
[Federal Register Volume 78, Number 222 (Monday, November 18, 2013)]
[Notices]
[Pages 69168-69171]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27471]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70845; File No. SR-CBOE-2013-104]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Fees for the Customized Option Pricing 
Service

November 12, 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 October 29, 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 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 for the Customized Option 
Pricing Service (``COPS'') to add a fee for historical COPS 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

[[Page 69169]]

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 amend the fee 
schedule for the COPS data product.\3\
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    \3\ The Exchange submitted proposed rule changes in 2012 to 
establish COPS and COPS fees. See Securities Exchange Act Release 
No. 67813 (September 10, 2012), 77 FR 56903 (September 14, 2012) and 
Securities Exchange Act Release No. 67928 (September 26, 2012), 77 
FR 60161 (October 2, 2012). The service was originally entitled 
``Customized Option Valuation Service'' but is now referred to as 
the ``Customized Option Pricing Service''.
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Background
    COPS provides subscribers with an ``end-of-day'' file \4\ of 
valuations for Flexible Exchange (``FLEX'') \5\ options and certain 
over-the-counter (``OTC'') options (``COPS Data''). COPS Data consists 
of indicative \6\ 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.\7\ 
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 
are expressed in percentage terms and are theoretical values.\8\ Market 
Data Express, LLC (``MDX''), an affiliate of CBOE, offers COPS Data for 
sale to all market participants.
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    \4\ An end of day file refers to data that is distributed prior 
to the opening of the next trading day.
    \5\ 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.
    \6\ ``Indicative'' values are indications of potential market 
prices only and as such are neither firm nor the basis for a 
transaction.
    \7\ Current FLEX options open interest spans over 2,000 series 
on over 300 different underlying securities.
    \8\ These values are theoretical in that they are 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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    The fees that MDX charges for COPS Data are set forth on the Price 
List on the MDX Web site (www.marketdataexpress.com). MDX currently 
charges a fee per option per day for COPS Data. The amount of the fee 
is reduced based on the number of options purchased. A subscriber pays 
$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 $0.50 per option per day for each option purchased 
over 500 options.
    The Exchange has submitted a separate proposed rule change to make 
historical COPS data (``Historical COPS Data'') available through 
MDX.\9\ Historical COPS Data consists of COPS Data that is over one 
month old (i.e., copies of the ``end-of-day'' COPS file that are over 
one month old). Pursuant to that proposed rule change, the Exchange 
will make COPS Data and COPS Historical Data (collectively, the 
``Data'') available to ``Subscribers'' for internal use and internal 
distribution \10\ and to ``Customers'' who, pursuant to a written 
vendor agreement between MDX and the Customer, may distribute the data 
externally (i.e., act as a vendor) and/or use and distribute the Data 
internally. Customers will not be charged any fees initially for 
external distribution of the Data.
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    \9\ See Securities Exchange Act Release No. 70705 (October 17, 
2013), 78 FR 63265 (October 23, 2013) (SR-CBOE-2013-097).
    \10\ Pursuant to a written agreement between MDX and a 
Subscriber, a Subscriber may not act as a vendor and distribute the 
Data externally.
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Fee for Historical COPS Data
    The Exchange proposes to establish a fee of $75 per day for 
Historical COPS Data. For example, a Subscriber would pay a total of 
$750 for 10 days of Historical COPS Data. Market participants would be 
able to purchase Historical COPS Data through the MDX Web site. The 
proposed fee would apply equally to all market participants and be 
effective on November 4, 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 fee for Historical COPS Data is equitable and not 
unfairly discriminatory because it would apply equally to all market 
participants. In addition, the Exchange believes the proposed fee is 
equitable because COPS 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 fee is reasonable 
because potential COPS customers have indicated to the Exchange that 
the proposed fee compares favorably to fees that competing market data 
vendors charge for similar data. A small number of market data vendors 
produce option value data that is similar to the Data.\14\ The Options 
Clearing Corporation (``OCC'') also produces FLEX option value data 
that is similar to the FLEX option value data that is included in 
COPS.\15\
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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\ These vendors include SuperDerivatives, Markit, Prism, and 
Bloomberg's BVAL service.
    \15\ The OCC makes this data available on its Web site at http://www.theocc.com/webapps/flex-reports.
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    For the reasons cited above, the Exchange believes the proposed 
rule change 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 fee 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 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

[[Page 69170]]

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 COPS data 
unless this product will help them maintain current users or attract 
new ones. For example, a broker-dealer will not choose to offer COPS 
data 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 COPS data 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 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 COPS 
data by the availability to market participants of alternatives to 
purchasing COPS data. CBOE must consider the extent to which market 
participants would choose one or more alternatives instead of 
purchasing the exchange's data. Other market data vendors can and have 
produced their own option valuation products, and thus are sources of 
potential competition for MDX. As noted above, SuperDerivatives, 
Markit, Prism, and Bloomberg are some of the market data vendors that 
offer market data products that compete with COPS. 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 COPS data. 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.
    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.
    COPS 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 COPS data 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.

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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-2013-104 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-2013-104. 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 
10:00 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-2013-104 and should be 
submitted on or before December 9, 2013.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27471 Filed 11-15-13; 8:45 am]
BILLING CODE 8011-01-P


