This PDF is the current document as it appeared on Public Inspection on 02/14/2017 at 08:45 am.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), and Rule 19b-4 thereunder, notice is hereby given that on January 27, 2017, 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 amend its Fees Schedule. The text of the proposed rule change is also available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at 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 Statutory Basis for, the Proposed Rule Change
The Exchange proposes to amend its Marketing Fee program, effective February 1, 2017. By way of background the Marketing Fee is assessed on certain transactions of Market-Makers resulting from (i) customer orders from payment accepting firms, or (ii) customer orders that have designated a “Preferred Market-Maker” (“PMM”) under CBOE Rule 8.13. The funds collected via this Marketing Fee are then put into pools controlled by DPMs and PMMs. The DPM or PMM controlling a certain pool of funds can then determine the order flow provider(s) to which the funds should be directed in order to encourage such order flow provider(s) to send orders to the Exchange. On each order, an order flow provider can designate the Preferred Market-Maker to which the funds generated from the order sent by the order flow provider should be allocated (a “Preferred order”).
The Exchange proposes to expand the Marketing Fee program to Lead Market-Makers (“LMMs”). Under the proposed rule change, LMMs would be given access to the Marketing Fee funds generated from those orders on which the LMM was preferred (i.e., designated) and those funds would be collected by CBOE and disbursed by CBOE according to the instructions of the LMM. The Exchange notes that expanding the Marketing Fee program to LMMs allows LMMs to amass a pool of funds with which to use to incent order flow providers to send order flow to the Exchange. This increased order flow would benefit all market participants on the Exchange. The Exchange also notes that as with DPMs and PMMs, an LMM may have access to the Marketing Fee funds generated from a Preferred order regardless of whether that LMM has an appointment in the class in which the Start Printed Page 10847Preferred order is received and executed.
The Exchange also proposes to make certain clarifications to Footnote 6 of the Fees Schedule, which governs the Marketing Fee program. The Exchange notes that it inadvertently only references Market-Makers and DPMs as being subject to the fee, even though LMMs, like DPMs, are also Market-Makers and the fee has therefore always applied (i.e., all orders with origin code “M” are subject to the fee in accordance with above). As such, the Exchange proposes to explicitly note in the first line that the Marketing Fee is assessed to transactions of “Market-Makers (including DPMs and LMMs)” and thereafter refer only to “Market-Makers” in the Footnote, instead of “Market-Makers and DPMs” since Market-Makers is defined as including DPMs and LMMs. The Exchange notes this is not a substantive change, but rather a change to make this point clear in the Fees Schedule to avoid potential confusion. The Exchange next proposes to include a reference to “DPMs under CBOE Rule 8.80” in the first sentence to explicitly note that customer orders may also have a designated DPM (i.e., the DPM may be given access to Marketing Fee funds generated from a Preferred order on which it was designated). In order to avoid potential confusion, the Exchange also proposes to add a new term, “Preferenced Market-Makers.” Preferenced Market-Makers will refer collectively to any DPM, PMM or LMM that is designated on a Preferred order (which the Exchange also proposes to rename as a “Preferenced order” for consistency). The Exchange believes using the general term “Preferred Market-Maker” for designated DPMs, PMMs or LMMs can be confused with PMMs under CBOE Rule 8.13. The Exchange believes the proposed change therefore, provides clarity in the rules and makes the Fees Schedule easier to read.
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. Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5)  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 investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with Section 6(b)(4) of the Act, which requires that Exchange rules provide for the equitable allocation of reasonable dues, fees, and other charges among its Trading Permit Holders and other persons using its facilities.
The Exchange believes expanding the Marketing Fee program to LMMs is reasonable, equitable and not unfairly discriminatory because it will allow LMMs to amass a pool of funds with which to use to incent order flow providers to send order flow to the Exchange. This increased order flow would benefit all market participants on the Exchange. Additionally, the Exchange believes it is equitable and not unfairly discriminatory to expand the Marketing Fee program to LMMs because, like PMMs under CBOE Rule 8.13, LMMs have increased obligations that other market participants do not such an heightened quoting standards.
The Exchange also believes that clarifying that the reference to “Market-Makers” in Footnote 6 actually includes both DPMs and LMMs maintains clarity in the Fees Schedule and avoids potential confusion. Similarly, the Exchange believes that clarifying that customer orders may also designate a DPM (who would then have access to the Marketing Fees generated from that Preferred order) alleviates potential confusion. Lastly, the Exchange believes introducing the term “Preferenced Market-Maker” to denote any DPM, PMM or LMM that is designated on a Preferred (or as proposed, “Preferenced”) order alleviates potential confusion and makes the Fees Schedule easier to read. The alleviation of confusion removes impediments to and perfects the mechanism of a free and open market and a national market system, and, in general, to protects investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will impose any burden on competition that are not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed rule change will impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act because, while the proposed change allows LMMs to also amass a pool of funds with which to use to incent order flow providers to send order flow to the Exchange, LMMs, like PMMs, have heightened quoting standards. Moreover, the proposed change provides LMMs an opportunity to incent order flow providers to send order flow to the Exchange, which benefits all market participants.
The Exchange does not believe that the proposed rule change will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act because the proposed change only affects trading 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  and paragraph (f) of Rule 19b-4  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 Start Printed Page 10848change 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:
- Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
- Send an email to firstname.lastname@example.org. Please include File Number SR-CBOE-2017-011 on the subject line.
- 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-2017-011. 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 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 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-2017-011 and should be submitted on or before March 8, 2017.Start Signature
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Eduardo A. Aleman,
3. The Commission notes that the Exchange's new text in footnote 6 of the Fees Schedule refers in several places to “DPM or Preferenced Market-Maker.” Though the term “Preferenced Market-Maker” includes DPMs (as well as LMMs and PMMs), use of the phrase “DPM or Preferenced Market-Maker” recognizes that DPMs also may be given access to marketing fee funds collected on orders preferenced to them in any class in addition to funds collected from non-preferenced orders in the DPM's assigned classes.Back to Citation
7. See CBOE Rule 8.15 (Lead Market-Makers).Back to Citation
[FR Doc. 2017-02997 Filed 2-14-17; 8:45 am]
BILLING CODE 8011-01-P