Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to PAR Official Fees, 20793-20796 [2011-8791]
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Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Notices
In particular, the proposed change is
consistent with Section 6(b)(5) of the
Act,7 because it would promote just and
equitable principles of trade, remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system, and, in
general, protect investors and the public
interest. The proposed rule change is
also designed to support the principles
of Section 11A(a)(1) 8 of the Act in that
it seeks to assure fair competition
among brokers and dealers and among
exchange markets. The Exchange
believes that the proposed rule meets
these requirements in that it promotes
transparency and uniformity across
markets concerning reviews of
potentially clearly erroneous executions
in various contexts, including reviews
in the context of a Multi-Stock Event
involving twenty or more securities and
reviews resulting from a Trigger Trade
and any executions occurring
immediately after a Trigger Trade but
before a trading pause is in effect on the
Exchange. Further, the Exchange
believes that the proposed changes
enhance the objectivity of decisions
made by the Exchange with respect to
clearly erroneous executions.
B. Self-Regulatory Organization’s
Statement of Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
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C. Self-Regulatory Organization’s
Statement on Comments Regarding the
Proposed Rule Changes Received From
Members, Participants or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Changes 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 9 and Rule 19b–
4(f)(6)(iii) thereunder.10 The Exchange
7 15
U.S.C. 78f(b)(5).
U.S.C. 78k–1(a)(1).
9 15 U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule
19b–4(f)(6)(iii) requires that a self-regulatory
organization submit to the Commission written
notice of its intent to file the proposed rule change,
along with a brief description and text of the
8 15
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has asked the Commission to waive the
30-day operative delay so that the
proposal may become operative
immediately upon filing. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest because such waiver will
allow the pilot program to continue
uninterrupted and help ensure
uniformity among the national
securities exchanges and FINRA with
respect to the treatment of clearly
erroneous transactions.11 Accordingly,
the Commission waives the 30-day
operative delay requirement and
designates the proposed rule change as
operative upon filing with the
Commission.
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.
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:
20793
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
a.m. and 3 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
publicly available. All submissions
should refer to File Number SR–CHX–
2011–06 and should be submitted on or
before May 4, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Cathy H. Ahn,
Deputy Secretary.
Electronic Comments
[FR Doc. 2011–8792 Filed 4–12–11; 8:45 am]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CHX–2011–06 on the
subject line.
BILLING CODE 8011–01–P
Paper Comments
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to PAR Official
Fees
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–CHX–2011–06. 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
proposed rule change, at least five business days
prior to the filing of the proposed rule change, or
such shorter time as designated by the Commission.
The Commission notes that the Exchange has
satisfied this requirement.
11 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64217; File No. SR–CBOE–
2011–030]
April 6, 2011.
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 March
30, 2011, 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
12 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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Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Notices
and C below, of the most significant
aspects of such statements.
prepared by CBOE. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’ or ‘‘Exchange’’)
proposes to amend its Fees Schedule to
establish volume threshold tiers for the
assessment of PAR Official Fees based
on the percentage of volume that is
effected by a PAR Official on behalf of
an order originating firm or, as
applicable, an executing firm. The
proposed volume thresholds will apply
in all options classes that have a PAR
Official available to execute orders
(‘‘PAR Official Classes’’), except
Volatility Index Options. The text of the
proposed rule change is available on the
Exchange’s Web site (https://
www.cboe.org/legal), 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,
1. Purpose
CBOE is proposing to amend its Fees
Schedule effective April 1, 2011 to
establish volume threshold tiers for the
assessment of PAR Official Fees in all
PAR Official Classes 3 other than
Volatility Index Options.4 CBOE
amended its Fees Schedule to establish
PAR Official Fees in January 2011.5
These fees apply to all orders executed
by a PAR Official,6 except for customer
orders (‘‘C’’ origin code) that are not
directly routed to the trading floor (an
order that is directly routed to the
trading floor is directed to a PAR
Official for manual handling by use of
a field on the order ticket). In classes
other than Volatility Index Options,
such orders are currently charged $.02
per contract and, like floor brokerage
fees, a discounted rate of $.01 per
contract applies for crossed orders.
These fees help to offset the Exchange’s
costs of providing PAR Official services
(e.g., salaries, etc). CBOE believes that
the proposed tier structure will more
equitably and appropriately assess the
PAR Official Fees to those Trading
Permit Holders that rely more heavily
on PAR Officials to conduct their floor
brokerage business. Reliance on PAR
Officials as the primary means of
execution is inconsistent with the
Exchange’s intent to provide PAR
Official services as a supplementary
means of execution for incidental
orders. CBOE believes that, after further
consideration, the existing fee structure
does not allocate these fees currently to
take into consideration the amount that
Trading Permit Holders rely on PAR
Officials such that those Trading Permit
Holders that incidentally use PAR
Officials are assessed the same fee as
Trading Permit Holders that routinely
conduct their business through PAR
Officials and rely heavily on PAR
Officials for the execution of orders.
CBOE is proposing to amend the Fees
Schedule to establish volume threshold
tiers for the assessment of the PAR
Official Fees in all PAR Official Classes
except Volatility Index Options.
Specifically, CBOE is proposing to
assess PAR Official Fees based on the
percentage of an order originating firm’s
or, as applicable, an executing firm’s
total monthly volume that is effected by
a PAR Official during a calendar month.
The percentage will be calculated on a
monthly basis by dividing the number
of contracts executed by PAR Officials
on behalf of an order originating firm or
executing firm (as applicable) by the
total number of contracts executed in
open outcry (by or on behalf of an order
originating firm or, as applicable, an
executing firm) in PAR Official Classes.
Contracts in Volatility Index Options
shall be excluded from this calculation.
The following sets forth the tier levels
and specific fees that would be assessed
to orders that are subject to PAR Official
Fees:
% Monthly
volume
executed
through
PAR official
Tier level
1
2
3
4
...............................................................................................................................................................
...............................................................................................................................................................
...............................................................................................................................................................
...............................................................................................................................................................
0–24.99
25–49.99
50–74.99
75–100
Standard
orders
N/A
$.02
.03
.04
Crossed
orders
(per side)
N/A
$.01
.015
.02
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For example, a Floor Broker Trading
Permit Holder would be assessed $.02
for all standard (non-cross) orders and
$.01 for all crossed orders executed by
a PAR Official on behalf of the Floor
Broker during a calendar month if
25.5% of the Floor Broker Trading
Permit Holder’s total monthly (open
outcry) volume in PAR Official Classes
is executed by a PAR Official (Tier 2).
The PAR Official Fees compensate
CBOE for providing overflow services to
3 Currently, CBOE does not have a PAR Official
available to execute orders in the OEF, OEX, SPX
and XEO options classes.
4 CBOE amended its Fees Schedule in March
2011 to establish distinct PAR Official Fees for
Volatility Index Options to eliminate the disparity
between Floor Brokerage Fees and PAR Official
Fees assessed in Volatility Index Options. CBOE
will continue to assess the PAR Official Fees in
Volatility Index Options established in SR–CBOE–
2011–022. See Securities Exchange Act Release No.
64070 (March 11, 2011), 76 FR 15025 (March 18,
2011) (SR–CBOE–2011–022).
5 See Securities Exchange Act Release No. 67301
(January 11, 2011), 76 FR 2934 (January 18, 2011)
(SR–CBOE–2010–116).
6 A PAR Official is an Exchange employee or
independent contractor whom the Exchange may
designate as being responsible for (i) operating the
PAR workstation in a Designated Primary MarketMaker trading crowd with respect to the classes of
options assigned to him/her; (ii) when applicable,
maintaining the book with respect to the classes of
options assigned to him/her; and (iii) effecting
proper executions of orders placed with him/her.
The PAR Official may not be affiliated with any
Trading Permit Holder that is approved to act as a
Market-Maker. See CBOE Rule 7.12.
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order originating firms or, as applicable,
executing firms, particularly Floor
Brokers,7 when they do not have
personnel available to act as agent.
Some Trading Permit Holders or TPH
organizations obtain only one or two
Floor Broker Trading Permits, making it
unlikely that, regardless of business
level, they could cover all locations on
the Exchange and thus rely on CBOE
personnel as part of the Floor Broker’s
daily, ongoing business operations.
CBOE is proposing to establish volume
threshold tiers to reduce or eliminate
PAR Official Fees for those order
originating firms or executing firms that
maintain sufficient staff to manage their
floor brokerage operations and thus, do
not rely heavily on CBOE personnel to
execute their orders. CBOE believes that
those firms that rely heavily on PAR
Officials to conduct their floor brokerage
business, such that PAR Officials
execute more than an incidental number
of orders on their behalf, may obtain a
minimum number of Trading Permits to
access the floor. Thus, these firms
subsidize their floor brokerage
operations at CBOE’s expense in that
PAR Officials are either contractors paid
by CBOE or CBOE employees. Under the
current proposal, Trading Permit
Holders that routinely rely on PAR
Officials to execute their orders will be
subject to higher PAR Official Fees as
CBOE is, in effect, subsidizing their
floor brokerage operations and going
beyond the Exchange’s intent to provide
PAR Official services as a
supplementary means of execution for
overflow orders.
An additional consideration when
evaluating the equitability of the
proposed tier structure is the cost of
each Trading Permit. For example, Floor
Broker Trading Permit Holders are
subject to a $6,000 per month Trading
Permit Fee.8 A Floor Broker Trading
Permit Holder that requires ten Floor
7 CBOE Rule 6.70 provides: ‘‘A Floor Broker is an
individual (either a Trading Permit Holder or a
nominee of a TPH organization) who is registered
with the Exchange for the purpose, while on the
Exchange floor, of accepting and executing orders
received from Trading Permit Holders or from
registered broker-dealers. A Floor Broker shall not
accept an order from any other source unless he is
the nominee of a TPH organization approved to
transact business with the public in accordance
with Rule 9.1. In the event the organization is
approved pursuant to Rule 9.1, a Floor Broker who
is the nominee of such organization may then
accept orders directly from public customers where
(i) the organization clears and carries the customer
account or (ii) the organization has entered into an
agreement with the public customer to execute
orders on its behalf. Among the requirements a
Floor Broker must meet in order to register pursuant
to Rule 9.1 is the successful completion of an
examination for the purpose of demonstrating an
adequate knowledge of the securities business.’’
8 See CBOE Fees Schedule, Section 10.
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Broker Trading Permits to adequately
staff its business is subject to a cost of
$60,000 per month for Trading Permit
Fees (totaling $720,000 per year). By
comparison, a Trading Permit Holder
that routes the majority of its orders to
PAR Officials for execution and
maintains one Trading Permit is subject
to a $6,000 per month Trading Permit
Fee ($72,000 annually). The existing
PAR Official Fee structure that imposes
a flat per contract fee does not provide
an incentive for firms to adequately staff
their business as each Trading Permit
Holder is currently assessed the same
PAR Official Fees.
As provided above, PAR Officials are
intended to provide overflow services to
Trading Permit Holders. CBOE never
intended PAR Officials to serve as the
primary means of execution for order
originating firms or executing firms.
Heavy reliance on PAR Officials
subjects the Exchange to the additional
expense and undue strain of providing
the additional staffing of PAR Officials.
CBOE believes that this proposal will
‘‘level the playing field’’ between those
Trading Permit Holders that rely
incidentally on PAR Officials and those
Trading Permit Holders that rely heavily
on PAR Officials by basing the PAR
Official Fees on an order originating
firm’s or, as applicable, an executing
firm’s overall reliance on a PAR Official
to conduct their business. Trading
Permit Holders that adequately staff
their business operations and rely
incidentally on PAR Officials are
incurring higher costs to retain a
sufficient number of Trading Permits
and should not be subject to the same
amount for PAR Official Fees incurred
by a Trading Permit Holder that relies
disproportionately on PAR Officials to
conduct its floor brokerage business
because it does not maintain an
adequate number of Trading Permits to
conduct its floor brokerage business and
further, is not subject to the cost of the
additional Trading Permits required to
adequately staff its business.
Based on the data generated for
January 2011, approximately 40% of
CBOE Floor Broker Trading Permit
Holders would fall under Tier 1 and
would no longer be subject to PAR
Official Fees. In addition, approximately
one-third of the Floor Broker Trading
Permit Holders fall under Tier 4, having
a PAR Official execute more than 75%
of the Trading Permit Holder’s total
monthly volume executed in open
outcry in PAR Official Classes. The
proposed volume threshold tiers
apportion the higher cost to those Floor
Broker Trading Permit Holders that rely
heavily on PAR Officials to conduct
their daily business. For these reasons,
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20795
CBOE believes that the proposed
implementation of volume threshold
tiers is appropriate and establishes an
objective standard for the equitable
assessment of the PAR Official Fees.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with Section
6(b) of the Securities Exchange Act of
1934 (‘‘Act’’), 9 in general, and furthers
the objectives of Section 6(b)(4) 10 of the
Act in particular, in that it is designed
to provide for the equitable allocation of
reasonable dues, fees, and other charges
among its trading permit holders and
other persons using its facilities. The
Exchange believes the proposed change
is equitable, reasonable and not unfairly
discriminatory, in that, in general, PAR
Official Fees are intended to help the
Exchange recover its costs of providing
PAR Official services to Trading Permit
Holders and the proposed change is
intended to reasonably allocate such
costs to order originating firms and
executing firms based on the amount of
business they conduct through PAR
Officials. Specifically, the proposed fee
tier structure is equitable in that all
order originating firms or, as applicable,
executing firms, are assessed the same
fees at each tier level for orders
executed by a PAR Official. Further, the
proposed fee structure is not unfairly
discriminatory because the tiers are
based on the percentage of activity
executed by a PAR Official. Each firm
has the ability to route fewer orders to
a PAR Official, such that they are not
subject to higher PAR Official Fees.
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
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 11 and subparagraph (f)(2) of
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
11 15 U.S.C. 78s(b)(3)(A).
10 15
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Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Notices
Rule 19b–4 12 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
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:
mstockstill on DSKH9S0YB1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CBOE–2011–030 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–CBOE–2011–030. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
12 17
CFR 240.19b–4(f)(2).
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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–
2011–030 and should be submitted on
or before May 4, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–8791 Filed 4–12–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64227; File No. SR–CBOE–
2011–032]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Related to the Extension
of a CBSX Clearly Erroneous Policy
Pilot Program
April 7, 2011.
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 March 31,
2011, the Chicago Board Options
Exchange, Incorporated (‘‘Exchange’’ or
‘‘CBOE’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated the proposal as a ‘‘noncontroversial’’ 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 Substance of
the Proposed Rule Change
The Exchange proposes to extend a
clearly erroneous policy pilot program
pertaining to the CBOE Stock Exchange
(‘‘CBSX’’, the CBOE’s stock trading
facility). This rule change simply seeks
to extend the pilot. No other changes to
the pilot are being proposed. The text of
the proposed rule change is available on
the Exchange’s Web site (https://
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
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www.cboe.org/Legal), at the Exchange’s
Office of the Secretary and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of those
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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Certain amendments to Rule 52.4,
Clearly Erroneous Policy, were approved
by the Commission on September 10,
2010 on a pilot basis. The pilot is
currently set to expire on April 11,
2011.5 The clearly erroneous policy
changes were developed in consultation
with other markets and the Commission
staff to provide for uniform treatment:
(i) Of clearly erroneous execution
reviews in Multi-Stock Events involving
twenty or more securities; and (ii) in the
event transactions occur that result in
the issuance of an individual stock
trading pause by the primary market
and subsequent transactions that occur
before the trading pause is in effect on
the Exchange. Additional changes were
also made to Rule 52.4 that reduce the
ability of the Exchange to deviate from
the objective standards set forth in the
Rule. As the duration of the pilot
expires on April 11, 2011, the Exchange
is proposing to extend the effectiveness
of the clearly erroneous policy changes
to Rule 52.4 through the earlier of
August 11, 2011 or the date on which
a limit up-limit down mechanism to
address extraordinary market volatility,
if adopted, applies to the Circuit Breaker
Stocks as defined in Rule 6.3C,
Individual Stock Trading Pause Due to
Extraordinary Market Volatility.6
5 Securities Exchange Act Release Nos. 62886
(September 10, 2010), 75 FR 56613 (September 16,
2010) (SR–CBOE–2010–056) (approval order
establishing pilot through December 10, 2010) and
63485 (December 9, 2010), 75 FR 78278 (December
15, 2010) (SR–CBOE–2010–113) (extension of pilot
through April 11, 2011).
6 ‘‘Circuit Breaker Stocks’’ means the stocks
included in the S&P 500 Index, the Russell 1000
Index, as well as a pilot list of Exchange Traded
E:\FR\FM\13APN1.SGM
13APN1
]]>Agencies
[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Notices]
[Pages 20793-20796]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8791]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64217; File No. SR-CBOE-2011-030]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to PAR Official Fees
April 6, 2011.
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 March 30, 2011, 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
[[Page 20794]]
prepared by CBOE. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Chicago Board Options Exchange, Incorporated (``CBOE'' or
``Exchange'') proposes to amend its Fees Schedule to establish volume
threshold tiers for the assessment of PAR Official Fees based on the
percentage of volume that is effected by a PAR Official on behalf of an
order originating firm or, as applicable, an executing firm. The
proposed volume thresholds will apply in all options classes that have
a PAR Official available to execute orders (``PAR Official Classes''),
except Volatility Index Options. The text of the proposed rule change
is available on the Exchange's Web site (https://www.cboe.org/legal), 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, the Proposed Rule Change
1. Purpose
CBOE is proposing to amend its Fees Schedule effective April 1,
2011 to establish volume threshold tiers for the assessment of PAR
Official Fees in all PAR Official Classes \3\ other than Volatility
Index Options.\4\ CBOE amended its Fees Schedule to establish PAR
Official Fees in January 2011.\5\ These fees apply to all orders
executed by a PAR Official,\6\ except for customer orders (``C'' origin
code) that are not directly routed to the trading floor (an order that
is directly routed to the trading floor is directed to a PAR Official
for manual handling by use of a field on the order ticket). In classes
other than Volatility Index Options, such orders are currently charged
$.02 per contract and, like floor brokerage fees, a discounted rate of
$.01 per contract applies for crossed orders. These fees help to offset
the Exchange's costs of providing PAR Official services (e.g.,
salaries, etc). CBOE believes that the proposed tier structure will
more equitably and appropriately assess the PAR Official Fees to those
Trading Permit Holders that rely more heavily on PAR Officials to
conduct their floor brokerage business. Reliance on PAR Officials as
the primary means of execution is inconsistent with the Exchange's
intent to provide PAR Official services as a supplementary means of
execution for incidental orders. CBOE believes that, after further
consideration, the existing fee structure does not allocate these fees
currently to take into consideration the amount that Trading Permit
Holders rely on PAR Officials such that those Trading Permit Holders
that incidentally use PAR Officials are assessed the same fee as
Trading Permit Holders that routinely conduct their business through
PAR Officials and rely heavily on PAR Officials for the execution of
orders.
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\3\ Currently, CBOE does not have a PAR Official available to
execute orders in the OEF, OEX, SPX and XEO options classes.
\4\ CBOE amended its Fees Schedule in March 2011 to establish
distinct PAR Official Fees for Volatility Index Options to eliminate
the disparity between Floor Brokerage Fees and PAR Official Fees
assessed in Volatility Index Options. CBOE will continue to assess
the PAR Official Fees in Volatility Index Options established in SR-
CBOE-2011-022. See Securities Exchange Act Release No. 64070 (March
11, 2011), 76 FR 15025 (March 18, 2011) (SR-CBOE-2011-022).
\5\ See Securities Exchange Act Release No. 67301 (January 11,
2011), 76 FR 2934 (January 18, 2011) (SR-CBOE-2010-116).
\6\ A PAR Official is an Exchange employee or independent
contractor whom the Exchange may designate as being responsible for
(i) operating the PAR workstation in a Designated Primary Market-
Maker trading crowd with respect to the classes of options assigned
to him/her; (ii) when applicable, maintaining the book with respect
to the classes of options assigned to him/her; and (iii) effecting
proper executions of orders placed with him/her. The PAR Official
may not be affiliated with any Trading Permit Holder that is
approved to act as a Market-Maker. See CBOE Rule 7.12.
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CBOE is proposing to amend the Fees Schedule to establish volume
threshold tiers for the assessment of the PAR Official Fees in all PAR
Official Classes except Volatility Index Options. Specifically, CBOE is
proposing to assess PAR Official Fees based on the percentage of an
order originating firm's or, as applicable, an executing firm's total
monthly volume that is effected by a PAR Official during a calendar
month. The percentage will be calculated on a monthly basis by dividing
the number of contracts executed by PAR Officials on behalf of an order
originating firm or executing firm (as applicable) by the total number
of contracts executed in open outcry (by or on behalf of an order
originating firm or, as applicable, an executing firm) in PAR Official
Classes. Contracts in Volatility Index Options shall be excluded from
this calculation. The following sets forth the tier levels and specific
fees that would be assessed to orders that are subject to PAR Official
Fees:
------------------------------------------------------------------------
% Monthly
volume Crossed
Tier level executed Standard orders
through PAR orders (per side)
official
------------------------------------------------------------------------
1................................ 0-24.99 N/A N/A
2................................ 25-49.99 $.02 $.01
3................................ 50-74.99 .03 .015
4................................ 75-100 .04 .02
------------------------------------------------------------------------
For example, a Floor Broker Trading Permit Holder would be assessed
$.02 for all standard (non-cross) orders and $.01 for all crossed
orders executed by a PAR Official on behalf of the Floor Broker during
a calendar month if 25.5% of the Floor Broker Trading Permit Holder's
total monthly (open outcry) volume in PAR Official Classes is executed
by a PAR Official (Tier 2).
The PAR Official Fees compensate CBOE for providing overflow
services to
[[Page 20795]]
order originating firms or, as applicable, executing firms,
particularly Floor Brokers,\7\ when they do not have personnel
available to act as agent. Some Trading Permit Holders or TPH
organizations obtain only one or two Floor Broker Trading Permits,
making it unlikely that, regardless of business level, they could cover
all locations on the Exchange and thus rely on CBOE personnel as part
of the Floor Broker's daily, ongoing business operations. CBOE is
proposing to establish volume threshold tiers to reduce or eliminate
PAR Official Fees for those order originating firms or executing firms
that maintain sufficient staff to manage their floor brokerage
operations and thus, do not rely heavily on CBOE personnel to execute
their orders. CBOE believes that those firms that rely heavily on PAR
Officials to conduct their floor brokerage business, such that PAR
Officials execute more than an incidental number of orders on their
behalf, may obtain a minimum number of Trading Permits to access the
floor. Thus, these firms subsidize their floor brokerage operations at
CBOE's expense in that PAR Officials are either contractors paid by
CBOE or CBOE employees. Under the current proposal, Trading Permit
Holders that routinely rely on PAR Officials to execute their orders
will be subject to higher PAR Official Fees as CBOE is, in effect,
subsidizing their floor brokerage operations and going beyond the
Exchange's intent to provide PAR Official services as a supplementary
means of execution for overflow orders.
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\7\ CBOE Rule 6.70 provides: ``A Floor Broker is an individual
(either a Trading Permit Holder or a nominee of a TPH organization)
who is registered with the Exchange for the purpose, while on the
Exchange floor, of accepting and executing orders received from
Trading Permit Holders or from registered broker-dealers. A Floor
Broker shall not accept an order from any other source unless he is
the nominee of a TPH organization approved to transact business with
the public in accordance with Rule 9.1. In the event the
organization is approved pursuant to Rule 9.1, a Floor Broker who is
the nominee of such organization may then accept orders directly
from public customers where (i) the organization clears and carries
the customer account or (ii) the organization has entered into an
agreement with the public customer to execute orders on its behalf.
Among the requirements a Floor Broker must meet in order to register
pursuant to Rule 9.1 is the successful completion of an examination
for the purpose of demonstrating an adequate knowledge of the
securities business.''
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An additional consideration when evaluating the equitability of the
proposed tier structure is the cost of each Trading Permit. For
example, Floor Broker Trading Permit Holders are subject to a $6,000
per month Trading Permit Fee.\8\ A Floor Broker Trading Permit Holder
that requires ten Floor Broker Trading Permits to adequately staff its
business is subject to a cost of $60,000 per month for Trading Permit
Fees (totaling $720,000 per year). By comparison, a Trading Permit
Holder that routes the majority of its orders to PAR Officials for
execution and maintains one Trading Permit is subject to a $6,000 per
month Trading Permit Fee ($72,000 annually). The existing PAR Official
Fee structure that imposes a flat per contract fee does not provide an
incentive for firms to adequately staff their business as each Trading
Permit Holder is currently assessed the same PAR Official Fees.
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\8\ See CBOE Fees Schedule, Section 10.
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As provided above, PAR Officials are intended to provide overflow
services to Trading Permit Holders. CBOE never intended PAR Officials
to serve as the primary means of execution for order originating firms
or executing firms. Heavy reliance on PAR Officials subjects the
Exchange to the additional expense and undue strain of providing the
additional staffing of PAR Officials. CBOE believes that this proposal
will ``level the playing field'' between those Trading Permit Holders
that rely incidentally on PAR Officials and those Trading Permit
Holders that rely heavily on PAR Officials by basing the PAR Official
Fees on an order originating firm's or, as applicable, an executing
firm's overall reliance on a PAR Official to conduct their business.
Trading Permit Holders that adequately staff their business operations
and rely incidentally on PAR Officials are incurring higher costs to
retain a sufficient number of Trading Permits and should not be subject
to the same amount for PAR Official Fees incurred by a Trading Permit
Holder that relies disproportionately on PAR Officials to conduct its
floor brokerage business because it does not maintain an adequate
number of Trading Permits to conduct its floor brokerage business and
further, is not subject to the cost of the additional Trading Permits
required to adequately staff its business.
Based on the data generated for January 2011, approximately 40% of
CBOE Floor Broker Trading Permit Holders would fall under Tier 1 and
would no longer be subject to PAR Official Fees. In addition,
approximately one-third of the Floor Broker Trading Permit Holders fall
under Tier 4, having a PAR Official execute more than 75% of the
Trading Permit Holder's total monthly volume executed in open outcry in
PAR Official Classes. The proposed volume threshold tiers apportion the
higher cost to those Floor Broker Trading Permit Holders that rely
heavily on PAR Officials to conduct their daily business. For these
reasons, CBOE believes that the proposed implementation of volume
threshold tiers is appropriate and establishes an objective standard
for the equitable assessment of the PAR Official Fees.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Securities Exchange Act of 1934 (``Act''), \9\ in
general, and furthers the objectives of Section 6(b)(4) \10\ of the Act
in particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees, and other charges among its
trading permit holders and other persons using its facilities. The
Exchange believes the proposed change is equitable, reasonable and not
unfairly discriminatory, in that, in general, PAR Official Fees are
intended to help the Exchange recover its costs of providing PAR
Official services to Trading Permit Holders and the proposed change is
intended to reasonably allocate such costs to order originating firms
and executing firms based on the amount of business they conduct
through PAR Officials. Specifically, the proposed fee tier structure is
equitable in that all order originating firms or, as applicable,
executing firms, are assessed the same fees at each tier level for
orders executed by a PAR Official. Further, the proposed fee structure
is not unfairly discriminatory because the tiers are based on the
percentage of activity executed by a PAR Official. Each firm has the
ability to route fewer orders to a PAR Official, such that they are not
subject to higher PAR Official Fees.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4).
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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
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \11\ and subparagraph (f)(2) of
[[Page 20796]]
Rule 19b-4 \12\ thereunder. At any time within 60 days of the filing of
the proposed rule change, the Commission summarily may temporarily
suspend such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-CBOE-2011-030 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2011-030. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2011-030 and should be
submitted on or before May 4, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8791 Filed 4-12-11; 8:45 am]
BILLING CODE 8011-01-P
