[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27687-27689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11680]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64434; File No. SR-CBOE-2011-049]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Proposed Rule Change Related to the Individual
Trading Pause Pilot and CBSX Market-Maker Quoting Obligations
May 6, 2011.
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 May 4, 2011, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I and II 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 Substance
of the Proposed Rule Change
The Exchange is proposing to amend CBOE Stock Exchange, LLC's
(``CBSX'', the CBOE's stock trading facility) rules to include
additional stocks in the individual stock trading pause pilot and to
include certain conforming amendments to the CBSX Market-Maker quoting
obligation provisions. The Exchange is also proposing certain other
conforming and non-substantive amendments to CBSX's individual stock
trading pause provisions and CBOE's options trading halt provisions.
The text of the rule proposal is available on the Exchange's Web site
(http://www.cboe.org/legal), at the Exchange's Office of the Secretary
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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
With respect to CBSX, the Exchange proposes to amend Rule 6.3C to
include additional stocks in the pilot by which such rule operates and
to amend Rules 53.23 and 53.56 to simplify certain aspects of the text
while also conforming certain percentages thereunder to the proposed
changes to Rule 6.3C. With respect to both CBSX and CBOE, the Exchange
proposes to make certain other conforming and non-substantive changes
to the text of Rules 6.3C and 6.3.06.
The Commission approved Rule 6.3C on a pilot basis on June 10, 2010
to provide for trading pauses in individual stocks due to extraordinary
market volatility (``Trading Pause'') in all stocks included in the S&P
500 Index (``S&P 500'') (``Trading Pause Pilot'' or ``Pilot'').\3\ The
Exchange subsequently received approval to add to the Pilot the stocks
included in the Russell 1000 Index (``Russell 1000'') and a specified
list of Exchange Traded Products (``ETPs'').\4\
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\3\ The Commission approved the Trading Pause Pilot for all
equities exchanges and FINRA. See Securities Exchange Act Release
Nos. 62252 (June 10, 2010), 75 FR 34186 (June 16, 2010) (File Nos.
SR-BATS-2010-014; SR-EDGA-2010-01; SR-EDGX-2010-01; SR-BX-2010-037;
SR-ISE-2010-48; SR-NYSE-2010-39; SR-NYSEAmex-2010-46; SR-NYSEArca-
2010-41; SR-NASDAQ-2010-061; SR-CHX-2010-10; SR-NSX-2010-05; and SR-
CBOE-2010-047) and 62251 (June 10, 2010), 75 FR 34183 (June 16,
2010) (SR-FINRA-2010-025).
\4\ The Commission approved the addition to the Trading Pause
Pilot of the stocks included in the Russell 1000 and ETPs, where
applicable, for all equities exchanges and FINRA. See Securities
Exchange Act Release Nos. 62884 (September 10, 2010), 75 FR 56618
(September 16, 2010) (File Nos. SR-BATS-2010-018; SR-BX-2010-044;
SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-05; SR-EDGX-2010-05;
SR-ISE-2010-66; SR-NASDAQ-2010-079; SR-NYSE-2010-49; SR-NYSEAmex-
2010-63; SR-NYSEArca-2010-61; and SR-NSX-2010-08) and 62883
(September 10, 2010), 75 FR 56608 (September 16, 2010) (SR-FINRA-
2010-033). The Exchange has subsequently extended the operation of
the Pilot, which was originally set to expire on December 10, 2010,
through the earlier of August 11, 2011 or the date on which a limit
up-limit down mechanism to address extraordinary market volatility,
if adopted, applies to the Circuit Breaker Stocks. See Securities
Exchange Act Release Nos. 63502 (December 9, 2010), 75 FR 78306
(December 15, 2010) (SR-CBOE-2010-112) (extension of Pilot through
April 11, 2011) and 64194 (April 5, 2011), 76 FR 20389 (April 12,
2011)(SR-CBOE-2011-031)(extension of Pilot through the earlier of
August 11, 2011 or the date on which a limit up-limit down mechanism
to address extraordinary market volatility, if adopted, applies to
the pilot stocks).
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In consultation with other markets and the staff of the Commission,
the Exchange proposes to include all NMS stocks within the Pilot that
are not already included therein, but to apply a wider Threshold Move
percentage to the newly added stocks. Accordingly, the Exchange
proposes to amend the text of Rule 6.3C to provide that the Threshold
Move required to trigger an individual stock trading pause for the
proposed new stocks, as calculated by the primary listing market, to be
30% or more for such stocks priced at $1 or higher and 50% or more for
such stocks priced less than $1.\5\ The Exchange believes that these
percentages are commensurate
[[Page 27688]]
with the characteristics shared by the proposed new stocks within these
price ranges and would promote the objectives of the Trading Pause
Pilot to reduce the negative impacts of unanticipated price movements
in a security. In particular, the proposed additional stocks are those
not currently included in the S&P 500 Index, Russell 1000 Index, or
specified ETPs, and therefore are more likely to be less liquid
securities or securities with lower trading volumes. Accordingly, the
Exchange believes that broader Threshold Move percentages would be
appropriate. Similarly, because leveraged ETPs trade at a ratio against
the associated index, a broader Threshold Move percentage would also be
appropriate for leveraged ETPs. With respect to the 30% threshold for
stocks priced at $1 or higher and the 50% threshold for stocks priced
less than $1, the rationale for this differentiation is that lower-
priced securities may tend to be more volatile, and price movements of
lower-priced stocks equate to a higher percentage move than a similar
price change for a higher-priced stock.
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\5\ Under the proposed rule change, the price of a stock would
be based on the closing price on the previous trading day, or, if no
closing price exists, the last sale reported to the Consolidated
Tape on the previous trading day.
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The Exchange proposes to include new subsections 6.3C.03(a), (b)
and (c) to reflect the distinction between the applicable Threshold
Move percentages for current Pilot stocks and the proposed new stocks
to be included within the Pilot.\6\ The Exchange also proposes to make
certain other conforming and non-substantive changes to the text of
Rules 6.3C and 6.3.06.\7\ The Exchange is not proposing any other
substantive changes to the text of Rule 6.3C or the operation of the
Pilot, and will continue in consultation with the other markets to
assess whether the parameters for invoking a Trading Pause continue to
be appropriate and whether the parameters should be modified.
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\6\ The Exchange is not proposing a change to the Threshold Move
percentage applicable to stocks currently included within the
current Pilot. However, the changes proposed herein would require
that certain rule text pertaining to the Threshold Move for the
existing Pilot stocks be reorganized within Rule 6.3C.
\7\ The Exchange is proposing certain other conforming and non-
substantive amendments to Rules 6.3C (pertaining to CBSX) and 6.3.06
(pertaining to CBOE). Specifically, the Exchange is proposing to
replace certain references in these rules to ``Circuit Breaker
Stocks'' and ``eligible underlying stock'' with conforming
references to ``NMS stocks'' and ``underlying NMS stock.'' The
Exchange is also proposing to include text in these rules confirming
that, following an individual stock trading pause, trading will
generally resume on the primary listing market after a period of
five minutes, which is consistent with the current Pilot and is
simply intended to provide more detail in the text explaining the
existing Pilot's operation.
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The proposed changes to the Pilot, if approved, would require that
the text of Rules 53.23.01 and 53.56.01, which pertains to the pricing
obligations that CBSX Market-Makers are required to adhere to, be
amended to update the cross-references therein to Rule 6.3C and the
Threshold Moves thereunder. Specifically, the Exchange proposes to
remove any text from the two rules addressing NMS stocks that are not
subject to the Pilot because no such stocks would exist and such text
would therefore be unnecessary. The Exchange also proposes to simplify
the two rules by explicitly stating the percentages that are applicable
thereunder and the times during the trading day when Rule 6.3C is not
in effect.\8\ The Exchange notes that part of this proposed change
would be substantive, in that the percentages under the two rules would
decrease slightly for the proposed new stocks priced at $1 or greater.
The Exchange believes that this proposed substantive change would not
have a significant impact on CBSX Market-Maker pricing obligations and
is reasonable because it would ensure that the designated quoting
percentages in the rules are within a narrower range than the
percentages necessary to trigger a Trading Pause.
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\8\ The Exchange is also proposing a non-substantive amendment
to Rules 53.23 and 53.56 to correct a typographical error (replacing
the phrase ``Market-Marker'' with ``Market-Maker'').
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2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Act,\9\ which requires the rules of an exchange to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system
and, in general, to protect investors and the public interest. The
proposed rule change also is designed to support the principles of
Section 11A(a)(1) \10\ of the Act in that it seeks to assure fair
competition among brokers and dealers and among exchange markets. The
Exchange believes that the proposed rule meets these requirements
because it expands the scope of the Pilot to cover all NMS stocks while
adjusting the parameters of the rule for different stocks in a manner
that will promote uniformity across markets concerning decisions to
pause trading in a stock when there are significant price movements.
Additionally, the proposed changes would ensure that the designated
quoting percentages in Rules 53.23 and 53.56 are within a narrower
range than the percentages necessary to trigger a Trading Pause.
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\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78k-1(a)(1).
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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 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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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 [email protected]. Please include
File Number SR-CBOE-2011-049 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2011-049. 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
[[Page 27689]]
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 a.m. and 3
p.m. Copies of such filing also will be available for inspection and
copying at the principal office of 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 publicly available. All submissions
should refer to File Number SR-CBOE-2011-049 and should be submitted on
or before June 2, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11680 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P