[Federal Register Volume 76, Number 215 (Monday, November 7, 2011)]
[Notices]
[Pages 68798-68800]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28694]
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SECURITIES AND EXCHANGE COMMISSION
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Adopt a Market-Maker Trade Prevention Order on
CBOE Stock Exchange
November 1, 2011.
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 October 28, 2011, the 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 and II below, which Items have been prepared by
the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt a Market-Maker Trade Prevention
Order on CBOE Stock Exchange (``CBSX''). The text of the proposed rule
change 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, Proposed Rule Change
1. Purpose
The Exchange proposes to adopt a Market-Maker Trade Prevention
(``MMTP'') Order. The proposed MMTP Order is an immediate-or-cancel
order containing a designation that prevents incoming orders for a
Market-Maker from executing against resting quotes and orders for the
same Market-Maker.
The MMTP Order type designation is intended to prevent a Market-
Maker from trading on both sides of the same transaction. Orders would
be marked with the MMTP designation on an order-by-order basis. An
incoming MMTP Order cannot interact with interest resting on the book
from the same Market-Maker. An MMTP Order that would trade against a
resting quote or order for the same Market-Maker will be cancelled, as
will the resting quote or order. The MMTP Order will trade against
other tradable orders and quotes entered by or on behalf of another
market participant (other than those entered by or on behalf of the
same Market-Maker) in accordance with the execution process described
in Exchange Rule 52.1 (Matching Algorithm/Priority). When available,
the MMTP Order type will be available for use by all Market-Makers in
all appointments.
For example, assume the Exchange's best bid and offer is $1.00-
$1.20, 1000 shares on each side. A Market-Maker marks an order to buy
1000 shares at $1.20 with the MMTP distinction, making it an MMTP
Order. The MMTP Order is submitted to the Exchange and it would trade
with a resting quote from the same Market-Maker for 1000 shares offered
at $1.20, then both the order to buy and the resting offer quote would
be canceled. However, if the resting offer quote from the same Market-
Maker was for only 600 shares, then 600 shares from the order to buy
would be canceled (as would the resting quote), but the other 400
shares could trade with the resting offer interest of the other market
participants.
At this time, the Exchange intends to identify an incoming MMTP
Order as being for the same Market-Maker if the MMTP Order and resting
quote or order share any of the following: (1) User acronym, (2) login
ID, or (3) sub-account code. Each Market-Maker is assigned its own
acronym (sometimes multiple acronyms). However, a Market-Maker may have
multiple different login IDs or sub-account codes. A login ID is the
session through which a Market-Maker routes orders to the Exchange. A
Market-Maker may elect to use different login IDs to route different
types of communications to the Exchange. For example, a Market-Maker
may choose to use login ID 1 for all orders it sends to the
Exchange and login ID 2 for all quotes it sends to the
Exchange. Or the Market-Maker may be much more specific, and use
different login IDs for different types of orders and quotes. A sub-
account code is simply a field on each order or quote that lists the
account into which a trade clears at the Options Clearing Corporation
(``OCC''). A Market-Maker may have different sub-account codes for each
trader it employs, so that the Market-Maker may track each trader's
activity. Finally, Market-Makers sometimes use different acronyms but
clear into the same accounts (thereby using the same sub-accounts
codes).
[[Page 68799]]
Allowing Market-Makers to designate orders as MMTP Orders is
intended to allow firms to better manage order flow and prevent
unwanted executions resulting from the interaction of executable buy
and sell trading interest for the same Market-Maker, as well as prevent
the potential for (or appearance of) ``wash sales'' that may occur as a
result of the velocity of trading in today's high speed marketplace.
When a Market-Maker is preparing to submit an order, the Market-Maker
may not know whether or not his order is going to trade against his own
resting quote. Further, many Market-Makers have multiple connections
into the Exchange due to capacity- and speed-related demands. Orders
routed by the same Market-Makers via different connections may, in
certain circumstances, trade against each other. Finally, the Exchange
notes that offering the MMTP modifiers will streamline certain
regulatory functions by reducing false positive results that may occur
on Exchange-generated wash trading surveillance reports when orders are
executed by the same Market-Maker. For these reasons, the Exchange
believes the MMTP Order provides Market-Makers enhanced order
processing functionality to prevent potentially unwanted trades from
occurring.
The proposed rule change is based on rule changes recently proposed
by the Chicago Board Options Exchange, Inc. (``CBOE'') and C2 Options
Exchange, Inc. (``C2'').\5\
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\5\ See Securities Exchange Act Release No. 65379 (September 22,
2011), 76 FR 60108 (September 28, 2011) (SR-CBOE-2011-079) and
Securities Exchange Act Release No. 65380 (September 22, 2011) 76 FR
60102 (September 28, 2011) (SR-C2-2011-017).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act \6\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\7\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \8\ requirements that the rules of
an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest. The proposed rule change advances these objectives
by making available to Market-Makers a type of order that will assist
Market-Makers in preventing unwanted executions against themselves.
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\6\ 15 U.S.C. 78s(b)(1).
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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The proposed rule change is based on rule changes recently proposed
by the Chicago Board Options Exchange, Inc. (``CBOE'') and C2 Options
Exchange, Inc. (``C2'').\9\
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\9\ See Note 5.
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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
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
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) \10\ of the Act and Rule 19b-4(f)(6)
thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its intent to file the proposed rule change,
along with a brief description and text of the proposed rule change,
at least five business days prior to the date of filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally
may not become operative prior to 30 days after the date of filing.
However, Rule 19b-4(f)(6)(iii) \13\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange requests that the
Commission waive the 30-day operative delay, as specified in Rule 19b-
4(f)(6)(iii),\14\ which would make the rule change effective and
operative upon filing. As indicated above by the Exchange, the MMTP
Order type is intended to prevent unwanted executions resulting from
the interaction of executable buy and sell trading interest for the
same Market-Maker in a manner that is consistent with other markets
that have similar order types. Further, the Exchange stated that the
rule is identical to those recently filed by CBOE and C2 (aside from
CBOE and C2's added rule text for MMTP Orders subject to auction
processes, which do not exist on C2) \15\ and as a result it believes
that the proposed rule change does not present any new, unique or
substantive issues. The Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest because such waiver would allow the Exchange to
implement the order type without delay and may assist with the
maintenance of orderly markets. Accordingly, the Commission designates
the proposed rule change operative upon filing with the Commission.
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\12\ 17 CFR 240.19b-4(f)(6).
\13\ 17 CFR 240.19b-4(f)(6)(iii).
\14\ Id.
\15\ See Note 5.
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At any time within 60 days of the filing of such 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.
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 protected]. Please include
File Number SR-CBOE-2011-102 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.
All submissions should refer to File Number SR-CBOE-2011-102. 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
[[Page 68800]]
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 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 available publicly. All submissions should refer to File Number
SR-CBOE-2011-102 and should be submitted on or before November 28,
2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28694 Filed 11-4-11; 8:45 am]
BILLING CODE 8011-01-P