[Federal Register Volume 78, Number 22 (Friday, February 1, 2013)]
[Notices]
[Pages 7467-7470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02187]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68743; File No. SR-CBOE-2013-009]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Minimum Volume Orders
January 28, 2013.
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 January 16, 2013, 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
The Exchange proposes to amend its rules to codify the ``Minimum
Volume Order.'' The text of the proposed rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Rule 6.44. Bids and Offers in Relation to Units of Trading
* * * * *
* * * Interpretations and Policies:
* * * * *
.05 A minimum volume order bid or offer shall be deemed to have
been made for the full size of the order or any lesser number of option
contracts that is at least equal to the minimum volume specified.
Minimum volume orders and bids and offers made on a minimum volume
basis shall be deemed to be all-or-none for purposes of Interpretations
and Polices .01 and .03 above. To the extent available pursuant to Rule
6.53, minimum volume orders may only be made available by the Exchange
for open outcry trading.
* * * * *
Rule 6.53. Certain Types of Orders Defined
One or more of the following order types may be made available on a
class-by-class basis. Certain order types may not be made available for
all Exchange systems. The classes and/or systems for which the order
types shall be available will be as provided in the Rules, as the
context may indicate, or as otherwise specified via Regulatory
Circular.
(a)-(v) No changes.
(w) Minimum Volume Order. A minimum volume order is an order
represented in open outcry for which an execution must at least equal
the minimum volume specified. To the extent there is any remaining
balance of a minimum volume order after the minimum volume is executed,
the remainder will no longer have a minimum fill contingency and will
be represented, in open outcry or electronically, unless cancelled by
the customer. A minimum volume order that has a minimum volume size
equal to the full size of the original order will be considered an all-
or-none order as described in Rule 6.53(i).
* * * * *
[[Page 7468]]
The text of the proposed rule change is also 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.
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 Exchange is proposing to add new paragraph (w) to Exchange Rule
6.53, Certain Types of Orders Defined, to codify an open outcry order
type, the ``Minimum Volume Order.'' Because of the complexity of
programming to make this order available electronically, this order
type is currently only supported for routing to, and utilized on, the
Exchange's trading floor for open outcry trading,\3\ and, thus, the
Exchange is proposing to harmonize its Rules with the current
functionality and practice.
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\3\ Please note the Exchange may decide to introduce this order
type electronically but such action would be subject to a separate
rule change filing. The Exchange notes that it currently supports
various order types that by their nature or terms may only be
available for open outcry trading (e.g., Not Held Orders) or may
only be available for electronic trading (e.g., Reserve Orders).
See, e.g., Exchange Rule 6.53(g) and (t).
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The proposed definition of a Minimum Volume Order is similar to an
existing definition in the Exchange's Screen-Based Trading rules.\4\ In
the proposed language, a Minimum Volume Order is an order represented
in open outcry for which an execution must at least equal the minimum
volume specified. To the extent there is a remaining balance of the
original order after the minimum volume amount has been executed, the
remainder of the order will no longer have any minimum volume
contingency and will be represented in open outcry or electronically
unless cancelled by the customer. The proposed language also notes that
a Minimum Volume Order that has a minimum volume size equivalent to the
full size of the original order would be considered an All-or-None
Order as described in Rule 6.53(i).\5\
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\4\ See Exchange Rule 43.2(a)(9)(E), which defines a ``Minimum
Volume Order'' as ``* * * an order where the fill should be at least
equal to the minimum volume specified, which is an amount less than
the total volume of the order.'' The Exchange does not currently
trade options pursuant to its Screen-Based Trading Rules (Chapters
XL-XLIX).
\5\ Under Rule 6.53(i), an All-or-None Order is currently
defined as ``* * * a market or limit order which is to be executed
in its entirety or not at all.''
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For example, assume a Trading Permit Holder (``TPH'') represents an
order to buy 50 contracts at $10.00 that is a Minimum Volume Order with
a minimum fill size of 30. This order can only execute if at least 30
contracts of the order would trade against other trading interest. In
this scenario, if a Floor Broker represents the Minimum Volume Order to
buy in open outcry and another order or quote for 30 contracts were
offered to sell against it, as the minimum value was met, 30 contracts
of the Minimum Volume Order to buy would execute against the sell
order/quote and the remaining 20 contracts of the Minimum Volume Order
to buy would be represented on the Exchange's trading floor or
electronically unless cancelled by the customer. In the same example,
if orders and/or quotes for only 10 contracts were offered to sell
against the Minimum Volume Order, there would be no trade because the
minimum size of 30 contracts would not be satisfied.
In the case where the minimum volume size specified is equivalent
to the total volume of the order, then the order will be considered the
same as an All-or-None Order as specified in Exchange Rule 6.53(i). In
the above example, if the order entered to buy was a Minimum Value
[sic] Order for 50 contracts with a minimum quantity of 50 contracts
then the order would be considered an All-or-None Order as described in
Rule 6.53(i), and, as such, the entered order would only execute if the
50 contracts could be executed in its entirety.
The Exchange is also proposing to amend Exchange Rule 6.44, Bids
and Offers in Relation to Units of Trading, to address Minimum Volume
Orders. Rule 6.44, in relevant part, provides that subject to certain
provisions in the Exchange rules, bids and offers made on the floor are
deemed to be for one option contract unless a specific number is
expressed in the bid or offer. A bid or offer for more than one option
contract which is not made on an All-or-None [sic] are deemed to be for
that amount or any lesser number of option contracts. An All-or-None
bid or offer is deemed to be made only for the amount stated. Proposed
new Interpretation and Policy .05 to Rule 6.44 will provide that, to
the extent that the Exchange determines to make the Minimum Volume
Order type available,\6\ a Minimum Volume Order bid or offer would be
deemed to have been made for the full size of the order or any lesser
number of option contracts that is at least equal to the minimum volume
specified.\7\
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\6\ The introductory paragraph to Rule 6.53 currently provides
that one or more of the identified order types may be made available
on a class-by-class basis, and certain order types may not be made
available for all Exchange Systems. The introductory paragraph to
Rule 6.53 also provides that the classes and/or systems for which
the order types shall be available will be as provided in the Rules,
as the context may indicate, or as otherwise specified via
Regulatory Circular.
\7\ By comparison, for example, as noted above an all-or-none
bid or offer is deemed to be made only for the amount stated. See
Rule 6.44.
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In addition, a Minimum Volume Order would be deemed to be an All-
or-None Order for purposes of certain other provisions of Rule 6.44.
The particular provisions are Interpretations and Policies .01 and .03
of Rule 6.44.\8\ Interpretation and Policy .01 of Rule 6.44 provides
the following: (i) A bid or offer may be made and transacted on an All-
or-None basis if the All-or-None bid or offer represents the only bid
or offer available at the best price in the market at the time the All-
or-None bid or offer is executed; \9\ (ii) an All-or-None order may not
be crossed with another All-or-None order unless all bids or offers at
the same price at which the cross is to be effected have been filled;
and (iii) if two or more All-or-None bids or offers represent the only
bids or offers at the best price in the market, priority shall be
afforded to such All-or-None bids or offers in the sequence in which
they are made. Interpretation and Policy .03 provides that the Exchange
may restrict the entry of All-or-None Orders in one or more classes or
series of options whenever, in its judgment, the interests of
maintaining a fair and orderly market are best served. Proposed new
Interpretation and Policy .05 to Rule 6.44 will reflect the
applicability of
[[Page 7469]]
these two provisions to Minimum Volume Orders.\10\
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\8\ The Exchange notes that Interpretation and Policy .02
relates to All-or-None orders in the Exchange's electronic book, and
because Minimum Volume Orders are only available in open outcry
trading, this provision is not applicable to Minimum Volume Orders.
\9\ In other words, a Minimum Volume Order would, like an All-
or-None Order, yield priority to all other interest at the same
price on the trading floor.
\10\ Specifically, proposed new Interpretation and Policy .05
would also provide that Minimum Volume Orders and bids and offers
made on a Minimum Volume basis shall be deemed to be All-or-None for
purposes of Interpretations and Policies .01 and .03 of Rule 6.44.
This proposed Interpretation and Policy .05 is similar to existing
Interpretation and Policy .04 to Rule 6.44, which provides that
Fill-or-Kill orders and bids or offers made on a Fill-or-Kill basis
shall be deemed to be All-or-None for purposes of Rule 6.44.
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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.\11\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \12\ requirements that the rules of an exchange be
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 regulating, clearing,
settling, processing information with respect to, and facilitation
[sic] transactions in securities, 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.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \13\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
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In particular, the Exchange believes the addition of Rules 6.44.05
and 6.53(w) promotes just and equitable principles of trading by
aligning the text of the rules with the actual functionality, which is
currently available in open outcry. By updating the text of the
Exchange's rules to describe the orders already supported by the
Exchange, the proposed rule change is attempting to harmonize the
functionality with the text of the Exchange Rules and is thereby
promoting clarity and eliminating confusion. In addition, the proposed
language alerts TPHs of the functionality of the order, and, thus,
allows investors to use the order type, to the extent made available by
the Exchange, with full knowledge of how the order type will function.
The Exchange notes that the proposed Minimum Volume Order type
definition is similar to an existing order type in the Exchange's
Screen-Based Trading Rules.\14\ Additionally, the Exchange notes that
the proposed order type is similar to order types available on other
markets, including on the NASDAQ OMX PHLX LLC (``PHLX'') \15\ and on
the International Securities Exchange (``ISE'').\16\
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\14\ See Exchange Rule 43.2(a)(9)(E).
\15\ See PHLX Rule 3301(f)(5), which provides that ``Minimum
Quantity Orders'' are orders that require ``a specified minimum
quantity of shares be obtained, or the order is cancelled. Minimum
Quantity Orders may only be entered with a time-in-force designation
of System Hours Immediate or Cancel.''
\16\ See ISE Rule 715(l) which defines a ``Minimum Quantity
Order'' as one that ``is available for partial execution, but each
partial execution must be for a specified number of contracts or
greater.''
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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 that is not necessary or appropriate in
furtherance of the purposes of the Act. Specifically, the Exchange
believes the proposed rule change will not impose any burden because
the Exchange is merely harmonizing its Rules with current functionality
and practice. Further, CBOE believes that the proposed rule change will
relieve any burden on, or otherwise promote, competition because this
order type is currently offered by other Exchanges. Thus, clarifying
the Exchange rules would give further authority to compete with other
exchanges currently offering the order type.
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
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. Impose any significant burden on competition; and
C. Become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \17\ and
Rule 19b-4(f)(6) \18\ 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.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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.
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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 protected]. Please include
File Number SR-CBOE-2013-009 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-2013-009. 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
[[Page 7470]]
offices 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-2013-009, and should be submitted on or before February 22,
2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02187 Filed 1-31-13; 8:45 am]
BILLING CODE 8011-01-P