[Federal Register Volume 75, Number 117 (Friday, June 18, 2010)]
[Notices]
[Pages 34799-34802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-14739]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62286; File No. SR-CBOE-2010-051]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to PULSe Fees
June 11, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on May 26, 2010, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or the ``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 CBOE. The
Exchange has designated this proposal as one establishing or changing a
due, fee, or other charge imposed by CBOE under Section 19(b)(3)(A)(ii)
of the Act \3\ and Rule 19b-4(f)(2) thereunder.\4\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 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
CBOE is proposing to amend its Fees Schedule to adopt fees for the
use of a new front-end order entry workstation, referred to as PULSe,
that will be a facility of the Exchange. The text of the proposed rule
change is available on the Exchange's Web site http://www.cboe.org/legal), at the Exchange's Office of the Secretary, on the Commission's
Web site at http://www.sec.gov 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 these 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 aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to establish fees
relating to the use of the PULSe order entry workstation.
The PULSe workstation is a front-end order entry system designed
for use with respect to orders that may be sent to the trading systems
of CBOE and CBOE Stock Exchange (``CBSX'').\5\ In
[[Page 34800]]
addition to providing the capability to send orders to the markets of
CBOE and CBSX, the PULSe workstation will also provide a user with the
capability to send options orders to other U.S. options exchanges and
stock orders to other U.S. stock exchanges through a ``PULSe Routing
Intermediary'' as further described below (``away-market routing'').\6\
Additionally, the PULSe workstation functionality will include access
to consolidated real-time options and stock market data.\7\
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\5\ The Exchange represents that the PULSe workstation is merely
a new front-end system interface to existing CBOE and CBSX trading
systems (i.e., it is a new means of connecting to these existing
trading systems), and does not require any changes to the Exchange's
surveillance or communications rules. Further, there is no change
to, or impact on, the Exchange's market structure as a result of the
PULSe workstations. The Exchange notes that the C2 Options Exchange
(``C2'') has not yet begun trading. Use of the PULSe workstation as
a front-end system interface to C2 will be addressed in a separate
rule filing prior to the initiation of trading on C2.
\6\ The Exchange notes that, at least initially, orders that are
sent from the PULSe workstation to CBOE and CBSX will be routed
through connectivity provided by a PULSe Routing Intermediary. The
Exchange envisions that the PULSe workstation functionality will be
modified so that orders sent from the workstation to CBOE and CBSX
may be sent directly instead of through the connectivity provided by
a PULSe Routing Intermediary.
\7\ The workstation will also have the capability to enable a
user to send orders for commodity futures and commodity options to
designated contract markets and other venues of the user's choice at
which the user has trading privileges and to futures commission
merchants (each, an ``FCM'') and introducing brokers (each, an
``IB'') of the user's choice. The workstation may also have the
capability to enable a user to send orders in other non-security
products to one or more destinations of the user's choice.
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The PULSe workstation will be made available by Signal Trading
Systems, LLC (``STS''). STS is an affiliate of CBOE that is jointly
owned by CBOE and FlexTrade Systems, Inc. (``FlexTrade''), a technology
services provider. STS will grant licenses to use the workstation
directly to CBOE and CBSX members and trading permit holders (sometimes
collectively referred to herein as ``members''). Members may also make
the workstation available to their customers, including sponsored
users. However, any order routed to CBOE or CBSX through a PULSe
workstation must be routed through a member or sponsored user (whose
orders are sponsored by a member).
The Exchange proposes a monthly PULSe workstation fee to members of
$350 per workstation per month for the first 10 PULSe workstations and
$100 per workstation per month for each additional PULSe workstation.
The Exchange also proposes an away-market routing fee to the entering
member of $0.10 per executed options contract (or equivalent share
amount in the case of stock) for away-market routing of orders through
the PULSe workstation. The Exchange is proposing that the workstation
and away-market routing fees be waived through July 30, 2010, thus
these fees will be assessed beginning August 2, 2010.
These new PULSe fees will allow for the recoupment of the costs of
developing, maintaining, and supporting the PULSe workstation and for
income from the value-added services being provided through use of the
PULSe workstation as well as the related away-market routing
technology. The Exchange believes the fee structure represents an
equitable allocation of reasonable fees in that the same fees are
applicable to all users. The Exchange also believes the workstation and
routing intermediary fees are competitive with fees applicable to
similar workstations that offer away-market routing services provided
by other exchanges. In addition, the Exchange believes that the $0.10
away-market routing fee is reasonable and appropriate in light of the
fact that it is small in relation to the value to the user of the PULSe
workstation and its extensive functionality, including its ability to
facilitate the routing of orders to any securities exchange and in
relation to the total costs typically incurred in routing and executing
orders. The Exchange also notes that use of the PULSe workstation and
the away-market routing functionality available through the PULSe
workstation are not compulsory. The services are to be offered as a
convenience to members and would not be the exclusive means available
to a member to send orders to CBOE or CBSX or intermarket.
The PULSe workstation will cause CBOE (CBSX) to be the default
destination exchange for individually executed marketable option
(stock) orders if CBOE (CBSX) is at the national best bid or offer
(``NBBO''), regardless of size or time, but will allow any user to
manually override CBOE (CBSX) as the default destination on an order-
by-order basis.\8\ The workstation also incorporates a function
allowing option (stock) orders at a specified price to be sent to
multiple exchanges with a single click (``sweep function''), and the
sweep function will be configured to cause an option (stock) order to
be sent to CBOE (CBSX) for up to the full size quoted by CBOE (CBSX) if
CBOE (CBSX) is at the NBBO.\9\ Again, the away-market routing
functionality is to be offered as a convenience to members and would
not be an exclusive means available to a member to send orders
intermarket.\10\
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\8\ Nothing about the PULSe order routing functionality would
relieve any member that is using the PULSe workstation from
complying with its best execution obligations. Specifically, just as
with any customer order and any other routing functionality, a
member would have an obligation to consider the availability of
price improvement at various markets and whether routing a customer
order through the PULSe functionality would allow for access to
opportunities for price improvement if readily available. Moreover,
a member would need to conduct best execution evaluations on a
regular basis, at a minimum quarterly, that would include its use of
the PULSe workstation.
\9\ For example, if a member were to enter an option order to
buy 250 contracts using the sweep function at a time when CBOE is at
the NBBO for 100 contracts, the sweep function will be configured to
send an order for 100 contracts to CBOE, with the balance of the
order routed as specified by the member entering the order from the
configurations offered by the PULSe workstation. Nothing will
require a person using the PULSe workstation to use the sweep
function, and, in this same example, if the member wished to route
the entire order for 250 contracts to an exchange other than CBOE
using the PULSe workstation, the member will be free to manually
override CBOE as the default destination for the entire order.
\10\ With respect to options (stocks), the Exchange also notes
that the away-market functionality in the PULSe workstation will not
displace the provisions of the Options Order Protection and Locked/
Crossed Market Plan (Regulation NMS), which will continue to apply
in the circumstances described in the Plan (Regulation NMS).
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To use the PULSe workstation, a member must either be a PULSe
Routing Intermediary or establish a relationship with a PULSe Routing
Intermediary. A ``PULSe Routing Intermediary'' is a CBOE or CBSX member
or trading permit holder that has connectivity to, and is a member of,
other options and/or stock exchanges. If a member sends an order from
the PULSe workstation, the PULSe Routing Intermediary will route that
order to the designated market on behalf of the entering member. For
member convenience, CBOE will make available a list of PULSe Routing
Intermediaries that provide third-party routing services. The Exchange
proposes that each PULSe Routing Intermediary be charged a fee of $20
per PULSe workstation per month for each PULSe workstation that is
enabled to send orders through that Routing Intermediary if another
member requests routing functionality through that Routing
Intermediary. The Exchange is proposing that the PULSE Routing
Intermediary fee be waived through November 30, 2010, thus this fee
will be assessed beginning December 1, 2010.
The Exchange believes that the PULSe workstation will constitute a
``facility'' of CBOE \11\ to the extent that it is used with respect to
orders for options and other
[[Page 34801]]
securities.\12\ A portion of the fees collected by CBOE for the use of
the workstation will be remitted to STS.\13\
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\11\ The Exchange believes that the PULSe workstation will, in
the language of Section 3(a)(2) of the Act, 15 U.S.C. 78c(a)(2),
constitute a property or service ``for the purpose of effecting or
reporting a transaction on an exchange * * * .''
\12\ The capability of the workstation to initiate orders for
commodity futures and commodity options and other non-security
products to be sent to a designated contract market, FCM, IB or
other destination that does not constitute an ``exchange'' (as that
term is defined in Section 3(a)(1), 15 U.S.C. 78c(a)(1), and used in
Section 3(a)(2), 15 U.S.C. 78c(a)(2), of the Act) will not
constitute part of the ``facility'' of CBOE.
\13\ FlexTrade is not, and, at least initially, will not be
registered as a broker-dealer under Section 15(a) of the Act, 15
U.S.C. 78o. STS also will not, at least initially, be registered as
a broker-dealer under Section 15(a) of the Act. In this regard, we
note the following: (i) CBOE will be primarily responsible for the
marketing of the PULSe workstation. In no event will FlexTrade have
any role in marketing the PULSe workstation. FlexTrade will not be a
party to any agreements with members for the PULSe workstation. (ii)
In contributing services to STS, FlexTrade will be limited to
providing software and systems technology and maintaining proper
technical functioning. CBOE will be responsible for ensuring that
STS's provision of the PULSe workstation, as a facility of CBOE,
meets CBOE's obligations as a self-regulatory organization. (iii)
Unless it becomes registered as a broker-dealer under Section 15(a)
of the Act, neither STS nor FlexTrade will hold itself out as a
broker-dealer, provide advice related to securities transactions,
match orders, make decisions about routing orders, facilitate the
clearance and settlement of executed trades, prepare or send
transaction confirmations, screen counterparties for
creditworthiness, hold funds or securities, open, maintain,
administer or close brokerage accounts, or provide assistance in
resolving problems, discrepancies or disputes related to brokerage
accounts. Should STS or FlexTrade seek to register as a broker-
dealer in the future, the Exchange represents that the broker-dealer
would not perform any operations without first discussing with the
Commission staff whether any of the broker-dealer's operations
should be subject to an Exchange rule filing required under the Act,
15 U.S.C. 78s(b)(1).
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The Exchange notes that FlexTrade engages and will engage in
business activities in addition to its provision of services to STS and
that these activities include providing other technology services to
broker-dealers.\14\ The Exchange also notes that STS may in the future
engage in business activities in addition to making the PULSe
workstation facility available, and that these activities may also
include the provision of other technology services to broker-dealers.
In this regard: (i) There will be procedures and internal controls in
place that are reasonably designed so that FlexTrade does not unfairly
take advantage of confidential information relating to PULSe in its
other business activities and so that STS will not unfairly take
advantage of confidential information relating to PULSe to the extent
that STS engages in any other business activities other than providing
the PULSe workstation. (ii) The books, records, premises, officers,
directors, agents, and employees of STS, with respect to the PULSe
workstation, as a facility of CBOE, will be deemed to be those of CBOE
for purposes of and subject to oversight pursuant to the Act. (iii) Use
of the PULSe workstation will be optional. Members will not be required
to use the PULSe workstation to initiate their orders, and a member use
any available order entry system that it selects, including one that it
develops itself, for use to initiate its orders.
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\14\ The Exchange notes that FlexTrade is the sole member of a
single member limited liability company named FlexTrade LLC, that
FlexTrade LLC is a registered broker-dealer, and that FlexTrade and
FlexTrade LLC each currently makes a front-end order entry
workstation named ``FlexTrader'' available. FlexTrade LLC is not a
member of CBOE or CBSX.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\15\ in general, and furthers the objectives of Section 6(b)(4)
\16\ of the Act in particular, in that it is designed to provide for
the equitable allocation of reasonable dues, fees, and other charges
among CBOE and CBSX members and trading permit holders in that the same
fees are applicable to all users of the PULSe workstation.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4).
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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 that is not necessary or appropriatae in
furtherance of puropses 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) of the Act \17\ and subparagraph (f)(2) of Rule 19b-4 \18\
thereunder. 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.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(2).
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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 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-2010-051 on the subject line.
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-2010-051. 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 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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of 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-2010-051 and should be
submitted on or before July 9, 2010.
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\19\ 17 CFR 200.30-3(a)(12).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-14739 Filed 6-17-10; 8:45 am]
BILLING CODE 8010-01-P