[Federal Register: July 31, 2003 (Volume 68, Number 147)]
[Notices]
[Page 44978-44980]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31jy03-111]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48223; File No. SR-CBOE-2003-26]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by
the Chicago Board Options Exchange, Incorporated Relating to Its Fiscal
Year 2004 Fee Schedule
July 24, 2003.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 1, 2003, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the CBOE.
The CBOE filed the proposal pursuant to section 19(b)(3)(A) of the
Act,\3\ and Rule 19b-4(f)(2) \4\ thereunder, in that the proposed rule
change establishes or changes a due fee or other charge, which renders
the proposal effective upon filing with the Commission. The CBOE filed
via facsimile Amendment No. 1 on July 23, 2003.\5\ The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2).
\5\ See July 23, 2003 letter from Chris Hill, Attorney, CBOE to
Nancy Sanow, Assistant Director, Division of Market Regulation,
Commission (``Amendment No. 1''). In Amendment No. 1, CBOE removed
one of the fee changes and made revisions to the Fee Schedule.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to make certain changes to its Fee Schedule
for Fiscal Year 2004. The text of the proposed rule change is available
at the Office of the Secretary, CBOE and at the Commission.
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 CBOE 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 CBOE 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, Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to make certain fee
reductions, additions and changes. The proposed amendments are the
product of the Exchange's annual budget review. The fee changes were
approved by the Exchange Board of Directors pursuant to CBOE Rule 2.22
and will take effect on July 1, 2003. The Exchange proposes to amend
the following fees.
(i) Index Order Book Official Execution Fee Reduction and
Simplification
The Exchange proposes to significantly reduce and simplify the
Index Customer Order Book Official Execution Fees (``Index OBO fees'').
The Exchange represents that these are the rates charged when a floor
broker or market maker buys or sells index option contracts out of the
order book. Currently, there is a sliding scale of index OBO fee rates
that change based on both the size of the order and the amount of the
per-contract premium. The new per contract Index OBO fee rate will be
flat rates (regardless of order size) of $.60 per book contract for
book contracts with a premium greater than or equal to $2 and $.40 per
contract for Book contracts with premiums less than $2.
As in prior years, OBO fees will continue to be waived for market
orders sent to the book prior to the opening and executed during
opening rotation. In the OEX option class, fees will continue to be
waived for market and limit orders sent to the book prior to the
opening and executed during opening rotation. Cabinet/accommodation/
liquidation trades will continue to be charged $.10 per contract.
The Exchange estimates that the overall effect of the changes will
be a reduction of approximately 33% in Index OBO fees.
(ii) Customer Large Trade Discounts
The Exchange proposes to establish a pilot program providing a
customer large trade discount in the form of a cap on customer
transaction fees, to be in effect for the period July through December
2003 for most CBOE index option products.\6\ The Exchange determined
the contract size at which the cap would be implemented after reviewing
recent trading activity in each of the index products. Trade match and
floor brokerage fees are not subject to the cap on fees.
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\6\ The MNX option class will not be included in this program
since MNX customer fees were significantly reduced in June 2002 to a
flat rate of $.15 per contract. See Securities Exchange Act Release
No. 46045 (June 6, 2002), 67 FR 41284 (June 17, 2002) (noticing SR-
CBOE-2002-28).
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Regular customer transaction fees will only be charged up to the
following quantity of contracts per order, for the following underlying
indexes:
1. Dow Jones indexes (including DIA)--charge only the first 7,500
contracts;
2. SPX--charge only the first 5,000 contracts;
3. OEX (including XEO and OEF), NDX and other indexes (not
including MNX)--charge only the first 3,000 contracts.
(iii) Non-OCC Firm Booth Fees and Booth Rental Incentive Plan
The Exchange proposes to reduce monthly rental rates for most of
the booths \7\ that the Exchange leases to member organizations that
are not members of the OCC (``non-OCC firms'') by $250, to a new rate
of $300 per month. OCC member firms will continue to be assessed at
$165 per month.
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\7\ Specifically, the reduced rates will apply to booths around
the perimeter of the main 4th floor trading floor (``perimeter
booths'') and those in the ``Green Room'' (the second floor trading
area.) Booth rates will not change for those booths designated as
OEX, OEX book, or Dow Jones/MNX booths.
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In an effort to increase booth space rentals, the Exchange will
also establish a booth rental incentive plan that will be in effect for
the period July 2003 through June 2004. Pursuant to this plan, all
Members and Member Firms, both OCC and non-OCC, will be permitted to
lease additional perimeter and Green Room booth space at a reduced rate
of $100 per month per additional booth. The discounted price is only
applicable to booths leased in excess of the quantity that the Member
or Firm had been leasing as of June 1, 2003. For new Members and Member
Firms, the first four booths will be assessed at the normal rate
effective as of July 1, 2003, and any additional
[[Page 44979]]
booths in excess of the initial four will be assessed at the reduced
lease rate during the incentive period. All booth fees discounted under
the incentive plan will revert to regular rates on July 1, 2004.
(iv) Continuation of Market Share Incentive Program (MIP)
The MIP pilot program was initiated March 1, 2003.\8\ The Exchange
proposes to extend the program for an additional six-month period from
July through December 2003. As set forth in the initial filing, the
program will continue to reduce transaction fees for Market Makers and
DPMs in the top 300 equities and QQQs if certain monthly market share
targets or increases in market share in these option classes are
achieved.
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\8\ See Securities Exchange Act Release No. 47508 (March 14,
2003), 68 FR 13972 (March 21, 2003) (noticing SR-CBOE-2003-06).
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(v) Discontinuation of Prospective Fee Reduction Program
The Exchange proposes to discontinue the Prospective Fee Reduction
Program (``PFRP'') for index option classes. The MIP Program previously
replaced the PFRP for the equities and QQQ options classes, and the
Exchange will similarly end the PFRP for index option classes in order
to help fund various service enhancements for the index option classes.
(vi) Dow Jones Products Market Maker Transaction Fees
The Exchange proposes to increase market-maker transaction fees in
Dow Jones option classes by $.10 per contract, to $.29 per contract, to
partially recover the Exchange's costs to license Dow Jones products.
This is consistent with similar fee surcharges that the Exchange has
previously implemented to recover licensing costs for the MNX \9\ and
RUT \10\ option classes.
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\9\ See Securities Exchange Act Release No. 43226 (August 29,
2000), 65 FR 54332 (September 7, 2000) (noticing SR-CBOE-2000-33).
\10\ See Securities Exchange Act Release Nos. 47169 (January 13,
2003), 68 FR 2596 (January 17, 2003) (noticing SR-CBOE-2002-73) and
47170 (January 13, 2003), 68 FR 2595 (January 17, 2003) (noticing
SR-CBOE-2002-72).
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(vii) RAES Access Fees for Non-Customer Orders
In March 2003, the Exchange implemented a pilot program temporarily
suspending the $.30 per contract access fee for non-customer RAES
orders in equity option classes through June 30, 2003.\11\ The Exchange
proposes to discontinue the pilot program, and reinstate the fee for
equity option classes. The fee will also continue unchanged for non-
equity option classes.
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\11\ See Securities Exchange Act Release No. 47559 (March 21,
2003), 68 FR 15252 (March 28, 2003) (noticing SR-CBOE-2003-10).
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(viii) Data Lines Installation, Relocation and Removal
The Exchange has not changed its fees for these services since
Fiscal Year 1993. The Exchange proposes to increase fees in this area
to fully recover labor costs associated with this service. The new fees
will be as follows:
1. Installation for (i) Lines from local carrier to trading floor
and (ii) lines between Communications Center and trading floor will
increase from $263 to $350;
2. Installation between local carrier and Communications Center
will increase from $158 to $200;
3. Relocation on the trading floor will increase from $315 to $425;
4. Removal of (i) Lines from local carrier to trading floor and
(ii) lines between Communications Center and trading floor will
increase from $158 to $200;
5. Removal of lines between local carrier and Communications
Center--will increase from $79 to $100.
(ix) Russell 2000 DPM Supplemental Transaction Fee
Due to the fact that the DPM in the Russell 2000 has been paying a
significant periodic fee to CBOE to recover the Exchange's additional
costs to license the product,\12\ the Exchange has determined that it
no longer needs to also impose the $.16 per contract fee charged to the
DPM for each Russell 2000 DPM contract.\13\ The Exchange therefore
proposes to eliminate the $.16 per contract fee.
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\12\ See Securities Exchange Act Release No. 47169 (January 13,
2003), 68 FR 2596 (January 17, 2003) (noticing SR-CBOE-2002-73).
\13\ See Securities Exchange Act Release No. 47170 (January 13,
2003), 68 FR 2595 (January 17, 2003) (noticing SR-CBOE-2002-72).
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(x) Floor Broker Workstation (FBW)
The Exchange proposes to charge a monthly fee of $425 to place a
new FBW functionality on desktop terminals, equal to the rate currently
assessed for ILX devices. If the application resides on a workstation
that has the ILX, TNT (both proprietary terminal functionalities) and
FBW functionalities, an additional $100 fee will be assessed. Mobile
FBWs will not be assessed a fee at this time in order to encourage
their greater usage.
(xi) Pass Through of Additional NASD Fingerprinting Fee
On August 2, 2002, the Exchange entered into a Memorandum of
Understanding with the NASD, whereby the registration of associated
persons of CBOE member organizations would be processed through Web
CRD.\14\ This process includes the fingerprinting of associated
persons. The NASD has informed the Exchange that beginning on July 14,
2003, it intends to assess a new fee of $13 for the processing of
fingerprint results submitted by members or member firms on behalf of
their associated persons who have had their prints processed through a
self-regulatory organization other than the NASD. The NASD will be
applying this fee equally to all self-regulatory organizations, and
will retain the fee proceeds.
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\14\ See Securities Exchange Act Release No. 46062 (June 11,
2002), 67 FR 41552 (June 18, 2002) (noticing SR-CBOE-2001-66).
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The Exchange proposes to pass these costs through to the
appropriate member firms. Specifically, CBOE member firms would be
charged an additional $13 for each associated person that is
fingerprinted directly through a self regulatory organization other
than NASD (for instance, CBOE). CBOE notes that the NASD intends to
raise its fee from $10 to $13 for CBOE members that are fingerprinted
directly by the NASD.
2. Statutory Basis
The proposed rule change is consistent with section 6(b)\15\ of the
Act, in general, and furthers the objectives of section 6(b)(4)\16\ of
the Act in particular, in that it is designed to provide for the
equitable allocation of reasonable dues, fees, and other charges among
CBOE members.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
[[Page 44980]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule change establishes or changes a due,
fee, or other charge imposed by the Exchange, it has become effective
pursuant to section 19(b)(3)(A) of the Act \17\ and subparagraph (f)(2)
of Rule 19b-4 thereunder.\18\ At any time within 60 days of the filing
of the proposed rule change, the Commission may summarily abrogate 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.\19\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(2).
\19\ For purposes of calculating the 60-day abrogation period,
the Commission considers the period to have commenced on July 23,
2003, the date the CBOE filed Amendment No. 1.
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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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
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 inspection and copying in the
Commission's Public Reference Section. Copies of such filing will also
be available for inspection and copying at the principal office of the
CBOE. All submissions should refer to the file number SR-CBOE-2003-26
and should be submitted by August 21, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\20\
\20\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-19473 Filed 7-30-03; 8:45 am]
BILLING CODE 8010-01-P