Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fees Schedule, 5595-5603 [2012-2409]
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Federal Register / Vol. 77, No. 23 / Friday, February 3, 2012 / Notices
of the Act,63 for approving the proposed
rule change, as modified by Amendment
No. 1, prior to the 30th day after the
date of publication of notice in the
Federal Register.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,64 that the
proposed rule change (SR–BX–2011–
046), as modified by Amendment No. 1,
be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.65
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–2395 Filed 2–2–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66277; File No. SR–CBOE–
2012–008]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fees
Schedule
January 30, 2012.
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 January
17, 2012, the Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Fees Schedule. The text of the proposed
rule change is available on the
Exchange’s Web site (https://
www.cboe.org/legal), at the Exchange’s
Office of the Secretary, and at the
Commission’s Public Reference Room.
63 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(2).
65 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
64 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to make a
series of amendments to its Fees
Schedule for 2012. First, the Exchange
proposes to eliminate the waiver for
customer fees for transactions in options
on the Nasdaq 100 Index Tracking Stock
(‘‘QQQQ’’). Such transactions will now
be assessed a fee of $0.18 per contract,
equivalent to the fee assessed for
customer transactions in options on
other exchange-traded funds (‘‘ETFs’’),
exchange-traded notes (‘‘ETNs’’) and
HOLDRs. The purpose of this proposed
change is to make the fees for QQQQ
options transactions equivalent to the
fees for transactions on other ETFs.
The Exchange also proposes to modify
the Liquidity Provider Sliding Scale to
exclude SPX, VIX or other volatility
indexes, OEX and XEO. This scale offers
consistently-lowering fees for market
participants who provide increasing
liquidity. The Exchange would have
preferred to modify the Liquidity
Provider Sliding Scale to include only
multiply-listed products because the
Exchange has expended considerable
resources in developing its proprietary,
singly-listed products. However, some
CBOE singly-listed products are used to
compete with multi-listed products that
are also listed on CBOE (for example,
the singly-listed XSP options compete
with the multiply-listed SPY options,
both of which approximate 1⁄10 of the
S&P 500 Index, and the singly-listed
DJX options compete with the multiplylisted DIA options, both of which are
based on 1⁄100 of the value of the Dow
Jones Industrial Average). Including the
multiply-listed products for
qualification towards the Liquidity
Provider Sliding Scale while excluding
their singly-listed competitors might
create a pricing advantage that might
discourage trading in some of the singly-
PO 00000
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5595
listed products that the Exchange
expended resources to develop. As
such, the Exchange now proposes to
include the singly-listed products for
qualification towards the Liquidity
Provider Sliding Scale along with their
multiply-listed competitors, and only
exclude SPX, VIX or other volatility
indexes, OEX and XEO from the
Liquidity Provider Sliding Scale. The
Exchange also proposes lowering the
tier levels in the Liquidity Provider
Sliding Scale to reflect the exclusion of
SPX, VIX or other volatility indexes,
OEX and XEO. The Exchange also
proposes amending the prepay amounts
relating to the Liquidity Provider
Sliding Scale that are listed in Footnote
10 to reflect the changed tier levels.
The Exchange proposes changing the
name of the ‘‘Multiply-Listed Options
Fee Cap’’ to the ‘‘Clearing Trading
Permit Holder Fee Cap in All Products
Except SPX, VIX or other Volatility
Indexes, OEX or XEO.’’ In actuality, the
Multiply-Listed Options Fee Cap has
always applied to some singly-listed
products, and only excluded the
products listed above. As such, the
name has been somewhat inaccurate,
and the Exchange hereby proposes to fix
this issue in order to clear up any
confusion.
The Exchange also proposes, for
competitive reasons, to limit the
Clearing Trading Permit Holder
(‘‘CTPH’’) Fee Cap in All Products
Except SPX, VIX or other Volatility
Indexes, OEX or XEO (the ‘‘Cap’’) to
include only orders executed in open
outcry or the Exchange’s Automated
Improvement Mechanism (‘‘AIM’’), or as
qualified contingent cross (‘‘QCC’’) or
FLEXible Options (‘‘FLEX Options’’)
transactions. NASDAQ OMX PHLX LLC
(‘‘PHLX’’) provides for a similar $75,000
cap which also applies to firm open
outcry business, but does not apply to
their PIXL mechanism, which, like AIM,
is a price improvement mechanism, and
does not apply to electronic transactions
in select symbols.3 The Exchange also
proposes to include fees from QCCs and
FLEX Options transactions towards the
Cap to attract such orders to the
Exchange. Limiting the Cap to include
only orders executed in open outcry or
AIM or as QCC or FLEX Options
transactions allows CBOE to compete
with PHLX while not foregoing
collecting the necessary fees to continue
to operate the Exchange.
Correspondingly, the Exchange also
proposes to cease excluding AIM Contra
Execution Fees from counting towards
the Cap. Going forward, AIM Contra
3 See PHLX Fee Schedule, Section I, Part C (page
5) and Section II (page 7).
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Execution Fees will be considered in
helping a CTPH reach the Cap (though
CTPHs will still continue to pay the
AIM Contra Execution Fees after
reaching the Cap). The purpose of this
change is to align and improve the
Exchange’s competitive position in
relation to other exchanges. PHLX, as
previously stated, has a similar $75,000
cap which also applies to firm open
outcry business, but does not apply to
their PIXL mechanism, which, like AIM,
is a price improvement mechanism, and
does not apply to electronic transactions
in select symbols.4 By including AIM
Contra Execution Fees towards the Cap,
and at a lower rate than that which
PHLX charges in its PIXL mechanism,
the Exchange is providing a
demonstrably advantageous pricing
schedule for this business.5
Additionally, as at PHLX, electronic fees
in the busiest options classes are not
counted towards the Cap. As such, the
Exchange proposes to include all AIM
transaction fees, including the AIM
Contra Execution Fees, towards
reaching the Cap (when they apply) to
improve our competitive position. The
Exchange would also like to encourage
the use of AIM, which is a price
improvement mechanism. Finally, it
should be clarified that while a
responder to an AIM auction pays a fee
that is not counted towards the Cap, this
is because only Market-Makers can
respond to an AIM auction, and the Cap
only applies to CTPHs (and not MarketMakers). The Cap will remain limited to
CTPHs, as they contribute capital to
facilitate execution of customer orders,
which in turn provides a deeper pool of
liquidity that benefits all market
participants.
Similarly, PHLX waives its equity
options transaction fees for firms
executing facilitation orders when the
firms are trading in their own
proprietary accounts.6 As such, the
Exchange, for competitive reasons,
proposes to waive the transaction fees
for CTPH Proprietary facilitation orders
(other than SPX, VIX or other volatility
indexes, OEX or XEO) executed in AIM
or open outcry, or as a QCC or FLEX
Options transaction (the ‘‘CTPH
Proprietary Facilitation Waiver’’) in
order to align our competitive position
and even improve upon it (as PHLX
does not waive such a fee for orders
executed in its PIXL mechanism, in the
select symbols). The Exchange would
have preferred to include only multiplylisted products in the CTPH Proprietary
4 See PHLX Fee Schedule, Section I, Part C (page
5) and Section II (page 7).
5 See PHLX Fee Schedule, Section IV (page 10).
6 See PHLX Fee Schedule, Section II (pages 7–8).
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Facilitation Waiver because those are
the only products in which the
Exchange faces competitive pricing
pressures, and the Exchange has
expended considerable resources in
developing its proprietary, singly-listed
products. However, some CBOE singlylisted products are used to compete
with multi-listed products that are also
listed on CBOE (as explained above).
Including the multiply-listed products
in the CTPH Proprietary Facilitation
Waiver while excluding their singlylisted competitors might create a pricing
advantage that might discourage trading
in some of the singly-listed products
that the Exchange expended resources
to develop. As such, the Exchange
proposes to include the singly-listed
products in the CTPH Proprietary
Facilitation Waiver along with their
multiply-listed competitors, and only
exclude SPX, VIX or other volatility
indexes, OEX and XEO from the CTPH
Proprietary Facilitation Waiver. The
CTPH Proprietary Facilitation Waiver is
limited to executions in AIM or open
outcry, or as a QCC or FLEX Options
transaction, because those are the only
ways to execute a facilitation trade on
the Exchange.
It should be noted that, for the
purposes of the CTPH Proprietary
Facilitation Waiver, the Exchange is
defining ‘‘facilitation order’’ as any
paired order in which a CTPH (‘‘F’’)
origin code is contra to any other origin
code, provided the same executing
broker and clearing firm are on both
sides of the order. The reason only
CTPH orders can qualify as ‘‘facilitation
orders’’ is that the Exchange’s systems
cannot determine whether or not an
order is a facilitation order unless such
order comes in with the ‘‘F’’ origin code,
and only CTPH orders come in with the
‘‘F’’ origin code. As such, the
Exchange’s systems would be unable to
determine whether or not an order from
any other market participant is a
facilitation order. Further, PHLX only
waives fees on facilitation orders for
firms (which are similar to CTPHs).7
Along with ceasing excluding AIM
Contra Execution Fees from counting
towards the Cap, the Exchange also
proposes ceasing excluding contracts
executed in AIM that incur the AIM
Contra Execution Fee from counting
towards the CBOE Proprietary Products
Sliding Scale. Going forward, contracts
executed in AIM that incur the AIM
Contra Execution Fee will count
towards helping a CTPH reach a higher
tier in the CBOE Proprietary Products
Sliding Scale, and thereby pay lower
fees for executions in CBOE proprietary
7 See
PO 00000
PHLX Fee Schedule Section II (pages 7–8).
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products. The purpose of this change is
to improve the Exchange’s competitive
position. The Exchange would also like
to encourage the use of AIM, which is
a price improvement mechanism. The
purpose of these changes is to lower fees
for CTPHs and thereby encourage
CTPHs to transact more business on the
Exchange, thereby increasing volume
and liquidity.
Currently, the Exchange does not
assess the marketing fee on transactions
in a number of securities. The Exchange
now proposes to remove the ETFs EWC,
EWT, MNX, MVR, QQQQ, RSP, VPL,
VWO and XBI (the ‘‘New Marketing Fee
Options’’) from the list of securities that
are not assessed the marketing fee, and
begin assessing the marketing fee on
qualifying transactions in those
securities. Going forward, transactions
in the New Marketing Fee Options will
be assessed a marketing fee of $0.25 per
contract, like nearly all other ETFs. The
purpose of this change is to increase
volume on the New Marketing Fee
Options. By assessing a marketing fee on
the New Marketing Fee Options
transactions, the Exchange will be able
to use the money collected to attract
volume, pursuant to the Exchange’s
marketing fee plan. The Exchange
believes that the demographics of the
New Marketing Fee Options order flow
is inclined to seek economic
considerations such as payment for
order flow, so a marketing fee for the
New Marketing Fee Options trades is
necessary to attract volume and
liquidity in the New Marketing Fee
Options.
CBOE implemented on December 1,
2010,8 and extended on April 1, 2011,9
July 1, 2011,10 and October 1, 2011 11 a
pilot program relating to the assessment
of the marketing fee in the SPY option
class. Specifically, CBOE previously
determined not to assess the marketing
fee on electronic transactions in options
on Standard & Poor’s Depositary
Receipts (‘‘SPY options’’) (a unique and
active class), except that it would
continue to assess the marketing fee on
electronic transactions resulting from
AIM pursuant to CBOE Rule 6.74A and
transactions in open outcry (the ‘‘SPY
Marketing Fee Waiver’’). The SPY
Marketing Fee Waiver is intended to
8 See Securities Exchange Act Release No. 63470
(December 8, 2010), 75 FR 78284 (December 15,
2010) (SR–CBOE–2010–108).
9 See Securities Exchange Act Release No. 64212
(April 6, 2011), 76 FR 20411 (April 12, 2011) (SR–
CBOE–2011–033).
10 See Securities Exchange Act Release No. 64818
(July 6, 2011), 76 FR 40978 (July 12, 2011) (SR–
CBOE–2011–060).
11 See Securities Exchange Act Release No. 65517
(October 7, 2011), 76 FR 63976 (October 14, 2011)
(SR–CBOE–2011–097).
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attract more SPY customer volume and
allow CBOE market-makers to better
compete for order flow. The Exchange
hereby proposes to extend the SPY
Marketing Fee Waiver to also include
qualifying transactions in QQQQ under
the same terms as those that now apply
to SPY (the ‘‘SPY and QQQQ Marketing
Fee Waiver’’) (previously, transactions
in QQQQ were not subject to the
marketing fee, but as QQQQ is one of
the New Marketing Fee Options, the
Exchange above proposes to make
QQQQ transactions subject to the
marketing fee). Designated Primary
Market-Makers and Preferred MarketMakers can utilize the marketing fee
funds to attract orders from payment
accepting firms that are executed in
AIM and in open outcry. The marketing
fee funds received by paymentaccepting firms may be used to offset
transaction and other costs related to the
execution of an order in AIM and in
open outcry, including in the SPY and
QQQQ option classes. CBOE believes
that the current demographics of
electronic, non-AIM SPY and QQQQ
option order flow is more driven by the
displayed best bid or offer (‘‘BBO’’) and
size than payment for order flow
considerations, and thus assessment of
the marketing fee for those transactions
is not a differentiator at this time. Going
forward, the marketing fee will continue
to be assessed on open outcry
transactions in SPY and be assessed on
open outcry transactions in QQQQ (as
QQQQ is one of the New Marketing Fee
Options).
This SPY Marketing Fee Waiver pilot
program is scheduled to terminate on
December 31, 2011. The Exchange has
periodically continued to extend the
SPY Marketing Fee Waiver for
successive three-month periods so that
the Exchange could simply allow the
SPY Marketing Fee Waiver to expire
should the Exchange desire that the SPY
Marketing Fee Waiver would no longer
apply. The Exchange now proposes to
cease extending the SPY Marketing Fee
Waiver for three-month periods and
simply leave the SPY and QQQQ
Marketing Fee Waiver in the Fees
Schedule. If the Exchange later
determines that the SPY and QQQQ
Marketing Fee Waiver should no longer
apply, the Exchange would have to file
to remove the SPY and QQQQ
Marketing Fee Waiver from the Fees
Schedule, just like any other nontemporary provision in the Fees
Schedule.
As reflected in Footnote 8 of the Fees
Schedule, the Exchange currently
waives the $.18 per contract transaction
fee for public customer (‘‘C’’ origin
code) orders in SPY and XLF options
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that are executed in open outcry or AIM
(the ‘‘C Waiver’’).12 This fee waiver is
due to expire on December 31, 2011.
The Exchange has periodically
continued to extend the C Waiver for
successive three-month periods so that
the Exchange could simply allow the C
Waiver to expire should the Exchange
desire that the C Waiver would no
longer apply. The Exchange now
proposes to cease extending the C
Waiver for three-month periods and
simply leave the C Waiver in the Fees
Schedule. If the Exchange later
determines that the C Waiver should no
longer apply, the Exchange would have
to file to remove the C Waiver from the
Fees Schedule, just like any other nontemporary provision in the Fees
Schedule.
The Exchange also proposes to extend
the C Waiver to all ETF, ETN and
HOLDRs options (the ‘‘C Waiver for
Index Options’’). The C Waiver for
Index Options is intended to attract
more customer volume on the Exchange
in these products. For competitive
reasons, the customer base for open
outcry and AIM trading in ETF, ETN
and HOLDRs options appears more
sensitive to fees than the customer base
for such trading in other products.
Moreover, CBOE proposes the C Waiver
to compete with other exchanges. For
example, NYSE Arca, Inc. (‘‘Arca’’) does
not charge customer transaction fees for
customer transactions in ETF, ETN and
HOLDRs options.13 As such, the
Exchange desires to waive customer
transaction fees for ETF, ETN and
HOLDRs options executed in open
outcry or via AIM in order to better
compete (while Arca does not have a
price improvement mechanism
comparable to AIM, the Exchange
desires to include AIM in the C Waiver
to encourage the use of this price
improvement mechanism). The
Exchange also desires to apply the C
Waiver for Index Options to QCC trades
because a QCC trade is a paired order,
and the only ways to execute paired
orders are via AIM and open outcry, so
QCC trades should then be included in
the C Waiver for Index Options, too. The
Exchange also believes that waiving the
transaction fee for such customer trades
in ETF, ETN and HOLDRs options will
12 See Securities Exchange Act Release No. 34–
62902 (September 14, 2010), 75 FR 57313
(September 20, 2010), Securities Exchange Act
Release No. 34–63422 (December 3, 2010), 75 FR
76770 (December 9, 2010), Securities Exchange Act
Release No. 34–64197 (April 6, 2011), 76 FR 20390
(April 12, 2011), Securities Exchange Act Release
No. 34–64817 (July 6, 2011), 76 FR 40948 (July 12,
2011), Securities Exchange Act Release No. 34–
65518 (October 7, 2011), 76 FR 63971 (October 14,
2011) and CBOE Fees Schedule, footnote 8.
13 See Arca Options Fee Schedule, page 3.
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5597
encourage greater customer trading in
these products. The increased volume
and liquidity resulting from greater
customer trading in those products will
benefit all market participants trading in
these products. The Exchange also
proposes adding trades executed as a
FLEX Options transaction to the C
Waiver for Index Options for
competitive reasons. A number of other
exchanges do not charge for public
customer FLEX Options transactions in
ETF, ETN and HOLDRs options.14
The Exchange proposes raising the
Floor Broker Workstation (‘‘FBW’’) fee
from $225 per month (per login ID) to
$350 per month (per login ID). The
Exchange’s vendor that provides the
FBW charges the Exchange more than
$225 per month (per login ID) for the
FBW (actually, more than $350 per
month (per login ID)), and the Exchange
had been subsidizing those costs for
FBW users. However, it is no longer
economically feasible to subsidize those
costs to that great an extent. As such,
the Exchange proposes increasing the
FBW fee to $350 per month (per login
ID), which still includes a subsidy for
FBW users (though smaller).
The Exchange also proposes raising
the PULSe On-Floor Workstation
(‘‘PULSe’’) fee from $225 per month (per
login ID) to $350 per month (per login
ID). The Exchange expended significant
resources developing PULSe, and
intends to recoup some of those costs.
Further, because PULSe and FBW serve
similar functions, the Exchange desires
to assess equivalent fees for each so as
not to offer a pricing advantage for one
over the other.
The Exchange also proposes to reduce
Market-Maker Trading Permit monthly
costs from $6,000 per permit to $5,500
per permit. Furthermore, for those who
commit to the Market-Maker Trading
Permit Holder Sliding Scale, which is
available for all Market-Maker Trading
Permits held by affiliated Trading
Permit Holders and Trading Permit
Holder (‘‘TPH’’) organizations that are
used for appointments in any options
classes other than SPX, VIX, OEX and
XEO, the Exchange proposes to reduce
the monthly cost from $6,000 per permit
to $5,500 per permit for the first 10
permits, from $4,800 to $4,000 per
permit for permits 11–20, and from
$3,000 to $2,500 per permit for permits
21 and greater. The purpose of this
change is to reduce access costs and
thereby encourage greater Market-Maker
access, which thereby brings greater
14 See NYSE Amex Options Fee Schedule, page 3,
which shows Non BD Customer Manual
transactions (the manner by which FLEX Options
are traded on the NYSE Amex Options market) to
be assessed a $0.00 transaction fee.
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trading activity, volume and liquidity,
benefitting all market participants.
The Exchange would also like to
amend the date by which a MarketMaker TPH (‘‘MMTPH’’) must commit
to the Market-Maker Trading Permit
Sliding Scale. The Market-Maker
Trading Permit Holder Sliding Scale
was instituted in SR–CBOE–2011–004,
which was filed on January 3, 2011. As
such, the text of the Market-Maker
Trading Permit Sliding Scale was
drafted to allow MMTPHs to notify the
Registration Services Department of
their commitments to the Market-Maker
Trading Permit Sliding Scale for a year
as late as January 25 of that year.
However, since the rule is now in place,
and the Exchange notified MMTPHs of
this proposed change on December 8,
2011,15 giving them ample time to
commit, the Exchange proposes to
amend the language to require that a
MMTPH notify the Registration Services
Department of such a commitment by
December 25th (or the preceding
business day if the 25th is not a
business day) of the year prior to each
year in which the MMTPH would like
to commit to the Market-Maker Trading
Permit Sliding Scale.
The Exchange also proposes to raise
the VIX Tier Appointment fee from
$1,000 per month to $2,000 per month.
‘‘VIX’’ stands for CBOE Market
Volatility Index, and VIX options are a
proprietary product developed by the
Exchange. In order for a Market-Maker
Trading Permit to be used to act as a
Market-Maker in VIX options, the TPH
must obtain a VIX Tier Appointment for
that Market-Maker Trading Permit. Each
VIX Tier Appointment may only be
used with one designated Market-Maker
Trading Permit. The VIX Tier
Appointment fee is currently assessed to
any Market-Maker Trading Permit
Holder that either (a) has a VIX Tier
Appointment at any time during a
calendar month; or (b) trades at least
1,000 VIX options contracts in open
outcry during a calendar month. VIX
trading volume has increased recently,
and due to increased demand, the
Exchange proposes to raise the VIX Tier
Appointment fee in order to recoup
costs from developing VIX options, as
well as other administrative costs. In a
related change, the Exchange also
proposes to raise the amount of the fee
assessed to any Floor Broker Trading
Permit Holder that executes more than
20,000 VIX contracts during a month
from $1,000 to $2,000 in order to remain
consistent with the amount of the VIX
Tier Appointment fee assessed to
Market-Makers. If and to the extent that
15 See
Exchange Regulatory Circular RG11–158.
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a TPH or TPH organization has more
than one Floor Broker Trading Permit
that is utilized to execute VIX options
transactions, the VIX options executions
of that TPH or TPH organization shall be
aggregated for purposes of determining
this additional monthly fee and the
Trading Permit Holder or TPH
organization shall be charged a single
$2,000 fee for the combined VIX options
executions through those Floor Broker
Trading Permits if the executions
exceed 20,000 contracts per month.
Also, the Exchange proposes to
remove from the regulatory circular
regarding Trading Permit Holder
Application and Other Fees language
that would apply this fee to any Floor
Broker Trading Permit Holder whose
aggregate VIX options executed
contracts during the month comprise
more than 30% of the Floor Broker
Trading Permit Holder’s exchange-wide
total executed contracts. This language
was to have been removed in SR–
CBOE–2011–073, and indeed was
removed from one section of the
regulatory circular, as well as the Fees
Schedule, but was inadvertently left in
another section of the regulatory
circular.16 Removing this language will
alleviate any confusion.
The Exchange also proposes to amend
the qualification for the VIX Tier
Appointment fee to state that a MarketMaker TPH that has a VIX Tier
Appointment during a given month will
not be assessed the VIX Tier
Appointment fee unless that MarketMaker TPH trades at least 100 VIX
options contracts electronically while
that appointment is active.
Occasionally, a Market-Maker
accidentally elects for a VIX Tier
Appointment, or elects for a VIX Tier
Appointment and for some reason does
not end up trading VIX options. Under
the current language of the Fees
Schedule, such a Market-Maker would
still be assessed the VIX Tier
Appointment fee, despite not actually
trading in VIX options. The VIX Tier
Appointment fee is intended to be
assessed only to those Market-Makers
that actually trade in VIX options. As
such, the proposed change would
ensure that only those Market-Makers
that actually do trade in VIX options are
assessed the VIX Tier Appointment fee.
The Exchange proposes to institute a
Floor Broker Trading Permit Sliding
Scale, which will be available for all
Floor Broker Trading Permits held by
affiliated TPHs and TPH organizations.
Most floor broker firms have, and need,
16 See Securities Exchange Act Release No. 65019
(August 3, 2011), 76 FR 48931 (August 9, 2011)
(SR–CBOE–2011–073).
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at least two floor brokers: One to answer
the phones and receive trade and order
information, and another to execute
trades. However, for floor broker
‘‘firms’’ that only have one floor broker,
that broker answers the phones and the
Exchange often ends up executing the
trades for the floor broker. As such, in
order to recoup the costs involved for
the Exchange, as well as normalize base
business costs across Floor Broker
Trading Permit Holder operations to
ensure that the Exchange is not unduly
subsidizing one operation over another,
the base rate for Floor Broker Trading
Permits will be $9,000 per month.
However, the Exchange will also
institute a sliding scale for Floor Broker
Trading Permit Holders that commit to
a minimum number of Floor Broker
Trading Permits for the calendar year.
For those who do, the TPH’s first Floor
Broker Trading Permit will cost $9,000
per month. Permits 2 through 7 will cost
$6,000 per month per permit (Tier 1),
and any permits above 7 will cost a TPH
$3,000 per permit per month (Tier 2).
The purpose of the Floor Broker Trading
Permit Sliding Scale is to encourage
floor broker firms to increase their scale
and commitment to the Exchange,
thereby bringing more business to the
Exchange, resulting in greater trading
volume and liquidity, which benefits all
market participants.
To qualify for the rates set forth in
Tiers 1 and 2 in the Floor Broker
Trading Permit Sliding Scale, the
applicable Trading Permit Holder(s)
and/or TPH organization(s) must
commit in advance to a specific tier that
includes a minimum number of eligible
Floor Broker Trading Permits for each
calendar year. To do so, a Floor Broker
Trading Permit Holder must notify the
Exchange’s Registration Services
Department by December 25th (or the
preceding business day if the 25th is not
a business day) of the year prior to each
year in which the Floor Broker Trading
Permit Holder would like to commit to
this sliding scale of the tier of eligible
Floor Broker Trading Permits committed
to by that Floor Broker Trading Permit
Holder for that year (Floor Brokers were
notified of this on December 8, 2011 17).
Floor Brokers are not obligated to
commit to either tier. However, the
discounts will apply only to those that
do commit to Tier 1 or Tier 2 for the
calendar year. Trading Permit Holders
that are not eligible for and/or do not
commit to Tier 1 or Tier 2 will pay the
standard rate of $9,000 for each Floor
Broker Trading Permit, regardless of the
total number of Floor Broker Trading
Permits used. If a TPH chooses to
17 See
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commit to either Tier 1 or Tier 2, that
TPH will be responsible for the
minimum number of permits in the
commitment tier for the remainder of
the calendar year. Even if a TPH does
not maintain the minimum level of
eligible Trading Permits in the tier, that
TPH is still responsible for the
minimum payment for that commitment
tier for the remainder of the calendar
year. For example, a TPH that commits
to eight eligible permits per month will
be subject to a minimum monthly access
fee of $48,000 (1 at $9,000 plus 6 at
$6,000 plus 1 at $3,000 = $48,000) for
that calendar year. Any additional
Permits will increase the fee by the
applicable amount.
A TPH will be able to commit to a
higher tier of the sliding scale for the
remainder of a calendar year, during a
commitment year, if the TPH obtains
enough eligible Floor Broker Trading
Permits and provides written
notification to the Registration Services
Department by the 25th day of the
month preceding the month in which
the higher tier will be effective (or the
preceding business day if the 25th is not
a business day). For example, a TPH
may provide written notice to commit to
Tier 1 effective July 1 for the remainder
of the calendar year as long as the TPH
obtains enough eligible Trading Permits
and provides written notice by June
25th that the TPH would like to
participate in the sliding scale starting
in July for the remainder of that
calendar year. Even if that TPH
subsequently falls below the minimum
number of eligible Floor Broker Trading
Permits (in the committed calendar
year), for the committed tier, the TPH
will remain responsible for paying for
the tier minimum for the remainder of
the calendar year.
TPHs will be responsible to pay for at
least the minimum amount of eligible
Floor Broker Trading Permits in the
committed tier for the calendar year on
a monthly basis unless the TPH entirely
terminates as a TPH during the year. If
a TPH combines, merges, or is acquired
during the course of the calendar year,
the surviving TPH will maintain
responsibility for the committed number
of eligible Floor Broker Trading Permits.
The proposed Floor Broker Trading
Permit Sliding Scale is available to all
floor brokers. In essence, CBOE is
offering a discounted fee in return for a
commitment for a designated period of
time. Trading Permit Holders are not
precluded from providing notice that
they wish to participate in the Floor
Broker Trading Permit Sliding Scale
throughout a calendar year as long as
such notice is provided by the 25th day
of the preceding month of effectiveness.
CBOE is proposing to offer the Floor
Broker Trading Permit Sliding Scale as
a benefit to those Trading Permit
Holders that commit in advance. There
is no obligation to commit to either Tier
1 or Tier 2 of the Floor Broker Trading
Permit Sliding Scale.
The Exchange also proposes to assess
an additional monthly fee of $3,000 per
month to any Floor Broker Trading
Permit Holder that executes more than
20,000 SPX contracts during the month.
If and to the extent that a Trading
Permit Holder or TPH organization has
more than one Floor Broker Trading
Permit that is utilized to execute SPX
options transactions, the SPX
executions of that Trading Permit
Holder or TPH organization shall be
aggregated for purposes of determining
this additional monthly fee and the
Trading Permit Holder or TPH
organization shall be charged a single
$3,000 fee for the combined SPX
executions through those Floor Broker
Trading Permits if the executions
exceed 20,000 contracts per month. The
Exchange already assesses a similar fee
to Floor Broker Trading Permit Holders
that execute more than 20,000 VIX
transactions during a month. The
purpose of this change is to reflect the
opportunity provided to agents
servicing customers in such a highvolume product. Further, this fee will
equalize the opportunity between
Market-Makers and Floor Brokers in
SPX options. Also, the Exchange
expended considerable resources
developing SPX options and desires to
recoup such expenses and other
administrative costs.
The Exchange also proposes to lower
the fee for the Quoting and Order Entry
Bandwidth Packet (the ‘‘Packet’’) from
$3,000 per month to $2,750 per month.
The amount of the fee for the Packet has
always been set at half the price of the
base rate for a Market-Maker Trading
Permit. Since the Exchange proposes to
lower that amount from $6,000 to
$5,500, the Exchange correspondingly
proposes to lower the amount of the fee
for the Packet to $2,750.
The Exchange proposes amending a
number of the TPH Application fees, as
listed below:
Current fee
amount
Fee
tkelley on DSK3SPTVN1PROD with NOTICES
Individual ..........................................................................................................................................................
Non-Trading Permit Holder Customer Business .............................................................................................
Associated Person ...........................................................................................................................................
TPH Organization Application .........................................................................................................................
Subject to Statutory Disqualification ................................................................................................................
Inactive Nominee Status Change (Trading Permit Swap).
a. Submission before 4pm (day prior to effective date) ..................................................................................
b. Submission after 4pm (day prior to effective date) .....................................................................................
c. Submission after effective date ...................................................................................................................
TPH Organization Renewal Fee ......................................................................................................................
As before, application fees related to a
TPH organization’s structural change are
capped at $10,000 (e.g. change from a
limited partnership to a limited liability
corporation). The Trading Permit
Transfer Fee is capped at $2,000 for a
Trading Permit transfer request covering
multiple Trading Permits. The costs of
processing of these applications and
activities have increased, and the
Exchange therefore proposes increasing
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the fees in order to recoup such
increased costs.
The Exchange proposes to adopt an
Initial Proprietary Registration fee of
$50 and an Annual Proprietary
Registration fee of $25. During 2011
CBOE implemented a new proprietary
trading registration requirement (the
‘‘Proprietary Trading Registration
Program’’), primarily at the direction of
the Commission. The Proprietary
PO 00000
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Proposed new
fee amount
$2,500
2,500
350
4,000
2,750
$3,000
3,000
500
5,000
5,000
50
100
200
2,000
55
110
220
2,500
Trading Registration Program, which is
operated through WebCRD, caused a
significant workload increase in the
Exchange’s Registration Department.
Over the course of the year, CBOE
processed over 4,000 registrations via
Web-CRD under this new requirement,
of which about 2,500 required further
consideration of a waiver request. The
Proprietary Trading Registration
Program involved significant work in
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implementing the registrations,
examining waiver requests and
answering testing related questions. Due
to the Proprietary Trading Registration
Program, the Exchange hired an extra
staff member to address this increased
workload, as well as paid a sizable setup fee to FINRA and incurred
significant testing costs. The Proprietary
Trading Registration Program will
continue to require on-going work and
testing and monitoring of the Web-CRD
system, as well as consideration of new
applicants and waiver requests. In order
to offset these costs, the Exchange
proposes the Initial Proprietary
Registration fee and the Annual
Proprietary Registration fee. The Initial
Proprietary Registration fee will be
payable by any TPH organization for the
registration of any associated person on
WebCRD with the Proprietary Trader
registration. The Annual Proprietary
Registration fee will be payable
annually by any TPH organization for
each associated person that the TPH
organization maintains registered on
WebCRD with the Proprietary Trader
registration.
The Exchange also proposes to
increase the fees charged for access to a
Network Access Port (1 Gigabyte) to
$500 per month for regular access and
$1000 per month for Sponsored User
access. The Exchange recently made a
sizable investment to upgrade the
equipment involved in the Network
Access Port, and thereby proposes to
increase the fees in order to recoup such
costs and maintain such equipment in
the future. The Exchange currently
charges a different rate for regular access
and Sponsored User access, and merely
proposes to increase the rates in equal
proportion. Moreover, this change in
Network Access Port fees is in line with
the amounts assessed for similar access
at other exchanges. The International
Securities Exchange, Inc. (‘‘ISE’’)
assesses a fee of $500 for network access
up to and including 1 gigabyte.18
The Exchange also proposes to
increase the fees charged for a CMI
Login ID and FIX Login ID to $500 per
month for regular access and $1000 per
month for Sponsored User access. Firms
may access CBOEdirect via either a CMI
Client Application Server or a FIX Port,
depending on how their systems are
configured. As with the Network Access
Port, the Exchange recently made a
sizable investment to upgrade the
equipment involved in the CMI Client
Application Servers and FIX Ports, and
thereby proposes to increase the fees in
order to recoup such costs and maintain
such equipment in the future. Moreover,
18 See
ISE Schedule of Fees, page 9.
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these changes are in line with amounts
assessed for connectivity at other
exchanges. ISE assesses a FIX fee of
$1000 for a minimum of two monthly
login IDs (so, $500 for one).19 The
NASDAQ Stock Market LLC’s Options
Market (‘‘NOM’’) assesses a fee of $500
per FIX port per month, as well.20
Regarding the Sponsored User fees, the
Exchange currently charges a different
rate for regular access and Sponsored
User access, and merely proposes to
increase the rates in equal proportion.
These proposed changes to the Fees
Schedule took effect on January 1, 2012,
per SR–CBOE–2011–121, which was
withdrawn on January 17, 2012, the
same day that this rule filing is being
submitted.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Act,21 in general, and furthers the
objectives of Section 6(b)(4) 22 of the Act
in particular, in that it is designed to
provide for the equitable allocation of
reasonable dues, fees, and other charges
among CBOE Trading Permit Holders
and other persons using Exchange
facilities. Amending the fee for
customer QQQQ transactions is
reasonable because the amount of the
fee is equivalent for customer
transactions on all other ETF options,
and is equitable and not unfairly
discriminatory because the same fee
will be assessed for all customer
transactions in QQQQ options. The
amount being charged to customers, less
than that assessed to other market
participants for similar transactions,
recognizes a historical preference
towards encouraging customer
transactions. Further, offering lower
transaction fees for customer
transactions incentivizes customers to
execute trades on the Exchange, and this
increased customer activity provides
greater market volume and liquidity,
which benefit all market participants.
Excluding SPX, VIX or other volatility
indexes, OEX or XEO from the Liquidity
Provider Sliding Scale is reasonable
because market participants trading in
those products will simply pay the
normal execution fees for trading in
such products, fees which have been
and currently are accepted fee levels.
Excluding SPX, VIX or other volatility
indexes, OEX or XEO from the Liquidity
Provider Sliding Scale is equitable and
not unfairly discriminatory because all
similarly-situated market participants
19 See
ISE Schedule of Fees, page 8.
NOM Rule 7053.
21 15 U.S.C. 78f(b).
22 15 U.S.C. 78f(b)(4).
20 See
PO 00000
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trading in those products will be
charged the same fees for such
transactions, and because the Exchange
expended significant resources in
developing those products. The
Exchange would have preferred to
modify the Liquidity Provider Sliding
Scale to include only multiply-listed
products. However, some CBOE singlylisted products are used to compete
with multi-listed products that are also
listed on CBOE (as explained above).
Therefore, the Exchange proposes to
include the singly-listed products for
qualification towards the Liquidity
Provider Sliding Scale along with their
multiply-listed competitors, and only
exclude SPX, VIX or other volatility
indexes, OEX and XEO from the
Liquidity Provider Sliding Scale.
Finally, lowering the tier levels in the
Liquidity Provider Sliding Scale is
reasonable because these lowered
amounts reflect the subtraction of trades
in the products that are being excluded,
and because this will allow market
participants to more easily reach those
tiers and pay lower fees, and is
equitable and not unfairly
discriminatory because the same tier
amounts are applicable to all market
participants that qualify for the
Liquidity Provider Sliding Scale.
Limiting the Cap to include only
orders executed in open outcry and AIM
or as a QCC or FLEX Options
transaction, and thereby excluding
regular non-AIM electronic orders, is
reasonable because the execution of
regular non-AIM electronic orders will
merely continue to incur the same
transaction fees they normally would;
the only change is that they will no
longer be cut off at the amount of the
Cap. Further, other exchanges also limit
similar firm fee caps in a similar, and
even less-inclusive, manner.23 Limiting
the Cap in this fashion is equitable and
not unfairly discriminatory because
AIM and open outcry, as auction
mechanisms, are used by CTPHs to
bring liquidity to the Exchange, which
benefits all market participants, while
regular electronic transactions are used
by CTPHs to take liquidity (since only
Market-Makers can send quotes through
the regular electronic system, while
CTPHs can only send orders, which take
liquidity) (QCC transactions can only be
executed via AIM, and FLEX Options
transactions can only be executed via
the auction mechanisms of open outcry
23 See PHLX Fee Schedule, Section I, Part C (page
5) and Section II (page 7), provides for a similar
$75,000 cap which also applies to firm open outcry
business, but does not apply to their PIXL
mechanism, which, like AIM, is a price
improvement mechanism, and does not apply to
electronic transactions in select symbols.
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and CFLEX (which is a FLEX Options
auction platform similar to AIM)).
Moreover, limiting the Cap in this
fashion is equitable and not unfairly
discriminatory because other exchanges
also limit similar firm fee caps in a
similar, and even less-inclusive,
manner,24 and because these limits
apply to all CTPHs equally. Further,
while a responder to an AIM auction
pays a transaction fee that is not
counted towards the Cap, this is
equitable and not unfairly
discriminatory because only MarketMakers can respond to an AIM auction,
and the Cap only applies to CTPHs, and
not Market-Makers. This situation is the
same for open outcry. The Cap is
limited to CTPHs because they
contribute capital to facilitate execution
of customer orders, which in turn
provides a deeper pool of liquidity that
benefits all market participants.
Assessing no transaction fees for
CTPH Proprietary facilitation orders
(other than SPX, VIX or other volatility
indexes, OEX or XEO) executed in open
outcry or AIM or as a QCC or FLEX
Options transaction is reasonable
because other exchanges also waive
equity options transaction fees for firms
executing facilitation orders when the
firms are trading in their own
proprietary account.25 This change is
equitable and not unfairly
discriminatory because it will encourage
CTPHs to transact more business on the
Exchange, thereby increasing volume
and liquidity, which will benefit all
market participants, and also because it
will apply to all firms equally. The
CTPH Proprietary Facilitation Waiver is
limited to executions in AIM or open
outcry, or as a QCC or FLEX Options
transaction, because those are the only
ways to execute a facilitation trade on
the Exchange.
Excluding SPX, VIX or other volatility
indexes, OEX or XEO from the CTPH
Proprietary Facilitation Waiver is
equitable and not unfairly
discriminatory because all similarlysituated market participants trading in
those products will be charged the same
fees for such transactions, and because
the Exchange expended significant
resources in developing those products.
The Exchange would have preferred to
modify the CTPH Proprietary
Facilitation Waiver to include only
24 See PHLX Fee Schedule, Section I, Part C (page
5) and Section II (page 7), provides for a similar
$75,000 cap which also applies to firm open outcry
business, but does not apply to their PIXL
mechanism, which, like AIM, is a price
improvement mechanism, and does not apply to
electronic transactions in select symbols.
25 See PHLX Fee Schedule, Section II (pages 7–
8).
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multiply-listed products. However,
some CBOE singly-listed products are
used to compete with multi-listed
products that are also listed on CBOE
(as described above). Therefore, the
Exchange proposes to include the
singly-listed products for qualification
towards the CTPH Proprietary
Facilitation Waiver along with their
multiply-listed competitors, and only
exclude SPX, VIX or other volatility
indexes, OEX and XEO from the CTPH
Proprietary Facilitation Waiver.
Limiting the CTPH Proprietary
Facilitation Waiver to orders executed
via AIM or open outcry or as a QCC or
FLEX Options transaction is equitable
and not unfairly discriminatory because
these limits apply to all CTPHs equally,
and because these are the only manners
in which facilitation trades can be
effected.
Ceasing excluding AIM Contra
Execution Fees from counting towards
the Cap as well as ceasing excluding
contracts executed in AIM that incur the
AIM Contra Execution Fee from
counting towards the CBOE Proprietary
Products Sliding Scale is reasonable
because it will allow for CTPHs to pay
lower regular transaction fees than they
currently do (though the AIM Contra
Execution Fee will still be assessed).
These changes are equitable and not
unfairly discriminatory because they
apply equally to all CTPHs, just as the
Cap and the CBOE Proprietary Products
Sliding Scale had prior to these changes.
Additionally, these changes will
encourage CTPHs to transact more
business on the Exchange, thereby
increasing volume and liquidity, which
will benefit all market participants.
Removing the New Marketing Fee
Options from the list of securities that
are not assessed the marketing fee, and
beginning to assess a $0.25 per contract
marketing fee on qualifying transactions
in those securities, is reasonable
because it is the same amount as is
charged for transactions in other ETFs.
This proposed change is equitable and
not unfairly discriminatory because it is
designed and intended to attract
additional order flow in the New
Marketing Fee Options to the Exchange,
which would increase liquidity and
benefit all market participants, and
because the same fee is assessed similar
[sic] transactions in nearly all other the
[sic] New Marketing Fee Options.
The SPY and QQQQ Marketing Fee
Waiver is designed to provide for the
equitable allocation of reasonable dues,
fees, and other charges among Trading
Permit Holders in that it is intended to
attract more customer volume on the
Exchange in SPY and QQQQ options.
The SPY and QQQQ options classes are
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Fmt 4703
Sfmt 4703
5601
among the most active and liquid
classes and trade with significant
electronic trading volume. Because of
their current trading profiles, CBOE
believes it might be better able to attract
electronic liquidity by not assessing the
marketing fee on electronic SPY and
QQQQ transactions and therefore
proposes to make permanent the current
waiver. However, CBOE believes that
continuing to collect the marketing fee
on open outcry transactions, as well as
electronic orders submitted to AIM for
price improvement, from Market-Makers
that trade with customer orders from
payment accepting firms would
continue to attract liquidity in SPY and
QQQQ to the floor and AIM mechanism,
respectively. Brokers take payment for
order flow (the payments received from
the collection of the marketing fee) into
their decision-making equations
regarding AIM and open outcry when
deciding where to send orders in SPY
and QQQQ. Accordingly, CBOE believes
making permanent the waiver is
equitable and not unfairly
discriminatory because it reflects the
trading profiles of SPY and QQQQ and
is designed and intended to attract
additional order flow in SPY and QQQQ
to the Exchange, which would benefit
all market participants.
The Exchange believes the proposed
extension of the C Waiver for Index
Options is equitable and not unfairly
discriminatory because it would apply
uniformly to all public customers
trading ETF, ETN and HOLDRs options
in open outcry and AIM, and because
waiving the transaction fee for such
customer trades is designed to attract
new order flow to the Exchange. The
resulting increased volume and
liquidity will benefit all market
participants trading in these products.
The Exchange believes the proposed
extension of the C Waiver for Index
Options is reasonable because it would
continue to provide cost savings during
the extended waiver period for public
customers trading SPY and XLF options
and begin to provide such savings to
public customers trading all other ETF,
ETN and HOLDRs. Further, the
Exchange believes the proposed C
Waiver for Index Options is consistent
with other fees assessed by the
Exchange. Specifically, the Exchange
assesses manually executed brokerdealer orders a different rate ($.25 per
contract) as compared to electronically
executed broker-dealer orders ($.45 per
contract).26 Other exchange fee
schedules also distinguish between
electronically and non-electronically
26 See
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executed orders.27 Finally, Arca does
not charge customer transaction fees for
customer transactions in ETF, ETN and
HOLDRs options.28 Adding FLEX
Options to the C Waiver for Index
Options is reasonable because it will
allow customer FLEX Options
transactions in ETF, ETN and HOLDRs
options to no longer be assessed a fee,
thereby saving such customers money.
This addition is equitable and not
unfairly discriminatory because waiving
the fee for such trades is designed to
attract new order flow to the Exchange.
The resulting increased volume and
liquidity will benefit all market
participants trading in these products.
Moreover, other exchanges do not
charge for public customer FLEX
Options transactions in ETF, ETN and
HOLDRs options.29 The C Waiver for
Index Options is limited to AIM and
open outcry executions in order to
encourage use of these price
improvement mechanisms, and QCC
trades are included in the C Waiver for
Index Options as well because QCC
trades can only be executed via AIM
and open outcry.
Increasing the FBW fee from $225 per
month (per login ID) to $350 per month
(per login ID) is reasonable because the
Exchange is charged by the vendor that
provides the FBW more than $225 per
month (per login ID) (actually, more
than $350 per month (per login ID)) and
simply wants to reduce the extent to
which the Exchange subsidizes such
costs. This change is equitable and not
unfairly discriminatory because all
market participants who desire to use
the FBW will be assessed the same fee.
Increasing the PULSe fee from $225
per month (per login ID) to $350 per
month (per login ID) is reasonable
because the Exchange expended
significant resources developing PULSe
and desires to recoup some of those
costs. Moreover, the Exchange will be
assessing the same amount for the FBW,
which is a similar product. This change
27 PHLX categorizes its equity options transaction
fees for Specialists, ROTs, SQTs, RSQTs and
Broker-Dealers as either electronic or nonelectronic. See PHLX Fees Schedule, Equity
Options Fees. NYSE Amex, Inc. categorizes its
options transaction fees for Non-NYSE Amex
Options Market Makers, Broker-Dealers,
Professional Customers, Non BD Customers and
Firms as either electronic or manual. See NYSE
Amex Options Fees Schedule, Trade Related
Charges. Arca categorizes its options transaction
fees for Customers, Firms and Broker-Dealers as
either electronic or manual. See Arca Options Fees
Schedule, Trade Related Charges.
28 See Arca Options Fee Schedule, page 3.
29 See NYSE Amex Options Fee Schedule, page 3,
which shows Non BD Customer Manual
transactions (the manner by which FLEX Options
are traded on the NYSE Amex Options market) to
be assessed a $0.00 transaction fee.
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is equitable and not unfairly
discriminatory because all market
participants who desire to use PULSe
will be assessed the same fee, and
because the same amount is being
assessed for use of a similar product, the
FBW.
The lowered costs for Market-Maker
Trading Permits is reasonable because
the fees will be lower than previously,
and are equitable and not unfairly
discriminatory because, as before, the
tiers are available to all TPHs. Lower
Market-Maker Trading Permit fees
encourage more Market-Makers to
access the Exchange, and more MarketMakers gives market participants more
trading options and increased trading
activity, volume and liquidity, which
benefit all market participants.
Amending the date by which MMTPHs
must commit to the Market-Maker
Trading Permit Holder Sliding Scale is
reasonable because a commitment by
December 25th of the preceding year
still gives MMTPHs plenty of time to
determine whether or not to commit to
the Market-Maker Trading Permit
Holder Sliding Scale, and is equitable
and not unfairly discriminatory because
all MMTPHs will be subject to that same
deadline.
Amending the qualification for the
VIX Tier Appointment fee to state that
a Market-Maker TPH that has a VIX Tier
Appointment during a given month will
not be assessed the VIX Tier
Appointment fee unless said MarketMaker TPH trades at least 100 VIX
contracts electronically while that
appointment is active is reasonable
because the change will prevent those
that do not at least somewhat regularly
trade in VIX from being assessed the
VIX Tier Appointment fee. This change
is equitable and not unfairly
discriminatory because it ensures that
the VIX Tier Appointment fee is not
assessed to those Market-Makers who
are not trading in VIX. The 100-contract
threshold achieves this purpose because
it is a sufficiently small number of
contracts and yet leaves some small
room for an accidental or minor VIX
trade.
Increasing the VIX Tier Appointment
fee is reasonable because the amount,
$2,000, is within the range of other tier
appointment fees assessed by the
Exchange (for example, the SPX Tier
Appointment fee is $3,000) 30, and
because market demand will sustain
such a fee. This proposed change is also
equitable and not unfairly
discriminatory because it will be
assessed to all MMTPHs that either
(a) have a VIX Tier Appointment at any
30 See
PO 00000
Exchange Fees Schedule, Section 10(A)(ii).
Frm 00123
Fmt 4703
Sfmt 4703
time during a calendar month and trade
at least 100 VIX contracts electronically
while that appointment is active; or
(b) trade at least 1,000 VIX options
contracts in open outcry during a
calendar month. Increasing the monthly
fee for a Floor Broker Trading Permit
Holder that executes more than 20,000
VIX contracts in a month is reasonable
because this amount is equal to the
amount of the VIX Tier Appointment fee
(as they were equal prior to these
changes), and is equitable and not
unfairly discriminatory because the fee
will be assessed to any and all Floor
Broker Trading Permit Holders that
qualify for the fee.
The proposed increase in the fee
assessed for one Floor Broker Trading
Permit is reasonable because lone floor
brokers almost always require the
Exchange to do extra work for the floor
broker, while floor brokers with two or
more trading permits never do, and the
Exchange must recoup related costs.
This increase is equitable and not
unfairly discriminatory because the
same amount will be assessed to all lone
floor brokers. The Floor Broker Trading
Permit Sliding Scale is reasonable
because the amounts for Tier 1 are the
same on a per permit basis as they
currently are, and the amounts for Tier
2 are lower than the current amounts.
The Floor Broker Trading Permit Sliding
scale is equitable and not unfairly
discriminatory because offering lower
costs to TPHs that get more permits will
encourage floor broker firms to bring
more floor brokers to the Exchange,
thereby bringing more business to the
Exchange, resulting in greater trading
volume and liquidity, which benefits all
market participants.
The proposed monthly fee of $3,000
per month to any Floor Broker Trading
Permit Holder that executes more than
20,000 SPX contracts during the month
is reasonable because the same amount
is assessed to Market-Makers for an SPX
tier appointment. This fee is equitable
and not unfairly discriminatory because
it will equalize opportunity between
Market-Makers and Floor Brokers
trading in SPX options, because it
reflects the opportunity provided to
agents servicing customers in such a
high-volume product, and because the
Exchange expended considerable
resources in developing SPX and desires
to recoup such expenses and other
administrative costs.
The lowered fee for the Packet is
reasonable because the fee will be lower
than previously, and is equitable and
not unfairly discriminatory because, as
before, the fee will be applied to all
parties who desire the Packet. Lower
Packet fees encourage more Market-
E:\FR\FM\03FEN1.SGM
03FEN1
tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 23 / Friday, February 3, 2012 / Notices
Makers to access the Exchange, and
more Market-Makers gives market
participants more trading options and
increased trading activity, volume and
liquidity, which benefit all market
participants.
The proposed increases in TPH
Application fees are reasonable because
such increases are necessary to cover
the increased costs of processing such
applications and activities. The
proposed increases in TPH Application
fees are equitable and not unfairly
discriminatory because they apply
equally to all qualifying market
participants.
The proposed adoption of the Initial
Proprietary Registration fee and the
Annual Proprietary Registration fee is
reasonable because both fees are
necessary to offset the costs of the
Proprietary Trading Registration
Program, and because the amount of the
fees are minimal. The adoption of these
fees is equitable and not unfairly
discriminatory because they will be
assessed equally to all market
participants that qualify for the fees.
The proposed change to increase the
Network Access Port fees is reasonable
because the fees are within the same
range as those assessed on other
exchanges,31 and because such increase
will assist in recouping expenditures
recently made by the Exchange to
upgrade the CBOEdirect connectivity
equipment. This proposed change is
equitable and not unfairly
discriminatory because the fees, as
before, will be assessed to all market
participants. The proposed changes to
increase the fees assessed for CMI Login
IDs and FIX Login IDs are also
reasonable because such fees are within
the same range as those assessed on
other exchanges 32, and because such
increases will assist in recouping
expenditures recently made by the
Exchange to upgrade the CBOEdirect
connectivity equipment. This proposed
change is equitable and not unfairly
discriminatory because the fees, as
before, will be assessed to all market
participants. Assessing higher fees for
Sponsored Users is equitable and not
unfairly discriminatory because
Sponsored Users are able to access the
Exchange and use the equipment
provided without purchasing a trading
permit. As such, Trading Permit Holders
who have purchased a trading permit
will have a higher level of commitment
to transacting business on the Exchange
and using Exchange facilities than
Sponsored Users. Finally, these
increases maintain the same
proportionate amounts that are paid by
regular users relative to Sponsored
Users.
Changing the name of the Cap to more
accurately reflect its nature furthers the
objectives of Section 6(b)(5) 33 of the Act
in particular in that it is designed to
clear up any potential confusion, which
serves to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
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 not necessary or
appropriate in furtherance of the
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 proposed rule change is
designated by the Exchange as
establishing or changing a due, fee, or
other charge, thereby qualifying for
effectiveness on filing pursuant to
Section 19(b)(3)(A) of the Act 34 and
subparagraph (f)(2) of Rule 19b–4 35
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
• Send an email to rulecomments@sec.gov. Please include File
Number SR–CBOE–2012–008 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–2012–008. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro/shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filing
will also 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 No. SR–CBOE–
2012–008 and should be submitted on
or before February 24, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–2409 Filed 2–2–12; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
31 See
33 15
32 See
34 15
ISE Schedule of Fees, page 9.
ISE Schedule of Fees, page 8 and NOM
Rule 7053.
VerDate Mar<15>2010
20:48 Feb 02, 2012
Jkt 226001
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(3)(A).
35 17 C.F.R. 240.19b–4(f)(2).
PO 00000
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36 17
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]]>Agencies
[Federal Register Volume 77, Number 23 (Friday, February 3, 2012)]
[Notices]
[Pages 5595-5603]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-2409]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66277; File No. SR-CBOE-2012-008]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend the Fees Schedule
January 30, 2012.
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 January 17, 2012, the Chicago Board Options Exchange,
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the Exchange. The 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
The Exchange proposes to amend the Fees Schedule. The text of the
proposed rule change is available on the Exchange's Web site (https://www.cboe.org/legal), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to make a series of amendments to its Fees
Schedule for 2012. First, the Exchange proposes to eliminate the waiver
for customer fees for transactions in options on the Nasdaq 100 Index
Tracking Stock (``QQQQ''). Such transactions will now be assessed a fee
of $0.18 per contract, equivalent to the fee assessed for customer
transactions in options on other exchange-traded funds (``ETFs''),
exchange-traded notes (``ETNs'') and HOLDRs. The purpose of this
proposed change is to make the fees for QQQQ options transactions
equivalent to the fees for transactions on other ETFs.
The Exchange also proposes to modify the Liquidity Provider Sliding
Scale to exclude SPX, VIX or other volatility indexes, OEX and XEO.
This scale offers consistently-lowering fees for market participants
who provide increasing liquidity. The Exchange would have preferred to
modify the Liquidity Provider Sliding Scale to include only multiply-
listed products because the Exchange has expended considerable
resources in developing its proprietary, singly-listed products.
However, some CBOE singly-listed products are used to compete with
multi-listed products that are also listed on CBOE (for example, the
singly-listed XSP options compete with the multiply-listed SPY options,
both of which approximate \1/10\ of the S&P 500 Index, and the singly-
listed DJX options compete with the multiply-listed DIA options, both
of which are based on \1/100\ of the value of the Dow Jones Industrial
Average). Including the multiply-listed products for qualification
towards the Liquidity Provider Sliding Scale while excluding their
singly-listed competitors might create a pricing advantage that might
discourage trading in some of the singly-listed products that the
Exchange expended resources to develop. As such, the Exchange now
proposes to include the singly-listed products for qualification
towards the Liquidity Provider Sliding Scale along with their multiply-
listed competitors, and only exclude SPX, VIX or other volatility
indexes, OEX and XEO from the Liquidity Provider Sliding Scale. The
Exchange also proposes lowering the tier levels in the Liquidity
Provider Sliding Scale to reflect the exclusion of SPX, VIX or other
volatility indexes, OEX and XEO. The Exchange also proposes amending
the prepay amounts relating to the Liquidity Provider Sliding Scale
that are listed in Footnote 10 to reflect the changed tier levels.
The Exchange proposes changing the name of the ``Multiply-Listed
Options Fee Cap'' to the ``Clearing Trading Permit Holder Fee Cap in
All Products Except SPX, VIX or other Volatility Indexes, OEX or XEO.''
In actuality, the Multiply-Listed Options Fee Cap has always applied to
some singly-listed products, and only excluded the products listed
above. As such, the name has been somewhat inaccurate, and the Exchange
hereby proposes to fix this issue in order to clear up any confusion.
The Exchange also proposes, for competitive reasons, to limit the
Clearing Trading Permit Holder (``CTPH'') Fee Cap in All Products
Except SPX, VIX or other Volatility Indexes, OEX or XEO (the ``Cap'')
to include only orders executed in open outcry or the Exchange's
Automated Improvement Mechanism (``AIM''), or as qualified contingent
cross (``QCC'') or FLEXible Options (``FLEX Options'') transactions.
NASDAQ OMX PHLX LLC (``PHLX'') provides for a similar $75,000 cap which
also applies to firm open outcry business, but does not apply to their
PIXL mechanism, which, like AIM, is a price improvement mechanism, and
does not apply to electronic transactions in select symbols.\3\ The
Exchange also proposes to include fees from QCCs and FLEX Options
transactions towards the Cap to attract such orders to the Exchange.
Limiting the Cap to include only orders executed in open outcry or AIM
or as QCC or FLEX Options transactions allows CBOE to compete with PHLX
while not foregoing collecting the necessary fees to continue to
operate the Exchange.
---------------------------------------------------------------------------
\3\ See PHLX Fee Schedule, Section I, Part C (page 5) and
Section II (page 7).
---------------------------------------------------------------------------
Correspondingly, the Exchange also proposes to cease excluding AIM
Contra Execution Fees from counting towards the Cap. Going forward, AIM
Contra
[[Page 5596]]
Execution Fees will be considered in helping a CTPH reach the Cap
(though CTPHs will still continue to pay the AIM Contra Execution Fees
after reaching the Cap). The purpose of this change is to align and
improve the Exchange's competitive position in relation to other
exchanges. PHLX, as previously stated, has a similar $75,000 cap which
also applies to firm open outcry business, but does not apply to their
PIXL mechanism, which, like AIM, is a price improvement mechanism, and
does not apply to electronic transactions in select symbols.\4\ By
including AIM Contra Execution Fees towards the Cap, and at a lower
rate than that which PHLX charges in its PIXL mechanism, the Exchange
is providing a demonstrably advantageous pricing schedule for this
business.\5\ Additionally, as at PHLX, electronic fees in the busiest
options classes are not counted towards the Cap. As such, the Exchange
proposes to include all AIM transaction fees, including the AIM Contra
Execution Fees, towards reaching the Cap (when they apply) to improve
our competitive position. The Exchange would also like to encourage the
use of AIM, which is a price improvement mechanism. Finally, it should
be clarified that while a responder to an AIM auction pays a fee that
is not counted towards the Cap, this is because only Market-Makers can
respond to an AIM auction, and the Cap only applies to CTPHs (and not
Market-Makers). The Cap will remain limited to CTPHs, as they
contribute capital to facilitate execution of customer orders, which in
turn provides a deeper pool of liquidity that benefits all market
participants.
---------------------------------------------------------------------------
\4\ See PHLX Fee Schedule, Section I, Part C (page 5) and
Section II (page 7).
\5\ See PHLX Fee Schedule, Section IV (page 10).
---------------------------------------------------------------------------
Similarly, PHLX waives its equity options transaction fees for
firms executing facilitation orders when the firms are trading in their
own proprietary accounts.\6\ As such, the Exchange, for competitive
reasons, proposes to waive the transaction fees for CTPH Proprietary
facilitation orders (other than SPX, VIX or other volatility indexes,
OEX or XEO) executed in AIM or open outcry, or as a QCC or FLEX Options
transaction (the ``CTPH Proprietary Facilitation Waiver'') in order to
align our competitive position and even improve upon it (as PHLX does
not waive such a fee for orders executed in its PIXL mechanism, in the
select symbols). The Exchange would have preferred to include only
multiply-listed products in the CTPH Proprietary Facilitation Waiver
because those are the only products in which the Exchange faces
competitive pricing pressures, and the Exchange has expended
considerable resources in developing its proprietary, singly-listed
products. However, some CBOE singly-listed products are used to compete
with multi-listed products that are also listed on CBOE (as explained
above). Including the multiply-listed products in the CTPH Proprietary
Facilitation Waiver while excluding their singly-listed competitors
might create a pricing advantage that might discourage trading in some
of the singly-listed products that the Exchange expended resources to
develop. As such, the Exchange proposes to include the singly-listed
products in the CTPH Proprietary Facilitation Waiver along with their
multiply-listed competitors, and only exclude SPX, VIX or other
volatility indexes, OEX and XEO from the CTPH Proprietary Facilitation
Waiver. The CTPH Proprietary Facilitation Waiver is limited to
executions in AIM or open outcry, or as a QCC or FLEX Options
transaction, because those are the only ways to execute a facilitation
trade on the Exchange.
---------------------------------------------------------------------------
\6\ See PHLX Fee Schedule, Section II (pages 7-8).
---------------------------------------------------------------------------
It should be noted that, for the purposes of the CTPH Proprietary
Facilitation Waiver, the Exchange is defining ``facilitation order'' as
any paired order in which a CTPH (``F'') origin code is contra to any
other origin code, provided the same executing broker and clearing firm
are on both sides of the order. The reason only CTPH orders can qualify
as ``facilitation orders'' is that the Exchange's systems cannot
determine whether or not an order is a facilitation order unless such
order comes in with the ``F'' origin code, and only CTPH orders come in
with the ``F'' origin code. As such, the Exchange's systems would be
unable to determine whether or not an order from any other market
participant is a facilitation order. Further, PHLX only waives fees on
facilitation orders for firms (which are similar to CTPHs).\7\
---------------------------------------------------------------------------
\7\ See PHLX Fee Schedule Section II (pages 7-8).
---------------------------------------------------------------------------
Along with ceasing excluding AIM Contra Execution Fees from
counting towards the Cap, the Exchange also proposes ceasing excluding
contracts executed in AIM that incur the AIM Contra Execution Fee from
counting towards the CBOE Proprietary Products Sliding Scale. Going
forward, contracts executed in AIM that incur the AIM Contra Execution
Fee will count towards helping a CTPH reach a higher tier in the CBOE
Proprietary Products Sliding Scale, and thereby pay lower fees for
executions in CBOE proprietary products. The purpose of this change is
to improve the Exchange's competitive position. The Exchange would also
like to encourage the use of AIM, which is a price improvement
mechanism. The purpose of these changes is to lower fees for CTPHs and
thereby encourage CTPHs to transact more business on the Exchange,
thereby increasing volume and liquidity.
Currently, the Exchange does not assess the marketing fee on
transactions in a number of securities. The Exchange now proposes to
remove the ETFs EWC, EWT, MNX, MVR, QQQQ, RSP, VPL, VWO and XBI (the
``New Marketing Fee Options'') from the list of securities that are not
assessed the marketing fee, and begin assessing the marketing fee on
qualifying transactions in those securities. Going forward,
transactions in the New Marketing Fee Options will be assessed a
marketing fee of $0.25 per contract, like nearly all other ETFs. The
purpose of this change is to increase volume on the New Marketing Fee
Options. By assessing a marketing fee on the New Marketing Fee Options
transactions, the Exchange will be able to use the money collected to
attract volume, pursuant to the Exchange's marketing fee plan. The
Exchange believes that the demographics of the New Marketing Fee
Options order flow is inclined to seek economic considerations such as
payment for order flow, so a marketing fee for the New Marketing Fee
Options trades is necessary to attract volume and liquidity in the New
Marketing Fee Options.
CBOE implemented on December 1, 2010,\8\ and extended on April 1,
2011,\9\ July 1, 2011,\10\ and October 1, 2011 \11\ a pilot program
relating to the assessment of the marketing fee in the SPY option
class. Specifically, CBOE previously determined not to assess the
marketing fee on electronic transactions in options on Standard &
Poor's Depositary Receipts (``SPY options'') (a unique and active
class), except that it would continue to assess the marketing fee on
electronic transactions resulting from AIM pursuant to CBOE Rule 6.74A
and transactions in open outcry (the ``SPY Marketing Fee Waiver''). The
SPY Marketing Fee Waiver is intended to
[[Page 5597]]
attract more SPY customer volume and allow CBOE market-makers to better
compete for order flow. The Exchange hereby proposes to extend the SPY
Marketing Fee Waiver to also include qualifying transactions in QQQQ
under the same terms as those that now apply to SPY (the ``SPY and QQQQ
Marketing Fee Waiver'') (previously, transactions in QQQQ were not
subject to the marketing fee, but as QQQQ is one of the New Marketing
Fee Options, the Exchange above proposes to make QQQQ transactions
subject to the marketing fee). Designated Primary Market-Makers and
Preferred Market-Makers can utilize the marketing fee funds to attract
orders from payment accepting firms that are executed in AIM and in
open outcry. The marketing fee funds received by payment-accepting
firms may be used to offset transaction and other costs related to the
execution of an order in AIM and in open outcry, including in the SPY
and QQQQ option classes. CBOE believes that the current demographics of
electronic, non-AIM SPY and QQQQ option order flow is more driven by
the displayed best bid or offer (``BBO'') and size than payment for
order flow considerations, and thus assessment of the marketing fee for
those transactions is not a differentiator at this time. Going forward,
the marketing fee will continue to be assessed on open outcry
transactions in SPY and be assessed on open outcry transactions in QQQQ
(as QQQQ is one of the New Marketing Fee Options).
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 63470 (December 8,
2010), 75 FR 78284 (December 15, 2010) (SR-CBOE-2010-108).
\9\ See Securities Exchange Act Release No. 64212 (April 6,
2011), 76 FR 20411 (April 12, 2011) (SR-CBOE-2011-033).
\10\ See Securities Exchange Act Release No. 64818 (July 6,
2011), 76 FR 40978 (July 12, 2011) (SR-CBOE-2011-060).
\11\ See Securities Exchange Act Release No. 65517 (October 7,
2011), 76 FR 63976 (October 14, 2011) (SR-CBOE-2011-097).
---------------------------------------------------------------------------
This SPY Marketing Fee Waiver pilot program is scheduled to
terminate on December 31, 2011. The Exchange has periodically continued
to extend the SPY Marketing Fee Waiver for successive three-month
periods so that the Exchange could simply allow the SPY Marketing Fee
Waiver to expire should the Exchange desire that the SPY Marketing Fee
Waiver would no longer apply. The Exchange now proposes to cease
extending the SPY Marketing Fee Waiver for three-month periods and
simply leave the SPY and QQQQ Marketing Fee Waiver in the Fees
Schedule. If the Exchange later determines that the SPY and QQQQ
Marketing Fee Waiver should no longer apply, the Exchange would have to
file to remove the SPY and QQQQ Marketing Fee Waiver from the Fees
Schedule, just like any other non-temporary provision in the Fees
Schedule.
As reflected in Footnote 8 of the Fees Schedule, the Exchange
currently waives the $.18 per contract transaction fee for public
customer (``C'' origin code) orders in SPY and XLF options that are
executed in open outcry or AIM (the ``C Waiver'').\12\ This fee waiver
is due to expire on December 31, 2011. The Exchange has periodically
continued to extend the C Waiver for successive three-month periods so
that the Exchange could simply allow the C Waiver to expire should the
Exchange desire that the C Waiver would no longer apply. The Exchange
now proposes to cease extending the C Waiver for three-month periods
and simply leave the C Waiver in the Fees Schedule. If the Exchange
later determines that the C Waiver should no longer apply, the Exchange
would have to file to remove the C Waiver from the Fees Schedule, just
like any other non-temporary provision in the Fees Schedule.
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 34-62902 (September
14, 2010), 75 FR 57313 (September 20, 2010), Securities Exchange Act
Release No. 34-63422 (December 3, 2010), 75 FR 76770 (December 9,
2010), Securities Exchange Act Release No. 34-64197 (April 6, 2011),
76 FR 20390 (April 12, 2011), Securities Exchange Act Release No.
34-64817 (July 6, 2011), 76 FR 40948 (July 12, 2011), Securities
Exchange Act Release No. 34-65518 (October 7, 2011), 76 FR 63971
(October 14, 2011) and CBOE Fees Schedule, footnote 8.
---------------------------------------------------------------------------
The Exchange also proposes to extend the C Waiver to all ETF, ETN
and HOLDRs options (the ``C Waiver for Index Options''). The C Waiver
for Index Options is intended to attract more customer volume on the
Exchange in these products. For competitive reasons, the customer base
for open outcry and AIM trading in ETF, ETN and HOLDRs options appears
more sensitive to fees than the customer base for such trading in other
products. Moreover, CBOE proposes the C Waiver to compete with other
exchanges. For example, NYSE Arca, Inc. (``Arca'') does not charge
customer transaction fees for customer transactions in ETF, ETN and
HOLDRs options.\13\ As such, the Exchange desires to waive customer
transaction fees for ETF, ETN and HOLDRs options executed in open
outcry or via AIM in order to better compete (while Arca does not have
a price improvement mechanism comparable to AIM, the Exchange desires
to include AIM in the C Waiver to encourage the use of this price
improvement mechanism). The Exchange also desires to apply the C Waiver
for Index Options to QCC trades because a QCC trade is a paired order,
and the only ways to execute paired orders are via AIM and open outcry,
so QCC trades should then be included in the C Waiver for Index
Options, too. The Exchange also believes that waiving the transaction
fee for such customer trades in ETF, ETN and HOLDRs options will
encourage greater customer trading in these products. The increased
volume and liquidity resulting from greater customer trading in those
products will benefit all market participants trading in these
products. The Exchange also proposes adding trades executed as a FLEX
Options transaction to the C Waiver for Index Options for competitive
reasons. A number of other exchanges do not charge for public customer
FLEX Options transactions in ETF, ETN and HOLDRs options.\14\
---------------------------------------------------------------------------
\13\ See Arca Options Fee Schedule, page 3.
\14\ See NYSE Amex Options Fee Schedule, page 3, which shows Non
BD Customer Manual transactions (the manner by which FLEX Options
are traded on the NYSE Amex Options market) to be assessed a $0.00
transaction fee.
---------------------------------------------------------------------------
The Exchange proposes raising the Floor Broker Workstation
(``FBW'') fee from $225 per month (per login ID) to $350 per month (per
login ID). The Exchange's vendor that provides the FBW charges the
Exchange more than $225 per month (per login ID) for the FBW (actually,
more than $350 per month (per login ID)), and the Exchange had been
subsidizing those costs for FBW users. However, it is no longer
economically feasible to subsidize those costs to that great an extent.
As such, the Exchange proposes increasing the FBW fee to $350 per month
(per login ID), which still includes a subsidy for FBW users (though
smaller).
The Exchange also proposes raising the PULSe On-Floor Workstation
(``PULSe'') fee from $225 per month (per login ID) to $350 per month
(per login ID). The Exchange expended significant resources developing
PULSe, and intends to recoup some of those costs. Further, because
PULSe and FBW serve similar functions, the Exchange desires to assess
equivalent fees for each so as not to offer a pricing advantage for one
over the other.
The Exchange also proposes to reduce Market-Maker Trading Permit
monthly costs from $6,000 per permit to $5,500 per permit. Furthermore,
for those who commit to the Market-Maker Trading Permit Holder Sliding
Scale, which is available for all Market-Maker Trading Permits held by
affiliated Trading Permit Holders and Trading Permit Holder (``TPH'')
organizations that are used for appointments in any options classes
other than SPX, VIX, OEX and XEO, the Exchange proposes to reduce the
monthly cost from $6,000 per permit to $5,500 per permit for the first
10 permits, from $4,800 to $4,000 per permit for permits 11-20, and
from $3,000 to $2,500 per permit for permits 21 and greater. The
purpose of this change is to reduce access costs and thereby encourage
greater Market-Maker access, which thereby brings greater
[[Page 5598]]
trading activity, volume and liquidity, benefitting all market
participants.
The Exchange would also like to amend the date by which a Market-
Maker TPH (``MMTPH'') must commit to the Market-Maker Trading Permit
Sliding Scale. The Market-Maker Trading Permit Holder Sliding Scale was
instituted in SR-CBOE-2011-004, which was filed on January 3, 2011. As
such, the text of the Market-Maker Trading Permit Sliding Scale was
drafted to allow MMTPHs to notify the Registration Services Department
of their commitments to the Market-Maker Trading Permit Sliding Scale
for a year as late as January 25 of that year. However, since the rule
is now in place, and the Exchange notified MMTPHs of this proposed
change on December 8, 2011,\15\ giving them ample time to commit, the
Exchange proposes to amend the language to require that a MMTPH notify
the Registration Services Department of such a commitment by December
25th (or the preceding business day if the 25th is not a business day)
of the year prior to each year in which the MMTPH would like to commit
to the Market-Maker Trading Permit Sliding Scale.
---------------------------------------------------------------------------
\15\ See Exchange Regulatory Circular RG11-158.
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The Exchange also proposes to raise the VIX Tier Appointment fee
from $1,000 per month to $2,000 per month. ``VIX'' stands for CBOE
Market Volatility Index, and VIX options are a proprietary product
developed by the Exchange. In order for a Market-Maker Trading Permit
to be used to act as a Market-Maker in VIX options, the TPH must obtain
a VIX Tier Appointment for that Market-Maker Trading Permit. Each VIX
Tier Appointment may only be used with one designated Market-Maker
Trading Permit. The VIX Tier Appointment fee is currently assessed to
any Market-Maker Trading Permit Holder that either (a) has a VIX Tier
Appointment at any time during a calendar month; or (b) trades at least
1,000 VIX options contracts in open outcry during a calendar month. VIX
trading volume has increased recently, and due to increased demand, the
Exchange proposes to raise the VIX Tier Appointment fee in order to
recoup costs from developing VIX options, as well as other
administrative costs. In a related change, the Exchange also proposes
to raise the amount of the fee assessed to any Floor Broker Trading
Permit Holder that executes more than 20,000 VIX contracts during a
month from $1,000 to $2,000 in order to remain consistent with the
amount of the VIX Tier Appointment fee assessed to Market-Makers. If
and to the extent that a TPH or TPH organization has more than one
Floor Broker Trading Permit that is utilized to execute VIX options
transactions, the VIX options executions of that TPH or TPH
organization shall be aggregated for purposes of determining this
additional monthly fee and the Trading Permit Holder or TPH
organization shall be charged a single $2,000 fee for the combined VIX
options executions through those Floor Broker Trading Permits if the
executions exceed 20,000 contracts per month.
Also, the Exchange proposes to remove from the regulatory circular
regarding Trading Permit Holder Application and Other Fees language
that would apply this fee to any Floor Broker Trading Permit Holder
whose aggregate VIX options executed contracts during the month
comprise more than 30% of the Floor Broker Trading Permit Holder's
exchange-wide total executed contracts. This language was to have been
removed in SR-CBOE-2011-073, and indeed was removed from one section of
the regulatory circular, as well as the Fees Schedule, but was
inadvertently left in another section of the regulatory circular.\16\
Removing this language will alleviate any confusion.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 65019 (August 3,
2011), 76 FR 48931 (August 9, 2011) (SR-CBOE-2011-073).
---------------------------------------------------------------------------
The Exchange also proposes to amend the qualification for the VIX
Tier Appointment fee to state that a Market-Maker TPH that has a VIX
Tier Appointment during a given month will not be assessed the VIX Tier
Appointment fee unless that Market-Maker TPH trades at least 100 VIX
options contracts electronically while that appointment is active.
Occasionally, a Market-Maker accidentally elects for a VIX Tier
Appointment, or elects for a VIX Tier Appointment and for some reason
does not end up trading VIX options. Under the current language of the
Fees Schedule, such a Market-Maker would still be assessed the VIX Tier
Appointment fee, despite not actually trading in VIX options. The VIX
Tier Appointment fee is intended to be assessed only to those Market-
Makers that actually trade in VIX options. As such, the proposed change
would ensure that only those Market-Makers that actually do trade in
VIX options are assessed the VIX Tier Appointment fee.
The Exchange proposes to institute a Floor Broker Trading Permit
Sliding Scale, which will be available for all Floor Broker Trading
Permits held by affiliated TPHs and TPH organizations. Most floor
broker firms have, and need, at least two floor brokers: One to answer
the phones and receive trade and order information, and another to
execute trades. However, for floor broker ``firms'' that only have one
floor broker, that broker answers the phones and the Exchange often
ends up executing the trades for the floor broker. As such, in order to
recoup the costs involved for the Exchange, as well as normalize base
business costs across Floor Broker Trading Permit Holder operations to
ensure that the Exchange is not unduly subsidizing one operation over
another, the base rate for Floor Broker Trading Permits will be $9,000
per month. However, the Exchange will also institute a sliding scale
for Floor Broker Trading Permit Holders that commit to a minimum number
of Floor Broker Trading Permits for the calendar year. For those who
do, the TPH's first Floor Broker Trading Permit will cost $9,000 per
month. Permits 2 through 7 will cost $6,000 per month per permit (Tier
1), and any permits above 7 will cost a TPH $3,000 per permit per month
(Tier 2). The purpose of the Floor Broker Trading Permit Sliding Scale
is to encourage floor broker firms to increase their scale and
commitment to the Exchange, thereby bringing more business to the
Exchange, resulting in greater trading volume and liquidity, which
benefits all market participants.
To qualify for the rates set forth in Tiers 1 and 2 in the Floor
Broker Trading Permit Sliding Scale, the applicable Trading Permit
Holder(s) and/or TPH organization(s) must commit in advance to a
specific tier that includes a minimum number of eligible Floor Broker
Trading Permits for each calendar year. To do so, a Floor Broker
Trading Permit Holder must notify the Exchange's Registration Services
Department by December 25th (or the preceding business day if the 25th
is not a business day) of the year prior to each year in which the
Floor Broker Trading Permit Holder would like to commit to this sliding
scale of the tier of eligible Floor Broker Trading Permits committed to
by that Floor Broker Trading Permit Holder for that year (Floor Brokers
were notified of this on December 8, 2011 \17\). Floor Brokers are not
obligated to commit to either tier. However, the discounts will apply
only to those that do commit to Tier 1 or Tier 2 for the calendar year.
Trading Permit Holders that are not eligible for and/or do not commit
to Tier 1 or Tier 2 will pay the standard rate of $9,000 for each Floor
Broker Trading Permit, regardless of the total number of Floor Broker
Trading Permits used. If a TPH chooses to
[[Page 5599]]
commit to either Tier 1 or Tier 2, that TPH will be responsible for the
minimum number of permits in the commitment tier for the remainder of
the calendar year. Even if a TPH does not maintain the minimum level of
eligible Trading Permits in the tier, that TPH is still responsible for
the minimum payment for that commitment tier for the remainder of the
calendar year. For example, a TPH that commits to eight eligible
permits per month will be subject to a minimum monthly access fee of
$48,000 (1 at $9,000 plus 6 at $6,000 plus 1 at $3,000 = $48,000) for
that calendar year. Any additional Permits will increase the fee by the
applicable amount.
---------------------------------------------------------------------------
\17\ See Exchange Regulatory Circular RG11-158.
---------------------------------------------------------------------------
A TPH will be able to commit to a higher tier of the sliding scale
for the remainder of a calendar year, during a commitment year, if the
TPH obtains enough eligible Floor Broker Trading Permits and provides
written notification to the Registration Services Department by the
25th day of the month preceding the month in which the higher tier will
be effective (or the preceding business day if the 25th is not a
business day). For example, a TPH may provide written notice to commit
to Tier 1 effective July 1 for the remainder of the calendar year as
long as the TPH obtains enough eligible Trading Permits and provides
written notice by June 25th that the TPH would like to participate in
the sliding scale starting in July for the remainder of that calendar
year. Even if that TPH subsequently falls below the minimum number of
eligible Floor Broker Trading Permits (in the committed calendar year),
for the committed tier, the TPH will remain responsible for paying for
the tier minimum for the remainder of the calendar year.
TPHs will be responsible to pay for at least the minimum amount of
eligible Floor Broker Trading Permits in the committed tier for the
calendar year on a monthly basis unless the TPH entirely terminates as
a TPH during the year. If a TPH combines, merges, or is acquired during
the course of the calendar year, the surviving TPH will maintain
responsibility for the committed number of eligible Floor Broker
Trading Permits.
The proposed Floor Broker Trading Permit Sliding Scale is available
to all floor brokers. In essence, CBOE is offering a discounted fee in
return for a commitment for a designated period of time. Trading Permit
Holders are not precluded from providing notice that they wish to
participate in the Floor Broker Trading Permit Sliding Scale throughout
a calendar year as long as such notice is provided by the 25th day of
the preceding month of effectiveness. CBOE is proposing to offer the
Floor Broker Trading Permit Sliding Scale as a benefit to those Trading
Permit Holders that commit in advance. There is no obligation to commit
to either Tier 1 or Tier 2 of the Floor Broker Trading Permit Sliding
Scale.
The Exchange also proposes to assess an additional monthly fee of
$3,000 per month to any Floor Broker Trading Permit Holder that
executes more than 20,000 SPX contracts during the month. If and to the
extent that a Trading Permit Holder or TPH organization has more than
one Floor Broker Trading Permit that is utilized to execute SPX options
transactions, the SPX executions of that Trading Permit Holder or TPH
organization shall be aggregated for purposes of determining this
additional monthly fee and the Trading Permit Holder or TPH
organization shall be charged a single $3,000 fee for the combined SPX
executions through those Floor Broker Trading Permits if the executions
exceed 20,000 contracts per month. The Exchange already assesses a
similar fee to Floor Broker Trading Permit Holders that execute more
than 20,000 VIX transactions during a month. The purpose of this change
is to reflect the opportunity provided to agents servicing customers in
such a high-volume product. Further, this fee will equalize the
opportunity between Market-Makers and Floor Brokers in SPX options.
Also, the Exchange expended considerable resources developing SPX
options and desires to recoup such expenses and other administrative
costs.
The Exchange also proposes to lower the fee for the Quoting and
Order Entry Bandwidth Packet (the ``Packet'') from $3,000 per month to
$2,750 per month. The amount of the fee for the Packet has always been
set at half the price of the base rate for a Market-Maker Trading
Permit. Since the Exchange proposes to lower that amount from $6,000 to
$5,500, the Exchange correspondingly proposes to lower the amount of
the fee for the Packet to $2,750.
The Exchange proposes amending a number of the TPH Application
fees, as listed below:
------------------------------------------------------------------------
Current fee Proposed new fee
Fee amount amount
------------------------------------------------------------------------
Individual.......................... $2,500 $3,000
Non-Trading Permit Holder Customer 2,500 3,000
Business...........................
Associated Person................... 350 500
TPH Organization Application........ 4,000 5,000
Subject to Statutory 2,750 5,000
Disqualification...................
Inactive Nominee Status Change
(Trading Permit Swap)..............
a. Submission before 4pm (day prior 50 55
to effective date).................
b. Submission after 4pm (day prior 100 110
to effective date).................
c. Submission after effective date.. 200 220
TPH Organization Renewal Fee........ 2,000 2,500
------------------------------------------------------------------------
As before, application fees related to a TPH organization's structural
change are capped at $10,000 (e.g. change from a limited partnership to
a limited liability corporation). The Trading Permit Transfer Fee is
capped at $2,000 for a Trading Permit transfer request covering
multiple Trading Permits. The costs of processing of these applications
and activities have increased, and the Exchange therefore proposes
increasing the fees in order to recoup such increased costs.
The Exchange proposes to adopt an Initial Proprietary Registration
fee of $50 and an Annual Proprietary Registration fee of $25. During
2011 CBOE implemented a new proprietary trading registration
requirement (the ``Proprietary Trading Registration Program''),
primarily at the direction of the Commission. The Proprietary Trading
Registration Program, which is operated through WebCRD, caused a
significant workload increase in the Exchange's Registration
Department. Over the course of the year, CBOE processed over 4,000
registrations via Web-CRD under this new requirement, of which about
2,500 required further consideration of a waiver request. The
Proprietary Trading Registration Program involved significant work in
[[Page 5600]]
implementing the registrations, examining waiver requests and answering
testing related questions. Due to the Proprietary Trading Registration
Program, the Exchange hired an extra staff member to address this
increased workload, as well as paid a sizable set-up fee to FINRA and
incurred significant testing costs. The Proprietary Trading
Registration Program will continue to require on-going work and testing
and monitoring of the Web-CRD system, as well as consideration of new
applicants and waiver requests. In order to offset these costs, the
Exchange proposes the Initial Proprietary Registration fee and the
Annual Proprietary Registration fee. The Initial Proprietary
Registration fee will be payable by any TPH organization for the
registration of any associated person on WebCRD with the Proprietary
Trader registration. The Annual Proprietary Registration fee will be
payable annually by any TPH organization for each associated person
that the TPH organization maintains registered on WebCRD with the
Proprietary Trader registration.
The Exchange also proposes to increase the fees charged for access
to a Network Access Port (1 Gigabyte) to $500 per month for regular
access and $1000 per month for Sponsored User access. The Exchange
recently made a sizable investment to upgrade the equipment involved in
the Network Access Port, and thereby proposes to increase the fees in
order to recoup such costs and maintain such equipment in the future.
The Exchange currently charges a different rate for regular access and
Sponsored User access, and merely proposes to increase the rates in
equal proportion. Moreover, this change in Network Access Port fees is
in line with the amounts assessed for similar access at other
exchanges. The International Securities Exchange, Inc. (``ISE'')
assesses a fee of $500 for network access up to and including 1
gigabyte.\18\
---------------------------------------------------------------------------
\18\ See ISE Schedule of Fees, page 9.
---------------------------------------------------------------------------
The Exchange also proposes to increase the fees charged for a CMI
Login ID and FIX Login ID to $500 per month for regular access and
$1000 per month for Sponsored User access. Firms may access CBOEdirect
via either a CMI Client Application Server or a FIX Port, depending on
how their systems are configured. As with the Network Access Port, the
Exchange recently made a sizable investment to upgrade the equipment
involved in the CMI Client Application Servers and FIX Ports, and
thereby proposes to increase the fees in order to recoup such costs and
maintain such equipment in the future. Moreover, these changes are in
line with amounts assessed for connectivity at other exchanges. ISE
assesses a FIX fee of $1000 for a minimum of two monthly login IDs (so,
$500 for one).\19\ The NASDAQ Stock Market LLC's Options Market
(``NOM'') assesses a fee of $500 per FIX port per month, as well.\20\
Regarding the Sponsored User fees, the Exchange currently charges a
different rate for regular access and Sponsored User access, and merely
proposes to increase the rates in equal proportion.
---------------------------------------------------------------------------
\19\ See ISE Schedule of Fees, page 8.
\20\ See NOM Rule 7053.
---------------------------------------------------------------------------
These proposed changes to the Fees Schedule took effect on January
1, 2012, per SR-CBOE-2011-121, which was withdrawn on January 17, 2012,
the same day that this rule filing is being submitted.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\21\ in general, and furthers the objectives of Section 6(b)(4)
\22\ of the Act in particular, in that it is designed to provide for
the equitable allocation of reasonable dues, fees, and other charges
among CBOE Trading Permit Holders and other persons using Exchange
facilities. Amending the fee for customer QQQQ transactions is
reasonable because the amount of the fee is equivalent for customer
transactions on all other ETF options, and is equitable and not
unfairly discriminatory because the same fee will be assessed for all
customer transactions in QQQQ options. The amount being charged to
customers, less than that assessed to other market participants for
similar transactions, recognizes a historical preference towards
encouraging customer transactions. Further, offering lower transaction
fees for customer transactions incentivizes customers to execute trades
on the Exchange, and this increased customer activity provides greater
market volume and liquidity, which benefit all market participants.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
Excluding SPX, VIX or other volatility indexes, OEX or XEO from the
Liquidity Provider Sliding Scale is reasonable because market
participants trading in those products will simply pay the normal
execution fees for trading in such products, fees which have been and
currently are accepted fee levels. Excluding SPX, VIX or other
volatility indexes, OEX or XEO from the Liquidity Provider Sliding
Scale is equitable and not unfairly discriminatory because all
similarly-situated market participants trading in those products will
be charged the same fees for such transactions, and because the
Exchange expended significant resources in developing those products.
The Exchange would have preferred to modify the Liquidity Provider
Sliding Scale to include only multiply-listed products. However, some
CBOE singly-listed products are used to compete with multi-listed
products that are also listed on CBOE (as explained above). Therefore,
the Exchange proposes to include the singly-listed products for
qualification towards the Liquidity Provider Sliding Scale along with
their multiply-listed competitors, and only exclude SPX, VIX or other
volatility indexes, OEX and XEO from the Liquidity Provider Sliding
Scale. Finally, lowering the tier levels in the Liquidity Provider
Sliding Scale is reasonable because these lowered amounts reflect the
subtraction of trades in the products that are being excluded, and
because this will allow market participants to more easily reach those
tiers and pay lower fees, and is equitable and not unfairly
discriminatory because the same tier amounts are applicable to all
market participants that qualify for the Liquidity Provider Sliding
Scale.
Limiting the Cap to include only orders executed in open outcry and
AIM or as a QCC or FLEX Options transaction, and thereby excluding
regular non-AIM electronic orders, is reasonable because the execution
of regular non-AIM electronic orders will merely continue to incur the
same transaction fees they normally would; the only change is that they
will no longer be cut off at the amount of the Cap. Further, other
exchanges also limit similar firm fee caps in a similar, and even less-
inclusive, manner.\23\ Limiting the Cap in this fashion is equitable
and not unfairly discriminatory because AIM and open outcry, as auction
mechanisms, are used by CTPHs to bring liquidity to the Exchange, which
benefits all market participants, while regular electronic transactions
are used by CTPHs to take liquidity (since only Market-Makers can send
quotes through the regular electronic system, while CTPHs can only send
orders, which take liquidity) (QCC transactions can only be executed
via AIM, and FLEX Options transactions can only be executed via the
auction mechanisms of open outcry
[[Page 5601]]
and CFLEX (which is a FLEX Options auction platform similar to AIM)).
Moreover, limiting the Cap in this fashion is equitable and not
unfairly discriminatory because other exchanges also limit similar firm
fee caps in a similar, and even less-inclusive, manner,\24\ and because
these limits apply to all CTPHs equally. Further, while a responder to
an AIM auction pays a transaction fee that is not counted towards the
Cap, this is equitable and not unfairly discriminatory because only
Market-Makers can respond to an AIM auction, and the Cap only applies
to CTPHs, and not Market-Makers. This situation is the same for open
outcry. The Cap is limited to CTPHs because they contribute capital to
facilitate execution of customer orders, which in turn provides a
deeper pool of liquidity that benefits all market participants.
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\23\ See PHLX Fee Schedule, Section I, Part C (page 5) and
Section II (page 7), provides for a similar $75,000 cap which also
applies to firm open outcry business, but does not apply to their
PIXL mechanism, which, like AIM, is a price improvement mechanism,
and does not apply to electronic transactions in select symbols.
\24\ See PHLX Fee Schedule, Section I, Part C (page 5) and
Section II (page 7), provides for a similar $75,000 cap which also
applies to firm open outcry business, but does not apply to their
PIXL mechanism, which, like AIM, is a price improvement mechanism,
and does not apply to electronic transactions in select symbols.
---------------------------------------------------------------------------
Assessing no transaction fees for CTPH Proprietary facilitation
orders (other than SPX, VIX or other volatility indexes, OEX or XEO)
executed in open outcry or AIM or as a QCC or FLEX Options transaction
is reasonable because other exchanges also waive equity options
transaction fees for firms executing facilitation orders when the firms
are trading in their own proprietary account.\25\ This change is
equitable and not unfairly discriminatory because it will encourage
CTPHs to transact more business on the Exchange, thereby increasing
volume and liquidity, which will benefit all market participants, and
also because it will apply to all firms equally. The CTPH Proprietary
Facilitation Waiver is limited to executions in AIM or open outcry, or
as a QCC or FLEX Options transaction, because those are the only ways
to execute a facilitation trade on the Exchange.
---------------------------------------------------------------------------
\25\ See PHLX Fee Schedule, Section II (pages 7-8).
---------------------------------------------------------------------------
Excluding SPX, VIX or other volatility indexes, OEX or XEO from the
CTPH Proprietary Facilitation Waiver is equitable and not unfairly
discriminatory because all similarly-situated market participants
trading in those products will be charged the same fees for such
transactions, and because the Exchange expended significant resources
in developing those products. The Exchange would have preferred to
modify the CTPH Proprietary Facilitation Waiver to include only
multiply-listed products. However, some CBOE singly-listed products are
used to compete with multi-listed products that are also listed on CBOE
(as described above). Therefore, the Exchange proposes to include the
singly-listed products for qualification towards the CTPH Proprietary
Facilitation Waiver along with their multiply-listed competitors, and
only exclude SPX, VIX or other volatility indexes, OEX and XEO from the
CTPH Proprietary Facilitation Waiver. Limiting the CTPH Proprietary
Facilitation Waiver to orders executed via AIM or open outcry or as a
QCC or FLEX Options transaction is equitable and not unfairly
discriminatory because these limits apply to all CTPHs equally, and
because these are the only manners in which facilitation trades can be
effected.
Ceasing excluding AIM Contra Execution Fees from counting towards
the Cap as well as ceasing excluding contracts executed in AIM that
incur the AIM Contra Execution Fee from counting towards the CBOE
Proprietary Products Sliding Scale is reasonable because it will allow
for CTPHs to pay lower regular transaction fees than they currently do
(though the AIM Contra Execution Fee will still be assessed). These
changes are equitable and not unfairly discriminatory because they
apply equally to all CTPHs, just as the Cap and the CBOE Proprietary
Products Sliding Scale had prior to these changes. Additionally, these
changes will encourage CTPHs to transact more business on the Exchange,
thereby increasing volume and liquidity, which will benefit all market
participants.
Removing the New Marketing Fee Options from the list of securities
that are not assessed the marketing fee, and beginning to assess a
$0.25 per contract marketing fee on qualifying transactions in those
securities, is reasonable because it is the same amount as is charged
for transactions in other ETFs. This proposed change is equitable and
not unfairly discriminatory because it is designed and intended to
attract additional order flow in the New Marketing Fee Options to the
Exchange, which would increase liquidity and benefit all market
participants, and because the same fee is assessed similar [sic]
transactions in nearly all other the [sic] New Marketing Fee Options.
The SPY and QQQQ Marketing Fee Waiver is designed to provide for
the equitable allocation of reasonable dues, fees, and other charges
among Trading Permit Holders in that it is intended to attract more
customer volume on the Exchange in SPY and QQQQ options. The SPY and
QQQQ options classes are among the most active and liquid classes and
trade with significant electronic trading volume. Because of their
current trading profiles, CBOE believes it might be better able to
attract electronic liquidity by not assessing the marketing fee on
electronic SPY and QQQQ transactions and therefore proposes to make
permanent the current waiver. However, CBOE believes that continuing to
collect the marketing fee on open outcry transactions, as well as
electronic orders submitted to AIM for price improvement, from Market-
Makers that trade with customer orders from payment accepting firms
would continue to attract liquidity in SPY and QQQQ to the floor and
AIM mechanism, respectively. Brokers take payment for order flow (the
payments received from the collection of the marketing fee) into their
decision-making equations regarding AIM and open outcry when deciding
where to send orders in SPY and QQQQ. Accordingly, CBOE believes making
permanent the waiver is equitable and not unfairly discriminatory
because it reflects the trading profiles of SPY and QQQQ and is
designed and intended to attract additional order flow in SPY and QQQQ
to the Exchange, which would benefit all market participants.
The Exchange believes the proposed extension of the C Waiver for
Index Options is equitable and not unfairly discriminatory because it
would apply uniformly to all public customers trading ETF, ETN and
HOLDRs options in open outcry and AIM, and because waiving the
transaction fee for such customer trades is designed to attract new
order flow to the Exchange. The resulting increased volume and
liquidity will benefit all market participants trading in these
products. The Exchange believes the proposed extension of the C Waiver
for Index Options is reasonable because it would continue to provide
cost savings during the extended waiver period for public customers
trading SPY and XLF options and begin to provide such savings to public
customers trading all other ETF, ETN and HOLDRs. Further, the Exchange
believes the proposed C Waiver for Index Options is consistent with
other fees assessed by the Exchange. Specifically, the Exchange
assesses manually executed broker-dealer orders a different rate ($.25
per contract) as compared to electronically executed broker-dealer
orders ($.45 per contract).\26\ Other exchange fee schedules also
distinguish between electronically and non-electronically
[[Page 5602]]
executed orders.\27\ Finally, Arca does not charge customer transaction
fees for customer transactions in ETF, ETN and HOLDRs options.\28\
Adding FLEX Options to the C Waiver for Index Options is reasonable
because it will allow customer FLEX Options transactions in ETF, ETN
and HOLDRs options to no longer be assessed a fee, thereby saving such
customers money. This addition is equitable and not unfairly
discriminatory because waiving the fee for such trades is designed to
attract new order flow to the Exchange. The resulting increased volume
and liquidity will benefit all market participants trading in these
products. Moreover, other exchanges do not charge for public customer
FLEX Options transactions in ETF, ETN and HOLDRs options.\29\ The C
Waiver for Index Options is limited to AIM and open outcry executions
in order to encourage use of these price improvement mechanisms, and
QCC trades are included in the C Waiver for Index Options as well
because QCC trades can only be executed via AIM and open outcry.
---------------------------------------------------------------------------
\26\ See CBOE Fees Schedule, Section 1.
\27\ PHLX categorizes its equity options transaction fees for
Specialists, ROTs, SQTs, RSQTs and Broker-Dealers as either
electronic or non-electronic. See PHLX Fees Schedule, Equity Options
Fees. NYSE Amex, Inc. categorizes its options transaction fees for
Non-NYSE Amex Options Market Makers, Broker-Dealers, Professional
Customers, Non BD Customers and Firms as either electronic or
manual. See NYSE Amex Options Fees Schedule, Trade Related Charges.
Arca categorizes its options transaction fees for Customers, Firms
and Broker-Dealers as either electronic or manual. See Arca Options
Fees Schedule, Trade Related Charges.
\28\ See Arca Options Fee Schedule, page 3.
\29\ See NYSE Amex Options Fee Schedule, page 3, which shows Non
BD Customer Manual transactions (the manner by which FLEX Options
are traded on the NYSE Amex Options market) to be assessed a $0.00
transaction fee.
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Increasing the FBW fee from $225 per month (per login ID) to $350
per month (per login ID) is reasonable because the Exchange is charged
by the vendor that provides the FBW more than $225 per month (per login
ID) (actually, more than $350 per month (per login ID)) and simply
wants to reduce the extent to which the Exchange subsidizes such costs.
This change is equitable and not unfairly discriminatory because all
market participants who desire to use the FBW will be assessed the same
fee.
Increasing the PULSe fee from $225 per month (per login ID) to $350
per month (per login ID) is reasonable because the Exchange expended
significant resources developing PULSe and desires to recoup some of
those costs. Moreover, the Exchange will be assessing the same amount
for the FBW, which is a similar product. This change is equitable and
not unfairly discriminatory because all market participants who desire
to use PULSe will be assessed the same fee, and because the same amount
is being assessed for use of a similar product, the FBW.
The lowered costs for Market-Maker Trading Permits is reasonable
because the fees will be lower than previously, and are equitable and
not unfairly discriminatory because, as before, the tiers are available
to all TPHs. Lower Market-Maker Trading Permit fees encourage more
Market-Makers to access the Exchange, and more Market-Makers gives
market participants more trading options and increased trading
activity, volume and liquidity, which benefit all market participants.
Amending the date by which MMTPHs must commit to the Market-Maker
Trading Permit Holder Sliding Scale is reasonable because a commitment
by December 25th of the preceding year still gives MMTPHs plenty of
time to determine whether or not to commit to the Market-Maker Trading
Permit Holder Sliding Scale, and is equitable and not unfairly
discriminatory because all MMTPHs will be subject to that same
deadline.
Amending the qualification for the VIX Tier Appointment fee to
state that a Market-Maker TPH that has a VIX Tier Appointment during a
given month will not be assessed the VIX Tier Appointment fee unless
said Market-Maker TPH trades at least 100 VIX contracts electronically
while that appointment is active is reasonable because the change will
prevent those that do not at least somewhat regularly trade in VIX from
being assessed the VIX Tier Appointment fee. This change is equitable
and not unfairly discriminatory because it ensures that the VIX Tier
Appointment fee is not assessed to those Market-Makers who are not
trading in VIX. The 100-contract threshold achieves this purpose
because it is a sufficiently small number of contracts and yet leaves
some small room for an accidental or minor VIX trade.
Increasing the VIX Tier Appointment fee is reasonable because the
amount, $2,000, is within the range of other tier appointment fees
assessed by the Exchange (for example, the SPX Tier Appointment fee is
$3,000) \30\, and because market demand will sustain such a fee. This
proposed change is also equitable and not unfairly discriminatory
because it will be assessed to all MMTPHs that either (a) have a VIX
Tier Appointment at any time during a calendar month and trade at least
100 VIX contracts electronically while that appointment is active; or
(b) trade at least 1,000 VIX options contracts in open outcry during a
calendar month. Increasing the monthly fee for a Floor Broker Trading
Permit Holder that executes more than 20,000 VIX contracts in a month
is reasonable because this amount is equal to the amount of the VIX
Tier Appointment fee (as they were equal prior to these changes), and
is equitable and not unfairly discriminatory because the fee will be
assessed to any and all Floor Broker Trading Permit Holders that
qualify for the fee.
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\30\ See Exchange Fees Schedule, Section 10(A)(ii).
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The proposed increase in the fee assessed for one Floor Broker
Trading Permit is reasonable because lone floor brokers almost always
require the Exchange to do extra work for the floor broker, while floor
brokers with two or more trading permits never do, and the Exchange
must recoup related costs. This increase is equitable and not unfairly
discriminatory because the same amount will be assessed to all lone
floor brokers. The Floor Broker Trading Permit Sliding Scale is
reasonable because the amounts for Tier 1 are the same on a per permit
basis as they currently are, and the amounts for Tier 2 are lower than
the current amounts. The Floor Broker Trading Permit Sliding scale is
equitable and not unfairly discriminatory because offering lower costs
to TPHs that get more permits will encourage floor broker firms to
bring more floor brokers to the Exchange, thereby bringing more
business to the Exchange, resulting in greater trading volume and
liquidity, which benefits all market participants.
The proposed monthly fee of $3,000 per month to any Floor Broker
Trading Permit Holder that executes more than 20,000 SPX contracts
during the month is reasonable because the same amount is assessed to
Market-Makers for an SPX tier appointment. This fee is equitable and
not unfairly discriminatory because it will equalize opportunity
between Market-Makers and Floor Brokers trading in SPX options, because
it reflects the opportunity provided to agents servicing customers in
such a high-volume product, and because the Exchange expended
considerable resources in developing SPX and desires to recoup such
expenses and other administrative costs.
The lowered fee for the Packet is reasonable because the fee will
be lower than previously, and is equitable and not unfairly
discriminatory because, as before, the fee will be applied to all
parties who desire the Packet. Lower Packet fees encourage more Market-
[[Page 5603]]
Makers to access the Exchange, and more Market-Makers gives market
participants more trading options and increased trading activity,
volume and liquidity, which benefit all market participants.
The proposed increases in TPH Application fees are reasonable
because such increases are necessary to cover the increased costs of
processing such applications and activities. The proposed increases in
TPH Application fees are equitable and not unfairly discriminatory
because they apply equally to all qualifying market participants.
The proposed adoption of the Initial Proprietary Registration fee
and the Annual Proprietary Registration fee is reasonable because both
fees are necessary to offset the costs of the Proprietary Trading
Registration Program, and because the amount of the fees are minimal.
The adoption of these fees is equitable and not unfairly discriminatory
because they will be assessed equally to all market participants that
qualify for the fees.
The proposed change to increase the Network Access Port fees is
reasonable because the fees are within the same range as those assessed
on other exchanges,\31\ and because such increase will assist in
recouping expenditures recently made by the Exchange to upgrade the
CBOEdirect connectivity equipment. This proposed change is equitable
and not unfairly discriminatory because the fees, as before, will be
assessed to all market participants. The proposed changes to increase
the fees assessed for CMI Login IDs and FIX Login IDs are also
reasonable because such fees are within the same range as those
assessed on other exchanges \32\, and because such increases will
assist in recouping expenditures recently made by the Exchange to
upgrade the CBOEdirect connectivity equipment. This proposed change is
equitable and not unfairly discriminatory because the fees, as before,
will be assessed to all market participants. Assessing higher fees for
Sponsored Users is equitable and not unfairly discriminatory because
Sponsored Users are able to access the Exchange and use the equipment
provided without purchasing a trading permit. As such, Trading Permit
Holders who have purchased a trading permit will have a higher level of
commitment to transacting business on the Exchange and using Exchange
facilities than Sponsored Users. Finally, these increases maintain the
same proportionate amounts that are paid by regular users re
