
[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62798-62802]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24674]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70683; File No. SR-CBOE-2013-087]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Fees for the Complex Order Book Data 
Feed for CBOE Listed Options

October 15, 2013.
    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 30, 2013, 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

[[Page 62799]]

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

    Chicago Board Options Exchange, Incorporated (the ``Exchange'' or 
``CBOE'') proposes to amend the fee schedule of Market Data Express, 
LLC (``MDX''), an affiliate of CBOE, to establish fees for the Complex 
Order Book (``COB'') Data Feed for CBOE listed options (``COB Data 
Feed'' or ``Data''). 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 COB Data Feed is a real-time feed that consists of data 
regarding the Exchange's Complex Order Book and related complex order 
information. The COB Data Feed includes ``best bid and offer'' or 
``BBO'' quotes and identifying information for all CBOE-traded complex 
order strategies, as well as all executed CBOE complex order trades 
(and identifies whether the trade was a customer trade or whether a 
complex order in the COB is a customer order). The COB Data Feed is 
currently made available by MDX to all market participants free of 
charge.\3\
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    \3\ See Securities Exchange Act Release No. 70118 (August 5, 
2013) (SR-CBOE-2013-070).
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    The Exchange proposes to establish fees for the COB Data Feed. MDX 
would charge Customers of the COB Data Feed $3,000 per month (``Data 
Fee''). A COB Data Feed ``Customer'' is any entity that receives the 
COB Data Feed, either directly from MDX's system or through a 
connection to MDX provided by an approved redistributor (i.e., a market 
data vendor or an extranet service provider), and distributes it 
externally or uses it internally, except that an entity or person that 
receives the COB Data Feed from a Customer and only uses it internally 
is not a ``Customer'' if it receives the COB Data Feed from a Customer 
subject to a form of ``Subscriber Agreement'' that has been approved by 
MDX. The Data Fee for the COB Data Feed would be waived for Customers 
of the COB Data Feed who are also Customers of the BBO Data Feed.\4\ 
Customers of the BBO Data Feed are currently charged $5,000 per month 
by MDX.\5\ The proposed waiver of the Data Fee for the COB Data Feed 
would allow a Customer of the COB Data Feed who is also a Customer of 
the BBO Data Feed to redistribute the COB Data Feed for no additional 
charge.\6\
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    \4\ The BBO Data Feed is a real-time, low latency data feed that 
includes CBOE BBO data, consisting of all outstanding quotes and 
standing orders at the best available price level on each side of 
the market, with aggregate size and last sale data. The BBO Data 
Feed includes the data included in the COB Data Feed, among other 
data. See Securities Exchange Act Release No. 69438 (April 23, 
2013), 78 FR 25334 (April 30, 2013).
    \5\ Id.
    \6\ Such Customers would still be subject to User Fees as 
described below.
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    In addition, MDX would charge a Customer ``User Fees'' of $25 per 
month per Device \7\ or user ID for receipt of the data by 
``Professional Users'' \8\ and $1 per month for receipt of the data by 
``Non-Professional Users''.\9\ User Fees would be subject to a cap of 
$2,000 per month, i.e., a Customer would pay no more than $2,000 in 
User Fees in a month.
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    \7\ A ``Device'' means any computer, workstation or other item 
of equipment, fixed or portable, that receives, accesses and/or 
displays data in visual, audible or other form.
    \8\ A ``Professional User'' is any natural person recipient of 
the COB Data Feed who is not a Non-Professional User. User Fees for 
Professional Users are payable for both ``internal'' Professional 
Users (Devices or user IDs of employees of a Customer) and 
``external'' Professional Users (Devices or user IDs of Professional 
Users who receive the Data from a Customer and are not employed by 
the Customer). (Non-Professional Users must be external since a 
person who uses the COB Data Feed for a commercial purpose cannot be 
a Non-Professional User.)
    \9\ A ``Non-Professional User'' is a natural person who uses the 
COB Data Feed only for personal purposes and not for any commercial 
purpose and who, if he or she works in the United States, is not: 
(i) Registered or qualified in any capacity with the Securities and 
Exchange Commission, the Commodities Futures Trading Commission, any 
state securities agency, any securities exchange or association, or 
any commodities or futures contract market or association; (ii) 
engaged as an ``investment adviser'' as that term is defined in 
Section 201(11) of the Investment Advisors Act of 1940 (whether or 
not registered or qualified under that Act); or (iii) employed by a 
bank or other organization exempt from registration under federal or 
state securities laws to perform functions that would require 
registration or qualification if such functions were performed for 
an organization not so exempt; or, if he or she works outside of the 
United States, does not perform the same functions as someone who 
would qualify as a Non-Professional User if he or she worked in the 
United States.
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    The Exchange also proposes to make several formatting and clean up 
changes to the MDX fee schedule. The Exchange proposes to create three 
separate sections on the MDX fee schedule for the BBO Data Feed, COB 
Data Feed and FLEX Options Data Feed\10\ and include the definitions 
applicable to each data feed within its respective section. The 
Exchange proposes to renumber the section on Systems Fees and move the 
definition of Port Fee within that section. Finally, the Exchange 
proposes to delete the Definitions section of the MDX fee schedule, 
including the provisions on invoicing and late payments which are 
included within MDX's written agreement for the data.
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    \10\ The FLEX Options Data Feed is currently made available to 
all market participants free of charge. See Securities Exchange Act 
Release No. 68696 (January 18, 2013), 78 FR 5527 (January 25, 2013).
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    The proposed fees would be effective on October 1, 2013.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Securities Exchange Act of 1934 
(``Act'') \11\ in general, and, in particular, with Section 6(b)(4) of 
the Act \12\ in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among users and recipients of 
the Data, and with Section 6(b)(5) \13\ of the Act in that it is not 
designed to permit unfair discrimination between them. The Exchange 
believes the proposed Data Fee and User Fees are equitable and not 
unfairly discriminatory because they would apply equally to all 
Customers of the COB Data Feed except the Data Fee would be waived for 
Customers of the COB Data Feed who are also Customers of the BBO Data 
Feed. The Exchange notes that the fee structure of differentiated 
professional and nonprofessional fees has long been used by other 
exchanges for their products and by the Options Price Reporting 
Authority (``OPRA'') Plan in order to reduce the price of data to 
retail investors and make it more broadly available.\14\
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See, e.g., Securities Exchange Act Release No. 67589 
(August 2, 2012), 77 FR 47459 (August 8, 2012) (revising OPRA's 
definition of the term ``Nonprofessional'').

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[[Page 62800]]

    The Exchange believes the proposed waiver of the Data Fee is 
equitable and not unfairly discriminatory because it would apply 
equally to all Customers of the COB Data Feed who are also Customers of 
the BBO Data Feed. Customers of the BBO Data Feed already pay MDX 
$5,000 for the right to use and redistribute the data in the BBO Data 
Feed. The BBO Data Feed includes the data in the COB Data Feed. The 
proposed waiver of the Data Fee would allow a Customer of the COB Data 
Feed who is also a Customer of the BBO Data Feed to redistribute the 
COB Data Feed for no additional charge, thereby incentivizing further 
redistribution of the data in the COB Data Feed. The Exchange notes 
other exchanges offer similar fee waivers.\15\
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    \15\ The Exchange believes the NASDAQ Options Market charges 
only one distributor fee to allow a subscriber access to its 
``NASDAQ ITCH-to-Trade Options'' (ITTO) and ``Best of NASDAQ 
Options'' (BONO) products. The Exchange believes NASDAQ OMX BX 
charges only one distributor fee to allow a subscriber access to its 
``BX Options Depth of Market'' (BX Depth) and ``BX Options Top of 
Market'' (BX Top) products.
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    The Exchange also believes the proposed fees are equitable because 
the COB Data Feed is purely optional. Only those Customers that deem 
the product to be of sufficient overall value and usefulness would 
purchase it.
    The Exchange believes the proposed fees are reasonable because they 
compare favorably to fees that other markets charge for similar 
products. For example, the Exchange believes The International 
Securities Exchange (``ISE'') offers a ``Spread Feed'', which like the 
COB Data Feed includes order and quote data for complex strategies. The 
Exchange believes ISE charges distributors of its Spread Feed $3,000 
per month and a monthly controlled device fee of $25 per controlled 
device for Professionals.
    The Exchange notes that the COB Data Feed also competes with 
products offered by NASDAQ OMX PHLX and NYSE. NASDAQ OMX PHLX offers a 
market data product entitled ``TOPO Plus Orders'', which like the COB 
Data Feed includes order and last sale information for complex 
strategies and other market data. NYSE offers market data products 
entitled ``NYSE ArcaBook for Amex Options'' and ``NYSE ArcaBook for 
Arca Options'' that include top-of-book and last sale data for complex 
strategies similar to the data in the COB Data Feed.
    The Exchange believes that the proposed cap on User Fees is 
reasonable because it may encourage more vendors to choose to offer the 
COB Data Feed, thereby expanding the distribution of this market data 
for the benefit of investors.
    The proposed formatting and clean-up changes to the MDX fee 
schedule will benefit Customers and users by making the fee schedule 
clearer and easier to understand.
    For the reasons cited above, the Exchange believes the proposed 
fees for the COB Data Feed are equitable, reasonable and not unfairly 
discriminatory. In addition, the Exchange believes that no substantial 
countervailing basis exists to support a finding that the proposed fees 
for the COB Data Feed fails to meet the requirements of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\16\ 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. An exchange's ability to price its proprietary 
data feed products is constrained by (1) the existence of actual 
competition for the sale of such data, (2) the joint product nature of 
exchange platforms, and (3) the existence of alternatives to 
proprietary data.
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    \16\ 15 U.S.C. 78f(b)(8).
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    The Existence of Actual Competition. The Exchange believes 
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 eleven 
options exchanges (including CBOE's affiliate, C2 Options Exchange) for 
order flow.\17\
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    \17\ 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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    In addition, in the case of products that are distributed through 
market data vendors, the market data vendors themselves provide 
additional price discipline for proprietary data products because they 
control the primary means of access to certain end users. These vendors 
impose price discipline based upon their business models. For example, 
vendors that assess a surcharge on data they sell are able to refuse to 
offer proprietary products that their end users do not or will not 
purchase in sufficient numbers. Internet portals, such as Google, 
impose price discipline by providing only data that they believe will 
enable them to attract ``eyeballs'' that contribute to their 
advertising revenue. Similarly, Customers will not offer the COB Data 
Feed unless this product will help them maintain current users or 
attract new ones. For example, a broker-dealer will not choose to offer 
the COB Data Feed to its retail customers unless the broker-dealer 
believes that the retail customers will use and value the data and the 
provision of such data will help the broker-dealer maintain the 
customer relationship, which allows the broker-dealer to generate 
profits for itself. Professional Users will not request the COB Data 
Feed from Customers unless they can use the data for profit-generating 
purposes in their businesses. All of these operate as constraints on 
pricing proprietary data products.
    Joint Product Nature of Exchange Platform. Transaction execution 
and proprietary data products are complementary in that market data is 
both an input and a byproduct of the execution service. In fact, market 
data and trade executions are a paradigmatic example of joint products 
with joint costs. The decision whether and on which platform to post an 
order will depend on the attributes of the platforms where the order 
can be posted, including the execution fees, data quality, and price 
and distribution of their data products. The more trade executions a 
platform does, the more valuable its market data products become. The 
costs of producing market data include not only the costs of the data 
distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the

[[Page 62801]]

revenues it receives from both products and the joint costs it incurs. 
Moreover, an exchange's broker-dealer customers view the costs of 
transaction executions and market data as a unified cost of doing 
business with the exchange.
    Analyzing the cost of market data product production and 
distribution in isolation from the cost of all of the inputs supporting 
the creation of market data and market data products will inevitably 
underestimate the cost of the data and data products. Thus, because it 
is impossible to obtain the data inputs to create market data products 
without a fast, technologically robust, and well-regulated execution 
system, system costs and regulatory costs affect the price of both 
obtaining the market data itself and creating and distributing market 
data products. It would be equally misleading, however, to attribute 
all of an exchange's costs to the market data portion of an exchange's 
joint products. Rather, all of an exchange's costs are incurred for the 
unified purposes of attracting order flow, executing and/or routing 
orders, and generating and selling data about market activity. The 
total return that an exchange earns reflects the revenues it receives 
from the joint products and the total costs of the joint products.
    The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including 12 options self-regulatory organization (``SRO'') markets, as 
well as internalizing broker-dealers (``BDs'') and various forms of 
alternative trading systems (``ATSs''), including dark pools and 
electronic communication networks (``ECNs''). Competition among trading 
platforms can be expected to constrain the aggregate return that each 
platform earns from the sale of its joint products, but different 
platforms may choose from a range of possible, and equally reasonable, 
pricing strategies as the means of recovering total costs. For example, 
some platforms may choose to pay rebates to attract orders, charge 
relatively low prices for market data products (or provide market data 
products free of charge), and charge relatively high prices for 
accessing posted liquidity. Other platforms may choose a strategy of 
paying lower rebates (or no rebates) to attract orders, setting 
relatively high prices for market data products, and setting relatively 
low prices for accessing posted liquidity. In this environment, there 
is no economic basis for regulating maximum prices for one of the joint 
products in an industry in which suppliers face competitive constraints 
with regard to the joint offering.
    The Existence of Alternatives. CBOE is constrained in pricing the 
COB Data Feed by the availability to market participants of 
alternatives to purchasing the COB Data Feed. CBOE must consider the 
extent to which market participants would choose one or more 
alternatives instead of purchasing the exchange's data. Other options 
exchanges can and have produced their own complex strategies market 
data products, and thus are sources of potential competition for MDX. 
As noted above, ISE, NASDAQ OMX PHLX and NYSE offer market data 
products that compete with the COB Data Feed. The large number of SROs, 
BDs, and ATSs that currently produce proprietary data or are currently 
capable of producing it provides further pricing discipline for 
proprietary data products. Each SRO, ATS, and BD is currently permitted 
to produce proprietary data products, and many currently do.
    Further, data products are valuable to professional users only if 
they can be used for profit-generating purposes in their businesses and 
valuable to non-professional users only insofar as they provide 
information that such users expect will assist them in tracking prices 
and market trends and making trading decisions. The Exchange believes 
that the proposed waiver of the Data Fee and the cap on User Fees, 
which may permit wider distribution of the COB Data Feed at a lower 
cost to Customers with a large number of Professional and Non-
professional Users, may encourage more users to demand and more 
Customers to choose to offer the COB Data Feed, thereby benefitting 
Professional and Non-professional Users, including public investors.
    The existence of numerous alternatives to the Exchange's products, 
including proprietary data from other sources, ensures that the 
Exchange cannot set unreasonable fees, or fees that are unreasonably 
discriminatory, when vendors and subscribers can elect these 
alternatives or choose not to purchase a specific proprietary data 
product if its cost to purchase is not justified by the returns any 
particular vendor or subscriber would achieve through the purchase.
    The COB Data Feed is voluntary on the part of the Exchange, which 
is not required to offer such services, and voluntary on the part of 
prospective Customers that are not required to use it. The Exchange 
believes the COB Data Feed offered by MDX will 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.

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) of the Act \18\ and paragraph (f) of Rule 19b-4 \19\ 
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. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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-2013-087 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-2013-087. 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

[[Page 62802]]

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 10:00 a.m. and 3:00 p.m. Copies of 
the 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-2013-087 and should be submitted on or before 
November 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24674 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P


