
[Federal Register Volume 77, Number 132 (Tuesday, July 10, 2012)]
[Notices]
[Pages 40664-40666]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16763]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67340; File No. SR-CBOE-2012-060]


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

July 3, 2012.
    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 July 2, 2012, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change, as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comment 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 the Fees Schedule for its CBOE Stock 
Exchange (``CBSX''). 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.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    CBSX proposes to amend its Fees Schedule. First, the Exchange 
proposes to eliminate the Maker fee tier for Makers that add 2,500,000-
4,999,999 shares of liquidity in one day (for which such Makers were 
assessed a $0.0016 per share rate) and make the lowest Maker tier (and 
corresponding $0.0018 per share fee) apply to any Maker that adds 
4,999,999 shares or less of liquidity in one day (all Maker and Taker 
fees discussed in this filing relate to transactions in securities 
priced $1 or greater). CBSX also proposes increasing the per share 
rates for the remaining Maker tiers (aside from the lowest Maker tier) 
by $0.0002. These changes are proposed for economic and competitive 
reasons as CBSX attempts to create a continuum of incentives that will 
allow CBSX to compete for liquidity provision and order flow. As such, 
the proposed Maker fees for transactions in securities priced $1 or 
greater would be as follows:

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Maker (adds 4,999,999 shares or less    $0.0018 per share.
 of liquidity in one day).
Maker (adds 5,000,000-9,999,999 shares  $0.0017 per share.
 of liquidity in one day).
Maker (adds 10,000,000-14,999,999       $0.0016 per share.
 shares of liquidity in one day).
Maker (adds 15 million shares or more   $0.0015 per share.
 of liquidity in one day).
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    As before, these rates apply to all transactions in securities 
priced $1 or greater made by the same market participant in any day in 
which such participant adds the established amount of shares or more of 
liquidity that is determined in the chart above for each tier. Market 
participants who share a trading acronym or MPID may aggregate their 
trading activity for purposes of these rates. Qualification for these 
rates will require that a market participant appropriately indicate his 
trading acronym and/or MPID in the appropriate field on the order.
    CBSX also proposes amending its Taker rebate structure for 
transactions in securities priced $1 or greater.

[[Page 40665]]

Currently, for such transactions, the Taker rebate is $0.0015 per 
share. CBSX proposes amending this structure so that a Taker who 
removes 9,999,999 shares or less of liquidity in one day or has less 
than an 85% Execution Rate will continue to receive this $0.0015 rebate 
per share. However, a Taker who removes 10,000,000 shares or more of 
liquidity in one day and has equal to or greater than an 85% Execution 
Rate would receive a rebate of $0.0017 per share. The term ``Execution 
Rate'' shall be defined as the total number of orders (count) filled or 
partially filled by CBSX for the same market participant for the 
previous calendar month divided by the total number of orders sent to 
CBSX from the same market participant for the previous calendar month 
(rounded to the nearest whole percentage).
    Rejected orders will not count towards determining this Execution 
Rate. Canceled orders will count towards determining the total number 
of orders sent to CBSX, but not the total number of orders filled or 
partially filled. Orders that rest on the CBSX Book until they trade 
will incur the Maker fee when they trade, but because they executed, 
will count towards improving the market participant's Execution Rate. 
The Execution Rate achieved by a market participant for the previous 
calendar month will apply to the calendar month that immediately 
follows it. For example, if a market participant achieves an Execution 
Rate of above 85% for the month of July, then in the month of August, 
on any day in which that market participant removes 10,000,000 shares 
of liquidity or more, that market participant will receive the $0.0017 
per share rebate for all executions that remove liquidity.
    These rates apply to all transactions in securities priced $1 or 
greater made by the same market participant in any day in which such 
participant removes the established amount of shares or more of 
liquidity that is determined in the chart above for each tier. Market 
participants who share a trading acronym or MPID may aggregate their 
trading activity for purposes of these rates. Qualification for these 
rates will require that a market participant appropriately indicate his 
trading acronym and/or MPID in the appropriate field on the order.
    The purpose of the change is to encourage market participants to 
Take at a greater volume and also to achieve a higher Execution Rate. 
CBSX wants to incentivize a higher Execution Rate because CBSX believes 
that participants who route order flow that is likely to remove 
liquidity will only achieve an 85% or higher Execution Rate if such 
participants route such orders to CBSX first (as opposed to routing 
such orders to dark pools or other trading centers prior to seeking 
execution at ``lit'' exchanges). CBSX desires to create an incentive 
for Take orders to be sent to CBSX before being sent to other trading 
centers because orders that scrape through multiple trading centers 
before CBSX are likely to achieve a lower Execution Rate when the 
remainder of such orders make it to CBSX because the market may have 
changed by the time such orders (or remainder of such orders) reach 
CBSX.
    Because all orders sent by a market participant to CBSX will be 
taken into account when calculating the Execution Rate (except rejected 
orders), CBSX desires to incentivize the sending of orders that are 
likely to execute to CBSX. Orders that are sent to CBSX and rest on the 
CBSX Book will count towards raising the market participant's Execution 
Rate when the orders execute. This rewards and incentivizes the sending 
of orders that are likely to execute. Reaching an 85% Execution Rate 
will mean that a market participant is regularly sending in orders that 
are likely to execute and is therefore adding useful liquidity to the 
market. Indeed, this 85% Execution Rate rewards market participants who 
send orders to CBSX with the intention of either trading immediately or 
letting the orders rest on the CBSX Book until they execute, thereby 
incentivizing passive, as well as active, liquidity provision.
    CBSX proposes to increase the fee for a cross trade that is the 
stock component of a qualified contingent trade from $0.0012 per share 
to $0.0015 per share and to increase the maximum fee for such 
transactions from $25 per trade to $30 per trade for economic and 
competitive reasons.
    Finally, CBSX proposes to add a fee of $0.0025 per share (minimum 
rate of $1 per trade, maximum rate of $30 per trade) for two-day 
settlement of cross trades. CBSX adopted two-day settlement in 2011 \3\ 
but never adopted or assessed fees for the two-day settlement of cross 
trades, and desires to now do so. The amount of the fee (including the 
minimum and maximum rates) is the same as the amount for the next-day 
settlement of cross trades.
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    \3\ See Securities Exchange Act Release No. 65417 (September 28, 
2011), 76 FR 61772 (October 5, 2011) (SR-CBOE-2011-089).
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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.\4\ Specifically, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\5\ which provides that 
Exchange rules may provide for the equitable allocation of reasonable 
dues, fees, and other charges among its Trading Permit Holders and 
other persons using its facilities. Eliminating the Maker fee tier for 
Makers that add 2,500,000-4,999,999 shares of liquidity in one day (for 
which such Makers were assessed a $0.0016 per share rate) and making 
the lowest Maker tier (and corresponding $0.0018 per share fee) apply 
to any Maker that adds 4,999,999 shares or less of liquidity in one 
day, and increasing the per-share fees for all other tiers by $0.0002 
is reasonable because the amount of the increase is minimal, and the 
amounts of the fees are within the range of Maker fees that have been 
assessed previously (and the increases do not change the maximum Maker 
fee being assessed of $0.0018 per share). The slight increases to the 
Maker fees for transactions in securities priced $1 or greater, and the 
different Maker tiers themselves, are equitable and not unfairly 
discriminatory because the lower fees for market participants who can 
reach the higher volume tiers will provide an incentive for market 
participants to execute more trades on CBSX, which in turn will provide 
for greater volume and liquidity for all CBSX market participants.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4).
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    Amending the Taker fee structure for transactions in securities 
priced $1 or greater to provide that a Taker that removes 10,000,000 
shares or more of liquidity in one day and achieved an 85% Execution 
Rate in the previous calendar month is reasonable because those Takers 
who qualify for this tier will be receiving a larger rebate than they 
would have prior to this proposed change. This proposed new Taker fee 
structure is equitable and not unfairly discriminatory because the 
higher rebate for market participants who hit the new tier will provide 
an incentive for market participants to attempt to execute more trades 
on CBSX, which in turn will provide for greater volume and liquidity 
for all CBSX market participants. The 85% Execution Rate threshold is 
further equitable and not unfairly discriminatory because it encourages 
market participants who desire to reach this tier to send orders that 
are likely to execute to CBSX and allow orders to rest on the CBSX Book 
until such orders execute, both of which benefit all

[[Page 40666]]

market participants by providing available liquidity with which to 
trade.
    Increasing the per-share and maximum fees for a cross trade that is 
the stock component of a qualified contingent trade is reasonable 
because the increases are minimal and within the range of other cross 
trade fees assessed by CBSX, and is equitable and not unfairly 
discriminatory because the new per-share and maximum fees will be 
assessed to all market participants equally. Adopting fees for two-day 
settlement of cross trades is reasonable because the amount of the fees 
are the same as those being assessed for next-day settlement, and is 
equitable and not unfairly discriminatory because the new two-day 
settlement fees will be assessed to all market participants equally.

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.

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 rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \6\ and subparagraph (f)(2) of Rule 19b-4 
thereunder.\7\ 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.
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    \6\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \7\ 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 email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2012-060 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2012-060. 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 a.m. and 3 
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-2012-060 and should be submitted on 
or before July 31, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16763 Filed 7-9-12; 8:45 am]
BILLING CODE 8011-01-P


