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

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Start Preamble March 23, 2001.

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 February 28, 2001, the Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “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 CBOE proposes to make a change to its Marketing Fee, under its Fee Schedule, to exempt call/put “combo” transactions from the Marketing Fee. The text of the proposed rule change is available at the Office of the Secretary, CBOE and at the Commission.

II. Self-Regulatory Organization's Statements 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

Last year, the Exchange imposed a $0.40 per contract marketing fee to collect funds to be used by the appropriate Designated Primary Market Start Printed Page 17460Maker (“DPM”) for marketing its service and attracting order flow to the CBOE.[3]

Currently, this marketing fee is applicable to all market-markers to market-maker options transactions.[4] It has, however, recently come to the attention of the Exchange that this marketing fee makers it unprofitable for market makers to do reversals and conversions in which a market maker trades a given amount of an underlying security against an equivalent number of call/put “combos,” i.e., buying the call and selling the put (or vice versa) of the same option class in equal quantities with the same strike price in the same expiration month. In the case of conversion, the market maker buys the put, sells the call, and buys the underlying security. For reversals, the market maker sells the put, buys the call, and sells the underlying security.

Conversions and reversals are popular trading strategies that contribute to market liquidity, but they usually have to be done at a smaller profit margin that other types of trades. When the $0.40 marketing fee is imposed upon the call/put “combo” transactions, the trades frequently cease to be profitable to execute on the Exchange.

Consequently, the Exchange has decided to exempt from the Marketing Fee section of its Fee Schedule all such call/put “combo” transactions. The Exchange represents that it will use trade data to determine qualifying transactions. While the Exchange has no current plans to require documentation to show that specific trades qualify for this exemption, the Exchange reserves the right to do so in the future.

2. Statutory Basis

The Exchange believes 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 provides 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 not necessary or appropriate in furtherance of 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 had neither solicited nor received written comments on the proposed rule change.

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

The foregoing rule change establishes or changes a due, fee, or other charge imposed by the Exchange and, therefore, has become effective pursuant to section 19(b)(3)(A)(ii) of the Act [7] and Rule 19b-4(f)(2) thereunder,[8] upon filing. 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 purpose 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 in the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the CBOE. All submissions should refer to File No. SR-CBOE-01-09 and should be submitted by April 20, 2001.

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

Start Signature

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  See Securities Exchange Act Release No. 43112 (August 3, 2000), 65 FR 49040 (August 10, 2000) File No. SR-CBOE-00-28).

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4.  See id.

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7.  15 U.S.C. 78s(b)(3)(A)(ii)

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[FR Doc. 01-7895 Filed 3-29-01; 8:45 am]