[Federal Register Volume 78, Number 29 (Tuesday, February 12, 2013)]
[Notices]
[Pages 9953-9955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-03103]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68844; File No. SR-CBOE-2013-007]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Related to the Opening of the Complex Order Book
February 6, 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 28, 2013, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``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) of the Act \3\ and
Rule 19b-4(f)(6) thereunder, which renders it effective upon filing
with the Commission.\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).
\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 its electronic complex order
rules. The text of the proposed rule change is available on the
Exchange's Web site (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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to include a
description in Rule 6.53C of the manner in which complex orders are
currently electronically processed through the Exchange's complex order
book (``COB'') when the COB opens for trading. Currently the rule does
not include this level of detail, so the Exchange is proposing to
include this information within the rule to provide additional clarity
on the current operation of the COB. The Exchange notes that it is
simply including additional detail in its rules on the existing process
when the COB opens in response to Trading Permit Holder inquiries about
its operation. No changes to the process are being contemplated by this
rule change filing.
In particular, the proposed rule change will provide that complex
orders, including stock-option orders, do not participate in opening
rotations conducted pursuant to Rule 6.2B for individual option
series.\5\ When the last of the individual component option series legs
that make up a complex order strategy has opened (and, in the case of a
stock-option strategy, when the underlying stock has opened), the COB
for that strategy will then open for trading. The COB for a given
complex order strategy will open with no trade,\6\ except as follows:
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\5\ The Exchange notes that, previously, Rule 6.2B had provided
that spread orders (a general reference used to refer to complex
orders) do not participate in the Hybrid Opening System (``HOSS'')
opening trade for individual component option series legs or in the
determination of the opening price, expected opening price or
expected opening size for an individual component options series
leg. This provision was eliminated from Rule 6.2B in 2010 and, as
revised, the Exchange could determine whether to designate various
complex order types as eligible for HOSS on a class-by-class basis
(just as it would for any other order type). See Securities Exchange
Act Release No. 63580 (December 20, 2010), 75 FR 81705 (December 28,
2010) (SR-CBOE-2010-114). To date, the Exchange has not determined
to include spread orders/complex orders in the Rule 6.2B opening
process. With this proposed rule change, SR-CBOE-2013-007, the
Exchange would no longer be permitted to designate complex order
(including stock-option order) order types as eligible for the Rule
6.2B opening process. If, in the future, the Exchange would desire
to designate certain complex order (including stock-option order)
order types as being eligible to participate in the HOSS opening
process for simple orders, such a determination would be subject to
a separate rule change filing.
\6\ For example, the COB would open with no trade if there are
no complex orders resting for the strategy or if there are complex
orders on only one side of the COB at a net price(s) that does not
touch or cross the derived net market. The ``derived net market''
for a stock-option order strategy will be calculated using the
Exchange's best bid or offer in the individual option series leg(s)
and the NBBO in the stock leg. The ``derived net market'' for any
other complex order strategy will be calculated using the Exchange's
best bid or offer in the individual series legs.
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First, the COB will open with a trade against the individual
component option series legs if there are complex orders on only one
side of the COB that are marketable against the opposite side of the
derived net market. The resulting execution will occur at the derived
net market price to the extent marketable. Any remaining balance would
be processed as it would on an intra-day basis as set forth in Rule
6.53C (including being subject to the applicable complex order priority
and price check parameter provisions set forth in Rule 6.53C). This
provision for ``legging'' against the individual series legs is not
applicable to stock-option order strategies. (Stock-option orders
processed through COB generally only trade against other stock-option
orders. Stock-option orders processed through COB generally do not
trade against individual component option series legs, except in one
limited circumstance
[[Page 9954]]
for market orders at the conclusion of a complex order RFQ auction
(``COA'').\7\)
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\7\ See Rule 6.53C.06.
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For example, if the derived net market for a given complex order
strategy is $1.00-$1.20 for 100 units and the only interest in the COB
is a complex order to buy the strategy at a net debit price of $1.21
for 120 units, then 100 units of the complex order would trade at a net
price of $1.20 against the individual component series legs and the
remaining 20 units of the complex order would be subject to processing
under Rule 6.53C (e.g., remain in the COB if not marketable against the
individual orders and quotes in the electronic book or other complex
orders in the COB, execute or route for manual processing if marketable
subject the applicable priority and price check parameters).
Second, the COB will open with a trade against complex orders if
there are complex orders on both sides of the COB that are marketable
against each other and that are priced within the derived net market.
The resulting execution will occur at a market clearing price that is
inside the derived net market and that matches complex orders to the
extent marketable. In determining the priority, the COB gives priority
to complex orders whose net price is better than the market clearing
price first, and then to complex orders at the market clearing
price.\8\ This provision for complex orders to trade against each other
is applicable to stock-option order strategies.
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\8\ This ``market clearing price'' process for executing complex
orders when the COB opens is similar to the process for executing
simple orders when HOSS opens an individual component options
series. See Rule 6.2B(c)(iv) (``[t]he opening price of a series is
the `market-clearing' price that will leave bids and offers which
cannot trade with each other. In determining the priority of orders
and quotes to be traded, the System gives priority to market orders
first, then to limit orders and quotes whose price is better than
the opening price, and then to resting orders and quotes at the
opening price.'')
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For example, assume the derived net market for a given complex
order strategy is $1.00-$1.20 for 100 units and there is a complex
order in the COB to sell the strategy at a net credit price of $1.19
for 20 units, a complex order in the COB to sell the strategy at a net
credit price of $1.18 for 10 units, and a complex order in COB to buy
the strategy at a net debit price of $1.19 for 50 units. When the COB
opens, 30 units of the buy strategy would trade at a net price of $1.19
against the two sell strategies. The remaining 20 units of the buy
strategy would be subject to processing under Rule 6.53C (e.g., remain
in the COB if not marketable against the individual orders and quotes
in the electronic book or other complex orders in the COB, execute or
route for manual processing if marketable subject the applicable
priority and price check parameters).
As another example, if the derived net market for a given stock-
option order strategy is $5.00-$5.20 for 100 units and there is a
stock-option order in the COB to sell the strategy at a net credit
price of $5.19 for 20 units, a stock-option order in the COB to sell
the strategy at a net credit price of $5.18 for 10 units, and a stock-
option order in COB to buy the strategy at a net debit price of $5.19
for 50 units, then 30 units of the buy strategy would trade at a net
price of $5.19 against the two sell strategies. The remaining 20 units
of the buy strategy would be subject to processing under Rule 6.53C
(e.g., remain in the COB if not marketable against the derived net
market (considering the individual orders and quotes in the electronic
book for the component options series legs and the NBBO in the stock
leg) or other stock-option orders in the COB, or execute or route for
manual processing if marketable subject the applicable priority and
price check parameters).
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
\9\ in general and furthers the objectives of Section 6(b)(5) of the
Act \10\ in particular in that it should promote just and equitable
principles of trade, serve to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
protect investors and the public interest. In particular, the Exchange
believes that including detail within the rules should provide
additional clarity and avoid any confusion on the current operation of
the COB open. The Exchange also believes that the operation of the COB
increases opportunities for all types of market participants (e.g.,
public customers, broker-dealers and market-makers) to participate in
the trading of complex orders. This participation may promote liquidity
and result in better prices for customers throughout the trading day,
including when the COB opens.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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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. As noted above, the Exchange
believes that including detail within the rules should provide
additional clarity and avoid any confusion on the current operation of
the COB open. The Exchange also believes that the operation of the COB
increases opportunities for all types of market participants (e.g.,
public customers, broker-dealers and market-makers) to participate in
the trading of complex orders. This participation may promote liquidity
and result in better prices for customers throughout the trading day,
including when the COB opens.
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
Because the foregoing rule does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6)
thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
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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-2013-007 on the subject line.
[[Page 9955]]
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-2013-007. 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 the 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-2013-007 and should be
submitted on or before March 5, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03103 Filed 2-11-13; 8:45 am]
BILLING CODE 8011-01-P