Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Options Regulatory Fee, 76119-76120 [2012-31019]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 247 (Wednesday, December 26, 2012)]
[Notices]
[Pages 76119-76120]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31019]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68480; File No. SR-CBOE-2012-118]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Options Regulatory Fee

December 19, 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 December 7, 2012, the Chicago Board Options Exchange, 
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities 
and Exchange Commission (the ``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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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Chicago Board Options Exchange, Incorporated (the ``Exchange'' or 
``CBOE'') proposes to amend its Options Regulatory Fee. The text of the 
proposed rule change is available on the Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's 
Office of the Secretary, and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these 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 aspects 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 has reevaluated the current amount of the Options 
Regulatory Fee (``ORF'') in connection with its annual budget review. 
In light of increased regulatory costs and expected volume levels for 
2013, the Exchange proposes to increase the ORF from $.0065 per 
contract to $.0085 per contract. The Exchange is amending the ORF due 
to substantial increases in resources devoted to regulatory services, 
including the recent hiring of many new employees, increased office 
space and regulatory systems enhancements. These increased regulatory 
costs coincide with a decrease in industry transaction volume. The 
proposed fee would be operative on January 2, 2013.
    The ORF is assessed by the Exchange to each Trading Permit Holder 
for all options transactions executed or cleared by the Trading Permit 
Holder that are cleared by The Options Clearing Corporation (``OCC'') 
in the customer range, i.e., transactions that clear in a customer 
account at OCC, regardless of the marketplace of execution. In other 
words, the Exchange imposes the ORF on all customer-range transactions 
executed by a Trading Permit Holder, even if the transactions do not 
take place on the Exchange.\3\ The ORF also is charged for transactions 
that are not executed by a Trading Permit Holder but are ultimately 
cleared by a Trading Permit Holder. In the case where a Trading Permit 
Holder executes a transaction and a different Trading Permit Holder 
clears the transaction, the ORF is assessed to the Trading Permit 
Holder who executed the transaction. In the case where a non-Trading 
Permit Holder executes a transaction and a Trading Permit Holder clears 
the transaction, the ORF is assessed to the Trading Permit Holder who 
clears the transaction. The ORF is collected indirectly from Trading 
Permit Holders through their clearing firms by OCC on behalf of the 
Exchange.
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    \3\ Exchange rules require each Trading Permit Holder to record 
the appropriate account origin code on all orders at the time of 
entry in order to allow the Exchange to properly prioritize and 
route orders and assess transaction fees pursuant to the rules of 
the Exchange and report resulting transactions to the OCC. CBOE 
order origin codes are defined in CBOE Regulatory Circular RG12-057. 
The Exchange represents that it has surveillances in place to verify 
that Trading Permit Holders mark orders with the correct account 
origin code.
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    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of Trading Permit Holder 
customer options business, including performing routine surveillances, 
investigations, as well as policy, rulemaking, interpretive and 
enforcement activities. The Exchange believes that revenue generated 
from the ORF, when combined with all of the Exchange's other regulatory 
fees and fines, will cover a material portion, but not all, of the 
Exchange's regulatory costs. The Exchange notes that its regulatory 
responsibilities with respect to Trading Permit Holder compliance with 
options sales practice rules have been allocated to FINRA under a 17d-2 
agreement. The ORF is not designed to cover the cost of options sales 
practice regulation.
    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. If the Exchange determines regulatory revenues exceed 
regulatory costs, the Exchange will adjust the ORF by submitting a fee 
change filing to the Commission. The Exchange notifies Trading Permit 
Holders of adjustments to the ORF via regulatory circular.

[[Page 76120]]

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\4\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\5\ which provides that Exchange rules may provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its Trading Permit Holders and other persons using its 
facilities. The Exchange believes the proposed fee change is reasonable 
because industry transaction volume has declined while the Exchange's 
regulatory expenses have increased. The Exchange is amending the ORF 
due to substantial increases in resources devoted to regulatory 
services, including the recent hiring of many new employees, increased 
office space and regulatory systems enhancements. The proposed ORF 
increase would help to offset these increased regulatory expenses but 
does not result in total regulatory revenue exceeding total regulatory 
costs.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the ORF is equitable and not unfairly 
discriminatory because it is objectively allocated to Trading Permit 
Holders in that it is charged to all Trading Permit Holders on all 
their transactions that clear as customer at the OCC. Moreover, the 
Exchange believes the ORF ensures fairness by assessing higher fees to 
those Trading Permit Holders that require more Exchange regulatory 
services based on the amount of customer options business they conduct. 
Regulating customer trading activity is much more labor intensive and 
requires greater expenditure of human and technical resources than 
regulating non-customer trading activity, which tends to be more 
automated and less labor-intensive. As a result, the costs associated 
with administering the customer component of the Exchange's overall 
regulatory program are materially higher than the costs associated with 
administering the non-customer component (e.g., Trading Permit Holder 
proprietary transactions) of its regulatory program.\6\
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    \6\ If the Exchange changes its method of funding regulation or 
if circumstances otherwise change in the future, the Exchange may 
decide to modify the ORF or assess a separate regulatory fee on 
Trading Permit Holder proprietary transactions if the Exchange deems 
it advisable. See email from Jaime Galvan, Senior Attorney, CBOE, to 
Johnna Dumler, Special Counsel, Commission, dated December 18, 2012.
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    The ORF is designed to recover a material portion of the costs of 
supervising and regulating Trading Permit Holder customer options 
business including performing routine surveillances, investigations, 
examinations, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities. The Exchange will continue to 
monitor the amount of revenue collected from the ORF to ensure that it, 
in combination with its other regulatory fees and fines, does not 
exceed the Exchange's total regulatory costs. If the Exchange 
determines regulatory revenues exceed regulatory costs, the Exchange 
will adjust the ORF by submitting a fee change filing to the 
Commission. The Exchange notifies Trading Permit Holders of adjustments 
to the ORF via regulatory circular.

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \7\ of the Act and paragraph (f) of Rule 19b-4 \8\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 C.F.R. 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2012-118 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-2012-118. 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 such filing also will be available 
for inspection and copying at the principal offices of the Exchange. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-CBOE-2012-118, 
and should be submitted on or before January 16, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-31019 Filed 12-21-12; 4:15 pm]
BILLING CODE 8011-01-P