any purpose other
than the extension of credit under CBOE Rule 12.3 or under comparable
[[Page 58064]]
rules of another self-regulatory organization.\4\
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\4\ See CBOE Rule 13.4, Interpretation and Policy .01.
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JBOs are separate entities from the CTPHs with which they maintain
an arrangement, and do not have a complete common identity of ownership
with the CTPHs. JBOs take advantage of the exposure across the market
that CTPHs afford and use CTPHs for margin relief. While JBO trades
come into market with the same origin code as CTPHs, these trades are
executed on behalf of the JBO and not the CTPHs. CTPHs have various
obligations, such as clearing accounts and settling trades, and must
abide by certain requirements, such as those regarding books and
records, and risk analysis, that JBOs do not. Moreover, unlike CTPHs,
JBOs do not guarantee performance on contracts, and if a JBO backs out
of a position or otherwise cannot maintain a position that the JBO had
taken, the CTPH is still on the hook to maintain that JBO position.
Also, unlike CTPHs, JBOs are not self-clearing for the purposes of
facilitation.\5\ Further, CTPHs must work with the Options Clearing
Corporation (``OCC'') to clear trades and satisfy OCC requirements on
subjects such as capital requirements, which JBOs do not need to
satisfy. In recognition of the obligations and liabilities that CTPHs
possess and which JBOs do not possess, and because JBOs are not self-
clearing for the purposes of facilitation, the Exchange does not at the
present time desire to provide the Waiver to JBOs, and therefore
proposes to exclude JBOs from the Waiver. Finally, the Exchange
currently excludes JBO orders from the Fee Cap and Sliding Scale.\6\
Excluding JBOs from the Waiver helps to achieve a level of consistency
in the Fees Schedule.
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\5\ See CBOE Rule 13.4, Interpretation and Policy .01.
\6\ See Exchange Fees Schedule section regarding the Multiply-
Listed Options Fee Cap and the CBOE Proprietary Products Sliding
Scale for Clearing Trading Permit Holder Proprietary Orders.
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As previously stated, JBO trades come into the market with the same
origin code as CTPHs. However, CTPHs may possess different clearing
firm numbers; each CTPH has a number for its own trades, and a
different number for each JBO. Therefore, JBO trades will be identified
and differentiated from CTPH trades by these different numbers.
The proposed rule change would take effect on September 1, 2011.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\7\ in general, and furthers the objectives of Sections 6(b)(4) \8\
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 and other persons using Exchange
facilities. The Exchange believes that amending the Waiver to exclude
JBO orders is reasonable because the amount of the fee, either $0.20 or
$0.25 per contract (depending on the product), is within the range of
fees assessed by the Exchange for other orders charged to other market
participants for the same product.\9\ Indeed, up until August 1, 2011
(one month ago), when the Waiver was instituted and unintentionally
included JBO trades, JBOs paid this amount for firm facilitation orders
in multiply-listed FLEX Options classes.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4).
\9\ See Exchange Fees Schedule, Section 1.
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The Exchange believes amending the Waiver to exclude JBO orders is
equitable and not unfairly discriminatory because, unlike CTPHs, JBOs
are not self-clearing for the purposes of facilitation,\10\ and because
CTPHs have a number of obligations, responsibilities and liabilities
that JBOs do not possess. These obligations include clearing accounts,
settling trades, and must abide by certain requirements, such as those
regarding books and records, and risk analysis. Moreover, unlike CTPHs,
JBOs do not guarantee performance on contracts, and if a JBO backs out
of a position or otherwise cannot maintain a position that the JBO had
taken, the CTPH is still on the hook to maintain that JBO position.
Further, CTPHs must work with the OCC to clear trades and satisfy OCC
requirements on subjects such as capital requirements, which JBOs do
not need to satisfy. In recognition of the obligations and liabilities
that CTPHs possess and which JBOs do not possess, and because JBOs are
not self-clearing for the purposes of facilitation, the Exchange
believes it is equitable and not unfairly discriminatory to exclude
JBOs from the Waiver. Finally, the Exchange currently excludes JBO
orders from the Fee Cap and Sliding Scale.\11\ Excluding JBOs from the
Waiver helps to achieve a level of consistency in the Fees Schedule.
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\10\ See CBOE Rule 13.4, Interpretation and Policy .01.
\11\ See Exchange Fees Schedule section regarding the Multiply-
Listed Options Fee Cap and the CBOE Proprietary Products Sliding
Scale for Clearing Trading Permit Holder Proprietary Orders.
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The Exchange operates in a highly competitive market in which
sophisticated and knowledgeable market participants readily can, and
do, send order flow to competing exchanges based on fee levels. The
Exchange believes that the fees it assesses must be competitive with
fees assessed on other options exchanges. The Exchange believes that
this competitive marketplace impacts the fees present on the Exchange
today and influences the proposals set forth above.
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 not necessary or appropriate in furtherance of
the 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
The proposed rule change is designated by the Exchange as
establishing or changing a due, fee, or other charge, thereby
qualifying for effectiveness on filing pursuant to Section 19(b)(3)(A)
of the Act\12\ and subparagraph (f)(2) of Rule 19b-4\13\ 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.
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(2).
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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 e-mail to [email protected]. Please include
File
[[Page 58065]]
Number SR-CBOE-2011-085 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-2011-085. 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 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-2011-085 and should be
submitted on or before October 11, 2011.
For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-23897 Filed 9-16-11; 8:45 am]
BILLING CODE 8011-01-P