[Federal Register Volume 78, Number 17 (Friday, January 25, 2013)]
[Notices]
[Pages 5538-5542]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-01493]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68699; File No. SR-CBOE-2013-003]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend the Fees Schedule
January 18, 2013.
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 January 7, 2013, 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 the
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.
[[Page 5539]]
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 its Fees Schedule. Specifically, the
Exchange proposes to adopt a new Clearing Trading Permit Holder
Proprietary VIX Options Sliding Scale (the ``VIX Options Sliding
Scale''). The VIX Options Sliding Scale allows VIX volatility index
options (``VIX options'') transaction fees for Clearing Trading Permit
Holder (including its Non-Trading Permit Holder affiliates) proprietary
orders to be reduced provided a Clearing Trading Permit Holder
(including its Non-Trading Permit Holder affiliates) reaches certain
proprietary VIX options volume thresholds during a month. The proposed
applicable transaction fees for the different volume tiers on the VIX
Options Sliding Scale are as follows:
------------------------------------------------------------------------
Transaction
Tier VIX Options fee per
contracts per month contract
------------------------------------------------------------------------
1................................. Contracts 1-250,000. $0.25
2................................. Contracts 250,001- 0.15
500,000.
3................................. Contracts 500,001- 0.10
750,000.
4................................. Contracts 750,000+.. 0.05
------------------------------------------------------------------------
The VIX Options Sliding Scale applies to orders bearing the origin
codes ``F'' \3\ and ``L'' \4\. The purpose of the VIX Options Sliding
Scale is to encourage greater Clearing Trading Permit Holder
proprietary trading of VIX options.
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\3\ The ``F'' origin code is used for OCC clearing member firm
proprietary account orders.
\4\ The ``L'' origin code is used for orders for the account of
Non-Trading Permit Holder Affiliates effected for the purpose of
hedging the proprietary over-the-counter trading of the Clearing
Trading Permit Holder or its affiliates to be aggregated with the
trading activity of the Clearing Trading Permit Holder for purposes
of the Multiply-Listed Options Fee Cap and CBOE Proprietary Products
Sliding Scale for Clearing Trading permit Holder proprietary orders;
a ``Non-Trading Permit Holder Affiliate'' is defined as a 100%
wholly-owned affiliate or subsidiary of a Clearing Trading Permit
Holder that is (i) registered as United States or foreign broker/
dealer and (ii) is not itself a CBOE Trading Permit Holder.
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In conjunction with the adoption of the VIX Options Sliding Scale,
the Exchange proposes to amend footnote 11 to its Fees Schedule.
Footnote 11 provides the details regarding the Clearing Trading Permit
Holder Fee Cap in all products except SPX, SRO, VIX or other volatility
indexes, OEX or XEO and the CBOE Proprietary Products Sliding Scale for
Clearing Trading Permit Holder Proprietary Orders, both of which apply
to Clearing Trading Permit Holder proprietary orders. Because the VIX
Options Sliding Scale also applies to Clearing Trading Permit Holder
proprietary orders, and because many of the details regarding the
Clearing Trading Permit Holder Fee Cap in all products except SPX, SRO,
VIX or other volatility indexes, OEX or XEO and the CBOE Proprietary
Products Sliding Scale for Clearing Trading Permit Holder Proprietary
Orders will also apply to the VIX Options Sliding Scale, the Exchange
proposes to add the details regarding the VIX Options Sliding Scale
into footnote 11.
First, footnote 11 describes the Clearing Trading Permit Holder Fee
Cap in all products except SPX, SRO, VIX or other volatility indexes,
OEX or XEO as the ``fee cap'' and the CBOE Proprietary Products Sliding
Scale for Clearing Trading Permit Holder Proprietary Orders as the
``sliding scale''. In order to avoid confusion that could arise due to
the addition of the VIX Options Sliding Scale, the Exchange proposes to
define the Clearing Trading Permit Holder Fee Cap in all products
except SPX, SRO, VIX or other volatility indexes, OEX or XEO as the
``Fee Cap'' and the CBOE Proprietary Products Sliding Scale for
Clearing Trading Permit Holder Proprietary Orders as the ``Sliding
Scale''. Any references within footnote 11 to the ``fee cap'' will now
be referred to as the ``Fee Cap'' and any references within footnote 11
to the ``sliding scale'' will now be referred to as the ``Sliding
Scale''. The Clearing Trading Permit Holder Proprietary VIX Options
Sliding Scale is also defined within footnote 11 as the ``VIX Options
Sliding Scale'' and any references to the Clearing Trading Permit
Holder Proprietary VIX Options Sliding Scale within footnote 11 are
referred to as the ``VIX Options Sliding Scale.''
Like the Fee Cap and the Sliding Scale, the VIX Options Sliding
Scale will apply to (i) Clearing Trading Permit Holder proprietary
orders (``F'' origin code), and (ii) orders of Non-Trading Permit
Holder Affiliates of a Clearing Trading Permit Holder. A ``Non-Trading
Permit Holder Affiliate'' would be defined for the purposes of the VIX
Options Sliding Scale the same way it is defined for the Fee Cap and
Sliding Scale: A 100% wholly-owned affiliate or subsidiary of a
Clearing Trading Permit Holder that is registered as a United States or
foreign broker-dealer and that is not a CBOE Trading Permit Holder
(``TPH''). As with the Fee Cap and the Sliding Scale, only proprietary
orders of the Non-Trading Permit Holder Affiliate (currently, the Fees
Schedule reads that such orders have a ``B'' origin code, but such
orders actually have an ``L'' origin code, so the Exchange also
proposes to correct this error) effected for purposes of hedging the
proprietary over-the-counter trading of the Clearing Trading Permit
Holder or its affiliates will be included in calculating the VIX
Options Sliding Scale, and such orders must be marked with a code
approved by the Exchange identifying the orders as eligible for the VIX
Options Sliding Scale. As with the Fee Cap and the Sliding Scale, each
Clearing Trading Permit Holder is responsible for notifying the TPH
Department of all of its affiliations so that fees and contracts of the
Clearing Trading Permit Holder and its affiliates may be aggregated for
purposes of the VIX Options Sliding Scale and is required to certify
the affiliate status of any Non-Trading Permit Holder Affiliate whose
trading activity it seeks to aggregate. In addition, each Clearing
Trading Permit Holder is required to inform the Exchange immediately of
any event that causes an entity to cease to be an affiliate.
As with the Fee Cap and the Sliding Scale, the Exchange will
aggregate the
[[Page 5540]]
fees and trading activity of separate Clearing Trading Permit Holders
for the purposes of the VIX Options Sliding Scale if there is at least
75% common ownership between the Clearing Trading Permit Holders as
reflected on each Clearing Trading Permit Holder's Form BD, Schedule A.
As with the Fee Cap and the Sliding Scale, a Clearing Trading Permit
Holder's fees and contracts executed pursuant to a CMTA agreement
(i.e., executed by another clearing firm and then transferred to the
Clearing Trading Permit Holder's account at the OCC) are aggregated
with the Clearing Trading Permit Holder's non-CMTA fees and contracts
for purposes of the VIX Options Sliding Scale.
For calculating a Clearing Trading Permit Holder's total
proprietary product transaction fees, CBOE will use the following
methodology: If using the VIX Options Sliding Scale plus the Sliding
Scale (minus VIX options volume) results in lower total Clearing
Trading Permit Holder proprietary transaction fees than just using the
Sliding Scale, CBOE will apply the new VIX Options Sliding Scale plus
the Sliding Scale, and deduct the VIX options volume from the Sliding
Scale. If using the VIX options Sliding Scale plus the Sliding Scale
(minus VIX options volume) results in higher total Clearing Trading
Permit Holder proprietary transaction fees than just using the Sliding
Scale, CBOE will apply only the Sliding Scale. The purpose of this
methodology is to provide a Clearing Trading Permit Holder with the
most beneficial fee arrangement (the lowest fees) without double-
counting VIX options volume.
For example, consider a situation in which, in a month, a Clearing
Trading Permit Holder has qualifying proprietary multiply-listed
options volume of 450,000 contracts, qualifying proprietary VIX options
volume of 850,000 contracts, and qualifying volume of other proprietary
products of 500,000 contracts (totaling 1,350,000 contracts of
proprietary products). Under the Sliding Scale, because the Clearing
Trading Permit Holder has executed greater than (or equal to) 375,000
contracts of multiply-listed options volume but less than 1,500,000
such contracts, the Clearing Trading Permit Holder will be assessed an
$0.18-per-contract fee on the first 750,000 proprietary products
contracts (totaling $135,000), a $0.05-per-contract fee on the next
250,000 proprietary products contracts (totaling $12,500), and a $0.02-
per-contract fee on the remaining 350,000 proprietary products
(totaling $7,000). Therefore, under the Sliding Scale, the Clearing
Trading Permit Holder's proprietary transaction fees would be $154,500
($135,000 + $12,500 + $7,000).
We would then determine the Clearing Trading Permit Holder's fees
using the VIX Options Sliding Scale plus the Sliding Scale (minus VIX
options volume). Under the VIX Options Sliding Scale, because the
Clearing Trading Permit Holder executed 850,000 VIX contracts, the
Clearing Trading Permit Holder would be assessed a $0.25-per-contract
fee for contracts 1-250,000 (totaling $62,500), a $0.15-per-contract
fee for contracts 250,001-500,000 (totaling $37,500), a $0.10-per-
contract fee for contracts 500,001-750,000 (totaling $25,000), and a
$0.05-per-contract fee for contracts 750,001-850,000 ($5,000).
Therefore, under the VIX Options Sliding Scale, the Clearing Trading
Permit Holder's proprietary transaction fees are $130,000 ($62,500 +
$37,500 + $25,000 + $5,000). To this we would add the Clearing Trading
Permit Holder's proprietary fees using the Sliding Scale (subtracting
out the VIX options volume). Under the Sliding Scale, because the
Clearing Trading Permit Holder has executed greater than (or equal to)
375,000 contracts of multiply-listed options volume but less than
1,500,000 such contracts, the Clearing Trading Permit Holder will be
assessed an $0.18-per-contract fee on the 500,000 non-VIX options
proprietary product contracts, which comes out to $90,000. If we add
the Clearing Trading Permit Holder's fees under the VIX Options Sliding
Scale ($130,000) to fees using the Sliding Scale (minus VIX options
volume) ($90,000), the Clearing Trading Permit Holder's total
proprietary fees come out to $220,000. Because this amount is greater
than the Clearing Trading Permit Holder's fees using just the Sliding
Scale (including the VIX options volume) of $154,500, the Exchange
would just apply the Sliding Scale to determine the Clearing Trading
Permit Holder's proprietary fees, and assess the lower fee of $154,500.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\5\ Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \6\ 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
facilitation 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,\7\ which provides that
Exchange rules may 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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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ 15 U.S.C. 78f(b)(4).
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The adoption of the VIX Options Sliding Scale is reasonable because
it will allow Clearing Trading Permit Holders who engage in VIX options
trading the opportunity to pay lower fees for such transactions.
Similarly, aggregating the fees and trading activity of separate
Clearing Trading Permit Holders for the purposes of the VIX Options
Sliding Scale if there is at least 75% common ownership between the
Clearing Trading Permit Holders and aggregating a Clearing Trading
Permit Holder's fees and contracts executed pursuant to a CMTA
agreement with the Clearing Trading Permit Holder's non-CMTA fees and
contracts for the purpose of the VIX Options Sliding Scale is
reasonable because this will allow more Clearing Trading Permit Holders
to qualify for the lowered fees at the higher volume tiers in the VIX
Options Sliding Scale.
The proposed methodology to be used in calculating a Clearing
Trading Permit Holder's total proprietary product transaction fees is
reasonable because it provides Clearing Trading Permit Holders who
engage in VIX options trading with a second way to maximize their
ability to limit their proprietary products transaction fees.
Subtracting VIX options volume from the Sliding Scale when taking into
account the VIX Options Sliding Scale to calculate proprietary product
transaction fees is reasonable because it would be illogical (and not
financially viable) to count VIX options volume twice (once in the VIX
Options Sliding Scale and once in the Sliding Scale) to allow a
Clearing Trading Permit Holder to qualify for a lowered fee rate when
the VIX options transactions (and volume such transactions created)
only occurred once and fees were therefore only assessed on such
transactions once.
[[Page 5541]]
Applying the VIX Options Sliding Scale to Clearing Trading Permit
Holder (and their affiliates, in the manner described above)
proprietary orders only is equitable and not unfairly discriminatory
because Clearing Trading Permit Holders take on a number of obligations
and responsibilities (such as membership with the Options Clearing
Corporation), significant regulatory burdens, and financial obligations
that other market participants are not required to undertake. Further,
the VIX Options Sliding Scale is designed to encourage increased
Clearing Trading Permit Holder proprietary VIX options volume, which
provides increased VIX options volume and greater trading opportunities
for all market participants. Similarly, applying lower fee rates for
Clearing Trading Permit Holders who hit the higher VIX options contract
volume tiers on the VIX Options Sliding Scale is equitable and not
unfairly discriminatory because this is designed to encourage increased
Clearing Trading Permit Holder proprietary VIX options volume, which
provides increased VIX options volume and greater trading opportunities
for all Clearing Trading Permit Holders, including those who are not
able to reach the higher-volume tiers. Indeed, this increased VIX
options volume and greater trading opportunities may provide such
Clearing Trading Permit Holders to reach the higher tiers (and pay the
lower fees such tiers entail). Moreover, the Exchange already offers
other fee-lowering programs (such as the Fee Cap and Sliding Scale)
which entail lower fees for Clearing Trading Permit Holders (and their
affiliates, in the manner described above) and are limited to Clearing
Trading Permit Holders (and their affiliates, in the manner described
above).
Applying the VIX Options Sliding Scale to VIX options and not to
other products is equitable and not unfairly discriminatory because the
Exchange has expended considerable time and resources in developing VIX
options. The VIX Options Sliding Scale is designed to encourage greater
VIX options trading, which, along with bringing greater VIX options
trading opportunities to all market participants, will bring in more
fees to the Exchange, and such fees can be used to recoup the
Exchange's costs and expenditures from developing VIX options.
The Exchange proposes to define the Fee Cap, Sliding Scale, and VIX
Options Sliding Scale in footnote 11 of the Fees Schedule in order to
avoid any potential confusion by investors reading the Fees Schedule.
Similarly, the Exchange proposes to correct, in footnote 11, the
erroneous reference to the origin code for proprietary orders of the
Non-Trading Permit Holder Affiliate effected for purposes of hedging
the proprietary over-the-counter trading of the Clearing Trading Permit
Holder or its affiliates (changing such reference from the origin code
``B'' to the correct origin code for such orders, ``L'') in order to
avoid any potential confusion by investors reading the Fees Schedule.
This avoidance of confusion 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. The Exchange believes that the
adoption of the proposed VIX Options Sliding Scale will not impose any
unnecessary burden on intramarket competition because, while it applies
only to Clearing Trading Permit Holder proprietary orders, Clearing
Trading Permit Holders take on a number of obligations and
responsibilities (such as membership with the Options Clearing
Corporation), significant regulatory burdens, and financial obligations
that other market participants are not required to undertake. Further,
the VIX Options Sliding Scale is designed to encourage increased
Clearing Trading Permit Holder proprietary VIX options volume, which
provides increased VIX options volume and greater trading opportunities
for all market participants. Therefore, the Exchange believes that any
potential effects on intramarket competition that the adoption of the
proposed VIX Options Sliding Scale may cause are therefore justifiable.
Moreover, the Exchange already offers other fee-lowering programs (such
as the Fee Cap and Sliding Scale) which entail lower fees for Clearing
Trading Permit Holders (and their affiliates, in the manner described
above) and are limited to Clearing Trading Permit Holders (and their
affiliates, in the manner described above). The Exchange does not
believe that the adoption of the proposed VIX Options Sliding Scale
will cause any unnecessary burden on intermarket competition because
VIX options is a proprietary product that is traded solely on CBOE.
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 \8\ 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-2013-003 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.
All submissions should refer to File Number SR-CBOE-2013-003. 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
[[Page 5542]]
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-2013-003 and should be
submitted on or before February 15, 2013.
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. 2013-01493 Filed 1-24-13; 8:45 am]
BILLING CODE 8011-01-P