Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to its Marketing Fee Program, 77209-77211 [E5-8047]
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Federal Register / Vol. 70, No. 249 / Thursday, December 29, 2005 / Notices
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 inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the BOX. 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–BSE–2005–52 and should
be submitted on or before January 19,
2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.7
Jonathan G. Katz,
Secretary.
[FR Doc. E5–8043 Filed 12–28–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53016; File No. SR–CBOE–
2005–107]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to its Marketing
Fee Program
December 22, 2005.
wwhite on PROD1PC65 with NOTICES
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 December
9, 2005, the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’ or
‘‘Exchange’’) 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 CBOE
has designated this proposal as one
establishing or changing a due, fee, or
other charge imposed by the CBOE
under Section 19(b)(3)(A)(ii) of the Act 3
and Rule 19b–4(f)(2) thereunder,4 which
7 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
1 15
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renders the proposal effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
marketing fee program as described
above will be in effect until June 2,
2006.
Remainder of Fees Schedule—No
change.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
The CBOE proposes to amend its Fees
Schedule and its marketing fee program.
The Exchange states that these changes
to the marketing fee program would be
effective December 12, 2005, and would
continue until June 2, 2006.
Below is the text of the proposed rule
change. Proposed new language is in
italics; proposed deletions are in
[brackets].
Chicago Board Options Exchange, Inc.—
Fees Schedule
[December 1] December 9, 2005
1. No Change.
2. MARKETING FEE (6)(16): $[.22].65
3.–4. No Change.
FOOTNOTES:
(1)–(5) No Change.
(6) Commencing on December 12,
2005, [T]the Marketing Fee will be
assessed only on transactions of MarketMakers, RMMs, e-DPMs, DPMs, and
LMMs resulting from orders for less
than 1,000 contracts (i) from payment
accepting firms, or (ii) that have
designated a ‘‘Preferred Market-Maker’’
under CBOE Rule 8.13 at the rate of
[$.22] $.65 per contract on all classes of
equity options, options on HOLDRs,
options on SPDRs, and options on DIA.
The fee will not apply to Market-Makerto-Market-Maker transactions or
transactions resulting from P/A orders.
This fee shall not apply to index options
and options on ETFs (other than options
on SPDRs and options on DIA). If less
than 80% of the marketing fee funds are
paid out by the DPM/LMM or [LMM]
Preferred Market-Maker in a given
month, then the Exchange would refund
such surplus at the end of the month on
a pro rata basis based upon
contributions made by the MarketMakers, RMMs, e-DPMs, DPMs and
LMMs. However, if 80% or more of the
accumulated funds in a given month are
paid out by the DPM/LMM or [LMM]
Preferred Market-Maker, there will not
be a rebate for that month and the funds
will carry over and will be included in
the pool of funds to be used by the
DPM/LMM or [LMM] Preferred MarketMaker the following month. At the end
of each quarter, the Exchange would
then refund any surplus, if any, on a pro
rata basis based upon contributions
made by the Market-Makers, RMMs,
DPMs, e-DPMs and LMMs. CBOE’s
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In its filing with the Commission, the
CBOE 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
CBOE 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
On November 2, 2005, the CBOE
amended its marketing fee program in a
number of respects in light of the recent
adoption of its Preferred Market-Maker
program.5 In particular, the CBOE
amended its marketing fee program to
provide that a Market-Maker will have
access to the marketing fee funds
generated by orders sent to the
Exchange designating that MarketMaker as a ‘‘Preferred Market-Maker.’’
The CBOE now proposes to amend its
marketing fee program, which changes
would be effective December 12, 2005,
and would continue until June 2, 2006
(which is the same date that the CBOE’s
Preferred Market-Maker program is
scheduled to expire, unless extended).6
Current Marketing Fee Program
The current marketing fee is assessed
upon Designated Primary MarketMakers (‘‘DPMs’’), Electronic DPMs (‘‘eDPMs’’), Remote Market-Makers
(‘‘RMMs’’), Lead Market-Makers
(‘‘LMMs’’), and Market-Makers at a rate
5 The Exchange states that, under its Preferred
Market-Maker program, order providers can send an
order to the Exchange designating any CBOE
Market-Maker (including any DPM, e-DPM, LMM,
RMM, and Market-Maker) as a Preferred MarketMaker. If the Preferred Market-Maker is quoting at
the NBBO at the time the order is received on
CBOE, the Preferred Market-Maker is entitled to a
participation entitlement of 50% when there is one
Market-Maker also quoting at the best bid/offer on
the Exchange and 40% when there are two or more
Market-Makers quoting at the best bid/offer on the
Exchange. See Securities Exchange Act Release No.
52506 (September 23, 2005), 70 FR 57340
(September 30, 2005) (SR–CBOE–2005–58).
6 See CBOE Rule 8.13.
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Federal Register / Vol. 70, No. 249 / Thursday, December 29, 2005 / Notices
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of $0.22 for every contract they enter
into on the Exchange other than MarketMaker-to-Market-Maker transactions
(which includes all transactions
between any combination of DPMs, eDPMs, RMMs, LMMs, and MarketMakers).7 The marketing fee is assessed
in all equity option classes and options
on HOLDRs, options on SPDRs, and
options on DIA. The following is a
description of the three-step process by
which the entire pool of funds generated
by the marketing fee is apportioned
between the DPM or LMM, and
Preferred Market-Makers.
First, each month all funds generated
by the marketing fee are collected by the
Exchange and recorded according to the
DPM or LMM, as applicable, station,
and class where the option classes
subject to the fee are traded. If a MarketMaker (including any DPM, e-DPM,
LMM, and RMM) is designated as a
Preferred Market-Maker on an order
from a payment accepting firm (‘‘PAF’’),
the Market-Maker will be given access
to the marketing fee funds generated
from that order, even if the Preferred
Market-Maker did not participate in the
execution of the order because the
Market-Maker was not quoting at the
NBBO at the time the order was
received on the CBOE.
Second, the DPM or LMM, as
applicable, are given access to the
marketing fee funds generated from all
other orders from PAFs in its appointed
classes in a particular trading station.
Third, the marketing fee funds
generated by orders from non-PAFs, if
any, are apportioned monthly among
the DPM or LMM, and Preferred MarketMakers on a on a pro-rata basis, based
on the percentage of contracts traded by
each DPM or LMM, and Preferred
Market-Maker against orders from PAFs
during the month in the option classes
located at a particular trading station.
Revised Marketing Fee Program—
Effective December 12, 2005
Effective December 12, 2005, the
CBOE proposes to amend the fee such
that it is assessed upon DPMs, LMMs,
e-DPMs, RMMs, and Market-Makers at
the rate of $.65 per contract on
transactions of Market-Makers, RMMs,
e-DPMs, DPMs, and LMMs resulting
from orders for less than 1,000 contracts
(i) from payment accepting firms
(‘‘PAF’’), or (ii) that have designated a
‘‘Preferred Market-Maker’’ under CBOE
Rule 8.13 (‘‘Preferred orders’’). The
Exchange states that Market-Maker-toMarket-Maker transactions (which
7 See Securities Exchange Act Release No. 52818
(November 22, 2005), 70 FR 71568 (November 29,
2005) (SR–CBOE–2005–91).
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include all transactions between any
combination of DPMs, e-DPMs, RMMs,
LMMs, and Market-Makers) would
continue to be excluded from the fee,
and the CBOE would also now exclude
transactions of Market-Makers, RMMs,
e-DPMs, DPMs, and LMMs resulting
from inbound P/A orders. The
marketing fee would also continue to be
assessed in all equity option classes and
options on HOLDRs, options on
SPDRs, and options on DIA.
The following is a description of the
manner in which funds generated by the
marketing fee would be allocated
between the DPM or LMM, and
Preferred Market-Makers.
First, if a Market-Maker (including
any DPM, e-DPM, LMM, and RMM) is
designated as a Preferred Market-Maker
on an order for less than 1,000 contracts,
the Market-Maker would be given access
to the marketing fee funds generated
from the Preferred order, even if the
Preferred Market-Maker did not
participate in the execution of the
Preferred order because the MarketMaker was not quoting at the NBBO at
the time the Preferred order was
received on the CBOE.8
Second, the DPM or LMM, as
applicable, would be given access to the
marketing fee funds generated from all
other orders for less than 1,000 contracts
from PAFs in its appointed classes in a
particular trading station.
The Exchange states that, as in the
current program, the money collected
would be disbursed by the Exchange
according to the instructions of the
DPM, LMM, or Preferred Market-Maker.
These funds could only be used to
attract order flow to CBOE, and the
funds made available to the DPM or
LMM could only be used to attract
orders in the option classes located at
the trading station where the fee was
assessed. Thus, a member organization
appointed as the DPM at a particular
trading station on the trading floor
could not use the funds from that
trading station to attract order flow to
another trading station on the trading
floor where that member organization
serves as the DPM.
With respect to the rebate provisions
of its marketing fee program, the
Exchange states that currently, if a
Preferred Market-Maker does not
disburse all of the funds generated by
the marketing fee in a given month, then
the funds the Preferred Market-Maker
8 For example, assume a Market-Maker is
designated as a Preferred Market-Maker on an order
for 50 contracts which is executed on CBOE. Under
this first step, the Preferred Market-Maker would be
given access to a total of $32.50 (50 contracts ×
$.65), whether or not the Preferred Market-Maker
traded with the order or not.
PO 00000
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Fmt 4703
Sfmt 4703
does not disburse are made available to
the DPM or LMM, as applicable, for the
following month to attract orders in the
classes of options where the DPM or
LMM is appointed. Going forward, the
CBOE proposes to allow the Preferred
Market-Maker to carry-over any funds it
does not disburse in a given month to
the same extent a DPM or LMM is
permitted to do so.
Thus, the Exchanges states that its
marketing fee program as amended
would provide that if less than 80% of
the marketing fee funds are paid out by
the DPM/LMM or Preferred MarketMaker in a given month, then the
Exchange would refund such surplus at
the end of the month on a pro rata basis
based upon contributions made by the
Market-Makers, RMMs, e-DPMs, DPMs,
and LMMs. However, if 80% or more of
the accumulated funds in a given month
are paid out by the DPM/LMM or
Preferred Market-Maker, there would
not be a rebate for that month and the
funds will carry over and would be
included in the pool of funds to be used
by the DPM/LMM or Preferred MarketMaker the following month. At the end
of each quarter, the Exchange states that
it would then refund any surplus, if any,
on a pro rata basis based upon
contributions made by the MarketMakers, RMMs, DPMs, e-DPMs, and
LMMs.
The Exchange states that it would not
be involved in the determination of the
terms governing the orders that qualify
for payment or the amount of any such
payment. The Exchange states that it
would provide administrative support
for the program in such matters as
maintaining the funds, keeping track of
the number of qualified orders each firm
directs to the Exchange, and making the
necessary debits and credits to reflect
the payments that are made. The CBOE
states that its Market-Makers, RMMs,
DPMs, e-DPMs, and LMMs would have
no way of identifying prior to execution
whether a particular order is from a PAF
or is an order designating a Preferred
Market-Maker.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,9 in general, and furthers the
objectives of Section 6(b)(4) of the Act,10
in particular, in that it is designed to
provide for the equitable allocation of
reasonable dues, fees, and other charges
among its members and other persons
using its facilities.
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
10 15
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Federal Register / Vol. 70, No. 249 / Thursday, December 29, 2005 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any inappropriate burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change
has been designated as a fee change
pursuant to Section 19(b)(3)(A)(ii) of the
Act 11 and Rule 19b–4(f)(2) 12
thereunder, because it establishes or
changes a due, fee, or other charge
imposed by the Exchange. Accordingly,
the proposal will take effect upon filing
with the Commission. At any time
within 60 days of the filing of such
proposed rule change the Commission
may summarily abrogate 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.
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:
wwhite on PROD1PC65 with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CBOE–2005–107 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–CBOE–2005–107. This file
number should be included on the
subject line if e-mail 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 (https://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 inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the CBOE. 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–2005–107 and
should be submitted on or before
January 19, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.13
Jonathan G. Katz,
Secretary.
[FR Doc. E5–8047 Filed 12–28–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53008; File No. SR–CBOE–
2005–95]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Complex
Orders on the Hybrid System
December 22, 2005.
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 December
19, 2005, the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
11 15
U.S.C. 78s(b)(3)(A)(ii).
12 17 CFR 240.19b–4(f)(2).
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77211
by the Exchange. The CBOE has filed
this proposal pursuant to Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder,4 which renders
the proposal effective upon filing with
the Commission.5 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The CBOE proposes to amend CBOE
Rule 6.53C, ‘‘Complex Orders on the
Hybrid System,’’ to better describe the
routing of complex orders and to
include orders from Market-Makers and
specialists on an options exchange as
additional order categories eligible to be
routed to the Hybrid System complex
order book (‘‘COB’’) from PAR
workstations or directly to the COB. The
text of the proposed rule change is
available on the Exchange’s Web site
(https://www.cboe.com), 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 Commission recently approved
CBOE Rule 6.53C, which sets forth the
procedures used to trade complex
orders on the CBOE’s COB system.6
Currently, CBOE Rule 6.53C provides
that the appropriate Exchange
committee may determine whether to
allow complex orders to route to PAR or
to the COB and whether to allow
3 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
5 The CBOE has requested that the Commission
waive the 30-day operative delay, as specified in
Rule 19b–4(f)(6)(iii). 17 CFR 240.19b–4(f)(6)(iii).
6 See Securities Exchange Act Release No. 51271
(February 28, 2005), 70 FR 10712 (March 4, 2005)
(order approving File No. SR–CBOE–2004–45).
4 17
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]]>Agencies
[Federal Register Volume 70, Number 249 (Thursday, December 29, 2005)]
[Notices]
[Pages 77209-77211]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-8047]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53016; File No. SR-CBOE-2005-107]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to its Marketing Fee Program
December 22, 2005.
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 December 9, 2005, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') 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 CBOE has designated this proposal as one establishing or
changing a due, fee, or other charge imposed by the CBOE under Section
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\
which renders the proposal effective upon filing with the Commission.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to amend its Fees Schedule and its marketing fee
program. The Exchange states that these changes to the marketing fee
program would be effective December 12, 2005, and would continue until
June 2, 2006.
Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in [brackets].
Chicago Board Options Exchange, Inc.--Fees Schedule
[December 1] December 9, 2005
1. No Change.
2. MARKETING FEE (6)(16): $[.22].65
3.-4. No Change.
FOOTNOTES:
(1)-(5) No Change.
(6) Commencing on December 12, 2005, [T]the Marketing Fee will be
assessed only on transactions of Market-Makers, RMMs, e-DPMs, DPMs, and
LMMs resulting from orders for less than 1,000 contracts (i) from
payment accepting firms, or (ii) that have designated a ``Preferred
Market-Maker'' under CBOE Rule 8.13 at the rate of [$.22] $.65 per
contract on all classes of equity options, options on HOLDRs, options
on SPDRs, and options on DIA. The fee will not apply to Market-Maker-
to-Market-Maker transactions or transactions resulting from P/A orders.
This fee shall not apply to index options and options on ETFs (other
than options on SPDRs and options on DIA). If less than 80% of the
marketing fee funds are paid out by the DPM/LMM or [LMM] Preferred
Market-Maker in a given month, then the Exchange would refund such
surplus at the end of the month on a pro rata basis based upon
contributions made by the Market-Makers, RMMs, e-DPMs, DPMs and LMMs.
However, if 80% or more of the accumulated funds in a given month are
paid out by the DPM/LMM or [LMM] Preferred Market-Maker, there will not
be a rebate for that month and the funds will carry over and will be
included in the pool of funds to be used by the DPM/LMM or [LMM]
Preferred Market-Maker the following month. At the end of each quarter,
the Exchange would then refund any surplus, if any, on a pro rata basis
based upon contributions made by the Market-Makers, RMMs, DPMs, e-DPMs
and LMMs. CBOE's marketing fee program as described above will be in
effect until June 2, 2006.
Remainder of Fees Schedule--No change.
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 CBOE 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 CBOE 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
On November 2, 2005, the CBOE amended its marketing fee program in
a number of respects in light of the recent adoption of its Preferred
Market-Maker program.\5\ In particular, the CBOE amended its marketing
fee program to provide that a Market-Maker will have access to the
marketing fee funds generated by orders sent to the Exchange
designating that Market-Maker as a ``Preferred Market-Maker.'' The CBOE
now proposes to amend its marketing fee program, which changes would be
effective December 12, 2005, and would continue until June 2, 2006
(which is the same date that the CBOE's Preferred Market-Maker program
is scheduled to expire, unless extended).\6\
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\5\ The Exchange states that, under its Preferred Market-Maker
program, order providers can send an order to the Exchange
designating any CBOE Market-Maker (including any DPM, e-DPM, LMM,
RMM, and Market-Maker) as a Preferred Market-Maker. If the Preferred
Market-Maker is quoting at the NBBO at the time the order is
received on CBOE, the Preferred Market-Maker is entitled to a
participation entitlement of 50% when there is one Market-Maker also
quoting at the best bid/offer on the Exchange and 40% when there are
two or more Market-Makers quoting at the best bid/offer on the
Exchange. See Securities Exchange Act Release No. 52506 (September
23, 2005), 70 FR 57340 (September 30, 2005) (SR-CBOE-2005-58).
\6\ See CBOE Rule 8.13.
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Current Marketing Fee Program
The current marketing fee is assessed upon Designated Primary
Market-Makers (``DPMs''), Electronic DPMs (``e-DPMs''), Remote Market-
Makers (``RMMs''), Lead Market-Makers (``LMMs''), and Market-Makers at
a rate
[[Page 77210]]
of $0.22 for every contract they enter into on the Exchange other than
Market-Maker-to-Market-Maker transactions (which includes all
transactions between any combination of DPMs, e-DPMs, RMMs, LMMs, and
Market-Makers).\7\ The marketing fee is assessed in all equity option
classes and options on HOLDRs[reg], options on SPDRs[reg], and options
on DIA. The following is a description of the three-step process by
which the entire pool of funds generated by the marketing fee is
apportioned between the DPM or LMM, and Preferred Market-Makers.
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\7\ See Securities Exchange Act Release No. 52818 (November 22,
2005), 70 FR 71568 (November 29, 2005) (SR-CBOE-2005-91).
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First, each month all funds generated by the marketing fee are
collected by the Exchange and recorded according to the DPM or LMM, as
applicable, station, and class where the option classes subject to the
fee are traded. If a Market-Maker (including any DPM, e-DPM, LMM, and
RMM) is designated as a Preferred Market-Maker on an order from a
payment accepting firm (``PAF''), the Market-Maker will be given access
to the marketing fee funds generated from that order, even if the
Preferred Market-Maker did not participate in the execution of the
order because the Market-Maker was not quoting at the NBBO at the time
the order was received on the CBOE.
Second, the DPM or LMM, as applicable, are given access to the
marketing fee funds generated from all other orders from PAFs in its
appointed classes in a particular trading station.
Third, the marketing fee funds generated by orders from non-PAFs,
if any, are apportioned monthly among the DPM or LMM, and Preferred
Market-Makers on a on a pro-rata basis, based on the percentage of
contracts traded by each DPM or LMM, and Preferred Market-Maker against
orders from PAFs during the month in the option classes located at a
particular trading station.
Revised Marketing Fee Program--Effective December 12, 2005
Effective December 12, 2005, the CBOE proposes to amend the fee
such that it is assessed upon DPMs, LMMs, e-DPMs, RMMs, and Market-
Makers at the rate of $.65 per contract on transactions of Market-
Makers, RMMs, e-DPMs, DPMs, and LMMs resulting from orders for less
than 1,000 contracts (i) from payment accepting firms (``PAF''), or
(ii) that have designated a ``Preferred Market-Maker'' under CBOE Rule
8.13 (``Preferred orders''). The Exchange states that Market-Maker-to-
Market-Maker transactions (which include all transactions between any
combination of DPMs, e-DPMs, RMMs, LMMs, and Market-Makers) would
continue to be excluded from the fee, and the CBOE would also now
exclude transactions of Market-Makers, RMMs, e-DPMs, DPMs, and LMMs
resulting from inbound P/A orders. The marketing fee would also
continue to be assessed in all equity option classes and options on
HOLDRs[supreg], options on SPDRs[supreg], and options on DIA.
The following is a description of the manner in which funds
generated by the marketing fee would be allocated between the DPM or
LMM, and Preferred Market-Makers.
First, if a Market-Maker (including any DPM, e-DPM, LMM, and RMM)
is designated as a Preferred Market-Maker on an order for less than
1,000 contracts, the Market-Maker would be given access to the
marketing fee funds generated from the Preferred order, even if the
Preferred Market-Maker did not participate in the execution of the
Preferred order because the Market-Maker was not quoting at the NBBO at
the time the Preferred order was received on the CBOE.\8\
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\8\ For example, assume a Market-Maker is designated as a
Preferred Market-Maker on an order for 50 contracts which is
executed on CBOE. Under this first step, the Preferred Market-Maker
would be given access to a total of $32.50 (50 contracts x $.65),
whether or not the Preferred Market-Maker traded with the order or
not.
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Second, the DPM or LMM, as applicable, would be given access to the
marketing fee funds generated from all other orders for less than 1,000
contracts from PAFs in its appointed classes in a particular trading
station.
The Exchange states that, as in the current program, the money
collected would be disbursed by the Exchange according to the
instructions of the DPM, LMM, or Preferred Market-Maker. These funds
could only be used to attract order flow to CBOE, and the funds made
available to the DPM or LMM could only be used to attract orders in the
option classes located at the trading station where the fee was
assessed. Thus, a member organization appointed as the DPM at a
particular trading station on the trading floor could not use the funds
from that trading station to attract order flow to another trading
station on the trading floor where that member organization serves as
the DPM.
With respect to the rebate provisions of its marketing fee program,
the Exchange states that currently, if a Preferred Market-Maker does
not disburse all of the funds generated by the marketing fee in a given
month, then the funds the Preferred Market-Maker does not disburse are
made available to the DPM or LMM, as applicable, for the following
month to attract orders in the classes of options where the DPM or LMM
is appointed. Going forward, the CBOE proposes to allow the Preferred
Market-Maker to carry-over any funds it does not disburse in a given
month to the same extent a DPM or LMM is permitted to do so.
Thus, the Exchanges states that its marketing fee program as
amended would provide that if less than 80% of the marketing fee funds
are paid out by the DPM/LMM or Preferred Market-Maker in a given month,
then the Exchange would refund such surplus at the end of the month on
a pro rata basis based upon contributions made by the Market-Makers,
RMMs, e-DPMs, DPMs, and LMMs. However, if 80% or more of the
accumulated funds in a given month are paid out by the DPM/LMM or
Preferred Market-Maker, there would not be a rebate for that month and
the funds will carry over and would be included in the pool of funds to
be used by the DPM/LMM or Preferred Market-Maker the following month.
At the end of each quarter, the Exchange states that it would then
refund any surplus, if any, on a pro rata basis based upon
contributions made by the Market-Makers, RMMs, DPMs, e-DPMs, and LMMs.
The Exchange states that it would not be involved in the
determination of the terms governing the orders that qualify for
payment or the amount of any such payment. The Exchange states that it
would provide administrative support for the program in such matters as
maintaining the funds, keeping track of the number of qualified orders
each firm directs to the Exchange, and making the necessary debits and
credits to reflect the payments that are made. The CBOE states that its
Market-Makers, RMMs, DPMs, e-DPMs, and LMMs would have no way of
identifying prior to execution whether a particular order is from a PAF
or is an order designating a Preferred Market-Maker.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(4) of the Act,\10\ in particular, in that it is designed to
provide for the equitable allocation of reasonable dues, fees, and
other charges among its members and other persons using its facilities.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4).
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[[Page 77211]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change has been designated as a fee
change pursuant to Section 19(b)(3)(A)(ii) of the Act \11\ and Rule
19b-4(f)(2) \12\ thereunder, because it establishes or changes a due,
fee, or other charge imposed by the Exchange. Accordingly, the proposal
will take effect upon filing with the Commission. At any time within 60
days of the filing of such proposed rule change the Commission may
summarily abrogate such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act.
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\11\ 15 U.S.C. 78s(b)(3)(A)(ii).
\12\ 17 CFR 240.19b-4(f)(2).
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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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-CBOE-2005-107 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-CBOE-2005-107. This file
number should be included on the subject line if e-mail 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 (https://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 inspection and
copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of the CBOE. 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-2005-107 and should be submitted on or before
January 19, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-8047 Filed 12-28-05; 8:45 am]
BILLING CODE 8010-01-P
