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
<![CDATA[
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
(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
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 https://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 (https://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 (https://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
(https://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]
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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
(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.
[[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).
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\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.''
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 64217 (April 6,
2011), 76 FR 20793 (April 13, 2011) (SR-CBOE-2011-030).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
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.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://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 (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-2011-057 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\
---------------------------------------------------------------------------
\13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17791 Filed 7-14-11; 8:45 am]
BILLING CODE 8011-01-P
