

[Federal Register: March 27, 2006 (Volume 71, Number 58)]
[Notices]               
[Page 15234-15235]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27mr06-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53511; File No. SR-CBOE-2006-23]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change and Amendment No. 1 Thereto Relating to Its 
Marketing Fee Program

March 17, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 1, 2006, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``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 prepared by the 
Exchange. On March 16, 2006, the Exchange submitted Amendment No. 1 to 
the proposed rule change.\3\ The CBOE has designated this proposal as 
one establishing or changing a due, fee, or other charge imposed by the 
CBOE under Section 19(b)(3)(A)(ii) of the Act \4\ and Rule 19b-4(f)(2) 
thereunder,\5\ which renders the proposal, as amended, effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 (``Amendment No. 1'') makes a minor, 
technical clarification in the rule text of footnote 6 to CBOE's 
Fees Schedule.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend its Fees Schedule and its marketing fee 
program. Below is the text of the proposed rule change. Proposed new 
language is italicized and proposed deletions are in [brackets].

Chicago Board Options Exchange, Inc.--Fees Schedule

March 1, 2006
    1. No Change.
    2. Marketing Fee (6)(16)--$.65
    3.-4. No Change.
Footnotes:
    (1)-(5) No Change.
    (6) [Commencing on December 12, 2005, t]The Marketing Fee will be 
assessed only on transactions of Market-Makers, RMMs, e-DPMs, DPMs, and 
LMMs resulting from orders for less than 1,000 contracts (i) from 
payment accepting firms, or (ii) that have designated a ``Preferred 
Market-Maker'' under CBOE Rule 8.13 at the rate of $.65 per contract on 
all classes of equity options, options on HOLDRs, options on SPDRs, and 
options on DIA. The fee will not apply to: Market-Maker-to-Market-Maker 
transactions including transactions resulting from orders from non-
member market-makers; [or] transactions resulting from P/A orders; 
transactions resulting from accommodation liquidations (cabinet 
trades); and transactions resulting from dividend strategies, merger 
strategies, and short stock interest strategies as defined in footnote 
13 of this Fees Schedule. This fee shall not apply to index options and 
options on ETFs (other than options on SPDRs and options on DIA). A 
Preferred Market-Maker will only be given access to the marketing fee 
funds generated from a Preferred order if the Preferred Market-Maker 
has an appointment in the class in which the Preferred order is 
received and executed. If less than 80% of the marketing fee funds are 
paid out by the DPM/LMM or Preferred Market-Maker in a given month, 
then the Exchange would refund such surplus at the end of the month on 
a pro rata basis based upon contributions made by the Market-Makers, 
RMMs, e-DPMs, DPMs and LMMs. However, if 80% or more of the accumulated 
funds in a given month are paid out by the DPM/LMM or Preferred Market-
Maker, there will not be a rebate for that month and the funds will 
carry over and will be included in the pool of funds to be used by the 
DPM/LMM or Preferred Market-Maker the following month. At the end of 
each quarter, the Exchange would then refund any surplus, if any, on a 
pro rata basis based upon contributions made by the Market-Makers, 
RMMs, DPMs, e-DPMs and LMMs. CBOE's marketing fee program as described 
above will be in effect until June 2, 2006.
    Remainder of Fees Schedule--No Change.

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, as 
amended, 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 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
    Effective December 12, 2005, CBOE amended its marketing fee program 
in a number of respects.\6\ CBOE states that, as amended, the fee is 
assessed upon DPMs, LMMs, e-DPMs, RMMs, and Market-Makers at the rate 
of $.65 per contract on transactions of Market-Makers, RMMs, e-DPMs, 
DPMs, and LMMs resulting from orders for less than 1,000 contracts (i) 
from payment accepting firms (``PAFs''), or (ii) that have designated a 
``Preferred Market-Maker'' under CBOE Rule 8.13. CBOE notes that the 
fee does not apply to Market-Maker-to-Market-Maker transactions (which 
includes all transactions between any combination of DPMs, e-DPMs, 
RMMs, LMMs, and Market-Makers), or transactions of Market-Makers, RMMs, 
e-DPMs, DPMs, and LMMs resulting from inbound P/A orders. CBOE states 
that the marketing fee is assessed in all equity option classes and 
options on HOLDRs[supreg], options on SPDRs[supreg] and options on DIA.
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    \6\ See Securities Exchange Act Release No. 53016 (December 22, 
2005), 70 FR 77209 (December 29, 2005) (SR-CBOE-2005-107).
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    CBOE proposes to amend its marketing fee program to provide that 
CBOE Market-Makers, RMMs, e-DPMs, DPMs, and LMMs would not be assessed 
the marketing fee on transactions resulting from orders from non-member 
market-makers, which orders may be submitted to CBOE from PAFs. CBOE 
believes that this would be consistent with CBOE's existing marketing 
fee program which expressly provides that the fee does not apply to 
CBOE Market-Maker-to-Market-Maker transactions.
    Additionally, CBOE proposes to amend its marketing fee program to 
provide that the fee would not apply to

[[Page 15235]]

transactions resulting from dividend strategies, merger strategies, and 
short stock interest strategies, as defined in Footnote 13 of this Fees 
Schedule,7 8 or cabinet trades (see CBOE Rule 6.54--
Accommodation Liquidations).
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    \7\ CBOE notes that, as set forth in Footnote 13 of its Fees 
Schedule, a dividend strategy is defined as transactions done to 
achieve a dividend arbitrage involving the purchase, sale, and 
exercise of in-the-money options of the same class, executed prior 
to the date on which the underlying stock goes ex-dividend. CBOE 
states that a merger strategy is defined as transactions done to 
achieve a merger arbitrage involving the purchase, sale, and 
exercise of options of the same class and expiration date, each 
executed prior to the date on which shareholders of record are 
required to elect their respective form of consideration, i.e., cash 
or stock. A short stock interest strategy is defined as transactions 
done to achieve a short stock interest arbitrage involving the 
purchase, sale, and exercise of in-the-money options of the same 
class.
    \8\ CBOE notes that the fees currently assessed on transactions 
resulting from dividend strategies, merger strategies, and short 
stock interest strategies, as defined in Footnote 13 of its Fees 
Schedule, are part of a pilot program that will expire on September 
1, 2006. See Securities Exchange Act Release No. 53412 (March 3, 
2006), 71 FR 12752 (March 13, 2006) (SR-CBOE-2006-20). Telephone 
conversation between Patrick Sexton, Associate General Counsel, 
Exchange, and David Liu and Michou Nguyen, Attorneys, Division of 
Market Regulation, Commission, on March 7, 2006.
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    CBOE states that it is not amending its marketing fee program in 
any other respects.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\9\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act,\10\ 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.
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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

    The Exchange does not believe that the proposed rule change, as 
amended, will impose any inappropriate burden on competition not 
necessary or appropriate in furtherance of the 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 either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change, as amended, has been designated 
as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act \11\ and 
Rule 19b-4(f)(2) \12\ thereunder, because it establishes or changes a 
due, fee, or other charge imposed by the Exchange. Accordingly, the 
proposal, as amended, will take effect upon filing with the Commission. 
At any time within 60 days of the filing of such proposed rule change 
the Commission may summarily abrogate 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.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
    \13\ The effective date of the original proposed rule change is 
March 1, 2006, and the effective date of Amendment No. 1 is March 
16, 2006. For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change, as 
amended, the Commission considers the period to commence on March 
16, 2006, the date on which the Exchange submitted Amendment No. 1. 
See 15 U.S.C. 78s(b)(3)(C).
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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, as amended, 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 rule-comments@sec.gov. Please include 

File Number SR-CBOE-2006-23 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File Number SR-CBOE-2006-23. 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 inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the CBOE. 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-2006-23 and should be submitted on or before April 
17, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-4340 Filed 3-24-06; 8:45 am]

BILLING CODE 8010-01-P
