[Federal Register Volume 76, Number 5 (Friday, January 7, 2011)]
[Notices]
[Pages 1203-1205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-92]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63631; File No. SR-CBOE-2010-117]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to Order Router Subsidy
January 3, 2011.
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 December 21,
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 and
II 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 extend an existing program, under which it
currently makes subsidy
[[Page 1204]]
payments to CBOE Trading Permit Holders that provide certain order
routing functionalities to other Trading Permit Holders and/or use such
functionalities themselves, to broker-dealers that are not CBOE Trading
Permit Holders. The text of the [sic] 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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to permit CBOE to extend its program
under which it enters into subsidy arrangements with persons that
provide certain order routing functionalities to other persons and/or
use such functionalities themselves. Under the program as currently in
effect, CBOE establishes such arrangements only with Trading Permit
Holders (each, a ``Participating TPH''), and makes payments to
subsidize their costs associated with providing order routing
functionalities only to other CBOE TPHs, as well as with using such
functionalities themselves.\1\
---------------------------------------------------------------------------
\1\ The current CBOE order router subsidy program is described
in SR-CBOE-2007-34. See Securities Exchange Act Release No. 55629
(April 13, 2007), 72 FR 19992 (April 20, 2007) (SR-CBOE-2007-34).
Additionally, the description of the current program was clarified
in SR-CBOE-2008-27. See Securities Exchange Act Release No. 57498
(March 14, 2008), 73 FR 55 [sic] (March 20, 2008) (SR-CBOE-2008-27).
---------------------------------------------------------------------------
CBOE proposes to extend the program in two related respects. First,
CBOE proposes to extend the program to enable CBOE to establish such
subsidy arrangements with broker-dealers that are not CBOE TPHs (each,
a ``Participating Non-CBOE TPH''). (The term ``Participant'' as used in
this filing refers to either a Participating Non-CBOE TPH or a
Participating CBOE TPH.) Second, CBOE proposes to extend the program to
permit a Participant to receive subsidy payments for providing an order
routing functionality to broker-dealers that are not CBOE TPHs.
SR-CBOE-2007-34 includes a description of the features that an
order routing functionality of a Participating CBOE TPH must have, and
the performance requirements that the order routing functionality must
satisfy, in order to qualify for the program.\2\ The order routing
functionality of a Participating Non-CBOE TPH would be required to have
the same features and satisfy the same requirements.
---------------------------------------------------------------------------
\2\ SR-CBOE-2007-34, pp. 3-4 [sic]. Two of the features that an
order routing functionality must have in order to qualify for the
program and that are relevant to the best execution obligations of
users of the functionality are described below in footnote 6.
---------------------------------------------------------------------------
CBOE's subsidy program provides that a Participating CBOE TPH may
elect to have CBOE perform certain marketing services and/or billing
services on behalf of the Participating CBOE TPH.\3\ These elections
would also be available to a Participating Non-CBOE TPH. As with a
Participating CBOE TPH, if a Participating Non-CBOE TPH elects to have
CBOE perform marketing services on its behalf, the amount that CBOE
would pay the Participant for orders routed through the Participant's
system and executed on CBOE would be reduced from $0.04 per contract to
$0.03 per contract.\4\ Also as with a Participating CBOE TPH, if a
Participating Non-CBOE TPH elects to have CBOE perform the service of
billing CBOE TPHs with respect to the use of the Participant's router,
the Participant would pay CBOE a service fee of one percent of the fees
collected by CBOE for that TPH.
---------------------------------------------------------------------------
\3\ SR-CBOE-2007-34, p. 5 [sic].
\4\ See Securities Exchange Act Release No. 62432 (July 1,
2010), 75 FR 131 [sic] (July 9, 2010) (SR-CBOE-2010-66).
---------------------------------------------------------------------------
CBOE currently assigns an identification code to each Participating
CBOE TPH for use on orders that are subject to the subsidy program.
CBOE would assign such a code to each Participating Non-CBOE TPH. A
Participating Non-CBOE TPH, or a party using a Participant's order
routing functionality that is not a CBOE TPH, would need to route its
orders to CBOE through a CBOE TPH--that is, would need to ``give up the
name'' of a CBOE TPH. The use of these identification codes would
provide CBOE with the information that it would need to account for the
subsidy payments due to Participating Non-CBOE TPHs as it does for the
payments due to Participating CBOE TPHs.
CBOE stated in SR-CBOE-2007-34, and affirmed in SR-CBOE-2008-27,
that nothing about the subsidy program would relieve any CBOE TPH that
is using an order routing functionality whose provider is participating
in the program from complying with its best execution obligations.\5\
This would continue to be true with respect to all users both CBOE TPH
broker-dealers and non-CBOE TPH broker-dealers of order routing
functionalities whose providers participate in the program.
Specifically, just as with any customer order and any other routing
functionality, any user whether or not a CBOE TPH of an order routing
functionality whose provider is participating in the program would have
an obligation to consider the opportunities for price improvement at
various markets and whether routing a customer order through an order
router having the features specified by CBOE would allow for access to
such opportunities if readily available.\6\ Moreover, any user whether
or not a CBOE TPH of an order router functionality whose provider is
participating in the program would need to conduct best execution
evaluations on a regular basis, at a minimum quarterly, that include
its use of any router whose provider is participating in the program.
---------------------------------------------------------------------------
\5\ SR-CBOE-2007-34, pp. 5-6 [sic]; SR-CBOE-2008-27, p 4.
\6\ CBOE's functional requirements state that, in order to be
eligible for the subsidy program, an order router must (1) cause the
default destination for an order to be the U.S. options exchange
with the best bid or offer, except CBOE must be the default
destination exchange for the individually executed marketable orders
if CBOE is at the national best bid or offer, but (2) give the user
the ability to override the default destination for any order on a
manual, order-by-order, basis. CBOE believes that these requirements
enable any user of a participating order router to comply with its
best execution obligations.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Securities Exchange Act of 1934 (``Act''),\7\ in
general, and furthers the objectives of Section 6(b)(4) \8\ 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.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
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
[[Page 1205]]
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 is effective upon filing pursuant to
Section 19(b)(3)(A) \9\ of the Act and subparagraph (f)(2) of Rule 19b-
4 \10\ thereunder, because it establishes a due, fee, or other charge
imposed by CBOE on any person in that the subsidy arrangement relates
to fees charged by certain order routing system providers for use of
their routing systems.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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.
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-2010-117 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-2010-117. 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-2010-117 and should be
submitted on or before January 28, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-92 Filed 1-6-11; 8:45 am]
BILLING CODE 8011-01-P