
[Federal Register Volume 81, Number 12 (Wednesday, January 20, 2016)]
[Notices]
[Pages 3210-3213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00899]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76888; File No. SR-CBOE-2015-122]


 Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to COPS

January 13, 2016.
    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, 2015, 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 and II below, which Items have been prepared by the 
Exchange. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend the contributor compensation 
structure of the Customized Option Pricing Service (``COPS''). There is 
no new proposed rule text.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to extend the 
contributor compensation structure of the Exchange's COPS,\5\ 
specifically, the COPS data revenue-sharing plan. The Exchange is not 
proposing to change the fees for COPS data.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release Nos. 34-67813 (September 
10, 2012), 77 FR 56903 (September 14, 2012) (SR-CBOE-2012-083); 34-
67928 (September 26, 2012), 77 FR 60161 (October 2, 2012) (SR-CBOE-
2012-090); 34-70705 (October 17, 2013), 78 FR 63265 (October 23, 
2013) (SR-CBOE-2013-097); 34-70845 (November 12, 2013), 78 FR 69168 
(November 18, 2013) (SR-CBOE-2013-104); 34-72621 (July 16, 2014), 79 
FR 42616 (July 22, 2014) (SR-CBOE-2014-057); 34-74159 (January 28, 
2015), 80 FR 5863 (February 23, 2015) (SR-CBOE-2015-007); and 34-
74937 (May 12, 2015), 80 FR 28319 (May 18, 2015) (SR-CBOE-2015-046).
---------------------------------------------------------------------------

Background
    COPS provides market participants with an ``end-of-day'' \6\ file 
and ``historical'' \7\ files of valuations for Flexible Exchange 
(``FLEX'') \8\ options and certain over-the-counter (``OTC'') options 
(collectively, ``COPS Data''). Market Data Express, LLC (``MDX''), an 
affiliate of CBOE, offers COPS Data for sale to all market 
participants. COPS Data is available to ``Subscribers'' for internal 
use and internal distribution only, and to ``Customers'' who, pursuant 
to a written vendor agreement between MDX and a Customer, may 
distribute the COPS Data externally (i.e., act as a

[[Page 3211]]

vendor) and/or use and distribute the COPS Data internally.
---------------------------------------------------------------------------

    \6\ ``End of day'' refers to data that is distributed prior to 
the opening of the next trading day.
    \7\ ``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).
    \8\ 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.
---------------------------------------------------------------------------

    COPS Data consists of indicative \9\ values for four 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.\10\ 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.\11\ The fourth category includes ``exotic'' options.\12\
---------------------------------------------------------------------------

    \9\ ``Indicative'' values are indications of potential market 
prices only and as such are neither firm nor the basis for a 
transaction.
    \10\ Current FLEX options open interest spans over 2,000 series 
on over 300 different underlying securities.
    \11\ 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.
    \12\ Exotic options are options which are generally traded OTC 
and are more complex than standard options, usually relating to 
determination of payoff. An exotic option may also include a non-
standard underlying instrument, developed for a particular client or 
for a particular market.
---------------------------------------------------------------------------

    The Exchange uses values produced by CBOE Trading Permit Holders 
(``TPHs'') to produce COPS Data. Participating CBOE TPHs submit values 
to MDX on options series specified by MDX on a daily basis. These 
values are generated by the TPHs' internal pricing models. The 
valuations that MDX ultimately publishes are an average of multiple 
contributions of values from participating CBOE TPHs. For each value 
provided by MDX through COPS, MDX includes a corresponding indication 
of the number of TPH contributors that factored into that value.
    CBOE TPHs that meet the following objective qualification criteria 
are allowed to contribute values to MDX for purposes of producing COPS 
Data. Interested CBOE TPHs must be approved by the Exchange, have the 
ability to provide valuations to MDX in a timely manner each day after 
the close of trading, and sign a services agreement with CBOE. 
Interested CBOE TPHs must also have the ability to provide both 
indicative and implied volatility valuations on several different types 
of options, including (i) options on all open FLEX series traded on any 
exchange that offers FLEX options for trading, (ii) options on any 
potential new FLEX options series, (iii) OTC options that have the same 
degree of customization as FLEX options, (iv) customized options where 
the strike price is expressed in percentage terms (the valuations 
provided to MDX must also be expressed in percentage terms), and (v) 
exotic options. In addition, interested CBOE TPHs must participate in a 
testing phase with MDX. The values submitted by a TPH during the 
testing phase and in live production must meet MDX's quality control 
standards designed to ensure the integrity and accuracy of COPS Data. 
MDX has implemented procedures including monthly performance reviews to 
help ensure the integrity and accuracy of COPS Data.
    To help ensure that MDX receives numerous values from multiple TPHs 
on a consistent basis, MDX shares revenue from the sale of COPS Data 
with participating CBOE TPHs.\13\ The amount of revenue that MDX shares 
with participating TPHs is a percentage of the total revenue received 
by MDX from the sale of COPS Data. The revenue sharing is based on the 
following table:
---------------------------------------------------------------------------

    \13\ 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 ``end-of-day'' COPS 
data. The amount of the fee is reduced based on the number of 
options valuations purchased.

----------------------------------------------------------------------------------------------------------------
                                           Total revenue
      Number of participating TPHs           share  %                     Revenue share per TPH  %
----------------------------------------------------------------------------------------------------------------
3......................................                21  7
4......................................                24  6
5 or more..............................                30  30 divided by the number of participating TPHs.
----------------------------------------------------------------------------------------------------------------

    If only three TPHs participate, MDX shares 21% of total revenue 
with each TPH receiving a 7% share. If four TPHs participate, MDX 
shares 24% of total revenue with each TPH receiving a 6% share. If five 
or more TPHs participate, MDX shares 30% of total revenue divided 
equally among the TPHs. There are currently three participating TPHs.
    In July 2014, the Exchange submitted a proposed rule change to, 
among other things, temporarily change the COPS contributor 
compensation structure from a revenue sharing plan to a fixed payment 
structure for a six-month period (``Fixed Payment Period'').\14\ In May 
2015, the Exchange submitted a proposed rule change to change the COPS 
contributor compensation structure for the remainder of 2015.\15\ 
Pursuant to that proposed rule change, as of May 1, 2015, all revenue 
from the sale of COPS Data was paid to COPS contributors, with revenue 
divided equally among COPS contributors. As described in that proposed 
rule change, MDX would transition back to the revenue share plan 
described above on January 1, 2016.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 34-72621 (July 16, 
2014), 79 FR 42616 (July 22, 2014) (SR-CBOE-2014-057).
    \15\ Securities Exchange Act Release No. 34-74937 (May 12, 
2015), 80 FR 28319 (May 18, 2015) (SR-CBOE-2015-046). The Exchange 
is not proposing to eliminate the revenue share plan, but rather 
extend its temporary suspension as described in this rule filing.
---------------------------------------------------------------------------

Proposal
    The Exchange proposes to extend the current COPS contributor 
compensation structure for six months. All revenue from the sale of 
COPS Data will continue to be paid to COPS contributors through June 
30, 2016. The revenue will continue to be divided equally among COPS 
contributors. The Exchange had hoped that at the end of 2015, COPS 
revenue would be at a level such that the COPS contributors would 
receive a revenue share roughly in line with the fixed payments they 
received during the Fixed Payment Period. This has not yet occurred. 
The payments to COPS contributors are intended to, at a minimum, help 
COPS contributors cover their costs of producing valuations for COPS 
while the Exchange continues to grow the COPS business. MDX will 
transition back to the revenue share plan described above on July 1, 
2016.
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

[[Page 3212]]

and, in particular, the requirements of Section 6(b) of the Act.\16\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \17\ 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 
facilitating 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 the Section 6(b)(5) \18\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ Id.
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change is not designed to 
permit unfair discrimination between CBOE TPHs because all COPS data 
revenue would be divided equally among TPH contributors for an 
additional six months. The Exchange believes the proposed rule change 
is consistent with the protection of investors and the public interest 
in that it would provide incentive for all of the COPS contributors to 
continue to participate in COPS while the Exchange continues to grow 
the COPS business, thereby helping to maintain the quality of COPS 
Data.

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

    CBOE does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes the proposal is procompetitive in that it will incentivize 
COPS contributors to continue producing quality valuations to help keep 
COPS competitive with other similar market data products.\19\
---------------------------------------------------------------------------

    \19\ Market data vendors including SuperDerivatives, Markit, 
Prism, and Bloomberg's BVAL service produce option value data that 
is similar to COPS Data. 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.
---------------------------------------------------------------------------

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

    Because the foregoing rule does not (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, provided that the self-regulatory organization 
has given the Commission written notice of its intent to file the 
proposed rule change at least five business days prior to the date of 
filing of the proposed rule change or such shorter time as designated 
by the Commission,\20\ the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \21\ and Rule 19b-4(f)(6) 
thereunder.\22\
---------------------------------------------------------------------------

    \20\ The Exchange has fulfilled this requirement.
    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\24\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange believes 
that the proposal is consistent with the protection of investors and 
the public interest because it help COPS contributors cover their costs 
of producing valuations for COPS while the Exchange continues to grow 
the COPS business, and thereby assist the Exchange with maintaining its 
current roster of TPH contributors. The Commission believes that it is 
consistent with the protection of investors and the public interest to 
waive the 30-day operative delay so that the proposal may take effect 
upon filing and allow the current COPS contributor compensation 
structure to continue without interruption. For this reason, the 
Commission designates the proposed rule change to be operative upon 
filing.\25\
---------------------------------------------------------------------------

    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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.

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-2015-122 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2015-122. 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

[[Page 3213]]

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-2015-122 and should be submitted on or before 
February 10, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00899 Filed 1-19-16; 8:45 am]
 BILLING CODE 8011-01-P


