

[Federal Register: June 1, 2006 (Volume 71, Number 105)]
[Notices]               
[Page 31237-31239]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jn06-117]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53866; File No. SR-CBOE-2006-44]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Amendments to the Communications Review Fee and 
DPM Linkage Fees Credit Program

May 25, 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 May 18, 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

[[Page 31238]]

below, which Items were prepared by the CBOE. The Exchange has 
designated this proposal as one establishing or changing a due, fee, or 
other charge imposed by a self-regulatory organization pursuant to 
Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposal effective upon filing with 
the Commission. 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)(ii).
    \4\ 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 Exchange proposes to amend its Fees Schedule to: (i) Increase 
the communication review fee; and (ii) amend the DPM Linkage Fees 
Credit Program (``Program''). The text of the proposed rule change is 
available on the Exchange's Web site (http://www.cboe.com), 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 proposal. 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 amend its Fees Schedule to: (i) Increase 
the communication review fee, and (ii) amend the Program. The Exchange 
implemented the proposed Fee changes on May 18, 2006.\5\
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    \5\ See telephone conversation between Jamie Galvan, Senior 
Attorney, CBOE, and Christopher Chow, Senior Counsel, Commission, on 
May 24, 2006.
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a. Communication Review Fee
    CBOE's Department of Member Firm Regulation reviews member firm 
options-related advertisements, educational material and sales 
literature for compliance with applicable rules of CBOE, the SEC and 
the Securities Investor Protection Corporation.\6\ These public 
communications include, for example, print, television and radio 
advertisements, and electronic communications such as Web sites.
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    \6\ CBOE member firms may seek review of their options-related 
communications by other SROs of which they are members.
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    CBOE assesses a fee for this service (``Communication Review Fee'') 
as follows: (i) Regular review--for printed material reviewed, $75 per 
submission, plus $10 for each page reviewed in excess of 10 pages; and 
for video and audio media reviewed, $75 per submission, plus $10 per 
minute for each minute of tape reviewed in excess of 10 minutes; (ii) 
Expedited review--for printed material reviewed, $500 per submission, 
plus $25 for each page reviewed in excess of 10 pages; and for video 
and audio media reviewed, $500 per submission, plus $25 per minute for 
each minute of tape reviewed in excess of 10 minutes. This fee was 
adopted in December of 2004.\7\
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    \7\ See Securities Exchange Act Release No. 50903 (December 21, 
2004), 69 FR 78070 (December 29, 2004).
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    CBOE proposes to increase the Communication Review Fee as follows: 
(i) Regular review--for printed material reviewed, $150 per submission, 
plus $25 for each page reviewed in excess of five pages; and for video 
and audio media reviewed, $150 per submission, plus $25 per minute for 
each minute of tape reviewed in excess of five minutes; and (ii) 
Expedited review--for printed material reviewed, $1,000 per submission, 
plus $50 for each page reviewed in excess of five pages; and for video 
and audio media reviewed, $1,000 per submission, plus $50 per minute 
for each minute of tape reviewed in excess of five minutes.
    Expedited review would be completed within five business days, 
instead of three business days, not including the date the item is 
received by the Department of Member Firm Regulation, unless a shorter 
or longer period is agreed to by the Department of Member Firm 
Regulation. The Department of Member Firm Regulation may, in its sole 
discretion, refuse requests for expedited review.
b. DPM Linkage Fees Credit
    The Exchange, pursuant to Section 21 of the CBOE Fees Schedule, 
credits DPMs for transaction fees they incur related to the execution 
of: (i) Outbound principal acting as agent (``P/A'') orders; and (ii) 
outbound Principal orders on behalf of orders that are for the account 
of a broker-dealer (``P orders'').\8\ The purpose of the Program is to 
assist DPMs in offsetting the additional costs they incur in routing 
orders to other exchanges in order to obtain the National Best Bid or 
Offer.
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    \8\ Broker-dealer orders are orders marked with either a ``B'' 
or ``F'' origin code.
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    The Program is accomplished via a rebate and a credit: (i) The 
Exchange rebates transaction fees that DPMs incur when they trade 
against a customer order that underlies a P/A order the DPM sent 
through the Intermarket Options Linkage (``Linkage''), and when they 
trade against a broker-dealer order that underlies a P order the DPM 
sent through the Linkage; and (ii) the Exchange credits DPMs up to an 
additional $.20 per contract to help offset some of the fees the DPMs 
incur for submitting such P/A and P orders through the Linkage. In 
addition, for P orders only, the Exchange credits DPMs up to an 
additional $.09 per contract on both the CBOE transaction against the 
broker-dealer order underlying the outbound P order and the P order 
transaction at another exchange, to help offset the Options Clearing 
Corporation (``OCC'') and clearing firm fees DPMs incur on those 
transactions.\9\
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    \9\ See Securities Exchange Act Release No. 53372 (February 24, 
2006), 71 FR 11003 (March 3, 2006).
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    The Exchange proposes to amend the Program to provide that the 
Exchange will credit DPMs to cover completely (to the extent possible) 
the costs incurred by DPMs in executing such outbound P/A and P orders. 
Specifically, the Exchange proposes to amend Section 21 of the Fees 
Schedule to provide that the Exchange will credit DPMs with an amount 
per contract to offset the fees incurred by DPMs when they execute P/A 
and P orders at other exchanges. The amount of such credit would be a 
weighted average of the Linkage transaction fees assessed by other 
exchanges calculated based on outbound Linkage contract volume sent to 
each of the other exchanges. The references in the Fees Schedule to a 
$.20 per contract credit would be deleted.
    In addition, the Exchange proposes to credit DPMs an amount per 
contract on CBOE transactions against customer and broker-dealer orders 
underlying P/A and P orders, and on P/A and P order transactions at 
other exchanges, to offset the OCC and clearing firm fees DPMs incur on 
those transactions.\10\The amount of such credit would be comprised of 
the OCC per contract fee applicable to market-makers and specialists 
set forth on the OCC Schedule of Fees and an estimated

[[Page 31239]]

average clearing firm per contract fee. The reference in the Fees 
Schedule to the $.09 per contract credit would be deleted.
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    \10\ Currently, the credit to offset OCC and clearing firm fees 
applies only to P orders.
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    Also, the Exchange proposes to credit DPMs an amount per contract 
on CBOE transactions against customer and broker-dealer orders 
underlying P/A and P orders, and on P/A and P order transactions at 
other exchanges, to offset the Sales Value Fee DPMs may incur on those 
transactions.\11\
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    \11\ The Sales Value Fee is assessed by CBOE to each member for 
sales of securities on CBOE with respect to which CBOE is obligated 
to pay a fee to the SEC under Section 31 of the Exchange Act. Other 
exchanges refer to this fee by different names. See Section 6 of the 
CBOE Fees Schedule.
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    Under the current Program, the Exchange caps the amount of the 
credits at the amount of total fees received by the Exchange from 
inbound linkage transaction fees. Because the Exchange proposes to 
completely cover (to the extent possible) the costs incurred by DPMs in 
executing such transactions, the Exchange proposes to delete this 
cap.\12\
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    \12\ The Exchange notes that a Linkage Plan amendment has been 
separately submitted to the Commission to permit an Exchange 
account, instead of the DPM's account, to be used by the Exchange to 
send and respond to P/A orders (``Linkage Account Plan Amendment''). 
Pursuant to Section 21 of the Fees Schedule, the DPM Linkage Fee 
Credit Program with respect to P/A orders will expire upon the 
earlier of: (i) 30 days after Commission approval of the Linkage 
Account Plan Amendment; or (ii) July 31, 2006, which is the 
expiration date of the Linkage fees pilot program.
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    As under the current Program, a DPM would be expected to reimburse 
the Exchange to the extent that the funds received by the DPM via the 
Program exceed the DPM's actual costs incurred in executing Linkage-
related transactions.\13\
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    \13\ The Exchange intends to monitor on a regular basis to 
ensure that no DPM receives funds via the Program in amounts that 
exceed the DPM's actual costs in executing Linkage-related 
transactions.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\14\ in general, and furthers the objectives of Section 6(b)(4) of the 
Act \15\ in particular, in that it is designed to provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
CBOE members.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will not impose 
any burden on competition that is 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    The foregoing proposed rule change has become effective pursuant to 
Section 19(b)(3)(A)(ii) of the Act,\16\ and paragraph (f)(2) of Rule 
19b-4 thereunder\17\ because it establishes or changes a due, fee, or 
other charge applicable only to members of the Exchange. At any time 
within 60 days of the filing of the 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
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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 e-mail to rule-comments@sec.gov. Please include 

File Number SR-CBOE-2006-44 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 20549-1090.
    All submissions should refer to File Number SR-CBOE-2006-44. 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 
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-2006-44 and should be submitted on or before June 22, 2006.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Nancy M. Morris,
Secretary.
 [FR Doc. E6-8476 Filed 5-31-06; 8:45 am]

BILLING CODE 8010-01-P
