82 FR 8883 - 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 82, Issue 19 (January 31, 2017)

[Federal Register Volume 82, Number 19 (Tuesday, January 31, 2017)]
[Notices]
[Pages 8883-8886]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-01999]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79873; File No SR-CBOE-2017-007]


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

January 25, 2017.
    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 January 17, 2017, 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule. 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 Exchange proposes to adopt a new Liquidity Provider Sliding 
Scale

[[Page 8884]]

Adjustment Table (``Adjustment Table'').\3\ By way of background, under 
the Liquidity Provider Sliding Scale (``LP Sliding Scale''), a 
Liquidity Provider's (CBOE Market-Makers, DPMs and LMMs) standard per-
contract transaction fees for all products except Underlying Symbol 
List A \4\ and mini options are reduced based upon the Liquidity 
Provider (``LP'') reaching certain contract volume thresholds in a 
month.\5\ The Exchange proposes to adopt the Adjustment Table which 
would establish Taker fees to be applied to ``Taker'' volume and a 
Maker rebate that would be applied to ``Maker'' volume in addition to 
the transaction fees assessed under the LP Sliding Scale. The amount of 
the Taker fee (or Maker rebate) would be determined by the LP's 
percentage of volume from the previous month that was Maker (``Make 
Rate''). The proposed Performance Tiers (determined by the Make Rate), 
fees and rebate are as follows:
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    \3\ The Exchange initially filed the proposed fee change on 
January 3, 2017 (SR-CBOE-2017-002). On January 17, 2017, the 
Exchange withdrew that filing and submitted this filing.
    \4\ As of January 3, 2017, Underlying Symbol List A includes 
Underlying Symbol List A consists of [sic] OEX, XEO, RUT, RLG, RLV, 
RUI, AWDE, FTEM, FXTM, UKXM SPX/SPXW, SPXpm, SRO, VIX, Volatility 
Indexes and binary options.
    \5\ See CBOE Fees Schedule, Liquidity Provider Sliding Scale.

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                                     Make rate             Maker rebate                      Taker fee
                                 -------------------------------------------------------------------------------
        Performance tier            (% based on                      Non-penny                       Non-penny
                                   prior month)    Penny classes      classes      Penny classes      classes
----------------------------------------------------------------------------------------------------------------
1...............................            0-50         ($0.00)         ($0.00)           $0.04           $0.08
2...............................           51-75          (0.00)          (0.00)            0.03            0.06
3...............................           76-85          (0.00)          (0.00)            0.02            0.04
4...............................           86-90          (0.00)          (0.00)            0.01            0.02
5...............................          91-100          (0.01)          (0.00)            0.00            0.00
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    As indicated above, the adjustment to a LP's transaction fees will 
be determined by which Performance Tier a LP qualifies for, which is 
based on the LP's ``Make Rate.'' More specifically, the Make Rate is 
derived from an LP's electronic volume the previous month in all 
symbols excluding Underlying Symbol List A using the following formula: 
(i) The LP's total electronic automatic execution (``auto-ex'') Maker 
volume (i.e., volume resulting from that LP's resting quotes or single 
sided quotes/orders that were executed by an incoming order or quote), 
divided by (ii) the LP's total auto-ex volume (i.e., volume that 
resulted from the LP's resting quotes/orders and volume that resulted 
from that LP's quotes/orders that removed liquidity).\6\ The Exchange 
notes that (i) trades on the open, and (ii) complex orders \7\ will be 
excluded from Make Rate calculation. Additionally, as with the 
Liquidity Provider Sliding Scale, the Exchange will aggregate the 
trading activity of separate Liquidity Provider firms for purposes of 
the Adjustment Table if there is at least 75% common ownership between 
the firms as reflected on each firm's Form BD, Schedule A. The Exchange 
notes that the Performance Tiers are independent from the tier levels 
in the LP Sliding Scale (e.g., a LP that falls in Tier 3 of the LP 
Sliding Scale can fall in Performance Tier 4 of the Adjustment Table). 
The Exchange also notes once a LP's Make Rate has been determined for a 
given month, the corresponding Performance Tier will applicable for the 
next month only. For example, the Performance Tier rates that will be 
applied in February 2017 will be based on a LP's Make Rate volume from 
January 2017. Similarly, the Performance Tier that would apply for a 
Market-Maker in March 2017, would be based off the LP's Make Rate for 
February 2017 and so forth.
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    \6\ For example, a Trading Permit Holder's electronic auto-ex 
Maker contract volume in December 2016 is 1,800,000 contracts and 
its total electronic auto-ex volume is 3,000,000 contracts, 
resulting in a Make Rate of 60% (Performance Tier 2). As such, the 
Trading Permit Holder's electronic Taker volume in January 2017 
would be assessed $0.03 per contract for penny classes and $0.06 per 
contract for non-penny class volume.
    \7\ Simple, non-complex orders that execute against a complex 
order will not be excluded.
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    The Exchange next proposes to establish the applicable Taker fees 
and Maker rebate set forth in the Performance Tiers for Penny and non-
Penny classes. The Exchange proposes to apply these adjustments to a 
LP's electronic volume only, including auction responses, but excluding 
the following: (i) Trades on the open, (ii) Qualified Contingent Cross 
(``QCC'') orders, (iii) complex orders,\8\ and (iv) original paired 
orders executed via an auction mechanism. As noted above, the Taker 
fees set forth in the Adjustment Table would be applied to ``Taker'' 
volume. Taker volume under the Adjustment Table would include the 
following: (i) Volume resulting from a LP's orders and/or quotes 
removing other market participants' resting orders and/or quotes and 
(ii) volume resulting from a LP's primary orders in unpaired auctions 
(i.e., Hybrid Agency Liaison (``HAL'') and HAL on the Open (``HALO'')). 
The Exchange notes that Taker fees for Penny classes would be subject 
to a cap of $0.50 per contract, which includes the LP Sliding Scale 
transaction fee, Adjustment Table fee and Marketing Fee.\9\ The Maker 
rebate set forth in the Adjustment Table would be applied to ``Maker'' 
volume, defined for this purpose as the following: (i) Volume resulting 
from executions against a LP's resting orders and/or quotes and (ii) 
volume resulting from a LP's responses to auctions (i.e., Automated 
Improvement Mechanism (``AIM''), HAL, and/or HALO
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    \8\ Simple, non-complex orders that execute against a complex 
order will not be excluded.
    \9\ For example, if an LP is assessed the Marketing Fee on a 
given transaction ($0.25 per contract) for which it was a Taker in a 
Penny class, and that LP falls in Tier 1 of the LP Sliding Scale 
($0.23 per contract) and Performance Tier 1 of the Adjustment Table 
($0.04 per contract), the LP would be assessed $0.50 per contract 
for the transaction, instead of $0.52 per contract.

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[[Page 8885]]

responses).\10\ The Exchange notes that other Exchanges assess 
transactions fees based on whether volume is ``maker'' or 
``taker''.\11\ The Exchange lastly proposes to make clear in the 
``Notes'' section of the Affiliate Volume Program (``AVP'') table that 
the transaction fee credits under AVP do not apply to the LP Adjustment 
Table.
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    \10\ For example, based on December 2016's volume, a LP's 
Performance Tier is Tier 2 for January 2017. In January 2017, the LP 
has the following breakdown of volume:
    1,162,500 contracts from AIM responses in Penny Classes
    2,000,000 contracts from electronic Maker activity in Penny 
Classes
    1,000,000 contracts from electronic Maker activity in Non-Penny 
Classes
    500,000 contracts from electronic Taker activity in Penny 
Classes
    100,000 contracts from electronic Taker activity in Non-Penny 
Classes
    200,000 contracts from responses to HAL in Penny Classes
    Per the proposed Adjustment Table, the LP would be assessed 
$0.03 per contract for the 500,000 Taker Penny contracts ($15,000) 
and $0.06 per contract for the 100,000 Taker non-Penny contracts 
($6,000), resulting in an additional charge of $21,000. If based on 
December 2016's volume the LP had instead met Performance Tier 5, 
for January 2017, the LP would have been entitled to a rebate of 
$0.01 for its Penny Maker volume of 3,362,500 (1,162,500 AIM 
responses, 2,000,000 Maker auto-ex Penny contracts and 200,000 HAL 
responses) for a total rebate of $33,625. In this example, no 
additional fees would be assessed on the LP's Taker volume.
    \11\ See e.g., Miami International Securities Exchange LLC 
(``MIAX'') Options Fees Schedule, Section 1(a), Market Maker 
Transaction Fees.
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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.\12\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \13\ 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 
Section 6(b)(4) of the Act,\14\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that adopting the Adjustment Table is 
reasonable because the amount of LP transaction fees including the 
proposed Taker fees and Taker cap of $0.50 per contract are similar and 
in line with the amount assessed for similar transactions at other 
Exchanges.\15\ Additionally, the Adjustment Table provides LPs an 
opportunity to qualify for a rebate they would not otherwise receive. 
The Exchange also notes that other exchanges have established 
transaction fees for Market-Makers based on maker and taker 
activity.\16\ Additionally the proposed rule change is designed to 
encourage LPs to provide and post liquidity to the Exchange. The 
different tiers provide an incremental incentive for LPs to add, rather 
than take, liquidity.
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    \15\ See e.g., International Securities Exchange (``ISE'') 
Schedule of Fees, Regular Order Fees and Rebates. See also, BOX 
Options Exchange Fees Schedule, Section I., Exchange Fees.
    \16\ Id. See also MIAX Options Fees Schedule, Section 1(a), 
Market Maker Transaction Fees.

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    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to only assess an additional Taker fee to those 
transactions removing liquidity from the market (``Takers'') and not 
Maker volume because the Exchange wants to continue to encourage market 
participation and price improvement. The Exchange's proposal to charge 
LPs who remove more liquidity higher fees is equitable and not unfairly 
discriminatory as it is common practice among options exchanges to 
differentiate fees for adding liquidity and fees for removing liquidity 
as discussed above.
    The Exchange also believes it's equitable and not unfairly 
discriminatory to assess higher fees for non-Penny option classes than 
Penny option classes and provide a rebate only for Penny classes 
because Penny classes and Non-Penny classes offer different pricing, 
liquidity, spread and trading incentives. The spreads in Penny classes 
are tighter than those in Non-Penny classes (which trade in $0.05 
increments). The wider spreads in non-Penny option classes allow for 
greater profit potential.
    Limiting the Adjustment Table to orders entered electronically is 
equitable and not unfairly discriminatory because the Exchange seeks to 
improve the quality of posted electronic markets. Additionally, the 
Exchange cannot discern whether an order is a Maker or Taker in open-
outcry.
    The Exchange believes it's equitable and not unfairly 
discriminatory to exclude Trades on the Open because these transactions 
involve the matching of undisplayed pre-opening trading interest. As 
such, there is, in effect, no Maker or Taker activity occurring. The 
Exchange would also like to encourage users to submit pre-opening 
orders. This brings greater liquidity and trading opportunity, which 
benefits all market participants. Similarly, the Exchange believes it's 
equitable and not unfairly discriminatory to exclude the original 
paired orders entered into an auction mechanism because there is no 
Maker or Taker activity occurring with respect to the original paired 
order.
    The Exchange believes it's reasonable, equitable and not unfairly 
discriminatory to exclude complex orders from the Adjustment Table 
because complex orders are already subject to the Complex Surcharge.
    The Exchange believes it's reasonable, equitable and not unfairly 
discriminatory to exclude QCC orders from the Adjustment Table because 
QCC orders are also not subject to the Liquidity Provider Sliding 
Scale.
    Excluding auction responses from the Make Rate is equitable and not 
unfairly discriminatory because the Exchange wants to encourage 
improved resting liquidity. The Exchange notes however, that auction 
responses are included as Maker with respect to the potential Maker 
rebate, as it still wants to reward price improvement and using auction 
mechanisms.
    Lastly, the Exchange believes the proposed change is also equitable 
and not unfairly discriminatory because all similarly situated LPs are 
subject to the same fee structure.

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 all similarly situated 
LPs are subject to the same fee structure. Additionally the proposed 
rule change is designed to encourage LPs to provide and post liquidity 
to the Exchange, which benefits all market participants.
    The Exchange does not believe that the proposed rule changes will 
impose any burden on intermarket competition

[[Page 8886]]

that is not necessary or appropriate in furtherance of the purposes of 
the Act because the proposed change only affects trading on CBOE. To 
the extent that the proposed change makes 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 \17\ and paragraph (f) of Rule 19b-4 \18\ 
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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
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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-2017-007 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2017-007. 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 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-2017-007 and should be 
submitted on or before February 21, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01999 Filed 1-30-17; 8:45 am]
 BILLING CODE 8011-01-P