81 FR 3203 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 8.3 Relating to Appointment Costs

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 12 (January 20, 2016)

[Federal Register Volume 81, Number 12 (Wednesday, January 20, 2016)]
[Notices]
[Pages 3203-3205]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-00905]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76895; File No. SR-CBOE-2015-121]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Rule 8.3 Relating to Appointment Costs

January 13, 2016.
    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 December 31, 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 and II below, which Items have been prepared by the 
Exchange. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) 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)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend CBOE Rule 8.3 relating to the 
appointment costs for options on the Russell 2000 Index (``RUT 
options'') and P.M.-Settled options on the Standard & Poor's 500 
(``SPXPM options''). The text of the proposed rule change is provided 
below.
    (additions are underlined; deletions are [bracketed])
* * * * *
Chicago Board Options Exchange, Incorporated
Rules
* * * * *
Rule 8.3. Appointment of Market-Makers
    (a)-(b) No change.
    (c) Market-Maker Appointments. Absent an exemption by the Exchange, 
an appointment of a Market-Maker confers the right to quote 
electronically and in open outcry in the Market-Maker's appointed 
classes during Regular Trading Hours as described below. Subject to 
paragraph (e) below, a Market-Maker may change its appointed classes 
upon advance notification to the Exchange in a form and manner 
prescribed by the Exchange.
    (i) Hybrid Classes. Subject to paragraphs (c)(iv) and (e) below, a 
Market-Maker can create a Virtual Trading Crowd (``VTC'') appointment, 
which confers the right to quote electronically during Regular Trading 
Hours in an appropriate number of Hybrid classes (as defined in Rule 
1.1(aaa)) selected from ``tiers'' that have been structured according 
to trading volume statistics, except for the AA tier. All classes 
within a specific tier will be assigned an ``appointment cost'' 
depending upon its tier location. The following table sets forth the 
tiers and related appointment costs.

------------------------------------------------------------------------
                                     Hybrid Option
              Tier                      Classes         Appointment cost
------------------------------------------------------------------------
AA..............................   Options on               .499
                                   the CBOE
                                   Volatility Index
                                   (VIX).
                                   Options on                .25
                                   the iShares
                                   Russell 2000 Index
                                   Fund (IWM).
                                   Options on                .50
                                   the NASDAQ 100
                                   Index (NDX).
                                   Options on                .40
                                   the S&P 100 (OEX).
                                   Options on                .25
                                   Standard & Poor's
                                   Depositary
                                   Receipts (SPY).
                                   Options on           [.25].50
                                   the Russell 2000
                                   Index (RUT).
                                   Options on                .10
                                   the S&P 100 (XEO).
                                   Morgan                    .25
                                   Stanley Retail
                                   Index Options
                                   (MVR).
                                   Options on                .10
                                   the iPath S&P 500
                                   VIX Short-Term
                                   Futures Index ETN
                                   (VXX).
                                   P.M.-                [1.0].50
                                   Settled options on
                                   the Standard &
                                   Poor's 500 (SPXPM).
A*..............................  Hybrid Classes 1-60                .10
B*..............................  Hybrid Classes 61-                 .05
                                   120.
C*..............................  Hybrid Classes 121-                .04
                                   345.
D*..............................  Hybrid Classes 346-                .02
                                   570.

[[Page 3204]]

 
E*..............................  Hybrid Classes 571-                .01
                                   999.
F*..............................  All Remaining                     .001
                                   Hybrid Classes.
------------------------------------------------------------------------
* Excludes Tier AA.

    (ii)--(vi) No change.
    (d)--(e) No change.
* * * * *
    The text of the proposed rule change is also 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
    The purpose of this rule change is to amend CBOE Rule 8.3 relating 
to the appointment costs for options on RUT options and SPXPM options. 
CBOE proposes to assign an appointment cost of .50 to each of RUT 
options and SPXPM options, effective February 1, 2016.
    While the appointment costs of Tier AA classes are not subject to 
quarterly rebalancing under Rule 8.3(c)(iv), the Exchange regularly 
reviews the appointment costs of Tier AA classes to ensure that they 
continue to be appropriate.\5\ The Exchange determines appointment 
costs of Tier AA classes based on several factors, including, but not 
limited to, competitive forces and trading volume. After evaluating 
these factors, the Exchange has determined to assign an appointment 
cost of .50 to each of RUT options and SPXPM options.
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    \5\ The Exchange reviews the appointment costs of classes in 
Tiers A through F every calendar quarter pursuant to an evaluation 
of trading volume statistics. The Exchange announces the quarterly 
rebalance via Regulatory Circular at least 10 business days before 
the rebalancing takes effect. See Rule 8.3(c)(iv).
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    The Exchange believes increasing the appointment cost for RUT 
options is reasonable given its increase in trading volume on the 
Exchange and other competitive forces. For example, when classes have 
higher volume, demand by Market-Makers for appointments to 
electronically quote in those classes may increase, and thus it is 
appropriate to charge a higher appointment cost for that class.\6\ The 
Exchange notes that even if a Market-Maker is unwilling to pay the 
higher appointment cost to maintain an appointment in RUT options to 
quote electronically during regular trading hours pursuant to Rule 
8.3(c)(i) (for example, because it would need an additional trading 
permit to cover the cost or because it would need to eliminate 
appointments in other classes), the Market-Maker can continue to have 
an appointment in the class to trade open outcry.\7\
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    \6\ This is demonstrated by the appointment costs of classes in 
Tiers A through F, which are based solely on trading volume--classes 
with higher volume have higher appointment costs.
    \7\ See Rule 8.3(c)(ii) (which provides all Market-Makers with 
an appointment to trade open outcry in all Hybrid classes traded on 
the Exchange).
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    The Exchange believes that decreasing the appointment cost for 
SPXPM options is reasonable given its trading volume and other 
competitive forces. The Exchange believes the proposed rule change will 
foster competition by incentivizing more Market-Makers to obtain an 
appointment in SPXPM due to the lower appointment cost, which may 
increase liquidity in the class, as well as quote electronically in 
other Hybrid option classes using the excess capacity resulting from 
the decreased appointment cost in SPXPM options. The Exchange believes 
that the appointment cost decrease for SPXPM options will promote 
competition and efficiency.
    The Exchange will announce the new appointment costs for RUT and 
SPXPM options via Regulatory Circular at least 10 business days before 
February 1, 2016, which the Exchange believes provides Market-Makers 
with sufficient notice to update their appointments (if necessary) via 
the appointments Web site or obtain an additional trading permit (if 
necessary).\8\
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    \8\ The Exchange notes that this timeframe is consistent with 
the deadline to announce quarterly rebalancing under Rule 
8.3(c)(iv), which may result in an increase in appointment costs of 
some classes and a decrease in appointment costs of other classes.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of section 6(b) of the 
Act.\9\ Specifically, the Exchange believes the proposed rule change is 
consistent with the section 6(b)(5) \10\ 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 
facilitating 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 the section 6(b)(5) \11\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
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    Rebalancing of appointment costs does not raise any new or unique 
issues. The Exchange reviews and rebalances appointment costs for Tier 
AA classes regularly and Tier A through F classes quarterly, both of 
which may result an increase in appointment costs of some classes and a 
decrease in appointment costs of other classes. The Exchange believes 
rebalancing appointment costs of Tier AA classes based on trading 
volume and other competitive forces promotes just and equitable 
principles of trade. The Exchange believes increasing the appointment 
cost for RUT options promotes competition and efficiency by aligning 
the appointment cost with the higher demand for appointments in that 
class and competitive forces related to that class.

[[Page 3205]]

The Exchange believes decreasing the appointment cost for SPXPM options 
promotes competition and efficiency by incentivizing more Market-Makers 
to obtain an appointment in SPXPM due to the lower appointment cost, 
which may increase liquidity in the class, as well as quote 
electronically in other Hybrid option classes using the excess capacity 
resulting from the decreased appointment cost in SPXPM options. The 
Exchange believes this may result in more liquidity and competitive 
pricing, which ultimately benefits investors. The proposed rule change 
does not result in unfair discrimination, as the revised appointment 
costs for RUT and SPXPM options will apply to all Market-Makers.

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 the purposes of the Act. CBOE 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 it will apply to all Market-Makers (and only Market-
Makers can have appointments to quote electronically). CBOE does not 
believe that the proposed rule change will impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed rule change 
only applies to CBOE's Market-Maker appointment process. The Exchange 
believes the proposed rule change will promote competition, as 
discussed above.

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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to section 19(b)(3)(A) of the Act \12\ and 
Rule 19b-4(f)(6) \13\ thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    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.

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-2015-121 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-2015-121. 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 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-2015-121 and should be 
submitted on or before February 10, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00905 Filed 1-19-16; 8:45 am]
BILLING CODE 8011-01-P