[Federal Register Volume 78, Number 36 (Friday, February 22, 2013)]
[Notices]
[Pages 12377-12381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04133]
[[Page 12377]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68944; File No. SR-CBOE-2013-019]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change Relating to
Market-Maker Continuous Quoting Obligations
February 15, 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 February 4, 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 Substance
of the Proposed Rule Change
The Exchange proposes to amend its Rules relating to Market-Maker
continuous quoting obligations. The text of the proposed rule change is
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 purpose of the proposed rule change is to add language to
Exchange Rules 8.7, 8.13, 8.15A, 8.85, and 8.93 to exclude intra-day
add-on series (``Intra-day Adds'') on the day during which such series
are added for trading from Market-Makers' \3\ quoting obligations.\4\
Additionally, the proposed rule change clarifies in Rules 8.13, 8.15B,
and 8.87 that Preferred Market-Makers (``PMMs'') \5\, Lead Market-
Makers (``LMMs'') \6\, and Designated Primary Market-Makers (``DPMs'')
\7\ and electronic DPMs (``e-DPMs'') \8\, respectively (Market-Makers,
PMMs, LMMs, DPMs and e-DPMs are collectively referred to in this filing
as ``Market-Makers'' unless the context provides otherwise) may still
receive participation entitlements pursuant to those Rules in all
Intra-day Adds on the day during which such series are added for
trading in which they are quoting provided that Market-Maker meets all
other entitlement requirements as set forth in the applicable rule.
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\3\ See Exchange Rule 8.1, which defines a ``Market-Maker'' as
``an individual Trading Permit Holder or a TPH organization that is
registered with the Exchange for the purpose of making transactions
as a dealer specialist on the Exchange. * * * ''
\4\ The Exchange recently proposed to, among other things, (a)
reduce to 90% the percentage of time for which a Market-Maker is
required to provide electronic quotes in an appointed option class
on a given trading day and (b) to increase to the lesser of 99% or
100% minus one call-put pair the percentage of series in which Lead
Market-Makers, Designated Primary Market-Makers and Electronic
Designated Primary Market-Makers must provide continuous electronic
quotes in their appointed classes, which proposed rule change was
immediately effective upon filing. See Securities Exchange Act
Release No. 67410 (July 11, 2012), 77 FR 42040 (July 17, 2012) (SR-
CBOE-2012-064); see also Securities Exchange Act Release No. 67644
(August 13, 2012), 77 FR 49846 (August 17, 2012) (SR-CBOE-2012-077)
(immediately effective rule change to delay the implementation date
of the proposed rule change in rule filing SR-CBOE-2012-064 and to
indicate that the Exchange will announce the new implementation date
by Regulatory Circular); see also Securities and Exchange Act
Release No. 68218 (November 13, 2012), 77 FR 69667 (November 20,
2012) (SR-CBOE-2012-106) (immediately effective rule change to
further delay the implementation date of the proposed rule change in
rule filing SR-CBOE-2012-064 and to indicate that the Exchange will
announce the new implement date by Regulatory Circular). In
addition, the Exchange recently filed an effective rule proposing to
exclude series that have a time to expiration of nine months or more
from Exchange Preferred Market Maker's continuous quoting
obligation. See Securities and Exchange Act Release No. 68691
(January 18, 2013), 78 FR 5548 (January 25, 2013)(SR-CBOE-2013-008).
The rule text in this filing includes the effective (but not
implemented) changes to the rule text made by rule filings SR-CBOE-
2012-064 and SR-CBOE-2013-008. The Exchange expects to implement the
effective rule changes to quoting obligations in filings SR-CBOE-
2012-064 and SR-CBOE-2013-008 in conjunction with the implementation
of the proposed rule change in this filing.
\5\ See Exchange Rule 8.13, which defines a ``Preferred Market-
Maker'' as a specific Market-Maker designated by a Trading Permit
Holder to receive that Trading Permit Holder's orders in a specific
class.
\6\ See Exchange Rule 8.15A, which defines a ``Lead Market-
Maker'' as a Market-Maker in good standing appointed by the Exchange
``in an option class for which a DPM has not been appointed * * *
.''
\7\ See Exchange Rule 8.80, which defines a ``Designated Primary
Market-Maker'' as a ``TPH organization that is approved by the
Exchange to function in allocated securities as a Market-Maker * * *
and is subject to the obligations under Rule 8.85 * * *.''
\8\ See Exchange Rule 8.92, which defines an ``Electronic DPM''
as a ``TPH Organization that is approved by the Exchange to remotely
function in allocated option classes as a DPM and to fulfill certain
obligations required of DPMs * * *.''
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Intra-Adds are series that are be [sic] added to the Exchange
system after the opening of the Exchange. These series may be added
throughout the trading day which differs from other newly added series
which are only added prior to the beginning of trading. In the event a
series is added after the open of trading on the Exchange, the
Exchange, in real time, disseminates a message to the Exchange
application program interfaces, which any Exchange Trading Permit
Holder (``TPH'') can receive, that a new series has been listed. In
addition, there is a corresponding product state change message
disseminated when the new series moves from pre-opening rotation to an
open state. Any Market-Maker with an appointment in the class in which
the series was added is permitted to quote in the new series.
Currently, Exchange Rules 8.7, 8.13, 8.15A, 8.85, and 8.93 impose
certain obligations on Market-Makers, PMMs, LMMs, DPMs, and e-DPMs,
respectively, including obligations to provide continuous electronic
quotes. Upon implementation of the recent rule change to Market-Maker's
continuous quoting obligations,\9\ Rules 8.7, 8.13, 8.15A, 8.85, and
8.93 will require that Market-Makers generally maintain continuous
electronic quotes as follows:
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\9\ See supra note 4.
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Rule 8.7(d)(ii)(B) will require that Market-Makers provide
continuous electronic quotes when quoting in a particular class on a
given trading day in 60% of the non-adjusted option series of the
Market-Maker's appointed class that have a time to expiration of less
than nine months;
Rule 8.13(d) will require that PMMs provide continuous
electronic quotes when the Exchange is open for trading in at least the
lesser of 99% or 100% minus one call-put pair \10\ of the non-adjusted
option series that have an expiration time of less than nine months
[[Page 12378]]
of each class for which it receives Preferred Market-Maker orders;
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\10\ A ``call-put pair'' is one call and one put that cover the
same underlying instrument and have the same expiration date and
exercise price.
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Rule 8.15A(b)(i) will require that LMMs provide continuous
electronic quotes when the Exchange is open for trading in at least the
lesser of 99% or 100% minus one call-put pair of the non-adjusted
option series within their assigned classes;
Rule 8.85(a)(i) will require DPMs to provide continuous
electronic quotes when the Exchange is open for trading in at least the
lesser of 99% or 100% minus one call-put pair of the non-adjusted
option series of each class allocated to it; and
Rule 8.93(i) will require e-DPMs to provide continuous
electronic quotes when the Exchange is open for trading in at least the
lesser of 99% or 100% minus one call-put pair of the non-adjusted
option series of each allocated class.
Exchange Rules 8.13, 8.15B, and 8.87 provide that PMMs, LMMs, and
DPMs, and e-DPMs, respectively, generally will receive the following
participation entitlements in their assigned classes when quoting at
the best price if they satisfy their obligations and other conditions
set forth in the rules:
Rule 8.13(c) provides that a PMM will receive a
participation entitlement of 40% when there are two or more Market-
Makers quoting at the best price on the Exchange and 50% when there is
only one other Market-Maker quoting at the best price on the Exchange;
Rule 8.15B(c) provides that an LMM will receive a
participation entitlement of 50% when there is one Market-Maker also
quoting at the best price on the Exchange, 40% when there are two
Market-Makers also quoting at the best price on the Exchange, and 30%
when there are three or more Market-Makers also quoting at the best
price on the Exchange;\11\ and
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\11\ If more than one LMM is entitled to a participation
entitlement, the entitlement will be distributed equally among
eligible LMMs.
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Rule 8.87(b)(2) provides that the collective DPM/e-DPM
participation entitlement will be 50% when there is one Market-Maker
also quoting at the best price on the Exchange, 40% when there are two
Market-Makers also quoting at the best price on the Exchange, and 30%
when there are three or more Market-Makers also quoting at the best
price on the Exchange.\12\
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\12\ The participation entitlements of PMMs, LMMs, DPMs and e-
DPMs are based on the number of contracts remaining after all public
customer orders in the book at the best price on the Exchange have
been satisfied. Additionally, a PMM, LMM, DPM or e-DPM may not be
allocated a total quantity greater than the quantity for which the
PMM, LMM, DPM or e-DPM is quoting at the best price. See Rules
8.13(c)(i) and (ii) (PMMs), 8.15B(b) and (c) (LMMs), and
8.87(b)(1)(ii) and (iii) (DPMs and e-DPMs).
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Once the Exchange implements the rule change referenced above,
Exchange Rule 1.1(ccc) will provide that a Market-Maker who is
obligated by Exchange Rules to provide continuous electronic quotes
will be deemed to have provided ``continuous electronic quotes'' if the
Market-Maker provides electronic two-sided quotes for 90% of the time
that the Market-Maker is required to provide electronic quotes in an
appointed option class on a given trading day. The rule will still
provide that if a technical failure or limitation of a system of the
Exchange prevents the Market-Maker from maintaining, or from
communicating to the Exchange, timely and accurate electronic quotes in
a class, the duration of such failure will not be considered in
determining whether the Market-Maker has satisfied the 90% quoting
standard with respect to that option class. In addition, the rule will
still provide that the Exchange may consider other exceptions to this
continuous electronic quote obligation based on demonstrated legal or
regulatory requirements or other mitigating circumstances.\13\
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\13\ See supra note 4.
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In order to comply with their continuous quoting obligations,
Exchange Market-Makers have automated systems in place that use complex
calculations based on a variety of market factors to compute quotes in
their appointed classes and transmit these quotes to the Exchange's
Hybrid Trading System (the ``System'').\14\ Their system computations
also factor in their market risk models. Several Market-Makers have
communicated to the Exchange that their trading systems do not
automatically produce continuous quotes in Intra-day Adds on the
trading day during which those series are added. They further indicated
that the only way they could quote in these series on the trading day
during which they were added would be to completely shut down and
restart their systems. As a result, it is the Exchange's understanding
that several Market-Makers do not currently quote Intra-day Adds during
the trading day on which such series are added (although the Market-
Makers generally do quote these series upon the opening of the next
trading day, assuming those series are still listed on the Exchange).
The required work on Market-Makers' systems to quote Intra-day Adds, as
further communicated to the Exchange, would be significant and costly.
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\14\ ``Hybrid Trading System'' refers to the Exchange's trading
platform that allows Market-Makers to submit electronic quotes in
their appointed classes. See Rule 1.1(aaa).
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Intra-day Adds make it extremely difficult for Market-Makers to
comply with their obligation to quote in a substantial percentage of
series in their appointed classes during a trading day on which Intra-
day Adds are added in those classes. For example, if there are 1,000
series listed in an LMM's appointed class and the LMM is quoting in 900
of these series, the LMM is in compliance with the current minimum
requirement to quote in 90% of series in its appointed class (assuming
the LMM quotes in this number of series 99% of the trading day).
However, if an Intra-day Add is added in the LMM's appointed class
during the trading day, and the LMM's system does not automatically
quote in this series, then the LMM would not comply, as it would be
quoting in 900 of 1,001 series. This noncompliance would be compounded
if more than one Intra-day Add is listed in a class during the same
trading day. Further, if these Market-Makers turned their systems off
to quote in Intra-day Adds on the trading day during which those series
are added, then the Market-Makers could satisfy the standard to quote
in a minimum percentage of series in their appointed classes but would
then risk violating their obligation to quote for minimum percentage of
the trading day as, theoretically, these Market-Makers might need to
repeatedly turn their systems off to accommodate the Intra-day Adds.
As indicated above, the Exchange intends to implement changes to
continuous quoting obligations that, among other things, will require
PMMs, LMMs, DPMs and e-DPMs to continuously quote in at least the
lesser of 99% or 100% minus one call-put pair of series in their
appointed classes, which obligation includes Intra-day Adds.\15\ Given
this planned heightened standard, the risk that these Market-Makers may
not satisfy their quoting obligations if they are required to quote
Intra-day Adds increases.
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\15\ See supra note 4.
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As a result of this conflict, the pending heightened quoting
obligations, and the considerable cost that would otherwise be involved
to adjust their systems to quote Intra-day Adds on the trading day
during which they are listed, several PMMs have informed the Exchange
that they intend to withdraw from the PMM program, while other Market-
Makers have requested that the Exchange suspend their pending
applications to join the PMM program.
[[Page 12379]]
The Exchange believes that it would be impracticable, particularly
given that a number of Market-Makers use their systems to quote on
multiple markets and not solely on the Exchange, for Market-Makers to
turn off their entire systems to accommodate quoting in Intra-day Adds
on the day during which those series are added on the Exchange. In
addition, the Exchange believes this would interfere with the
continuity of its market and reduce liquidity, which would ultimately
harm investors and contradicts the purpose of the Market-Maker
continuous quoting obligation.
This proposed rule change excludes Intra-day Adds from these
continuous quoting obligations to address this conflict. Specifically,
the Exchange is proposing to add text to Rules 8.7, 8.13, 8.15A, 8.85,
and 8.93 to exclude Intra-day Add on the day during which such series
are added for trading from Market-Makers' quoting obligations. As
mentioned above, based on communications from Market-Makers, the
Exchange is concerned that additional PMMs may withdraw from the PMM
program, that other types of Market-Makers (particularly LMMs, DPMs and
e-DPMs given their heightened quoting obligations) may withdraw from
their class appointments, and that other market participants may be
discouraged from requesting Market-Maker appointments or applying to
the LMM, DPM and e-DPM programs if they are required to quote Intra-day
Adds on the trading day during which those series are added under the
new quoting obligations. The Exchange believes that withdrawals from,
and reduced applications for, Market-Maker appointments would
negatively impact liquidity and volume on the Exchange in those
classes. The Exchange believes that providing Market-Makers with relief
from their quoting obligations with respect to Intra-day Adds on the
trading day during which they are added for trading will prevent these
withdrawals and encourage market participants to apply for or continue
their Market-Maker class appointments.
The Exchange does not believe this relief will result in any
material decrease in liquidity. As mentioned above, it is the
Exchange's understanding that several Market-Makers currently do not
quote Intra-day Adds on the trading day during which they are added, so
the Exchange believes this proposed relief would result in a minimal
reduction, if any, in liquidity in these series. These Market-Makers'
systems would add these series the next trading day, so if there is any
slight reduction in liquidity in these few series, it would only last
for a short period of time (until the following trading day).
Additionally, this potential small reduction in liquidity would be far
outweighed by the reduction in liquidity that the Exchange believes
would result from the withdrawals from and reductions in applications
for Market-Maker appointments if the Exchange did not provide this
relief.
The current quoting obligation in Intra-day Adds is a minor part of
a Market-Maker's overall obligations. Intra-day Adds represent only
approximately 0.0046% of the average number of series listed on the
Exchange each trading day, so Market-Makers will still be obligated to
provide continuous two-sided markets in a substantial number of series
in their appointed classes.\16\ Further, Market-Makers would still be
obligated to quote the Intra-day Adds the following day, and, thus,
their quoting relief is very short-lived and could, potentially, only
last a few hours or until the opening of trading the following day. The
Exchange believes that the burden of continuous electronic quoting in
this extremely small number of series is counter to the Exchange's
efforts to continuously increase liquidity in its listed option
classes.
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\16\ For the month of October 2012, the average number of Intra-
day Adds on a trading day was 18.5, and the average number of total
series listed on the Exchange each trading day was approximately
400,000.
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The Exchange believes the proposed rule change will continue to
ensure that Market-Makers create a fair and orderly market in the
option classes to which they are assigned, as it does not absolve
Market-Makers from providing continuous electronic quotes in a
significant percentage of series of each class for a substantial
portion of the trading day. Market-Makers must engage in activities
that constitute a course of dealings reasonably calculated to
contribute to the maintenance of a fair and orderly market, including
(1) Competing with other Market-Makers to improve markets in all series
of options classes comprising their appointments, (2) making markets
that, absent changed market conditions, will be honored in accordance
with firm quote rules, and (3) updating market quotations in response
to changed market condition in their appointed options classes and to
assure that any market quote it causes to be disseminated is
accurate.\17\
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\17\ See Rule 8.7(a) and (b).
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The relief proposed in this filing is mitigated by a Market-Maker's
other obligations. The proposed rule change would not excuse a Market-
Maker that is present on the trading floor from its obligation to
provide a two-sided market complying with the bid/ask differential
requirements in response to any request for quote by a floor broker,
TPH or PAR Official.\18\ The proposed rule change would also not excuse
a Market-Maker that is present on the trading floor from its obligation
to provide an open outcry two-sided market complying with the bid/ask
differential requirements in response to a request for a quote by a TPH
or PAR Official directed at that Market-Maker or when, in response to a
general request for a quote by a TPH or PAR Official, a market is not
then being vocalized by a reasonable number of Market-Makers.\19\
Further, the proposed rule change would not excuse a Market-Maker from
its obligation to submit a single quote or maintain continuous quotes
in one or more series of a class to which the Maker-Maker is appointed
when called upon by an Exchange official if, in the judgment of such
official, it is necessary to do so in the interest of maintaining a
fair and orderly market.\20\ These obligations will continue to apply
to all series.
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\18\ See Rule 8.7(d)(i)(C) (relating to a request for quote by a
floor broker) and (ii)(C) (relating to a request for a quote by a
Trading Permit Holder or PAR Official).
\19\ See Rule 8.7(d)(iv).
\20\ Id.
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The proposed rule change also clarifies in the Exchange Rules that
while Market-Makers are not required to provide continuous electronic
quotes in Intra-day Adds on the day during which such series are added
for trading, a Market-Maker may still receive a participation
entitlement in such series if it elects to quote in that series and
otherwise satisfies the other entitlement requirements set forth in
accordance with the Rules. Specifically, the Exchange is proposing to
add language to Rules 8.13, 8.15B, and 8.87 clearly stating that
Market-Makers may still receive participation entitlements pursuant to
those Rules in all Intra-day Adds on the day during which such series
are added for trading in which they are quoting provided that Market-
Maker meets all other entitlement requirements as set forth in the
applicable rule.
Market-Makers already receive participation entitlements in series
they are not required to quote. For example, a DPM is currently
required to provide continuous electronic quotes in at least 90% of the
non-adjusted option series of each multiply listed option class
allocated to it and in 100% of the non-adjusted option series of each
singly listed option class allocated to it for
[[Page 12380]]
99% of the trading day.\21\ If the DPM elects to quote in 100% of the
non-adjusted series in a multiply listed option class allocated to it,
it will receive a participation entitlement in all of those series when
quoting at the best price, including the 10% of the series in which it
is not required to quote in. Thus, under the proposed rule change, the
market would continue to function as it does now. The Exchange believes
this benefit is appropriate, as it incentivizes Market-Makers to quote
in as many series as possible in their appointed classes, even those
series in which the Rules do not require them to continuously quote.
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\21\ As discussed above, this obligation will change upon
implementation of a recent rule change. See supra note 4.
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The Exchange does not believe that the proposed rule change would
adversely affect the quality of the Exchange's markets or lead to a
material decrease in liquidity. Rather, the Exchange believes that its
current market structure, with its high rate of participation by
Market-Makers, permits the proposed rule change without fear of losing
liquidity. The Exchange also believes that market-making activity and
liquidity could materially decrease without the proposed rule change to
exclude Intra-day Adds from Market-Maker continuous quoting obligations
on the trading day during which they are added for trading. The
Exchange believes that this proposed relief will encourage Market-
Makers to continue appointments and other TPHs to request Market-Maker
appointments, and, as a result, expand liquidity in options classes
listed on the Exchange to the benefit of the Exchange and its TPHs and
public customers. The Exchange believes that its Market-Makers would be
disadvantaged without this proposed relief, and other TPHs and public
customers would also be disadvantaged if Market-Makers withdrew from
appointments in options classes, resulting in reduced liquidity and
volume in these classes. Additionally, the Exchange believes that the
proposed rule change to clarify that Market-Makers may receive
participation entitlements in Intraday Adds on the day during which
such series are added for trading if it satisfies the other entitlement
requirements as set forth in Exchange Rules, even if the Rules do not
require the Market-Makers to continuously quote in those series, will
incent Market-Makers to quote in series in which they are not required
to quote, which may increase liquidity in their appointed classes.
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.\22\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \23\ 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
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) \24\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
\24\ Id.
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In particular, the Exchange believes the proposed rule change to
exclude Intra-day Adds during the day which such series are added for
trading from Market-Makers' quoting obligations promotes just and
equitable principles of trade because it promotes liquidity and
continuity in the marketplace and would prevent interruptions in
quoting or reduced liquidity that may otherwise result. The Exchange
also believes that the proposed rule change supports the quality of the
Exchange's markets because it does not significantly change the current
quoting obligations of Market-Makers. Market-Makers must still provide
continuous electronic quotes for a significant part of the trading day
in a substantial number of series of each appointed class. Even if a
Market-Maker does not quote Intra-day Adds on the trading day during
which they are added, this would be offset by the Market-Maker's
continued obligation to quote in these series when requested by a floor
broker, TPH, or PAR Official. The proposed relief is further offset by
a Market-Maker's obligation to quote in these series beginning the next
trading day. Accordingly, the proposed rule change supports the quality
of the Exchange's trading markets by helping to ensure that Market-
Makers will continue to be obligated to quote in Intra-day Adds if, and
when, the need arises and on an ongoing basis following the trading day
during which the series are added. The Exchange believes this proposed
change is reasonable and is offset by Market-Makers' continued
responsibilities to provide significant liquidity to the market to the
benefit of market participants.
The Exchange believes this proposed rule change, on balance, is a
minor change and should not impact the quality of the Exchange's
trading markets. Among other things, Intra-day Adds represent an
insignificant percentage of series listed on the Exchange each day. The
Exchange further believes that the potential small reduction in
liquidity in Intra-day Adds that may result from the proposed relief
would be far outweighed by the significant reduction in liquidity in
appointed classes that the Exchange believes could occur from
withdrawals from and reductions in applications for Market-Maker
appointments without the proposed relief. The proposed rule change also
removes impediments to and allows for a free and open market, while
protecting investors, by promoting additional transparency regarding
Market-Makers' obligations and benefits in the Exchange Rules. In
addition, the Exchange believes that the proposed rule change is
designed to not permit unfair discrimination among Market-Makers, as
the proposed rule change provides the proposed relief for all Market-
Makers.
The proposed rule change to clarify that Market-Makers may receive
participation entitlements in Intra-day Adds in their appointed classes
in which they are quoting, even though they are not required to quote,
if the other requirements set forth in the Rules are satisfied, further
supports the quality of the Exchange's trading markets because it
encourages Market-Makers to quote in as many series as possible, which
ultimately benefits all investors. This benefit is offset by the
Market-Makers' continued quoting obligations and the fact that their
quotes in these ``non-required'' series must still satisfy all of the
Market-Makers' other obligations under the Rules. The Exchange also
believes that this proposed change is consistent with its current
practice, pursuant to which Market-Makers receive participation
entitlements in additional series in which they elect to quote above
the minimum percentage of series in which they are required to
continuously quote under the Rules.
For the foregoing reasons, the Exchange believes that the proposed
[[Page 12381]]
rule change is appropriate and consistent with the Act.
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. The Exchange does not believe
the proposed rule change to exclude Intra-day Adds during the day which
such series are added for trading from Market-Makers' quoting
obligations will cause any unnecessary burden on intramarket
competition because it provides the same relief to a group of similarly
situated market participants--Market-Makers. The Exchange does not
believe the proposed change will cause any unnecessary burden on
intermarket competition because Intra-day Adds are a very small portion
of series on the Exchange. Exchange further believes that the potential
small reduction in liquidity in Intra-day Adds that may result from the
proposed relief would be far outweighed by the significant reduction in
liquidity in appointed classes that the Exchange believes could occur
from withdrawals from and reductions in applications for Market-Maker
appointments without the proposed relief. In addition, the Exchange
believes that the proposed rule change will in fact relieve any burden
on, or otherwise promote, competition. The Exchange believes that
excluding Intra-day Adds on the day during which they are added for
trading from Market-Maker obligations will promote trading activity on
the Exchange to the benefit of the Exchange, its TPHs, and market
participants.
The Exchange does not believe the proposed rule change to clarify
that Market-Makers may receive participation entitlements in Intra-day
Adds in their appointed classes in which they are quoting, even though
they are not required to quote, if the other requirements set forth in
the Rules are satisfied, will cause any unnecessary burden on
intramarket competition because it too provides the same relief to a
group of similarly situated market participants--Market-Makers. The
Exchange does not believe the proposed change will cause any
unnecessary burden on intermarket competition because Market-Makers are
currently entitled to receive participation entitlements on series they
are not obligated to quote in under the Rules. In addition, the
Exchange believes that the proposed rule change will in fact relieve
any burden on, or otherwise promote, competition. The Exchange believes
allowing Market-Makers to receive a participation entitlements in
Intra-day Adds will promote trading activity on the Exchange because it
will incentivize Market-Makers to quote in such series though not
obligated to do so to the benefit of the Exchange, its TPHs, and market
participants.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange 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 email to [email protected]. Please include
File Number SR-CBOE-2013-019 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-2013-019. 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-2013-019, and should be
submitted on or before March 15, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-04133 Filed 2-21-13; 8:45 am]
BILLING CODE 8011-01-P