71 FR 140 pgs. 41485-41487 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Its Marketing Fee Program
Type: NOTICEVolume: 71Number: 140Pages: 41485 - 41487
Docket number: [Release No. 34-54153; File No. SR-CBOE-2006-63]
FR document: [FR Doc. E6-11568 Filed 7-20-06; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54153; File No. SR-CBOE-2006-63]
Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Its Marketing Fee Program
July 14, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act")1and Rule 19b-4 thereunder,2notice is hereby given that on June 30, 2006, 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 Exchange. 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 Act3and Rule 19b-4(f)(2) thereunder,4which 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.
Footnotes:
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).
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The CBOE proposes to amend its marketing fee program. Below is the text of the proposed rule change. Proposed new language is in italics ; deleted language is in [brackets].
Chicago Board Options Exchange, Inc.
Fees Schedule
June [2] 30 , 2006
1. No Change.
2. MARKETING FEE (6)(16)-$.65
3.-4. No Change.
Footnotes:
(1)-(5) No Change.
(6) The Marketing Fee will be assessed only on transactions of Market-Makers, RMMs, e-DPMs, DPMs, and LMMs resulting from orders for less than 1,000 contracts (i) from payment accepting firms, or (ii) that have designated a "Preferred Market-Maker" under CBOE Rule 8.13 at the rate of $.65 per contract on all classes of equity options, options on HOLDRs, options on SPDRs, options on DIA, options on NDX, and options on RUT. The fee will not apply to: Market-Maker-to-Market-Maker transactions including transactions resulting from orders from non-member market-makers; transactions resulting from inbound P/A orders or a transaction resulting from the execution of an order against the DPM's account if an order directly related to that order is represented and executed through the Linkage Plan using the DPM's account; transactions resulting from accommodation liquidations (cabinet trades); and transactions resulting from dividend strategies, merger strategies, and short stock interest strategies as defined in footnote 13 of this Fees Schedule. This fee shall not apply to index options and options on ETFs (other than options on SPDRs, options on DIA, options on NDX, and options on RUT). A Preferred Market-Maker will only be given access to the marketing fee funds generated from a Preferred order if the Preferred Market-Maker has an appointment in the class in which the Preferred order is received and executed.
DPM/LMM Rebate/Carryover Process. If less than 80% of the marketing fee funds collected in a given month are paid out by the DPM/LMM [or Preferred Market-Maker in a given month], then the Exchange would refund such surplus at the end of the month on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs and LMMs in that month. However, if 80% or more of the [accumulated] funds collected in a given month are paid out by the DPM/LMM [or Preferred Market-Maker], there will not be a rebate for that month and the excess funds will [carry over and will] be included in [the] an Excess [p] P ool of funds to be used by the DPM/LMM [or Preferred Market-Maker the following] in subsequent month s . The total balance of the Excess Pool of funds cannot exceed $25,000, and if in any month the balance were to exceed $25,000, the funds in excess of $25,000 would be refunded [At the end of each quarter, the Exchange would then refund any surplus, if any,] on a pro rata basis based upon contributions made by the Market-Makers, RMMs, DPMs, e-DPMs and LMMs in that month.
Preferred Market-Maker Rebate/Carryover Process. If less than 80% of the marketing fee funds are paid out by the Preferred Market-Maker in a given month, then the Exchange would refund such surplus at the end of the month on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs and LMMs in that month. However, if 80% or more of the accumulated funds in a given month are paid out by the Preferred Market-Maker, there will not be a rebate for that month and the funds will carry over and will be included in the pool of funds to be used by the Preferred Market-Maker the following month. At the end of each quarter, the Exchange would then refund any surplus, if any, on a pro rata basis based upon contributions made by the Market-Makers, RMMs, DPMs, e-DPMs and LMMs in the final month of the quarter. CBOE's marketing fee program as described above will be in effect until June 2, 2007.
Remainder of Fees Schedule-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 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 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
The CBOE proposes to amend its marketing fee to modify the manner in which marketing fee funds collected during a calendar quarter are refunded. The CBOE states that its marketing fee currently provides that if less than 80% of the marketing fee funds are paid out by the DPM/LMM or Preferred Market-Maker in a given month, then the Exchange would refund such surplus at the end of the month on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs. However, if 80% or more of the accumulated funds in a given month are paid out by the DPM/LMM or Preferred Market-Maker, there will not be a rebate for that month and the funds will carry over and will be included in the pool of funds to be used by the DPM/LMM or Preferred Market-Maker the following month. At the end of each quarter, the Exchange would then refund any surplus, if any, on a pro rata basis based upon contributions made by the Market-Makers, RMMs, DPMs, e-DPMs, and LMMs.
The CBOE states that the purpose of this rule change is to modify the rebate process as it relates to DPMs. As amended, if less than 80% of the marketing fee funds collected in a given month are paid out by the DPM/LMM, then the Exchange would refund such surplus at the end of the month on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs in that month. However, if 80% or more of the funds collected in a given month are paid out by the DPM/LMM, there would not be a rebate for that month and the excess funds would be included in an excess pool ("Excess Pool") of funds to be used by the DPM/LMM in subsequent months. The CBOE states that the total balance of the Excess Pool of funds could not exceed $25,000, and if in any month the balance were to exceed $25,000, the funds in excess of $25,000 would be refunded on a pro rata basis based upon contributions made by the Market-Makers, RMMs, DPMs, e-DPMs, and LMMs in that month. As before, in the event a DPM/LMM is also marked as a Preferred Market-Maker on a particular order, the funds collected from the order will be allocated to the DPM in its capacity as a DPM and not as a Preferred Market-Maker.
The Exchange states that the rebate and carryover process for Preferred Market-Makers will continue to operate on a quarterly basis. However, CBOE proposes to make one clarification to the rebate process for Preferred Market-Makers in the text of the Fees Schedule to make it consistent with the current process and procedure for rebating excess funds. As noted above, if less than 80% of the marketing fee funds are paid out by the Preferred Market-Maker in a given month, then the Exchange would refund such surplus at the end of the month on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs. CBOE states that it refunds the money based on the contributions made by these market participants in that specific month.
If there are surplus funds at the end of the quarter, CBOE represents that it refunds the money on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs in the final month of the quarter. CBOE believes that refunding surplus funds to market participants on a pro rata basis based upon contributions made in the final month of the quarter, as opposed to based upon contributions made during the preceding three months, would be an equitable allocation of dues and fees due to the manner in which the marketing fee funds collected are paid out and how CBOE accounts for the funds on a month-to-month basis. For example, if at least 80%, but less than 100%, of the funds collected in the 1st month of a quarter is paid out, the balance that carries over to the 2nd month is paid out first in that 2nd month. Similarly, if at least 80%, but less than 100%, of the funds collected in the 2nd month is paid out, the balance that carries over to the 3rd month is paid out first in that 3rd month. As a result, any surplus of funds at the end of the quarter (the 3rd month) was contributed by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs who were assessed the fee in that month.
CBOE states that it is not amending its marketing fee program in any other respects.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,5in general, and furthers the objectives of Section 6(b)(4) of the Act,6in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among CBOE members.
Footnotes:
5 15 U.S.C. 78f(b).
6 15 U.S.C. 78f(b)(4).
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 Exchange neither solicited nor received comments on the proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
The foregoing proposed rule change has been designated as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act7and Rule 19b-4(f)(2)8thereunder, because it establishes or changes a due, fee, or other charge imposed by the Exchange. Accordingly, the proposal will take effect upon filing with the Commission. At any time within 60 days of the filing of such 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.
Footnotes:
7 15 U.S.C. 78s(b)(3)(A)(ii).
8 17 CFR 240.19b-4(f)(2).
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-2006-63 on the subject line.
Paper Comments
• Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2006-63. This file 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 such 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-2006-63 and should be submitted on or before August 11, 2006.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.9
Footnotes:
9 17 CFR 200.30-3(a)(12).
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-11568 Filed 7-20-06; 8:45 am]
BILLING CODE 8010-01-P