80 FR 64469 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fees Schedule

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 205 (October 23, 2015)

[Federal Register Volume 80, Number 205 (Friday, October 23, 2015)]
[Notices]
[Pages 64469-64472]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-26916]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76192; File No. SR-CBOE-2015-091]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the Fees Schedule

October 19, 2015.
    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 October 9, 2015, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
Exchange. 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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, the Exchange 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 Exchange 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
    In March 2015, the Exchange launched Extended Trading Hours 
(``ETH'') for options on the S&P 500

[[Page 64470]]

Index (``SPX'') and CBOE Volatility Index[supreg] (``VIX''), two of the 
Exchange's exclusively listed options,\3\ as alternatives for hedging 
and other investment purposes, particularly as a complementary 
investment tool to VIX futures.\4\ Rule 6.1A(c) provides that the 
Exchange may designate as eligible for trading during ETH any 
exclusively listed index option designated for trading under Rules 24.2 
and 24.9. In response to customer demand for additional options to 
trade during ETH for similar purposes, the Exchange recently designated 
p.m.-settled options on the Standard & Poor's 500 Stock Index 
(``SPXpm'') to be eligible for trading during ETH. The Exchange 
commenced trading of SPXpm during ETH on October 1, 2015. As such, the 
Exchange proposes to establish fees for the trading of SPXpm during ETH 
(all fees referenced herein are per-contract unless otherwise 
stated).\5\ First, the Exchange proposes to amend Footnote 37, which 
provides general information regarding the two trading sessions and 
indicates which products will be available in ETH, to include trading 
of SPXpm.
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    \3\ An ``exclusively listed option'' is an option that trades 
exclusively on an exchange because the exchange has an exclusive 
license to list and trade the option or has the proprietary rights 
in the interest underlying the option. An exclusively listed option 
is different than a ``singly listed option,'' which is an option 
that is not an ``exclusively listed option'' but that is listed by 
one exchange and not by any other national securities exchange.
    \4\ See Securities Exchange Act Release No. 34-73704 (November 
28, 2014), 79 FR 72044 (December 4, 2014) (SR-CBOE-2014-062) (order 
granting accelerated approval of proposed rule change to adopt 
Extended Trading Hours for SPX and VIX).
    \5\ The Exchange initially filed the proposed fee changes on 
October 1, 2015 (SR-CBOE-2015-083). On October 9, 2015, the Exchange 
withdrew that filing and submitted this filing.
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Transaction Fees
    The Exchange proposes to assess the same fees for SPXpm in the ETH 
session as are assessed for SPXpm in the Regular Trading Hours session 
(``RTH'').\6\ As in RTH, the Proprietary Index Options Rate Table will 
apply during ETH. Transaction fees for SPXpm options will be as follows 
(all listed rates are per contract):
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    \6\ Rule 1.1(qqq) defines ``Regular Trading Hours'' as the hours 
during which transactions in options may be made on the Exchange as 
set forth in Rule 6.1 (which hours are from 8:30 a.m. to either. 
3:00 p.m. or 3:15 p.m. Chicago time).

------------------------------------------------------------------------
 
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Customer (Premium > or = $1)............................           $0.44
Customer (Premium < $1).................................            0.35
Clearing Trading Permit Holder Proprietary..............            0.25
CBOE Market-Maker/LMM...................................            0.20
Joint Back-Office, Broker-Dealer, Non-Trading Permit                0.40
 Holder Market-Maker....................................
Professional/Voluntary Professional.....................            0.40
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    Additionally, the Exchange notes that SPXpm transactions executed 
via AIM during ETH will be assessed AIM Agency/Primary and AIM Contra 
fees based on an order's origin code (which is currently the case 
during RTH as well).
Surcharges
    The Exchange also proposes to apply in ETH, like RTH, an Index 
License Surcharge Fee of $0.13 per contract for SPXpm options for all 
non-customer orders. The surcharges are assessed to help the Exchange 
recoup license fees the Exchange pays to index licensors for the right 
to list S&P 500 Index-based products for trading.
LMM Rebate
    CBOE Rule 6.1A (Extended Trading Hours) provides that the Exchange 
may approve one or more Market-Makers to act as Lead Market-Makers 
(``LMMs'') in each class during ETH in accordance with Rule 8.15A for 
terms of at least one month.\7\ However, to the extent the Exchange 
approves Market-Makers to act as LMMs during ETH, subparagraph 
(e)(iii)(B) of Rule 6.1A provides that LMMs must comply with the 
continuous quoting obligation and other obligations of Market-Makers 
described in subparagraph (ii) of Rule 6.1A,\8\ but not the obligations 
set forth in Rule 8.15A \9\ during ETH for their allocated classes. It 
further provides that LMMs do not receive a participation entitlement 
as set forth in Rules 6.45B and 8.15B during ETH. Rather, pursuant to 
subparagraph (e)(iii)(C) of Rule 6.1A, if an LMM (1) provides 
continuous electronic quotes in at least the lesser of 99% of the non-
adjusted series or 100% of the non-adjusted series minus one call-put 
pair in an ETH allocated class (excluding intra-day add-on series on 
the day during which such series are added for trading) during ETH in a 
given month and (2) ensures an opening of the same percentage of series 
by 2:05 a.m. for at least 90% of the trading days during ETH in a given 
month, the LMM will receive a rebate for that month in an amount to be 
set forth in the Fees Schedule.\10\ Specifically, for TPHs acting as 
LMMs in SPXpm options during ETH, the Exchange proposes to provide in 
the Fees Schedule (new Footnote 39) that if a LMM meets the heightened 
standard described above, the LMM will receive a rebate of $1,000 per 
month. The Exchange believes it is more fitting to implement an 
incentive program with a rebate during ETH, rather than the obligation/
benefit structure that currently exists during RTH. LMMs will not be 
obligated to satisfy heightened continuous quoting and opening quoting 
standards during ETH. Instead, LMMs must satisfy a heightened standard 
to receive a rebate, which the Exchange believes will encourage LMMs to 
provide liquidity during ETH. Additionally, the Exchange notes that 
LMMs may have to undertake other expenses to be able to quote at the

[[Page 64471]]

heightened standard during ETH such as purchase additional bandwidth.
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    \7\ See CBOE Rule 6.1A(e)(iii)(A).
    \8\ Rule 6.1A(e)(ii) provides that notwithstanding the 20% 
contract volume requirement in Rule 8.7(d)(ii), Market-Makers with 
appointments during Extended Trading Hours must comply with the 
quoting obligations set forth in Rule 8.7(d)(ii) (except during ETH 
the Exchange may determine to have no bid/ask differential 
requirements as set forth in subparagraph (A) and there will be no 
open outcry quoting obligation as set forth in subparagraph (C)) and 
all other obligations set forth in Rule 8.7 during that trading 
session. Additionally, notwithstanding the 90-day and next calendar 
quarter delay requirements in Rule 8.7(d), a Market-Maker with an 
ETH appointment in a class must immediately comply with the quoting 
obligations in Rule 8.7(d)(ii) during ETH.
    \9\ Rule 8.15A (and Rule 1.1(ccc)) requires LMMs to provide 
continuous electronic quotes in at least the lesser of 99% of the 
non-adjusted series or 100% of the non-adjusted series minus one 
call-put pair within their appointed classes, with the term call-put 
pair referring to one call and one put that cover the same 
underlying instrument and have the same expiration date and exercise 
price, for 90% of the time.
    \10\ Notwithstanding Rule 1.1(ccc), for purposes of subparagraph 
(C) of Rule 6.1A, an LMM is deemed to have provided ``continuous 
electronic quotes'' if the LMM provides electronic two-sided quotes 
for 90% of the time during Extended Trading Hours in a given month. 
If a technical failure or limitation of a system of the Exchange 
prevents the LMM from maintaining, or prevents the LMM from 
communicating to the Exchange, timely and accurate electronic quotes 
in a class, the duration of such failure shall not be considered in 
determining whether the LMM has satisfied the 90% quoting standard 
with respect to that option class. The Exchange may consider other 
exceptions to this quoting standard based on demonstrated legal or 
regulatory requirements or other mitigating circumstances.
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    The Exchange also proposes to make a corollary change to Footnote 
38. The Exchange notes that currently, for SPX and VIX options, LLMs 
[sic] are subject to a different rebate program.\11\ As such, the 
Exchange proposes to clarify that such rebate program is for TPHs 
acting as a LMM during ETH for SPX and VIX options only.
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    \11\ See CBOE Fees Schedule, Footnote 38. If a LMM meets the 
heightened quoting standard, the LMM will receive a pro-rata share 
of an LMM compensation pool totaling an amount of $25,000 per month, 
per LMM, per class for SPX and VIX.
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    The Exchange lastly notes that fees, rebates and programs that 
excluded SPXpm, during RTH will also not apply in ETH.\12\
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    \12\ See e.g., Exchange Fees Schedule, Liquidity Provider 
Sliding Scale, Marketing Fee, Clearing Trading Permit Holder Fee 
Cap, and Volume Incentive Program (``VIP'').
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\13\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitation 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with 
Section 6(b)(4) of the Act,\15\ which requires that Exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its Trading Permit Holders and other persons using 
its facilities.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78f(b)(4).
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    The proposed transaction fee amounts for SPXpm orders during the 
ETH session are reasonable, equitable and not unfairly discriminatory 
because they are the same as the amounts of corresponding fees for 
SPXpm orders during the RTH session. The Exchange notes that the fee 
amounts for each separate type of market participant will be assessed 
equally for each product to all such market participants (i.e. all 
Broker-Dealer orders will be assessed the same amount, all Joint Back-
Office orders will be assessed the same amount, etc).
    Assessing the Index License Surcharge Fee of $0.13 per contract to 
SPXpm during ETH is reasonable because the amount is the same as the 
amount of the corresponding surcharge for SPXpm orders during RTH. The 
surcharge fee is equitable and not unfairly discriminatory because it 
will be assessed to all market participants to whom the SPXpm will 
apply in both RTH and ETH.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to offer LMMs in SPXpm during ETH that meet a certain 
heightened quoting standard (described above) a rebate of $1,000 per 
month given added costs that a LMM may undertake (e.g., purchase of an 
additional bandwidth) and because it will encourage LMMs in SPXpm to 
provide increased liquidity. More specifically, the Exchange believes 
the amount of the proposed rebate is reasonable because it takes into 
consideration certain additional costs an LMM may incur and the 
Exchange believes the proposed amount is such that it will incentivize 
LMMs to meet the heighted quoting standard. Additionally, if a LMM does 
not satisfy the heightened quoting standard, then it will not receive 
the proposed rebate. The Exchange believes it is equitable and not 
unfairly discriminatory to only offer the rebate to LMMs because it 
benefits all market participants in ETH to encourage LMMs to satisfy 
the heightened quoting standards, which may increase liquidity during 
those hours and provide more trading opportunities and tighter spreads. 
The Exchange also believes it is more fitting, as well as equitable and 
not unfairly discriminatory to implement an incentive program with a 
rebate during ETH, rather than the obligation/benefit structure that 
exists during RTH. Particularly, the Exchange notes that creating an 
incentive program in which LMMs must satisfy a heightened standard to 
receive the rebate, encourages LMMs to provide significant liquidity 
during ETH, which is important as the Exchange expects lower trading 
liquidity and trading levels during ETH and thus fewer opportunities 
for an LMM to receive a participation entitlement (as they currently do 
during RTH). Therefore, a rebate is more appropriate than imposing an 
obligation to receive a participation entitlement. The Exchange notes 
that offering a rebate during ETH is merely a different type of 
financial benefit that may be given to LMMs during ETH if it achieves a 
heightened quoting level. The Exchange believes it is equitable and not 
unfairly discriminatory to provide a lesser rebate for LMMs appointed 
in SPXpm options as compared to LMMs for SPX and VIX options because 
the Exchange expects lower trading volume in SPXpm options during ETH 
as compared to volume for SPX and VIX. Therefore, it would not be 
economically viable for the Exchange to offer the same amount of rebate 
to LMMs in SPXpm as is offered to LMMs for SPX and VIX.
    Finally, not applying in ETH fees, rebates and programs that 
exclude SPXpm during RTH is reasonable because these fees, rebates and 
programs will not apply to all TPHs and will be consistent across 
sessions.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because, while different fees 
and rebates are assessed to different market participants in some 
circumstances, these different market participants have different 
obligations and different circumstances. For example, Clearing TPHs 
have clearing obligations that other market participants do not have. 
Market-Makers have quoting obligations that other market participants 
do not have. There is a history in the options markets of providing 
preferential treatment to Customers, as they often do not have as 
sophisticated trading operations and systems as other market 
participants, which often makes other market participants prefer to 
trade with Customers. Further, the proposed fees, rebates and programs 
for ETH are intended to encourage market participants to bring 
liquidity to the Exchange during ETH (which benefits all market 
participants), while still covering Exchange costs (including those 
associated with the upgrading and maintenance of Exchange systems).
    The Exchange does not believe that the proposed rule changes will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because SPXpm is 
a proprietary product that will only be traded on CBOE. To the extent 
that the proposed changes

[[Page 64472]]

make CBOE a more attractive marketplace for market participants at 
other exchanges, such market participants are welcome to become CBOE 
market participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on 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 \16\ and paragraph (f) of Rule 19b-4 \17\ 
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. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f).
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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 email to [email protected]. Please include 
File Number SR-CBOE-2015-091 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2015-091. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal offices 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-2015-091, 
and should be submitted on or before November 13, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26916 Filed 10-22-15; 8:45 am]
 BILLING CODE 8011-01-P