Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend the Customer Large Trade Discount, 56247-56250 [2012-22396]

Download as PDF Federal Register / Vol. 77, No. 177 / Wednesday, September 12, 2012 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES location of customers who are willing to purchase a block of bonds.’’ As an alternative to eliminating the practice of masking large trade sizes altogether, ICI, SIFMA and Stifel Nicolaus suggested that the trade size masking threshold in RTRS be raised from the current $1 million level to those trades in par values that exceed $5 million.12 Discussion. Representatives of both dealers and institutional investors stated consistent concerns about the potential adverse effects on liquidity that could arise from eliminating the practice of masking large trade sizes. The MSRB notes that these commenters did not refute the GAO observation that certain market participants are able to determine, through their relationships with dealers, the par amount of large transactions for which the par value is masked, but acknowledges the commenters’ view that a certain level of anonymity continues to exist in the reports of large trades for which the exact par value is masked. The MSRB is sensitive to the views of those commenters that argued for eliminating the practice of masking large trade sizes as it would ensure that a foundational principal of RTRS to provide all market participants with equal access to transaction information is achieved. However, the comments received did not provide specific evidence that the benefits to transparency from disseminating exact par values in realtime outweigh potential adverse impacts on liquidity and the MSRB does not currently have its own data to assess any such impact. Thus, while the MSRB continues to believe that the municipal securities market will benefit from full transparency on all transactions, the MSRB has determined that it would be appropriate to take an initial interim step toward that ultimate goal that will allow the MSRB to assess the impact of such transparency on trades in sizes ranging between $1 million and $5 million. Information derived from such interim step would assist the MSRB in determining whether increased trade size transparency results in adverse effects on market liquidity. 12 In response to the question in the June 2012 Notice of whether other methods exist for market participants to determine the exact or relative size of large trades and to infer the identity of parties to the transaction from the RTRS trade data history, SIFMA noted that the SEC’s EDGAR system does not serve as a source of such information and that while there are ‘‘publicly available sources of information [that] detail[ ] portfolio holdings of certain institutional investors * * * it is sometimes not possible to reliably determine actual trade sizes for 1MM+ trade reports from publicly available information.’’ VerDate Mar<15>2010 18:51 Sep 11, 2012 Jkt 226001 While dealers and institutional investors oppose eliminating the practice of masking large trade sizes, these commenters stated that raising the par value threshold for masking large trade sizes would provide additional transparency to the municipal market without adversely impacting liquidity. Based upon 2011 trade data, the number of trades that were subject to the over $1 million trade size mask was 342,906 and if the trade size mask was raised to par values over $5 million, this number would have been 97,124 trades. MSRB believes that raising the par value threshold to par values over $5 million would be an appropriate first step to take in the short term as it would greatly reduce the number of trades subject to the par value mask. However, as noted above, the MSRB plans to continue to evaluate whether this threshold can be raised with a view towards bringing full transparency of exact par values to the municipal market in real-time. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. 56247 All submissions should refer to File Number SR–MSRB–2012–07. 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 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the MSRB’s offices. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MSRB–2012–07, and should be submitted on or before October 3, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin M. O’Neill, Deputy Secretary. 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: [FR Doc. 2012–22395 Filed 9–11–12; 8:45 am] Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–MSRB–2012–07 on the subject line. Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend the Customer Large Trade Discount Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. I. Introduction On July 11, 2012, Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ or ‘‘Exchange’’) filed with the PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67794; File No. SR–CBOE– 2012–068] September 6, 2012. 13 17 E:\FR\FM\12SEN1.SGM CFR 200.30–3(a)(12). 12SEN1 56248 Federal Register / Vol. 77, No. 177 / Wednesday, September 12, 2012 / Notices Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a rule change relating to the Customer Large Trade Discount (the ‘‘Discount’’). CBOE proposed to amend the Discount for any executing Trading Permit Holder (‘‘TPH’’) whose affiliate 3 is the issuer of one or more securities, the combined total asset value of which is $1 billion or greater, that are based on or track the performance of VIX futures.4 CBOE designated the proposed rule change as immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Exchange Act.5 The Commission published notice of filing of the proposed rule change in the Federal Register on July 26, 2012.6 To date, the Commission has not received any comment letters on the Exchange’s proposed rule change. Pursuant to Section 19(b)(3)(C) of the Exchange Act, the Commission hereby is: (1) Temporarily suspending the proposed rule change; and (2) instituting proceedings to determine whether to approve or disapprove the proposal. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 CBOE defines ‘‘affiliate’’ as ‘‘a person who, directly or indirectly, controls, is controlled by, or is under common control with, such other person.’’ CBOE Rule 1.1(j). CBOE Rule 1.1(k) defines ‘‘control’’ as ‘‘the power to exercise a controlling influence over the management or policies of a person, unless such power is solely the result of an official position with such person. Any person who owns beneficially, directly or indirectly, more than 20% of the voting power in the election of directors of a corporation, or more than 25% of the voting power in the election of directors of any other corporation which directly or through one or more affiliates owns beneficially more than 25% of the voting power in the election of directors of such corporation, shall be presumed to control such corporation.’’ CBOE Rule 1.1(ff) defines ‘‘person’’ as ‘‘an individual, partnership (general or limited), joint stock company, corporation, limited liability company, trust or unincorporated organization, or any governmental entity or agency or political subdivision thereof.’’ 4 CBOE Volatility Index® (‘‘VIX’’) measures market expectations of near term volatility conveyed by S&P 500 index option prices. Options on VIX offer a way for market participants to buy and sell option volatility. VIX option prices reflect the market’s expectation of the VIX level at expiration and are exclusively traded on CBOE. See https://www.cboe.com/micro/VIX/VIXoptions FAQ.aspx. 5 15 U.S.C. 78s(b)(3)(A). Although the proposed rule change was effective upon filing, CBOE indicated that the fee change would take effect on August 1, 2012. See Notice, infra note 6, at 43880. 6 See Securities Exchange Act Release No. 67481 (July 20, 2012) 77 FR 43879 (‘‘Notice’’). mstockstill on DSK4VPTVN1PROD with NOTICES 2 17 VerDate Mar<15>2010 18:51 Sep 11, 2012 Jkt 226001 II. Summary of the Proposed Rule Change The Exchange’s proposal amended the Discount, which caps regular customer transaction fees on a per-order basis for large customer trades.7 Specifically, CBOE’s proposal lowered the transaction fee cap in VIX options from 10,000 contracts to 7,500 contracts per order in a qualifying calendar month but only for TPHs who have an affiliate that issues one or more securities, the combined total value of which is $1 billion or greater, that are based on or track the performance of VIX futures (a ‘‘qualifying affiliate’’).8 Pursuant to that recent change, incremental volume above 7,500 contracts in a single order is not assessed a regular customer transaction fee for TPHs with such an affiliate. TPHs that do not have a qualifying affiliate do not qualify for the lower fee cap and continue to be assessed the regular customer transaction fee up to the first 10,000 contracts in VIX options. III. Suspension of the CBOE Proposal Pursuant to Section 19(b)(3)(C) of the Exchange Act,9 at any time within 60 days of the date of filing of a proposed rule change pursuant to Section 19(b)(1) of the Exchange Act,10 the Commission summarily may temporarily suspend the change in the rules of a self-regulatory organization 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 Exchange Act. 7 Prior to the proposal, CBOE charged all TPHs transaction fees on the first 10,000 contracts in a single order in VIX options. For example, if a broker-dealer submitted a single order for 12,000 VIX contracts, the broker-dealer was only charged a transaction fee on the first 10,000 contracts and the remaining 2,000 contracts were not charged a transaction fee. The Discount also caps customer transaction fees up to the first 10,000 contracts for SPX; up to the first 5,000 contracts for other index options; and up to the first 3,000 contracts for ETF, ETN and HOLDRs options. Threshold levels for the other products subject to the Discount were not changed by this rule filing. 8 On the first business day following the end of a calendar month, the Exchange will multiply the reported net asset value of each security that is based on or tracks the performance of VIX futures (as reported on the final calendar day of the month) by the amount of outstanding shares in that security to determine the total asset value of that security. See Notice, supra note 6, at 43880. The Exchange will then amalgamate the total asset values of all the securities that are based on or track the performance of VIX futures issued by the same issuer to determine if such issuer reaches the $1 billion threshold. See id. If it does, the affiliated TPH would qualify for the 7,500 contract breakpoint for that month. 9 15 U.S.C. 78s(b)(3)(C). 10 15 U.S.C. 78s(b)(1). PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 The Commission believes it is appropriate in the public interest to temporarily suspend the proposal to solicit comment on and evaluate further the statutory basis for CBOE’s proposal to lower the fee-cap for only certain TPHs, specifically those TPHs that have a qualifying affiliate. In justifying its proposal, the Exchange stated that the proposal is reasonable because it allows TPHs with a qualifying affiliate to pay lower fees for large customer VIX options transactions.11 The Exchange also argued that the proposed rule change is equitable 12 and not unfairly discriminatory 13 ‘‘because it is intended to incentivize the creation and issuance of securities that are based on or track the performance of VIX futures, which provides more trading opportunities for all market participants.’’ 14 The Exchange further stated that the lower threshold for qualifying TPHs encourages such TPHs to bring more customer VIX options orders to the Exchange 15 and the resulting increased volume and liquidity would benefit all market participants that trade VIX options.16 The Exchange did not in its filing specifically analyze the burden, if any, of the fee change on competition.17 For example, if both TPH #1 and TPH #2 bring a 12,000 contract order to CBOE, but only TPH #1 has a qualifying affiliate, CBOE’s analysis did not address why it is not unfairly discriminatory or a burden on competition for TPH #1, but not TPH #2, to qualify for the lower discount level. In temporarily suspending the fee change, the Commission intends to further assess whether the resulting feecap disparity between TPHs trading VIX options is consistent with the statutory 11 See Notice, supra note 5, at 43880. See also Section 6(b)(4) of the Exchange Act, which requires that the rules of a national securities exchange ‘‘provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities.’’ 12 See Section 6(b)(4) of the Exchange Act, which requires that the rules of a national securities exchange ‘‘provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities.’’ 13 See Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange not be ‘‘designed to permit unfair discrimination between customers, issuers, brokers, or dealers.’’ 14 See Notice, supra note 5, at 43880. 15 See id. 16 See id. 17 See Section 6(b)(8) of the Exchange Act, which requires that the rules of a national securities exchange ‘‘not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Exchange Act].’’ See also Item 4 of Form 19b–4 (‘‘Self-Regulatory Organization’s Statement on Burden on Competition (‘‘Form 19b– 4 Information’’)). 17 CFR 249.819. E:\FR\FM\12SEN1.SGM 12SEN1 Federal Register / Vol. 77, No. 177 / Wednesday, September 12, 2012 / Notices requirements applicable to a national securities exchange under the Exchange Act. In particular, the Commission will assess whether the proposed rule change satisfies the standards under the Exchange Act and the rules thereunder requiring, among other things, that an exchange’s rules provide for the equitable allocation of reasonable fees among members, issuers, and other persons using its facilities; not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers; and do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.18 Therefore, the Commission finds that it is appropriate in the public interest,19 for the protection of investors, and otherwise in furtherance of the purposes of the Exchange Act, to temporarily suspend the proposed rule change. IV. Proceedings to Determine Whether to Approve or Disapprove the CBOE Proposal In addition to temporarily suspending the proposal, the Commission also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 20 and 19(b)(2) of the Exchange Act 21 to determine whether the Exchange’s proposed rule change should be approved or disapproved. Further, pursuant to Section 19(b)(2)(B) of the Exchange Act,22 the Commission hereby is providing notice of the grounds for disapproval under consideration. The Commission believes it is appropriate to institute proceedings at this time in view of the significant legal and policy issues raised by the proposal. Institution of proceedings does not indicate, however, that the Commission has reached any conclusions with respect to the issues involved. 18 See 15 U.S.C. 78f(b)(4), (5) and (8). purposes of temporarily suspending the proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 20 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily suspends a proposed rule change, Section 19(b)(3)(C) of the Exchange Act requires that the Commission institute proceedings under Section 19(b)(2)(B) to determine whether a proposed rule change should be approved or disapproved. 21 15 U.S.C. 78s(b)(2). 22 15 U.S.C. 782(b)(2)(B). Section 19(b)(2)(B) of the Exchange Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. See id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding. See id. mstockstill on DSK4VPTVN1PROD with NOTICES 19 For VerDate Mar<15>2010 18:51 Sep 11, 2012 Jkt 226001 As discussed above, pursuant to CBOE’s proposal, TPHs that have a qualifying affiliate (i.e., that issues securities valued at $1 billion or greater that are based on or track the performance of VIX futures) pay a lower transaction fee for large VIX customer options orders as compared to TPHs that do not have such an affiliate. The Exchange Act and the rules thereunder require that an exchange’s rules, among other things, provide for the equitable allocation of reasonable fees among members, issuers, and other persons using its facilities; not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers; and do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. The Commission solicits comment on whether the proposal is consistent with these Exchange Act standards and whether CBOE has sufficiently met its burden in presenting a statutory analysis of how its proposal meets these standards. In particular, the grounds for disapproval under consideration include whether CBOE’s proposal is consistent with the following sections of the Exchange Act: • Section 6(b)(4) of the Exchange Act, which requires that the rules of a national securities exchange ‘‘provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities;’’23 • Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange not be ‘‘designed to permit unfair discrimination between customers, issuers, brokers, or dealers;’’ 24 and • Section 6(b)(8) of the Exchange Act, which requires that the rules of a national securities exchange ‘‘not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Exchange Act].’’ 25 The Commission intends to assess whether CBOE’s proposal is consistent with these and other Exchange Act standards. V. Commission’s Solicitation of Comments The Commission requests written views, data, and arguments with respect to the concerns identified above as well as any other relevant concerns. Such 23 15 U.S.C. 78f(b)(4). U.S.C. 78f(b)(5). 25 15 U.S.C. 78f(b)(8). 24 15 PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 56249 comments should be submitted by October 3, 2012. Rebuttal comments should be submitted by October 17, 2012. Although there do not appear to be any issues relevant to approval or disapproval which would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.26 The Commission asks that commenters address the sufficiency and merit of the Exchange’s statements in support of the proposal, in addition to any other comments they may wish to submit about the proposed rule change. In particular, the Commission seeks comment on the following: • As noted above, Section 6(b)(4) of the Exchange Act, requires that the rules of a national securities exchange ‘‘provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities.’’ The Commission seeks comment on whether it is an equitable allocation of reasonable dues to charge lower transaction fees to TPHs that have a qualifying affiliate for VIX customer options orders as compared to TPHs that do not have such an affiliate; • Section 6(b)(5) of the Exchange Act requires, among other things, that the rules of a national securities exchange not be ‘‘designed to permit unfair discrimination between customers, issuers, brokers or dealers.’’ The Commission seeks comment on whether discrimination on the basis of whether a TPH has an affiliation with an issuer of securities that are based on or track the performance of VIX futures is a ‘‘fair’’ basis for discrimination among its participants with respect to the fees charged by the Exchange for the execution of customer orders in VIX options; • The Commission seeks comment on whether the filing was sufficient under Section 19(b) of the Exchange Act in addressing issues regarding the basis for discrimination between a TPH with a qualifying affiliate and a TPH that is not so affiliated, and whether the basis for such discrimination is fair, and why or why not; • Section 6(b)(8) of the Exchange Act requires that the rules of a national 26 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Exchange Act grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). E:\FR\FM\12SEN1.SGM 12SEN1 56250 Federal Register / Vol. 77, No. 177 / Wednesday, September 12, 2012 / Notices securities exchange ‘‘not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Exchange Act].’’ The Commission seeks comment on whether the filing was sufficient in addressing issues regarding the potential effects of the proposed fee change on competition, and what, if any, impact the proposed fee change might have on competition; and • Whether the proposed fee change will affect competition in the market for VIX options or the broader market, and if so, how and what type of impact might it have. Interested persons are invited to submit written data, views, and arguments concerning the proposed rule changes, including whether the proposed rule change is consistent with the Exchange Act. Comments may be submitted by any of the following methods: mstockstill on DSK4VPTVN1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–CBOE–2012–68 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–2012–68. The 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 also will be available for inspection and copying at the principal office of the VerDate Mar<15>2010 18:51 Sep 11, 2012 Jkt 226001 Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR–CBOE– 2012–68 and should be submitted on or before October 3, 2012. Rebuttal comments should be submitted by October 17, 2012. filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Halifax. Contiguous Counties: North Carolina: Bertie, Edgecombe, Franklin, Martin, Nash, Northampton, Warren. The Interest Rates are: VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Exchange Act,27 that File No. SR–CBOE–2012–68, be and hereby is, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. For Physical Damage: Homeowners With Credit Available Elsewhere .......... Homeowners Without Credit Available Elsewhere .......... Businesses With Credit Available Elsewhere .................. Businesses Without Credit Available Elsewhere .......... Non-Profit Organizations With Credit Available Elsewhere Non-Profit Organizations Without Credit Available Elsewhere .......................... For Economic Injury: Businesses & Small Agricultural Cooperatives Without Credit Available Elsewhere Non-Profit Organizations Without Credit Available Elsewhere .......................... For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–22396 Filed 9–11–12; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #13269 and #13270] North Carolina Disaster #NC–00044 U.S. Small Business Administration. ACTION: Notice. AGENCY: 27 15 28 17 PO 00000 U.S.C. 78s(b)(3)(C). CFR 200.30–3(a)(57) and (58). Frm 00073 Fmt 4703 Sfmt 4703 3.375 1.688 6.000 4.000 3.125 3.000 4.000 3.000 The number assigned to this disaster for physical damage is 13269 6 and for economic injury is 13270 0. The State which received an EIDL Declaration # is North Carolina. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) This is a notice of an Administrative declaration of a disaster for the State of NORTH CAROLINA dated 09/05/2012. Incident: Severe Storms and Flooding. Incident Period: 08/25/2012. Effective Date: 09/05/2012. Physical Loan Application Deadline Date: 11/05/2012. Economic Injury (EIDL) Loan Application Deadline Date: 06/05/2013. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator’s disaster declaration, applications for disaster loans may be SUMMARY: Percent Dated: September 5, 2012. Karen G. Mills, Administrator. [FR Doc. 2012–22377 Filed 9–11–12; 8:45 am] BILLING CODE 8025–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #13271 and #13272] Louisiana Disaster Number LA–00048 U.S. Small Business Administration. ACTION: Amendment 2. AGENCY: This is an amendment of the Presidential declaration of a major disaster for the State of Louisiana (FEMA—4080—DR), dated 08/31/2012. Incident: Hurricane Isaac. Incident Period: 08/26/2012 and continuing. Effective Date: 09/04/2012. Physical Loan Application Deadline Date: 10/30/2012. EIDL Loan Application Deadline Date: 05/29/2013. SUMMARY: E:\FR\FM\12SEN1.SGM 12SEN1

Agencies

[Federal Register Volume 77, Number 177 (Wednesday, September 12, 2012)]
[Notices]
[Pages 56247-56250]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-22396]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67794; File No. SR-CBOE-2012-068]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Suspension of and Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove a Proposed Rule Change To 
Amend the Customer Large Trade Discount

September 6, 2012.

I. Introduction

    On July 11, 2012, Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the

[[Page 56248]]

Securities and Exchange Commission (the ``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange 
Act'') \1\ and Rule 19b-4 thereunder,\2\ a rule change relating to the 
Customer Large Trade Discount (the ``Discount'').
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    CBOE proposed to amend the Discount for any executing Trading 
Permit Holder (``TPH'') whose affiliate \3\ is the issuer of one or 
more securities, the combined total asset value of which is $1 billion 
or greater, that are based on or track the performance of VIX 
futures.\4\ CBOE designated the proposed rule change as immediately 
effective upon filing with the Commission pursuant to Section 
19(b)(3)(A) of the Exchange Act.\5\ The Commission published notice of 
filing of the proposed rule change in the Federal Register on July 26, 
2012.\6\ To date, the Commission has not received any comment letters 
on the Exchange's proposed rule change.
---------------------------------------------------------------------------

    \3\ CBOE defines ``affiliate'' as ``a person who, directly or 
indirectly, controls, is controlled by, or is under common control 
with, such other person.'' CBOE Rule 1.1(j). CBOE Rule 1.1(k) 
defines ``control'' as ``the power to exercise a controlling 
influence over the management or policies of a person, unless such 
power is solely the result of an official position with such person. 
Any person who owns beneficially, directly or indirectly, more than 
20% of the voting power in the election of directors of a 
corporation, or more than 25% of the voting power in the election of 
directors of any other corporation which directly or through one or 
more affiliates owns beneficially more than 25% of the voting power 
in the election of directors of such corporation, shall be presumed 
to control such corporation.'' CBOE Rule 1.1(ff) defines ``person'' 
as ``an individual, partnership (general or limited), joint stock 
company, corporation, limited liability company, trust or 
unincorporated organization, or any governmental entity or agency or 
political subdivision thereof.''
    \4\ CBOE Volatility Index[supreg] (``VIX'') measures market 
expectations of near term volatility conveyed by S&P 500 index 
option prices. Options on VIX offer a way for market participants to 
buy and sell option volatility. VIX option prices reflect the 
market's expectation of the VIX level at expiration and are 
exclusively traded on CBOE. See https://www.cboe.com/micro/VIX/VIXoptionsFAQ.aspx.
    \5\ 15 U.S.C. 78s(b)(3)(A). Although the proposed rule change 
was effective upon filing, CBOE indicated that the fee change would 
take effect on August 1, 2012. See Notice, infra note 6, at 43880.
    \6\ See Securities Exchange Act Release No. 67481 (July 20, 
2012) 77 FR 43879 (``Notice'').
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(3)(C) of the Exchange Act, the Commission 
hereby is: (1) Temporarily suspending the proposed rule change; and (2) 
instituting proceedings to determine whether to approve or disapprove 
the proposal.

II. Summary of the Proposed Rule Change

    The Exchange's proposal amended the Discount, which caps regular 
customer transaction fees on a per-order basis for large customer 
trades.\7\ Specifically, CBOE's proposal lowered the transaction fee 
cap in VIX options from 10,000 contracts to 7,500 contracts per order 
in a qualifying calendar month but only for TPHs who have an affiliate 
that issues one or more securities, the combined total value of which 
is $1 billion or greater, that are based on or track the performance of 
VIX futures (a ``qualifying affiliate'').\8\ Pursuant to that recent 
change, incremental volume above 7,500 contracts in a single order is 
not assessed a regular customer transaction fee for TPHs with such an 
affiliate. TPHs that do not have a qualifying affiliate do not qualify 
for the lower fee cap and continue to be assessed the regular customer 
transaction fee up to the first 10,000 contracts in VIX options.
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    \7\ Prior to the proposal, CBOE charged all TPHs transaction 
fees on the first 10,000 contracts in a single order in VIX options. 
For example, if a broker-dealer submitted a single order for 12,000 
VIX contracts, the broker-dealer was only charged a transaction fee 
on the first 10,000 contracts and the remaining 2,000 contracts were 
not charged a transaction fee. The Discount also caps customer 
transaction fees up to the first 10,000 contracts for SPX; up to the 
first 5,000 contracts for other index options; and up to the first 
3,000 contracts for ETF, ETN and HOLDRs options. Threshold levels 
for the other products subject to the Discount were not changed by 
this rule filing.
    \8\ On the first business day following the end of a calendar 
month, the Exchange will multiply the reported net asset value of 
each security that is based on or tracks the performance of VIX 
futures (as reported on the final calendar day of the month) by the 
amount of outstanding shares in that security to determine the total 
asset value of that security. See Notice, supra note 6, at 43880. 
The Exchange will then amalgamate the total asset values of all the 
securities that are based on or track the performance of VIX futures 
issued by the same issuer to determine if such issuer reaches the $1 
billion threshold. See id. If it does, the affiliated TPH would 
qualify for the 7,500 contract breakpoint for that month.
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III. Suspension of the CBOE Proposal

    Pursuant to Section 19(b)(3)(C) of the Exchange Act,\9\ at any time 
within 60 days of the date of filing of a proposed rule change pursuant 
to Section 19(b)(1) of the Exchange Act,\10\ the Commission summarily 
may temporarily suspend the change in the rules of a self-regulatory 
organization 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 Exchange 
Act.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(C).
    \10\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    The Commission believes it is appropriate in the public interest to 
temporarily suspend the proposal to solicit comment on and evaluate 
further the statutory basis for CBOE's proposal to lower the fee-cap 
for only certain TPHs, specifically those TPHs that have a qualifying 
affiliate.
    In justifying its proposal, the Exchange stated that the proposal 
is reasonable because it allows TPHs with a qualifying affiliate to pay 
lower fees for large customer VIX options transactions.\11\ The 
Exchange also argued that the proposed rule change is equitable \12\ 
and not unfairly discriminatory \13\ ``because it is intended to 
incentivize the creation and issuance of securities that are based on 
or track the performance of VIX futures, which provides more trading 
opportunities for all market participants.'' \14\ The Exchange further 
stated that the lower threshold for qualifying TPHs encourages such 
TPHs to bring more customer VIX options orders to the Exchange \15\ and 
the resulting increased volume and liquidity would benefit all market 
participants that trade VIX options.\16\ The Exchange did not in its 
filing specifically analyze the burden, if any, of the fee change on 
competition.\17\ For example, if both TPH 1 and TPH 2 
bring a 12,000 contract order to CBOE, but only TPH 1 has a 
qualifying affiliate, CBOE's analysis did not address why it is not 
unfairly discriminatory or a burden on competition for TPH 1, 
but not TPH 2, to qualify for the lower discount level.
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    \11\ See Notice, supra note 5, at 43880. See also Section 
6(b)(4) of the Exchange Act, which requires that the rules of a 
national securities exchange ``provide for the equitable allocation 
of reasonable dues, fees, and other charges among its members and 
issuers and other persons using its facilities.''
    \12\ See Section 6(b)(4) of the Exchange Act, which requires 
that the rules of a national securities exchange ``provide for the 
equitable allocation of reasonable dues, fees, and other charges 
among its members and issuers and other persons using its 
facilities.''
    \13\ See Section 6(b)(5) of the Exchange Act, which requires, 
among other things, that the rules of a national securities exchange 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.''
    \14\ See Notice, supra note 5, at 43880.
    \15\ See id.
    \16\ See id.
    \17\ See Section 6(b)(8) of the Exchange Act, which requires 
that the rules of a national securities exchange ``not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of [the Exchange Act].'' See also Item 4 of Form 19b-4 
(``Self-Regulatory Organization's Statement on Burden on Competition 
(``Form 19b-4 Information'')). 17 CFR 249.819.
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    In temporarily suspending the fee change, the Commission intends to 
further assess whether the resulting fee-cap disparity between TPHs 
trading VIX options is consistent with the statutory

[[Page 56249]]

requirements applicable to a national securities exchange under the 
Exchange Act. In particular, the Commission will assess whether the 
proposed rule change satisfies the standards under the Exchange Act and 
the rules thereunder requiring, among other things, that an exchange's 
rules provide for the equitable allocation of reasonable fees among 
members, issuers, and other persons using its facilities; not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers; and do not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act.\18\
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    \18\ See 15 U.S.C. 78f(b)(4), (5) and (8).
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest,\19\ for the protection of investors, and otherwise in 
furtherance of the purposes of the Exchange Act, to temporarily suspend 
the proposed rule change.
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    \19\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Proceedings to Determine Whether to Approve or Disapprove the CBOE 
Proposal

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\20\ and 19(b)(2) of the Exchange Act \21\ to determine whether the 
Exchange's proposed rule change should be approved or disapproved. 
Further, pursuant to Section 19(b)(2)(B) of the Exchange Act,\22\ the 
Commission hereby is providing notice of the grounds for disapproval 
under consideration. The Commission believes it is appropriate to 
institute proceedings at this time in view of the significant legal and 
policy issues raised by the proposal. Institution of proceedings does 
not indicate, however, that the Commission has reached any conclusions 
with respect to the issues involved.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Exchange 
Act requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 15 U.S.C. 782(b)(2)(B). Section 19(b)(2)(B) of the Exchange 
Act also provides that proceedings to determine whether to 
disapprove a proposed rule change must be concluded within 180 days 
of the date of publication of notice of the filing of the proposed 
rule change. See id. The time for conclusion of the proceedings may 
be extended for up to 60 days if the Commission finds good cause for 
such extension and publishes its reasons for so finding. See id.
---------------------------------------------------------------------------

    As discussed above, pursuant to CBOE's proposal, TPHs that have a 
qualifying affiliate (i.e., that issues securities valued at $1 billion 
or greater that are based on or track the performance of VIX futures) 
pay a lower transaction fee for large VIX customer options orders as 
compared to TPHs that do not have such an affiliate. The Exchange Act 
and the rules thereunder require that an exchange's rules, among other 
things, provide for the equitable allocation of reasonable fees among 
members, issuers, and other persons using its facilities; not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers; and do not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. The Commission solicits comment on whether the proposal is 
consistent with these Exchange Act standards and whether CBOE has 
sufficiently met its burden in presenting a statutory analysis of how 
its proposal meets these standards.
    In particular, the grounds for disapproval under consideration 
include whether CBOE's proposal is consistent with the following 
sections of the Exchange Act:
     Section 6(b)(4) of the Exchange Act, which requires that 
the rules of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities;''\23\
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

     Section 6(b)(5) of the Exchange Act, which requires, among 
other things, that the rules of a national securities exchange not be 
``designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers;'' \24\ and
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    \24\ 15 U.S.C. 78f(b)(5).
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     Section 6(b)(8) of the Exchange Act, which requires that 
the rules of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Exchange Act].'' \25\
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    \25\ 15 U.S.C. 78f(b)(8).
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    The Commission intends to assess whether CBOE's proposal is 
consistent with these and other Exchange Act standards.

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by October 3, 2012. 
Rebuttal comments should be submitted by October 17, 2012. Although 
there do not appear to be any issues relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\26\
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    \26\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Exchange Act 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Acts Amendments of 
1975, Report of the Senate Committee on Banking, Housing and Urban 
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 
30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change. In particular, the Commission seeks comment on 
the following:
     As noted above, Section 6(b)(4) of the Exchange Act, 
requires that the rules of a national securities exchange ``provide for 
the equitable allocation of reasonable dues, fees, and other charges 
among its members and issuers and other persons using its facilities.'' 
The Commission seeks comment on whether it is an equitable allocation 
of reasonable dues to charge lower transaction fees to TPHs that have a 
qualifying affiliate for VIX customer options orders as compared to 
TPHs that do not have such an affiliate;
     Section 6(b)(5) of the Exchange Act requires, among other 
things, that the rules of a national securities exchange not be 
``designed to permit unfair discrimination between customers, issuers, 
brokers or dealers.'' The Commission seeks comment on whether 
discrimination on the basis of whether a TPH has an affiliation with an 
issuer of securities that are based on or track the performance of VIX 
futures is a ``fair'' basis for discrimination among its participants 
with respect to the fees charged by the Exchange for the execution of 
customer orders in VIX options;
     The Commission seeks comment on whether the filing was 
sufficient under Section 19(b) of the Exchange Act in addressing issues 
regarding the basis for discrimination between a TPH with a qualifying 
affiliate and a TPH that is not so affiliated, and whether the basis 
for such discrimination is fair, and why or why not;
     Section 6(b)(8) of the Exchange Act requires that the 
rules of a national

[[Page 56250]]

securities exchange ``not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of [the 
Exchange Act].'' The Commission seeks comment on whether the filing was 
sufficient in addressing issues regarding the potential effects of the 
proposed fee change on competition, and what, if any, impact the 
proposed fee change might have on competition; and
     Whether the proposed fee change will affect competition in 
the market for VIX options or the broader market, and if so, how and 
what type of impact might it have.
    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule changes, including whether the 
proposed rule change is consistent with the Exchange Act. Comments may 
be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2012-68 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-2012-68. The 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 also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make publicly available. All 
submissions should refer to File Number SR-CBOE-2012-68 and should be 
submitted on or before October 3, 2012. Rebuttal comments should be 
submitted by October 17, 2012.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Exchange Act,\27\ that File No. SR-CBOE-2012-68, be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \27\ 15 U.S.C. 78s(b)(3)(C).
    \28\ 17 CFR 200.30-3(a)(57) and (58).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22396 Filed 9-11-12; 8:45 am]
BILLING CODE 8011-01-P
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