[Federal Register Volume 70, Number 107 (Monday, June 6, 2005)]
[Notices]
[Pages 32855-32858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2870]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51746; File No. SR-CBOE-2005-32]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change and Amendment No. 1 Relating to Remote Market-Maker
Transaction Fees
May 26, 2005.
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 April 20, 2005, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') 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 the CBOE.
On May 18, 2005, the CBOE submitted Amendment No. 1 to the proposed
rule change.\3\ The CBOE has designated this proposal as one
establishing or changing a due, fee, or other charge imposed by the
CBOE under Section 19(b)(3)(A)(ii) of the Act,\4\ and Rule 19b-4(f)(2)
thereunder,\5\ 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 parties.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange: (1) clarified how the
fixed annual fee alternative for DPMs and e-DPMs would be applied
when an entity that has elected the fixed annual fee alternative
merges or combines operations with an entity that has not elected
the fixed annual fee alternative; and (2) revised the date of the
Fees Schedule.
\4\ 15 U.S.C. 78s(b)(3)(A)(ii).
\5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Fees Schedule to (i) establish
transaction fees for Remote Market-Makers (``RMMs''), (ii) amend its
Designated Primary Market-Maker (``DPM'') and Electronic DPM (``e-
DPM'') fixed annual fee program to
[[Page 32856]]
include a fixed fee alternative for RMM transaction fees, and (iii)
explain how DPM or e-DPM consolidations will affect the fixed annual
fee. Below is the text of the proposed rule change, as amended.
Proposed new language is italicized; proposed deletions are in
[brackets].
CHICAGO BOARD OPTIONS EXCHANGE, INC.--FEES SCHEDULE
[MARCH 2] MAY 18, 2005
------------------------------------------------------------------------
Per contract
(cents)
------------------------------------------------------------------------
1. OPTIONS TRANSACTION FEES (1)(3)(4)(7):
EQUITY OPTIONS (13):
I. CUSTOMER.................................... .00
II. MARKET-MAKER (MM) (standard rate)(10)...... .22
III. MEMBER FIRM PROPRIETARY:(11)
FACILITATION OF CUSTOMER ORDER............. .20
NON-FACILITATION ORDER..................... .24
IV. BROKER-DEALER.............................. .25
V. NON-MEMBER MARKET MAKER..................... .26
VI. DESIGNATED PRIMARY MARKET-MAKER (DPM) .12
(10)(14)......................................
VII. ELECTRONIC DPM (e-DPM) (14)............... .25
VIII. LINKAGE ORDERS (8)....................... .24
IX. REMOTE MARKET-MAKER (14)................... .26
QQQQ and SPDR OPTIONS:
I. CUSTOMER:
QQQQ....................................... .00
SPDR....................................... .15
II. MARKET-MAKER (MM) AND DPM (standard .24
rate)(10).....................................
III. MEMBER FIRM PROPRIETARY: (11).............
FACILITATION OF CUSTOMER ORDER................. .20
NON-FACILITATION ORDER......................... .24
IV. BROKER-DEALER.............................. .25
V. NON-MEMBER MARKET MAKER..................... .26
VI. LINKAGE ORDERS (8)......................... .24
VII. REMOTE MARKET-MAKER....................... .26
INDEX OPTIONS:
I.-VIII. Unchanged.............................
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2. MARKET-MAKER, e-DPM & DPM MARKETING FEE (in option classes in
which a DPM has been appointed)(6) Unchanged.
3. FLOOR BROKERAGE FEE (1)(5): Unchanged.
4. RAES ACCESS FEE (RETAIL AUTOMATIC EXECUTION SYSTEM) (1)(4):
Unchanged.
Notes: (1)-(13) Unchanged.
(14) [Effective October 1, 2004, DPMs and e-DPMs may elect to pay a
fixed annual fee of $1.75 million instead of being assessed transaction
fees on a per contract basis for their DPM and e-DPM transactions only
in all equity option classes. The fixed fee does not cover any floor
brokerage fees. DPMs electing to pay the fixed fee will neither be
charged CBOE transaction fees for CBOE transactions related to such
outgoing P/A orders, nor will they receive the credit back for such
fees as set forth in Section 21 of this Fee Schedule. However, pursuant
to the second phase of linkage fee set forth in Section 21 of this Fee
Schedule, all CBOE DPMs, including those electing the fixed annual fee,
who pay transaction fees at other exchanges to execute P/A orders
there, will receive a credit of up to 50% of CBOE DPM transaction
charges for each such order (currently up to $.06 per contract, with
the total of such credits not to exceed the total amount of inbound
linkage transaction fees received by CBOE) to help offset the
transaction fees of other exchanges that CBOE DPMs incur in filling P/A
orders at those exchanges.] Please see Section 23 for details of the
Fixed Annual Fee Alternative for DPMs and e-DPMs.
(15) Unchanged.
5.-21. Unchanged.
22. Reserved.
23. FIXED ANNUAL FEE ALTERNATIVE FOR DPMs and e-DPMs
Effective October 1, 2004, DPMs and e-DPMs may elect to pay a fixed
annual fee of $1.75 million instead of being assessed transaction fees
on a per contract basis for their DPM and e-DPM transactions only in
all equity option classes. The fixed fee does not cover any floor
brokerage fees. DPMs electing to pay the fixed fee will neither be
charged CBOE transaction fees for CBOE transactions related to outgoing
P/A orders, nor will they receive the credit back for such fees as set
forth in Section 21 of this Fee Schedule. However, pursuant to the
second phase of linkage fee relief set forth in Section 21 of this Fee
Schedule, all CBOE DPMs, including those electing the fixed annual fee,
who pay transaction fees at other exchanges to execute P/A orders
there, will receive a credit of up to 50% of CBOE DPM transaction
charges for each such order (currently up to $.06 per contract, with
the total of such credits not to exceed the total amount of inbound
linkage transaction fees received by CBOE) to help offset the
transaction fees of other exchanges that CBOE DPMs incur in filling P/A
orders at those exchanges. Effective July 1, 2005, DPMs and e-DPMs who
elect the fixed annual fee alternative described above may elect to pay
an RMM fixed annual fee of $250,000 instead of being assessed
transaction fees on a per contract basis for their RMM transactions
only in all equity options.
If a DPM or e-DPM who has elected the fixed annual fee alternative
merges or combines operations with a DPM or e-DPM who has not elected
the fixed annual fee alternative, then the fixed annual fee will be
increased and assessed to the surviving DPM/e-DPM entity. The amount of
the increase will be based on the number of contracts traded and
transaction fees paid during
[[Page 32857]]
the previous twelve months by the DPM or e-DPM organization who had not
previously elected the fixed annual fee alternative. The amount of the
increase will be prorated based on the amount of time remaining in the
then current year of the fixed annual fee program. If two DPMs or e-
DPMs who elected the fixed annual fee alternative merge or combine
operations, the fixed fee paid to CBOE by these two organizations will
be unaffected. No adjustments or refunds will be made to either entity.
* * * * *
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 Exchange proposes to amend its Fees Schedule to (i) establish
transaction fees for RMMs, (ii) amend its DPM and e-DPM fixed annual
fee program to include a fixed fee alternative for RMM transaction
fees, and (iii) explain how DPM or e-DPM consolidations will affect the
fixed annual fee.
RMM Transaction Fees
The Commission approved the Exchange's RMM program on March 14,
2005.\6\ An RMM is an individual member or member organization
registered with the Exchange that makes transactions as a dealer-
specialist from a location other than the physical trading station for
the subject option class.
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\6\ See Securities Exchange Act Release No. 51366 (March 14,
2005), 70 FR 13217 (March 18, 2005).
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The Exchange proposes to set transaction fees for RMMs in equity,
QQQQ and SPDR options at $.26 per contract. The Exchange believes the
proposed RMM transaction fee is appropriately set higher than those of
on-floor market-makers because the Exchange will incur additional
systems and other logistical costs both initially and on an ongoing
basis in order to establish and maintain the infrastructure needed to
enable market participation as an RMM.
RMM Fixed Fee Alternative
On October 1, 2004, the Exchange implemented a fixed annual fee
program for DPMs and e-DPMs.\7\ The program offers DPMs and e-DPMs the
alternative of choosing a fixed annual fee of $1.75 million instead of
being assessed transaction fees on a per contract basis for its DPM and
e-DPM transactions in equity options classes.\8\
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\7\ See Securities Exchange Act Release No. 50058 (July 22,
2004), 69 FR 45861 (July 30, 2004).
\8\ See CBOE Fees Schedule, Note 14.
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The Exchange proposes to amend the program to permit DPMs and e-
DPMs who elect the fixed annual fee alternative to pay an additional
fixed annual fee of $250,000 as an alternative to being assessed
transaction fees on a per contract basis for their RMM transactions.
Like the existing program, the RMM fixed fee alternative would apply
only to equity options transactions. Since trading by RMMs will not
commence until sometime in the second quarter of 2005, the Exchange
proposes to begin the RMM fixed fee alternative program on July 1, 2005
and prorate the amount of the fixed annual fee to $125,000 for calendar
year 2005. The amount of the RMM fixed annual fee and the option to
elect the fixed fee will be reviewed annually and may change from year
to year. Any changes to the RMM fixed annual fee would be required to
be filed with the Commission.
The Exchange proposes to create a new Section 23 in the Fees
Schedule that describes the DPM and e-DPM fixed annual fee program (by
adding to it the text from Note 14 of the Fees Schedule) and the RMM
fixed annual fee alternative. Note 14 is revised to delete the current
text and to add a cross reference to Section 23.
Effect of DPM or e-DPM Consolidations on the Fixed Annual Fee
The Exchange also proposes to add to Section 23 of the Fees
Schedule an explanation of how the fixed annual fee would be affected
when a DPM or e-DPM organization merges or combines operations with
another DPM or e-DPM. Specifically, if a DPM or e-DPM who has elected
the fixed annual fee alternative merges or combines operations with a
DPM or e-DPM who has not elected the fixed annual fee alternative, the
fixed annual fee will be increased and assessed to the surviving DPM/e-
DPM entity. The amount of the increase will be based on the number of
contracts traded and transaction fees paid during the previous twelve
months by the DPM or e-DPM organization who had not previously elected
the fixed annual fee alternative. For example, if in the previous
twelve months a DPM or e-DPM organization who had not previously
elected the fixed annual fee alternative traded 4 million equity option
contracts and paid $500,000 in transaction fees, the surviving DPM or
e-DPM entity would be assessed an increase to their fixed annual fee in
the amount of $500,000.
The amount of the increase will be prorated based on the amount of
time remaining in the then current year of the fixed annual fee
program. For example, if the firms in the example above merge six
months into the then current year of the program, the surviving DPM or
e-DPM entity would be assessed an increase to their fixed annual fee in
the amount of $250,000 to cover the remaining six months of the year.
The Exchange notes that in any subsequent year of the program, the
surviving entity will pay just one fixed annual fee (i.e., the fixed
annual fee that is then in effect).
If two DPMs or e-DPMs who elected the fixed annual fee alternative
merge or combine operations, the fixed fee paid to the CBOE by these
two organizations will be unaffected. No adjustments or refunds will be
made to either entity.
2. Statutory Basis
The CBOE believes that the proposed rule change, as amended, is
consistent with Section 6(b) of the Act,\9\ in general, and furthers
the objectives of Section 6(b)(4) of the Act,\10\ in particular, in
that it is designed to provide for the equitable allocation of
reasonable dues, fees, and other charges among CBOE members.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the proposed rule change, as
amended, will impose any burden on competition that is 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.
[[Page 32858]]
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 \11\ and subparagraph (f)(2)
of Rule 19b-4 thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(2).
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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.\13\
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\13\ See 15 U.S.C. 78s(b)(3)(C). For purposes of calculating the
60-day period within which the Commission may summarily abrogate the
proposed rule change under Section 19(b)(3)(C) of the Act, the
Commission considers the period to commence on May 18, 2005, the
date on which the Exchange submitted Amendment No. 1.
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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. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-CBOE-2005-32 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-CBOE-2005-32. 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. Copies of such
filing also will be available for inspection and copying at the
principal office of the CBOE. 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-2005-32 and should be submitted on or before June
27, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2870 Filed 6-3-05; 8:45 am]
BILLING CODE 8010-01-P