Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to PAR Official Fees in Volatility Index Options, 41839-41842 [2011-17791]

Download as PDF Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Notices 41839 II. Adjustment of Dollar Amount Thresholds Under the Dodd-Frank Act requests for a hearing have been received by the Commission.9 SECURITIES AND EXCHANGE COMMISSION The Dodd-Frank Wall Street Reform and Consumer Protection Act 4 (‘‘DoddFrank Act’’) amended section 205(e) of the Advisers Act to provide that, by July 21, 2011 and every five years thereafter, the Commission shall adjust for inflation the dollar amount thresholds included in rules issued under section 205(e), rounded to the nearest $100,000.5 As discussed above, there are two dollar amount thresholds in rules issued under section 205(e), and they are in the assets-under-management and net worth tests in rule 205–3’s definition of ‘‘qualified client.’’ On May 10, 2011, the Commission published a notice of intent to issue an order revising the dollar amount thresholds of the assets-undermanagement test and the net worth test.6 We stated that, based on calculations of inflation since 1998 when the dollar amount thresholds were last revised, we intended to revise the threshold in the assets-undermanagement test from $750,000 to $1 million, and in the net worth test from $1.5 million to $2 million.7 We also stated that these revised dollar amounts would take into account the effects of inflation by reference to the historic and current levels of the Personal Consumption Expenditures Chain-Type Price Index, which is published by the Department of Commerce and often used as an indicator of inflation in the personal sector of the U.S. economy.8 The revised dollar amounts would reflect inflation from 1998 to the end of 2010, and are rounded to the nearest $100,000 as required by section 205(e) of the Advisers Act, as amended by section 418 of the Dodd-Frank Act. The Commission’s notice established a deadline of June 20, 2011 for submission of requests for a hearing. No III. Effective Date of the Order [Release No. 34–64834; File No. SR–CBOE– 2011–057] IV. Conclusion Accordingly, pursuant to section 205(e) of the Investment Advisers Act of 1940 and section 418 of the Dodd-Frank Act, It is hereby ordered that, for purposes of rule 205–3(d)(1)(i) under the Investment Advisers Act of 1940 [17 CFR 275.205–3(d)(1)(i)], a qualified client means a natural person who or a company that immediately after entering into the contract has at least $1,000,000 under the management of the investment adviser; and It is further ordered that, for purposes of rule 205–3(d)(1)(ii)(A) under the Investment Advisers Act of 1940 [17 CFR 275.205–3(d)(1)(ii)(A)], a qualified client means a natural person who or a company that the investment adviser entering into the contract (and any person acting on his behalf) reasonably believes, immediately prior to entering into the contract, has a net worth (together, in the case of a natural person, with assets held jointly with a spouse) of more than $2,000,000 at the time the contract is entered into. By the Commission. Elizabeth M. Murphy, Secretary. [FR Doc. 2011–17854 Filed 7–14–11; 8:45 am] BILLING CODE 8011–01–P VerDate Mar<15>2010 16:55 Jul 14, 2011 Jkt 223001 Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to PAR Official Fees in Volatility Index Options July 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 June 29, 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 prepared by CBOE. 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 Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ or ‘‘Exchange’’) proposes to amend its Fees Schedule effective July 1, 2011 to establish volume threshold tiers for the assessment of PAR Official Fees in Volatility Index Options classes 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 text of the proposed rule change is availableon the Exchange’s Web site (http://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 4 Pub. mstockstill on DSK4VPTVN1PROD with NOTICES L. 111–203, 124 Stat. 1376 (2010). 5 See section 418 of the Dodd-Frank Act. 6 See Investment Adviser Performance Compensation, Investment Advisers Act Release No. 3198 (May 10, 2011) [76 FR 27959 (May 13, 2011)] (‘‘Proposing Release’’). The Commission also proposed for public comment certain amendments to rule 205–3 that would reflect any inflation adjustments to the rule that we issue by order, as well as other rule amendments that would (i) provide that the Commission will issue an order every five years adjusting for inflation the dollar amount tests, (ii) exclude the value of a person’s primary residence from the test of whether a person has sufficient net worth to be considered a ‘‘qualified client,’’ and (iii) add certain transition provisions to the rule. The deadline for comments on the proposed rule amendments was July 11, 2011. Id. 7 See id. at nn.17–18 and accompanying text. 8 See id. at nn.19–21 and accompanying text. This Order is effective as of September 19, 2011. Commission has received comments on the rule amendments that it proposed in May 2011, and those comments are available in the public rulemaking file S7–17–11 (available on the Commission’s Web site at http://www.sec.gov/ comments/s7-17-11/s71711.shtml). Several commenters expressed concern about the Commission’s expressed intent to raise the dollar amount thresholds of rule 205–3. The Dodd-Frank Act clearly mandates that the Commission adjust the dollar amount thresholds that are the subject of this Order. The Commission intends to evaluate the comments it receives on the rulemaking proposal in its consideration of any adoption of the proposed amendments. See Proposing Release, supra note 6. PO 00000 9 The Frm 00087 Fmt 4703 Sfmt 4703 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. 1 15 2 17 E:\FR\FM\15JYN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 15JYN1 41840 Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Notices 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 July 1, 2011 to establish volume threshold tiers for the assessment of PAR Official Fees in Volatility Index Options. CBOE amended its Fees Schedule to establish distinct PAR Official Fees in Volatility Index Options in March 2011.3 PAR Official Fees apply to all orders executed by a PAR Official, 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). Currently, CBOE assesses PAR Official Fees in Volatility Index Options in the amount of $.03 per contract and, like Floor Brokerage Fees, a discounted rate of $.015 per contract applies for crossed orders.4 These fees help to offset the Exchange’s costs of providing PAR Official services (e.g., salaries, etc). PAR Official Fees compensate CBOE for providing overflow services to order originating firms or, as applicable, executing firms, particularly Floor Brokers,5 when they do not have personnel available to act as agent. CBOE is proposing to establish volume threshold tiers in Volatility Index Options for the assessment of PAR Official Fees. 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 will be subject to lower PAR Official Fees than those order originating firms, or as applicable, executing firms that route a significant portion of their orders to PAR Officials for execution. 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 in Volatility Index Options 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. CBOE currently assesses the same amount for PAR Official Fees and Floor Brokerage Fees in Volatility Index Options.6 In establishing the same fee amounts for Floor Brokerage Fees and % monthly volume executed through PAR official Tier level 1 2 3 4 PAR Official Fees, CBOE eliminated the disparity that existed between the amounts assessed for Floor Brokerage Fees and PAR Official Fees in Volatility Index Options. However, CBOE did not take into consideration the pricing advantage gained by those firms that continue to execute a significant number of orders through a PAR Official rather than obtain an appropriate amount of Trading Permits to staff their floor brokerage operations. CBOE is proposing to amend the Fees Schedule to establish volume threshold tiers for the assessment of the PAR Official Fees in 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 in Volatility Index Options 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) in Volatility Index Options 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 Volatility Index Options. The following sets forth the tier levels and specific fees that would be assessed to orders that are subject to PAR Official Fees in Volatility Index Options classes: ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... 0–24.99 25–49.99 50–74.99 75–100 Standard orders $.03 .06 .09 .12 Crossed orders (per side) $.015 .03 .045 .06 mstockstill on DSK4VPTVN1PROD with NOTICES For example, a Floor Broker Trading Permit Holder would be assessed $.06 for all standard (non-cross) orders and $.03 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 Volatility Index Options is executed by a PAR Official (Tier 2). 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 recently addressed similar concerns with the PAR Official Fees that are assessed in classes other than Volatility Index Options by establishing a threshold tier that assesses 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 3 See Securities Exchange Act Release No. 64070 (March 11, 2011), 76 FR 15025 (March 18, 2011) (SR–CBOE–2011–022). 4 PAR Official Fees and Floor Brokerage Fees for cross orders are assessed at a discounted rate because these Fees are assessed ‘‘per side’’ and thus, these fees are equal to the amount assessed for one standard (non-cross) order. 5 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.’’ 6 Floor Brokerage Fees are also assessed in OEX and SPX trading crowds but there are currently no PAR Officials in OEX or SPX trading crowds. VerDate Mar<15>2010 16:55 Jul 14, 2011 Jkt 223001 PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 E:\FR\FM\15JYN1.SGM 15JYN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Notices calendar month.7 CBOE elected to exclude Volatility Index Options classes from the tier structure at that time because Volatility Index Options classes are the only classes at CBOE where Floor Brokerage Fees are also assessed. Specifically, CBOE assesses Floor Brokerage Fees in its proprietary options products. However, Volatility Index Options classes are the only proprietary classes where there is also a PAR Official available to execute orders in the trading crowd. Thus, CBOE maintained set PAR Official Fees in Volatility Index Options so that the PAR Official Fees and Floor Brokerage Fees were consistent in these classes. After further evaluation, CBOE has determined that Trading Permit Holders continue to rely on PAR Officials for execution of orders as they are able to avoid the cost to obtain additional Trading Permits to adequately staff their business. Therefore, CBOE is proposing to establish a similar tier structure setting forth the PAR Official Fees in Volatility Index Options. CBOE is proposing to assess higher PAR Official Fees at each tier level in Volatility Index Options than the amounts assessed in other classes to account for the amount assessed for Floor Brokerage Fees in Volatility Index Option classes. As CBOE currently assesses flat Floor Brokerage Fees of $.03 per contract for standard orders and $.015 per contract for crossed orders, CBOE is proposing to establish a tier structure where the lowest tier amount is equivalent to the Floor Brokerage Fees assessed in Volatility Index Options. Thus, CBOE will not implement a fee structure that would provide an incentive for Floor Brokers to route a certain percentage of their orders to a PAR Official to avoid the Floor Brokerage Fees. CBOE believes that the proposed tier levels are reasonable and equitable in that, as provided above, PAR Officials are intended to provide overflow services to Trading Permit Holders. Further, each order originating firm or executing firm (as applicable) has the ability to control the number of orders that are routed to a PAR Official and thus, the amount of PAR Official Fees that will be assessed on a monthly basis. 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 7 See Securities Exchange Act Release No. 64217 (April 6, 2011), 76 FR 20793 (April 13, 2011) (SR– CBOE–2011–030). 8 See CBOE Fees Schedule, Section 10. VerDate Mar<15>2010 16:55 Jul 14, 2011 Jkt 223001 41841 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. 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. 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 in Volatility Index Options. CBOE’s proposal to establish a tier structure where the lowest tier amount is equivalent to the Floor Brokerage Fees assessed in Volatility Index Options classes is reasonable as CBOE assesses Floor Brokerage Fees in its proprietary products, (including Volatility Index Options classes), and Volatility Index Options classes are the only classes where a PAR Official is available to execute orders at CBOE where Floor Brokerage Fees are also assessed. 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 in Volatility Index Options, such that they are not subject to higher 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 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 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 PO 00000 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(4). Fmt 4703 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. 11 15 10 15 Frm 00089 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. 12 17 Sfmt 4703 E:\FR\FM\15JYN1.SGM U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). 15JYN1 41842 Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Notices 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: 2011–057 and should be submitted on or before August 5, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–17791 Filed 7–14–11; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–64851; File No. SR–CBOE– 2011–062] • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2011–057 on the subject line. Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend Its Fees Schedule Regarding Automated Improvement Mechanism Fees Paper Comments July 11, 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 June 30, 2011, the Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities All submissions should refer to File and Exchange Commission (the Number SR–CBOE–2011–057. This file ‘‘Commission’’) the proposed rule number should be included on the subject line if e-mail is used. To help the change, as described in Items I, II, and III below, which items have been Commission process and review your prepared by the Exchange. The comments more efficiently, please use only one method. The Commission will Commission is publishing this notice to post all comments on the Commission’s solicit comments on the proposed rule change from interested persons. Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the I. Self-Regulatory Organization’s submission, all subsequent Statement of the Terms of the Substance amendments, all written statements of the Proposed Rule Change with respect to the proposed rule The Exchange proposes to amend its change that are filed with the Fees Schedule regarding Automated Commission, and all written Improvement Mechanism (‘‘AIM’’) fees. communications relating to the The text of the proposed rule change is proposed rule change between the Commission and any person, other than available on the Exchange’s Web site (http://www.cboe.org/legal), at the those that may be withheld from the Exchange’s Office of the Secretary, and public in accordance with the at the Commission’s Public Reference provisions of 5 U.S.C. 552, will be Room. available for Web site viewing and printing in the Commission’s Public II. Self-Regulatory Organization’s Reference Room, 100 F Street, NE., Statement of the Purpose of, and Washington, DC 20549, on official Statutory Basis for, the Proposed Rule business days between the hours of Change 10 a.m. and 3 p.m. Copies of the filing In its filing with the Commission, the also will be available for inspection and self-regulatory organization included copying at the principal office of the statements concerning the purpose of Exchange. All comments received will and basis for the proposed rule change be posted without change; the and discussed any comments it received Commission does not edit personal on the proposed rule change. The text identifying information from of those statements may be examined at submissions. You should submit only information that you wish to make 13 17 CFR 200.30–3(a)(12). available publicly. All submissions 1 15 U.S.C. 78s(b)(1). should refer to File Number SR–CBOE– 2 17 CFR 240.19b–4. mstockstill on DSK4VPTVN1PROD with NOTICES • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. 16:55 Jul 14, 2011 Jkt 223001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose SECURITIES AND EXCHANGE COMMISSION Electronic Comments VerDate Mar<15>2010 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. PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 The Exchange proposes to amend its Fees Schedule regarding broker-dealer Automated Improvement Mechanism orders. Specifically, the Exchange proposes to adopt a $0.20 per contract fee to be applied to broker-dealer orders entered as the agency/primary side of an AIM transaction (the ‘‘Broker-Dealer AIM Agency Fee’’) and make related clarifying changes to the Fees Schedule.3 On June 13, 2011, the Commission approved a proposed rule change to allow the Exchange to establish the Qualified Contingent Cross (‘‘QCC’’) order type.4 In conjunction with that approval, on June 29, 2011, the Exchange filed, for immediate effectiveness, a proposed rule change to adopt fees related to the QCC order type.5 Included in that proposed rule change is a proposal to adopt a $0.20 per contract transaction fee for the execution of broker-dealer QCC orders (the ‘‘Broker-Dealer QCC Fee’’). The Exchange intends to make available the QCC order type and make effective the related fees, including the Broker-Dealer QCC Fee, on July 1, 2011. Like QCC, AIM involves the crossing of paired orders. AIM can be used to cross options orders through an exposed auction process. QCC can be used to cross options orders in an unexposed procedure, as long as the orders are tied to stock in a manner consistent with 3 The Commission notes that the Exchange proposes to add footnote 19 to the Fees Schedule to define the AIM Agency/Primary Fee as applying to all broker-dealer orders in all products, except volatility indexes, executed in AIM that were initially entered into AIM as a Primary/Agency Order (i.e., the ‘‘AIM Agency/Primary’’ fee applies to the original order submitted to AIM that is being facilitated if such order is for a broker-dealer and does not involve a volatility index). The AIM Agency/Primary Fee will apply to such executions instead of the applicable standard transaction fee except in volatility indexes where standard transaction fees will apply. As discussed below, the ‘‘AIM contra execution fee’’ applies to the contra party’s side of the trade (i.e., the contracts submitted by the participant that is facilitating the order). See email from Jeff Dritz, Attorney, CBOE to Arisa Tinaves, Special Counsel, Division of Trading and Markets, dated July 7, 2011. 4 See Securities Exchange Act Release No. 64653 (June 13, 2011), 76 FR 35491 (June 17, 2011) (SR– CBOE–2011–041) and CBOE Rule 6.53(u). 5 See SR–CBOE–2011–058. E:\FR\FM\15JYN1.SGM 15JYN1

Agencies

[Federal Register Volume 76, Number 136 (Friday, July 15, 2011)]
[Notices]
[Pages 41839-41842]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17791]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64834; File No. SR-CBOE-2011-057]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to PAR Official Fees in Volatility Index Options

July 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 June 29, 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 prepared by CBOE. 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.
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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 effective July 1, 
2011 to establish volume threshold tiers for the assessment of PAR 
Official Fees in Volatility Index Options classes 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 text 
of the proposed rule change is availableon the Exchange's Web site 
(http://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.

[[Page 41840]]

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 July 1, 2011 
to establish volume threshold tiers for the assessment of PAR Official 
Fees in Volatility Index Options. CBOE amended its Fees Schedule to 
establish distinct PAR Official Fees in Volatility Index Options in 
March 2011.\3\ PAR Official Fees apply to all orders executed by a PAR 
Official, 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). Currently, CBOE assesses PAR 
Official Fees in Volatility Index Options in the amount of $.03 per 
contract and, like Floor Brokerage Fees, a discounted rate of $.015 per 
contract applies for crossed orders.\4\ These fees help to offset the 
Exchange's costs of providing PAR Official services (e.g., salaries, 
etc).
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    \3\ See Securities Exchange Act Release No. 64070 (March 11, 
2011), 76 FR 15025 (March 18, 2011) (SR-CBOE-2011-022).
    \4\ PAR Official Fees and Floor Brokerage Fees for cross orders 
are assessed at a discounted rate because these Fees are assessed 
``per side'' and thus, these fees are equal to the amount assessed 
for one standard (non-cross) order.
---------------------------------------------------------------------------

    PAR Official Fees compensate CBOE for providing overflow services 
to order originating firms or, as applicable, executing firms, 
particularly Floor Brokers,\5\ when they do not have personnel 
available to act as agent. CBOE is proposing to establish volume 
threshold tiers in Volatility Index Options for the assessment of PAR 
Official Fees. 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 
will be subject to lower PAR Official Fees than those order originating 
firms, or as applicable, executing firms that route a significant 
portion of their orders to PAR Officials for execution. 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 in Volatility Index Options 
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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    \5\ 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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    CBOE currently assesses the same amount for PAR Official Fees and 
Floor Brokerage Fees in Volatility Index Options.\6\ In establishing 
the same fee amounts for Floor Brokerage Fees and PAR Official Fees, 
CBOE eliminated the disparity that existed between the amounts assessed 
for Floor Brokerage Fees and PAR Official Fees in Volatility Index 
Options. However, CBOE did not take into consideration the pricing 
advantage gained by those firms that continue to execute a significant 
number of orders through a PAR Official rather than obtain an 
appropriate amount of Trading Permits to staff their floor brokerage 
operations.
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    \6\ Floor Brokerage Fees are also assessed in OEX and SPX 
trading crowds but there are currently no PAR Officials in OEX or 
SPX trading crowds.
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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 
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 in 
Volatility Index Options 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) in 
Volatility Index Options 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 Volatility Index Options. The 
following sets forth the tier levels and specific fees that would be 
assessed to orders that are subject to PAR Official Fees in Volatility 
Index Options classes:

----------------------------------------------------------------------------------------------------------------
                                                                     % monthly
                                                                      volume                          Crossed
                           Tier level                                executed        Standard      orders  (per
                                                                    through PAR       orders           side)
                                                                     official
----------------------------------------------------------------------------------------------------------------
1...............................................................         0-24.99            $.03           $.015
2...............................................................        25-49.99             .06             .03
3...............................................................        50-74.99             .09            .045
4...............................................................          75-100             .12             .06
----------------------------------------------------------------------------------------------------------------

    For example, a Floor Broker Trading Permit Holder would be assessed 
$.06 for all standard (non-cross) orders and $.03 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 Volatility Index Options is 
executed by a PAR Official (Tier 2).
    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 recently addressed similar concerns with the PAR Official Fees 
that are assessed in classes other than Volatility Index Options by 
establishing a threshold tier that assesses 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

[[Page 41841]]

calendar month.\7\ CBOE elected to exclude Volatility Index Options 
classes from the tier structure at that time because Volatility Index 
Options classes are the only classes at CBOE where Floor Brokerage Fees 
are also assessed. Specifically, CBOE assesses Floor Brokerage Fees in 
its proprietary options products. However, Volatility Index Options 
classes are the only proprietary classes where there is also a PAR 
Official available to execute orders in the trading crowd. Thus, CBOE 
maintained set PAR Official Fees in Volatility Index Options so that 
the PAR Official Fees and Floor Brokerage Fees were consistent in these 
classes.
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    \7\ See Securities Exchange Act Release No. 64217 (April 6, 
2011), 76 FR 20793 (April 13, 2011) (SR-CBOE-2011-030).
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    After further evaluation, CBOE has determined that Trading Permit 
Holders continue to rely on PAR Officials for execution of orders as 
they are able to avoid the cost to obtain additional Trading Permits to 
adequately staff their business. Therefore, CBOE is proposing to 
establish a similar tier structure setting forth the PAR Official Fees 
in Volatility Index Options. CBOE is proposing to assess higher PAR 
Official Fees at each tier level in Volatility Index Options than the 
amounts assessed in other classes to account for the amount assessed 
for Floor Brokerage Fees in Volatility Index Option classes. As CBOE 
currently assesses flat Floor Brokerage Fees of $.03 per contract for 
standard orders and $.015 per contract for crossed orders, CBOE is 
proposing to establish a tier structure where the lowest tier amount is 
equivalent to the Floor Brokerage Fees assessed in Volatility Index 
Options. Thus, CBOE will not implement a fee structure that would 
provide an incentive for Floor Brokers to route a certain percentage of 
their orders to a PAR Official to avoid the Floor Brokerage Fees. CBOE 
believes that the proposed tier levels are reasonable and equitable in 
that, as provided above, PAR Officials are intended to provide overflow 
services to Trading Permit Holders. Further, each order originating 
firm or executing firm (as applicable) has the ability to control the 
number of orders that are routed to a PAR Official and thus, the amount 
of PAR Official Fees that will be assessed on a monthly basis.
    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.
---------------------------------------------------------------------------

    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.
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 in Volatility Index Options. CBOE's 
proposal to establish a tier structure where the lowest tier amount is 
equivalent to the Floor Brokerage Fees assessed in Volatility Index 
Options classes is reasonable as CBOE assesses Floor Brokerage Fees in 
its proprietary products, (including Volatility Index Options classes), 
and Volatility Index Options classes are the only classes where a PAR 
Official is available to execute orders at CBOE where Floor Brokerage 
Fees are also assessed. 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 in Volatility Index Options, 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 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

[[Page 41842]]

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2011-057 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-2011-057. 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 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-2011-057 and should be 
submitted on or before August 5, 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. 2011-17791 Filed 7-14-11; 8:45 am]
BILLING CODE 8011-01-P