Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule To Amend the Fees Schedule, 21928-21931 [2016-08427]
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Federal Register / Vol. 81, No. 71 / Wednesday, April 13, 2016 / Notices
policies and procedures according to
their business model and the risk profile
of their activities’’ 44 and that requiring
delivery of duplicate account statements
would eliminate this flexibility. More
importantly, FINRA Rule 3110 regarding
broker-dealer supervision establishes
the obligation for a member to include
in its supervisory procedures a process
for the review of securities transactions
that are/is reasonably designed to
identify trades that may violate the
provisions of the Exchange Act, the
rules thereunder, or FINRA rules
prohibiting insider trading and
manipulative and deceptive practices
that are effected for, among other things,
covered accounts.
In consolidating the overlapping
rules, FINRA proposed deleting certain
provisions 45 and amending other
provisions. In particular, the proposed
rule change would amend the definition
of ‘‘beneficial interest’’ to create a
rebuttable presumption that an
associated person holds a beneficial
interest in the financial accounts of
certain related and other persons. The
Commission recognizes commenters’
concerns that, as a result of this change,
an associated person may not always be
able to obtain a spouse’s duplicate
account statements. Specifically, the
two commenters argued that family
arrangements are diverse, and that an
associated person could have difficulty
complying with the rule in the event of
pending separation or divorce from a
spouse.46 One of the commenters also
suggested that these concerns could
extend, for example, to the accounts of
a child of an associated person’s
spouse.47 However, we believe that
FINRA’s proposal strikes an appropriate
balance between the regulatory interests
in facilitating adequate supervision over
accounts in which the associated person
has a beneficial interest, and the
possibility that an associated person
may not be able to obtain duplicate
account statements in certain limited
circumstances.
Another commenter argued that
additional types of transactions and
accounts should be excluded from the
obligations of the proposed rule,
asabaliauskas on DSK3SPTVN1PROD with NOTICES
44 See
FINRA Response Letter; also see Notice
and Order Instituting Proceedings.
45 For example, the proposed rule would not
include existing NASD rules that affect accounts
over which associated persons make investment
decisions or have discretionary authority to the
proposed new rule. FINRA believes that the
activities in these types of accounts involve private
securities transactions subject to FINRA Rule 3280,
making application of the proposed new rule
redundant. See Notice and FINRA’s Response
Letter.
46 See SIFMA Letter; FOLIOfn Letter.
47 See FOLIOfn Letter.
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asserting that they pose limited risks
with respect to the need to oversee
associated persons’ accounts.48 This
commenter recommended that FINRA
exempt transactions in ‘‘all insurance
contracts that are securities’’ from the
obligation to provide the employer
member with duplicate account
documents.49 Although FINRA declined
to except insurance products from the
rule’s requirements, it agreed to
‘‘consider whether further exceptions
are appropriate based on the attributes
of specific insurance products.’’ 50
In sum, the Commission believes that
the proposal would help protect
investors and the public interest by
establishing a framework through which
a member can adequately supervise
securities-related activities of their
associated persons at firms other than
the one with which they are
associated.51 We also believe this rule
makes the core supervisory obligation
more operationally workable for
employer firms.
In addition, the proposal enables
members to design a supervisory system
that suits their respective business
model and risk profiles. In this regard,
the proposal would allow firms to
decide, based on their respective
business model and potential risks,
whether to approve outside accounts
and whether the firm wants to receive
duplicate account statements and other
related account documents. For
example, FINRA states that members
could impose obligations on their
associated persons beyond those
required by the proposal, such as
‘‘tak[ing] a more expansive view of the
accounts the associated person should
disclose than is otherwise required by
the [proposed] rule.’’ 52
48 See
Sutherland Letter.
49 Id.
50 See FINRA Response Letter; see also Order
Instituting Proceedings.
51 FINRA Rule 3110(d) (Transaction Review and
Investigation) requires that a member’s supervisory
procedures include a process for reviewing
securities transactions effected in, among others,
accounts of their associated persons, reasonably
designed to identify trades that may violate the
provisions of the Exchange Act, its regulations, or
FINRA rules prohibiting insider trading and
manipulative and deceptive devices. See FINRA
Response Letter.
52 See FINRA Response Letter; see also FINRA
Response Letter (stating that ‘‘the rule [does not]
limit the employer member’s discretion to set
requirements with respect to the holding of outside
accounts’’); see also FINRA Response Letter (stating
that ‘‘the rule does not prevent employer members
from crafting policies and procedures that require
associated persons to disclose the types of
transactions and accounts specified under
[proposed FINRA Rule 3210.03] and to provide
related information’’).
Similarly, FINRA notes that ‘‘the rule does not
limit the discretion of executing members to craft
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The Commission believes that FINRA
gave due consideration to the proposal
and met the requirements of the
Exchange Act. For these reasons, the
Commission finds that the proposed
rule change is consistent with the
Exchange Act and the rules and
regulations thereunder.
V. Conclusion
It is therefore ordered pursuant to
Exchange Act section 19(b)(2) 53 that the
proposal (SR–FINRA–2015–029), as
modified by the Amendments, be and
hereby is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.54
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–08423 Filed 4–12–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77554; File No. SR–CBOE–
2016–023]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule To Amend the Fees Schedule
April 7, 2016.
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 April 1,
2016, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt the
Frequent Trader Program. The text of
the proposed rule change is available on
the Exchange’s Web site (https://
www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
policies and procedures with respect to the account
activity of persons associated with other firms.’’ See
FINRA Response Letter.
53 15 U.S.C. 78s(b)(2).
54 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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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
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
Fees Schedule, effective April 1, 2016.
Specifically, the Exchange proposes to
adopt a program that offers transaction
fee rebates to Customers (origin code
‘‘C’’) that meet certain volume
thresholds in CBOE VIX Volatility Index
options (‘‘VIX options’’) and S&P 500
Index options (‘‘SPX’’), weekly S&P 500
options (‘‘SPXW’’) and p.m.-settled SPX
Index options (‘‘SPXpm’’) (collectively
referred to as ‘‘SPX options’’) provided
the Customer registers for the program
(the ‘‘Frequent Trader Program’’ or
‘‘Program’’). A Customer for purposes of
this program would be any non-Trading
Permit Holder, non-broker dealer nonProfessional.
To participate in the Frequent Trader
Program, Customers would have to
register with the Exchange at the
Frequent Trader Web site by providing
certain information such as their name
and contact information. Once
registered, the Customer would be
provided a unique identification
number (‘‘FTID’’) that can be affixed to
each of its orders.3 The FTID allows the
Exchange to identify and aggregate all
electronic and manual trades during
both the Regular Trading Hours and
Extended Trading Hours sessions from
that Customer for purposes of
determining whether the Customer
meets any of the various volume
thresholds. The Customer would have to
provide its FTID to the Trading Permit
Holder (‘‘TPH’’) submitting that
Customer’s order to the Exchange
(‘‘executing agent’’ or ‘‘executing TPH’’)
and that executing TPH would have to
enter the Customer’s FTID on each of
VIX
VIX fee
rebate
(percent)
1 ........................
2 ........................
3 ........................
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Monthly VIX contracts traded
5,000–9,9999 ................................
10,000–19,999 ..............................
20,000 and above .........................
Tier
5
10
15
Monthly SPX, SPXW, SPXpm
contracts traded
1 ........................
2 ........................
3 ........................
Lastly, the Exchange proposes to
provide that it will distribute a
customer’s rebate pursuant to the
customer’s instructions, which may
include receiving the rebate as a direct
payment or via a distribution to one or
more of its executing Clearing Trading
Permit Holders.
3 The Exchange notes that it will not disclose the
list or details of customers who have a FTID to any
party, and there will be no public record of FTID
owners. Any personal information provided to the
Exchange in connection with the Frequent Trader
Program will be handled in a manner consistent
with the Frequent Trader Program Privacy Policy,
a copy of which can be accessed through the
Frequent Trader Program Web site at https://
www.cboe.com/ftid/registration.aspx.
4 The Exchange notes that only transaction fees
would be discounted (i.e., no other surcharges, such
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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
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SPX, SPXW,
SPXpm fee
rebate
(percent)
12,000–19,999 ..............................
20,000–49,999 ..............................
50,000 and above .........................
The Exchange notes that the highest
achieved threshold rebate rate will
apply from the first executed contract
(e.g., if a Customer executes 14,000 VIX
contracts in a month, the Tier 2 10%
rebate rate would apply to all 14,000
VIX contracts). The Exchange believes
the tiered program incentivizes the
sending of Customer orders to the
Exchange while maintaining an
incremental incentive for Customer’s to
strive for the highest tier level. The
Exchange also notes that the volume
thresholds for SPX options is higher
than for VIX in light of its mature and
established position in the industry.
18:53 Apr 12, 2016
that Customer’s orders. The Exchange
notes that it would be the responsibility
of the Customer to request that the
executing TPH affix its FTID to its
order(s), but that it would be voluntarily
for the executing TPH to do so. The
Exchange would then aggregate the
Customer’s volume (for which their
FTID was entered) on a monthly basis
for each of VIX and SPX options. If the
Customer meets the thresholds shown
below, it would receive a rebate on its
VIX and/or SPX options transaction
fees, respectively, as indicated below.4
The Exchange notes that although all
executed contracts with an FTID will
count towards the qualifying volume
thresholds, the rebates will be based on
the actual amount of fees assessed in
accordance with the Fees Schedule (e.g.,
if a Customer submits a VIX order for
30,000 contracts, pursuant to the current
Fees Schedule, that customer would be
assessed fees for only the first 15,000
contracts under the Customer Large
Trade Discount Program. Therefore,
while all 30,000 contracts would count
when determining the tier, the
customer’s rebate would be based on the
amount of the fees assessed for 15,000
contracts, not on the value of the total
30,000 contracts executed). The
thresholds and rebates are as follows:
SPX, SPXW, SPXpm
Tier
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5
10
15
section 6(b) of the Act.5 Specifically, the
Exchange believes the proposed rule
change is consistent with the section
6(b)(5) 6 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
as the Customer Priority Surcharges, would be
rebated or discounted).
5 15 U.S.C. 78f(b).
6 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 81, No. 71 / Wednesday, April 13, 2016 / Notices
investors and the public interest. The
Exchange also believes the proposed
rule change is consistent with section
6(b)(4) of the Act,7 which provides that
Exchange rules may provide for the
equitable allocation of reasonable dues,
fees, and other charges among its
Trading Permit Holders.
The adoption of the Frequent Trader
Program is reasonable because it will
allow Customers who register for the
program an opportunity to receive
certain rebates for reaching certain
trading volume thresholds. The
Exchange notes that it is voluntary for
Customers to choose whether or not to
register for the program and whether to
request that their unique FTID be
appended to their orders. The Program
is also voluntary for executing TPHs
who have the option of choosing not to
participate (i.e., they may decline to
append FTID numbers on Customer
orders). Additionally, the Exchange
notes that incentive programs based on
Customer volume already exist
elsewhere within the industry.8
The Exchange believes it’s equitable
and not unfairly discriminatory to
establish the program for Customers
only because this is designed to attract
a greater number of customer VIX and
SPX orders. This increased volume
creates greater trading opportunities that
benefit all market participants.
Specifically, while only Customer
orders qualify for the proposed rebates
under the Frequent Trader Program, an
increase in customer order flow will
bring greater volume and liquidity,
which benefit all market participants by
providing more trading opportunities
and tighter spreads. Moreover, the
options industry has a long history of
providing preferential pricing to
Customers. In addition the Exchange
believes the proposed program is
equitable and not unfairly
discriminatory because any Customer
(that is not a CBOE TPH, broker-dealer
or Professional) may avail itself of this
program provided it registers with the
Exchange.
The Exchange believes limiting the
Program to VIX and SPX options is
equitable and not unfairly
discriminatory because the Exchange
has expended considerable time and
resources in developing these products.
The Frequent Trader Program is
designed to encourage greater customer
VIX and SPX options trading, which,
along with bringing greater VIX and SPX
7 15
U.S.C. 78f(b)(4).
e.g., CBOE Fees Schedule, the Volume
Incentive Program; and NASDAQ PHLX LLC
Pricing Schedule, Section B. Customer Rebate
Program.
8 See
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17:41 Apr 12, 2016
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options trading opportunities to all
market participants, would bring in
more fees to the Exchange, and such
fees can be used to recoup the
Exchange’s costs and expenditures from
developing and maintaining VIX and
SPX options. The Exchange believes it’s
equitable and not unfairly
discriminatory to establish higher
threshold tiers for the SPX product
group because the SPX product group
has reached a mature and established
level while VIX has not.
The Exchange believes it’s reasonable,
equitable and not unfairly
discriminatory to include all of a
customer’s VIX and SPX executed
contracts with an FTID towards the
respective qualifying thresholds because
the Exchange wishes to support and
encourage customers to provide greater
order flow in these classes, which
allows for price improvement and has a
number of positive impacts on the
market system. The Exchange also
believes however, that it’s reasonable,
equitable and not unfairly
discriminatory to base the rebate off the
amount of transaction fees that would
be assessed pursuant to the Fees
Schedule (as opposed to being based off
the ‘‘theoretical’’ fee value of all
contracts executed) because the
Exchange does not want to provide
rebates on contracts for which it is not
also collecting transaction fees.
Lastly, the Exchange believes it’s
reasonable, equitable and not unfairly
discriminatory to provide Customers a
choice as to how their payment is
delivered. Providing Customers with the
option of requesting to receive their
rebates under the Frequent Trader
Program as separate direct payments or
via a distribution to one or more of its
executing Clearing Trading Permit
Holders will provide Customers with a
convenient manner in which to receive
their rebates, which perfects the
mechanism for a free and open market.
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 because,
while the rebates apply only to
Customers, the Program is designed to
encourage increased Customer VIX and
SPX options volume, which provides
greater trading opportunities for all
market participants. Additionally, there
is a history in the options markets of
providing preferential treatment to
Customers. The Exchange believes that
the proposed rule change will not cause
an unnecessary burden on intermarket
PO 00000
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competition because VIX and SPX
products are only traded on CBOE. To
the extent that the proposed changes
make CBOE a more attractive
marketplace for market participants at
other exchanges, such market
participants are welcome to become
CBOE market participants.
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)
of the Act 9 and paragraph (f) of Rule
19b–4 10 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. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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–2016–023 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2016–023. 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
9 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
10 17
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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 principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE–
2016–023, and should be submitted on
or before May 4, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–08427 Filed 4–12–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77553; File No. SR–CBOE–
2016–009]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Approving a
Proposed Rule Change Relating to
LMMs and DPMs
asabaliauskas on DSK3SPTVN1PROD with NOTICES
April 7, 2016.
I. Introduction
On February 8, 2016, Chicago Board
Options Exchange, Incorporated (the
‘‘Exchange’’ or ‘‘CBOE’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’), pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’ or
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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amend its rules relating to Lead MarketMakers (‘‘LMMs’’), Designated Primary
Market-Makers (‘‘DPMs’’) and
Supplemental Market-Makers
(‘‘SMMs’’). The proposed rule change
was published for comment in the
Federal Register on February 26, 2016.3
The Commission received no comments
on the proposal. This order approves the
proposed rule change.
II. Description of the Proposed Rule
Change 4
The Exchange proposes to (i)
reorganize, simplify and make
consistent certain text relating to LMM
and DPM obligations generally, (ii)
amend its Rules related to LMMs, (iii)
delete outdated references in its Rules to
SMMs and other obsolete language and
(iv) make other clarifying changes.
Specifically, the Exchange proposes to
make modifications to Rules 8.15
(pertaining to LMMs in Hybrid 3.0
classes), 8.15A (pertaining to LMMs in
Hybrid classes) and 8.85 (pertaining to
DPMs) to modify the descriptions of
certain obligations of LMMs and DPMs
(e.g., obligations related to quote
accuracy, bid/ask differentials,
minimum size and trading rotations,
competitive markets and promotion of
the Exchange, and material operational
or financial change notifications) to be
more consistent with each other.5 The
Exchange notes that LMMs and DPMs
have substantially similar functions and
obligations (including the same
continuous quoting obligations, along
with the same participation entitlement
percentages), and therefore, having
consistent language with respect to
these obligations will simplify its rules
and reflect the similar roles served by
LMMs and DPMs.6
Of significance, CBOE proposes to
change the opening quoting obligations
of LMMs and DPMs. CBOE Rules
8.15A(b)(iv) and 8.85(a)(xi) require
LMMs and DPMs, respectively, to
ensure that a trading rotation is initiated
promptly following the opening of the
underlying security in 100% of the
series of each allocated class by entering
opening quotes as necessary. The
Exchange proposes to modify the
opening quote requirement to require
3 See Securities Exchange Act Release No. 77200
(February 22, 2016), 81 FR 9910 (‘‘Notice’’).
4 A more detailed description of the proposed
rule change appears in the Notice. See Notice, supra
note 3.
5 See Notice, supra note 3, at 9913.
6 See id. Currently, the primary difference
between LMMs and DPMs relates to their
appointment terms. An LMM receives an
appointment for a limited term (e.g., one month),
while a DPM serves in that role until it resigns or
the Exchange removes it from that role pursuant to
Rule 8.90.
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21931
that opening quotes must be entered
within one minute in any series that is
not open due to the lack of a quote. The
proposed rule change also modifies the
Rules’ language to provide that the
timing of the opening quoting obligation
begins after the initiation of an opening
rotation on the Exchange rather than
after the opening of the underlying
security.7
CBOE also proposes to impose a
continuous quoting obligation on LMMs
in Hybrid 3.0 classes.8 LLMs in Hybrid
classes currently must provide
continuous electronic quotes in the
lesser of 99% of the non-adjusted option
series or 100% of the non-adjusted
option series minus one call-put pair,
with the term ‘‘call-put pair’’ referring to
one call and one put that cover the same
underlying instrument and have the
same expiration date and exercise
price.9 According to CBOE, its rules
currently do not prescribe for LMMs a
continuous electronic quoting
requirement for Hybrid 3.0 classes,
though CBOE has historically assumed
a requirement of at least 90% of the
series of each appointed class for 99%
of the time.10 CBOE now proposes to
codify for LMMs a continuous quoting
requirement for Hybrid 3.0 classes to be
identical to the existing requirement for
LMMs assigned to Hybrid classes.11
The Exchange also proposes
modifications to Rules 8.15, 8.15A, 8.83
and 8.85 as they relate to the Off-Floor
DPM and Off-/On-Floor LMM programs.
For instance, CBOE proposes to amend
Rule 8.83(g) to conform Hybrid 3.0
classes to Hybrid classes by providing
that in a Hybrid 3.0 class in which an
Off-Floor DPM has been appointed, the
Exchange also would be permitted to
appoint an On-Floor LMM, which
would be eligible to receive a
participation entitlement under current
7 See
Notice, supra note 3, at 9913.
Notice, supra note 3, at 9915.
9 See CBOE Rule 8.15A(b)(i).
10 See Notice, supra note 3, at 9915.
11 See id. As proposed, this obligation would not
apply to intra-day add-on series on the day during
which such series are added for trading, and would
apply to an LMM’s appointed classes collectively.
CBOE would determine compliance with an LMM’s
continuous electronic quoting obligation on a
monthly basis (however, determining compliance
with this obligation on a monthly basis would not
relieve an LMM from meeting this obligation on a
daily basis, nor would it prohibit the Exchange from
taking disciplinary action against an LMM for
failing to meet these obligations each trading day).
Further, the proposed Rule would provide that
when the underlying security for a class is in a limit
up-limit down state, LMMs in Hybrid 3.0 classes
would have no quoting obligations in the class. The
Exchange represents that these obligations are
identical to the obligations currently imposed on
LMMs in Hybrid classes, as well as DPMs in Hybrid
3.0 classes. See Notice, supra note 3, at 9915.
8 See
E:\FR\FM\13APN1.SGM
13APN1
]]>Agencies
[Federal Register Volume 81, Number 71 (Wednesday, April 13, 2016)]
[Notices]
[Pages 21928-21931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08427]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77554; File No. SR-CBOE-2016-023]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule To Amend the Fees Schedule
April 7, 2016.
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 April 1, 2016, 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 Substance
of the Proposed Rule Change
The Exchange proposes to adopt the Frequent Trader Program. The
text of the proposed rule change is available on the Exchange's Web
site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at
[[Page 21929]]
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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fees Schedule, effective April
1, 2016. Specifically, the Exchange proposes to adopt a program that
offers transaction fee rebates to Customers (origin code ``C'') that
meet certain volume thresholds in CBOE VIX Volatility Index options
(``VIX options'') and S&P 500 Index options (``SPX''), weekly S&P 500
options (``SPXW'') and p.m.-settled SPX Index options (``SPXpm'')
(collectively referred to as ``SPX options'') provided the Customer
registers for the program (the ``Frequent Trader Program'' or
``Program''). A Customer for purposes of this program would be any non-
Trading Permit Holder, non-broker dealer non-Professional.
To participate in the Frequent Trader Program, Customers would have
to register with the Exchange at the Frequent Trader Web site by
providing certain information such as their name and contact
information. Once registered, the Customer would be provided a unique
identification number (``FTID'') that can be affixed to each of its
orders.\3\ The FTID allows the Exchange to identify and aggregate all
electronic and manual trades during both the Regular Trading Hours and
Extended Trading Hours sessions from that Customer for purposes of
determining whether the Customer meets any of the various volume
thresholds. The Customer would have to provide its FTID to the Trading
Permit Holder (``TPH'') submitting that Customer's order to the
Exchange (``executing agent'' or ``executing TPH'') and that executing
TPH would have to enter the Customer's FTID on each of that Customer's
orders. The Exchange notes that it would be the responsibility of the
Customer to request that the executing TPH affix its FTID to its
order(s), but that it would be voluntarily for the executing TPH to do
so. The Exchange would then aggregate the Customer's volume (for which
their FTID was entered) on a monthly basis for each of VIX and SPX
options. If the Customer meets the thresholds shown below, it would
receive a rebate on its VIX and/or SPX options transaction fees,
respectively, as indicated below.\4\ The Exchange notes that although
all executed contracts with an FTID will count towards the qualifying
volume thresholds, the rebates will be based on the actual amount of
fees assessed in accordance with the Fees Schedule (e.g., if a Customer
submits a VIX order for 30,000 contracts, pursuant to the current Fees
Schedule, that customer would be assessed fees for only the first
15,000 contracts under the Customer Large Trade Discount Program.
Therefore, while all 30,000 contracts would count when determining the
tier, the customer's rebate would be based on the amount of the fees
assessed for 15,000 contracts, not on the value of the total 30,000
contracts executed). The thresholds and rebates are as follows:
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\3\ The Exchange notes that it will not disclose the list or
details of customers who have a FTID to any party, and there will be
no public record of FTID owners. Any personal information provided
to the Exchange in connection with the Frequent Trader Program will
be handled in a manner consistent with the Frequent Trader Program
Privacy Policy, a copy of which can be accessed through the Frequent
Trader Program Web site at https://www.cboe.com/ftid/registration.aspx.
\4\ The Exchange notes that only transaction fees would be
discounted (i.e., no other surcharges, such as the Customer Priority
Surcharges, would be rebated or discounted).
----------------------------------------------------------------------------------------------------------------
VIX SPX, SPXW, SPXpm
----------------------------------------------------------------------------------------------------------------
Monthly SPX, SPX, SPXW,
Monthly VIX VIX fee rebate SPXW, SPXpm SPXpm fee
Tier contracts (percent) Tier contracts rebate
traded traded (percent)
----------------------------------------------------------------------------------------------------------------
1........................... 5,000-9,9999... 5 1.............. 12,000-19,999.. 5
2........................... 10,000-19,999.. 10 2.............. 20,000-49,999.. 10
3........................... 20,000 and 15 3.............. 50,000 and 15
above. above.
----------------------------------------------------------------------------------------------------------------
The Exchange notes that the highest achieved threshold rebate rate
will apply from the first executed contract (e.g., if a Customer
executes 14,000 VIX contracts in a month, the Tier 2 10% rebate rate
would apply to all 14,000 VIX contracts). The Exchange believes the
tiered program incentivizes the sending of Customer orders to the
Exchange while maintaining an incremental incentive for Customer's to
strive for the highest tier level. The Exchange also notes that the
volume thresholds for SPX options is higher than for VIX in light of
its mature and established position in the industry.
Lastly, the Exchange proposes to provide that it will distribute a
customer's rebate pursuant to the customer's instructions, which may
include receiving the rebate as a direct payment or via a distribution
to one or more of its executing Clearing Trading Permit Holders.
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.\5\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \6\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect
[[Page 21930]]
investors and the public interest. The Exchange also believes the
proposed rule change is consistent with section 6(b)(4) of the Act,\7\
which provides that Exchange rules may provide for the equitable
allocation of reasonable dues, fees, and other charges among its
Trading Permit Holders.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ 15 U.S.C. 78f(b)(4).
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The adoption of the Frequent Trader Program is reasonable because
it will allow Customers who register for the program an opportunity to
receive certain rebates for reaching certain trading volume thresholds.
The Exchange notes that it is voluntary for Customers to choose whether
or not to register for the program and whether to request that their
unique FTID be appended to their orders. The Program is also voluntary
for executing TPHs who have the option of choosing not to participate
(i.e., they may decline to append FTID numbers on Customer orders).
Additionally, the Exchange notes that incentive programs based on
Customer volume already exist elsewhere within the industry.\8\
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\8\ See e.g., CBOE Fees Schedule, the Volume Incentive Program;
and NASDAQ PHLX LLC Pricing Schedule, Section B. Customer Rebate
Program.
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The Exchange believes it's equitable and not unfairly
discriminatory to establish the program for Customers only because this
is designed to attract a greater number of customer VIX and SPX orders.
This increased volume creates greater trading opportunities that
benefit all market participants. Specifically, while only Customer
orders qualify for the proposed rebates under the Frequent Trader
Program, an increase in customer order flow will bring greater volume
and liquidity, which benefit all market participants by providing more
trading opportunities and tighter spreads. Moreover, the options
industry has a long history of providing preferential pricing to
Customers. In addition the Exchange believes the proposed program is
equitable and not unfairly discriminatory because any Customer (that is
not a CBOE TPH, broker-dealer or Professional) may avail itself of this
program provided it registers with the Exchange.
The Exchange believes limiting the Program to VIX and SPX options
is equitable and not unfairly discriminatory because the Exchange has
expended considerable time and resources in developing these products.
The Frequent Trader Program is designed to encourage greater customer
VIX and SPX options trading, which, along with bringing greater VIX and
SPX options trading opportunities to all market participants, would
bring in more fees to the Exchange, and such fees can be used to recoup
the Exchange's costs and expenditures from developing and maintaining
VIX and SPX options. The Exchange believes it's equitable and not
unfairly discriminatory to establish higher threshold tiers for the SPX
product group because the SPX product group has reached a mature and
established level while VIX has not.
The Exchange believes it's reasonable, equitable and not unfairly
discriminatory to include all of a customer's VIX and SPX executed
contracts with an FTID towards the respective qualifying thresholds
because the Exchange wishes to support and encourage customers to
provide greater order flow in these classes, which allows for price
improvement and has a number of positive impacts on the market system.
The Exchange also believes however, that it's reasonable, equitable and
not unfairly discriminatory to base the rebate off the amount of
transaction fees that would be assessed pursuant to the Fees Schedule
(as opposed to being based off the ``theoretical'' fee value of all
contracts executed) because the Exchange does not want to provide
rebates on contracts for which it is not also collecting transaction
fees.
Lastly, the Exchange believes it's reasonable, equitable and not
unfairly discriminatory to provide Customers a choice as to how their
payment is delivered. Providing Customers with the option of requesting
to receive their rebates under the Frequent Trader Program as separate
direct payments or via a distribution to one or more of its executing
Clearing Trading Permit Holders will provide Customers with a
convenient manner in which to receive their rebates, which perfects the
mechanism for a free and open market.
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 because, while the rebates apply
only to Customers, the Program is designed to encourage increased
Customer VIX and SPX options volume, which provides greater trading
opportunities for all market participants. Additionally, there is a
history in the options markets of providing preferential treatment to
Customers. The Exchange believes that the proposed rule change will not
cause an unnecessary burden on intermarket competition because VIX and
SPX products are only traded on CBOE. To the extent that the proposed
changes make CBOE a more attractive marketplace for market participants
at other exchanges, such market participants are welcome to become CBOE
market participants.
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) of the Act \9\ and paragraph (f) of Rule 19b-4 \10\
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. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 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-2016-023 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2016-023. 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
[[Page 21931]]
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 principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2016-023, and should be
submitted on or before May 4, 2016.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08427 Filed 4-12-16; 8:45 am]
BILLING CODE 8011-01-P
