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Notice

Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Exchange Fees for Fiscal Year 2010

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Start Preamble January 6, 2010.

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 December 30, 2009, the Chicago Board Options Exchange, Incorporated (“Exchange” or “CBOE”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by CBOE. The Exchange has designated this proposal as one establishing or changing a due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act [3] and Rule 19b-4(f)(2) Start Printed Page 2167thereunder,[4] which renders the proposal effective upon filing with the Commission. 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

CBOE proposes to amend its Fees Schedule to make various changes for Fiscal Year 2010. The text of the proposed rule change is available on the Exchange's Web site (http://www.cboe.org/​legal), on the Commission's Web site (http://www.sec.gov), at the Exchange's principal office, 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, 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 those statements may be examined at the places specified in Item IV below. CBOE has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.

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

1. Purpose

The purpose of this proposed rule change is to amend the CBOE Fees Schedule to make various fee changes. The proposed changes are the product of the Exchange's annual budget review. The fee changes were approved by the Exchange's Board of Directors pursuant to CBOE Rule 2.22 and will take effect on January 4, 2010. The Exchange proposes to amend certain fees, eliminate several fees to simplify the Fees Schedule, and clarify the Fees Schedule in several respects. The Exchange also seeks to establish fees for transactions in S&P 500 Dividend Index (DVS) options.

A. The Exchange proposes to amend the following fees:

Index Options Transaction Fees: The Exchange proposes to amend customer, voluntary professional and broker-dealer transaction fees for certain index options to create consistent fees for similar products and to simplify the fee structure for index options. The Exchange proposes to increase the customer (“C” origin code) transaction fee in S&P 100 options (OEX and XEO) from $.30 per contract to $.40 per contract, which is the same rate charged to customers for certain other CBOE proprietary index options (Dow Jones Industrial Average (DXL) and volatility index options). The Exchange proposes to reduce the customer transaction fee for Morgan Stanley Retail Index (MVR) options from $.40 per contract to $.18 per contract.

The Exchange proposes to increase the voluntary professional (“W” origin code) transaction fee in OEX options from $.20 per contract to $.40 per contract and in XEO options from $.30 per contract to $.40 per contract.[5] The Exchange proposes to increase the broker-dealer [6] transaction fee in OEX and XEO options from $.30 per contract to $.40 per contract. Currently, broker-dealer transaction fees for volatility index options are $.25 per contract for manual executions and $.45 per contract for electronic executions. The Exchange proposes to charge $.40 per contract for manual and electronic broker-dealer executions in volatility index options. Broker-dealer transaction fees are currently $.25 per contract for MVR options. The Exchange proposes to increase the broker-dealer transaction fee for electronic executions in MVR options to $.45 per contract.

ETF Options Transaction Fees: The Exchange proposes to amend broker-dealer transaction fees for certain ETF options to create consistent fees for similar products and to simplify the fee structure for ETF options. Currently, the broker-dealer transaction fee in QQQQ (PowerShares QQQ Trust) options and IWM (iShares Russell 2000 Index Fund) options is $.25 per contract. The Exchange proposes to increase the broker-dealer transaction fee for electronic executions in QQQQ and IWM options to $.45 per contract.

Surcharge Fees: The Exchange currently charges a $.06 per contract surcharge fee on all non-public customer [7] transactions in OEX, XEO, SPX and volatility index options. The Exchange proposes to increase the surcharge fee for OEX, XEO and SPX options to $.10 per contract and for volatility index options to $.08 per contract. The surcharge fee is assessed to help the Exchange recoup license fees the Exchange pays to index licensors for the right to list these products for trading and is similar to surcharge fees charged by other exchanges.

Floor Brokerage Fees: The Exchange currently charges floor brokers executing orders in OEX, SPX and DXL options $.04 per contract and $.02 per contract for crossed orders. The Exchange proposes to charge floor brokers executing orders in volatility index options $.02 per contract and $.01 per contract for crossed orders.

Cabinet Trade Transaction Fees: The Exchange has traditionally not assessed transaction fees for accommodation liquidations (“cabinet trades”).[8] Cabinet trades refer to trades in listed options that are worthless or not actively traded. Due to the expansion of option classes participating in the Penny Pilot Program, the Exchange has found it increasingly difficult to distinguish cabinet trades from trades in Penny Pilot options classes for purposes of this fee waiver program. Therefore, the Exchange proposes to eliminate the fee waiver and begin assessing transaction fees for cabinet trades effective January 4, 2010.

Strategy Fee Cap: The Exchange currently caps market-maker, firm, and broker-dealer transaction fees associated with dividend, merger and short stock interest strategies, as described in Footnote 13 of the CBOE Fees Schedule.[9] Transaction fees are capped at $1,000 for all such strategies executed on the same trading day in the same options class, and are further capped at $50,000 per month per initiating member or firm. The Exchange proposes to reduce the per month per initiating member or firm cap from $50,000 to $25,000. The proposed fee cap reduction would enable the Exchange to remain competitive for these types of Start Printed Page 2168strategies and is similar to strategy fee caps at other options exchanges.

Customer Large Trade Discount Program: Customer (“C” origin code) transaction fees are capped for large trades in index, ETF and HOLDRs options.[10] Currently, the Exchange charges only the first 7,500 contracts of a customer order in volatility index options. The Exchange proposes to charge only the first 5,000 contracts of a customer order in volatility index options in order to attract additional order flow to the Exchange.

Membership Application Fees: Membership application fees are set forth in Section 11 of the CBOE Fees Schedule as well as in a regulatory circular (“Membership Fees Circular”). The Exchange proposes to amend certain membership application fees as reflected in the Fees Schedule and Membership Fees Circular included as part of Exhibit 5. Specifically, the Exchange proposes to increase the Non-Member Customer Business Fee from $1,000 to $2,500, the Lessor Firm Fee from $1,000 to $2,000, and the Renewal/Change of Status Fee from $250 to $500. The proposed changes would help the Exchange recover its costs in processing these applications.

B. The Exchange proposes to eliminate the following fees (with one exception as noted below):

Customer Complex Order Fee: The Exchange proposes to eliminate the transaction fee of $.18 per contract for customer complex orders in equity and QQQQ options that “take liquidity” from the Exchange's complex order book.[11]

Member Firm Proprietary Sliding Scale—License Fee Add-On: The Exchange's Member Firm Proprietary Sliding Scale program reduces a member firm's standard $.20 per contract transaction fee if the member firm reaches the volume thresholds set forth in the sliding scale in a month.[12] Due to the Exchange's obligation to pay license fees on certain products, the Exchange currently assesses a $.10 per contract license fee (a total of 10 cents per contract less any surcharge fees already assessed) on all licensed products except Nasdaq-100 (MNX, NDX) and Russell 2000 (RUT) options when a firm reaches the fifth tier of the sliding scale. The Exchange proposes to eliminate this license fee add-on to simplify the Fees Schedule. The Exchange will continue to charge the surcharge fees set forth in Section 1 (Index Options) of the Fees Schedule on trades in licensed products when a firm reaches the fifth tier of the sliding scale.

Miscellaneous Fees: The following fees are proposed to be eliminated as they are outdated and/or the Exchange has determined no longer to charge them: Installation, Relocation and Removal fees for single line phones under Section 8(F)(2) of the Fees Schedule; Installation, Relocation and Removal fees for Thomson[13] market data trading floor terminals, fees for Thomson's NYSE OpenBook data, and the Installation fee of $500 for satellite TV under Section 8(F)(10) of the Fees Schedule; Trade Processing Services fees (Electronic Output/Input Services and Market-Maker Paper Ticket Fees) under Section 9 of the Fees Schedule, except for the $.0025 per contract side fee for matched and unmatched data; Fees for electronic and paper filing of FOCUS reports under Section 12 of the Fees Schedule; Fee for a service provided to member firms by the Exchange to facilitate member firm payments to floor brokers for except for the [sic][14] floor brokerage services (Floor Broker Payment Program) under Section 13 of the Fees Schedule; Pass-through of periodic license or royalty fees, the fee for a hard copy subscription to the Exchange Bulletin, and the CFLEX Log-in fee under Section 15 (Miscellaneous) of the Fees Schedule; and Circuit Charges under Section 16 of the Fees Schedule.[15]

C. The Exchange proposes the following Fees Schedule clarifications:

Floor Brokerage Fees: The Exchange proposes to clarify Footnote 5 of the Fees Schedule relating to floor brokerage fees in three respects. First, the Exchange proposes to delete the sentence regarding assessment of the fee to Designated Primary Market-Makers (“DPMs”) because DPMs no longer have an agency function. Second, the Exchange proposes to clarify that if a market-maker executes an order for an account in which the market-maker is not a registered participant as reflected in the Exchange's Membership Department records, the market-maker will be assessed a floor brokerage fee. Third, the Exchange proposes to clarify that order ID data is not required to be the same on both the buy and sell side of an order in order to be eligible for the discounted “crossed” rate.

Disputed Charges: The Exchange proposes to add to the Fees Schedule as Footnote 7 a statement that after three months, all fees as assessed by the Exchange are considered final by the Exchange. The purpose of this change is to encourage members to promptly review their Exchange invoices so that any disputed charges can be addressed in a timely manner.

Member Firm Proprietary Sliding Scale: The Exchange proposes to clarify Footnote 11 of the Fees Schedule relating to the Member Firm Proprietary Sliding Scale in three respects. First, the Exchange proposes to amend Footnote 11 to clarify that each member firm is responsible for notifying the Exchange's Membership Department of all of its affiliations with other members so that contracts of the firm and its affiliates may be aggregated for purposes of the sliding scale. Second, the Exchange proposes to clarify that it will aggregate the activity of separate member firms for purposes of the sliding scale if there is at least 75% common ownership between the firms as reflected on each firm's Form BD, Schedule A, which is the same way Exchange aggregates trading activity for the Liquidity Provider Sliding Scale.[16] Third, the Exchange proposes to clarify that a member firm's contracts executed pursuant to an OCC Clearing Member Trade Assignment (CMTA) agreement (i.e., executed by another clearing firm and then transferred to the member firm's account at the OCC) are aggregated with the member firm's non-CMTA contracts for purposes of the sliding scale.

Position Transfer Fee: The Exchange charges a fee of $.02 per contract side for options positions transferred pursuant to Rule 6.49A.[17] The fee helps Start Printed Page 2169offset costs the Exchange incurs in providing services to accommodate both on-floor and off-floor transfers of positions.[18] The fee is capped at $25,000 per transfer. The Exchange proposes to clarify the application of the $25,000 fee cap. Specifically, the Exchange proposes to clarify that for all on-floor transfers, both the position transferor (seller) and the transferee (buyer) are assessed a fee of $.02 per contract with a cap of $12,500 for each. If there are multiple transferees (buyers), each transferee is assessed a fee of $.02 per contract up to the $12,500 cap for the transferee side of the transfer package. For any off-floor transfer where regulatory review of a proposed transfer is solicited to determine whether the proposed transfer meets the off-floor transfer provisions of Rule 6.49A, the initiator of the review is assessed a fee of $.02 per contract with a cap of $25,000. If it is determined the position transfer must be affected on-floor, only the on-floor fee will be assessed.

Customer Large Trade Discount Program: The Exchange proposes to amend Section 18 of the Fees Schedule to clarify the calculation of the fee cap. The Exchange proposes to clarify that it will look at the trade date and order ID on each trade record to determine the qualification of an order for the fee cap. The order ID on each trade record must be the same in order for the Exchange to tie the trade records to the same order and accumulate the total contracts. The Exchange also proposes to clarify that for complex orders, the total contracts of an order (all legs) are counted for purposes of calculating the fee cap.

D. The Exchange proposes to establish fees for DVS options.

The Exchange recently received approval to list and trade options on the S&P 500 Dividend Index, which represents the accumulated ex-dividend amounts of all S&P 500 Index component securities over a specified accrual period (e.g., quarterly, semi-annually, annually).[19]

Consistent with the changes being proposed in this filing, the amount of the transactions fees for DVS options shall be as follows:

  • $0.20 per contract for Market-Maker and Designated Primary Market-Maker transactions;[20]
  • $0.20 per contract for member firm proprietary transactions;
  • $0.40 per contract for manually executed broker-dealer transactions;
  • $0.40 per contract for electronically executed broker-dealer transactions;
  • $0.40 per contract for voluntary professional transactions;[21]
  • $0.40 per contract for customer transactions; and
  • $0.10 per contract CFLEX surcharge fee.

The Exchange also proposes to adopt a $.10 per contract surcharge fee on all non-public customer transactions in DVS options to help the Exchange recoup license fees the Exchange pays to the reporting authority. The proposed surcharge fee is identical to the surcharge fee proposed to be increased from $0.06 per contract to $0.10 for non-public customer transactions in OEX, XEO and SPX options.

The Exchange's Liquidity Provider Sliding Scale shall apply to transaction fees in DVS options, but the Exchange's marketing fee[22] shall not apply. The Exchange believes the rule change will further the Exchange's goal of introducing new products to the marketplace that are competitively priced.[23]

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (“Act”),[24] in general, and furthers the objectives of Section 6(b)(4)[25] of the Act in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities. The Exchange believes the proposed index and ETF options transaction fee changes and floor brokerage fee change would create consistent fees for similar products and help to simplify the fee structure for these options. The proposed changes to the Strategy Fee Cap and Customer Large Trade Discount Program would result in reduced fees for market participants. The proposed changes to surcharge fees and membership application fees would help the Exchange recover costs. The Exchange believes the proposed fee eliminations and Fees Schedule clarifications would update and simplify the Fees Schedule. With respect to establishing fees for DVS options, the Exchange believes the new fees proposed by this filing are equitable and reasonable in that they will further the Exchange's goal of introducing new products to the marketplace that are competitively priced and will help the Exchange recoup license fees that the Exchange pays to the reporting authority.

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 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

Because the foregoing rule change establishes or changes a due, fee, or other charge imposed by the Exchange, it has become effective pursuant to Section 19(b)(3)(A) of the Act [26] and subparagraph (f)(2) of Rule 19b-4 thereunder.[27] 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. Comments may be submitted by any of the following methods:

Electronic Comments

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-2009-098. This file number should be included on the subject line if e-mail 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 (http://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 inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such 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 No. SR-CBOE-2009-098 and should be submitted on or before February 4, 2010.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[28]

Florence E. Harmon,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  15 U.S.C. 78s(b)(3)(A)(ii).

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5.  The Commission notes that on December 24, 2009, CBOE filed a proposed rule change relating to fees for professional orders that also would become operative on January 4, 2010. See SR-CBOE-2009-101.

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6.  Broker-Dealer transaction fees apply to broker-dealer orders (orders with “B” origin code), non-member market-maker orders (orders with “N” origin code) and orders from specialists in the underlying security (orders with “Y” origin code). See CBOE Fees Schedule, Footnote 16. Broker-dealer transaction fees also apply to certain orders with “F” origin code, specifically, orders from OCC members that are not CBOE members. The Exchange proposes to clarify Footnote 16 in this regard.

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7.  The Surcharge Fee applies to all non-public customer transactions (i.e. CBOE and non-member market-maker, member firm and broker-dealer), including voluntary professionals and linkage orders except for satisfaction orders. See CBOE Fees Schedule, Section 1 (Index Options) and Footnote 14. The Commission notes that on December 24, 2009, CBOE filed a proposed rule change relating to fees for professional orders that also would become operative on January 4, 2010. See SR-CBOE-2009-101.

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8.  See CBOE Fees Schedule, Footnote 7.

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9.  The Strategy Fee Cap is in effect as a pilot program that is due to expire on March 1, 2010.

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10.  See CBOE Fees Schedule, Section 18.

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11.  See CBOE Fees Schedule, Section 1 and Footnote 12.

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12.  See CBOE Fees Schedule, Section 1 and Footnote 11.

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13.  The Exchange also proposes to replace the reference to “ILX” in Section 8 of the Fees Schedule with “Thomson” to reflect the replacement of the ILX service with Thomson's service. ILX is a division of Thomson Financial.

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14.  The Exchange inadvertently included the phrase “except for the” in its filing with the Commission and intended the text of this portion of the “Miscellaneous Fees” section to read: “[f]ee for a service provided to member firms by the Exchange to facilitate member firm payments to floor brokers for floor brokerage services (Floor Broker Payment Program) under Section 13 of the Fees Schedule * * *.” Telephone call between Geoffrey Pemble, Special Counsel, Commission, and Jaime Galvan, Senior Attorney, CBOE, January 5, 2010.

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15.  The Exchange also proposes the following clean-up changes to the Fees Schedule. The Exchange proposes to delete references to the CBOE S&P 500 BuyWrite Index (1/10th value) (“BXO”) and CBOE S&P 500 Three-Month Realized Volatility (“RUH”) from Section 1 (Index Options) to the Fees Schedule since the Exchange no longer trades these two classes. See also SR-CBOE-2009-054 (deleting RUH and BXO references from Footnote 6 to Fees Schedule). The Exchange also proposes to delete the “CBOEdirect Connectivity Fees” line item from Section 17 because those fees are now located in Section 16 of the Fees Schedule.

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16.  See CBOE Fees Schedule, Footnote 10.

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17.  CBOE Rule 6.49A provides for a special procedure to permit option positions to be offered on the floor of the Exchange in the event that the positions are being transferred as part of a sale or disposition of all or substantially all of the assets or options positions of the transferring party where the transferring party would not continue to be involved in managing or owning the transferred positions. The rule also provides for off-floor transfers of positions based on certain specified exemptions, as well as with the approval of the Exchange's President under extraordinary circumstances.

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18.  See Securities Exchange Act Release No. 59193 (January 2, 2009), 74 FR 972 (January 9, 2009).

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19.  See Securities Exchange Act Release No. 61136 (December 10, 2009) (approving SR-CBOE-2009-022).

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20.  This is the standard rate that is subject to the Liquidity Provider Sliding Scale as set forth in Footnote 10 to the Fees Schedule.

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21.  The Commission notes that on December 24, 2009, CBOE filed a proposed rule change relating to fees for professional orders that also would become operative on January 4, 2010. See SR-CBOE-2009-101.

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22.  See Footnote 6 of the Fees Schedule.

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23.  Linkage order fees are inapplicable for options on CBOE's proprietary products.

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[FR Doc. 2010-537 Filed 1-13-10; 8:45 am]

BILLING CODE 8011-01-P