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Notice

Self-Regulatory Organization; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Chicago Board Options Exchange, Inc., Relating to Exchange Fees

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Start Preamble August 10, 2000.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) [1] and Rule 19b-4 thereunder,[2] notice is hereby given that on June 22, 2000, the Chicago Board Options Exchange, Inc. (“CBOE ” or “Exchange”) filed with the Securities and Exchange Commission Start Printed Page 50259(“Commission”) the proposed rule change as described in Items I, II, and II 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 CBOE proposes to (i) make certain fee changes and (ii) renew and amend the Exchange's Fee Reduction Program and Index Customer Larger Trade Discount Program. The text of the proposed rule change is available at the CBOE and the Commission.

II. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

In its filing with the Commission, the CBOE included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The CBOE 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 proposes (i) to make certain fee changes and (ii) to renew and amend the Exchange's Prospective Fee Reduction Program and Index Customer Large Trade Discount Program. The fee changes are being implemented by the Exchange pursuant to CBOE Rule 2.22 and are effective as of July 1, 2000.

The Exchange is increasing the following fees. First, the index option market-maker transaction fee will be increased from $.15 per contract to $.19 per contract, to equal the rate charged to equity market-makers. Second, the index option non-facilitation order fee will be increased from $.15 per contract to $.19 per contract, to equal market-maker rates. Third, the S&P 100 (“OEX”) facilitation fee will be increased from $.06 per contract to $.10 per contract, to equal the facilitation rates of all other indexes. fourth, the equity option facilitation fee will be increased from $.06 per contract to $.10 per contract, to equal the index facilitation rates. Fifth, the ILX trading floor booth terminal rental fee will be increase from $350 per month to $400 per month. Sixth, the Access fees will be increased form $100 to $110 for floor Managers, and from $50 to $55 for Clerks. Seventh, the monthly fee for certain booths that may be used to flash signals to the OEX pit will be increased from $150 to $500, equaling the rate charged for S&P 500 and Nasdaq-100 phone positions. The booths subject to this increased monthly fee are a subset of the perimeter booths category on the Exchange's fee schedule. Eighth, the Dow Jones monthly booth fee will be increased from $300 to $500. Finally, registration fees will be increased from $35 to $45 for initial applications; and will be increased from $30 to $40 for annual and transfer applications. Registration maintenance fees will be increased from $30 to $40 for registered representatives, registered options principals, and financial/operations principals. The Exchange proposes to amend Rule 2.22(b) to reflect the increase in the registration fees.

The Exchange also proposes to implement two new fees. First, the Exchange proposes to implement a Firm FOCUS Minimum Monthly Fee to supplement its existing Firm Designated Examining Authority (“DEA”) Fee, which is current $.40 per $1,000 of gross revenue. This new minimum fee will be $1,000 for clearing member firms and $250 for non-clearing member firms.[3] The purpose of this fee is to help the Exchange more closely cover the costs of regulating certain member firms that previously were assessed little or no fees in this area. Second, the Exchange proposes to establish a monthly Designated Primary Market Maker Facilities Fee that would be either $300, $600 or $900 depending on the size of the trading station utilized. This fee is similar to facilities usage fees charged to specialists on other exchanges.

In addition to implementing the two fees described above, the Exchange proposes to reinstate its transaction fee of $.19 per contract for broker-dealer marketable orders of 30 contracts or less routed via the Exchange's Order Routing System, which the Exchange had previously waived. The Exchange is also proposing to reinstate transaction fees for FLEX equity options (“E-FLEX”), by applying the Exchange's listed equity options fee schedule to E-FLEX options. These fees had also been waived by the Exchange. There will continue to be no transaction fee for customer E-FLEX options orders. The Exchange believes that reinstating these fees is necessary to make the Exchange's options transaction charges more consistent with those of other options exchanges.

The Exchange also proposes to renew its Prospective Fee Reduction Program. The program currently provides that if at the end of any quarter of the Exchange's fiscal year, the Exchange's average contract volume per day on a fiscal year-to-year basis exceeds certain predetermined volume thresholds, the Exchange's market-maker transaction fees will be reduced in the following fiscal quarter in accordance with a fee reduction schedule. The Exchange proposes to raise the volume thresholds and renew the Program for one year, beginning July 1, 2000 and ending June 30, 2001. Trading volume in the fourth quarter of fiscal year 2000 will be used to determine the discount applied in the first quarter of fiscal year 200.1

Specifically, the CBOE proposes to raise the volume thresholds as follows: (i) the threshold volume at which a $.01 fee reduction applies will be raised from 850,000 to 1,050,000 contracts; (ii) the threshold volume at which the $.02 fee reduction applies will be raised from 900,000 to 1,100,000 contracts; (iii) the threshold volume at which a $.03 fee reduction applies will be raised form 950,000 to 1,200,000 contracts; and (iv) the threshold volume at which a $.04 fee reduction applies will be raised from 1,000,000 to 1,300,000 contracts. The Exchange is also proposing to establish two new thresholds for further fee reductions as follows: (i) a $.05 fee reduction for 1,400,000 to 1,499,999 contacts; and (ii) a $.06 fee reduction applies for 1,500,000 contracts and above.

The Exchange also proposes to renew and modify its Index Customer Large Trade Discount Program. This Program provides discounts on the transaction fees that CBOE members pay with respect to customer index orders for 500 or more contracts. Currently, for any month that the Exchange's average contract volume per day exceeds certain predetermined volume thresholds, the transaction fees that are assessed by the Exchange in that month with respect to customer index orders for 500 or more contracts are subject to a discount in accordance with a discount schedule. The program is scheduled to terminate on June 30, 2000 at the end of the Exchange's 2000 fiscal year. The Exchange proposes to renew the Program for one year, beginning on July 1, 2000 and ending on June 30, 2001. The Exchange is also proposing to eliminate the volume thresholds and to provide that for trades of 500 contracts Start Printed Page 50260and above, regardless of monthly volume, transaction fees will be reduced by 30% in all index products.

In addition, the Exchange proposes to eliminate all booth variable fees. These fees have significantly declined in recent years, mostly due to firm consolidations and increased volume.

The proposed amendments are the product of the Exchange's annual budget review. The amendments are structured to fairly allocate the costs of operating the Exchange in the event that the Exchange experiences higher volume. In addition, although the proposed rule change provides that the Exchange's Fee Reduction Program and the Exchange's Index Customer Large Trade Discount Program will terminate at the end of the Exchange's 2001 fiscal year, the Exchange intends to evaluate these Programs prior to the beginning of the 2002 fiscal year and may renew these Programs in the same modified form for the 2002 fiscal year.[4]

2. Statutory Basis

The CBOE believes that the proposed rule change is consistent with Section 6(b) of the Act, [5] in general, and furthers the objectives of Section 6(b)(4) of the Act, [6] in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among CBOE members.

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

The Exchange does not believe that the proposed rule change will impose any burden on competition.

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

Written comments were neither solicited nor received.

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

Because the foregoing rule change establishes our changes a due, fee, or other charge imposed by the Exchange, it has become effective pursuant to Section 19(b)(3)(A)(ii) [7] of the Act and subparagraph (f)(2) of Rule 19b-4 thereunder.[8] At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 inspection and copying at the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to the File No. SR-CBOE-00-24 and should be submitted by September 7, 2000.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[9]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

2.  CFR 240.19b-4.

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3.  The Firm FOCUS Minimum Monthly Fee will apply to those clearing member firms and non-clearing member firms whose DEA Fee would not otherwise exceed the thresholds of $1,000 and $250, respectively. Telephone conversation between Jamie Galvan, Attorney, CBOE, and Geoffrey Pemble, Attorney, Division of Market Regulation, Commission (July 20, 2000).

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4.  The Commission notes and the Exchange acknowledges that it would be required to file a proposed rule change pursuant to Section 19(b) of the Act before renewing or modifying these programs. Telephone conversation between Jamie Galvan, Attorney, CBOE, and Geoffrey Pemble, Attorney, Division of Market Regulation, Commission (July 20, 2000).

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7.  15 U.S.C. 78s(b)(34)(A)(ii).

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[FR Doc. 00-20955 Filed 8-16-00; 8:45 am]

BILLING CODE 8010-01-M