[Federal Register: March 5, 2004 (Volume 69, Number 44)]
[Notices]
[Page 10492-10494]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05mr04-136]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49341; File No. SR-CBOE-2004-08]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by
the Chicago Board Options Exchange, Incorporated To Establish a Fee Cap
of $75,000 Per Month for Member Firms on All Firm Proprietary and Firm
Facilitation Trading in CBOE Products, To Reinstate the Prospective Fee
Reduction Program, and To Credit DPM P/A Linkage Order Transaction Fees
March 1, 2004.
Pursuantto 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 February 2, 2004, 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. On February 23, 2004, the Exchange filed Amendment No. 1 to
the proposed rule change. The proposed rule change, as amended, has
been filed by the CBOE as establishing or changing a due, fee, or other
charge, pursuant to section 19 (b)(3)(A)(ii) \3\ of the Act and Rule
19b-4(f)(2) \4\ thereunder, which renders the proposal effective upon
filing with the Commission. 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)(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 Exchange proposes to make several changes to its Fee Schedule
to (1) establish a fee cap of $75,000 per month for member firms on all
firm proprietary and firm facilitation trading in CBOE products; (2)
reestablish the
[[Page 10493]]
Prospective Fee Reduction Program for February and March 2004; and (3)
credit DPMs for transaction fees they incur in executing outbound
``principal acting as agent'' (``P/A'') orders under the intermarket
linkage program. The text of the proposed rule change is available at
the 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, the Proposed Rule Change
1. Purpose
Fee Cap. The purpose of the proposed rule change is to establish a
monthly fee cap of $75,000 per CBOE member organization \5\ on all firm
proprietary and firm facilitation trading across all CBOE products.
CBOE stated that the fee cap in this proposal is functionally
equivalent to File No. SR-Phlx-2003-61, which the Philadelphia Stock
Exchange (``Phlx'') submitted effective upon filing on August 29,
2003,\6\ in which the Phlx established a monthly fee cap of $50,000 for
specified transaction charges by specified member organizations.
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\5\ This proposal applies to member organizations for orders for
the proprietary account of any member or non-member broker dealer
that derives more than 35% of its annual, gross revenues from
commissions and principal transactions with customers. Member
organizations will be required to verify this amount to the Exchange
by certifying that they have reached this threshold and by
submitting a copy of their annual report, which was prepared in
accordance with Generally Accepted Accounting Principles (``GAAP'').
In the event that a member organization has not been in business for
one year, the most recent quarterly reports, prepared in accordance
with GAAP, will be accepted. As part of this proposal, this footnote
will be included in the CBOE Fee Schedule.
\6\ See Securities Exchange Act Release No. 48459 (September 8,
2003), 68 FR 54034 (September 15, 2003).
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In addition, as the Phlx did in SR-Phlx-2003-61, the CBOE proposes
to adopt a license fee of $0.10 per contract side for transactions in
all licensed products other than the S&P 100[reg] Index Options (OEX)
\7\ (collectively, the ``licensed products'') that will be imposed on
transactions in these products by member organizations that reach the
$75,000 monthly fee cap described above. Thus, when a CBOE member
organization exceeds the $75,000 cap on the fees described above, the
organization will be charged $75,000 plus the license fee of $0.10 per
contract side for any transactions in licensed products in addition to
those transactions that were included in reaching the $75,000 level. In
other words, the $0.10 per contract side license fee is in addition to
the proposed $75,000 per month cap, if the cap is reached, on the
products described above.
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\7\ Currently, the most actively traded option classes in this
category include options on the S&P 500[reg] Index (SPX), the NASDAQ
100[reg] Index Tracking StockSM (QQQ) the CBOE Mini-NDX
Index (MNXSM), the Nasdaq-100[reg] Index (NDX), the Dow
Jones Industrial Average (DJX), DIAMONDS[reg] (DIA), and the Russell
2000[reg] Index (RUT).
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Prospective Fee Reduction Program. In recognition of high trading
volume and positive financial results for the first six months of this
fiscal year, the Exchange proposes to reimplement a Prospective Fee
Reduction Program, as has previously been done.\8\ Under the renewed
program, CBOE Market-Makers (as defined in CBOE Rule 8.1) will have
their transaction fees reduced from standard rates by $.02 per contract
side. In addition, the CBOE will reduce all floor brokerage fees by
$.003 per contract side. These reductions will be in effect for
February and March 2004 only. During this time, the Exchange will
continue to monitor its financial results to determine whether the
Prospective Fee Reduction Program should be continued, modified, or
eliminated.
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\8\ See e.g., Securities Exchange Act Release No. 46266 (July
25, 2002), 67 FR 49969 (August 1, 2002).
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Credits to DPM for Fees Relating to Duplicate Linkage Transactions.
Under the intermarket Linkage, CBOE DPMs are required in certain
circumstances to send a P/A order to another exchange, in order to
obtain the National Best Bid or Offer (``NBBO'') price for their
customers. The DPM pays transaction fees to the other exchange as well
as the OCC to execute this P/A order at the other exchange. Then, under
the Linkage procedure, when the DPM receives a fill of its P/A order
from the other exchange, the CBOE DPM must then retrade the order back
to their customer, again resulting in transaction fees, this time from
CBOE and the OCC. Thus, the Linkage procedure's requirement to retrade
means that DPMs who send such P/A orders to other exchanges incur
duplicate transaction and Options Clearing Corporation (``OCC'') fees
on P/A orders that substantially increase the costs of such
transactions for the DPMs. To help offset these additional costs, the
Exchange proposes a two-phased relief. First, the CBOE proposes to
rebate all CBOE transaction and trade match fees related to the orders
that CBOE DPMs fulfill by sending P/A transactions to other exchanges
(i.e., the fees from the ``retrade''). At current rates, this is $0.24
per contract.
Second, in order to help offset the Linkage costs that the DPMs are
assessed on P/A orders by the OCC and the other exchanges, the CBOE
will credit CBOE DPMs an additional 50% of the CBOE transaction and
trade match fees related to each outbound P/A transactions. At current
rates, this is $0.12 per contract. This second rebate will be funded by
the amount of total transaction and trade match fees that CBOE receives
from incoming P/A orders from other exchanges (``incoming P/A fees''),
and the aggregate amount rebated in the second rebate will be limited
to no more than the total amount of incoming P/A fees.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
section 6(b) of the Act,\9\ in general, and furthers the objectives of
section 6(b)(4) of the Act \10\ in particular, in that it is designed
to provide for the equitable allocation of reasonable dues, fees, and
other charges among Exchange members.
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\9\ 15 U.S.C. 78f(b).
\10\ 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 the 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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change, as amended, has become
effective pursuant to section 19(b)(3)(A)(ii) of the
[[Page 10494]]
Act \11\ and Rule 19b-4(f)(2) \12\ thereunder, because it changes a fee
imposed by the Exchange. At any time within 60 days of the filing of
the proposed rule change, as amended, 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.\13\
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\11\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
\12\ 17 CFR 240.19b-4(f)(2).
\13\ See 15 U.S.C. 78s(b)(3)(C). For purposes of calculating the
60-day abrogation period, the Commission considers the period to
commence on February 23, 2004, 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, as amended, 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. Comments may also be submitted electronically at the
following e-mail address: rule-comments@sec.gov. All comment letters
should refer to File No. SR-CBOE-2004-08. 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, comments should be
sent in hardcopy or by e-mail but not by both methods. 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 will also be available for
inspection and copying at the principal office of the CBOE. All
submissions should refer to File No. SR-CBOE-2004-08 and should be
submitted by March 26, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4906 Filed 3-4-04; 8:45 am]
BILLING CODE 8010-01-P