[Federal Register Volume 77, Number 225 (Wednesday, November 21, 2012)]
[Notices]
[Pages 69903-69905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-28261]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68241; File No. SR-CBOE-2012-107]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend the Fees Schedule
November 15, 2012.
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 November 2, 2012, 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 its 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.
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
On April 5, 2007, CBOE established an Order Router Subsidy Program
(``ORS Program'' or ``Program'') in which CBOE may enter into subsidy
arrangements with CBOE Trading Permit Holders (each, a ``Participating
TPH'') that provide certain order routing functionalities to other CBOE
TPHs and/or use such functionalities themselves.\3\ The Exchange later
extended this program to enable CBOE to establish such subsidy
arrangements with broker-dealers that are not CBOE TPHs (each a
``Participating Non-CBOE TPH'') and to permit Participating TPHs and
Non-CBOE TPH's [sic] to receive subsidy payments for providing order
routing functionality to broker-dealers who are not CBOE TPHs.\4\ (The
term ``Participant'' as used in this filing refers to either a
Participating TPH or a Participating Non-CBOE TPH). To qualify for the
subsidy arrangement, a Participant's order routing functionality has
to: (i) Enable the electronic routing of orders to all of the U.S.
options exchanges, including CBOE; (ii) provide current consolidated
market data from the U.S. options exchanges; and (iii) be capable of
interfacing with CBOE's API to access current CBOE trade engine
functionality. The routing system also needs to cause CBOE to be the
default destination exchange for individually executed marketable
orders if CBOE is at the national best bid or offer (``NBBO''),
regardless of size or time, but allow any user to manually override
CBOE as the default destination on an order-by-order basis. The order
routing functionality is required to incorporate a function allowing
orders at a specified price to be sent to multiple exchanges with a
single click (a ``sweep function'') and the sweep function would need
to be configured to cause an order to be sent to CBOE for up to the
full size quoted by CBOE if CBOE is at the NBBO. Any CBOE TPH or
broker-dealer that is not a CBOE TPH is permitted to avail itself of
this arrangement, provided that its order routing functionality
incorporates the features described above and satisfies CBOE that it
appears to be robust and reliable. The Participant is solely
responsible for implementing and operating its system.
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\3\ See Securities Exchange Act Release No. 55629 (April 13,
2007) 72 FR 19992
(April 20, 2007) (SR-CBOE-2007-34). Additionally, the
description of the current program was clarified in SR-CBOE-2008-27.
See Securities Exchange Act Release No. 57498 (March 14, 2008), 73
FR 15018 (March 20, 2008) (SR-CBOE-2008-27).
\4\ See Securities Exchange Act Release No. 63631 (January 3,
2011) 76 FR 1203 (January 7, 2011) (SR-CBOE-2010-117).
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Participants will receive a payment from CBOE for every executed
contract for orders routed to CBOE through that participating CBOE TPH
or Non-CBOE TPH's system to subsidize their costs
[[Page 69904]]
associated with providing order routing functionalities. The payment is
$.04 per executed contract for orders routed to CBOE through a
Participant's system.\5\ CBOE does not make payments under this Program
with respect to executed contracts in single-listed options classes
traded on CBOE, or with respect to complex orders or spread orders. The
Participants have to agree that they are not entitled to receive any
other revenue for the use of its system, specifically with respect to
orders routed to CBOE.\6\ Participants are not precluded, however, from
receiving payment for order flow if they choose to do so.
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\5\ See Securities Exchange Act Release No. 62432 (July 1,
2010), 75 FR 39602 (July 9, 2010) (SR-CBOE-2010-66).
\6\ This requirement would not prevent the participating member
from charging fees (for example, a monthly fee) for the general use
of its order routing system. Nor would it prevent the participating
member from charging fees or commissions in accordance with its
general practices with respect to transactions effected through its
system.
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Under the program, a Participant may also elect to have CBOE
perform certain additional marketing services on its behalf. These
services consist of including the Participant's functionality in the
general marketing activities of CBOE's marketing staff. CBOE permits a
Participant electing to have CBOE perform these services to place
CBOE's ``HyTS'' trademark on its order routing functionality in a
manner satisfactory to CBOE. If a Participant elects to have CBOE
perform these services, the amount that CBOE pays the Participant for
orders routed to CBOE through the Participant's system is reduced from
$0.04 per executed contract to $0.03 per executed contract.\7\ The
minimum term of these services is one year, after which a Participant
can terminate the marketing services effective at the end of a calendar
month.
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\7\ See Securities Exchange Act Release No. 62432 (July 1,
2010), 75 FR 39602 (July 9, 2010 (SR-CBOE-2010-66).
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A Participant can also elect to have CBOE perform the service of
billing other CBOE TPHs with respect to the use of the Participant's
router. A Participant that elects to have CBOE perform this service
pays CBOE a service fee of one percent of the fees collected by CBOE
for that TPH. A Participant can terminate this service at the end of
any calendar month.
Nothing about the subsidy arrangement relieves any CBOE TPH or non-
CBOE TPH broker-dealer that is using an order routing functionality
whose provider is participating in the Program from complying with its
best execution obligations. Specifically, just as with any customer
order and any other routing functionality, both a CBOE TPH and a non-
CBOE TPH have an obligation to consider the availability of price
improvement at various markets and whether routing a customer order
through a functionality that incorporates the features described above
would allow for access to such opportunities if readily available.
Moreover, any user, whether or not a CBOE TPH, needs to conduct best
execution evaluations on a regular basis, at a minimum quarterly, that
include its use of any router incorporating the features described
above.
The Exchange, at the time the Program was established, did not
include the ORS Program in the Fees Schedule. The Exchange now proposes
to codify the ORS Program in the Fees Schedule. No substantive changes
to the ORS Program are being made by this proposal.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act, in general. Specifically, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) requirements that the
rules of an exchange be designed to promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts, to
remove impediments to and to perfect the mechanism for a free and open
market and a national market system, and, in general, to protect
investors and the public interest. Codifying in the Fees Schedule the
ORS Program, in which CBOE may enter into subsidy arrangements with
CBOE TPHs and Non-CBOE TPHs that provide certain order routing
functionalities to other CBOE TPHs or Non- CBOE TPH broker dealers and/
or use such functionalities themselves provides additional transparency
and allows market participants to easily discern the subsidies and/or
fees that result from such arrangements. This will eliminate any
potential confusion, thereby removing a potential impediment to and
perfecting the mechanism for a free and open market and a national
market system, and, in general, protecting 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.
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) \8\ of the Act and paragraph (f) of Rule 19b-4 \9\
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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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 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-2012-107 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-2012-107. 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
[[Page 69905]]
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 20549-1090, 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-2012-107, and should be submitted
on or before December 12, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28261 Filed 11-20-12; 8:45 am]
BILLING CODE 8011-01-P