[Federal Register Volume 79, Number 13 (Tuesday, January 21, 2014)]
[Notices]
[Pages 3443-3452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-00984]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71295; File No. SR-CBOE-2013-129]
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 14, 2014.
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 December 31, 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'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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to make a number of changes to its Fees
Schedule,
[[Page 3444]]
all to be effective January 1, 2014. First, the Exchange proposes to
increase the fee for electronic Clearing Trading Permit Holder
Proprietary executions in equity, ETF, ETN, and index options classes
(except SPX, SPXW, SPXpm, SRO, OEX, XEO, VIX and VOLATILITY INDEXES
(the ``Special Classes'')) from $0.25 per contract to $0.35 per
contract.\3\ The reason for the proposed increase is to cover the
increasing costs associated with electronic executions (including the
upkeep and institution of new systems) as well as to better align with
market rates for Clearing Permit Holder Proprietary executions (CBOE
fees will still be lower than comparable fees offered by some other
exchanges).\4\
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\3\ Corresponding to this change, the Exchange proposes to amend
the listing of the Electronic (non-AIM) fee from $0.25 per contract
to $0.35 per contract on its ``Clearing Trading Permit Holder Fee
Cap'' table.
\4\ For example, NASDAQ OMX PHLX LLC (``PHLX'') assesses firm
electronic fees of $0.45 or $0.60 per contract for multiply-listed
options (see PHLX Pricing, Section II).
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Next, the Exchange proposes to amend the statement in Footnote 11
of its Fees Schedule that reads ``For facilitation orders (other than
SPX, SPXpm, SRO, VIX or other volatility indexes, OEX or XEO)
(``facilitation orders'' for this purpose to be defined as any paired
order in which a Clearing Trading Permit Holder (F) origin code is
contra to any other origin code, provided the same executing broker and
clearing firm are on both sides of the order) executed electronically
(including in AIM), open outcry, or as a QCC or FLEX transaction, CBOE
will assess no Clearing Trading Permit Holder Proprietary transaction
fees'' to add orders of a Non-Trading Permit Holder Affiliate (``L''
origin code) into this definition of ``facilitation orders''.\5\ This
would mean that such ``L'' orders would be assessed no fees for
facilitation orders (except as otherwise stated). The purpose for this
proposed change is to attract and encourage the Non-Trading Permit
Holder Affiliates of Clearing Trading Permit Holders. Permitting them
free facilitations encourages them to concentrate more business on CBOE
while putting the Exchange on a similar competitive position as other
exchanges, including those that offer free Broker-Dealer facilitations
that are contra to a Customer.\6\
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\5\ As proposed, the statement would read: ``For facilitation
orders (other than SPX, SPXpm, SRO, VIX or other volatility indexes,
OEX or XEO) (``facilitation orders'' for this purpose to be defined
as any paired order in which a Clearing Trading Permit Holder (F)
origin code or Non-Trading Permit Holder Affiliate (``L'' origin
code) is contra to any other origin code, provided the same
executing broker and clearing firm are on both sides of the order)
executed electronically (including in AIM), open outcry, or as a QCC
or FLEX transaction, CBOE will assess no Clearing Trading Permit
Holder Proprietary transaction fees.'' The Exchange would also add
the origin code ``L'' into the ``Facilitation'' line on the Equity
Options, ETF and ETN Options, and Index Options Products Excluding
the Special Classes Rate Tables.
\6\ See PHLX Pricing, Section II, bullet point discussing
facilitation orders executions.
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The Exchange also proposes to assess no fee on Clearing Trading
Permit Holder Proprietary facilitation transactions in Mini options. As
Mini options are merely \1/10\ the size of regular options contracts,
and such transactions in regular options contracts are assessed no fee,
it makes sense to also assess no fee for these transactions in Mini
options.
The Exchange proposes to make some reorganization of its Specified
Proprietary Index Options Rate Table--SPX, SPXW, SPXpm, SRO, OEX, XEO,
VIX and VOLATILITY INDEXES (the ``Proprietary Options Rate Table'').
First, the Exchange proposes to re-order alphabetically the Customer
fees for the different products listed in the table. This means that
OEX and XEO fees will be at the top, followed by OEX Weeklys and XEO
Weeklys, then SPX (incl SPXW), then SPXpm, then VIX (and VOLATILITY
INDEXES, as the Exchange will also propose herein to assess the same
Customer fees for VOLATIILITY INDEXES as are assessed to VIX options
transactions). The amounts of these fees will not change (unless
otherwise described herein). The second step in the re-organization of
this table is to separate fees based on the option's premium price. The
amounts of such fees will not change (unless otherwise described
herein). The purpose of these proposed changes is to make the
Proprietary Options Rate Table easier for market participants to read
and ascertain which fees apply.
The Exchange also proposes to amend Customer fees for VIX options
transactions. Currently, when the premium is greater than or equal to
$1, the fee is $0.45 per contract, and when the premium is less than
$1, the fee is $0.25 per contract. The Exchange proposes to amend VIX
options Customer fees such that when the premium is (a) $1.00 or
greater, the fee will be $0.48 per contract, (b) $0.11-$0.99, the fee
will be $0.27, and (c) $0.00-$0.10, the fee will be $0.10. The purpose
of these proposed changes is to provide greater incentives for
Customers to trade VIX options. By providing for more granular fee
tiers based on the premium, the Exchange can more closely assess fees
commensurate with the premiums for such options. The Exchange is
attempting to reduce costs on low-priced VIX options to encourage
Customers to close and roll over positions close to expiration at low
premium levels. Currently, such Customers are less likely to do this
because the transaction fee is closer to the premium level. The
Exchange believes that the lowered fees for VIX options trading with a
premium of $0.00-$0.10 will encourage the trading of such options. The
slight increases of the fees for Customer transactions in VIX options
whose premium is greater than or equal to $1.00 as well as those whose
premium is $0.11-$0.99 are being utilized in order to achieve some
level of revenue balance in connection with the lowered fee for
customer transactions in VIX options whose premium is $0.00-$0.10.
The Exchange proposes to amend the Customer fees for all other
VOLATILITY INDEXES so that such fees are the same as VIX options fees.
VIX is itself a Volatility Index, so it makes sense to assess the same
Customer fees to all other VOLATILITY INDEXES as are assessed to the
Exchange's most heavily-traded Volatility Index (VIX). The VIX and
VOLATILITY INDEXES fees that apply to each other market participant are
already the same. CBOE seeks to have a unified strategy for its
volatility complex, and since most CBOE volatility products have an
underlying value that is generally in the same range, the fees
structure that has been designed for VIX options also makes sense for
applicability for all other VOLATILITY INDEXES.
The Exchange also proposes to separate out the fees for VIX and
VOLATILITY INDEXES for CBOE Market-Makers/DPMs/E-DPMs/LMMs (``Market-
Makers'') from those assessed to SPX, SPXW, SPXpm, OEX and XEO.
Currently, Market-Maker transactions in all those products are assessed
a fee of $0.20 per contract. The Exchange proposes to assess a fee for
Market-Maker transactions in VIX and VOLATILITY INDEXES of $0.05 per
contract when the premium is $0.00-$0.10 and $0.23 per contract when
the premium is $0.11 or greater. The Exchange believes that the lowered
fees for VIX and VOLATILITY INDEXES options trading with a premium of
$0.00-0.10 will encourage the trading of such options. The slight
increases of the fees for Market-Maker transactions in VIX options and
VOLATILITY INDEXES whose premium is greater than or equal to $0.11 is
being utilized in order to achieve some level of revenue balance in
connection with the lowered fee for Market-Maker transactions in VIX
options and VOLATILITY INDEXES whose premium is $0.00-0.10. The
[[Page 3445]]
Exchange institutes these new fees in order to encourage Market-Makers
to provide liquidity to Customer orders in VIX options and VOLATILITY
INDEXES.
The Exchange assesses a Hybrid 3.0 Execution Fee of $0.18 per
contract for all electronic executions in Hybrid 3.0 classes (with some
exceptions).\7\ The Exchange hereby proposes to increase this fee to
$0.20 per contract. The purpose of this change is because at the time
that the Hybrid 3.0 Execution Fee was adopted, most orders executed via
Hybrid 3.0 were simple orders. Now, with the growing prevalence of
complex orders, the Exchange desires to increase the Hybrid 3.0
Execution Fee to cover the increased system complexity (and use of
resources necessary) due to the trading of complex orders. The Exchange
also proposes to amend the listing of the origin codes on the
Proprietary Options Rate Chart. When the Proprietary Options Rate Chart
was created, the Exchange erroneously listed only the ``C'' and ``W''
origin codes as applicable to the Hybrid 3.0 Execution Fee, which
contradicts Footnote 21 (which describes the Hybrid 3.0 Execution Fee,
and does not except out other origin codes). As such, the Exchange
proposes to add the ``F'', ``J'', ``L'', ``B'', and ``N'' origin codes
to the table. The Exchange also proposes to amend Footnote 21 to remove
the listing of the Hybrid 3.0 Execution Fee as being $0.18 per
contract, and simply state that the Hybrid 3.0 Execution Fee will be
assessed to relevant executions in Hybrid 3.0 classes.
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\7\ See CBOE Fees Schedule, Footnote 21 for such exceptions.
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The Exchange proposes to adopt two Customer Priority Surcharges,
which are assessed on customer (C) contracts. The first is the SPXW
(electronic only) Customer Priority Surcharge of $0.05 per contract.
The SPXW Customer Priority Surcharge applies to all SPXW customer
contracts executed electronically, except those contracts traded on a
PAR terminal. The second Customer Priority Surcharge is to be assessed
on Customer VIX contracts executed electronically that are Maker and
not Market Turner. This $0.05 per contract fee will only be assessed on
such contracts that have a premium of $0.11 or greater.
The purpose of the Customer Priority Surcharges is to ensure that
there is reasonable cost equivalence between the primary execution
channels for the products involved. Manual executions are achieved
using floor brokers (the only market participants who can trade
contracts using a PAR terminal), who assess a commission for Customer
executions. Electronic executions are not assessed a commission, but
more heavily rely on the Exchange's systems. The proposed Customer
Priority Surcharges will minimize the cost differentials between manual
and electronic executions, which is in the interest of the Exchange as
it must both maintain robust electronic systems as well as provide for
economic opportunity for floor brokers to continue to conduct business,
as they serve an important function in achieving price discovery and
Customer executions. Floor brokers ensure that the difficult-to-execute
orders (such as large and complex orders) are able to be executed
manually by accessing the CBOE's in-person market maker crowds, while
also helping to achieve price improvement. SPX, SPXW and VIX are the
only products that execute a significant share of their total volume on
the trading floor, and the Hybrid 3.0 Execution Fee (which essentially
acts as a customer priority surcharge) already applies to SPX. SPXW
often has a lower premium (as it is a weekly option with a lower
timeframe, as the options have less time value than the regular SPX
options), so it makes sense to assess a lower SPXW Customer Priority
Surcharge than the Hybrid 3.0 Execution Fee. VIX options trade at a
lower underlying value than SPX and so also have a lower premium value,
so it also makes sense for the VIX Customer Priority Surcharge to be
lower than the Hybrid 3.0 Execution Fee. As described above, the
Exchange wants to encourage the execution of VIX options Customer
orders for options with a premium of $0.00-$0.10, and therefore is not
proposing to assess the Customer Priority Surcharge on such options.
The Exchange proposes to change the different tier thresholds in
its Liquidity Provider Sliding Scale (which provides for reduced fees
for a CBOE Market-Maker based on the Market-Maker executing a certain
number of contracts per month) from nominal contracts per month
thresholds (i.e. contracts 100,001-2,000,000) to a relative contracts
per month threshold (i.e. above 0.05%-0.70%). These volume thresholds
are based on the Market-Maker's percentage of total national Market-
Maker multiply-listed options volume (where previously they had merely
been based on the total number of multiply-list contracts executed by
the Market-Maker). Below is a table demonstrating the proposed changes.
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Fee (per
Tier Old volume threshold New volume thresholds contract)
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1.................................... 1-100,000.................. 0.00%-0.05%............... \8\ $0.23
2.................................... 100,001-2,000,000.......... Above 0.05%-0.70%......... 0.17
3.................................... 2,000,001-4,000,000........ Above 0.70%-1.40%......... 0.10
4.................................... 4,000,001-6,000,000........ Above 1.40%-2.00%......... 0.05
5.................................... 6,000,000 +................ Above 2.00%............... 0.03
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The purpose of this change is to control and account for changes in
national industry-wide multiply-listed options volume. The new
percentage thresholds generally correspond to the old nominal
thresholds (based on current total national Market-Maker multiply-
listed options volume). The Exchange also proposes to amend the
``Notes'' section of this table to capitalize the term ``VOLATILITY
INDEXES'' as this term is capitalized elsewhere in the Fees Schedule,
and the Exchange desires consistency.
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\8\ Currently, the fee at this tier is $0.25 per contract.
However, the Exchange proposes to lower this fee to $0.23 per
contract, as described below.
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Due to the proposed change to a relative percentage-based tier
system for the Liquidity Provider Sliding Scale, the Exchange also must
propose amendments to Footnote 10 of the Fees Schedule, which discusses
the prepayment necessary in order to be eligible for the fees
applicable to tiers 3-5 of the Liquidity Provider Sliding Scale.
Currently, a Liquidity Provider is required to pre-pay the fees for the
first two tiers of the Liquidity Provider Sliding Scale in order to be
eligible for the lower fees applicable to tiers 3-5. This works out to
$348,000 per month (based on the current nominal volume thresholds in
the Liquidity Provider Sliding Scale). However, with the proposed
change to make the tiers in the
[[Page 3446]]
Liquidity Provider Sliding Scale based on relative percentage-based
volume thresholds, it will be impossible to know beforehand what amount
per month will be required to pay for the first two tiers. As such, the
Exchange simply proposes to require a pre-payment of $200,000 per
month, or $2,400,000 for the year (significantly lower than the current
prepay amounts). Along with that change, the Exchange proposes to make
some other amendments to Footnote 10, which describes the prepayment,
to (1) give those desiring to prepay for the full year until January 10
of the applicable year to prepay, (2) add an example regarding
prepayment, (3) make clear that prepay arrangements for less than the
full year must be paid before the calendar month in which they are to
begin, and (4) make the Footnote easier to read and understand.\9\
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\9\ As proposed, Footnote 10 will read: ``The Liquidity Provider
Sliding Scale applies to Liquidity Provider (CBOE Market-Maker, DPM,
e-DPM and LMM) transaction fees in all products except mini-options,
SPX, SPXpm, SRO, VIX or other volatility indexes, OEX or XEO. A
Liquidity Provider's standard per contract transaction fee shall be
reduced to the fees shown on the sliding scale as the Liquidity
Provider reaches the volume thresholds shown on the sliding scale in
a month. The Exchange will aggregate the trading activity of
separate Liquidity Provider firms for purposes of the sliding scale
if there is at least 75% common ownership between the firms as
reflected on each firm's Form BD, Schedule A. A Liquidity Provider
shall be required to prepay, by January 10th, $2,400,000 in order to
be eligible for the fees applicable to tiers 3-5 of the sliding
scale for the entire year. A Liquidity Provider can elect to prepay
$200,000 per month to be eligible for the fees applicable to tiers
3-5 of the sliding scale for the remainder of the year at any time
during the year, but such prepayment (and eligibility) will only be
applied prospectively for the remainder of the year. A TPH that
chooses, for example, in June 2014 to prepay for the remainder of
the year would pay $1,200,000 for the months of July-December. All
prepay arrangements must be paid before the first calendar month in
which they are to begin. Contract volume resulting from any of the
strategies defined in Footnote 13 will apply towards reaching the
sliding scale volume thresholds.''
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The Exchange also proposes to lower from $0.25 per contract to
$0.23 per contract the transaction fee in Tier 1 of the Liquidity
Provider Sliding Scale. The purpose of this change is to incentivize
Market-Makers at this first tier to quote more and execute more orders
on the Exchange, as well as to more effectively compete with pricing on
other exchanges.\10\
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\10\ See PHLX Pricing, Section II.
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The Exchange proposes to amend its CBOE Proprietary Products
Sliding Scale, under which Clearing Trading Permit Holder Proprietary
transaction fees and transaction fees for Non-Clearing Trading Permit
Holder Affiliates in OEX, XEO, SPX, SPXpm and volatility indexes are
reduced provided a Clearing Trading Permit Holder reaches certain
volume thresholds in multiply-listed options on the Exchange in a
month. The Exchange does not propose substantive changes to the fee or
structure of the CBOE Proprietary Products Sliding Scale. Instead, as
with the Liquidity Provider Sliding Scale, the Exchange proposes to
change the different tier thresholds from nominal contracts per month
thresholds to relative contracts per month thresholds (for the same
reasons as the Liquidity Provider Sliding Scale). The new thresholds
will be based on a Clearing Trading Permit Holder (Proprietary)
executing different percentages of total CBOE Clearing Trading Permit
Holder Proprietary volume in OEX, XEO, SPX, SPXpm, VIX and VOLATILITY
INDEXES.\11\ The new percentage thresholds generally correspond to the
old nominal thresholds (based on current total CBOE Clearing Trading
Permit Holder Proprietary volume in OEX, XEO, SPX, SPXpm, VIX and
VOLATILITY INDEXES). Similarly (and correspondingly), the Exchange
proposes to amend the different multiply-listed options tiers from
being based on total monthly volume to an Average Daily Volume
(``ADV'') threshold system (calculated monthly). The new thresholds ADV
thresholds generally correspond with the old monthly thresholds
(depending on how many trading days are in a given month). The purpose
of these changes is to control and account for changes in national
industry-wide multiply-listed options volume as well as the number of
trading days in a month. The Exchange also proposes a number of
cosmetic changes to the CBOE Proprietary Products Sliding Scale,
including (1) to renumber the tiers in the CBOE Proprietary Products
Sliding Scale, (2) to fix an error that listed ``SPXpm'' as ``SPXPm''
in the Notes, (3) clarify that VIX is included in the CBOE Proprietary
Products Sliding Scale (previously, it had just said ``volatility
indexes'', and while VIX is a volatility index, it can't hurt to be
more clear), (4) capitalize the term ``volatility indexes'' in the
``Notes'' in order to achieve consistency, (5) delete the term
``volume'' and replace it with ``ADV'' in the ``Notes'' due to the
change described above, and (6) change the title of a column from
``Proprietary Products Contracts Per Month'' to ``Proprietary Products
Volume Thresholds'' due to the changes described above. Once again, no
fees are being changed in the CBOE Proprietary Products Sliding Scale.
The proposed changes are detailed below.
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\11\ To make this clear, the Exchange also proposes adding to
the ``Notes'' section of the table the following statement:
``Transaction fees in OEX, XEO, SPX, SPXpm, VIX and VOLATILITY
INDEXES will be reduced based on reaching the percentage thresholds
in OEX, XEO, SPX, SPXpm, VIX and VOLATILITY INDEXES listed in the
table.''
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Current Proposed
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Proprietary product Proprietary product volume
Tier contracts per month Tier thresholds
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>= 375,000 < 1,500,000 contracts in >= 18,000 ADV <= 71,999 ADV in multi list
products
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1................................. First 750,000........ B3.................. 0.00%-6.50%
2................................. Next 250,000......... B2.................. 6.51%-8.50%
3................................. Above 1,000,000...... B1.................. Above 8.50%
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>=1,500,000 contracts in multi li>= 72,000 ADV in multi list products
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1................................. First 750,000........ A2.................. 0.00%-6.50%
2................................. Above 750,000........ A1.................. Above 6.50%
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The Exchange proposes to delete its Clearing Trading Permit Holder
VIX Options Sliding Scale (the ``VIX Options Sliding Scale'') and any
references in the Fees Schedule to the VIX Options Sliding Scale, as
well as language that
[[Page 3447]]
[sic] regarding the calculation of a Clearing Trading Permit Holder's
total proprietary transaction fees that will be made irrelevant by the
deletion of the VIX Options Sliding Scale.\12\ The Exchange instituted
the VIX Options Sliding Scale in an attempt to encourage greater
Clearing Trading Permit Holder proprietary trading of VIX options.\13\
The Exchange now proposes to delete the VIX Options Sliding Scale
because it is no longer competitively necessary. The vast majority of
CTPHs who qualify do not avail themselves of it and therefore it adds
unnecessary complexity to the Exchange's already-complex fees
structure.
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\12\ Specifically, the Exchange proposes to delete language in
Footnote 11 that states: ``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 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.''
As amended, Footnote 11, in its entirety, will read: The
Clearing Trading Permit Holder Fee Cap in all products except SPX,
SPXpm, SRO, VIX or other volatility indexes, OEX or XEO (the ``Fee
Cap'') and the CBOE Proprietary Products Sliding Scale for Clearing
Trading Permit Holder Proprietary Orders (the ``Sliding Scaleapply
[sic] 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'' for this purpose is 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. Only proprietary orders of the
Non-Trading Permit Holder Affiliate (``L '' origin code) 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 Fee Cap and Sliding Scale. Such orders
must be marked with a code approved by the Exchange identifying the
orders as eligible for the Fee Cap and 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 Fee Cap and Sliding Scale. A Clearing
Trading Permit Holder 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. The Exchange will
aggregate the fees and trading activity of separate Clearing Trading
Permit Holders for the purposes of the Fee Cap and 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. 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 Fee Cap and Sliding Scale. Transaction fees resulting from any
of the strategies defined in Footnote 13 will apply towards reaching
the Fee Cap. For facilitation orders (other than SPX, SPXpm, SRO,
VIX or other volatility indexes, OEX or XEO) (``facilitation
orders'' for this purpose to be defined as any paired order in which
a Clearing Trading Permit Holder (F) origin code or Non-Trading
Permit Holder Affiliate (``L '' origin code) is contra to any other
origin code, provided the same executing broker and clearing firm
are on both sides of the order) executed electronically (including
in AIM), open outcry, or as a QCC or FLEX transaction, CBOE will
assess no Clearing Trading Permit Holder Proprietary transaction
fees.
\13\ For more description regarding the VIX Options Sliding
Scale, see Securities Exchange Act Release No. 68699 (January 18,
2013), 78 FR 5538 (January 18, 2013) (SR-CBOE-2013-003).
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The Exchange proposes to amend its Fees Schedule with regard to
PULSe Workstation routing (specifically, with regard to routing from
one PULSe Workstation to another). By way of background, the PULSe
workstation is a front-end order entry system designed for use with
respect to orders that may be sent to the trading systems of CBOE. In
addition, the PULSe workstation provides a user with the capability to
send options orders to other U.S. options exchanges and/or stock orders
to other U.S. stock exchanges and trading centers \14\ (``away-market
routing'').\15\ PULSe Workstation users also have the capability to
send orders between PULSe workstations. For example, a user is able to
send an order from a PULSe workstation located in New York to a PULSe
workstation located in Chicago. The ability to send orders ``PULSe-to-
PULSe'' is available for use within a TPH (and any Non-TPHs to whom the
TPH makes the PULSe workstation available) and between TPHs that use
the PULSe workstation. A TPH may establish a PULSe-to-PULSe connection
with another TPH by contacting CBOE, who will permission [sic] the
connection. Before setting up the connection, both TPHs need to
acknowledge in writing (e.g., including via email) their agreement to
establish the mutual connection.
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\14\ A ``trading center,'' as provided under Rule 600(b)(78) of
Regulation NMS, 17 CFR 242.600(b)(78), means a national securities
exchange or national securities association that operates an SRO
trading facility, an alternative trading system, an exchange market
maker, an OTC market maker, or any other broker or dealer that
executes orders internally by trading as principal or crossing
orders as agent.
\15\ For a more detailed description of the PULSe workstation
and its other functionalities, see, e.g., Securities Exchange Act
Release Nos. 62286 (June 11, 2010), 75 FR 34799 (June 18, 2010) (SR-
CBOE-2010-051), 63244 (November 4, 2010), 75 FR 69148 (November 10,
2010) (SR-CBOE-2010-100), 63721 (January 14, 2011), 76 FR 3929
(January 21, 2011) (SR-CBOE-2011-001), 65280 (September 7, 2011), 76
FR 56838 (September 14, 2011) (SR-CBOE-2011-083), 65491 (October 6,
2011), 76 FR 63680 (October 13, 2011) (SR-CBOE-2011-092), and 69990
(July 16, 2013), 78 FR 43953 (July 22, 2013) (SR-CBOE-2013-062).
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The Exchange hereby proposes to impose a monthly PULSe-to-PULSe
Routing fee of $50 for each receiving TPH. This means that each TPH
with a PULSe Workstation that elects to receive orders from another
PULSe Workstation will be assessed this fee. The Exchange proposes to
assess the fee to cover costs associated with the development of PULSe-
to-PULSe routing, as well as the upkeep of such systems. The Exchange
proposes to assess the fee to the receiving TPH because, by electing to
receive PULSe-to-PULSe orders, the receiving TPH then gets the ability
to execute those orders on the Exchange. The Exchange also proposes a
non-substantive change to the Fees Schedule regarding PULSe Workstation
fees. Currently, there is a line under the ``Trading Floor Terminal
Rentals'' section of the ``Facility Fees'' table that lists PULSe On-
Floor Workstation fees as being $350 per login ID, and the note for
that fee is that ``this fee is waived for the first month of a new user
of a TPH''. However, there are more PULSe Workstation fees (including
that fee) listed in the ``PULSe Workstation'' fees section of the
``Facility Fees'' table. To avoid any potential confusion, the Exchange
proposes to delete the listing of the $350 per login ID fee amount, as
well as the note, from the PULSe On-Floor Workstation line of the
``Trading Floor Terminal Rentals'' section of the ``Facility Fees''
table and replace it with the statement ``See PULSe Workstation fees
below''.
The Exchange proposes to lower its Hybrid Agency Liaison (``HAL'')
Step-Up Rebate from $0.10 per contract to $0.05 per contract, and also
to delete obsolete language in the ``Notes'' description of the HAL
Step-Up Rebate.\16\ The purpose of this proposed change is because, as
routing practices have changed over the years, CBOE's competitive
strategy is no longer based on processing a notable amount of Linkage
traffic passing through the Exchange. Therefore it no longer makes
economic sense to offer as strong an incentive for Market-Makers to
``step up'' and attract orders coming through the Linkage.
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\16\ Following the proposed changes, the ``Notes'' section would
read: The Exchange shall rebate to a market-maker against
transaction fees generated from a transaction on the HAL system in a
penny pilot class, provided that at least 70% of the market-maker's
quotes in that class (excluding mini-options and quotes in LEAPS
series) in the prior calendar month were on one side of the NBBO.
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[[Page 3448]]
The Exchange proposes to amend its Linkage fees for Customers.
Currently, a different fees structure applies to customer orders of 100
or more contracts that is routed to one or more exchanges in connection
with the Options Order Protection and Locked/Crossed Market Plan
referenced in Rule 6.80 (the ``Linkage'') than applies to customer
orders of 99 contracts or less that are routed to one or more exchange
via Linkage. Those customer orders of 100 or more contracts are
assessed the actual transaction fee assessed by the exchange(s) to
which the order was routed, while customer orders of 99 contracts or
less are assessed the actual transaction fee assessed by the
exchange(s) to which the order was routed, minus $0.05 per contract.
The Exchange hereby proposes to eliminate this distinction, and assess
to all customer orders sent through Linkage the actual transaction fee
assessed by the exchange(s) to which the order was routed. It has
ceased to be economically viable for the Exchange to ``eat'' $0.05 per
contract on every customer order of 99 contracts or less that are
routed away via Linkage.\17\
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\17\ As proposed, the ``note'' regarding Customer Linkage Fees
will read as follows: In addition to the customary CBOE execution
charges, for each customer order that is routed, in whole or in
part, to one or more exchanges in connection with the Options Order
Protection and Locked/Crossed Market Plan referenced in Rule 6.80,
CBOE shall pass through the actual transaction fee assessed by the
exchange(s) to which the order was routed. Multiple orders from the
same executing firm for itself or for a CMTA or correspondent firm
in the same series on the same side of the market that are received
within 500 milliseconds will be aggregated for purposes of
determining the order quantity.
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The Exchange also proposes to increase by $0.05, to $0.55, the per-
contract routing fee assessed to non-customer orders routed through the
Linkage. The purpose of this proposed change is to cover costs
associated with routing orders through Linkage and paying the
transaction fees for such executions at other exchanges. The amount of
this fee is lower than corresponding non-customer Linkage fees assessed
by other exchanges.\18\
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\18\ See NASDAQ OMX PHLX LLC (``PHLX'') Pricing, Non-Customer
Routing Fee of $0.95 per contract.
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The Exchange also proposes to amend its Footnote 25. Currently, any
Floor Broker Trading Permit Holder that executes an average of 15,000
customer open-outcry contracts per day over the course of a calendar
month in multiply-listed options classes receives a rebate of $7,500 on
that Floor Broker Trading Permit Holder's Floor Broker Trading Permit
fees (the ``Floor Broker Access Rebate''). The Exchange proposes to add
a second tier to this rebate, and add that ``Any Floor Broker Trading
Permit Holder that executes an average of 25,000 customer open-outcry
contracts per day over the course of a calendar month in multiply-
listed options classes will receive a rebate of $15,000 on that Floor
Broker Trading Permit Holder's Floor Broker Trading Permit fees.'' The
purpose of the proposed change is to encourage Floor Brokers to execute
open-outcry customer trades in multiply-listed options, and the
Exchange believes that giving Floor Brokers a further break in their
Floor Broker Trading Permit fees will provide such an incentive. The
Exchange recognizes the competitive nature of maintaining a Floor
Broker operation at CBOE and wants to provide a credit to Floor Brokers
that engage in a significant amount of Floor Broker open outcry trading
at CBOE. For purposes of determining the rebate, the qualifying volume
of all Floor Broker Trading Permit Holders affiliated with a single TPH
organization will be aggregated, and, if such total meets or exceeds
the customer open-outcry contracts per day thresholds in multiply-
listed options classes, that TPH organization will receive a single
rebate, regardless of the number of Floor Broker Trading Permits
affiliated with that TPH organization.
Finally, the Exchange proposes to amend its Footnote 26, which
applies to the Exchange's Trading Permit and Tier Appointment Fees, to
state that Affiliated TPHs (TPHs with at least 75% common ownership
between the firms as reflected on each firm's Form BD, Schedule A) may
share their allotted bandwidth amongst each other. The purpose is to
allow for more efficient use of bandwidth. If a TPH is not using all of
its bandwidth and an affiliated TPH could use more, this will allow
them to share amongst each other (instead of having to purchase more).
The proposed changes are to take effect on January 1, 2014.
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.\19\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \20\ 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,\21\ which requires that
Exchange rules 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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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
\21\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposal to increase the fee for
electronic Clearing Trading Permit Holder Proprietary executions in
equity, ETF, ETN, and index options classes (except the Special
Classes) from $0.25 per contract to $0.35 per contract is reasonable,
equitable and not unfairly discriminatory because, while the per-
contract price is increasing, this new fee amount is still within the
range of fees paid by other market participants for such
transactions.\22\ The Exchange further believes this proposed change is
equitable and not unfairly discriminatory because the proposed new fee
amount is still lower than the fee assessed to Broker-Dealers and Non-
Trading Permit Holder Market-Makers for such transactions, and Clearing
Trading Permit Holders have some obligations (such as clearing trades)
that such market participants do not have. Further, this fee is still
lower than is assessed for comparable executions on other
exchanges.\23\ Finally, this fee will be assessed to all Clearing
Trading Permit Holder Proprietary transactions in the relevant
products.
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\22\ For example, Broker-Dealers and Non-Trading Permit Holder
Market-Makers pay either $0.45 per contract or $0.60 per contract
for such transactions (See CBOE Fees Schedule, page 1).
\23\ For example, PHLX assesses firm electronic fees of $0.45 or
$0.60 per contract for multiply-listed options (see PHLX Pricing,
Section II).
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The Exchange believes that the proposal to add ``L'' orders to the
definition of ``facilitation orders'' (thereby making L facilitation
orders free (except as otherwise stated)) is reasonable because such
orders will no longer be assessed a fee that they otherwise would be
assessed. The Exchange believes this is equitable and not unfairly
discriminatory because Non-Trading Permit Holder Affiliates of Clearing
Trading Permit Holders are a functional subset of Clearing Trading
Permit Holders, and they domicile customer accounts, so it makes sense
to put them in the same position as
[[Page 3449]]
Clearing Trading Permit Holders. Non-Trading Permit Holder Affiliates
of Clearing Trading Permit Holders cannot be proprietary trading firms
(whereas broker-dealers, for example, can). The Exchange believes that
the proposal to assess no fees for Clearing Trading Permit Holder
Proprietary facilitation transactions in Mini options is reasonable
because such transactions that would otherwise be assessed a fee will
now be free. The Exchange believes that this is equitable and not
unfairly discriminatory because Mini options are merely 1/10 the size
of regular options contracts, and such transactions in regular options
contracts are assessed no fee, so it makes sense to also assess no fee
for these transactions in Mini options.
The Exchange believes that the reorganization of the Proprietary
Options Rate Table will help avoid any potential confusion on the part
of market participants regarding which fees apply in different
circumstances, thereby removing impediments to and perfecting the
mechanism of a free and open market and a national market system.
The Exchange believes that the proposed changes to the customer VIX
options transaction fees are reasonable because the amounts of the new
fees are near the range of fees assessed for customer transactions in
other CBOE proprietary products. Indeed, the fee for customer
transactions in SPX options whose premium is less than $1.00 is $0.35
per contract, and the fee for customer transactions in SPX options
whose premium is greater than or equal to $1.00 is $0.44 per contract.
The proposed changes to the customer VIX options transaction fees are
equitable and not unfairly discriminatory because they are designed to
attract greater customer order flow to the Exchange, which will benefit
all market participants. Assessing different fees for customer
transactions in VIX options depending on the premium is equitable and
not unfairly discriminatory because the Exchange believes that the
lowered fees for VIX options trading with a premium of $0.00-$0.10 will
encourage the trading of such options. The slight increases of the fees
for Customer transactions in VIX options whose premium is greater than
or equal to $1.00 as well as those whose premium is $0.11-$0.99 is
being utilized in order to achieve some level of revenue balance in
connection with the lowered fee for customer transactions in VIX
options whose premium is $0.00-$0.10. Further, the Exchange currently
offers different fees depending on the premium for customer
transactions in SPX options (as described in the previous paragraph).
Finally, these fees will be assessed to all Customer VIX options
transactions. The Exchange has expended significant resources to
develop proprietary products such as VIX options and must recoup such
costs.
The Exchange believes that assessing the same Customer fees to
other VOLATILITY INDEXES as are assessed to VIX options is reasonable,
equitable and not unfairly discriminatory because VIX is itself a
Volatility Index, and therefore it makes sense to assess the same
Customer fees to all other VOLATILITY INDEXES as are assessed to the
Exchange's most heavily-traded Volatility Index (VIX). The VIX and
VOLATILITY INDEXES fees that apply to each other market participant are
already the same. This proposed change will be applied equally to all
Customer VOLATILITY INDEX transactions.
The Exchange believes that the proposed fees for CBOE Market-Maker
transactions in VIX and VOLATILITY INDEXES are reasonable because they
are within the range of those assessed for transactions in VIX and
VOLATILITY INDEXES by other market participants, as well as those
assessed to CBOE Market-Makers for other products.\24\ Indeed, while
the proposed change is a slight increase when the premium is $0.11 or
greater, the proposed change is also a sizable decrease when the
premium is $0.00-$0.10. The Exchange believes this proposed change is
equitable and not unfairly discriminatory because it is designed to
attract greater customer order flow to the Exchange, which will benefit
all market participants. Further, while these fees are still lower than
assessed to other market participants for transactions in VIX and other
VOLATILITY INDEXES, CBOE Market-Makers/DPMs/E-DPMs/LMMs take on
obligations, such as quoting obligations, that other market
participants do not. There are different economic potentials for market
participants based on the premium of a trade, and therefore it can make
sense to offer different fees for different premiums in some products
(depending on the economics of trading in such products).
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\24\ See CBOE Fees Schedule, Proprietary Options Rate Table.
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The Exchange believes that the proposed increase in the Hybrid 3.0
Execution Fee is reasonable because it is merely an increase of $0.02
per contract, and the Exchange uses this fee to cover the costs of
operating the Hybrid 3.0 system. The Exchange believes that this
proposed increase is equitable and not unfairly discriminatory because
it applies to all Hybrid 3.0 executions \25\, and because the increased
fee will cover the costs of operating the Hybrid 3.0 system. At the
time that the Hybrid 3.0 Execution Fee was adopted, most orders
executed via Hybrid 3.0 were simple orders. Now, with the growing
prevalence of complex orders, the Exchange desires to increase the
Hybrid 3.0 Execution Fee to cover the increased system complexity (and
use of resources necessary) due to the trading of complex orders. The
Exchange believes that adding the correct origin codes as applicable to
the Hybrid 3.0 Execution Fee, and amending Footnote 21 to remove the
reference to the Hybrid 3.0 Execution Fee as being $0.18 per contract,
will help alleviate any potential confusion regarding the amount of the
Hybrid 3.0 Execution Fee and to whom it applies. This alleviation of
potential confusion serves to remove impediments to and perfect the
mechanism of a free and open market and a national market system.
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\25\ With the exception of those listed in Footnote 21 of the
Fees Schedule; the Exchange does not herein propose to amend such
exceptions.
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The Exchange believes that the proposed Customer Priority
Surcharges are reasonable, equitable and not unfairly discriminatory.
The purpose of the Customer Priority Surcharges is to ensure that there
is reasonable cost equivalence between the primary execution channels
for the products involved. Manual executions are achieved using floor
brokers (the only market participants who can trade contracts using a
PAR terminal), who assess a commission for Customer executions.
Electronic executions are not assessed a commission, but more heavily
rely on the Exchange's systems. The proposed Customer Priority
Surcharges will minimize the cost differentials between manual and
electronic executions, which is in the interest of the Exchange as it
must both maintain robust electronic systems as well as provide for
economic opportunity for floor brokers to continue to conduct business,
as they serve an important function in achieving price discovery and
Customer executions. Floor brokers ensure that the difficult-to-execute
orders (such as large and complex orders) are able to be executed
manually by accessing the CBOE's in-person market maker crowds, while
also helping to achieve price improvement. SPX, SPXW and VIX are the
only products that execute a significant share of their total volume on
the trading floor, and the Hybrid 3.0 Execution Fee (which essentially
acts as a customer
[[Page 3450]]
priority surcharge) already applies to SPX. SPXW often has a lower
premium (as it is a weekly option with a lower timeframe, as the
options have less time value than the regular SPX options), so it makes
sense to assess a lower SPXW Customer Priority Surcharge than the
Hybrid 3.0 Execution Fee. VIX options trade at a lower underlying value
than SPX and so also have a lower premium value, so it also makes sense
for the VIX Customer Priority Surcharge to be lower than the Hybrid 3.0
Execution Fee. As described above, the Exchange wants to encourage the
execution of VIX options Customer orders for options with a premium of
$0.00-$0.10, and therefore is not proposing to assess the Customer
Priority Surcharge on such options. The Exchange believes that it is
equitable and not unfairly discriminatory to only assess this surcharge
to Maker Non-Turners because VIX options is such a unique product that
we want to continue to encourage market participation and price
improvement with a low underlying (unlike SPX or SPXW, which has a
higher underlying). Someone improving the market (``turning'') has a
much greater proportional impact in a product with a lower underlying,
and the Exchange wants to encourage such market improvement.
The Exchange believes that converting the qualification for the
different fee tiers in the Liquidity Provider Sliding Scale from
measuring by a nominal contracts per month to measuring by the relative
contracts per month (based on the percentage of national Market-Maker
volume in multiply-listed options) is reasonable because it allows the
Exchange to control and account for changes in national industry-wide
multiply-listed options volume. Further, it will still allow Market-
Makers to pay lower fees for executing more orders in multiply-listed
options, just as prior to this change. The Exchange believes that the
change is equitable and not unfairly discriminatory because it will be
applied to all Market-Makers. The change merely switches out the
measuring stick to use one that accounts for changes in industry-wide
volume. Finally, Market-Makers must take on certain obligations, such
as quoting obligations, that other market participants do not have.
The Exchange believes that the changes to the prepayment for the
Liquidity Provider Sliding Scale are reasonable because they correspond
with the adoption of relative, percentage-based tiers, and also because
the new prepayment amount will be lower than previously (making it
easier to prepay). The Exchange believes that these changes are
equitable and not unfairly discriminatory because they will apply to
all market participants to whom the Liquidity Provider Sliding Scale
applies.
Similar to the changes to the Liquidity Provider Sliding Scale, the
Exchange believes that the changes to the CBOE Proprietary Products
Sliding Scale are reasonable because they allow the Exchange to control
and account for changes in national industry-wide multiply-listed
options volume, as well as the differing number of days in a month. The
Exchange believes that these changes are equitable and not unfairly
discriminatory because, first and foremost, there are no substantive
changes to the fees in the CBOE Proprietary Products Sliding Scale.
Indeed, these changes merely serve to better standardize the CBOE
Proprietary Products Sliding Scale (as well as make it easier to read).
The changes merely switch out the measuring stick to use one that
accounts for changes in industry-wide volume. Further, the changes will
apply to all market participants who qualify for the CBOE Proprietary
Products Sliding Scale. Finally, Clearing Trading Permit Holders must
take on certain obligations, such as clearing, that other market
participants do not have. The Exchange believes that the cosmetic
changes to the CBOE Proprietary Products Sliding Scale will prevent any
possible potential investor confusion, thereby removing impediments to
and perfecting the mechanism of a free and open market and a national
market system, and, in general, protecting investors and the public
interest.
The Exchange believes that lowering the fee in Tier 1 of the
Liquidity Provider Sliding Scale is reasonable because it will allow
Market-Makers in that tier to pay a lower fee for transactions. The
Exchange believes that this is equitable and not unfairly
discriminatory because the lower fee is designed to encourage Market-
Makers to execute more transactions, and the resulting increased volume
and trading opportunities will benefit all market participants
(including Market-Makers at the other tiers of the Liquidity Provider
Sliding Scale). Further, Market-Makers take on obligations, such as
quoting obligations, that other market participants do not have.
The Exchange believes that the deletion of the VIX Options Sliding
Scale is reasonable, equitable and not unfairly discriminatory because
it will merely result in Clearing Trading Permit Holders being assessed
the standard Clearing Trading Permit Holder Proprietary transaction fee
for VIX options transactions (instead of having the fee amount for such
transactions change based on the number of VIX options transactions the
Clearing Trading Permit Holder executes in a month). As such, all
Clearing Trading Permit Holder Proprietary VIX options transactions
will be assessed the same fee amount. As always, Clearing Trading
Permit Holders must take on certain obligations, such as clearing, that
other market participants do not have.
The Exchange believes the imposition of the PULSe-to-PULSe Routing
Fee is reasonable because it is intended to cover the costs associated
with the development of PULSe-to-PULSe routing, as well as the upkeep
of such systems. The Exchange believes that it is equitable and not
unfairly discriminatory because it will be assessed to all receiving
TPHs that elect to receive PULSe-to-PULSe orders. The Exchange proposes
to assess the fee to the receiving TPH because, by electing to receive
PULSe-to-PULSe orders, the receiving TPH then gets the ability to
execute those orders on the Exchange. The Exchange believes that the
proposal to amend the listing of the fee and note for the PULSe On-
Floor Workstation in the ``Trading Floor Terminal Rentals'' section of
the ``Facility Fees'' table will alleviate any potential confusion,
thereby removing impediments to and perfecting the mechanism of a free
and open market and a national market system, and, in general,
protecting investors and the public interest.
The Exchange believes that lowering the HAL Step-Up Rebate is
reasonable because it will still allow Market-Makers to receive a
rebate for trading activity that they would not otherwise receive (just
a smaller rebate). The Exchange believes that this proposed change is
equitable and not unfairly discriminatory because it applies to all
Market-Makers who qualify for the HAL Step-Up Rebate (only Market-
Makers can quote and therefore ``step up''). Moreover, the proposed
change does not affect who may qualify for the HAL Step-Up Rebate.
Further, Market-Makers have certain obligations, such as quoting
obligations, that other market participants do not have.
The Exchange believes that its proposal to charge all customer
orders routed via Linkage the actual transaction costs assessed by the
exchange(s) to which the orders are routed is reasonable, equitable and
not unfairly discriminatory because the Exchange will merely be passing
through these execution costs to the customer. Further, this pass-
through will be applied equally to all customer orders, regardless of
size.
[[Page 3451]]
The Exchange believes that its proposal to increase the non-
customer Linkage fee by $0.05, to $0.55 per contract, is reasonable,
equitable and not unfairly discriminatory because such increase will
help offset the costs associated with routing orders through Linkage
and paying the transaction fees for such executions at other exchanges.
The amount of this fee is lower than corresponding non-customer Linkage
fees assessed by other exchanges.\26\ This fee amount will be assessed
to all non-customer orders routed via Linkage. The Exchange notes that
there exists in the options industry a historical practice of
preferential pricing for customers, whose orders are more attractive
for trading partners and who also often do not have as sophisticated
trading systems as other market participants.
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\26\ See PHLX Pricing, Non-Customer Routing Fee of $0.95 per
contract.
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The Exchange believes that offering a second tier of the Floor
Broker Access Rebate is reasonable because it allows the qualifying
Floor Brokers to pay lower Floor Broker Trading Permit fees than they
otherwise would have. The Exchange believes that it is equitable and
not unfairly discriminatory to offer the second tier of the rebate to
Floor Brokers only, and only those who execute 25,000 contracts per day
(of customer, open-outcry trading in multiply-listed options classes)
because Floor Brokers serve an important function in facilitating the
execution of orders via open outcry, which as a price-improvement
mechanism, the Exchange wishes to encourage and support. Further, the
proposed change is designed to encourage the execution of orders via
open outcry, which should increase volume, which would benefit all
market participants (including Floor Brokers who do not hit the 25,000
contracts-per-day threshold) trading via open outcry (and indeed, this
increased volume could make it possible for some Floor Brokers to hit
the 25,000 contracts-per-day threshold). Also, only Floor Brokers are
assessed Floor Broker Trading Permit fees. The Exchange proposes
limiting the rebate qualification to open outcry trading because Floor
Brokers only engage in open outcry trading (at least in their
capacities as Floor Brokers), and because, as previously stated, the
Exchange wishes to support and encourage open-outcry trading, which
allows for price improvement and has a number of positive impacts on
the market system. The Exchange proposes limiting the rebate
qualification to customer orders because market participants generally
prefer to trade against customer trades, and encouraging customer
trading in this manner should provide such market participants with
more customer orders with which to trade. Further, the options industry
has a long history of promoting customer orders through rebates and
other preferential fee structures. The Exchange proposes limiting the
rebate qualification to multiply-listed options classes because the
Exchange expended considerable resources developing its proprietary,
singly-listed products and therefore does not desire to offer this
rebate associated with such products.
The Exchange believes that the proposed change to permit the
sharing of bandwidth between affiliated TPHs is reasonable because it
will allow such TPHs more efficient use of bandwidth without having to
purchase more (if they can share with each other). The Exchange
believes that this proposed change is equitable and not unfairly
discriminatory because it will apply to all groupings of affiliated
TPHs.
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. CBOE does not believe that the
proposed rule change will impose any burden on intramarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act because, while different fees are assessed to different market
participants in some circumstances, these different market participants
have different obligations and different circumstances (as described in
the ``Statutory Basis'' section above). For example, Clearing Trading
Permit Holders have clearing obligations that other market participants
do not have. Market-Makers have quoting obligations that other market
participants do not have. There is a history in the options markets of
providing preferential treatment to Customers, as they often do not
have as sophisticated trading operations and systems as other market
participants, which often makes other market participants prefer to
trade with Customers. Further, the Exchange fees, both current and
those proposed to be changed, are intended to encourage market
participants to bring increased volume to the Exchange (which benefits
all market participants), while still covering Exchange costs
(including those associated with the upgrading and maintenance of
Exchange systems).
CBOE does not believe that the proposed rule change will impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act because the proposed changes
are intended to 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 (while still
covering costs as necessary). 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 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 \27\ and paragraph (f) of Rule 19b-4 \28\
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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\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 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-2013-129 on the subject line.
[[Page 3452]]
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-2013-129. 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 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-2013-129, and should be
submitted on or before February 11, 2014.
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\29\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-00984 Filed 1-17-14; 8:45 am]
BILLING CODE 8011-01-P