[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Notices]
[Pages 20793-20796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8791]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64217; File No. SR-CBOE-2011-030]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to PAR Official Fees
April 6, 2011.
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 March 30, 2011, 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
[[Page 20794]]
prepared by CBOE. 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.
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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 Fees Schedule to establish volume
threshold tiers for the assessment of PAR Official Fees based on the
percentage of volume that is effected by a PAR Official on behalf of an
order originating firm or, as applicable, an executing firm. The
proposed volume thresholds will apply in all options classes that have
a PAR Official available to execute orders (``PAR Official Classes''),
except Volatility Index Options. 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'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, the Proposed Rule Change
1. Purpose
CBOE is proposing to amend its Fees Schedule effective April 1,
2011 to establish volume threshold tiers for the assessment of PAR
Official Fees in all PAR Official Classes \3\ other than Volatility
Index Options.\4\ CBOE amended its Fees Schedule to establish PAR
Official Fees in January 2011.\5\ These fees apply to all orders
executed by a PAR Official,\6\ except for customer orders (``C'' origin
code) that are not directly routed to the trading floor (an order that
is directly routed to the trading floor is directed to a PAR Official
for manual handling by use of a field on the order ticket). In classes
other than Volatility Index Options, such orders are currently charged
$.02 per contract and, like floor brokerage fees, a discounted rate of
$.01 per contract applies for crossed orders. These fees help to offset
the Exchange's costs of providing PAR Official services (e.g.,
salaries, etc). CBOE believes that the proposed tier structure will
more equitably and appropriately assess the PAR Official Fees to those
Trading Permit Holders that rely more heavily on PAR Officials to
conduct their floor brokerage business. Reliance on PAR Officials as
the primary means of execution is inconsistent with the Exchange's
intent to provide PAR Official services as a supplementary means of
execution for incidental orders. CBOE believes that, after further
consideration, the existing fee structure does not allocate these fees
currently to take into consideration the amount that Trading Permit
Holders rely on PAR Officials such that those Trading Permit Holders
that incidentally use PAR Officials are assessed the same fee as
Trading Permit Holders that routinely conduct their business through
PAR Officials and rely heavily on PAR Officials for the execution of
orders.
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\3\ Currently, CBOE does not have a PAR Official available to
execute orders in the OEF, OEX, SPX and XEO options classes.
\4\ CBOE amended its Fees Schedule in March 2011 to establish
distinct PAR Official Fees for Volatility Index Options to eliminate
the disparity between Floor Brokerage Fees and PAR Official Fees
assessed in Volatility Index Options. CBOE will continue to assess
the PAR Official Fees in Volatility Index Options established in SR-
CBOE-2011-022. See Securities Exchange Act Release No. 64070 (March
11, 2011), 76 FR 15025 (March 18, 2011) (SR-CBOE-2011-022).
\5\ See Securities Exchange Act Release No. 67301 (January 11,
2011), 76 FR 2934 (January 18, 2011) (SR-CBOE-2010-116).
\6\ A PAR Official is an Exchange employee or independent
contractor whom the Exchange may designate as being responsible for
(i) operating the PAR workstation in a Designated Primary Market-
Maker trading crowd with respect to the classes of options assigned
to him/her; (ii) when applicable, maintaining the book with respect
to the classes of options assigned to him/her; and (iii) effecting
proper executions of orders placed with him/her. The PAR Official
may not be affiliated with any Trading Permit Holder that is
approved to act as a Market-Maker. See CBOE Rule 7.12.
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CBOE is proposing to amend the Fees Schedule to establish volume
threshold tiers for the assessment of the PAR Official Fees in all PAR
Official Classes except Volatility Index Options. Specifically, CBOE is
proposing to assess PAR Official Fees based on the percentage of an
order originating firm's or, as applicable, an executing firm's total
monthly volume that is effected by a PAR Official during a calendar
month. The percentage will be calculated on a monthly basis by dividing
the number of contracts executed by PAR Officials on behalf of an order
originating firm or executing firm (as applicable) by the total number
of contracts executed in open outcry (by or on behalf of an order
originating firm or, as applicable, an executing firm) in PAR Official
Classes. Contracts in Volatility Index Options shall be excluded from
this calculation. The following sets forth the tier levels and specific
fees that would be assessed to orders that are subject to PAR Official
Fees:
------------------------------------------------------------------------
% Monthly
volume Crossed
Tier level executed Standard orders
through PAR orders (per side)
official
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1................................ 0-24.99 N/A N/A
2................................ 25-49.99 $.02 $.01
3................................ 50-74.99 .03 .015
4................................ 75-100 .04 .02
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For example, a Floor Broker Trading Permit Holder would be assessed
$.02 for all standard (non-cross) orders and $.01 for all crossed
orders executed by a PAR Official on behalf of the Floor Broker during
a calendar month if 25.5% of the Floor Broker Trading Permit Holder's
total monthly (open outcry) volume in PAR Official Classes is executed
by a PAR Official (Tier 2).
The PAR Official Fees compensate CBOE for providing overflow
services to
[[Page 20795]]
order originating firms or, as applicable, executing firms,
particularly Floor Brokers,\7\ when they do not have personnel
available to act as agent. Some Trading Permit Holders or TPH
organizations obtain only one or two Floor Broker Trading Permits,
making it unlikely that, regardless of business level, they could cover
all locations on the Exchange and thus rely on CBOE personnel as part
of the Floor Broker's daily, ongoing business operations. CBOE is
proposing to establish volume threshold tiers to reduce or eliminate
PAR Official Fees for those order originating firms or executing firms
that maintain sufficient staff to manage their floor brokerage
operations and thus, do not rely heavily on CBOE personnel to execute
their orders. CBOE believes that those firms that rely heavily on PAR
Officials to conduct their floor brokerage business, such that PAR
Officials execute more than an incidental number of orders on their
behalf, may obtain a minimum number of Trading Permits to access the
floor. Thus, these firms subsidize their floor brokerage operations at
CBOE's expense in that PAR Officials are either contractors paid by
CBOE or CBOE employees. Under the current proposal, Trading Permit
Holders that routinely rely on PAR Officials to execute their orders
will be subject to higher PAR Official Fees as CBOE is, in effect,
subsidizing their floor brokerage operations and going beyond the
Exchange's intent to provide PAR Official services as a supplementary
means of execution for overflow orders.
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\7\ CBOE Rule 6.70 provides: ``A Floor Broker is an individual
(either a Trading Permit Holder or a nominee of a TPH organization)
who is registered with the Exchange for the purpose, while on the
Exchange floor, of accepting and executing orders received from
Trading Permit Holders or from registered broker-dealers. A Floor
Broker shall not accept an order from any other source unless he is
the nominee of a TPH organization approved to transact business with
the public in accordance with Rule 9.1. In the event the
organization is approved pursuant to Rule 9.1, a Floor Broker who is
the nominee of such organization may then accept orders directly
from public customers where (i) the organization clears and carries
the customer account or (ii) the organization has entered into an
agreement with the public customer to execute orders on its behalf.
Among the requirements a Floor Broker must meet in order to register
pursuant to Rule 9.1 is the successful completion of an examination
for the purpose of demonstrating an adequate knowledge of the
securities business.''
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An additional consideration when evaluating the equitability of the
proposed tier structure is the cost of each Trading Permit. For
example, Floor Broker Trading Permit Holders are subject to a $6,000
per month Trading Permit Fee.\8\ A Floor Broker Trading Permit Holder
that requires ten Floor Broker Trading Permits to adequately staff its
business is subject to a cost of $60,000 per month for Trading Permit
Fees (totaling $720,000 per year). By comparison, a Trading Permit
Holder that routes the majority of its orders to PAR Officials for
execution and maintains one Trading Permit is subject to a $6,000 per
month Trading Permit Fee ($72,000 annually). The existing PAR Official
Fee structure that imposes a flat per contract fee does not provide an
incentive for firms to adequately staff their business as each Trading
Permit Holder is currently assessed the same PAR Official Fees.
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\8\ See CBOE Fees Schedule, Section 10.
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As provided above, PAR Officials are intended to provide overflow
services to Trading Permit Holders. CBOE never intended PAR Officials
to serve as the primary means of execution for order originating firms
or executing firms. Heavy reliance on PAR Officials subjects the
Exchange to the additional expense and undue strain of providing the
additional staffing of PAR Officials. CBOE believes that this proposal
will ``level the playing field'' between those Trading Permit Holders
that rely incidentally on PAR Officials and those Trading Permit
Holders that rely heavily on PAR Officials by basing the PAR Official
Fees on an order originating firm's or, as applicable, an executing
firm's overall reliance on a PAR Official to conduct their business.
Trading Permit Holders that adequately staff their business operations
and rely incidentally on PAR Officials are incurring higher costs to
retain a sufficient number of Trading Permits and should not be subject
to the same amount for PAR Official Fees incurred by a Trading Permit
Holder that relies disproportionately on PAR Officials to conduct its
floor brokerage business because it does not maintain an adequate
number of Trading Permits to conduct its floor brokerage business and
further, is not subject to the cost of the additional Trading Permits
required to adequately staff its business.
Based on the data generated for January 2011, approximately 40% of
CBOE Floor Broker Trading Permit Holders would fall under Tier 1 and
would no longer be subject to PAR Official Fees. In addition,
approximately one-third of the Floor Broker Trading Permit Holders fall
under Tier 4, having a PAR Official execute more than 75% of the
Trading Permit Holder's total monthly volume executed in open outcry in
PAR Official Classes. The proposed volume threshold tiers apportion the
higher cost to those Floor Broker Trading Permit Holders that rely
heavily on PAR Officials to conduct their daily business. For these
reasons, CBOE believes that the proposed implementation of volume
threshold tiers is appropriate and establishes an objective standard
for the equitable assessment of the PAR Official Fees.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Securities Exchange Act of 1934 (``Act''), \9\ in
general, and furthers the objectives of Section 6(b)(4) \10\ 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
trading permit holders and other persons using its facilities. The
Exchange believes the proposed change is equitable, reasonable and not
unfairly discriminatory, in that, in general, PAR Official Fees are
intended to help the Exchange recover its costs of providing PAR
Official services to Trading Permit Holders and the proposed change is
intended to reasonably allocate such costs to order originating firms
and executing firms based on the amount of business they conduct
through PAR Officials. Specifically, the proposed fee tier structure is
equitable in that all order originating firms or, as applicable,
executing firms, are assessed the same fees at each tier level for
orders executed by a PAR Official. Further, the proposed fee structure
is not unfairly discriminatory because the tiers are based on the
percentage of activity executed by a PAR Official. Each firm has the
ability to route fewer orders to a PAR Official, such that they are not
subject to higher PAR Official Fees.
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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
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.
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 \11\ and subparagraph (f)(2) of
[[Page 20796]]
Rule 19b-4 \12\ 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.
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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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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-2011-030 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-2011-030. 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 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-2011-030 and should be
submitted on or before May 4, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8791 Filed 4-12-11; 8:45 am]
BILLING CODE 8011-01-P