
[Federal Register Volume 82, Number 3 (Thursday, January 5, 2017)]
[Notices]
[Pages 1387-1390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31941]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79709; File No. SR-CBOE-2016-092]


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

December 29, 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 19, 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 the 
Substance of the Proposed Rule Change

    Chicago Board Options Exchange, Incorporated (the ``Exchange'' or 
``CBOE'') proposes to amend user fees for the Complex Order Book 
(``COB'') Data Feed. 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 purpose of the proposed rule change is to amend user fees for 
the COB Data Feed. This data feed is made available by CBOE's affiliate 
Market Data Express, LLC (``MDX''). The Exchange proposes to make the 
following fee changes effective January 1, 2017.
    COB Data Feed: The COB Data Feed is a real-time data feed that 
includes data regarding the Exchange's Complex Order Book and related 
complex order information. The COB Data Feed contains the following 
information for all CBOE-traded complex order strategies (multi-leg 
strategies such as spreads, straddles and buy-writes): (i) Outstanding 
quotes and standing orders on each side of the market with aggregate 
size, (ii) data with respect to executed trades (``last sale data''), 
and (iii) totals of customer versus non-customer contracts.\3\
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    \3\ The data is made available during ``Regular Trading Hours'' 
as defined in CBOE Rule 1.1(qqq) and ``Extended Trading Hours'' as 
defined in CBOE Rule 1.1(rrr).
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Fees
    MDX currently charges Customers \4\ of the COB Data Feed a Data Fee 
of $100 per month plus applicable User Fees (as described below). The 
Data Fee for the COB Data Feed is waived for Customers of the CBOE BBO 
and Book Depth Data Feeds.\5\
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    \4\ A Customer is any person, company or other entity that, 
pursuant to a market data agreement with MDX, is entitled to receive 
data, either directly from MDX or through an authorized 
redistributor (i.e., a Customer or an extranet service provider), 
whether that data is distributed externally or used internally. The 
MDX fee schedule for CBOE data is located at https://www.cboe.org/MDX/CSM/OBOOKMain.aspx.
    \5\ Such COB Data Feed Customers are still subject to User Fees.
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    MDX charges a Customer User Fees of $25 per month per Device \6\ or 
user ID for receipt of the data by ``Professional Users'' \7\. There is 
no charge for receipt of the data by ``Non-Professional Users'' \8\. 
User Fees are subject to a cap of $2,000 per month (i.e., a Customer 
pays no more than $2,000 in User Fees for a given month). The Exchange 
proposes to delete this fee cap from the MDX fee schedule for CBOE 
data.
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    \6\ A ``Device'' means any computer, workstation or other item 
of equipment, fixed or portable, that receives, accesses and/or 
displays data in visual, audible or other form.
    \7\ A ``Professional User'' is any natural person recipient of 
Data who is not a Non-Professional User (as defined below). User 
Fees for Professional Users are payable for both ``internal'' 
Professional Users (Devices or user IDs of employees of a Customer) 
and ``external'' Professional Users (Devices or user IDs of 
Professional Users who receive the Data from a Customer and are not 
employed by the Customer). (Non-Professional Users must be external 
since a person who uses the COB Data Feed for a commercial purpose 
cannot be a Non-Professional User.)
    \8\ A ``Non-Professional User'' is a natural person or 
qualifying trust that uses Data only for personal purposes and not 
for any commercial purpose and, for a natural person who works in 
the United States, is not: (i) Registered or qualified in any 
capacity with the Securities and Exchange Commission, the 
Commodities Futures Trading Commission, any state securities agency, 
any securities exchange or association, or any commodities or 
futures contract market or association; (ii) engaged as an 
``investment adviser'' as that term is defined in Section 201(11) of 
the Investment Advisors Act of 1940 (whether or not registered or 
qualified under that Act); or (iii) employed by a bank or other 
organization exempt from registration under federal or state 
securities laws to perform functions that would require registration 
or qualification if such functions were performed for an 
organization not so exempt; or, for a natural person who works 
outside of the United States, does not perform the same functions as 
would disqualify such person as a Non-Professional User if he or she 
worked in the United States.
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    The Exchange also proposes to make a few clean-up changes to the 
MDX fee schedule for CBOE data, including removing a couple references 
to a January 1, 2016 effective date for prior fee changes and removing 
the $1 per month User Fee for COB Data Feed Non-Professional Users, 
which was eliminated effective January 1, 2015.
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.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\10\ 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. The Exchange also believes the proposed rule change is 
consistent with the Section 6(b)(5) \11\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposal to delete the monthly cap on 
User Fees for receipt of the COB Data Feed is equitable and not 
unfairly discriminatory because it would apply

[[Page 1388]]

equally to all Customers. The Exchange believes the User Fees, without 
a fee cap, are reasonable because they are similar to fees that other 
markets charge for similar products. For example, NYSE Arca charges $20 
per month to each Professional User and $1 per month to each Non-
Professional User for receipt of the Arcabook for Arca Options--Complex 
data feed. The Exchange believes NYSE Arca does not cap its user 
fees.\12\ Similarly, NYSE MKT charges $20 per month to each 
Professional User and $1 per month to each Non-Professional User for 
receipt of the Arcabook for Amex Options Options--Complex data feed. 
The Exchange believes NYSE MKT does not cap its user fees. The Exchange 
also believes removing the fee cap is reasonable in that it is not 
anticipated to materially affect the amount of User Fees any Customer 
pays.
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    \12\ See NYSE Market Data Pricing Guide available at 
www.nyxdata.com/doc/241907.
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    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 
2010), upheld reliance by the Securities and Exchange Commission 
(``Commission'') upon the existence of competitive market mechanisms to 
set reasonable and equitably allocated fees for proprietary market 
data:

    In fact, the legislative history indicates that the Congress 
intended that the market system `evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are removed' 
and that the SEC wield its regulatory power `in those situations where 
competition may not be sufficient,' such as in the creation of a 
`consolidated transactional reporting system.'

    Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted 
in 1975 U.S.C.C.A.N. 323). The court agreed with the Commission's 
conclusion that ``Congress intended that `competitive forces should 
dictate the services and practices that constitute the U.S. national 
market system for trading equity securities.' '' \13\
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    \13\ NetCoalition, 615 F.3d at 535 (Quoting Securities Exchange 
Act Release No. 59039 (December 9, 2008), 73 FR 74770 (December 9, 
2008) at 74771).
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    As explained below in the Exchange's Statement on Burden on 
Competition, the Exchange believes that the need to attract order flow 
from market participants provides an effective constraint on the market 
data fees that the Exchange, through MDX, has the ability and the 
incentive to charge. In addition, the existence of alternatives to this 
data product, such as proprietary data from other sources, as described 
below, further ensures that the Exchange cannot set unreasonable fees, 
or fees that are unreasonably discriminatory, when vendors and 
subscribers can select such alternatives.
    For the reasons cited above, the Exchange believes the proposed 
User Fees for receipt of the COB Data Feed are equitable, reasonable 
and not unfairly discriminatory. In addition, the Exchange believes 
that no substantial countervailing basis exists to support a finding 
that the proposed fees for the COB Data Feed fail to meet the 
requirements of the Act.

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.
    An exchange's ability to price its proprietary market data feed 
products is constrained by (1) the existence of actual competition for 
the sale of such data, (2) the joint product nature of exchange 
platforms, and (3) the existence of alternatives to the Exchange's 
proprietary data.
    The Existence of Actual Competition. The Exchange believes 
competition provides an effective constraint on the market data fees 
that the Exchange, through MDX, has the ability and the incentive to 
charge. CBOE has a compelling need to attract order flow from market 
participants in order to maintain its share of trading volume. This 
compelling need to attract order flow imposes significant pressure on 
CBOE to act reasonably in setting its fees for market data, 
particularly given that the market participants that will pay such fees 
often will be the same market participants from whom CBOE must attract 
order flow. These market participants include broker-dealers that 
control the handling of a large volume of customer and proprietary 
order flow. Given the portability of order flow from one exchange to 
another, any exchange that sought to charge unreasonably high data fees 
would risk alienating many of the same customers on whose orders it 
depends for competitive survival. CBOE currently competes with thirteen 
options exchanges (including CBOE's affiliate, C2 Options Exchange) for 
order flow.\14\
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    \14\ The Commission has previously made a finding that the 
options industry is subject to significant competitive forces. See 
e.g., Securities Exchange Act Release No. 59949 (May 20, 2009), 74 
FR 25593 (May 28, 2009) (SR-ISE-2009-97) (order approving ISE's 
proposal to establish fees for a real-time depth of market data 
offering).
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    In addition, in the case of products that are distributed through 
market data vendors, the vendors themselves provide additional price 
discipline for proprietary data products because they control the 
primary means of access to certain end users. These vendors impose 
price discipline based upon their business models. For example, vendors 
that assess a surcharge on data they sell are able to refuse to offer 
proprietary products that their end users do not or will not purchase 
in sufficient numbers. Similarly, Customers will not offer the COB Data 
Feed unless this product will help them maintain current users or 
attract new ones. For example, a broker-dealer will not choose to offer 
the COB Data Feed to its retail customers unless the broker-dealer 
believes that the retail customers will use and value the data and the 
provision of such data will help the broker-dealer maintain the 
customer relationship, which allows the broker-dealer to increase its 
revenues. Professional users will not request this feed from Customers 
unless they can use the data for profit-generating purposes in their 
businesses. All of these factors operate as constraints on pricing 
proprietary data products.
    Joint Product Nature of Exchange Platform. Transaction execution 
and proprietary data products are complementary in that market data is 
both an input and a byproduct of the execution service. In fact, 
proprietary market data and trade executions are a paradigmatic example 
of joint products with joint costs. The decision whether and on which 
platform to post an order will depend on the attributes of the 
platforms where the order can be posted, including the execution fees, 
data quality, and price and distribution of data products. Without a 
platform to post quotations, receive orders and execute trades, 
exchange data products would not exist.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's platform for posting quotes, 
receiving orders and executing trades, and the cost of regulating the 
exchange to ensure its fair operation and maintain investor confidence. 
The total return that a trading platform earns reflects the revenues it 
receives from both products and the joint costs it incurs.
    Moreover, an exchange's broker-dealer customers view the costs of 
transaction executions and market data as a unified cost of doing 
business with

[[Page 1389]]

the exchange. A broker-dealer will only choose to direct orders to an 
exchange if the revenue from the transaction exceeds its cost, 
including the cost of any market data that the broker-dealer chooses to 
buy in support of its order routing and trading decisions. If the costs 
of the transaction are not offset by its value, then the broker-dealer 
may choose instead not to purchase the product and trade away from that 
exchange.
    Analyzing the cost of market data product production and 
distribution in isolation from the cost of all of the inputs supporting 
the creation of market data and market data products will inevitably 
underestimate the cost of the data and data products because it is 
impossible to obtain the data inputs to create market data products 
without a fast, technologically robust, and well-regulated execution 
system, and system and regulatory costs affect the price of both 
obtaining the market data itself and creating and distributing market 
data products. It would be equally misleading, however, to attribute 
all of an exchange's costs to the market data portion of an exchange's 
joint products. Rather, all of an exchange's costs are incurred for the 
unified purposes of attracting order flow, executing and/or routing 
orders, and generating and selling data about market activity. The 
total return that an exchange earns reflects the revenues it receives 
from the joint products and the total costs of the joint products.
    The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including 14 options self-regulatory organization (``SRO'') markets, as 
well as various forms of alternative trading systems (``ATSs''), 
including dark pools and electronic communication networks (``ECNs'') 
and internalizing broker-dealers. Competition among trading platforms 
can be expected to constrain the aggregate return that each platform 
earns from the sale of its joint products, but different platforms may 
choose from a range of possible, and equally reasonable, pricing 
strategies as the means of recovering total costs. For example, some 
platforms may choose to pay rebates to attract orders, charge 
relatively low prices for market data products (or provide market data 
products free of charge), and charge relatively high prices for 
accessing posted liquidity. Other platforms may choose a strategy of 
paying lower rebates (or no rebates) to attract orders, setting 
relatively high prices for market data products, and setting relatively 
low prices for accessing posted liquidity. In this environment, there 
is no economic basis for regulating maximum prices for one of the joint 
products in an industry in which suppliers face competitive constraints 
with regard to the joint offering.
    The Existence of Alternatives. CBOE is constrained in pricing the 
COB Data Feed by the availability to market participants of 
alternatives to purchasing this product. CBOE must consider the extent 
to which market participants would choose one or more alternatives 
instead of purchasing the exchange's data. Other options exchanges can 
and have produced their own complex order book market data products, 
and thus are sources of potential competition for MDX. For example, as 
noted above, NYSE Arca and NYSE MKT offer market data products that 
compete with the COB Data Feed.
    The large number of SROs, ATSs and internalizing broker-dealers 
that currently produce proprietary data or are currently capable of 
producing it provides further pricing discipline for proprietary data 
products. Each SRO, ATS, and broker-dealer is currently permitted to 
produce and sell proprietary data products, and many currently do.
    Further, data products are valuable to professional users only if 
they can be used for profit-generating purposes in their businesses and 
valuable to non-professional users only insofar as they provide 
information that such users expect will assist them in tracking prices 
and market trends and making trading decisions.
    The existence of numerous alternatives to the Exchange's products, 
including proprietary data from other sources, ensures that the 
Exchange cannot set unreasonable fees, or fees that are unreasonably 
discriminatory, when vendors and subscribers can elect these 
alternatives or choose not to purchase a specific proprietary data 
product if its cost to purchase is not justified by the returns any 
particular vendor or subscriber would achieve through the purchase.

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 \15\ and paragraph (f) of Rule 19b-4 \16\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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-2016-092 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-2016-092. 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

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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-2016-092, and should be 
submitted on or before January 26, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31941 Filed 1-4-17; 8:45 am]
 BILLING CODE 8011-01-P


