
[Federal Register Volume 77, Number 225 (Wednesday, November 21, 2012)]
[Notices]
[Pages 69903-69905]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28261]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68241; File No. SR-CBOE-2012-107]


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

November 15, 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 November 2, 2012, 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 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
    On April 5, 2007, CBOE established an Order Router Subsidy Program 
(``ORS Program'' or ``Program'') in which CBOE may enter into subsidy 
arrangements with CBOE Trading Permit Holders (each, a ``Participating 
TPH'') that provide certain order routing functionalities to other CBOE 
TPHs and/or use such functionalities themselves.\3\ The Exchange later 
extended this program to enable CBOE to establish such subsidy 
arrangements with broker-dealers that are not CBOE TPHs (each a 
``Participating Non-CBOE TPH'') and to permit Participating TPHs and 
Non-CBOE TPH's [sic] to receive subsidy payments for providing order 
routing functionality to broker-dealers who are not CBOE TPHs.\4\ (The 
term ``Participant'' as used in this filing refers to either a 
Participating TPH or a Participating Non-CBOE TPH). To qualify for the 
subsidy arrangement, a Participant's order routing functionality has 
to: (i) Enable the electronic routing of orders to all of the U.S. 
options exchanges, including CBOE; (ii) provide current consolidated 
market data from the U.S. options exchanges; and (iii) be capable of 
interfacing with CBOE's API to access current CBOE trade engine 
functionality. The routing system also needs to cause CBOE to be the 
default destination exchange for individually executed marketable 
orders if CBOE is at the national best bid or offer (``NBBO''), 
regardless of size or time, but allow any user to manually override 
CBOE as the default destination on an order-by-order basis. The order 
routing functionality is required to incorporate a function allowing 
orders at a specified price to be sent to multiple exchanges with a 
single click (a ``sweep function'') and the sweep function would need 
to be configured to cause an order to be sent to CBOE for up to the 
full size quoted by CBOE if CBOE is at the NBBO. Any CBOE TPH or 
broker-dealer that is not a CBOE TPH is permitted to avail itself of 
this arrangement, provided that its order routing functionality 
incorporates the features described above and satisfies CBOE that it 
appears to be robust and reliable. The Participant is solely 
responsible for implementing and operating its system.
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    \3\ See Securities Exchange Act Release No. 55629 (April 13, 
2007) 72 FR 19992
    (April 20, 2007) (SR-CBOE-2007-34). Additionally, the 
description of the current program was clarified in SR-CBOE-2008-27. 
See Securities Exchange Act Release No. 57498 (March 14, 2008), 73 
FR 15018 (March 20, 2008) (SR-CBOE-2008-27).
    \4\ See Securities Exchange Act Release No. 63631 (January 3, 
2011) 76 FR 1203 (January 7, 2011) (SR-CBOE-2010-117).
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    Participants will receive a payment from CBOE for every executed 
contract for orders routed to CBOE through that participating CBOE TPH 
or Non-CBOE TPH's system to subsidize their costs

[[Page 69904]]

associated with providing order routing functionalities. The payment is 
$.04 per executed contract for orders routed to CBOE through a 
Participant's system.\5\ CBOE does not make payments under this Program 
with respect to executed contracts in single-listed options classes 
traded on CBOE, or with respect to complex orders or spread orders. The 
Participants have to agree that they are not entitled to receive any 
other revenue for the use of its system, specifically with respect to 
orders routed to CBOE.\6\ Participants are not precluded, however, from 
receiving payment for order flow if they choose to do so.
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    \5\ See Securities Exchange Act Release No. 62432 (July 1, 
2010), 75 FR 39602 (July 9, 2010) (SR-CBOE-2010-66).
    \6\ This requirement would not prevent the participating member 
from charging fees (for example, a monthly fee) for the general use 
of its order routing system. Nor would it prevent the participating 
member from charging fees or commissions in accordance with its 
general practices with respect to transactions effected through its 
system.
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    Under the program, a Participant may also elect to have CBOE 
perform certain additional marketing services on its behalf. These 
services consist of including the Participant's functionality in the 
general marketing activities of CBOE's marketing staff. CBOE permits a 
Participant electing to have CBOE perform these services to place 
CBOE's ``HyTS'' trademark on its order routing functionality in a 
manner satisfactory to CBOE. If a Participant elects to have CBOE 
perform these services, the amount that CBOE pays the Participant for 
orders routed to CBOE through the Participant's system is reduced from 
$0.04 per executed contract to $0.03 per executed contract.\7\ The 
minimum term of these services is one year, after which a Participant 
can terminate the marketing services effective at the end of a calendar 
month.
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    \7\ See Securities Exchange Act Release No. 62432 (July 1, 
2010), 75 FR 39602 (July 9, 2010 (SR-CBOE-2010-66).
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    A Participant can also elect to have CBOE perform the service of 
billing other CBOE TPHs with respect to the use of the Participant's 
router. A Participant that elects to have CBOE perform this service 
pays CBOE a service fee of one percent of the fees collected by CBOE 
for that TPH. A Participant can terminate this service at the end of 
any calendar month.
    Nothing about the subsidy arrangement relieves any CBOE TPH or non-
CBOE TPH broker-dealer that is using an order routing functionality 
whose provider is participating in the Program from complying with its 
best execution obligations. Specifically, just as with any customer 
order and any other routing functionality, both a CBOE TPH and a non-
CBOE TPH have an obligation to consider the availability of price 
improvement at various markets and whether routing a customer order 
through a functionality that incorporates the features described above 
would allow for access to such opportunities if readily available. 
Moreover, any user, whether or not a CBOE TPH, needs to conduct best 
execution evaluations on a regular basis, at a minimum quarterly, that 
include its use of any router incorporating the features described 
above.
    The Exchange, at the time the Program was established, did not 
include the ORS Program in the Fees Schedule. The Exchange now proposes 
to codify the ORS Program in the Fees Schedule. No substantive changes 
to the ORS Program are being made by this proposal.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act, in general. Specifically, the Exchange believes the proposed rule 
change is consistent with the Section 6(b)(5) requirements that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, to 
remove impediments to and to perfect the mechanism for a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. Codifying in the Fees Schedule the 
ORS Program, in which CBOE may enter into subsidy arrangements with 
CBOE TPHs and Non-CBOE TPHs that provide certain order routing 
functionalities to other CBOE TPHs or Non- CBOE TPH broker dealers and/
or use such functionalities themselves provides additional transparency 
and allows market participants to easily discern the subsidies and/or 
fees that result from such arrangements. This will eliminate any 
potential confusion, thereby removing a potential impediment to and 
perfecting the mechanism for a free and open market and a national 
market system, and, in general, protecting investors and the public 
interest.

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 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) \8\ of the Act and paragraph (f) of Rule 19b-4 \9\ 
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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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 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-2012-107 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-2012-107. 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

[[Page 69905]]

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 20549-1090, 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-2012-107, and should be submitted 
on or before December 12, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28261 Filed 11-20-12; 8:45 am]
BILLING CODE 8011-01-P


