[Federal Register: August 24, 2004 (Volume 69, Number 163)]
[Notices]
[Page 52051-52053]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24au04-101]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-50212; File No. SR-CBOE-2004-55]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Board Options
Exchange, Inc. To Incorporate Electronic DPMs
August 18, 2004.
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 August 3, 2004, the Chicago Board Options Exchange, Inc. (``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 has
designated this proposal as one establishing or changing a due, fee, or
other charge imposed by the CBOE under Section 19(b)(3)(A)(ii) of the
Act,\3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal
effective upon filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to amend its marketing fee to incorporate newly
established electronic DPMs (``e-DPMs'') as part of the existing
marketing fee.\5\ Below is the text of the proposed rule change.
Proposed new language is italicized.
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\5\ On July 12, 2004, the Commission approved the establishment
of e-DPMs. See Securities Exchange Act Release No. 50003 (July 12,
2004), 69 FR 43028 (July 19, 2004) (SR-CBOE-2004-24).
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CHICAGO BOARD OPTIONS EXCHANGE, INC. FEE SCHEDULE
1. No Change.
2. MARKET MAKER, e-DPM & DPM MARKETING FEE (in option classes in
which a DPM has been appointed) (6) $.40
3.-4. No Change.
Notes:
(1)-(5) No Change.
(6) The Marketing Fee will be assessed only on transactions of
Market-Makers, e-DPMs and DPMs resulting from customer orders from
payment accepting firms with which the DPM has agreed to pay for that
firm's order flow, and with respect to orders from customers that are
for 200 contracts or less.
(7)-(13) No change.
* * * * *
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 its proposal and discussed any
comments it had received regarding the proposal. 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, the Proposed Rule Change
1. Purpose
Effective June 1, 2003, the Exchange reinstated its marketing fee
program in order for the CBOE to compete with other markets in
attracting options order flow in multiply traded options from firms
that include payment as a factor in their order routing decisions in
designated classes of options.\6\ The Exchange proposes to incorporate
e-DPMs in the existing marketing fee program. The CBOE states that, in
all other respects, the marketing fee
[[Page 52052]]
program would continue to function and operate in the same manner as
the existing marketing fee program.\7\
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\6\ See Securities Exchange Act Release No. 47948 (May 30,
2003), 68 FR 33749 (June 5, 2003) (SR-CBOE-2003-19).
\7\ Id.
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The Exchange would impose the fee at a rate of $.40 per contract on
Market-Maker transactions, including DPMs and e-DPMs, in all classes of
options in which a DPM has been appointed, as described below.
According to the CBOE, this program, like the CBOE's prior marketing
fee program, provides for the equitable allocation of a reasonable fee
among the CBOE's members and is designed to enable the CBOE to compete
with other markets in attracting options order flow in multiply traded
options from firms that include payment as a factor in their order
routing decisions in designated classes of options. The CBOE proposes
that the marketing fee be assessed only on those Market-Maker, DPM, and
e-DPM transactions resulting from orders from customers of payment
accepting firms (``payment accepting firms'') with which the DPM has
agreed to pay for that firm's order flow.
The Exchange states that it would not have any role with respect to
the negotiations between DPMs and payment accepting firms on the amount
of the payment, including which payment accepting firms DPMs negotiate
with to send their order flow to CBOE and the amount of the payment.
Rather, the Exchange proposes to facilitate payment to payment
accepting firms from fees collected from Market-Makers, e-DPMs, and
DPMs. In those classes for which a DPM has advised the Exchange that it
has negotiated with a payment accepting firm to pay for that firm's
order flow, the Exchange would provide administrative support for the
program. Specifically, the Exchange would keep track of the number of
qualified orders each payment accepting firm directs to the Exchange,
and would make the necessary debits and credits to the accounts of the
DPMs, e-DPMs, Market-Makers, and the payment accepting firms to reflect
the payments that are to be made. The Exchange represents that all of
the funds generated by the fee would be used only to pay the firms for
the order flow sent to the Exchange.
The Exchange believes that the $.40 per contract is an equitable
allocation of a reasonable fee among the CBOE's members. The CBOE
states that it has designed this program to enable it to compete with
other markets in attracting options order flow in multiply traded
options. If a DPM advises the Exchange that it has negotiated a lower
amount, the Exchange would refund to Market-Makers, e-DPMs, and DPMs
the excess fee collected.
The CBOE proposes that the marketing fee be assessed only on
transactions of Market-Makers (including e-DPMs and DPMs) resulting
from orders for 200 contracts or less from customers of payment
accepting firms. In the CBOE's view, because the marketing fee will be
passed through to only those Market-Makers' transactions resulting from
orders from customers of a payment accepting firm that the DPM has
independently negotiated with to pay for that firm's order flow, there
will be a direct and fair correlation between those members who pay the
costs of the marketing program funded by the fee and those who receive
the benefits of the program.
According to the CBOE, it is important to note that although
Market-Maker, DPM, and e-DPM transactions resulting from customer
orders from firms that do not accept payment for their orders are not
subject to the fee, Exchange Market-Makers, DPMs, and e-DPMs will have
no way of identifying prior to execution whether a particular order is
from a payment-accepting firm, or from a firm that does not accept
payment for their order flow.\8\
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\8\ The Exchange has reinstated, in Interpretation and Policy
.12 to CBOE Rule 8.7, the Marketing Fee Voting Procedures as a six-
month pilot program by which a trading crowd may determine whether
or not to participate in the Exchange's marketing fee program and to
include e-DPMs into the Marketing Fee Voting Procedures. See
Securities Exchange Act Release No. 50130 (July 30, 2004), 69 FR
47965 (August 6, 2004) (SR-CBOE-2004-47).
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2. Statutory Basis
The CBOE believes that because this marketing fee will serve to
enhance the competitiveness of the Exchange and its members, this
proposal is consistent with and furthers the objectives of the Act,
including specifically Section 6(b)(5) thereof,\9\ which requires the
rules of exchanges to be designed to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and Section 11A(a)(1) thereof,\10\ which reflects the finding of
Congress that it is in the public interest and appropriate for the
protection of investors and the maintenance of fair and orderly markets
to assure fair competition among brokers and dealers and among exchange
markets. The Exchange also believes that the proposed rule change is
consistent with Section 6(b) of the Act,\11\ and furthers the
objectives of Section 6(b)(4) of the Act \12\ in particular, in that it
is designed to provide for the equitable allocation of reasonable dues,
fees, and other charges among the CBOE's members.
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\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78k-1(a)(1).
\11\ 15 U.S.C. 78f(b).
\12\ 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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The CBOE neither solicited nor received written comments with
respect to the proposed rule change.
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)(ii) of the Act \13\ and subparagraph
(f) of Rule 19b-4 thereunder.\14\ At any time within 60 days after the
filing of the proposed rule change, the Commission may summarily
abrogate the 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.
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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
\14\ 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 e-mail to rule-comments@sec.gov. Please include
File Number SR-CBOE-2004-55 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-CBOE-2004-55. This
file
[[Page 52053]]
number should be included on the subject line if e-mail 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 inspection and
copying in the Commission's Public Reference Room. Copies of the filing
also will be available for inspection and copying at the principal
office of the CBOE. 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-2004-55 and should be submitted on or before September 14,
2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E4-1890 Filed 8-23-04; 8:45 am]
BILLING CODE 8010-01-P