
[Federal Register Volume 77, Number 191 (Tuesday, October 2, 2012)]
[Notices]
[Pages 60161-60163]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-24169]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67928; File No. SR-CBOE-2012-090]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Codification of a Fee Schedule for the 
Sale by Market Data Express, LLC, an Affiliate of CBOE, of a Data 
Product That Includes Option Valuations

September 26, 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 September 14, 2012, the 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 the 
Substance of the Proposed Rule Change

    This proposal submitted by Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange'') is to codify a fee schedule for 
the sale by Market Data Express, LLC (``MDX''), an affiliate of CBOE, 
of a data product that includes option valuations. 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'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 the proposed rule change is to establish fees that 
MDX will charge for a new market data product, referred to as the CBOE 
Customized Option Valuation Service (the ``Service''). The Service 
would provide subscribers with an ``end-of-day'' file \3\ of valuations 
for Flexible Exchange (``FLEX'') \4\ options and certain over-the-

[[Page 60162]]

counter (``OTC'') options (the ``Data''). The Data would be available 
for internal use and distribution by subscribers. MDX would offer the 
Data for sale to CBOE Trading Permit Holders (``TPHs'') and non-TPHs.
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    \3\ An end of day file refers to data that is distributed prior 
to the opening of the next trading day.
    \4\ FLEX options are exchange traded options that provide 
investors with the ability to customize basic option features 
including size, expiration date, exercise style, and certain 
exercise prices.
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    The Data would consist of indicative \5\ values for three 
categories of ``customized'' options. The first category of options is 
all open series of FLEX options listed on any exchange that offers FLEX 
options for trading.\6\ The second category is OTC options that have 
the same degree of customization as FLEX options. The third category 
includes options with strike prices expressed in percentage terms. 
Values for such options would be expressed in percentage terms and 
would be theoretical values.\7\
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    \5\ ``Indicative'' values are indications of potential market 
prices only and as such are neither firm nor the basis for a 
transaction.
    \6\ Current FLEX options open interest spans over 2,000 series 
on over 300 different underlying securities.
    \7\ These values would be theoretical in that they would be 
indications of potential market prices for options that have not 
traded (i.e., do not yet exist). Market participants sometimes 
express option values in percentage terms rather than in dollar 
terms because they find it is easier to assess the change, or lack 
of change, in the marketplace from one day to the next when values 
are expressed in percentage terms.
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    A small number of market data vendors produce option value data 
that is similar to the Data.\8\ The Options Clearing Corporation 
(``OCC'') also produces FLEX option value data that is similar to the 
FLEX option value data that would be included in the Service.\9\ These 
vendors and the OCC use model-driven processes to produce their data. 
Instead of using a model-driven process, CBOE would use values produced 
by CBOE registered market-makers to produce the Data. Participating 
CBOE market-makers would submit values to MDX on options series 
specified by MDX on a daily basis. These values would be generated by 
the market-maker's internal pricing models. The valuations that MDX 
would ultimately publish would be an average of multiple contributions 
of values from participating CBOE market-makers.\10\ For each value 
provided by MDX through the Service, MDX would include a corresponding 
indication of the number of market-maker contributors that factored 
into that value.\11\
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    \8\ These vendors include SuperDerivatives, Markit, Prism, and 
Bloomberg's BVAL service.
    \9\ The OCC makes this data available on its Web site at http://www.theocc.com/webapps/flex-reports.
    \10\ The Exchange has filed a proposed rule change describing in 
detail the Service, the qualification criteria that a CBOE market-
maker must meet in order to be allowed to contribute values to MDX 
for purposes of producing Data for the Service, and the compensation 
MDX will pay to participating market-makers. See Securities Exchange 
Act Release No. 67813 (September 10, 2012) [77 FR 56903 (September 
14, 2012)] (SR-CBOE-2012-083).
    \11\ MDX would publish on its Web site a description of the 
methodology used for averaging the values submitted by market-makers 
to produce a single publishable value.
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    The fees that MDX would assess for the Data are set forth in the 
following table which would be included on the Price List on the MDX 
Web site (www.marketdataexpress.com).

------------------------------------------------------------------------
                                                          Per option/per
                    Number of options                           day
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0-50....................................................           $1.25
51-100..................................................            1.00
101-500.................................................            0.75
500+....................................................            0.50
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    MDX would charge a fee per option per day for the Data. The amount 
of the fee would be reduced based on the number of options purchased. A 
subscriber would pay $1.25 per option per day for each option purchased 
up to 50 options, $1.00 per option per day for each option purchased 
from 51 to 100 options, $0.75 per option per day for each option 
purchased from 101 to 500 options, and $.050 [sic] per option per day 
for each option purchased over 500 options. For example, a subscriber 
that purchases values for 150 options per day would pay $1.25 per 
option per day for the first 50 options ($62.50), $1.00 per option per 
day for the next 50 options ($50.00) and $0.75 per option per day for 
the remaining 50 options ($37.50) for a total of $150 per day.
    Subscribers would be able to purchase options daily, weekly, 
monthly or quarterly through the MDX Web site. TPHs and non-TPHs would 
be charged the same fees for the Data. The Data would be delivered to 
subscribers via File Transfer Protocol (FTP) or secure copy shortly 
after the close of trading each day. MDX expects to launch the Service 
during the fourth quarter of 2012.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the provisions of Section 6 of the Securities Exchange Act of 1934 (the 
``Act'') \12\ in general and with Sections 6(b)(4) and 6(b)(5) of the 
Act \13\ in particular in that it provides for an equitable allocation 
of reasonable dues, fees and other charges among users and recipients 
of the Data and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The Exchange believes the 
proposed fees are equitable and not unfairly discriminatory in that the 
fees charged would be the same for all market participants. In 
addition, the Exchange believes the fees are equitable because the 
Service would be purely optional. Only those subscribers that deem the 
product to be of sufficient overall value and usefulness would purchase 
it. The Exchange believes the proposed fees are reasonable because 
potential customers of the Service have indicated to the Exchange that 
the proposed fees compare favorably to fees that competing market data 
vendors charge for similar data.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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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. To the contrary, the Exchange 
believes the proposed rule change is pro-competitive in that it would 
allow the Exchange, through MDX, to disseminate a new data service on a 
voluntary basis. The Service is voluntary on the part of the Exchange, 
which is not required to offer such services, and voluntary on the part 
of prospective subscribers that are not required to use it. The 
Exchange believes that the Service would help attract new users and new 
order flow to the Exchange, thereby improving the Exchange's ability to 
compete in the market for options order flow and executions.
    The Exchange also believes that the proposed fees for the Data are 
consistent with the requirements of the Act because competition 
provides an effective constraint on the market data fees that the 
Exchange, through MDX, has the ability and the incentive to charge. 
CBOE has a compelling need to attract order flow from market 
participants in order to maintain its share of trading volume. This 
compelling need to attract order flow imposes significant pressure on 
CBOE to act reasonably in setting its fees for market data, 
particularly given that the market participants that will pay such fees 
often will be the same market participants from whom CBOE must attract 
order flow. These market participants include broker-dealers that 
control the handling of a large volume of customer and proprietary 
order flow. Given the portability of order flow from one exchange to 
another, any exchange that sought to charge unreasonably high data fees 
would risk alienating many of the same customers on whose orders it 
depends for competitive survival. CBOE currently competes with eight 
options

[[Page 60163]]

exchanges (this number does not include CBOE's affiliate, C2 Options 
Exchange) for order flow.\14\
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    \14\ The Commission has previously made a finding that the 
options industry is subject to significant competitive forces. See 
e.g., Securities Exchange Act Release No. 59949 (May 20, 2009), 74 
FR 25593 (May 28, 2009) (SR-ISE-2009-97) (order approving ISE's 
proposal to establish fees for a real-time depth of market data 
offering).
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    CBOE is constrained in pricing the Data by the availability to 
market participants of alternatives to purchasing the Data. CBOE must 
consider the extent to which market participants would choose one or 
more alternatives instead of purchasing the exchange's data. As noted 
above, SuperDerivatives, Markit, Prism, and Bloomberg are some of the 
market data vendors that offer market data products that would compete 
with the Service Also, OCC makes similar data available at no cost, 
thus constraining CBOE's ability to price the Data. The vendor 
proprietary data and the OCC data are significant alternatives to the 
MDX Data. Further, other self-regulatory organizations as well as 
broker-dealers and alternative trading systems can potentially produce 
their own option valuation products and thus are sources of potential 
competition for MDX.
    The number of market data vendors that sell valuations is 
relatively limited. The Exchange believes that MDX can be a low cost 
provider of valuations in this competitive environment.
    For the reasons cited above, the Exchange believes the CBOE 
Customized Option Valuation Service offering, including the proposed 
fees, is equitable, reasonable and not unfairly discriminatory. In 
addition, the Exchange believes that no substantial countervailing 
basis exists to support a finding that the proposed terms and fees for 
the Service fails to meet the requirements of the Act.

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) \15\ of the Act and paragraph (f) of Rule 19b-4 \16\ 
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.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f).
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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-2012-090 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.

All submissions should refer to File Number SR-CBOE-2012-090. 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-2012-090 and should be 
submitted on or before October 23, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-24169 Filed 10-1-12; 8:45 am]
BILLING CODE 8011-01-P


