[Federal Register Volume 82, Number 3 (Thursday, January 5, 2017)]
[Notices]
[Pages 1387-1390]
[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

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

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<EMAIL_ADDRESS>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

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