
[Federal Register Volume 81, Number 84 (Monday, May 2, 2016)]
[Notices]
[Pages 26299-26301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-10151]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77710; File No. SR-CBOE-2016-038]


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

April 26, 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 April 12, 2016, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's 
Office of the Secretary, and at the Commission'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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fees Schedule.\3\
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    \3\ The Exchange initially filed the proposed change on April 1 
2016 (SR-CBOE-2016-033). On April 12, 2016, the Exchange withdrew 
that filing and replaced it with SR-CBOE-2016-038.
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    The Exchange first proposes to amend its Volume Incentive Program 
(``VIP''). By way of background, under VIP, the Exchange credits each 
Trading Permit Holder (``TPH'') the per contract amount set forth in 
the VIP table resulting from each public customer (``C'' origin code) 
order transmitted by that TPH (with certain exceptions) which is 
executed electronically on the Exchange, provided the TPH meets certain 
volume thresholds in a month.\4\ The current qualification tiers are 
set to, in ascending order, 0%-0.75%, above 0.75%-1.50%, above 1.50%-
3.00% and above 3%. The Exchange proposes to adjust the threshold 
percentages for Tiers 2 and 3. Specifically, the Exchange is proposing 
to amend Tier 2 to above 0.75%-1.80% and Tier 3 to be above 1.80%-
3.00%. The purpose of this change is to incentivize the sending of both 
simple and complex orders to the Exchange and to adjust the incentive 
tiers accordingly as competition requires while maintaining an 
incremental incentive for TPH's [sic] to strive for the highest tier 
level.
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    \4\ Currently, qualification for the different fee rates at 
different tiers in the VIP is based on a TPH's percentage of 
national customer volume in all products, excluding Underlying 
Symbol List A, DJX, MXEA, MXEF, MNX, NDX, XSP, XSPAM and mini-
options. Excluded from the VIP credit are options in Underlying 
Symbol List A, DJX, MXEA, MXEF, MNX, NDX, XSP, XSPAM, mini-options, 
QCC trades, public customer to public customer electronic complex 
order executions, and executions related to contracts that are 
routed to one or more exchanges in connection with the Options Order 
Protection and Locked/Crossed Market Plan referenced in Rule 6.80 
(see CBOE Fees Schedule, Volume Incentive Program).
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    The Exchange next proposes to amend its Affiliate Volume Plan 
(``AVP''). By way of background, under AVP if a TPH Affiliate \5\ of a 
Market-Maker (including a Designated Primary Market-Maker (``DPM'') or 
Lead Market-Maker (``LMM'')) qualifies under VIP, that Market-Maker 
will also qualify for a discount on that Market-Maker's Liquidity 
Provider Sliding Scale (``Sliding Scale'') transaction fees (``Sliding 
Scale Credit''). More specifically, if a Market-Maker's Affiliate 
reaches Tier 2, Tier 3 or Tier 4 of VIP, that Market-Maker will receive 
a discount on their Sliding Scale Market-Maker transaction fees of 10%, 
15% or 20%, respectively. The Exchange now proposes to increase the 
current discounts for Tiers 3 and 4 as follows:
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    \5\ ``Affiliate'' is defined as having at least 75% common 
ownership between the two entities as reflected on each entity's 
Form BD, Schedule A.

------------------------------------------------------------------------
                                                               Proposed
                                                Current AVP      AVP
                                                transaction  transaction
             Tier               VIP thresholds      fee          fee
                                                  discount     discount
                                                    (%)          (%)
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1............................  0.00%-0.75%....            0            0
2............................  Above 0.75%-              10           10
                                1.50%.
3............................  Above 1.50%-              15           20
                                3.00%.
4............................  Above 3.00%....           20           30
------------------------------------------------------------------------

    The Exchange believes the increased credit rate will incentivize 
increased volume while also maintaining an incremental incentive for 
TPH's [sic] to strive for the highest tier level.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ 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

[[Page 26300]]

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,\8\ 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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes it's reasonable to increase 
the lower threshold in the third tier of VIP (and thus the 
corresponding upper threshold in the second tier) because the change is 
designed to adjust the incentive tiers accordingly as competition 
requires while maintaining an incremental incentive for TPH's [sic] to 
strive for the highest tier level to reach the highest credits 
available. This change is also equitable and not unfairly 
discriminatory because it will be applied to all TPHs uniformly. The 
Exchange believes the proposed change will incentivize the sending of 
more simple and complex orders to the Exchange. The greater liquidity 
and trading opportunities should benefit not just public customers 
(whose orders are the only ones that qualify for the VIP) but all 
market participants.
    The Exchange believes that increasing the Tier 3 and Tier 4 Sliding 
Scale Credits from 15% to 20% and 20% to 30%, respectively, is 
reasonable because it is increasing available credits. Additionally, 
enhancing the incentives under the Sliding Scale Credit further 
incentivizes a Market-Maker Affiliate to achieve the highest tier on 
the VIP so that the Market-Maker can achieve those higher credits, 
which thereby can result in greater customer liquidity. The resulting 
increased volume benefits all market participants (including Market-
Makers or their affiliates who do not achieve the higher tiers on the 
VIP; indeed, this increased volume may allow them to reach these 
tiers).
    The Exchange believes that limiting the Sliding Scale Credit to 
Market-Makers is equitable and not unfairly discriminatory because 
Market-Makers are valuable market participants that provide liquidity 
in the marketplace and incur costs that other market participants do 
not incur. For example, Market-Makers have a number of obligations, 
including quoting obligations that other market participants do not 
have.
    The Exchange also believes that it's equitable and not unfairly 
discriminatory to limit the discounts under the Sliding Scale Credit to 
Market-Makers with Affiliates that reach certain tiers under VIP. The 
Exchange notes that in the options industry, many options orders are 
routed by consolidators, which are firms that have both order router 
and Market-Maker operations. The Exchange is aware not only of the 
importance of providing credits on the order routing side in order to 
encourage the submission of orders (which is [sic] currently does via 
VIP), but also of the operations costs on the Market-Maker side. The 
Exchange believes the Sliding Scale Credit allows the Exchange to 
provide further relief to the Market-Maker side via the discount, which 
incents these Market- Makers to tighten market widths due to the 
reduced costs the incentives provide. Additionally, the Exchange 
believes the discount attracts more volume and liquidity to the 
Exchange, which benefits all Exchange participants through increased 
opportunities to trade as well as enhancing price discovery. The 
Exchange also notes that incentivizing a Market-Maker Affiliate to 
achieve higher tiers on the VIP, so that the Market-Maker can achieve 
higher tiers under the Sliding Scale Credit, can result in greater 
customer liquidity, and the resulting increased volume also benefits 
all market participants (including Market-Makers that do not have 
Affiliates or whose Affiliates do not achieve the higher tiers on the 
VIP; indeed, this increased volume may allow them to reach these 
tiers). Lastly, other options exchanges also provide credits to Market-
Makers if a Market-Maker's affiliate adds a certain amount of customer 
liquidity to that exchange.\9\
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    \9\ See e.g., NYSE Arca, Inc. (``Arca'') Options Fees and 
Charges, specifically the table describing the Market Maker Monthly 
Posting Credit Super Tier, under which transaction volume from a 
Market Maker's affiliates count towards the Market Maker's ability 
to qualify for higher credit tiers.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act. In particular, the Exchange 
believes the proposed change to amend certain tier thresholds in VIP 
does not impose a burden on intramarket competition because it applies 
uniformly to all TPHs and incentivizes the sending of more simple and 
complex orders to the Exchange, which provides greater liquidity and 
trading opportunities. Additionally, the Exchange does not believe 
increasing credits under Tiers 3 and 4 of the Liquidity Provider 
Sliding Scale Credit imposes a burden on intramarket competition 
because, although it applies only to Market-Makers, Market-Makers are 
valuable market participants that provide liquidity in the marketplace 
and incur costs that other market participants do not incur. Market-
Makers also have a number of obligations, including quoting obligations 
that other market participants do not have. Additionally, the Exchange 
notes that although the Sliding Scale Credit is limited to Market-
Makers with an Affiliate, incentivizing a Market-Maker Affiliate to 
achieve higher tiers on the VIP, so that the affiliated Market-Maker 
can achieve higher tiers under the Sliding Scale Credit, can result in 
greater liquidity (including customer liquidity), and the resulting 
increased volume benefits all market participants.
    The Exchange does not believe that the proposed rule changes 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 promote competition and better 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 \10\ and paragraph (f) of Rule 19b-4 \11\ 
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

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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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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-2016-038 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-2016-038. 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-2016-038, and should be 
submitted on or before May 23, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-10151 Filed 4-29-16; 8:45 am]
 BILLING CODE 8011-01-P


