[Federal Register Volume 79, Number 167 (Thursday, August 28, 2014)]
[Notices]
[Pages 51381-51383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-20468]
[[Page 51381]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72903; File No. SR-CBOE-2014-065]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend the Fees Schedule
August 22, 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 August 12, 2014, 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 amend its Fees Schedule. First, the
Exchange proposes to delete from Footnote 5 of the Fees Schedule the
sentence ``If a market-maker executes an order for an account in which
the market-maker is not a registered participant as reflected in the
TPH Department records, the market-maker will be assessed a floor
brokerage fee.'' Exchange Rule 8.9 currently prohibits a Market-Maker
from executing an order for an account in which the market-maker is not
a registered participant.\3\ As such, the Exchange does not wish to
have a statement in its Fees Schedule assessing a fee for such
activity, as this would seem to imply that such activity is permitted.
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\3\ See CBOE Rule 8.9.
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Next, the Exchange proposes to amend the Floor Brokerage Fees
table. Currently, the Floor Brokerage Fees table sets forth the fees
per contract for the following products: (i) ``OEX, SPX and SPXpm Index
Options; (ii), ``SROs'' and (iii) ``VIX, VXST and Volatility Index
Options.'' Additionally, the Floor Brokerage Fees table groups together
like products and differentiates between fees for ``Non-Crossed
Orders'' and ``Crossed Orders.'' Although OEX, an American-Style
Exercise S&P 100 Index option, is explicitly referenced in the Floor
Brokerage Fees table, XEO, the European-Style Exercise S&P 100 Index
option, is not separately spelled out in the Floor Brokerage Fees
table. The Exchange is proposing to make clear in the text of the Fees
Schedule that XEO is a product in which floor brokerage fees apply. The
Exchange notes that the only difference between OEX and XEO options is
the manner in which the respective contracts are exercised (i.e.
American-style versus European-style). The Exchange believes the
proposed addition of rule text will provide greater clarity for
customers and will allow market participants to better understand how
fees are applied.
Next, the Exchange proposes to amend Footnote 7 of the Fees
Schedule. Footnote 7 of the current Fees Schedule provides ``After
three months, all fees as assessed by the Exchange are considered final
by the Exchange.'' The purpose of this statement is to encourage
Trading Permit Holders (``TPHs'') to promptly review their Exchange
invoices so that any disputed charges can be addressed in a timely
manner. The Exchange notes that the footnote is not intended to
preclude the Exchange from assessing fees more than three months after
they were incurred. Indeed, the Exchange is required to enforce
compliance by its TPHs and persons associated with its TPHs the rules
of the Exchange, including its Fees Schedule.\4\ As such, the Exchange
must ensure that it assesses the fees set forth in its Fees Schedule so
long as the fee(s) were required to be paid pursuant to the CBOE Fees
Schedule in effect at the time the fees were incurred, even if the
Exchange must assess the fees more than three months after they have
been incurred. The Exchange believes it would be beneficial to make
this clear in the Fees Schedule and provide further clarifying language
regarding the finality of fees. Specifically, the Exchange seeks to
amend Footnote 7 to state ``Any potential billing errors relating to
fees assessed by CBOE must be brought to the attention of CBOE's
Accounting Department within three months from the invoice date. All
fees assessed shall be deemed final and non-refundable after three
months from the invoice date. The Exchange is not precluded from
assessing fees more than three months after they were incurred if those
fees were required to be paid pursuant to the CBOE Fees Schedule in
effect at the time the fees were incurred.'' The Exchange notes that
this has always been the case, and the clarification is simply
reflecting how the current language of the CBOE Fees Schedule applies.
The Exchange also notes that its practice is to assess fees in a timely
manner at the time such fees are incurred. However, the Exchange
requires the ability to assess any fee upon discovering an error
regardless of how much time has passed since the fee was incurred.
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\4\ 15 U.S.C. 78f(b)(1).
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The Exchange next proposes to make an amendment to the CBOE Command
Connectivity Charges table. Currently, the Exchange charges TPHs a $500
per month Network Access Port fee for 1 gigabit (``1 Gbps'') network
access connectivity and $3,000 per month for 10 Gbps network
connectivity. The Network Access Ports provide direct access to CBOE
Command. Additionally, in order to be able to connect to the Exchange's
disaster recovery systems in case of a disaster, the Exchange offers a
Disaster Recovery Network Access Port in Chicago for a $250 per month
fee. The Exchange currently offers only a 1 Gbps Disaster Recovery
Network Access Port connection. Network Access Ports are used to
receive unicast (i.e., orders and quotes) and multicast (i.e., market
data) traffic. The Exchange notes that a 1 Gbps port may receive both
unicast and multicast traffic, whereas a 10 Gbps port may only receive
either multicast or unicast traffic. The Exchange seeks to clarify that
the Network Access Port fee
[[Page 51382]]
is assessed separately for unicast and multicast connectivity.
Accordingly, if a TPH has 1 Gbps connectivity and receives both unicast
and multicast traffic through a single port, the TPH would be charged
$1,000 dollars per month (i.e., $500 per month for unicast connectivity
and $500 per month for multicast connectivity). Similarly, if a TPH has
one 1 Gbps Network Access Port for unicast connectivity only and
another 1 Gbps Network Access Port for multicast connectivity only, the
TPH would be charged $1,000 dollars per month (i.e. $500 per month for
each port). Additionally, if a TPH has a single 1 Gbps Disaster
Recovery Network Access Port and receives both unicast and multicast
traffic through the single port, the TPH would be charged $500 dollars
per month (i.e., $250 per month for unicast connectivity and $250 per
month for multicast connectivity). Similarly, if a TPH has one 1 Gbps
Disaster Recovery Network Access Port for unicast connectivity only and
another 1 Gbps Disaster Recovery Network Access Port for multicast
connectivity only, the TPH would be charged $500 dollars per month
(i.e. $250 per month for each port). As noted above, a single 10 Gbps
Network Access Port cannot receive both unicast and multicast traffic.
Accordingly, if a TPH wants a 10 Gbps connection, in order to receive
both traffic types the TPH would need to purchase two 10 Gbps Network
Access Ports (i.e., one to be used for multicast connectivity and one
to be used for unicast activity) and would therefore be charged $6,000
per month (i.e., $3,000 per month for each port)
Lastly, the Exchange proposes to make a clarification to the
``Notes'' section of the Clearing Trading Permit Holder Position Re-
Assignment Rebate Program (``Rebate Program''). By way of background,
the Rebate Program allows the Exchange to rebate assessed transaction
fees to a Clearing Trading Permit Holder (``CTPH'') who, as a result of
a trade adjustment on any business day following the original trade,
re-assigns a position established by the initial trade to a different
CTPH. In such a circumstance, the Exchange will rebate, for the party
for whom the position is being re-assigned, that party's transaction
fees from the original transaction as well as the transaction in which
the position is re-assigned. Because the Exchange may not always be
able to automatically identify these situations, in order to receive a
rebate, the Exchange requires a written request with all supporting
documentation (trade detail regarding both the original and re-
assigning trades) and a summary of the reasons for the re-assignment to
be submitted within 60 days after the last day of the month in which
the error occurred. In SR-CBOE-2002-013 \5\ and again in SR-CBOE-2013-
058,\6\ the Exchange describes a situation involving a member's clerk,
or other similar personnel, inputting the wrong clearing firm code into
the appropriate form or program. As a result, the Exchange noted that
the trade would be cleared through the wrong clearing firm and, in
order to correct the situation, corrective transactions would be
entered to reverse the error trades and then new trades would be
submitted to reflect the original intentions of the parties. Without
the keypunch error rebate program, the clearing firm whose code was
erroneously entered would have to pay Exchange transaction fees for any
transactions necessary to reverse the initial trade (despite not having
been a party to such trade). The Exchange proposes to clarify that it
is the ``executing'' CTPH that would be rebated, as opposed to a CTPH
that received a trade via a Clearing Member Trade Agreement (CMTA).\7\
The Exchange believes the proposed clarification to the Notes section
of the Rebate Program will provide greater clarity for market
participants and reduce potential confusion.
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\5\ See Securities Exchange Act Release No. 34-45675 (March 29,
2002), 67 FR 16480 (April 5, 2002) (SR-CBOE-2002-013).
\6\ See Securities Exchange Act Release No. 34-69760 (June 13,
2013), 78 FR 36805 (June 19, 2013) (SR-CBOE-2013-058).
\7\ Under a CMTA agreement, an Options Clearing Corporation
clearing member (``carrying clearing member'') authorizes another
clearing member (``executing clearing member'') to give up the name
of the carrying clearing member with respect to any trade executed
on a specific exchange (i.e., the re-assignment of a trade to a
different Clearing firm occurs post-trade at the OCC).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ 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. The Exchange
also believes the proposed rule change is consistent with Section
6(b)(4) of the Act,\10\ which provides that Exchange rules may provide
for the equitable allocation of reasonable dues, fees, and other
charges among its Trading Permit Holders.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78f(b)(4).
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In particular, the Exchange believes that the proposed
clarifications to the Fees Schedule will make the Fees Schedule easier
to read and alleviate potential confusion. The alleviation of potential
confusion will remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest. Specifically, the Exchange
believes that the proposed change to delete the sentence in Footnote 5
will alleviate any potential confusion regarding whether such activity
is permitted. The Exchange believes that the amendments to Footnote 7
provides further clarification as to the finality of assessed fees and
prevents potential confusion as to whether or not the Exchange may
assess fees more than three months after they were incurred.
The Exchange believes the amendment to the Floor Brokerage fees
table will promote just and equitable principles of trade by clarifying
to Trading Permit Holders that floor brokerage fees apply to the
European-Style Exercise S&P 100 Index option (XEO) as well as the
American-Style Exercise S&P 100 Index option (OEX), thereby eliminating
potential confusion and removing impediments to and perfecting the
mechanism of a free and open market and a national market system.
Providing a clearer representation of fees in the Exchange Fees
Schedule will remove any confusion that may exist as to which products
may be subject to certain fees. The Exchange believes it is reasonable,
equitable and not unfairly discriminatory to apply the same floor
brokerage fees to XEO options as currently applied to OEX options,
because both are S&P 100 Index options. As noted above, the only
difference between the two options is the manner in which the options
are exercised (i.e. American-style versus European-style).
The Exchange also believes that the proposed change to specify that
separate Network Access Fees are assessed for unicast and multicast
connectivity also alleviates potential confusion regarding
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how the Network Access Fee is assessed, thereby removing impediments to
and perfecting the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public
interest. The Exchange believes the proposed rule change is reasonable
because the amount assessed for unicast connectivity and multicast
connectivity to TPHs using 1 Gbps Network Access Port(s) is the same.
Additionally, the Exchange believes this change is equitable and not
unfairly discriminatory because it will apply to all TPHs who use a 1
Gbps Network Access Port equally. The Exchange notes that whether a TPH
receives unicast and multicast connectivity via a single 1 Gbps Network
Access Port, two separate 1 Gbps Network Access Ports or two separate
10 Gbps Network Access Ports, in each instance, the TPH would be
charged for each type of access regardless of how many physical ports
they use.
Lastly, the Exchange believes it will be beneficial to market
participants to make it explicitly clear that it is the ``executing''
CTPH that would be rebated under the Clearing Trading Permit Holder
Position Re-Assignment Rebate Program. The Exchange believes this
proposed rule change reduces confusion as to which CTPHs are entitled
to a rebate under the Rebate Program, thereby removing impediments to
and perfecting the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public
interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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 proposed changes to
alleviate confusion are not intended for competitive reasons and only
apply to 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 \11\ and paragraph (f) of Rule 19b-4 \12\
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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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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-2014-065 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2014-065. 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-2014-065 and should be
submitted on or before September 18, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20468 Filed 8-27-14; 8:45 am]
BILLING CODE 8011-01-P