[Federal Register Volume 76, Number 230 (Wednesday, November 30, 2011)]
[Notices]
[Pages 74111-74113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-30819]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65824; File No. SR-CBOE-2011-111]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Related to the Individual Stock Trading Pause Pilot Program
November 23, 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 November 23, 2011, the Chicago Board Options Exchange,
Incorporated (``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 has designated 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 is proposing to amend CBOE Stock Exchange, LLC's
(``CBSX'', the CBOE's stock trading facility) rules to exclude all
rights and warrants from the individual stock trading pause pilot and
to include a conforming amendment to CBOE's options trading halt
provisions. 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'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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 6.3C to exclude all rights and
warrants from the single stock circuit breaker under the rule. The
Commission approved Rule 6.3C on a pilot basis on June 10, 2010 to
provide for trading pauses in individual securities due to
extraordinary market volatility (``Trading Pause'') in all securities
included within the S&P 500 [supreg] Index (``S&P 500'') (``Pause
Pilot'').\5\ The Exchange subsequently received approval to add to the
Pause Pilot the securities included in the Russell 1000[supreg] Index
(``Russell 1000'') and a specified list of Exchange Traded Products
(``ETPs'').\6\
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\5\ The Commission approved the Pause Pilot for all equities
exchanges and FINRA. See Securities Exchange Act Release No. 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 Securities Exchange Act Release No. 62251 (June 10,
2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010-025).
\6\ The Commission approved the addition to the Pause Pilot of
the securities included in the Russell 1000 and ETPs, where
applicable, for all equities exchanges and FINRA See Securities
Exchange Act Release No. 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 Securities
Exchange Act Release No. 62883 (September 10, 2010), 75 FR 56608
(September 16, 2010) (SR-FINRA-2010-033). The Pause Pilot, which was
originally set to expire on December 10, 2010, has been extended and
is currently set to expire on January 31, 2012. 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); 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) and 65070 (August 9, 2011), 76 FR 50516 (August
15, 2011)(SR-CBOE-2011-076).
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On June 23, 2011, the Commission approved proposed rule changes to
expand the Pause Pilot to include all remaining NMS stocks (``Phase III
Securities''), which included rights and warrants.\7\ Unlike the
original Pause Pilot securities, amended Rule 6.3C applies wider
percentage price moves to the Phase III Securities before a trading
pause is triggered.\8\ The changes to Rule 6.3C became effective on
August 8, 2011.\9\
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\7\ See Securities Exchange Act Release No. 64735 (June 23,
2011), 76 FR 38243 (June 29, 2011) (SR-NASDAQ-2011-067, et al.).
\8\ Under amended Rule 6.3C, a pause is triggered by a 30% or
more price move in a Phase III Security priced at $1 or higher, and
by a 50% or more price move to such a security priced less than $1.
The price of a security is 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.
\9\ The Exchange notes that CBSX is not currently the primary
listing market for any stocks, and thus, will not be issuing any
trading pauses pursuant to its rules.
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Analysis of the nature of the trading pauses triggered since
adoption of the Pause Pilot notes that over 25% of such pauses have
occurred in rights and warrants. Further, there has been a significant
increase in trading pauses involving rights and warrants since the
implementation of the Phase III Securities, with such pauses
representing approximately 52% [sic] all trading pauses occurring
through the end of August 2011. Rights and warrants trade on equity
exchanges, but are closely related to call options. Rights and warrants
entitle owners to purchase shares of stock at predetermined prices
subject to various timing and other conditions. Like options, the price
of rights and warrants are affected by the price of the underlying
stock as well as other factors, particularly the volatility of the
stock. As a consequence, the prices of rights and warrants may move
more dramatically than the prices of the underlying stocks even when
the rights and warrants (and the underlying stock) are trading in an
orderly manner. This difference in trading behavior may result in a
scenario whereby the rights and warrants trigger the circuit breaker
under Rule 6.3C and are subject to a trading pause, even while the
underlying stock continues to trade. This can be particularly true of
rights and warrants that have low prices. Accordingly, the Exchange is
proposing to exclude rights and warrants from the trading pause under
Rule 6.3C.
[[Page 74112]]
Finally, the Exchange is proposing a conforming amendment to Rule
6.3.06, which pertains to trading halts on CBOE. In relevant part, Rule
6.3.06 currently provides that, if the primary listing market issues an
individual stock trading pause in an underlying NMS stock, then CBOE
will halt trading in the options on that stock until trading has
resumed in the stock. Given the proposed exclusion of rights and
warrants from the Pause Pilot, the Exchange is proposing to replace a
reference in Rule 6.2.06 to ``an underlying NMS stock'' with a
conforming reference to ``an underlying eligible NMS stock'' and to
define the term ``eligible NMS stocks'' to mean NMS stocks, other than
rights and warrants.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\10\ in general, and furthers the objectives of Section
6(b)(5),\11\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system. The proposed rule change also is
designed to support the principles of Section 11A(a)(1) \12\ of the Act
in that it seeks to ensure fair competition among brokers and dealers
and among exchange markets. The Exchange believes that the proposed
rule meets these requirements because it excludes certain securities
from Rule 6.3C's coverage that are prone to triggering pauses because
of their unique characteristics. These securities are unique in that
they may move more dramatically than the prices of the underlying
stocks to which they are related even when both securities are trading
in an orderly manner. As such, the securities that are subject to this
proposal may trigger the circuit breaker under Rule 6.3C and be subject
to a trading pause, even while the underlying security continues to
trade. Although there is little benefit in pausing trading in these
securities, such pauses sequester regulatory resources that are better
applied to the review of trading pauses in other securities that have a
greater impact on the national market system.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ 15 U.S.C. 78k-1(a)(1).
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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 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 Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, 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) of the Act \15\ and Rule 19b-
4(f)(6)(iii) thereunder.\16\
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6).
\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's 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) \17\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii) \18\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing.
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Including rights and warrants in the pilot program which may trigger a
circuit breaker and be subject to a trading pause, even while the
underlying security continues to trade, provides little benefit and has
the potential to create confusion among investors. Excluding rights and
warrants from the pilot program should minimize investor confusion that
could result from temporary trading pauses in these securities. For
this reason, the Commission designates the proposed rule change as
operative upon the date of this Notice.\19\
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\19\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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.
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 No. SR-CBOE-2011-111 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 No. SR-CBOE-2011-111. 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
[[Page 74113]]
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 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 No. SR-CBOE-2011-111 and should be submitted on or before December
21, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30819 Filed 11-29-11; 8:45 am]
BILLING CODE 8011-01-P