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Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Board Options Exchange, Inc. Relating to Exchange Fees

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Start Preamble July 25, 2002.

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 27, 2002, the Chicago Board Options Exchange, Inc. (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the Start Printed Page 49970proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On July 24, 2002, the Exchange filed Amendment No. 1 to the proposed rule change.[3] 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 make certain changes to its fee schedule and to Exchange Rule 2.22, entitled “Other Fees or Charges.”

The text of the proposed rule change is available at the CBOE 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 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 CBOE proposes to make certain fee additions and changes, as well as to renew and amend the Exchange's Prospective Fee Reduction Program. The CBOE represents that the proposed changes are the product of the Exchange's annual budget review. The CBOE also represents that the fee changes were approved by the Exchange Board of Directors pursuant to CBOE Rule 2.22 and will take effect on July 1, 2002.

The Exchange is amending the following fees. (1) The annual and transfer Registration fees for Registered Representatives, Registered Options Principals, and Financial/Operations Principals will be increased from $50 to $55. A new $30 fee for terminations of the registrations of such individuals will also be instituted. The Exchange represents that this fee is comparable to one already imposed by the American Stock Exchange LLC (“Amex”).[4] The Exchange proposes to amend Rule 2.22(b) to reflect the changes in these fees, which will help offset the cost of increased regulatory efforts by the Exchange. (2) Monthly member dues will increase from $208.33 to $250, to help fairly distribute the Exchange's increased costs across all members. (3) The current Index Customer Large Trade Discount Program will be eliminated. (4) The Floor Brokerage Fee will increase from $0.03 to $0.04 per contract. The Exchange represents that this fee has not been changed since its inception in 1974, and the current waiver of this fee for customer transactions in equity and QQQ options will continue. (5) The Firm Facilitation Transaction Fee, which is applied to orders in which a firm accommodates its customer by taking the other side of an options transaction, will increase from $0.10 to $0.15 per contract. The Exchange represents that the increased fee will still be $0.04 less per contract than the regular firm transaction rate. (6) The transaction fee for Broker-Dealer transactions in equities and QQQ options will increase from $0.19 to $0.20 per contract. (7) The DPM Facilities Fee, which the Exchange charges its Designated Primary Market-Makers (“DPMs”) each month for use of Exchange floor trading stations, will increase from $300 to $500 for a standard station, from $600 to $1,000 for a super station, and from $900 to $1,500 for a giant station. The Exchange represents that these fees help offset the Exchange's costs to provide a physical location and technology to the DPMs.

The CBOE represents that the various fee changes contained in this filing are structured to fairly allocate the costs of operating the Exchange.

The Exchange also proposes to amend and renew its Prospective Fee Reduction Program (“Program”). Under the amended Program, if at the end of the second or third quarter of the Exchange's fiscal year, the Exchange's average contract volume per day on a fiscal year-to-date basis exceeds one of 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 CBOE proposes that the Program begin on January 1, 2003, at the beginning of the Exchange's third fiscal quarter, and continue through the end of the Exchange's 2003 fiscal year, terminating June 30, 2003. The program's potential applicability is being limited to only the third and fourth quarters of the Exchange's fiscal year.

The Exchange represents that the changes to the Program 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 Program will terminate at the end of the Exchange's 2003 fiscal year, the Exchange intends to evaluate the Program prior to the beginning of the 2004 fiscal year and may renew the Program in the same or modified form for the 2004 fiscal year.

2. Statutory Basis

The Exchange represents 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 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

No written comments were solicited or received with respect to 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)(ii) of the Act [7] and subparagraph (f)(2) of Rule 19b-4 [8] thereunder, because it establishes or changes a due, fee, or other charge. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change it if appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, Start Printed Page 49971or in furtherance of the purposes of the Act.[9]

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, 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-2002-37 and should be submitted by August 22, 2002.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[10]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  See Letter from Nancy L. Nielsen, Director of Arbitration and Assistant Secretary, CBOE, to Nancy Sanow, Assistant Director, Division of Market Regulation, Commission, dated July 23, 2002 (“Amendment No. 1”). In Amendment No. 1, the CBOE deleted the proposed increased transaction fees for non-member market maker transactions for equity, QQQ, and index options.

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4.  See Securities Exchange Act Release No. 44286 (May 9, 2001), 66 FR 27187 (May 16, 2001) (File No. SR-Amex-2001-22).

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7.  15 U.S.C. 78s(b)(3)(A)(ii).

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9.  For purposes of calculating the 60-day abrogation period, the Commission considers the period to commence on July 24, 2002, the date the Exchange filed Amendment No. 1.

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[FR Doc. 02-19454 Filed 7-31-02; 8:45 am]