[Federal Register Volume 81, Number 14 (Friday, January 22, 2016)]
[Notices]
[Pages 3841-3847]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01200]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76923; File No. SR-CBOE-2016-002)
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 15, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on January 4, 2016, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Fees Schedule. The text of the
proposed rule change is available on the Exchange's Web site (http://www.cboe.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
[[Page 3842]]
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, effective January 4, 2016.
Market-Maker Affiliate Volume Plan
The Exchange proposes to adopt the Market-Maker Affiliate Volume
Plan (``AVP''). Specifically, under AVP, if a Trading Permit Holder
(``TPH'') Affiliate \3\ of a Market-Maker (including a Designated
Primary Market-Maker (``DPM'') or Lead Market-Maker (``LMM''))
qualifies under the Volume Incentive Program (``VIP''), that Market-
Maker will also qualify for a discount on that Market-Maker's Liquidity
Provider Sliding Scale (``Sliding Scale'') transaction fees. By way
background [sic], under VIP, the Exchange credits each Trading Permit
Holder the per contract amount set forth in the VIP table resulting
from each public customer (``C'' origin code) order transmitted by that
TPH (with certain exceptions) which is executed electronically on the
Exchange in all underlying symbols excluding Underlying Symbol List A,
DJX, XSP, XSPAM, credit default options, credit default basket options
and mini-options, provided the TPH meets certain volume thresholds in a
month.\4\ Currently, VIP consists of four (4) tiers with the following
thresholds; 0%-0.75%, above 0.75%-1.50%, above 1.50%-3.00% and above
3%. The Exchange proposes to provide that if a Market-Maker's Affiliate
reaches Tier 2, Tier 3 or Tier 4 of VIP, that Market-Maker will receive
a discount on their Sliding Scale Market-Maker transaction fees of 10%,
15% or 20%, respectively.\5\ Below is a table demonstrating the
proposed program.
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\3\ ``Affiliate'' is defined as having at least 75% common
ownership between the two entities as reflected on each entity's
Form BD, Schedule A.
\4\ Currently, excluded from the VIP credit are options in
Underlying Symbol List A, DJX, XSP, XSPAM, credit default options,
credit default basket options, mini-options, QCC trades, public
customer to public customer electronic complex order executions, and
executions related to contracts that are routed to one or more
exchanges in connection with the Options Order Protection and
Locked/Crossed Market Plan referenced in Rule 6.80 (see CBOE Fees
Schedule, Volume Incentive Program).
\5\ The discount will be on transaction fees only (i.e., the
rates charged pursuant to the Liquidity Provider Sliding Scale).
Other fees, such as the Index License Surcharge, will not be
discounted.
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AVP
Transaction
Tier VIP Thresholds fee
discount
(%)
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1......................... 0.00%-0.75%.................... 0
2......................... Above 0.75%-1.50%.............. 10
3......................... Above 1.50%-3.00%.............. 15
4......................... Above 3.00%.................... 20
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The Exchange believes AVP will incentivize the routing of orders to
CBOE by TPHs that have both Market-Maker and agency operations, as well
as incent Market-Makers to tighten market widths due to the reduced
costs the incentives will provide. The Exchange notes that in the
options industry, many options orders are routed by consolidators,
which are firms that have both order router and Market-Maker
operations. The Exchange is aware not only of the importance of
providing credits on the order routing side in order to encourage the
submission of orders, but also of the operations costs on the Market-
Maker side. The Exchange believes AVP allows the Exchange to provide
further relief to the Market-Maker side via the discount. Additionally,
the Exchange believes AVP will attract more volume and liquidity to the
Exchange, which will benefit all Exchange participants through
increased opportunities to trade as well as enhancing price discovery.
Market-Maker Trading Permit Credits
Currently, Footnote 24 provides that if a Market-Maker or its
affiliate receive a credit under VIP, that Market-Maker will receive a
credit on its Market-Maker Trading Permit fees corresponding to the VIP
tier reached (10% Market-Maker Trading Permit fee credit for reaching
Tier 2 of the VIP, 20% Market-Maker Trading Permit fee credit for
reaching Tier 3 of the VIP, and 30% Market-Maker Trading Permit fee
credit for reaching Tier 4 of the VIP) (``Access Credit''). This credit
does not apply to Market-Maker Trading Permits used for appointments in
SPX, SPXpm, VIX, OEX and XEO. The Exchange proposes to make certain
amendments to Footnote 24.
First, the Exchange proposes to clarify that a Market-Maker will
receive an Access Credit if its Affiliate, not the Market-Maker itself,
reaches certain VIP tiers (i.e., eliminate ``or its'' from ``If a
Market-Maker or its Affiliate . . .'' [sic] As noted above, VIP credits
are limited to TPHs executing customer orders. As such, Market-Maker
orders would not be eligible to count towards the qualifying tiers or
receive VIP credits. The Exchange believes the proposed change
clarifies this point and alleviates potential confusion. The Exchange
notes no substantive changes are being made by this clarification.
Next, the Exchange proposes to exclude from the Access Credit,
Market-Maker Trading Permits used for appointments in the Russell 2000
Index (``RUT''). The Exchange notes that the proposed exclusion is
similar to the exclusion of other proprietary and exclusive products.
The Exchange notes the Exchange's proprietary, exclusively-listed
products are often collectively excluded from certain programs,
including the Access Credit, because the Exchange has expended
considerable resources developing and maintaining those products and
therefore desires not to give a credit related to those products in
order to recoup those expenditures. Similar to the products currently
excluded from the Access Credit, RUT is no longer listed on any other
exchange (other than C2). As such, the Exchange proposes to exclude
Market-Maker Trading Permits used for RUT appointments from the Access
Credit.
The Exchange also proposes to incorporate the description of the
Access Credit within a single Affiliate Volume Plan table, as both the
Access Credit and discount on Market-Maker fees under AVP are based
upon a Market-Maker Affiliate reaching certain tiers within VIP. The
Exchange believes the proposed table alleviates potential confusion and
makes the Fees Schedule easier to read.
Floor Broker Trading Permit Rebates
Footnote 25, which governs rebates on Floor Broker Trading Permits,
currently provides that any Floor Broker that executes a certain
average of customer open-outcry contracts per day over the course of a
calendar month in all underlying symbols excluding Underlying Symbol
List A (except RUT), DJX, XSP, XSPAM, mini-options and subcabinet
trades, will receive a rebate on that Floor Broker's Trading Permit
Holder's Floor Broker Trading Permit Fees. The Exchange notes that
although RUT had previously been added to ``Underlying Symbol List A'',
it had continued to include RUT in the calculation of the qualifying
volume for the rebate of Floor Broker Trading Permit fees. The Exchange
now seeks to exclude RUT volume from the calculation, similar to the
exclusion of all other products in Underlying Symbol List A. As
discussed above, the Exchange's proprietary, exclusively-listed
products are often collectively excluded from certain programs because
the Exchange has expended considerable resources developing and
[[Page 3843]]
maintaining these products. Similar to the products currently excluded
from the calculation of qualifying volume for the Floor Broker Trading
Permit rebates, RUT is no longer listed on any other exchange (other
than C2) and the Exchange therefore proposes to exclude it from the
qualifying calculation.
NDX and MNX Fees
The Exchange next proposes to increase the Nasdaq-100 Index
(``NDX'') and mini-NDX Index (``MNX'') Index License Surcharge.
Currently, the Exchange assesses an Index License Surcharge for NDX and
MNX of $0.15 per contract for all non-customer orders. The Exchange now
proposes to increase the NDX and MNX Surcharge from $0.15 to 0.25 per
contract in order to recoup the increased costs associated with the NDX
and MNX license. The Exchange will still be subsidizing the costs of
the NDX and MNX license. Additionally, like other proprietary index
products, the Exchange proposes to except NDX and MNX from VIP and from
the Marketing Fee.
VIX License Index Surcharge
The Exchange proposes to waive through March 2016 the VIX Index
License Surcharge of $0.10 per contract for Clearing Trading Permit
Holder Proprietary (``Firm'') (origin codes ``F'' or ``L'') VIX orders
that have a premium of $0.10 or lower and have series with an
expiration of less than seven (7) calendar days. Particularly, the
Exchange is attempting to reduce transaction costs on expiring, low-
priced VIX options in order to encourage Firms to seek to close and/or
roll over such positions close to expiration at low premium levels,
including facilitating customers to do so, in order to free up capital
and encourage additional trading. Currently, Firms are less likely to
engage in such activity because the transaction fees are often
equivalent [sic] or even exceed the premium level, making such
transactions economically unattractive. The Exchange believes that the
[sic] lowering costs for VIX options trading with a premium of $0.00-
$0.10 and for series with an expiration of less than 7 days will
encourage the closing, rolling and trading of such options and new
series, as well. The Exchange proposes to waive the surcharge through
March 2016, at which time the Exchange will evaluate whether the wavier
[sic] has in fact prompted Firms to close and roll over positions close
to expiration at low premium levels.
VIX Customer Transaction Fees
The Exchange proposes to reduce the amount of VIX customer (origin
code ``C'') transactions [sic] fees [sic] orders with a premium of
$0.11 to $0.99 from $0.27 per contract to $0.25 per contract and orders
with a premium of above $1.00 from $.048 per contract to $0.45 per
contract. The Exchange believes that the lowered costs for VIX options
will encourage the trading of such options.
Hybrid 3.0 Surcharge
The Exchange assesses a Hybrid 3.0 Execution Fee of $0.20 per
contract for all electronic executions in Hybrid 3.0 classes (with some
exceptions).\6\ The Exchange proposes to increase this fee to $0.21 per
contract. The Exchange notes that it continually invests in the Hybrid
3.0 system and the proposed increase will help the Exchange recoup such
expenditures.
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\6\ See CBOE Fees Schedule. Particularly, all electronic
executions in Hybrid 3.0 classes shall be assessed the Hybrid 3.0
Execution Surcharge, except to [sic]: (i) Orders in SPX options in
the SPX electronic book for those SPX options that are executed
during opening rotation on the final settlement date of VIX options
and futures which have the expiration [sic] that contribute to the
VIX settlement calculation, (ii) executions by market-makers against
orders in the complex order auction (COA) and Simple Auction Liaison
(SAL) systems in their appointed classes, (iii) executions by
market-makers against orders in the electronic book, Hybrid Agency
Liaison (HAL) and the complex order book in their appointed classes,
and (iv) orders executed by a floor broker using a PAR terminal.
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RUI, RLV and RLG Fees
On October 20, 2015, the Exchange began trading options on three
FTSE Russell Indexes (i.e., Russell 1000 Index (``RUI''), Russell 1000
Value Index (``RLV'') and Russell 1000 Growth Index (``RLG'')). In
order to promote and encourage trading of RUI, RLV and RLG, the
Exchange had waived all transaction fees (including the Floor Brokerage
Fee, Index License Surcharge and CFLEX Surcharge Fee) for RUI, RLV and
RLG transactions through December 31, 2015. In order to continue to
promote trading of these new options classes, the Exchange proposes to
extend the fee waiver of RUI, RLV and RLG through March 31, 2016.
Large Customer Trade Discount
The Customer Large Trade Discount program (the ``Discount'')
provides a discount in the form of a cap on the quantity of customer
(``C'' origin code'' [sic]) contracts that are assessed transactions
fees in certain options classes. The Discount table in the Fees
Schedule sets forth the quantity of contracts necessary for a large
customer trade to qualify for the Discount, which varies by product.
Currently, under the ``Products'' section in the Discount table, the
following S&P products for which the Discount is in effect are listed:
``SPX, SPXw, SPXpm, SRO.'' Customer transaction fees for each of these
products are currently only charged up to the first 15,000 contracts.
The Exchange proposes to raise the quantity of SPX, SPXw, SPXpm, and
SRO contracts necessary for a large customer trade to qualify for the
Discount from 15,000 contracts per order to 20,000 contracts per order.
The purpose of the proposed rule change is to moderate the discount
level for customer (C) orders in the SPX product group in view of its
mature and established position in the industry. The Exchange
additionally proposes to raise the quantity of VIX contracts necessary
for a large customer trade to qualify for the Discount. Specially
[sic], the Exchange proposes to raise the threshold from 10,000
contracts per order to 15,000 contracts per order. The purpose of the
proposed change is to moderate the discount level for customer (C)
orders in VIX in light of the increased sizes of qualifying Discount
VIX orders.
RUT Tier Appointment Surcharge
CBOE Rule 8.3(e) provides that the Exchange may establish one or
more types of tier appointments. In accordance with CBOE Rule 8.3(e), a
tier appointment is an appointment to trade one or more options classes
that must be held by a Market-Maker to be eligible to act as a Market-
Maker in the options class or options classes subject to that
appointment. CBOE currently maintains a tier appointment for Market-
Maker Trading Permit Holders trading in RUT, as it does for SPX and
VIX. Currently, the Exchange has a Tier Appointment Surcharge for SPX
and VIX, but not RUT. The Exchange notes that it has expended
considerable resources developing and maintaining its proprietary,
exclusively-listed products. To help recoup costs of the license and
for further development and maintenance of RUT options, the Exchange is
now proposing to also establish a RUT Tier Appointment fee.
Specifically, the Exchange proposes to adopt a RUT Tier Appointment fee
of $1,000 per month, which will be assessed to any Market-Maker Trading
Permit Holder that either (a) has a RUT Tier Appointment at any time
during a calendar month and trades at least 100 RUT options contracts
electronically while that appointment is active; or (b) trades at least
1,000 RUT options contracts in open outcry during a calendar month. The
Exchange notes
[[Page 3844]]
that the proposed criteria is the same as it is for the VIX Tier
Appointment fee. Additionally, similar to what's provided in the Fees
Schedule for the SPX and VIX Tier Appointment fees, the Exchange
proposes to state, consistent with Rule 8.3(e), that each RUT Tier
Appointment may only be used with one designated Market-Maker Trading
Permit. Additionally, the Exchange proposes to state that in order for
a Market-Maker Trading Permit to be used to act as an electronic
Market-Maker in RUT, the Trading Permit Holder must obtain a RUT Tier
Appointment for that Market-Maker Trading Permit.
Extended Trading Hour Fees
In order to promote and encourage trading during the Extended
Trading Hours (``ETH'') session, the Exchange currently waives ETH
Trading Permit and Bandwidth Packet fees for one (1) of each initial
Trading Permits and one (1) of each initial Bandwidth Packet, per
affiliated TPH. The Exchange notes that waiver is set to expire
December 31, 2015. The Exchange also waives fees through December 31,
2015 for a CMI and FIX login ID if the CMI and/or FIX login ID is
related to a waived ETH Trading Permit and/or waived Bandwidth packet.
In order to continue to promote trading during ETH, the Exchange wishes
to extend these waivers through July 2016.
Floor Broker Workstation
The Exchange proposes raising the Floor Broker Workstation
(``FBW'') and FBW2 fee from $400 per month (per login ID) to $450 per
month (per login ID). The total amount charged by the Exchange's vendor
that provides the FBW (and FBW2) is more than $450 per month (per login
ID) for FBW and FBW2 and the Exchange has been subsidizing those costs
for FBW and FBW2 users. As such, the Exchange proposes increasing the
FBW fee to $450 per month (per login ID), which still includes a
subsidy for FBW users (though smaller).
Additionally, the Exchange notes that for every FBW login a TPH
has, the FBW2 monthly fee is currently waived through December 2015 on
a one-to-one basis. The Exchange waived the FBW2 fee on a one-to-one
basis because it had anticipated new features being launched on FBW2 by
the end of the year and the Exchange wanted to encourage FBW users to
begin (or continue) transitioning to FBW2 logins while waiting for the
new features. Additionally, the Exchange wanted to provide additional
time to become acclimated to FBW2 while at the same time being able to
use FBW login IDs. The Exchange notes that certain new features on FBW2
have still not launched. As such, the Exchange wishes to extend the
FBW2 monthly fee waiver on a one-to-one basis through March 31, 2016.
The Exchange therefore proposes to delete now outdated language in the
Fees Schedule and provide that for every FBW login a TPH has, the FBW2
fee will be waived for the months of January 2016 through March 2016 on
a one-to-one basis.
QCC Cleanup
The Exchange proposes to correct an inadvertent omission to the
Fees Schedule with respect to a recent change to Qualified Contingent
Cross (``QCC'') \7\ order fees. On November 16, 2015, the Exchange
proposed to increase the transaction fee for all non-customer QCC
orders from $0.15 per contract to $0.17 per contract.\8\ The Exchange
notes that the QCC transaction fee rate is located in two tables in the
Fees Schedule (i.e., the QCC Rate Table and the Clearing Trading Permit
Holder Fee Cap Table (``Fee Cap Table'')). While the Exhibit 5 to SR-
CBOE-2015-105 reflected the QCC fee increase in the QCC Rate Table, the
Exchange inadvertently omitted to make the corresponding increase to
the rate listed in the Fee Cap table. Accordingly, the Exchange
proposes to update the rate listed for QCC orders from $0.15 per
contract to $0.17 per contract in the Fee Cap Table to avoid potential
confusion and maintain a clear and consistent Fees Schedule.
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\7\ A QCC order is comprised of an order to buy or sell at least
1,000 contracts (or 10,000 mini-option contracts) that is identified
as being part of a qualified contingent trade, coupled with a
contra-side order or orders totaling an equal number of contracts.
\8\ See Securities Exchange Act Release No. 76498 (November 20,
2015), 80 FR 228 (November 27, 2015) (SR-CBOE-2015-105).
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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.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ 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
[sic] 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,\11\ 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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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that adopting the Affiliate Volume Plan is
reasonable because it will allow qualifying Market-Makers to receive a
credit on their Market-Maker Sliding Scale transaction fees. The
Exchange believes that this proposed change is equitable and not
unfairly discriminatory because Market-Makers are valuable market
participants that provide liquidity in the marketplace and incur costs
that other market participants do not incur. For example, Market-Makers
have a number of obligations, including quoting obligations that other
market participants do not have. Additionally, the Exchange notes that
incentivizing a Market-Maker Affiliate to achieve higher tiers on the
VIP, can result in greater customer liquidity, and the resulting
increased volume benefits all market participants (including Market-
Makers or their affiliates who do not achieve the higher tiers on the
VIP; indeed, this increased volume may allow them to reach these
tiers). Further, other options exchanges also provide credits to
Market-Makers if a Market-Maker's affiliate adds a certain amount of
customer liquidity to that exchange.\12\ The Exchange also notes that
the credits under AVP are available to all Market-Makers who qualify.
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\12\ See e.g., NYSE Arca, Inc. (``Arca'') Options Fees and
Charges, specifically the table describing the Market Maker Monthly
Posting Credit Super Tier, under which transaction volume from a
Market Maker's affiliates count towards the Market Maker's ability
to qualify for higher credit tiers.
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The Exchange believes that it is reasonable, equitable and not
unfairly discriminatory to exclude Market-Maker Trading Permits used
for appointments in RUT from the Access Credit because the Exchange has
expended considerable resources maintaining RUT as a proprietary and
exclusively-listed product and therefore desires not to give a credit
related in order to recoup those expenditures. Additionally, the
Exchange notes that Trading Permits used for appointments in other
proprietary and exclusively listed products are excluded from receiving
credits under the Access Credit program
[[Page 3845]]
as well. Similarly, the Exchange believes it's reasonable to exclude
RUT from the qualifying calculation for the Floor Broker Trading Permit
rebates because other Underlying Symbol List A products are also
excepted from counting towards the qualifying threshold volumes.
The Exchange believes clarifying in Footnote 24 that only a Market-
Maker Affiliate (as opposed to the Market-Maker itself) can receive an
Access Credit alleviates potential confusion. The Exchange also
believes incorporating into a single table both details of the Access
Credit and credits available to Market-Makers under AVP alleviates
potential confusion and maintains clarity in the Fees Schedule. The
alleviation of potential confusion serves 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 believes increasing the NDX and MNX Index License
Surcharge Fee from $0.15 to $0.25 per contract is reasonable because
the Exchange still pays more for the NDX and MNX license than the
amount of the proposed NDX Index License Surcharge Fee (meaning that
the Exchange will be subsidizing the costs of the NDX and MNX license).
Additionally, the Exchange notes that another Exchange also assesses
$0.25 per contract for NDX and MNX transactions.\13\ This increase is
equitable and not unfairly discriminatory because all non-Customer
market participants will be assessed the same increased NDX and MNX
Index License Surcharge. Not applying the NDX and MNX Index License
Surcharge Fee to customer orders is equitable and not unfairly
discriminatory because this is designed to attract customer NDX and MNX
orders, which increases liquidity and provides greater trading
opportunities to all market participants.
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\13\ See NASDAQ OMX PHLX LLC (``PHLX'') Pricing Schedule,
Section II, Multiply Listed Options Fees, Options Surcharge in MNX
and NDX.
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The Exchange believes that excluding NDX and MNX from VIP is
reasonable because the VIP is a credit program, and excluding MNX and
NDX from the VIP does not impose any extra fee for NDX and MNX trades,
it just prevents them from incurring a credit (or counting towards
incurring credits). As such, qualifying market participants trading NDX
and MNX will merely be required to pay regular transaction fees. The
Exchange believes excepting NDX and MNX from VIP is equitable and not
unfairly reasonable because other proprietary index products are also
excepted from VIP. Similarly, the Exchange believes it's reasonable to
except NDX and MNX [sic] the Marketing Fee because other proprietary
index products are excepted from those same items. This is equitable
and not unfairly discriminatory for the same reason; it seems equitable
to except NDX and MNX from items on the Fees Schedule from which other
proprietary products are also excepted.
The Exchange believes it's reasonable to waive the VIX Index
License Surcharge for Clearing Trading Permit Holder Proprietary VIX
orders that have a premium of $0.10 or lower and have series with an
expiration of less than 7 calendar days because the Exchange wants to
encourage Firms to roll and close over positions close to expiration at
low premium levels. The Exchange notes that without the waiver, firms
are less likely to engage in these transactions, as opposed to other
VIX transactions, due to the associated transaction costs. The Exchange
believes it's equitable and not unfairly discriminatory to limit the
waiver to Clearing Trading Permit Holder Proprietary orders because
they contribute capital to facilitate the execution of VIX customer
orders with a premium of $0.10 or lower and series with an expiration
of less than 7 days. Finally, the Exchange believes it's reasonable,
equitable and not unfairly discriminatory to provide that the surcharge
will be waived through March 2016, as it gives the Exchange time to
evaluate if the wavier [sic] is in fact having the desired effect of
encouraging these transactions and because it applies to all Clearing
Trading Permit Holders.
The proposal to reduce VIX customer transactions [sic] is
reasonable because it allows customers to pay less for these
transactions than they are currently paying. The proposed change to
customer VIX options transaction fees is also equitable and not
unfairly discriminatory because it applies uniformly to all customers
and because this is designed to attract customer VIX orders, which
increases liquidity and provides greater trading opportunities to all
market participants.
The Exchange believes it's reasonable to increase the Hybrid 3.0
Surcharge because it is merely an increase of $0.01 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 also
reasonable, equitable and not unfairly discriminatory because it
applies to all Hybrid 3.0 executions,\14\ and because the increased fee
will help cover the costs of operating the Hybrid 3.0 system.
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\14\ With the exception of those listed in Footnote 21 of the
Fees Schedule.
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The Exchange believes it is reasonable, equitable and not unfairly
discriminatory to extend the waiver of all transaction fees for RUI,
RLV and RLG transasctions [sic], including the Floor Brokerage fee, the
License Index Surcharge and CFLEX Surcharge Fee, because it promotes
and encourages trading of these products which are still new and
applies to all TPHs.
The Exchange believes that raising the discount threshold for VIX
and SPX (including SPXw), SPXPM and SROs is reasonable because
customers will still be receiving a discount for large trades that they
would not otherwise receive. This change is equitable and not unfairly
discriminatory because all customers whose large trades qualify for the
Discount will still receive it. The Exchange believes it's equitable
and not unfairly discriminatory to raise the threshold higher for the
SPX product group because the SPX product group has reached a mature
and established level since its introduction while other products, such
as VIX, have not.
The Exchange believes that establishing a RUT Tier Appointment fee
is reasonable because the Exchange maintains a similar fee for other
exclusively-listed proprietary products for which there is a tier
appointment.\15\ The Exchange notes that the proposed Tier Appointment
fee is less than the Tier Appointment fees assessed for SPX and
VIX.\16\ The Exchange believes it is equitable and not unfairly
discriminatory to not assess the fee unless a Market-Maker trades at
least 100 RUT contracts electronically while that appointment is active
because those that do not regularly trade RUT will not be assessed the
fee. Specifically, the RUT Tier Appointment fee is intended to be
assessed to Market-Makers who act as Market-Makers in RUT, not those
who submit an occasional order electronically in RUT. More
specifically, the 100-contract threshold achieves this purpose because
it is a sufficiently small number of contracts and yet leaves some
small room for accidental or minor RUT trades. Because Market-Maker
Trading Permit Holders have an appointment to trade in open outcry in
all options classes traded on the Hybrid Trading System (including RUT)
pursuant to Exchange Rule 8.3(c)(ii), the Exchange
[[Page 3846]]
believes it is also equitable and not unfairly discriminatory to not
assess the Tier Appointment fee unless a Market-Maker trades at least
1,000 RUT options contracts in open outcry during a calendar month. The
Exchange believes this requirement again allows for minimum open outcry
activity in RUT without having to pay an additional fee. This proposed
change is also equitable and not unfairly discriminatory because it
will be assessed uniformly to all Market-Makers that meet either of the
above criteria and because it allows the Exchange to recoup
expenditures related to the maintenance of a proprietary and
exclusively listed product.
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\15\ See CBOE Fees Schedule, SPX and VIX Tier Appointment Fees.
\16\ Id.
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The Exchange believes extending the waiver of ETH Trading Permit
and Bandwidth Packet fees for one of each type of Trading Permit and
Bandwidth Packet, per affiliated TPH through July 31, 2016 is
reasonable, equitable and not unfairly discriminatory, because it
promotes and encourages trading during the ETH session and applies to
all ETH TPHs. The Exchange believes it's also reasonable, equitable and
not unfairly discriminatory to waive fees for Login IDs related to
waived Trading Permits and/or Bandwidth Packets in order to promote and
encourage ongoing participation in ETH and also applies to all ETH
TPHs.
Increasing the FBW and FBW2 fee from $400 per month (per login ID)
to $450 per month (per login ID) is reasonable because the total amount
charged by the Exchange's vendor that provides the FBW (and FBW2) is
more than $450 per month (per login ID) for FBW and FBW2 and the
Exchange simply wants to reduce the extent to which the Exchange
subsidizes such costs. This change is equitable and not unfairly
discriminatory because all market participants who desire to use the
FBW and FBW2 will be assessed the same fee.
The Exchange believes it is reasonable to extend the waiver of FBW2
fees for each FBW login a TPH has through March 2016 because it
encourages users to use and become familiar with the updated FBW2 login
IDs while waiting for certain features to be implemented on FBW2. The
Exchange believes the proposed changes are equitable and not unfairly
discriminatory because it applies to all users of FBW2.
The Exchange believes that correcting an inadvertent failure to
update the QCC rate change in the Fee Cap table (in addition to the QCC
Rate Table, where it is currently provided for) will alleviate
potential confusion and maintain clarity in the Fees Schedule, which
serves 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition that are not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange 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
and rebates 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 TPHs 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 and rebates, 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).
The Exchange does not believe that the proposed rule changes 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 promote competition and better 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 \17\ and paragraph (f) of Rule 19b-4 \18\
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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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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-2016-002 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-2016-002. 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
[[Page 3847]]
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
the 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-2016-002 and should be submitted on or before
February 12, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
\19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01200 Filed 1-21-16; 8:45 am]
BILLING CODE 8011-01-P