
[Federal Register Volume 79, Number 13 (Tuesday, January 21, 2014)]
[Notices]
[Pages 3443-3452]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-00984]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71295; File No. SR-CBOE-2013-129]


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

January 14, 2014.
    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 December 31, 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 the 
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'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 Exchange proposes to make a number of changes to its Fees 
Schedule,

[[Page 3444]]

all to be effective January 1, 2014. First, the Exchange proposes to 
increase the fee for electronic Clearing Trading Permit Holder 
Proprietary executions in equity, ETF, ETN, and index options classes 
(except SPX, SPXW, SPXpm, SRO, OEX, XEO, VIX and VOLATILITY INDEXES 
(the ``Special Classes'')) from $0.25 per contract to $0.35 per 
contract.\3\ The reason for the proposed increase is to cover the 
increasing costs associated with electronic executions (including the 
upkeep and institution of new systems) as well as to better align with 
market rates for Clearing Permit Holder Proprietary executions (CBOE 
fees will still be lower than comparable fees offered by some other 
exchanges).\4\
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    \3\ Corresponding to this change, the Exchange proposes to amend 
the listing of the Electronic (non-AIM) fee from $0.25 per contract 
to $0.35 per contract on its ``Clearing Trading Permit Holder Fee 
Cap'' table.
    \4\ For example, NASDAQ OMX PHLX LLC (``PHLX'') assesses firm 
electronic fees of $0.45 or $0.60 per contract for multiply-listed 
options (see PHLX Pricing, Section II).
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    Next, the Exchange proposes to amend the statement in Footnote 11 
of its Fees Schedule that reads ``For facilitation orders (other than 
SPX, SPXpm, SRO, VIX or other volatility indexes, OEX or XEO) 
(``facilitation orders'' for this purpose to be defined as any paired 
order in which a Clearing Trading Permit Holder (F) origin code is 
contra to any other origin code, provided the same executing broker and 
clearing firm are on both sides of the order) executed electronically 
(including in AIM), open outcry, or as a QCC or FLEX transaction, CBOE 
will assess no Clearing Trading Permit Holder Proprietary transaction 
fees'' to add orders of a Non-Trading Permit Holder Affiliate (``L'' 
origin code) into this definition of ``facilitation orders''.\5\ This 
would mean that such ``L'' orders would be assessed no fees for 
facilitation orders (except as otherwise stated). The purpose for this 
proposed change is to attract and encourage the Non-Trading Permit 
Holder Affiliates of Clearing Trading Permit Holders. Permitting them 
free facilitations encourages them to concentrate more business on CBOE 
while putting the Exchange on a similar competitive position as other 
exchanges, including those that offer free Broker-Dealer facilitations 
that are contra to a Customer.\6\
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    \5\ As proposed, the statement would read: ``For facilitation 
orders (other than SPX, SPXpm, SRO, VIX or other volatility indexes, 
OEX or XEO) (``facilitation orders'' for this purpose to be defined 
as any paired order in which a Clearing Trading Permit Holder (F) 
origin code or Non-Trading Permit Holder Affiliate (``L'' origin 
code) is contra to any other origin code, provided the same 
executing broker and clearing firm are on both sides of the order) 
executed electronically (including in AIM), open outcry, or as a QCC 
or FLEX transaction, CBOE will assess no Clearing Trading Permit 
Holder Proprietary transaction fees.'' The Exchange would also add 
the origin code ``L'' into the ``Facilitation'' line on the Equity 
Options, ETF and ETN Options, and Index Options Products Excluding 
the Special Classes Rate Tables.
    \6\ See PHLX Pricing, Section II, bullet point discussing 
facilitation orders executions.
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    The Exchange also proposes to assess no fee on Clearing Trading 
Permit Holder Proprietary facilitation transactions in Mini options. As 
Mini options are merely \1/10\ the size of regular options contracts, 
and such transactions in regular options contracts are assessed no fee, 
it makes sense to also assess no fee for these transactions in Mini 
options.
    The Exchange proposes to make some reorganization of its Specified 
Proprietary Index Options Rate Table--SPX, SPXW, SPXpm, SRO, OEX, XEO, 
VIX and VOLATILITY INDEXES (the ``Proprietary Options Rate Table''). 
First, the Exchange proposes to re-order alphabetically the Customer 
fees for the different products listed in the table. This means that 
OEX and XEO fees will be at the top, followed by OEX Weeklys and XEO 
Weeklys, then SPX (incl SPXW), then SPXpm, then VIX (and VOLATILITY 
INDEXES, as the Exchange will also propose herein to assess the same 
Customer fees for VOLATIILITY INDEXES as are assessed to VIX options 
transactions). The amounts of these fees will not change (unless 
otherwise described herein). The second step in the re-organization of 
this table is to separate fees based on the option's premium price. The 
amounts of such fees will not change (unless otherwise described 
herein). The purpose of these proposed changes is to make the 
Proprietary Options Rate Table easier for market participants to read 
and ascertain which fees apply.
    The Exchange also proposes to amend Customer fees for VIX options 
transactions. Currently, when the premium is greater than or equal to 
$1, the fee is $0.45 per contract, and when the premium is less than 
$1, the fee is $0.25 per contract. The Exchange proposes to amend VIX 
options Customer fees such that when the premium is (a) $1.00 or 
greater, the fee will be $0.48 per contract, (b) $0.11-$0.99, the fee 
will be $0.27, and (c) $0.00-$0.10, the fee will be $0.10. The purpose 
of these proposed changes is to provide greater incentives for 
Customers to trade VIX options. By providing for more granular fee 
tiers based on the premium, the Exchange can more closely assess fees 
commensurate with the premiums for such options. The Exchange is 
attempting to reduce costs on low-priced VIX options to encourage 
Customers to close and roll over positions close to expiration at low 
premium levels. Currently, such Customers are less likely to do this 
because the transaction fee is closer to the premium level. The 
Exchange believes that the lowered fees for VIX options trading with a 
premium of $0.00-$0.10 will encourage the trading of such options. The 
slight increases of the fees for Customer transactions in VIX options 
whose premium is greater than or equal to $1.00 as well as those whose 
premium is $0.11-$0.99 are being utilized in order to achieve some 
level of revenue balance in connection with the lowered fee for 
customer transactions in VIX options whose premium is $0.00-$0.10.
    The Exchange proposes to amend the Customer fees for all other 
VOLATILITY INDEXES so that such fees are the same as VIX options fees. 
VIX is itself a Volatility Index, so it makes sense to assess the same 
Customer fees to all other VOLATILITY INDEXES as are assessed to the 
Exchange's most heavily-traded Volatility Index (VIX). The VIX and 
VOLATILITY INDEXES fees that apply to each other market participant are 
already the same. CBOE seeks to have a unified strategy for its 
volatility complex, and since most CBOE volatility products have an 
underlying value that is generally in the same range, the fees 
structure that has been designed for VIX options also makes sense for 
applicability for all other VOLATILITY INDEXES.
    The Exchange also proposes to separate out the fees for VIX and 
VOLATILITY INDEXES for CBOE Market-Makers/DPMs/E-DPMs/LMMs (``Market-
Makers'') from those assessed to SPX, SPXW, SPXpm, OEX and XEO. 
Currently, Market-Maker transactions in all those products are assessed 
a fee of $0.20 per contract. The Exchange proposes to assess a fee for 
Market-Maker transactions in VIX and VOLATILITY INDEXES of $0.05 per 
contract when the premium is $0.00-$0.10 and $0.23 per contract when 
the premium is $0.11 or greater. The Exchange believes that the lowered 
fees for VIX and VOLATILITY INDEXES options trading with a premium of 
$0.00-0.10 will encourage the trading of such options. The slight 
increases of the fees for Market-Maker transactions in VIX options and 
VOLATILITY INDEXES whose premium is greater than or equal to $0.11 is 
being utilized in order to achieve some level of revenue balance in 
connection with the lowered fee for Market-Maker transactions in VIX 
options and VOLATILITY INDEXES whose premium is $0.00-0.10. The

[[Page 3445]]

Exchange institutes these new fees in order to encourage Market-Makers 
to provide liquidity to Customer orders in VIX options and VOLATILITY 
INDEXES.
    The Exchange assesses a Hybrid 3.0 Execution Fee of $0.18 per 
contract for all electronic executions in Hybrid 3.0 classes (with some 
exceptions).\7\ The Exchange hereby proposes to increase this fee to 
$0.20 per contract. The purpose of this change is because at the time 
that the Hybrid 3.0 Execution Fee was adopted, most orders executed via 
Hybrid 3.0 were simple orders. Now, with the growing prevalence of 
complex orders, the Exchange desires to increase the Hybrid 3.0 
Execution Fee to cover the increased system complexity (and use of 
resources necessary) due to the trading of complex orders. The Exchange 
also proposes to amend the listing of the origin codes on the 
Proprietary Options Rate Chart. When the Proprietary Options Rate Chart 
was created, the Exchange erroneously listed only the ``C'' and ``W'' 
origin codes as applicable to the Hybrid 3.0 Execution Fee, which 
contradicts Footnote 21 (which describes the Hybrid 3.0 Execution Fee, 
and does not except out other origin codes). As such, the Exchange 
proposes to add the ``F'', ``J'', ``L'', ``B'', and ``N'' origin codes 
to the table. The Exchange also proposes to amend Footnote 21 to remove 
the listing of the Hybrid 3.0 Execution Fee as being $0.18 per 
contract, and simply state that the Hybrid 3.0 Execution Fee will be 
assessed to relevant executions in Hybrid 3.0 classes.
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    \7\ See CBOE Fees Schedule, Footnote 21 for such exceptions.
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    The Exchange proposes to adopt two Customer Priority Surcharges, 
which are assessed on customer (C) contracts. The first is the SPXW 
(electronic only) Customer Priority Surcharge of $0.05 per contract. 
The SPXW Customer Priority Surcharge applies to all SPXW customer 
contracts executed electronically, except those contracts traded on a 
PAR terminal. The second Customer Priority Surcharge is to be assessed 
on Customer VIX contracts executed electronically that are Maker and 
not Market Turner. This $0.05 per contract fee will only be assessed on 
such contracts that have a premium of $0.11 or greater.
    The purpose of the Customer Priority Surcharges is to ensure that 
there is reasonable cost equivalence between the primary execution 
channels for the products involved. Manual executions are achieved 
using floor brokers (the only market participants who can trade 
contracts using a PAR terminal), who assess a commission for Customer 
executions. Electronic executions are not assessed a commission, but 
more heavily rely on the Exchange's systems. The proposed Customer 
Priority Surcharges will minimize the cost differentials between manual 
and electronic executions, which is in the interest of the Exchange as 
it must both maintain robust electronic systems as well as provide for 
economic opportunity for floor brokers to continue to conduct business, 
as they serve an important function in achieving price discovery and 
Customer executions. Floor brokers ensure that the difficult-to-execute 
orders (such as large and complex orders) are able to be executed 
manually by accessing the CBOE's in-person market maker crowds, while 
also helping to achieve price improvement. SPX, SPXW and VIX are the 
only products that execute a significant share of their total volume on 
the trading floor, and the Hybrid 3.0 Execution Fee (which essentially 
acts as a customer priority surcharge) already applies to SPX. SPXW 
often has a lower premium (as it is a weekly option with a lower 
timeframe, as the options have less time value than the regular SPX 
options), so it makes sense to assess a lower SPXW Customer Priority 
Surcharge than the Hybrid 3.0 Execution Fee. VIX options trade at a 
lower underlying value than SPX and so also have a lower premium value, 
so it also makes sense for the VIX Customer Priority Surcharge to be 
lower than the Hybrid 3.0 Execution Fee. As described above, the 
Exchange wants to encourage the execution of VIX options Customer 
orders for options with a premium of $0.00-$0.10, and therefore is not 
proposing to assess the Customer Priority Surcharge on such options.
    The Exchange proposes to change the different tier thresholds in 
its Liquidity Provider Sliding Scale (which provides for reduced fees 
for a CBOE Market-Maker based on the Market-Maker executing a certain 
number of contracts per month) from nominal contracts per month 
thresholds (i.e. contracts 100,001-2,000,000) to a relative contracts 
per month threshold (i.e. above 0.05%-0.70%). These volume thresholds 
are based on the Market-Maker's percentage of total national Market-
Maker multiply-listed options volume (where previously they had merely 
been based on the total number of multiply-list contracts executed by 
the Market-Maker). Below is a table demonstrating the proposed changes.

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                                                                                                    Fee (per
                 Tier                      Old volume threshold        New volume thresholds        contract)
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1....................................  1-100,000..................  0.00%-0.05%...............         \8\ $0.23
2....................................  100,001-2,000,000..........  Above 0.05%-0.70%.........              0.17
3....................................  2,000,001-4,000,000........  Above 0.70%-1.40%.........              0.10
4....................................  4,000,001-6,000,000........  Above 1.40%-2.00%.........              0.05
5....................................  6,000,000 +................  Above 2.00%...............              0.03
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    The purpose of this change is to control and account for changes in 
national industry-wide multiply-listed options volume. The new 
percentage thresholds generally correspond to the old nominal 
thresholds (based on current total national Market-Maker multiply-
listed options volume). The Exchange also proposes to amend the 
``Notes'' section of this table to capitalize the term ``VOLATILITY 
INDEXES'' as this term is capitalized elsewhere in the Fees Schedule, 
and the Exchange desires consistency.
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    \8\ Currently, the fee at this tier is $0.25 per contract. 
However, the Exchange proposes to lower this fee to $0.23 per 
contract, as described below.
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    Due to the proposed change to a relative percentage-based tier 
system for the Liquidity Provider Sliding Scale, the Exchange also must 
propose amendments to Footnote 10 of the Fees Schedule, which discusses 
the prepayment necessary in order to be eligible for the fees 
applicable to tiers 3-5 of the Liquidity Provider Sliding Scale. 
Currently, a Liquidity Provider is required to pre-pay the fees for the 
first two tiers of the Liquidity Provider Sliding Scale in order to be 
eligible for the lower fees applicable to tiers 3-5. This works out to 
$348,000 per month (based on the current nominal volume thresholds in 
the Liquidity Provider Sliding Scale). However, with the proposed 
change to make the tiers in the

[[Page 3446]]

Liquidity Provider Sliding Scale based on relative percentage-based 
volume thresholds, it will be impossible to know beforehand what amount 
per month will be required to pay for the first two tiers. As such, the 
Exchange simply proposes to require a pre-payment of $200,000 per 
month, or $2,400,000 for the year (significantly lower than the current 
prepay amounts). Along with that change, the Exchange proposes to make 
some other amendments to Footnote 10, which describes the prepayment, 
to (1) give those desiring to prepay for the full year until January 10 
of the applicable year to prepay, (2) add an example regarding 
prepayment, (3) make clear that prepay arrangements for less than the 
full year must be paid before the calendar month in which they are to 
begin, and (4) make the Footnote easier to read and understand.\9\
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    \9\ As proposed, Footnote 10 will read: ``The Liquidity Provider 
Sliding Scale applies to Liquidity Provider (CBOE Market-Maker, DPM, 
e-DPM and LMM) transaction fees in all products except mini-options, 
SPX, SPXpm, SRO, VIX or other volatility indexes, OEX or XEO. A 
Liquidity Provider's standard per contract transaction fee shall be 
reduced to the fees shown on the sliding scale as the Liquidity 
Provider reaches the volume thresholds shown on the sliding scale in 
a month. The Exchange will aggregate the trading activity of 
separate Liquidity Provider firms for purposes of the sliding scale 
if there is at least 75% common ownership between the firms as 
reflected on each firm's Form BD, Schedule A. A Liquidity Provider 
shall be required to prepay, by January 10th, $2,400,000 in order to 
be eligible for the fees applicable to tiers 3-5 of the sliding 
scale for the entire year. A Liquidity Provider can elect to prepay 
$200,000 per month to be eligible for the fees applicable to tiers 
3-5 of the sliding scale for the remainder of the year at any time 
during the year, but such prepayment (and eligibility) will only be 
applied prospectively for the remainder of the year. A TPH that 
chooses, for example, in June 2014 to prepay for the remainder of 
the year would pay $1,200,000 for the months of July-December. All 
prepay arrangements must be paid before the first calendar month in 
which they are to begin. Contract volume resulting from any of the 
strategies defined in Footnote 13 will apply towards reaching the 
sliding scale volume thresholds.''
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    The Exchange also proposes to lower from $0.25 per contract to 
$0.23 per contract the transaction fee in Tier 1 of the Liquidity 
Provider Sliding Scale. The purpose of this change is to incentivize 
Market-Makers at this first tier to quote more and execute more orders 
on the Exchange, as well as to more effectively compete with pricing on 
other exchanges.\10\
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    \10\ See PHLX Pricing, Section II.
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    The Exchange proposes to amend its CBOE Proprietary Products 
Sliding Scale, under which Clearing Trading Permit Holder Proprietary 
transaction fees and transaction fees for Non-Clearing Trading Permit 
Holder Affiliates in OEX, XEO, SPX, SPXpm and volatility indexes are 
reduced provided a Clearing Trading Permit Holder reaches certain 
volume thresholds in multiply-listed options on the Exchange in a 
month. The Exchange does not propose substantive changes to the fee or 
structure of the CBOE Proprietary Products Sliding Scale. Instead, as 
with the Liquidity Provider Sliding Scale, the Exchange proposes to 
change the different tier thresholds from nominal contracts per month 
thresholds to relative contracts per month thresholds (for the same 
reasons as the Liquidity Provider Sliding Scale). The new thresholds 
will be based on a Clearing Trading Permit Holder (Proprietary) 
executing different percentages of total CBOE Clearing Trading Permit 
Holder Proprietary volume in OEX, XEO, SPX, SPXpm, VIX and VOLATILITY 
INDEXES.\11\ The new percentage thresholds generally correspond to the 
old nominal thresholds (based on current total CBOE Clearing Trading 
Permit Holder Proprietary volume in OEX, XEO, SPX, SPXpm, VIX and 
VOLATILITY INDEXES). Similarly (and correspondingly), the Exchange 
proposes to amend the different multiply-listed options tiers from 
being based on total monthly volume to an Average Daily Volume 
(``ADV'') threshold system (calculated monthly). The new thresholds ADV 
thresholds generally correspond with the old monthly thresholds 
(depending on how many trading days are in a given month). The purpose 
of these changes is to control and account for changes in national 
industry-wide multiply-listed options volume as well as the number of 
trading days in a month. The Exchange also proposes a number of 
cosmetic changes to the CBOE Proprietary Products Sliding Scale, 
including (1) to renumber the tiers in the CBOE Proprietary Products 
Sliding Scale, (2) to fix an error that listed ``SPXpm'' as ``SPXPm'' 
in the Notes, (3) clarify that VIX is included in the CBOE Proprietary 
Products Sliding Scale (previously, it had just said ``volatility 
indexes'', and while VIX is a volatility index, it can't hurt to be 
more clear), (4) capitalize the term ``volatility indexes'' in the 
``Notes'' in order to achieve consistency, (5) delete the term 
``volume'' and replace it with ``ADV'' in the ``Notes'' due to the 
change described above, and (6) change the title of a column from 
``Proprietary Products Contracts Per Month'' to ``Proprietary Products 
Volume Thresholds'' due to the changes described above. Once again, no 
fees are being changed in the CBOE Proprietary Products Sliding Scale. 
The proposed changes are detailed below.
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    \11\ To make this clear, the Exchange also proposes adding to 
the ``Notes'' section of the table the following statement: 
``Transaction fees in OEX, XEO, SPX, SPXpm, VIX and VOLATILITY 
INDEXES will be reduced based on reaching the percentage thresholds 
in OEX, XEO, SPX, SPXpm, VIX and VOLATILITY INDEXES listed in the 
table.''

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                         Current                                                  Proposed
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                                     Proprietary product                            Proprietary product volume
               Tier                  contracts per month           Tier                     thresholds
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 >= 375,000 < 1,500,000 contracts in >= 18,000 ADV <= 71,999 ADV in multi list
                                                      products
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1.................................  First 750,000........  B3..................  0.00%-6.50%
2.................................  Next 250,000.........  B2..................  6.51%-8.50%
3.................................  Above 1,000,000......  B1..................  Above 8.50%
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       >=1,500,000 contracts in multi li>= 72,000 ADV in multi list products
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1.................................  First 750,000........  A2..................  0.00%-6.50%
2.................................  Above 750,000........  A1..................  Above 6.50%
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    The Exchange proposes to delete its Clearing Trading Permit Holder 
VIX Options Sliding Scale (the ``VIX Options Sliding Scale'') and any 
references in the Fees Schedule to the VIX Options Sliding Scale, as 
well as language that

[[Page 3447]]

[sic] regarding the calculation of a Clearing Trading Permit Holder's 
total proprietary transaction fees that will be made irrelevant by the 
deletion of the VIX Options Sliding Scale.\12\ The Exchange instituted 
the VIX Options Sliding Scale in an attempt to encourage greater 
Clearing Trading Permit Holder proprietary trading of VIX options.\13\ 
The Exchange now proposes to delete the VIX Options Sliding Scale 
because it is no longer competitively necessary. The vast majority of 
CTPHs who qualify do not avail themselves of it and therefore it adds 
unnecessary complexity to the Exchange's already-complex fees 
structure.
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    \12\ Specifically, the Exchange proposes to delete language in 
Footnote 11 that states: ``For calculating a Clearing Trading Permit 
Holder's total proprietary product transaction fees, CBOE will use 
the following methodology: If using the VIX Options Sliding Scale 
plus the Sliding Scale (minus VIX volume) results in lower total 
Clearing Trading Permit Holder proprietary transaction fees than 
just using the Sliding Scale, CBOE will apply the new VIX Options 
Sliding Scale plus the Sliding Scale, and deduct the VIX options 
volume from the Sliding Scale. If using the VIX Options Sliding 
Scale plus the Sliding Scale (minus VIX options volume) results in 
higher total Clearing Trading Permit Holder proprietary transaction 
fees than just using the Sliding Scale, CBOE will apply only the 
Sliding Scale.''
     As amended, Footnote 11, in its entirety, will read: The 
Clearing Trading Permit Holder Fee Cap in all products except SPX, 
SPXpm, SRO, VIX or other volatility indexes, OEX or XEO (the ``Fee 
Cap'') and the CBOE Proprietary Products Sliding Scale for Clearing 
Trading Permit Holder Proprietary Orders (the ``Sliding Scaleapply 
[sic] to (i) Clearing Trading Permit Holder proprietary orders 
(``F'' origin code), and (ii) orders of Non-Trading Permit Holder 
Affiliates of a Clearing Trading Permit Holder. A ``Non-Trading 
Permit Holder Affiliate'' for this purpose is a 100% wholly-owned 
affiliate or subsidiary of a Clearing Trading Permit Holder that is 
registered as a United States or foreign broker-dealer and that is 
not a CBOE Trading Permit Holder. Only proprietary orders of the 
Non-Trading Permit Holder Affiliate (``L '' origin code) effected 
for purposes of hedging the proprietary over-the-counter trading of 
the Clearing Trading Permit Holder or its affiliates will be 
included in calculating the Fee Cap and Sliding Scale. Such orders 
must be marked with a code approved by the Exchange identifying the 
orders as eligible for the Fee Cap and Sliding Scale. Each Clearing 
Trading Permit Holder is responsible for notifying the TPH 
Department of all of its affiliations so that fees and contracts of 
the Clearing Trading Permit Holder and its affiliates may be 
aggregated for purposes of the Fee Cap and Sliding Scale. A Clearing 
Trading Permit Holder is required to certify the affiliate status of 
any Non-Trading Permit Holder Affiliate whose trading activity it 
seeks to aggregate. In addition, each Clearing Trading Permit Holder 
is required to inform the Exchange immediately of any event that 
causes an entity to cease to be an affiliate. The Exchange will 
aggregate the fees and trading activity of separate Clearing Trading 
Permit Holders for the purposes of the Fee Cap and Sliding Scale if 
there is at least 75% common ownership between the Clearing Trading 
Permit Holders as reflected on each Clearing Trading Permit Holder's 
Form BD, Schedule A. A Clearing Trading Permit Holder's fees and 
contracts executed pursuant to a CMTA agreement (i.e., executed by 
another clearing firm and then transferred to the Clearing Trading 
Permit Holder's account at the OCC) are aggregated with the Clearing 
Trading Permit Holder's non-CMTA fees and contracts for purposes of 
the Fee Cap and Sliding Scale. Transaction fees resulting from any 
of the strategies defined in Footnote 13 will apply towards reaching 
the Fee Cap. For facilitation orders (other than SPX, SPXpm, SRO, 
VIX or other volatility indexes, OEX or XEO) (``facilitation 
orders'' for this purpose to be defined as any paired order in which 
a Clearing Trading Permit Holder (F) origin code or Non-Trading 
Permit Holder Affiliate (``L '' origin code) is contra to any other 
origin code, provided the same executing broker and clearing firm 
are on both sides of the order) executed electronically (including 
in AIM), open outcry, or as a QCC or FLEX transaction, CBOE will 
assess no Clearing Trading Permit Holder Proprietary transaction 
fees.
    \13\ For more description regarding the VIX Options Sliding 
Scale, see Securities Exchange Act Release No. 68699 (January 18, 
2013), 78 FR 5538 (January 18, 2013) (SR-CBOE-2013-003).
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    The Exchange proposes to amend its Fees Schedule with regard to 
PULSe Workstation routing (specifically, with regard to routing from 
one PULSe Workstation to another). By way of background, the PULSe 
workstation is a front-end order entry system designed for use with 
respect to orders that may be sent to the trading systems of CBOE. In 
addition, the PULSe workstation provides a user with the capability to 
send options orders to other U.S. options exchanges and/or stock orders 
to other U.S. stock exchanges and trading centers \14\ (``away-market 
routing'').\15\ PULSe Workstation users also have the capability to 
send orders between PULSe workstations. For example, a user is able to 
send an order from a PULSe workstation located in New York to a PULSe 
workstation located in Chicago. The ability to send orders ``PULSe-to-
PULSe'' is available for use within a TPH (and any Non-TPHs to whom the 
TPH makes the PULSe workstation available) and between TPHs that use 
the PULSe workstation. A TPH may establish a PULSe-to-PULSe connection 
with another TPH by contacting CBOE, who will permission [sic] the 
connection. Before setting up the connection, both TPHs need to 
acknowledge in writing (e.g., including via email) their agreement to 
establish the mutual connection.
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    \14\ A ``trading center,'' as provided under Rule 600(b)(78) of 
Regulation NMS, 17 CFR 242.600(b)(78), means a national securities 
exchange or national securities association that operates an SRO 
trading facility, an alternative trading system, an exchange market 
maker, an OTC market maker, or any other broker or dealer that 
executes orders internally by trading as principal or crossing 
orders as agent.
    \15\ For a more detailed description of the PULSe workstation 
and its other functionalities, see, e.g., Securities Exchange Act 
Release Nos. 62286 (June 11, 2010), 75 FR 34799 (June 18, 2010) (SR-
CBOE-2010-051), 63244 (November 4, 2010), 75 FR 69148 (November 10, 
2010) (SR-CBOE-2010-100), 63721 (January 14, 2011), 76 FR 3929 
(January 21, 2011) (SR-CBOE-2011-001), 65280 (September 7, 2011), 76 
FR 56838 (September 14, 2011) (SR-CBOE-2011-083), 65491 (October 6, 
2011), 76 FR 63680 (October 13, 2011) (SR-CBOE-2011-092), and 69990 
(July 16, 2013), 78 FR 43953 (July 22, 2013) (SR-CBOE-2013-062).
---------------------------------------------------------------------------

    The Exchange hereby proposes to impose a monthly PULSe-to-PULSe 
Routing fee of $50 for each receiving TPH. This means that each TPH 
with a PULSe Workstation that elects to receive orders from another 
PULSe Workstation will be assessed this fee. The Exchange proposes to 
assess the fee to cover costs associated with the development of PULSe-
to-PULSe routing, as well as the upkeep of such systems. The Exchange 
proposes to assess the fee to the receiving TPH because, by electing to 
receive PULSe-to-PULSe orders, the receiving TPH then gets the ability 
to execute those orders on the Exchange. The Exchange also proposes a 
non-substantive change to the Fees Schedule regarding PULSe Workstation 
fees. Currently, there is a line under the ``Trading Floor Terminal 
Rentals'' section of the ``Facility Fees'' table that lists PULSe On-
Floor Workstation fees as being $350 per login ID, and the note for 
that fee is that ``this fee is waived for the first month of a new user 
of a TPH''. However, there are more PULSe Workstation fees (including 
that fee) listed in the ``PULSe Workstation'' fees section of the 
``Facility Fees'' table. To avoid any potential confusion, the Exchange 
proposes to delete the listing of the $350 per login ID fee amount, as 
well as the note, from the PULSe On-Floor Workstation line of the 
``Trading Floor Terminal Rentals'' section of the ``Facility Fees'' 
table and replace it with the statement ``See PULSe Workstation fees 
below''.
    The Exchange proposes to lower its Hybrid Agency Liaison (``HAL'') 
Step-Up Rebate from $0.10 per contract to $0.05 per contract, and also 
to delete obsolete language in the ``Notes'' description of the HAL 
Step-Up Rebate.\16\ The purpose of this proposed change is because, as 
routing practices have changed over the years, CBOE's competitive 
strategy is no longer based on processing a notable amount of Linkage 
traffic passing through the Exchange. Therefore it no longer makes 
economic sense to offer as strong an incentive for Market-Makers to 
``step up'' and attract orders coming through the Linkage.
---------------------------------------------------------------------------

    \16\ Following the proposed changes, the ``Notes'' section would 
read: The Exchange shall rebate to a market-maker against 
transaction fees generated from a transaction on the HAL system in a 
penny pilot class, provided that at least 70% of the market-maker's 
quotes in that class (excluding mini-options and quotes in LEAPS 
series) in the prior calendar month were on one side of the NBBO.

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[[Page 3448]]

    The Exchange proposes to amend its Linkage fees for Customers. 
Currently, a different fees structure applies to customer orders of 100 
or more contracts that is routed to one or more exchanges in connection 
with the Options Order Protection and Locked/Crossed Market Plan 
referenced in Rule 6.80 (the ``Linkage'') than applies to customer 
orders of 99 contracts or less that are routed to one or more exchange 
via Linkage. Those customer orders of 100 or more contracts are 
assessed the actual transaction fee assessed by the exchange(s) to 
which the order was routed, while customer orders of 99 contracts or 
less are assessed the actual transaction fee assessed by the 
exchange(s) to which the order was routed, minus $0.05 per contract. 
The Exchange hereby proposes to eliminate this distinction, and assess 
to all customer orders sent through Linkage the actual transaction fee 
assessed by the exchange(s) to which the order was routed. It has 
ceased to be economically viable for the Exchange to ``eat'' $0.05 per 
contract on every customer order of 99 contracts or less that are 
routed away via Linkage.\17\
---------------------------------------------------------------------------

    \17\ As proposed, the ``note'' regarding Customer Linkage Fees 
will read as follows: In addition to the customary CBOE execution 
charges, for each customer order that is routed, in whole or in 
part, to one or more exchanges in connection with the Options Order 
Protection and Locked/Crossed Market Plan referenced in Rule 6.80, 
CBOE shall pass through the actual transaction fee assessed by the 
exchange(s) to which the order was routed. Multiple orders from the 
same executing firm for itself or for a CMTA or correspondent firm 
in the same series on the same side of the market that are received 
within 500 milliseconds will be aggregated for purposes of 
determining the order quantity.
---------------------------------------------------------------------------

    The Exchange also proposes to increase by $0.05, to $0.55, the per-
contract routing fee assessed to non-customer orders routed through the 
Linkage. The purpose of this proposed change is to cover costs 
associated with routing orders through Linkage and paying the 
transaction fees for such executions at other exchanges. The amount of 
this fee is lower than corresponding non-customer Linkage fees assessed 
by other exchanges.\18\
---------------------------------------------------------------------------

    \18\ See NASDAQ OMX PHLX LLC (``PHLX'') Pricing, Non-Customer 
Routing Fee of $0.95 per contract.
---------------------------------------------------------------------------

    The Exchange also proposes to amend its Footnote 25. Currently, any 
Floor Broker Trading Permit Holder that executes an average of 15,000 
customer open-outcry contracts per day over the course of a calendar 
month in multiply-listed options classes receives a rebate of $7,500 on 
that Floor Broker Trading Permit Holder's Floor Broker Trading Permit 
fees (the ``Floor Broker Access Rebate''). The Exchange proposes to add 
a second tier to this rebate, and add that ``Any Floor Broker Trading 
Permit Holder that executes an average of 25,000 customer open-outcry 
contracts per day over the course of a calendar month in multiply-
listed options classes will receive a rebate of $15,000 on that Floor 
Broker Trading Permit Holder's Floor Broker Trading Permit fees.'' The 
purpose of the proposed change is to encourage Floor Brokers to execute 
open-outcry customer trades in multiply-listed options, and the 
Exchange believes that giving Floor Brokers a further break in their 
Floor Broker Trading Permit fees will provide such an incentive. The 
Exchange recognizes the competitive nature of maintaining a Floor 
Broker operation at CBOE and wants to provide a credit to Floor Brokers 
that engage in a significant amount of Floor Broker open outcry trading 
at CBOE. For purposes of determining the rebate, the qualifying volume 
of all Floor Broker Trading Permit Holders affiliated with a single TPH 
organization will be aggregated, and, if such total meets or exceeds 
the customer open-outcry contracts per day thresholds in multiply-
listed options classes, that TPH organization will receive a single 
rebate, regardless of the number of Floor Broker Trading Permits 
affiliated with that TPH organization.
    Finally, the Exchange proposes to amend its Footnote 26, which 
applies to the Exchange's Trading Permit and Tier Appointment Fees, to 
state that Affiliated TPHs (TPHs with at least 75% common ownership 
between the firms as reflected on each firm's Form BD, Schedule A) may 
share their allotted bandwidth amongst each other. The purpose is to 
allow for more efficient use of bandwidth. If a TPH is not using all of 
its bandwidth and an affiliated TPH could use more, this will allow 
them to share amongst each other (instead of having to purchase more).
    The proposed changes are to take effect on January 1, 2014.
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.\19\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \20\ requirements that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitation transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\21\ which requires that 
Exchange rules provide for the equitable allocation of reasonable dues, 
fees, and other charges among its Trading Permit Holders and other 
persons using its facilities.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposal to increase the fee for 
electronic Clearing Trading Permit Holder Proprietary executions in 
equity, ETF, ETN, and index options classes (except the Special 
Classes) from $0.25 per contract to $0.35 per contract is reasonable, 
equitable and not unfairly discriminatory because, while the per-
contract price is increasing, this new fee amount is still within the 
range of fees paid by other market participants for such 
transactions.\22\ The Exchange further believes this proposed change is 
equitable and not unfairly discriminatory because the proposed new fee 
amount is still lower than the fee assessed to Broker-Dealers and Non-
Trading Permit Holder Market-Makers for such transactions, and Clearing 
Trading Permit Holders have some obligations (such as clearing trades) 
that such market participants do not have. Further, this fee is still 
lower than is assessed for comparable executions on other 
exchanges.\23\ Finally, this fee will be assessed to all Clearing 
Trading Permit Holder Proprietary transactions in the relevant 
products.
---------------------------------------------------------------------------

    \22\ For example, Broker-Dealers and Non-Trading Permit Holder 
Market-Makers pay either $0.45 per contract or $0.60 per contract 
for such transactions (See CBOE Fees Schedule, page 1).
    \23\ For example, PHLX assesses firm electronic fees of $0.45 or 
$0.60 per contract for multiply-listed options (see PHLX Pricing, 
Section II).
---------------------------------------------------------------------------

    The Exchange believes that the proposal to add ``L'' orders to the 
definition of ``facilitation orders'' (thereby making L facilitation 
orders free (except as otherwise stated)) is reasonable because such 
orders will no longer be assessed a fee that they otherwise would be 
assessed. The Exchange believes this is equitable and not unfairly 
discriminatory because Non-Trading Permit Holder Affiliates of Clearing 
Trading Permit Holders are a functional subset of Clearing Trading 
Permit Holders, and they domicile customer accounts, so it makes sense 
to put them in the same position as

[[Page 3449]]

Clearing Trading Permit Holders. Non-Trading Permit Holder Affiliates 
of Clearing Trading Permit Holders cannot be proprietary trading firms 
(whereas broker-dealers, for example, can). The Exchange believes that 
the proposal to assess no fees for Clearing Trading Permit Holder 
Proprietary facilitation transactions in Mini options is reasonable 
because such transactions that would otherwise be assessed a fee will 
now be free. The Exchange believes that this is equitable and not 
unfairly discriminatory because Mini options are merely 1/10 the size 
of regular options contracts, and such transactions in regular options 
contracts are assessed no fee, so it makes sense to also assess no fee 
for these transactions in Mini options.
    The Exchange believes that the reorganization of the Proprietary 
Options Rate Table will help avoid any potential confusion on the part 
of market participants regarding which fees apply in different 
circumstances, thereby removing impediments to and perfecting the 
mechanism of a free and open market and a national market system.
    The Exchange believes that the proposed changes to the customer VIX 
options transaction fees are reasonable because the amounts of the new 
fees are near the range of fees assessed for customer transactions in 
other CBOE proprietary products. Indeed, the fee for customer 
transactions in SPX options whose premium is less than $1.00 is $0.35 
per contract, and the fee for customer transactions in SPX options 
whose premium is greater than or equal to $1.00 is $0.44 per contract. 
The proposed changes to the customer VIX options transaction fees are 
equitable and not unfairly discriminatory because they are designed to 
attract greater customer order flow to the Exchange, which will benefit 
all market participants. Assessing different fees for customer 
transactions in VIX options depending on the premium is equitable and 
not unfairly discriminatory because the Exchange believes that the 
lowered fees for VIX options trading with a premium of $0.00-$0.10 will 
encourage the trading of such options. The slight increases of the fees 
for Customer transactions in VIX options whose premium is greater than 
or equal to $1.00 as well as those whose premium is $0.11-$0.99 is 
being utilized in order to achieve some level of revenue balance in 
connection with the lowered fee for customer transactions in VIX 
options whose premium is $0.00-$0.10. Further, the Exchange currently 
offers different fees depending on the premium for customer 
transactions in SPX options (as described in the previous paragraph). 
Finally, these fees will be assessed to all Customer VIX options 
transactions. The Exchange has expended significant resources to 
develop proprietary products such as VIX options and must recoup such 
costs.
    The Exchange believes that assessing the same Customer fees to 
other VOLATILITY INDEXES as are assessed to VIX options is reasonable, 
equitable and not unfairly discriminatory because VIX is itself a 
Volatility Index, and therefore it makes sense to assess the same 
Customer fees to all other VOLATILITY INDEXES as are assessed to the 
Exchange's most heavily-traded Volatility Index (VIX). The VIX and 
VOLATILITY INDEXES fees that apply to each other market participant are 
already the same. This proposed change will be applied equally to all 
Customer VOLATILITY INDEX transactions.
    The Exchange believes that the proposed fees for CBOE Market-Maker 
transactions in VIX and VOLATILITY INDEXES are reasonable because they 
are within the range of those assessed for transactions in VIX and 
VOLATILITY INDEXES by other market participants, as well as those 
assessed to CBOE Market-Makers for other products.\24\ Indeed, while 
the proposed change is a slight increase when the premium is $0.11 or 
greater, the proposed change is also a sizable decrease when the 
premium is $0.00-$0.10. The Exchange believes this proposed change is 
equitable and not unfairly discriminatory because it is designed to 
attract greater customer order flow to the Exchange, which will benefit 
all market participants. Further, while these fees are still lower than 
assessed to other market participants for transactions in VIX and other 
VOLATILITY INDEXES, CBOE Market-Makers/DPMs/E-DPMs/LMMs take on 
obligations, such as quoting obligations, that other market 
participants do not. There are different economic potentials for market 
participants based on the premium of a trade, and therefore it can make 
sense to offer different fees for different premiums in some products 
(depending on the economics of trading in such products).
---------------------------------------------------------------------------

    \24\ See CBOE Fees Schedule, Proprietary Options Rate Table.
---------------------------------------------------------------------------

    The Exchange believes that the proposed increase in the Hybrid 3.0 
Execution Fee is reasonable because it is merely an increase of $0.02 
per contract, and the Exchange uses this fee to cover the costs of 
operating the Hybrid 3.0 system. The Exchange believes that this 
proposed increase is equitable and not unfairly discriminatory because 
it applies to all Hybrid 3.0 executions \25\, and because the increased 
fee will cover the costs of operating the Hybrid 3.0 system. At the 
time that the Hybrid 3.0 Execution Fee was adopted, most orders 
executed via Hybrid 3.0 were simple orders. Now, with the growing 
prevalence of complex orders, the Exchange desires to increase the 
Hybrid 3.0 Execution Fee to cover the increased system complexity (and 
use of resources necessary) due to the trading of complex orders. The 
Exchange believes that adding the correct origin codes as applicable to 
the Hybrid 3.0 Execution Fee, and amending Footnote 21 to remove the 
reference to the Hybrid 3.0 Execution Fee as being $0.18 per contract, 
will help alleviate any potential confusion regarding the amount of the 
Hybrid 3.0 Execution Fee and to whom it applies. This alleviation of 
potential confusion serves to remove impediments to and perfect the 
mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------

    \25\ With the exception of those listed in Footnote 21 of the 
Fees Schedule; the Exchange does not herein propose to amend such 
exceptions.
---------------------------------------------------------------------------

    The Exchange believes that the proposed Customer Priority 
Surcharges are reasonable, equitable and not unfairly discriminatory. 
The purpose of the Customer Priority Surcharges is to ensure that there 
is reasonable cost equivalence between the primary execution channels 
for the products involved. Manual executions are achieved using floor 
brokers (the only market participants who can trade contracts using a 
PAR terminal), who assess a commission for Customer executions. 
Electronic executions are not assessed a commission, but more heavily 
rely on the Exchange's systems. The proposed Customer Priority 
Surcharges will minimize the cost differentials between manual and 
electronic executions, which is in the interest of the Exchange as it 
must both maintain robust electronic systems as well as provide for 
economic opportunity for floor brokers to continue to conduct business, 
as they serve an important function in achieving price discovery and 
Customer executions. Floor brokers ensure that the difficult-to-execute 
orders (such as large and complex orders) are able to be executed 
manually by accessing the CBOE's in-person market maker crowds, while 
also helping to achieve price improvement. SPX, SPXW and VIX are the 
only products that execute a significant share of their total volume on 
the trading floor, and the Hybrid 3.0 Execution Fee (which essentially 
acts as a customer

[[Page 3450]]

priority surcharge) already applies to SPX. SPXW often has a lower 
premium (as it is a weekly option with a lower timeframe, as the 
options have less time value than the regular SPX options), so it makes 
sense to assess a lower SPXW Customer Priority Surcharge than the 
Hybrid 3.0 Execution Fee. VIX options trade at a lower underlying value 
than SPX and so also have a lower premium value, so it also makes sense 
for the VIX Customer Priority Surcharge to be lower than the Hybrid 3.0 
Execution Fee. As described above, the Exchange wants to encourage the 
execution of VIX options Customer orders for options with a premium of 
$0.00-$0.10, and therefore is not proposing to assess the Customer 
Priority Surcharge on such options. The Exchange believes that it is 
equitable and not unfairly discriminatory to only assess this surcharge 
to Maker Non-Turners because VIX options is such a unique product that 
we want to continue to encourage market participation and price 
improvement with a low underlying (unlike SPX or SPXW, which has a 
higher underlying). Someone improving the market (``turning'') has a 
much greater proportional impact in a product with a lower underlying, 
and the Exchange wants to encourage such market improvement.
    The Exchange believes that converting the qualification for the 
different fee tiers in the Liquidity Provider Sliding Scale from 
measuring by a nominal contracts per month to measuring by the relative 
contracts per month (based on the percentage of national Market-Maker 
volume in multiply-listed options) is reasonable because it allows the 
Exchange to control and account for changes in national industry-wide 
multiply-listed options volume. Further, it will still allow Market-
Makers to pay lower fees for executing more orders in multiply-listed 
options, just as prior to this change. The Exchange believes that the 
change is equitable and not unfairly discriminatory because it will be 
applied to all Market-Makers. The change merely switches out the 
measuring stick to use one that accounts for changes in industry-wide 
volume. Finally, Market-Makers must take on certain obligations, such 
as quoting obligations, that other market participants do not have.
    The Exchange believes that the changes to the prepayment for the 
Liquidity Provider Sliding Scale are reasonable because they correspond 
with the adoption of relative, percentage-based tiers, and also because 
the new prepayment amount will be lower than previously (making it 
easier to prepay). The Exchange believes that these changes are 
equitable and not unfairly discriminatory because they will apply to 
all market participants to whom the Liquidity Provider Sliding Scale 
applies.
    Similar to the changes to the Liquidity Provider Sliding Scale, the 
Exchange believes that the changes to the CBOE Proprietary Products 
Sliding Scale are reasonable because they allow the Exchange to control 
and account for changes in national industry-wide multiply-listed 
options volume, as well as the differing number of days in a month. The 
Exchange believes that these changes are equitable and not unfairly 
discriminatory because, first and foremost, there are no substantive 
changes to the fees in the CBOE Proprietary Products Sliding Scale. 
Indeed, these changes merely serve to better standardize the CBOE 
Proprietary Products Sliding Scale (as well as make it easier to read). 
The changes merely switch out the measuring stick to use one that 
accounts for changes in industry-wide volume. Further, the changes will 
apply to all market participants who qualify for the CBOE Proprietary 
Products Sliding Scale. Finally, Clearing Trading Permit Holders must 
take on certain obligations, such as clearing, that other market 
participants do not have. The Exchange believes that the cosmetic 
changes to the CBOE Proprietary Products Sliding Scale will prevent any 
possible potential investor confusion, thereby removing impediments to 
and perfecting the mechanism of a free and open market and a national 
market system, and, in general, protecting investors and the public 
interest.
    The Exchange believes that lowering the fee in Tier 1 of the 
Liquidity Provider Sliding Scale is reasonable because it will allow 
Market-Makers in that tier to pay a lower fee for transactions. The 
Exchange believes that this is equitable and not unfairly 
discriminatory because the lower fee is designed to encourage Market-
Makers to execute more transactions, and the resulting increased volume 
and trading opportunities will benefit all market participants 
(including Market-Makers at the other tiers of the Liquidity Provider 
Sliding Scale). Further, Market-Makers take on obligations, such as 
quoting obligations, that other market participants do not have.
    The Exchange believes that the deletion of the VIX Options Sliding 
Scale is reasonable, equitable and not unfairly discriminatory because 
it will merely result in Clearing Trading Permit Holders being assessed 
the standard Clearing Trading Permit Holder Proprietary transaction fee 
for VIX options transactions (instead of having the fee amount for such 
transactions change based on the number of VIX options transactions the 
Clearing Trading Permit Holder executes in a month). As such, all 
Clearing Trading Permit Holder Proprietary VIX options transactions 
will be assessed the same fee amount. As always, Clearing Trading 
Permit Holders must take on certain obligations, such as clearing, that 
other market participants do not have.
    The Exchange believes the imposition of the PULSe-to-PULSe Routing 
Fee is reasonable because it is intended to cover the costs associated 
with the development of PULSe-to-PULSe routing, as well as the upkeep 
of such systems. The Exchange believes that it is equitable and not 
unfairly discriminatory because it will be assessed to all receiving 
TPHs that elect to receive PULSe-to-PULSe orders. The Exchange proposes 
to assess the fee to the receiving TPH because, by electing to receive 
PULSe-to-PULSe orders, the receiving TPH then gets the ability to 
execute those orders on the Exchange. The Exchange believes that the 
proposal to amend the listing of the fee and note for the PULSe On-
Floor Workstation in the ``Trading Floor Terminal Rentals'' section of 
the ``Facility Fees'' table will alleviate any potential confusion, 
thereby removing impediments to and perfecting the mechanism of a free 
and open market and a national market system, and, in general, 
protecting investors and the public interest.
    The Exchange believes that lowering the HAL Step-Up Rebate is 
reasonable because it will still allow Market-Makers to receive a 
rebate for trading activity that they would not otherwise receive (just 
a smaller rebate). The Exchange believes that this proposed change is 
equitable and not unfairly discriminatory because it applies to all 
Market-Makers who qualify for the HAL Step-Up Rebate (only Market-
Makers can quote and therefore ``step up''). Moreover, the proposed 
change does not affect who may qualify for the HAL Step-Up Rebate. 
Further, Market-Makers have certain obligations, such as quoting 
obligations, that other market participants do not have.
    The Exchange believes that its proposal to charge all customer 
orders routed via Linkage the actual transaction costs assessed by the 
exchange(s) to which the orders are routed is reasonable, equitable and 
not unfairly discriminatory because the Exchange will merely be passing 
through these execution costs to the customer. Further, this pass-
through will be applied equally to all customer orders, regardless of 
size.

[[Page 3451]]

    The Exchange believes that its proposal to increase the non-
customer Linkage fee by $0.05, to $0.55 per contract, is reasonable, 
equitable and not unfairly discriminatory because such increase will 
help offset the costs associated with routing orders through Linkage 
and paying the transaction fees for such executions at other exchanges. 
The amount of this fee is lower than corresponding non-customer Linkage 
fees assessed by other exchanges.\26\ This fee amount will be assessed 
to all non-customer orders routed via Linkage. The Exchange notes that 
there exists in the options industry a historical practice of 
preferential pricing for customers, whose orders are more attractive 
for trading partners and who also often do not have as sophisticated 
trading systems as other market participants.
---------------------------------------------------------------------------

    \26\ See PHLX Pricing, Non-Customer Routing Fee of $0.95 per 
contract.
---------------------------------------------------------------------------

    The Exchange believes that offering a second tier of the Floor 
Broker Access Rebate is reasonable because it allows the qualifying 
Floor Brokers to pay lower Floor Broker Trading Permit fees than they 
otherwise would have. The Exchange believes that it is equitable and 
not unfairly discriminatory to offer the second tier of the rebate to 
Floor Brokers only, and only those who execute 25,000 contracts per day 
(of customer, open-outcry trading in multiply-listed options classes) 
because Floor Brokers serve an important function in facilitating the 
execution of orders via open outcry, which as a price-improvement 
mechanism, the Exchange wishes to encourage and support. Further, the 
proposed change is designed to encourage the execution of orders via 
open outcry, which should increase volume, which would benefit all 
market participants (including Floor Brokers who do not hit the 25,000 
contracts-per-day threshold) trading via open outcry (and indeed, this 
increased volume could make it possible for some Floor Brokers to hit 
the 25,000 contracts-per-day threshold). Also, only Floor Brokers are 
assessed Floor Broker Trading Permit fees. The Exchange proposes 
limiting the rebate qualification to open outcry trading because Floor 
Brokers only engage in open outcry trading (at least in their 
capacities as Floor Brokers), and because, as previously stated, the 
Exchange wishes to support and encourage open-outcry trading, which 
allows for price improvement and has a number of positive impacts on 
the market system. The Exchange proposes limiting the rebate 
qualification to customer orders because market participants generally 
prefer to trade against customer trades, and encouraging customer 
trading in this manner should provide such market participants with 
more customer orders with which to trade. Further, the options industry 
has a long history of promoting customer orders through rebates and 
other preferential fee structures. The Exchange proposes limiting the 
rebate qualification to multiply-listed options classes because the 
Exchange expended considerable resources developing its proprietary, 
singly-listed products and therefore does not desire to offer this 
rebate associated with such products.
    The Exchange believes that the proposed change to permit the 
sharing of bandwidth between affiliated TPHs is reasonable because it 
will allow such TPHs more efficient use of bandwidth without having to 
purchase more (if they can share with each other). The Exchange 
believes that this proposed change is equitable and not unfairly 
discriminatory because it will apply to all groupings of affiliated 
TPHs.

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. CBOE does not believe that the 
proposed rule change will impose any burden on intramarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act because, while different fees are assessed to different market 
participants in some circumstances, these different market participants 
have different obligations and different circumstances (as described in 
the ``Statutory Basis'' section above). For example, Clearing Trading 
Permit Holders have clearing obligations that other market participants 
do not have. Market-Makers have quoting obligations that other market 
participants do not have. There is a history in the options markets of 
providing preferential treatment to Customers, as they often do not 
have as sophisticated trading operations and systems as other market 
participants, which often makes other market participants prefer to 
trade with Customers. Further, the Exchange fees, both current and 
those proposed to be changed, are intended to encourage market 
participants to bring increased volume to the Exchange (which benefits 
all market participants), while still covering Exchange costs 
(including those associated with the upgrading and maintenance of 
Exchange systems).
    CBOE does not believe that the proposed rule change will impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed changes 
are intended to improve the Exchange's competitive position and make 
CBOE a more attractive marketplace in order to encourage market 
participants to bring increased volume to the Exchange (while still 
covering costs as necessary). Further, the proposed changes only affect 
trading on CBOE. To the extent that the proposed changes make CBOE a 
more attractive marketplace for market participants at other exchanges, 
such market participants are welcome to become CBOE market 
participants.

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 \27\ and paragraph (f) of Rule 19b-4 \28\ 
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.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2013-129 on the subject line.

[[Page 3452]]

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-2013-129. 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 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-2013-129, and should be 
submitted on or before February 11, 2014.
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    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-00984 Filed 1-17-14; 8:45 am]
BILLING CODE 8011-01-P


