Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Front-End Order Entry and Management Tools in Connection With Purchase of Livevol Assets, 37685-37690 [2015-16090]
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Federal Register / Vol. 80, No. 126 / Wednesday, July 1, 2015 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.154
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–16088 Filed 6–30–15; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release Nos. 33–9854; 34–75303; File No.
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tkelley on DSK3SPTVN1PROD with NOTICES
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Dated: June 25, 2015.
Brent J. Fields,
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[FR Doc. 2015–16108 Filed 6–30–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
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[Release No. 34–75302; File No. SR–CBOE–
2015–062]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to Front-End
Order Entry and Management Tools in
Connection With Purchase of Livevol
Assets
June 25, 2015.
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 June 23,
2015, Chicago Board Options Exchange,
Incorporated (the ‘‘Exchange’’ or
‘‘CBOE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
1 15
154 17
CFR 200.30–3(a)(12).
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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37685
in Items I, II, and III below, which Items
have been prepared by the Exchange.
The Exchange filed the proposal as a
‘‘non-controversial’’ proposed rule
change pursuant to section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 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 the Substance
of the Proposed Rule Change
The purpose of this filing is to
describe the functionality and adopt
fees for the use of two new front-end
order entry and management
applications. The text of the proposed
rule change is available on the
Exchange’s Web site (https://
www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission.
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 purpose of this filing is to
describe the functionality and adopt
fees for the use of two new front-end
order entry and management
applications. On June 1, 2015, CBOE IV,
LLC (‘‘Newco’’) (a wholly owned
subsidiary of CBOE’s parent company,
CBOE Holdings, Inc.) entered into a
definitive asset purchase agreement
with Livevol 5 pursuant to which Newco
agreed to purchase certain software and
technology, including Livevol X
(‘‘LVX’’) and Livevol Core X (‘‘LVCX’’
3 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b 4(f)(6).
5 Livevol, Inc. has an additional subsidiary,
Livevol Securities, Inc. (‘‘LVS’’), which is a
registered U.S. broker-dealer (but not a Trading
Permit Holder of the Exchange). CBOE will not
acquire any assets related to this broker-dealer
business.
4 17
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and, together with LVX, the
‘‘applications’’).6
The applications are front-end order
entry and management tools for listed
stocks and options that support both
simple and complex orders.7 LVX is a
software application that is installed
locally on a user’s desktop terminal, and
LVCX is a web-based application
integrated into the application
programming interface of the user’s
proprietary system. The applications
provide users with the capability to
send option orders to U.S. options
exchanges and stock orders to U.S. stock
exchanges (and other trading centers 8).
Additionally, the applications allow
users to input parameters to control the
size, timing and other variables of their
trades.9 Both applications include
access to real-time options and stock
market data; LVX also includes access to
historical data. The applications provide
their users with the ability to maintain
an electronic audit trail and provide
6 Pursuant to the asset purchase agreement,
Newco will also purchase from Livevol market data
analytical products. See infra note 10.
7 Newco may add functionality to permit users to
submit orders for commodity futures, commodity
options and other non-security products to be sent
to designated contract markets, futures commission
merchants, introducing brokers or other applicable
destinations of the users’ choice.
8 A ‘‘trading center,’’ as provided under Rule
600(b)(78) of Regulation NMS, 17 CFR
242.600(b)(78), means a national securities
exchange or national securities association that
operates a self-regulatory organization trading
facility, an alternative trading system, an exchange
market-maker, an over-the-counter market-maker, or
any other broker or dealer that executes orders
internally by trading as principal or crossing orders
as agent.
9 LVX also provides position and risk
management capabilities. The LVX risk
management functionality allows users to, among
other things, set pre-trade customizable risk
controls. Users of these risk controls set the
parameters for the controls (to the extent a firm
sublicenses LVX applications to its customers (see
below), the firm will set risk controls on behalf of
its customers). Users have the option to instead use
other third-party risk control software, including
risk control software or technology (LVCX users are
responsible for obtaining their own risk control
software or technology). The Exchange notes that
entering broker-dealers (including Trading Permit
Holders) must ensure that any orders that come
from the applications to their systems will be
subject to all applicable pre-trade risk control
requirements in accordance with Rule 15c3–5 of the
Securities Exchange Act of 1934 (the ‘‘Act’’). See 17
CFR 240.15c3–5. Please note that, in the adopting
release for Rule 15c3–5 under the Act, the
Securities and Exchange Commission (the
‘‘Commission’’) indicated that a broker-dealer
relying on risk management technology developed
by third parties should perform appropriate due
diligence to help assure the controls are reasonably
designed, effective, and otherwise consistent with
Rule 15c3–5. Mere reliance on representations of
the third-party technology developer, even if an
exchange or other regulated entity, is insufficient to
meet this due diligence standard.
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detailed trade reporting.10 Use of the
applications is completely optional.
The applications are designed so that
orders entered into an application may
be sent to CBOE or other U.S. exchanges
(and trading centers) through an ‘‘LV
Routing Intermediary.’’ An ‘‘LV Routing
Intermediary’’ is a CBOE Trading Permit
Holder that has connectivity to, and is
a member of, other options and/or stock
exchanges (or trading centers). If a user
sends an order through an application to
an LV Routing Intermediary, the LV
Routing Intermediary will route that
order to a market for execution on
behalf of the entering user.11 Users
cannot directly route orders through the
applications to an exchange or trading
center. For users’ convenience, CBOE
will make available upon request a list
of LV Routing Intermediaries that
provide third-party routing services for
orders entered through LVX or LVCX.
The Exchange notes that a firm’s
decision to function as an LV Routing
Intermediary is within that firm’s sole
discretion.12
Certain LV Routing Intermediaries
may permit application users to
designate a market to which an LV
Routing Intermediary is to route an
order received from an application.
Other LV Routing Intermediaries may
employ ‘‘smart router’’ functionality,
which, generally, determines where to
route an order based on pre-set
algorithmic logic. LV Routing
Intermediaries may also provide users
with the ability to either designate a
destination market (an order-by-order
basis or by default) or use the smart
router functionality. Which LV Routing
Intermediary a user chooses to use (and
10 The functionality of the applications that
formats users’ stock and option orders entered into
those applications for broker-dealers, which then
submit those orders to exchanges for execution, is
the basis for this rule filing. The applications
include other functionality. LVCX provides users
with certain basic data analysis tools for real-time
data, including market scanners, watchlists and
alerts. LVX provides users with these tools for both
real-time and historical data as well as other
advanced analytical tools, including time and sales
analytics, charting capabilities, live and historical
skews, volatility comparisons, data queries and
filtering, and ‘‘Greek’’ calculations. The Exchange
notes that Newco will also acquire technology
products separate from the applications that offer
these and other market data and analytical tools to
customers, as well as an add-on tool that extracts
data from the data analysis products (including the
applications) and enters it into a Microsoft Excel
spreadsheet. These data analysis tools are not
subject to a rule filing requirement.
11 A user may also be an LV Routing Intermediary
if the user is CBOE Trading Permit Holder that has
connectivity to, and is a member of, other options
and/or stock exchanges (or trading centers).
12 To the extent a firm sublicenses LVX
applications to its customers (see below), the firm
will determine which LV Routing Intermediary to
use for applications used by the firm and its
customers.
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thus which type of routing permissions
are available to a user) is entirely within
a user’s discretion.13
The Exchange represents that the
applications are merely new front-end
order entry and management systems
that interface to the systems of LV
Routing Intermediaries. The
applications are not integrated into and
have no connectivity to CBOE’s trading
system (or the trading systems of any
other U.S. exchange or trading center).
Thus, orders submitted through the
applications will ultimately come to
CBOE or other exchanges for execution
through third-party routing technology.
There will be no change to, or impact
on, the Exchange’s market structure as
a result of offering the applications. As
a result, the Exchange represents that
the applications do not require any
changes to the Exchange’s surveillance
or communications rules.
Use of the applications is completely
voluntary. CBOE will make the
applications available to users (and in
certain cases, their customers, as further
described below) as a convenience for
entering and managing orders, but
neither application is an exclusive
means for any user to send orders to
CBOE or intermarket. Orders entered
into the applications that are ultimately
routed to CBOE for execution will
receive no preferential treatment as
compared to orders electronically sent
to CBOE in any other manner. Orders
entered into an application that get
routed to CBOE will be subject to
current trading rules in the same
manner as all other orders sent to the
Exchange, which is the same as orders
that are sent through an application to
the Exchange today.
CBOE will begin making the
applications available to users following
the closing of the acquisition of the
applications and other technology
products from Livevol.14 Newco will
grant users licenses to use LVX and
LVCX. The Exchange notes that a firm
or individual does not need to be a
Trading Permit Holder to license LVX or
LVCX, because, as discussed above,
neither application is directly connected
to CBOE (or any other U.S. exchange),
and orders submitted into either
13 Currently, there are seven broker-dealers that
are expected to function as LV Routing
Intermediaries as of the closing date of the
acquisition (LVS will not be one of the LV Routing
Intermediaries).
14 CBOE expects the closing date to be July 31,
2015 and will announce the closing date via press
release or its Web site (including via circular). The
proposed rule change will be operative on the later
of August 1, 2015 (assuming a July 31, 2015 closing
date) or the first business day immediately
following the closing date (if the closing date occurs
later than July 31, 2015).
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agreement with Newco on August 1,
2015, pursuant to which the firm can
sublicense these log-ins to its customers.
The firm must pay $50,000 each month
through July 31, 2017 as long as it has
no more than 499 log-in IDs. However,
suppose, as of January 1, 2016, the firm
wants to increase its log-in ID total to
500. At that time, because the firm
would be entering into the next tier, the
firm would need to enter into a new
two-year commitment (through
December 31, 2018) and begin paying
$80,000/month. If the firm needed fewer
than 500 log-ins during that two-year
period, it would continue to pay
$80,000 each month for that two-year
period. At the end of the two-year
commitment, if an LVX Enterprise User
wants to continue to license LVX, the
firm could either enter into a new twoyear commitment to remain an LVX
LVX Standard User Pricing Table
Enterprise User (with the monthly fee to
Monthly Fee/
be based on how many log-ins the firm
Number of Log-In IDs
Log-In ID
has at that time) or instead go to
1–15 ......................................
$500 standard log-in ID pricing without
16 + ......................................
$400 sublicensing rights for its outstanding
log-ins.
For LVCX, the Exchange proposes a
LVX Enterprise User Pricing Table
monthly fee of $100 per log-in ID. CBOE
will pass through to the LVCX user its
Monthly
Number of Log-Ins IDs
Enterprise Fee actual costs of any LVCX installation
fees, which costs will be determined on
1–499 ....................................
$50,000 a time and materials (per hour) basis.
500 + ....................................
$80,000 LVCX users may sublicense LVCX to
their customers.
• LVX Standard User Pricing
Additionally, the Exchange proposes
Example: If a customer wants to license an LV Routing Intermediary fee of $0.02
20 log-ins, it would pay $500 × 15 +
per executed contract or share
$400 × 5, or $9,500 per month for those
equivalent for the first million contracts
log-ins. That monthly fee would
or share equivalent executed in a month
increase or decrease for each additional
and $0.03 per executed contract or share
or cancelled, respectively, log-in ID by
equivalent for each additional contract
the applicable amount set forth in the
or share equivalent executed in the
above table.
same month. This fee is based on the
• LVX Enterprise User Pricing
aggregate number of executions on all
Example: A firm enters into an
markets (including CBOE) from all LVX
Standard Users for which an LV Routing
15 Rule 6.23A provides that only Trading Permit
Intermediary serves in that capacity.
Holders and associated persons with authorized
The Exchange notes that this fee will be
access may directly enter orders into CBOE’s
charged to an LV Routing Intermediary
trading system.
16 The Exchange notes that it expects Newco to
whether it is routing application orders
assume agreements between Livevol and their
on behalf of itself or on behalf of
current LVX and LVCX customers at the closing of
another application user.17 There will
the acquisition, provided that the fees those
be no LV Routing Intermediary fee
customers pay under those agreements as of the
charged for executions from LVX
closing date are consistent with the fees for LVX set
forth in this rule filing. Additionally, Newco
applications of LVX Enterprise Users or
intends to prepare a form license agreement for
from LVCX applications.
each application and, no later than three months
The monthly log-in ID fees for
following the closing of the acquisition, ensure each
standard LVX tier log-in IDs and for
customer has executed such agreement so that all
LVX customers and LVCX customers use the
LVCX log-in IDs, as well as LV Routing
product pursuant to the same terms and conditions.
Intermediary fees, will allow for
CBOE expects LVS will enter into a license
Newco’s recoupment of the costs of
agreement with Newco at the closing of the
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application for execution must be
routed through the connectivity of an
LV Routing Intermediary.15 Newco will
also provide technical support,
maintenance and user training for the
applications. LVX users that pay the
standard monthly fee per log-in ID set
forth in the standard pricing table below
may not sublicense to [sic] LVX to their
customers (‘‘LVX Standard Users’’). LVX
users that pay the monthly enterprise
fee set forth in the enterprise pricing
table below and commit to licensing
LVX for a period of two years (which
period will begin on the date on which
the user enters into an agreement for an
applicable enterprise tier with Newco
that permits sublicensing) may
sublicense LVX to their customers
(‘‘LVX Enterprise Users’’).16
acquisition and be an LVX Enterprise User. LVS
would be responsible for entering into any user
agreements with any new customers to whom it
sublicenses LVX after the closing in accordance
with the terms and conditions in its license
agreement, as would be required with respect to any
customer that is permitted to sublicense LVX.
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17 The Exchange notes the LV Routing
Intermediary fee is the same amount as the routing
intermediary fee for PULSe; however, the LV
Routing Intermediary fee applies to routing to any
market, including CBOE, while the PULSe fee
applies to away-market routing only.
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developing, maintaining, supporting
and enhancing the applications and the
related Routing Intermediary
functionality as well as for income from
the value-added services being provided
through use of the applications. The
Exchange believes the fee structure
represents an equitable allocation of
reasonable fees because the same
monthly log-in ID fees apply to all LVX
Standard Users and all LVCX users, and
the same LV Routing Intermediary fee
applies the same to all broker-dealers
that elect to become LV Routing
Intermediaries for LVX Standard Users.
The Exchange believes these fees are
reasonable and appropriate as they are
competitive with similar applications
available throughout the market and are
based on Livevol’s costs and fee
structure currently in place for the
applications. The Exchange believes the
LV Routing Intermediary fee is also
reasonable in light of the fact that it is
small in relation to the total costs
typically incurred in routing and
executing orders. The Exchange also
notes that use of the applications, and
the decision to function as an LV
Routing Intermediary, are discretionary
and not compulsory. Users can choose
to route orders without the use of either
of the applications. The Exchange is
offering the applications as a
convenience; they are not an exclusive
means available to send orders to CBOE
or intermarket.
The Exchange believes the
requirement to enter into a two-year
commitment to become an LVX
Enterprise User (and thus to be able to
sublicense LVX to customers) is
appropriate, because providing ongoing
support for a firm’s customer base
(which may be large) would likely
require the Exchange to expend
significant additional resources,
including potentially adding personnel
to provide training and support for these
customers as well as increasing
equipment and infrastructure
commitments. Without the two-year
commitment, Newco would be at
significant risk of making these
expenditures, only to have the firm no
longer need them and not have the
opportunity to recoup the costs related
to those resources. While the initial cost
to add a log-in ID for a customer is
smaller as the number of log-ins
licensed by a single firm increases due
to the scalability of costs, sublicensing
to a larger number of customers will
generally require Newco to bear these
longer-term costs. The Exchange
believes other providers in the industry
offer certain rights in exchange for
longer term commitments for similar
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sublicensing rights. Additionally, given
the high monthly cost and long-term
commitment to become an LVX
Enterprise User and given that the
Exchange charges integration [sic] costs
to LVCX users but not LVX Standard
Users, because the Exchange
understands that LV Routing
Intermediaries will generally passthrough the LV Routing Intermediary fee
to their customers, the Exchange
believes it is reasonable and appropriate
to not apply the LV Routing
Intermediary fee to orders that come
through an LVX Enterprise User’s
applications or LVCX applications. It is
also reasonable for the Exchange to
protect its intellectual property related
to LVX by requiring payment for the
right to sublicense, which could create
additional risk as Newco will not
control to which users a firm may
sublicense LVX. The Exchange believes
this commitment requirement
represents an equitable allocation of
reasonable fees because any user that
wants sublicensing rights is subject to
the same fees and time commitment.
The Exchange believes the installation
fee for LVCX is reasonable because the
Exchange believes the related
installation work will vary per customer
due to the necessity of integration of the
software into a customer’s own system.
The Exchange believes this fee to be
equitable because it directly passes
through those costs to the user based on
a time and materials basis that will
apply to all users in the same manner.
The Exchange notes that Newco will
provide additional technology products
and services and may in the future
engage in other business activities,
which may include the provision of
other technology products and services
to broker-dealers and non-broker-dealers
in addition to the applications.18 In this
regard:
18 See supra note 10. Newco is not and, at least
initially, will not be registered as a broker-dealer
under Section 15(a) of the Act. In this regard, the
Exchange notes the following: (a) CBOE and Newco
will be responsible for the marketing of the
applications. Newco will be the party to any
agreements with customers for these products. (b)
CBOE and Newco will be responsible for providing,
supporting and maintaining the technology for the
applications. CBOE will be responsible for ensuring
that Newco’s provision of the applications, to the
extent they are deemed facilities of CBOE, meets
CBOE’s self-regulatory organization obligations. (c)
Unless it registers as a broker-dealer under Section
15(a) of the Act, Newco will not hold itself out as
a broker-dealer, provide advice related to securities
transactions, match orders, make decisions about
routing orders, facilitate the clearance and
settlement of executed trades, prepare or send
transaction confirmations, screen counterparties for
creditworthiness, hold funds or securities, open,
maintain, administer or close brokerage accounts, or
provide assistance in resolving problems,
discrepancies or disputes related to brokerage
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• There will be procedures and
internal controls in place that are
reasonably designed so that Newco will
not unfairly take advantage of
confidential information it receives as a
result of its relationship with CBOE in
connection with the applications or any
other business activities.
• The books, records, premises,
officers, directors, agents and employees
of Newco, with respect to the products
that may be deemed facilities of CBOE,
will be deemed to be those of CBOE for
purposes of and subject to oversight
pursuant to the Act.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.19 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 20 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating 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
the Section 6(b)(5) 21 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
Additionally, the Exchange also believes
the proposed rule change is consistent
with Section 6(b)(4) of the Act,22 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.
In particular, the Exchange believes
that offering the applications to market
participants protects investors and is in
the public interest, because it will allow
the Exchange to directly offer users
accounts. Should Newco seek to register as a
broker-dealer in the future, the Exchange represents
that the broker-dealer would not perform any
operations without first discussing with the
Commission staff whether any of the broker-dealer’s
operations should be subject to an Exchange rule
filing required under the Act.
19 15 U.S.C. 78f(b).
20 15 U.S.C. 78f(b)(5).
21 Id.
22 15 U.S.C. 78f(b)(4).
PO 00000
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Sfmt 4703
order entry and management
applications in addition to the
technology products it currently offers
(such as the PULSe workstation), which
applications include access to data as
well as analytical tools. LVX and LVCX
are currently offered and used in the
marketplace and compete with similar
products offered by other technology
providers as well as other exchanges.23
Additionally, firms can create their own
proprietary front-end order entry
software and routing technology.
The Exchange believes the proposed
rule change does not discriminate
among market participants because use
of the applications, as well as being an
LV Routing Intermediary, is completely
voluntary. The Exchange is making the
applications available as a convenience
to market participants, who will
continue to have the option to use any
order entry and management system
available in the marketplace to send
orders to the Exchange and other
exchanges; the applications are merely
alternatives that will be offered by the
Exchange rather than its current owner.
Neither application is an exclusive
means available to market participants
to send orders to CBOE or other
markets. Any orders sent through an
application to CBOE for execution will
receive no preferential treatment.
Additionally, the applications will be
available to all market participants, and
the Exchange expects to license the
applications to market participants
pursuant to the same terms and
conditions.
The Exchange believes the
applications remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because users have discretion to
determine which LV Routing
Intermediary they will use, and thus
what type of routing parameters will be
available to them (whether it is the
ability to designate a destination market
or use smart router functionality). Each
user must enter into an agreement with
an LV Routing Intermediary, which can
provide for routing to U.S. options and
stock exchanges (and trading centers).
Only Trading Permit Holders will
continue to be permitted to directly
route orders received from an
application to CBOE, and only members
of other U.S. exchanges will be able to
enter orders for execution at those
exchanges that they receive from an
application. The Exchange also notes
that broker-dealers must continue to
23 For example, International Securities
Exchange, LLC (‘‘ISE’’) offers a front-end order entry
workstation called PrecISE to its customers, which
the Exchange believes has similar functionality as
the applications.
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Federal Register / Vol. 80, No. 126 / Wednesday, July 1, 2015 / Notices
ensure that orders they receive from
applications will be subject to
applicable pre-trade risk control
requirements of the broker-dealer that
directly submits the orders to an
exchange in accordance with Rule
15c3–5 under the Act.24
The standard monthly log-in ID fees
for LVX log-in ID and monthly fees for
LVCX log-in IDs, as well as LV Routing
Intermediary fees, will allow for
Newco’s recoupment of the costs of
developing, maintaining, supporting
and enhancing the applications and the
related Routing Intermediary
functionality as well as for income from
the value-added services being provided
through use of the applications. The
Exchange believes the fee structure
represents an equitable allocation of
reasonable fees because the same
monthly log-in ID fees apply to all LVX
Standard Users and all LVCX users, and
the same LV Routing Intermediary fee
applies the same to all broker-dealers
that elect to become LV Routing
Intermediaries for LVX Standard Users.
The Exchange believes these fees are
reasonable and appropriate as they are
competitive with similar applications
available throughout the market and are
based on Livevol’s costs and fee
structure currently in place for the
applications. The Exchange believes the
LV Routing Intermediary fee is also
reasonable in light of the fact that it is
small in relation to the total costs
typically incurred in routing and
executing orders. The Exchange also
notes that use of the applications, and
the decision to function as an LV
Routing Intermediary, are discretionary
and not compulsory. Users can choose
to route orders without the use of either
of the applications. The Exchange is
offering the applications as a
convenience; they are not an exclusive
means available to send orders to CBOE
or intermarket. Additionally, given the
high monthly cost and long-term
commitment to become an LVX
Enterprise User and given that the
Exchange charges integration [sic] costs
to LVCX users but not LVX Standard
Users, because the Exchange
understands that LV Routing
Intermediaries will generally passthrough the LV Routing Intermediary fee
to their customers, the Exchange
believes it is reasonable and appropriate
to not apply the LV Routing
Intermediary fee to orders that come
through an LVX Enterprise User’s
applications or LVCX applications.
The Exchange believes the
requirement to enter into a two-year
commitment to become an LVX
24 See
17 CFR 240.15c3–5.
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18:30 Jun 30, 2015
Jkt 235001
Enterprise User (and thus to be able to
sublicense LVX to customers) is
appropriate, because providing ongoing
support for a firm’s customer base
(which may be large) would likely
require the Exchange to expend
significant additional resources,
including potentially adding personnel
to provide training and support for these
customers as well as increasing
equipment and infrastructure
commitments. Without the two-year
commitment, Newco would be at
significant risk of making these
expenditures, only to have the firm no
longer need them and not have the
opportunity to recoup the costs related
to those resources. While the initial cost
to add a log-in ID for a customer is
smaller as the number of log-ins
licensed by a single firm increases due
to the scalability of costs, sublicensing
to a larger number of customers will
generally require Newco to bear these
longer-term costs. The Exchange
believes other providers in the industry
offer certain rights in exchange for
longer term commitments for similar
sublicensing rights. It is also reasonable
for the Exchange to protect its
intellectual property related to LVX by
requiring payment for the right to
sublicense, which could create
additional risk as Newco will not
control to which users a firm may
sublicense LVX. The Exchange believes
this commitment requirement
represents an equitable allocation of
reasonable fees because any user that
wants sublicensing rights is subject to
the same fees and time commitment.
The Exchange believes the installation
fee for LVCX is reasonable because the
Exchange believes the related
installation work will vary per customer
due to the necessity of integration of the
software into a customer’s own system.
The Exchange believes this fee to be
equitable because it directly passes
through those costs to the user based on
a time and materials basis that will
apply to all users in the same manner.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange will make the applications
available to market participants on the
same terms and conditions, and use of
either application will be completely
voluntary. Additionally, the decision to
act as an LV Routing Intermediary is
completely voluntary, and users have
discretion to determine which LV
Routing Intermediary to use. Market
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
37689
participants will continue to have the
flexibility to use any order entry and
management technology they choose.
The Exchange will merely be directly
offering the applications as alternatives
to a product that the Exchange currently
makes available in the market (PULSe).
If market participants believe that other
products available in the marketplace
are more beneficial than either
application, they will simply use those
products instead. Orders sent to the
Exchange through an application for
execution will receive no preferential
treatment. The Exchange notes that the
applications are already available and
used in the marketplace today. This
acquisition merely changes the party
that will own and license to users the
applications going forward.
CBOE believes that the proposed rule
change will relieve any burden on, or
otherwise promote, competition. CBOE
will be offering a type of product that
is widely available throughout the
industry, including from some
exchanges. Market participants can also
develop their own proprietary products
with the same functionality. ISE
currently offers a similar front-end order
entry application. CBOE believes that
the applications will be additions to its
current suite of technology products it
offers to market participants to enter
and manage orders for routing to U.S.
exchanges. Any market participant will
be able to use the applications.
The Exchange notes that when
Congress charged the Commission with
supervising the development of a
‘‘national market system’’ for securities,
a premise of its action was that prices,
products and services ordinarily would
be determined by market forces.25
Consistent with this purpose, Congress
and the Commission have repeatedly
stated their preference for competition,
rather than regulatory intervention, to
determine prices, products and services
in the securities markets.26 Many
25 See, e.g., H.R. Rep. No. 94–229, at 92 (1975)
(Conf. Rep.) (stating Congress’s intent that the
‘‘national market system evolve through the
interplay of competitive forces as unnecessary
regulatory restrictions are removed’’).
26 See S. Rep. No. 94–75, 94th Cong., 1st Sess. 8
(1975) (‘‘The objective [in enacting the 1975
amendments to the Exchange Act] would be to
enhance competition and to allow economic forces,
interacting within a fair regulatory field, to arrive
at appropriate variations in practices and
services.’’); Order Approving Proposed Rule Change
Relating to NYSE Arca Data, Securities Exchange
Act Release No. 59039 (December 2, 2008), 73 FR
74770 (Dec. 9, 2008) at 74781 (‘‘The Exchange Act
and its legislative history strongly support the
Commission’s reliance on competition, whenever
possible, in meeting its regulatory responsibilities
for overseeing the SROs and the national market
system. Indeed, competition among multiple
markets and market participants trading the same
E:\FR\FM\01JYN1.SGM
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01JYN1
37690
Federal Register / Vol. 80, No. 126 / Wednesday, July 1, 2015 / Notices
exchanges and other market participants
make technology products, including
products similar to the applications,
available to the industry. Other market
participants that offer these products
can adjust pricing or add functionality
to attract users to their products to
compete with the Exchange-offered
products based on all competitive forces
in the marketplace, as the Exchange
expects these other market participants
currently do. The Exchange believes
that other market participants that offer
these products will continue to remain
competitive in the market for orderentry, management and routing
products, as they currently are in this
market in which at least two exchanges
(including CBOE) offer similar
technology products. For example,
CBOE currently offers PULSe, and ISE
currently offers PrecISE. The Exchange
believes that many investors will
continue to elect to use competing
products available from non-exchange
technology providers.
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.
tkelley on DSK3SPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 27 and Rule 19b–
4(f)(6) 28 thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
products is the hallmark of the national market
system.’’) (SR–NYSEArca–2006–21); Regulation
NMS, 70 FR at 37499 (observing that NMS
regulation ‘‘has been remarkably successful in
promoting market competition in [the] forms that
are most important to investors and listed
companies’’).
27 15 U.S.C. 78s(b)(3)(A).
28 17 CFR 240.19b–4(f)(6).
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18:30 Jun 30, 2015
Jkt 235001
to determine whether the proposed rule
change should be approved or
disapproved.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–16090 Filed 6–30–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75295; File No. SR–BOX–
2015–23]
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2015–062 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–2015–062. 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 (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 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–
2015–062, and should be submitted on
or before July 22, 2015.
PO 00000
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Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Amend
Rule 7260 To Extend, Through June 30,
2016, the Pilot Program That Permits
Certain Classes To Be Quoted in
Penny Increments
June 25, 2015.
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 June 17,
2015, BOX Options Exchange LLC (the
‘‘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
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 7260 to extend, through June 30,
2016, the pilot program that permits
certain classes to be quoted in penny
increments (‘‘Penny Pilot Program’’).
The text of the proposed rule change is
available from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s Internet Web site at https://
boxexchange.com.
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
self-regulatory organization 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
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 80, Number 126 (Wednesday, July 1, 2015)]
[Notices]
[Pages 37685-37690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16090]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75302; File No. SR-CBOE-2015-062]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Front-End Order Entry and Management
Tools in Connection With Purchase of Livevol Assets
June 25, 2015.
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 June 23, 2015, 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 Exchange filed the proposal as a ``non-controversial''
proposed rule change pursuant to section 19(b)(3)(A)(iii) of the Act
\3\ and Rule 19b-4(f)(6) thereunder.\4\ 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)(iii).
\4\ 17 CFR 240.19b 4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The purpose of this filing is to describe the functionality and
adopt fees for the use of two new front-end order entry and management
applications. The text of the proposed rule change is available on the
Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission.
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 purpose of this filing is to describe the functionality and
adopt fees for the use of two new front-end order entry and management
applications. On June 1, 2015, CBOE IV, LLC (``Newco'') (a wholly owned
subsidiary of CBOE's parent company, CBOE Holdings, Inc.) entered into
a definitive asset purchase agreement with Livevol \5\ pursuant to
which Newco agreed to purchase certain software and technology,
including Livevol X (``LVX'') and Livevol Core X (``LVCX''
[[Page 37686]]
and, together with LVX, the ``applications'').\6\
---------------------------------------------------------------------------
\5\ Livevol, Inc. has an additional subsidiary, Livevol
Securities, Inc. (``LVS''), which is a registered U.S. broker-dealer
(but not a Trading Permit Holder of the Exchange). CBOE will not
acquire any assets related to this broker-dealer business.
\6\ Pursuant to the asset purchase agreement, Newco will also
purchase from Livevol market data analytical products. See infra
note 10.
---------------------------------------------------------------------------
The applications are front-end order entry and management tools for
listed stocks and options that support both simple and complex
orders.\7\ LVX is a software application that is installed locally on a
user's desktop terminal, and LVCX is a web-based application integrated
into the application programming interface of the user's proprietary
system. The applications provide users with the capability to send
option orders to U.S. options exchanges and stock orders to U.S. stock
exchanges (and other trading centers \8\). Additionally, the
applications allow users to input parameters to control the size,
timing and other variables of their trades.\9\ Both applications
include access to real-time options and stock market data; LVX also
includes access to historical data. The applications provide their
users with the ability to maintain an electronic audit trail and
provide detailed trade reporting.\10\ Use of the applications is
completely optional.
---------------------------------------------------------------------------
\7\ Newco may add functionality to permit users to submit orders
for commodity futures, commodity options and other non-security
products to be sent to designated contract markets, futures
commission merchants, introducing brokers or other applicable
destinations of the users' choice.
\8\ A ``trading center,'' as provided under Rule 600(b)(78) of
Regulation NMS, 17 CFR 242.600(b)(78), means a national securities
exchange or national securities association that operates a self-
regulatory organization trading facility, an alternative trading
system, an exchange market-maker, an over-the-counter market-maker,
or any other broker or dealer that executes orders internally by
trading as principal or crossing orders as agent.
\9\ LVX also provides position and risk management capabilities.
The LVX risk management functionality allows users to, among other
things, set pre-trade customizable risk controls. Users of these
risk controls set the parameters for the controls (to the extent a
firm sublicenses LVX applications to its customers (see below), the
firm will set risk controls on behalf of its customers). Users have
the option to instead use other third-party risk control software,
including risk control software or technology (LVCX users are
responsible for obtaining their own risk control software or
technology). The Exchange notes that entering broker-dealers
(including Trading Permit Holders) must ensure that any orders that
come from the applications to their systems will be subject to all
applicable pre-trade risk control requirements in accordance with
Rule 15c3-5 of the Securities Exchange Act of 1934 (the ``Act'').
See 17 CFR 240.15c3-5. Please note that, in the adopting release for
Rule 15c3-5 under the Act, the Securities and Exchange Commission
(the ``Commission'') indicated that a broker-dealer relying on risk
management technology developed by third parties should perform
appropriate due diligence to help assure the controls are reasonably
designed, effective, and otherwise consistent with Rule 15c3-5. Mere
reliance on representations of the third-party technology developer,
even if an exchange or other regulated entity, is insufficient to
meet this due diligence standard.
\10\ The functionality of the applications that formats users'
stock and option orders entered into those applications for broker-
dealers, which then submit those orders to exchanges for execution,
is the basis for this rule filing. The applications include other
functionality. LVCX provides users with certain basic data analysis
tools for real-time data, including market scanners, watchlists and
alerts. LVX provides users with these tools for both real-time and
historical data as well as other advanced analytical tools,
including time and sales analytics, charting capabilities, live and
historical skews, volatility comparisons, data queries and
filtering, and ``Greek'' calculations. The Exchange notes that Newco
will also acquire technology products separate from the applications
that offer these and other market data and analytical tools to
customers, as well as an add-on tool that extracts data from the
data analysis products (including the applications) and enters it
into a Microsoft Excel spreadsheet. These data analysis tools are
not subject to a rule filing requirement.
---------------------------------------------------------------------------
The applications are designed so that orders entered into an
application may be sent to CBOE or other U.S. exchanges (and trading
centers) through an ``LV Routing Intermediary.'' An ``LV Routing
Intermediary'' is a CBOE Trading Permit Holder that has connectivity
to, and is a member of, other options and/or stock exchanges (or
trading centers). If a user sends an order through an application to an
LV Routing Intermediary, the LV Routing Intermediary will route that
order to a market for execution on behalf of the entering user.\11\
Users cannot directly route orders through the applications to an
exchange or trading center. For users' convenience, CBOE will make
available upon request a list of LV Routing Intermediaries that provide
third-party routing services for orders entered through LVX or LVCX.
The Exchange notes that a firm's decision to function as an LV Routing
Intermediary is within that firm's sole discretion.\12\
---------------------------------------------------------------------------
\11\ A user may also be an LV Routing Intermediary if the user
is CBOE Trading Permit Holder that has connectivity to, and is a
member of, other options and/or stock exchanges (or trading
centers).
\12\ To the extent a firm sublicenses LVX applications to its
customers (see below), the firm will determine which LV Routing
Intermediary to use for applications used by the firm and its
customers.
---------------------------------------------------------------------------
Certain LV Routing Intermediaries may permit application users to
designate a market to which an LV Routing Intermediary is to route an
order received from an application. Other LV Routing Intermediaries may
employ ``smart router'' functionality, which, generally, determines
where to route an order based on pre-set algorithmic logic. LV Routing
Intermediaries may also provide users with the ability to either
designate a destination market (an order-by-order basis or by default)
or use the smart router functionality. Which LV Routing Intermediary a
user chooses to use (and thus which type of routing permissions are
available to a user) is entirely within a user's discretion.\13\
---------------------------------------------------------------------------
\13\ Currently, there are seven broker-dealers that are expected
to function as LV Routing Intermediaries as of the closing date of
the acquisition (LVS will not be one of the LV Routing
Intermediaries).
---------------------------------------------------------------------------
The Exchange represents that the applications are merely new front-
end order entry and management systems that interface to the systems of
LV Routing Intermediaries. The applications are not integrated into and
have no connectivity to CBOE's trading system (or the trading systems
of any other U.S. exchange or trading center). Thus, orders submitted
through the applications will ultimately come to CBOE or other
exchanges for execution through third-party routing technology. There
will be no change to, or impact on, the Exchange's market structure as
a result of offering the applications. As a result, the Exchange
represents that the applications do not require any changes to the
Exchange's surveillance or communications rules.
Use of the applications is completely voluntary. CBOE will make the
applications available to users (and in certain cases, their customers,
as further described below) as a convenience for entering and managing
orders, but neither application is an exclusive means for any user to
send orders to CBOE or intermarket. Orders entered into the
applications that are ultimately routed to CBOE for execution will
receive no preferential treatment as compared to orders electronically
sent to CBOE in any other manner. Orders entered into an application
that get routed to CBOE will be subject to current trading rules in the
same manner as all other orders sent to the Exchange, which is the same
as orders that are sent through an application to the Exchange today.
CBOE will begin making the applications available to users
following the closing of the acquisition of the applications and other
technology products from Livevol.\14\ Newco will grant users licenses
to use LVX and LVCX. The Exchange notes that a firm or individual does
not need to be a Trading Permit Holder to license LVX or LVCX, because,
as discussed above, neither application is directly connected to CBOE
(or any other U.S. exchange), and orders submitted into either
[[Page 37687]]
application for execution must be routed through the connectivity of an
LV Routing Intermediary.\15\ Newco will also provide technical support,
maintenance and user training for the applications. LVX users that pay
the standard monthly fee per log-in ID set forth in the standard
pricing table below may not sublicense to [sic] LVX to their customers
(``LVX Standard Users''). LVX users that pay the monthly enterprise fee
set forth in the enterprise pricing table below and commit to licensing
LVX for a period of two years (which period will begin on the date on
which the user enters into an agreement for an applicable enterprise
tier with Newco that permits sublicensing) may sublicense LVX to their
customers (``LVX Enterprise Users'').\16\
---------------------------------------------------------------------------
\14\ CBOE expects the closing date to be July 31, 2015 and will
announce the closing date via press release or its Web site
(including via circular). The proposed rule change will be operative
on the later of August 1, 2015 (assuming a July 31, 2015 closing
date) or the first business day immediately following the closing
date (if the closing date occurs later than July 31, 2015).
\15\ Rule 6.23A provides that only Trading Permit Holders and
associated persons with authorized access may directly enter orders
into CBOE's trading system.
\16\ The Exchange notes that it expects Newco to assume
agreements between Livevol and their current LVX and LVCX customers
at the closing of the acquisition, provided that the fees those
customers pay under those agreements as of the closing date are
consistent with the fees for LVX set forth in this rule filing.
Additionally, Newco intends to prepare a form license agreement for
each application and, no later than three months following the
closing of the acquisition, ensure each customer has executed such
agreement so that all LVX customers and LVCX customers use the
product pursuant to the same terms and conditions. CBOE expects LVS
will enter into a license agreement with Newco at the closing of the
acquisition and be an LVX Enterprise User. LVS would be responsible
for entering into any user agreements with any new customers to whom
it sublicenses LVX after the closing in accordance with the terms
and conditions in its license agreement, as would be required with
respect to any customer that is permitted to sublicense LVX.
------------------------------------------------------------------------
LVX Standard User Pricing Table
-------------------------------------------------------------------------
Monthly Fee/
Number of Log-In IDs Log-In ID
------------------------------------------------------------------------
1-15.................................................... $500
16 +.................................................... $400
------------------------------------------------------------------------
------------------------------------------------------------------------
LVX Enterprise User Pricing Table
-------------------------------------------------------------------------
Monthly
Number of Log-Ins IDs Enterprise Fee
------------------------------------------------------------------------
1-499................................................... $50,000
500 +................................................... $80,000
------------------------------------------------------------------------
LVX Standard User Pricing Example: If a customer wants to
license 20 log-ins, it would pay $500 x 15 + $400 x 5, or $9,500 per
month for those log-ins. That monthly fee would increase or decrease
for each additional or cancelled, respectively, log-in ID by the
applicable amount set forth in the above table.
LVX Enterprise User Pricing Example: A firm enters into an
agreement with Newco on August 1, 2015, pursuant to which the firm can
sublicense these log-ins to its customers. The firm must pay $50,000
each month through July 31, 2017 as long as it has no more than 499
log-in IDs. However, suppose, as of January 1, 2016, the firm wants to
increase its log-in ID total to 500. At that time, because the firm
would be entering into the next tier, the firm would need to enter into
a new two-year commitment (through December 31, 2018) and begin paying
$80,000/month. If the firm needed fewer than 500 log-ins during that
two-year period, it would continue to pay $80,000 each month for that
two-year period. At the end of the two-year commitment, if an LVX
Enterprise User wants to continue to license LVX, the firm could either
enter into a new two-year commitment to remain an LVX Enterprise User
(with the monthly fee to be based on how many log-ins the firm has at
that time) or instead go to standard log-in ID pricing without
sublicensing rights for its outstanding log-ins.
For LVCX, the Exchange proposes a monthly fee of $100 per log-in
ID. CBOE will pass through to the LVCX user its actual costs of any
LVCX installation fees, which costs will be determined on a time and
materials (per hour) basis. LVCX users may sublicense LVCX to their
customers.
Additionally, the Exchange proposes an LV Routing Intermediary fee
of $0.02 per executed contract or share equivalent for the first
million contracts or share equivalent executed in a month and $0.03 per
executed contract or share equivalent for each additional contract or
share equivalent executed in the same month. This fee is based on the
aggregate number of executions on all markets (including CBOE) from all
LVX Standard Users for which an LV Routing Intermediary serves in that
capacity. The Exchange notes that this fee will be charged to an LV
Routing Intermediary whether it is routing application orders on behalf
of itself or on behalf of another application user.\17\ There will be
no LV Routing Intermediary fee charged for executions from LVX
applications of LVX Enterprise Users or from LVCX applications.
---------------------------------------------------------------------------
\17\ The Exchange notes the LV Routing Intermediary fee is the
same amount as the routing intermediary fee for PULSe; however, the
LV Routing Intermediary fee applies to routing to any market,
including CBOE, while the PULSe fee applies to away-market routing
only.
---------------------------------------------------------------------------
The monthly log-in ID fees for standard LVX tier log-in IDs and for
LVCX log-in IDs, as well as LV Routing Intermediary fees, will allow
for Newco's recoupment of the costs of developing, maintaining,
supporting and enhancing the applications and the related Routing
Intermediary functionality as well as for income from the value-added
services being provided through use of the applications. The Exchange
believes the fee structure represents an equitable allocation of
reasonable fees because the same monthly log-in ID fees apply to all
LVX Standard Users and all LVCX users, and the same LV Routing
Intermediary fee applies the same to all broker-dealers that elect to
become LV Routing Intermediaries for LVX Standard Users. The Exchange
believes these fees are reasonable and appropriate as they are
competitive with similar applications available throughout the market
and are based on Livevol's costs and fee structure currently in place
for the applications. The Exchange believes the LV Routing Intermediary
fee is also reasonable in light of the fact that it is small in
relation to the total costs typically incurred in routing and executing
orders. The Exchange also notes that use of the applications, and the
decision to function as an LV Routing Intermediary, are discretionary
and not compulsory. Users can choose to route orders without the use of
either of the applications. The Exchange is offering the applications
as a convenience; they are not an exclusive means available to send
orders to CBOE or intermarket.
The Exchange believes the requirement to enter into a two-year
commitment to become an LVX Enterprise User (and thus to be able to
sublicense LVX to customers) is appropriate, because providing ongoing
support for a firm's customer base (which may be large) would likely
require the Exchange to expend significant additional resources,
including potentially adding personnel to provide training and support
for these customers as well as increasing equipment and infrastructure
commitments. Without the two-year commitment, Newco would be at
significant risk of making these expenditures, only to have the firm no
longer need them and not have the opportunity to recoup the costs
related to those resources. While the initial cost to add a log-in ID
for a customer is smaller as the number of log-ins licensed by a single
firm increases due to the scalability of costs, sublicensing to a
larger number of customers will generally require Newco to bear these
longer-term costs. The Exchange believes other providers in the
industry offer certain rights in exchange for longer term commitments
for similar
[[Page 37688]]
sublicensing rights. Additionally, given the high monthly cost and
long-term commitment to become an LVX Enterprise User and given that
the Exchange charges integration [sic] costs to LVCX users but not LVX
Standard Users, because the Exchange understands that LV Routing
Intermediaries will generally pass-through the LV Routing Intermediary
fee to their customers, the Exchange believes it is reasonable and
appropriate to not apply the LV Routing Intermediary fee to orders that
come through an LVX Enterprise User's applications or LVCX
applications. It is also reasonable for the Exchange to protect its
intellectual property related to LVX by requiring payment for the right
to sublicense, which could create additional risk as Newco will not
control to which users a firm may sublicense LVX. The Exchange believes
this commitment requirement represents an equitable allocation of
reasonable fees because any user that wants sublicensing rights is
subject to the same fees and time commitment.
The Exchange believes the installation fee for LVCX is reasonable
because the Exchange believes the related installation work will vary
per customer due to the necessity of integration of the software into a
customer's own system. The Exchange believes this fee to be equitable
because it directly passes through those costs to the user based on a
time and materials basis that will apply to all users in the same
manner.
The Exchange notes that Newco will provide additional technology
products and services and may in the future engage in other business
activities, which may include the provision of other technology
products and services to broker-dealers and non-broker-dealers in
addition to the applications.\18\ In this regard:
---------------------------------------------------------------------------
\18\ See supra note 10. Newco is not and, at least initially,
will not be registered as a broker-dealer under Section 15(a) of the
Act. In this regard, the Exchange notes the following: (a) CBOE and
Newco will be responsible for the marketing of the applications.
Newco will be the party to any agreements with customers for these
products. (b) CBOE and Newco will be responsible for providing,
supporting and maintaining the technology for the applications. CBOE
will be responsible for ensuring that Newco's provision of the
applications, to the extent they are deemed facilities of CBOE,
meets CBOE's self-regulatory organization obligations. (c) Unless it
registers as a broker-dealer under Section 15(a) of the Act, Newco
will not hold itself out as a broker-dealer, provide advice related
to securities transactions, match orders, make decisions about
routing orders, facilitate the clearance and settlement of executed
trades, prepare or send transaction confirmations, screen
counterparties for creditworthiness, hold funds or securities, open,
maintain, administer or close brokerage accounts, or provide
assistance in resolving problems, discrepancies or disputes related
to brokerage accounts. Should Newco seek to register as a broker-
dealer in the future, the Exchange represents that the broker-dealer
would not perform any operations without first discussing with the
Commission staff whether any of the broker-dealer's operations
should be subject to an Exchange rule filing required under the Act.
---------------------------------------------------------------------------
There will be procedures and internal controls in place
that are reasonably designed so that Newco will not unfairly take
advantage of confidential information it receives as a result of its
relationship with CBOE in connection with the applications or any other
business activities.
The books, records, premises, officers, directors, agents
and employees of Newco, with respect to the products that may be deemed
facilities of CBOE, will be deemed to be those of CBOE for purposes of
and subject to oversight pursuant to the Act.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\19\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \20\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating 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 the Section 6(b)(5) \21\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. Additionally, the Exchange
also believes the proposed rule change is consistent with Section
6(b)(4) of the Act,\22\ 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.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
\21\ Id.
\22\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
In particular, the Exchange believes that offering the applications
to market participants protects investors and is in the public
interest, because it will allow the Exchange to directly offer users
order entry and management applications in addition to the technology
products it currently offers (such as the PULSe workstation), which
applications include access to data as well as analytical tools. LVX
and LVCX are currently offered and used in the marketplace and compete
with similar products offered by other technology providers as well as
other exchanges.\23\ Additionally, firms can create their own
proprietary front-end order entry software and routing technology.
---------------------------------------------------------------------------
\23\ For example, International Securities Exchange, LLC
(``ISE'') offers a front-end order entry workstation called PrecISE
to its customers, which the Exchange believes has similar
functionality as the applications.
---------------------------------------------------------------------------
The Exchange believes the proposed rule change does not
discriminate among market participants because use of the applications,
as well as being an LV Routing Intermediary, is completely voluntary.
The Exchange is making the applications available as a convenience to
market participants, who will continue to have the option to use any
order entry and management system available in the marketplace to send
orders to the Exchange and other exchanges; the applications are merely
alternatives that will be offered by the Exchange rather than its
current owner. Neither application is an exclusive means available to
market participants to send orders to CBOE or other markets. Any orders
sent through an application to CBOE for execution will receive no
preferential treatment. Additionally, the applications will be
available to all market participants, and the Exchange expects to
license the applications to market participants pursuant to the same
terms and conditions.
The Exchange believes the applications remove impediments to and
perfect the mechanism of a free and open market and a national market
system because users have discretion to determine which LV Routing
Intermediary they will use, and thus what type of routing parameters
will be available to them (whether it is the ability to designate a
destination market or use smart router functionality). Each user must
enter into an agreement with an LV Routing Intermediary, which can
provide for routing to U.S. options and stock exchanges (and trading
centers). Only Trading Permit Holders will continue to be permitted to
directly route orders received from an application to CBOE, and only
members of other U.S. exchanges will be able to enter orders for
execution at those exchanges that they receive from an application. The
Exchange also notes that broker-dealers must continue to
[[Page 37689]]
ensure that orders they receive from applications will be subject to
applicable pre-trade risk control requirements of the broker-dealer
that directly submits the orders to an exchange in accordance with Rule
15c3-5 under the Act.\24\
---------------------------------------------------------------------------
\24\ See 17 CFR 240.15c3-5.
---------------------------------------------------------------------------
The standard monthly log-in ID fees for LVX log-in ID and monthly
fees for LVCX log-in IDs, as well as LV Routing Intermediary fees, will
allow for Newco's recoupment of the costs of developing, maintaining,
supporting and enhancing the applications and the related Routing
Intermediary functionality as well as for income from the value-added
services being provided through use of the applications. The Exchange
believes the fee structure represents an equitable allocation of
reasonable fees because the same monthly log-in ID fees apply to all
LVX Standard Users and all LVCX users, and the same LV Routing
Intermediary fee applies the same to all broker-dealers that elect to
become LV Routing Intermediaries for LVX Standard Users. The Exchange
believes these fees are reasonable and appropriate as they are
competitive with similar applications available throughout the market
and are based on Livevol's costs and fee structure currently in place
for the applications. The Exchange believes the LV Routing Intermediary
fee is also reasonable in light of the fact that it is small in
relation to the total costs typically incurred in routing and executing
orders. The Exchange also notes that use of the applications, and the
decision to function as an LV Routing Intermediary, are discretionary
and not compulsory. Users can choose to route orders without the use of
either of the applications. The Exchange is offering the applications
as a convenience; they are not an exclusive means available to send
orders to CBOE or intermarket. Additionally, given the high monthly
cost and long-term commitment to become an LVX Enterprise User and
given that the Exchange charges integration [sic] costs to LVCX users
but not LVX Standard Users, because the Exchange understands that LV
Routing Intermediaries will generally pass-through the LV Routing
Intermediary fee to their customers, the Exchange believes it is
reasonable and appropriate to not apply the LV Routing Intermediary fee
to orders that come through an LVX Enterprise User's applications or
LVCX applications.
The Exchange believes the requirement to enter into a two-year
commitment to become an LVX Enterprise User (and thus to be able to
sublicense LVX to customers) is appropriate, because providing ongoing
support for a firm's customer base (which may be large) would likely
require the Exchange to expend significant additional resources,
including potentially adding personnel to provide training and support
for these customers as well as increasing equipment and infrastructure
commitments. Without the two-year commitment, Newco would be at
significant risk of making these expenditures, only to have the firm no
longer need them and not have the opportunity to recoup the costs
related to those resources. While the initial cost to add a log-in ID
for a customer is smaller as the number of log-ins licensed by a single
firm increases due to the scalability of costs, sublicensing to a
larger number of customers will generally require Newco to bear these
longer-term costs. The Exchange believes other providers in the
industry offer certain rights in exchange for longer term commitments
for similar sublicensing rights. It is also reasonable for the Exchange
to protect its intellectual property related to LVX by requiring
payment for the right to sublicense, which could create additional risk
as Newco will not control to which users a firm may sublicense LVX. The
Exchange believes this commitment requirement represents an equitable
allocation of reasonable fees because any user that wants sublicensing
rights is subject to the same fees and time commitment.
The Exchange believes the installation fee for LVCX is reasonable
because the Exchange believes the related installation work will vary
per customer due to the necessity of integration of the software into a
customer's own system. The Exchange believes this fee to be equitable
because it directly passes through those costs to the user based on a
time and materials basis that will apply to all users in the same
manner.
B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange will make the
applications available to market participants on the same terms and
conditions, and use of either application will be completely voluntary.
Additionally, the decision to act as an LV Routing Intermediary is
completely voluntary, and users have discretion to determine which LV
Routing Intermediary to use. Market participants will continue to have
the flexibility to use any order entry and management technology they
choose. The Exchange will merely be directly offering the applications
as alternatives to a product that the Exchange currently makes
available in the market (PULSe). If market participants believe that
other products available in the marketplace are more beneficial than
either application, they will simply use those products instead. Orders
sent to the Exchange through an application for execution will receive
no preferential treatment. The Exchange notes that the applications are
already available and used in the marketplace today. This acquisition
merely changes the party that will own and license to users the
applications going forward.
CBOE believes that the proposed rule change will relieve any burden
on, or otherwise promote, competition. CBOE will be offering a type of
product that is widely available throughout the industry, including
from some exchanges. Market participants can also develop their own
proprietary products with the same functionality. ISE currently offers
a similar front-end order entry application. CBOE believes that the
applications will be additions to its current suite of technology
products it offers to market participants to enter and manage orders
for routing to U.S. exchanges. Any market participant will be able to
use the applications.
The Exchange notes that when Congress charged the Commission with
supervising the development of a ``national market system'' for
securities, a premise of its action was that prices, products and
services ordinarily would be determined by market forces.\25\
Consistent with this purpose, Congress and the Commission have
repeatedly stated their preference for competition, rather than
regulatory intervention, to determine prices, products and services in
the securities markets.\26\ Many
[[Page 37690]]
exchanges and other market participants make technology products,
including products similar to the applications, available to the
industry. Other market participants that offer these products can
adjust pricing or add functionality to attract users to their products
to compete with the Exchange-offered products based on all competitive
forces in the marketplace, as the Exchange expects these other market
participants currently do. The Exchange believes that other market
participants that offer these products will continue to remain
competitive in the market for order-entry, management and routing
products, as they currently are in this market in which at least two
exchanges (including CBOE) offer similar technology products. For
example, CBOE currently offers PULSe, and ISE currently offers PrecISE.
The Exchange believes that many investors will continue to elect to use
competing products available from non-exchange technology providers.
---------------------------------------------------------------------------
\25\ See, e.g., H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.)
(stating Congress's intent that the ``national market system evolve
through the interplay of competitive forces as unnecessary
regulatory restrictions are removed'').
\26\ See S. Rep. No. 94-75, 94th Cong., 1st Sess. 8 (1975)
(``The objective [in enacting the 1975 amendments to the Exchange
Act] would be to enhance competition and to allow economic forces,
interacting within a fair regulatory field, to arrive at appropriate
variations in practices and services.''); Order Approving Proposed
Rule Change Relating to NYSE Arca Data, Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR 74770 (Dec. 9, 2008) at
74781 (``The Exchange Act and its legislative history strongly
support the Commission's reliance on competition, whenever possible,
in meeting its regulatory responsibilities for overseeing the SROs
and the national market system. Indeed, competition among multiple
markets and market participants trading the same products is the
hallmark of the national market system.'') (SR-NYSEArca-2006-21);
Regulation NMS, 70 FR at 37499 (observing that NMS regulation ``has
been remarkably successful in promoting market competition in [the]
forms that are most important to investors and listed companies'').
---------------------------------------------------------------------------
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \27\ and Rule 19b-
4(f)(6) \28\ thereunder.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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 shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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 email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2015-062 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-2015-062. 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 (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 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-2015-062, and should be
submitted on or before July 22, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-16090 Filed 6-30-15; 8:45 am]
BILLING CODE 8011-01-P
