Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Subsidy Arrangements with Members That Provide or Use Certain Order Routing Functionalities, 19992-19993 [E7-7493]

Download as PDF 19992 Federal Register / Vol. 72, No. 76 / Friday, April 20, 2007 / Notices [Release No. 34–55629; File No. SR–CBOE– 2007–34] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Subsidy Arrangements with Members That Provide or Use Certain Order Routing Functionalities comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. 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, Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION April 13, 2007. 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 April 5, 2007, the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ or the ‘‘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 substantially prepared by CBOE. CBOE designated this proposal as one establishing or changing a due, fee, or other charge applicable only to its members pursuant to 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 parties. sroberts on PROD1PC70 with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change CBOE proposes to enter into subsidy arrangements with CBOE members that provide certain order routing functionalities to other CBOE members and/or use such functionalities themselves. This rule change does not provide for any modifications to the text of CBOE’s rules. The proposed rule change is available on the Exchange’s Web site (http://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, CBOE included statements concerning the purpose of, and basis for, the proposed rule change and discussed any 1 15 U.S.C 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(6). 2 17 VerDate Aug<31>2005 18:52 Apr 19, 2007 Jkt 211001 1. Purpose CBOE proposes to enter into subsidy arrangements with CBOE members that provide certain order routing functionalities to other CBOE members and/or use such functionalities themselves.5 To qualify for the subsidy arrangement, a member’s order routing functionality would have to: enable the electronic routing of orders to all of the U.S. options exchanges, including CBOE; provide current consolidated market data from the U.S. options exchanges; and be capable of interfacing with CBOE’s API to access current CBOE trade engine functionality. The routing system would also need to cause CBOE to be the default destination exchange for individually executed marketable orders if CBOE is at the national best bid or offer (‘‘NBBO’’), regardless of size or time, but allow any user to manually override CBOE as the default destination on an order-by-order basis. The order routing functionality would be required to incorporate a function allowing orders at a specified price to be sent to multiple exchanges with a single click (a ‘‘sweep function’’) and the sweep function would need to be configured to cause an order to be sent to CBOE for up to the full size quoted by CBOE if CBOE is at the NBBO.6 Any CBOE member would be permitted to avail itself of this arrangement, provided that its order routing functionality incorporates the features described above and satisfies CBOE that it appears to be robust and 5 CBOE might in the future submit to the Commission a proposed rule change to include arrangements with third party vendors that are not CBOE members. 6 For example, if a CBOE member were to enter an order to buy 250 contracts using the sweep function at a time when CBOE is at the NBBO for 100 contracts, the sweep function would need to be configured to send an order for 100 contracts to CBOE, with the balance of the order routed as specified by the member entering the order from the configurations offered by the routing functionality. Nothing would require that a person using the routing functionality actually use the sweep function, and, in this same example, if the CBOE member wished to route the entire order for 250 contracts to an exchange other than CBOE using the routing functionality, it would be free to manually override CBOE as the default destination for the entire order. PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 reliable. The member would be solely responsible for implementing and operating its system. CBOE is proposing to make payments to participating CBOE members to subsidize their costs of providing the routing services. The payment would be $0.05 per contract for orders routed to CBOE through a participating member’s system. The participating member would have to agree that it would not be entitled to receive any other revenue for the use of its system specifically with respect to orders routed to CBOE.7 A participating CBOE member could also elect to have CBOE perform certain additional marketing services on its behalf. These services would consist of including the member’s functionality in the general marketing activities of CBOE’s marketing staff. CBOE would permit a member electing to have CBOE perform these services place CBOE’s ‘‘HyTS’’ trademark on its order routing functionality in a manner satisfactory to CBOE. If a member elects to have CBOE perform these services, the amount that CBOE pays the member for orders routed to CBOE through the participating member’s system would be reduced from $0.05 per contract to $0.04 per contract. The minimum term of these services would be one year, after which a member could terminate the marketing services effective at the end of a calendar month. A participating CBOE member could also elect to have CBOE perform the service of billing other CBOE members with respect to the use of the participating CBOE member’s router. A participating member that elects to have CBOE perform this service would pay CBOE a service fee of one percent of the fees collected by CBOE for that member. A member could terminate this service at the end of any calendar month. Nothing about the subsidy arrangement would relieve any CBOE member that is using an order routing functionality provided by another member or its own functionality from complying with its best execution obligations. Specifically, just as with any customer order and any other routing functionality, a member would have an obligation to consider the availability of price improvement at various markets and whether routing a customer order through a functionality that incorporates the features described 7 This requirement would not prevent the participating member from charging fees (for example, a flat monthly fee) for the general use of its order routing system. Nor would it prevent the participating member from charging fees or commissions in accordance with its general practices with respect to transactions effected through its system. E:\FR\FM\20APN1.SGM 20APN1 Federal Register / Vol. 72, No. 76 / Friday, April 20, 2007 / Notices above would allow for access to such opportunities if readily available. Moreover, a member would need to conduct best execution evaluations on a regular basis, at a minimum quarterly, that include its use of any router incorporating the features described above. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Act 8 in general and furthers the objectives of Section 6(b)(4) of the Act 9 in particular in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among CBOE members and other persons using its facilities. 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 purposes of the Act. 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 proposal. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing rule change establishes or changes a due, fee, or other charge imposed by the Exchange, it has become effective pursuant to Section 19(b)(3)(A) of the Act 10 and Rule 19b–4(f)(2) 11 thereunder. At any time within 60 days of the filing of the 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. sroberts on PROD1PC70 with NOTICES 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: U.S.C. 78f(b). U.S.C. 78f(b)(4). 10 15 U.S.C. 78s(b)(3)(A). 11 17 CFR 240.19b–4(f)(2). Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rule-comments@sec.gov. Please include File Number SR–CBOE–2007–34 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. Market Regulation, pursuant to delegated authority.12 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–7493 Filed 4–19–07; 8:45 am] BILLING CODE 8010–01–P [Release No. 34–55630; File No. SR–CBOE– 2007–21] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To List for Trading Options on Commodity Pool Units April 13, 2007. 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. The text of these 1 15 9 15 18:52 Apr 19, 2007 SECURITIES AND EXCHANGE COMMISSION Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 2 thereunder, All submissions should refer to File notice is hereby given that on February Number SR–CBOE–2007–34. This file 22, 2007, the Chicago Board Options number should be included on the subject line if e-mail is used. To help the Exchange, Incorporated (‘‘CBOE’’ or ‘‘Exchange’’) filed with the Securities Commission process and review your and Exchange Commission comments more efficiently, please use (‘‘Commission’’) the proposed rule only one method. The Commission will change as described in Items I and II post all comments on the Commission’s below, which Items have been Internet Web site (http://www.sec.gov/ substantially prepared by the Exchange. rules/sro.shtml). Copies of the On March 26, 2007, CBOE filed submission, all subsequent Amendment No. 1 to the proposed rule amendments, all written statements change.3 This order provides notice of with respect to the proposed rule the proposed rule change as modified by change that are filed with the Amendment No. 1 and approves the Commission, and all written proposed rule change on an accelerated communications relating to the basis. proposed rule change between the I. Self-Regulatory Organization’s Commission and any person, other than Statement of the Terms of Substance of those that may be withheld from the the Proposed Rule Change public in accordance with the The Exchange proposes to amend provisions of 5 U.S.C. 552, will be CBOE Rules 4.18 Interpretation and available for inspection and copying in Policy .01, 5.3 Interpretation and Policy the Commission’s Public Reference Room. Copies of such filing also will be .06, 5.4 Interpretation and Policy .08, 8.9, and 15.1 Interpretation and Policy available for inspection and copying at .04 to permit the listing and trading of the principal office of CBOE. All options on securities issued by Trust comments received will be posted Issued Receipts (‘‘TIRs’’), partnership without change; the Commission does units (‘‘Partnership Units’’), and other not edit personal identifying entities whose value is based on information from submissions. You underlying commodity interests should submit only information that (referred to collectively herein as you wish to make available publicly. All ‘‘Commodity Pool Units’’). submissions should refer to File The text of the proposed rule change Number SR–CBOE–2007–34 and should is available at the CBOE, the be submitted on or before May 11, 2007. Commission’s Public Reference Room, and http://www.cboe.com. For the Commission, by the Division of 8 15 VerDate Aug<31>2005 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Amendment No. 1 replaces and supersedes the original filing in its entirety. 2 17 12 17 Jkt 211001 19993 PO 00000 CFR 200.30–3(a)(12). Frm 00118 Fmt 4703 Sfmt 4703 E:\FR\FM\20APN1.SGM 20APN1

Agencies

[Federal Register Volume 72, Number 76 (Friday, April 20, 2007)]
[Notices]
[Pages 19992-19993]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-7493]



[[Page 19992]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55629; File No. SR-CBOE-2007-34]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Regarding Subsidy Arrangements with Members That Provide or 
Use Certain Order Routing Functionalities

April 13, 2007.
    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 April 5, 2007, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or the ``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 substantially 
prepared by CBOE. CBOE designated this proposal as one establishing or 
changing a due, fee, or other charge applicable only to its members 
pursuant to 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 parties.
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    \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)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to enter into subsidy arrangements with CBOE members 
that provide certain order routing functionalities to other CBOE 
members and/or use such functionalities themselves. This rule change 
does not provide for any modifications to the text of CBOE's rules. The 
proposed rule change is available on the Exchange's Web site (http://
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, 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. 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, Proposed Rule Change

1. Purpose
    CBOE proposes to enter into subsidy arrangements with CBOE members 
that provide certain order routing functionalities to other CBOE 
members and/or use such functionalities themselves.\5\ To qualify for 
the subsidy arrangement, a member's order routing functionality would 
have to: enable the electronic routing of orders to all of the U.S. 
options exchanges, including CBOE; provide current consolidated market 
data from the U.S. options exchanges; and be capable of interfacing 
with CBOE's API to access current CBOE trade engine functionality. The 
routing system would also need to cause CBOE to be the default 
destination exchange for individually executed marketable orders if 
CBOE is at the national best bid or offer (``NBBO''), regardless of 
size or time, but allow any user to manually override CBOE as the 
default destination on an order-by-order basis. The order routing 
functionality would be required to incorporate a function allowing 
orders at a specified price to be sent to multiple exchanges with a 
single click (a ``sweep function'') and the sweep function would need 
to be configured to cause an order to be sent to CBOE for up to the 
full size quoted by CBOE if CBOE is at the NBBO.\6\ Any CBOE member 
would be permitted to avail itself of this arrangement, provided that 
its order routing functionality incorporates the features described 
above and satisfies CBOE that it appears to be robust and reliable. The 
member would be solely responsible for implementing and operating its 
system.
---------------------------------------------------------------------------

    \5\ CBOE might in the future submit to the Commission a proposed 
rule change to include arrangements with third party vendors that 
are not CBOE members.
    \6\ For example, if a CBOE member were to enter an order to buy 
250 contracts using the sweep function at a time when CBOE is at the 
NBBO for 100 contracts, the sweep function would need to be 
configured to send an order for 100 contracts to CBOE, with the 
balance of the order routed as specified by the member entering the 
order from the configurations offered by the routing functionality.
    Nothing would require that a person using the routing 
functionality actually use the sweep function, and, in this same 
example, if the CBOE member wished to route the entire order for 250 
contracts to an exchange other than CBOE using the routing 
functionality, it would be free to manually override CBOE as the 
default destination for the entire order.
---------------------------------------------------------------------------

    CBOE is proposing to make payments to participating CBOE members to 
subsidize their costs of providing the routing services. The payment 
would be $0.05 per contract for orders routed to CBOE through a 
participating member's system. The participating member would have to 
agree that it would not be entitled to receive any other revenue for 
the use of its system specifically with respect to orders routed to 
CBOE.\7\
---------------------------------------------------------------------------

    \7\ This requirement would not prevent the participating member 
from charging fees (for example, a flat monthly fee) for the general 
use of its order routing system. Nor would it prevent the 
participating member from charging fees or commissions in accordance 
with its general practices with respect to transactions effected 
through its system.
---------------------------------------------------------------------------

    A participating CBOE member could also elect to have CBOE perform 
certain additional marketing services on its behalf. These services 
would consist of including the member's functionality in the general 
marketing activities of CBOE's marketing staff. CBOE would permit a 
member electing to have CBOE perform these services place CBOE's 
``HyTS'' trademark on its order routing functionality in a manner 
satisfactory to CBOE. If a member elects to have CBOE perform these 
services, the amount that CBOE pays the member for orders routed to 
CBOE through the participating member's system would be reduced from 
$0.05 per contract to $0.04 per contract. The minimum term of these 
services would be one year, after which a member could terminate the 
marketing services effective at the end of a calendar month.
    A participating CBOE member could also elect to have CBOE perform 
the service of billing other CBOE members with respect to the use of 
the participating CBOE member's router. A participating member that 
elects to have CBOE perform this service would pay CBOE a service fee 
of one percent of the fees collected by CBOE for that member. A member 
could terminate this service at the end of any calendar month.
    Nothing about the subsidy arrangement would relieve any CBOE member 
that is using an order routing functionality provided by another member 
or its own functionality from complying with its best execution 
obligations. Specifically, just as with any customer order and any 
other routing functionality, a member would have an obligation to 
consider the availability of price improvement at various markets and 
whether routing a customer order through a functionality that 
incorporates the features described

[[Page 19993]]

above would allow for access to such opportunities if readily 
available. Moreover, a member would need to conduct best execution 
evaluations on a regular basis, at a minimum quarterly, that include 
its use of any router incorporating the features described above.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\8\ in general and furthers the objectives of Section 6(b)(4) of the 
Act \9\ in particular in that it is designed to provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
CBOE members and other persons using its facilities.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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 purposes of the Act.

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 
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the Exchange, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(2) 
\11\ thereunder. At any time within 60 days of the filing of the 
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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2007-34 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

    All submissions should refer to File Number SR-CBOE-2007-34. 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 (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for 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 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-2007-34 and should be submitted on or before May 11, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-7493 Filed 4-19-07; 8:45 am]
BILLING CODE 8010-01-P