[Federal Register Volume 75, Number 77 (Thursday, April 22, 2010)]
[Notices]
[Pages 21076-21077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-9275]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61915; File No. SR-CBOE-2010-033]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated: Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Amend the Strategy Fee Cap Program
April 15, 2010.
Pursuant to section 19(b)(1) of the Securities Exchange Act of
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on March 26,
2010, 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 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
Chicago Board Options Exchange, Incorporated (``CBOE'' or
``Exchange'') proposes to amend its strategy fee cap program. 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
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, 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 section (A),
(B), and (C) below, of the most significant aspects of such statements.
(a) Purpose
The Exchange 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
(``Strategy Fee Cap''). Specifically, market-maker, firm and broker-
dealer transaction fees are capped at $1,000 for all (i) Dividend
strategies,\1\ (ii) merger strategies \2\ and (iii) short stock
interest strategies \3\ executed on the same trading day in the same
options class. In addition, such transaction fees for these strategies
are further capped at $25,000 per month per initiating member or firm.
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\1\ A dividend strategy is defined as transactions done to
achieve a dividend arbitrage involving the purchase, sale and
exercise of in-the-money options of the same class, executed prior
to the date on which the underlying stock goes ex-dividend.
\2\ A merger strategy is defined as transactions done to achieve
a merger arbitrage involving the purchase, sale and exercise of
options of the same class and expiration date, each executed prior
to the date on which shareholders of record are required to elect
their respective form of consideration, i.e., cash or stock.
\3\ A short stock interest strategy is defined as transactions
done to achieve a short stock interest arbitrage involving the
purchase, sale and exercise of in-the-money options of the same
class.
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The Exchange proposes a limited expansion of the Strategy Fee Cap
program. Specifically, the Exchange proposes to cap market-maker and
broker-dealer transaction fees at $1,000 for all reversals, conversions
and jelly roll strategies (as defined below) executed on the same
trading day in the same Flexible Exchange (FLEX) option class,
excluding any option class on which the Exchange charges the surcharge
fee under Footnote 14 of the CBOE Fees Schedule. As under the current
program, such transaction fees would be further capped at $25,000 per
month per initiating member or firm, and to qualify transactions for
the cap a rebate request with supporting documentation must be
submitted to the Exchange within 3 business days of the
transactions.\4\
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\4\ In addition, the Exchange proposes to amend Footnote 13 of
the Fees Schedule to clarify that ``license fees'' has the same
meaning as ``Surcharge Fees'' and that the pass-through of Surcharge
Fees is only applicable to the cap on dividend, merger and short
stock interest strategies since the cap on reversals, conversions
and jelly roll strategies excludes any option class on which the
Exchange assesses the Surcharge Fee.
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Reversals, conversions and jelly roll strategies are included in
the strategy fee cap programs of other exchanges.\5\ Reversals and
conversions are transactions that employ calls, puts and the underlying
security to lock in a nearly risk free profit. Reversals are
established by combining a short security position with a short put and
a long call position that shares the same strike and expiration.
Conversions employ long positions in the underlying security that
accompany long puts and short calls sharing the same strike and
expiration.
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\5\ See the options fee schedules of NYSE Amex, LLC and NYSE
Arca, LLC.
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A Jelly Roll is a long calendar call spread combined with the same
short calendar put spread, or vice versa. This option strategy aims to
profit from a time value spread through the purchase and sale of two
call and two put options, each with different expiration dates. A Jelly
Roll is created by entering into two separate positions simultaneously.
One position involves buying a put and selling a call with the same
strike price and expiration. The second position involves selling a put
and buying a call, with the same strike price, but a different
expiration from the first position. Below is an example of a Jelly Roll
strategy execution.
XYZ Jun/Oct 25 Jelly Roll:
--Buy XYZ Jun 25 put and sell XYZ Jun 25 call
--Sell XYZ Oct 25 Put and buy XYZ Oct 25 call
Market BBO:
Jun 25 call .51 at .53
Jun 25 put .72 at .74
Oct 25 call 1.52 at 1.55
Oct 25 put 2.35 at 2.39
.74(long Jun put) + 1.52(long Oct call)-.51(short Jun call)-
2.35(short Oct put) = .60 credit received for the Jelly roll.
The proposed fee change would become operative on March 29, 2010.
The Exchange proposes to amend Footnote 6 of the Fees Schedule in
conjunction with the proposed expansion of the strategy fee cap to
include reversals, conversions and jelly roll strategies. Specifically,
the Exchange proposes to amend Footnote 6 to clarify that the marketing
fee will not
[[Page 21077]]
apply to any of the strategies identified and/or defined in Footnote
13.
(b) Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Securities Exchange Act of 1934 (``Act''),\6\ in
general, and furthers the objectives of Section 6(b)(4) \7\ 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
excluding member firm transaction fees from the proposed fee cap is
consistent with the Act because member firm transaction fees are
reduced under the Member Firm Proprietary Sliding Scale program.
Market-maker transaction fees are reduced under the Liquidity Provider
Sliding Scale, however market-makers are required to prepay annual fees
for the first two tiers of the sliding scale in order to be eligible
for the fee rates in the lowest tiers while there is no similar
requirement for firms under the Member Firm Proprietary Sliding Scale.
Also, member firm transaction fees are lower than broker-dealer
transaction fees. In addition, the Exchange believes expansion of the
Strategy Fee Cap program would benefit market participants who trade
these strategies by lowering their fees and allow the Exchange to
remain competitive with other exchanges that offer similar fee cap
programs.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4).
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A. 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 appropriate in
furtherance of purposes of the Act.
B. 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 \8\ and subparagraph (f)(2) of Rule 19b-4 \9\
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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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 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-2010-033 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-2010-033. 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 the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
sbmit only information that you wish to make publicly available. All
submissions should refer to File Number SR-CBOE-2010-033 and should be
submitted on or before May 13, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9275 Filed 4-21-10; 8:45 am]
BILLING CODE 8011-01-P