[Federal Register Volume 78, Number 73 (Tuesday, April 16, 2013)]
[Notices]
[Pages 22591-22593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08865]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69360; File No. SR-CBOE-2013-041]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change To Amend Rule
6.53
April 10, 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 March 28, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 6.53--Certain Types of Orders
Defined. 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's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and the
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its definition of a Qualified
Contingent Cross (``QCC'') Order. A QCC Order is an order to buy (or
sell) at least 1,000 standard option contracts or 10,000 mini-option
contracts \3\ that is identified as being part of a qualified
contingent trade \4\ coupled with a contra-side order to sell (or buy)
an equal number of contracts. QCC Orders were initially adopted by the
International Securities Exchange, LLC (``ISE'') and approved by the
Commission.\5\ The Exchange opposed the ISE proposal and the adoption
of QCC Orders, but for competitive reasons elected to adopt QCC Order
rules on CBOE.\6\ The rules the Exchange adopted regarding QCC Orders
were explicit in stating that QCC
[[Page 22592]]
Orders may only be entered in the standard increments applicable to
simple orders in the options class under Exchange Rule 6.42--Minimum
Increments of Bids and Offers.\7\ In effect, this language limits the
entry of QCC Orders to $0.10, $0.05, or $0.01 increments, with the
increment of trading being the standard trading increment applicable to
simple orders in the individual option series in question, regardless
of whether there are one or multiple options legs of the QCC Order.
---------------------------------------------------------------------------
\3\ The Exchange added language regarding mini-options due to
the beginning of trading of mini-options. See SR-CBOE-2013-036,
available at http://www.cboe.com/publish/RuleFilingsSEC/SR-CBOE-2013-036.pdf.
\4\ A ``qualified contingent trade'' is a transaction consisting
of two or more component orders, executed as agent or principal,
where: (1) At least one component is an NMS stock, as defined in
Rule 600 of Regulation NMS under the Exchange Act; (2) all
components are effected with a product or price contingency that
either has been agreed to by all the respective counterparties or
arranged for by a broker-dealer as principal or agent; (3) the
execution of one component is contingent upon the execution of all
other components at or near the same time; (4) the specific
relationship between the component orders (e.g., the spread between
the prices of the component orders) is determined by the time the
contingent order is placed; (5) the component orders bear a
derivative relationship to one another, represent different classes
of shares of the same issuer, or involve the securities of
participants in mergers or with intentions to merge that have been
announced or cancelled; and (6) the transaction is fully hedged
(without regard to any prior existing position) as a result of other
components of the contingent trade. See CBOE Rule 6.53(u)(i).
\5\ ISE first proposed to adopt a qualified contingent cross
order type through SR-ISE-2009-35. This proposal was approved by the
Commission's Division of Trading and Markets (the ``Division'')
pursuant to delegated authority on August 28, 2009, Securities
Exchange Act Release No. 60584 (August 28, 2009), 74 FR 45663
(September 3, 2009) (SR-ISE-2009-35), but this approval was stayed
by a CBOE petition seeking full Commission review. See Letters from
Joanne Moffic-Silver, General Counsel and Corporate Secretary, CBOE,
dated September 4 and 14, 2009. ISE thereafter submitted its
modified rule change, SR-ISE-2010-73, and a letter requesting that
the Commission vacate the Division's approval of SR-ISE-2009-35
simultaneous with the approval of SR-ISE-2010-73. CBOE submitted
numerous letters objecting to ISE's original and modified qualified
contingent cross proposals, however, the Commission approved SR-ISE-
2010-73 and set aside SR-ISE-2009-35 on February 24, 2011. See
Securities Exchange Act Release Nos. 62523 (July 16, 2010), 75 FR
43211 (July 23, 2010) (SR-ISE-2010-73) (ISE Proposal), 63955
(February 24, 2011) (SR-ISE-2010-73) (ISE Approval), and 69354
(February 24, 2011) (SR-ISE-2009-35); see also, e.g., CBOE comment
letters and materials dated July 16, 2009, September 4, 2009,
September 14, 2009, September 17, 2009, December 3, 2009, January
20, 2010, April 7, 2010, and April 9, 2010.
\6\ See Securities Exchange Act Releases Nos. 64354 (April 27,
2011), 76 FR 25392 (May 4, 2011) (SR-CBOE-2011-041) and 64653 (June
13, 2011), 76 FR 35491 (June 17, 2011) (SR-CBOE-2011-041).
\7\ See Exchange Rule 6.53(u).
---------------------------------------------------------------------------
Rule 6.42 permits the entry of legs of a complex order in $0.01
increments (regardless of the standard trading increment applicable to
the options class of each leg).\8\ This would allow for QCC Orders with
multiple legs to be traded in $0.01 increments (regardless of the
standard trading increment applicable to the options class of each
leg), were it not for the above-referenced language that limits the
entry of QCC Orders to the standard increments applicable to simple
orders in the options class of each leg. As such, the Exchange proposes
to amend its definition of a QCC Order to state that such orders with
one option leg may only be entered in the standard increments
applicable to simple orders in the options class under Rule 6.42, but
QCC Orders with more than one option leg may be entered in the
increments specified for complex orders under Rule 6.42. (which is
$0.01 increments). This change would put the trading of QCC Orders with
multiple legs on the same footing as the trading of other types of
complex orders.
---------------------------------------------------------------------------
\8\ See Exchange Rule 6.42(4)(a).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\9\ Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \10\ 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 in that it gives CBOE market participants and
investors who enter QCC Orders with multiple legs the same trading
increment options as those who enter other types of orders with
multiple legs (complex orders). Further, the Exchange believes that ISE
permits trading of QCC Orders with multiple legs in $0.01 increments,
regardless of the standard increments applicable to simple orders in
the options class.\11\
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ ISE Rule 721 states that QCC orders ``may only be entered
in the regular trading increments applicable to the options class
under Rule 710'' (See ISE Rule 721(b)(2)). ISE Rule 710 states that
if an options contract is trading at $3.00 per option or higher, the
minimum trading increment is $.10, and if an options contract is
trading at less than $3.00 per option, the minimum trading increment
is $.05 (See ISE Rule 710). ISE Rule 722(b)(1) states that the
leg(s) of a complex order may be executed in one cent increments,
regardless of the minimum increments otherwise applicable to the
individual legs of the order (See ISE Rule 722(b)(1)). However, the
specification in Rule 721(b)(2) that QCC orders ``may only be
entered in the regular trading increments applicable to the options
class under Rule 710'' would seem to overrule Rule 722(b)(2)'s
statement regarding complex order increments, or at the very least,
create a contradiction that requires clarification. Nonetheless, the
Exchange has been informed by ISE market participants that ISE
permits the trading of trading of [sic] QCC orders with multiple
legs in $0.01 increments, regardless of the standard increments
applicable to simple orders in the options class.
---------------------------------------------------------------------------
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
that the proposed rule change will impose an unnecessary burden on
intramarket competition because it will apply to all market
participants. The Exchange does not believe that the proposed rule
change will impose an unnecessary burden on intermarket competition
because the Exchange believes that ISE permits trading of QCC orders
with multiple legs in $0.01 increments, regardless of the standard
increments applicable to simple orders in the options class,\12\ and
therefore the proposed change would put CBOE on an even competitive
footing with ISE.
---------------------------------------------------------------------------
\12\ See Footnote 11.
---------------------------------------------------------------------------
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-2013-041 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-2013-041. 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 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 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
[[Page 22593]]
available publicly. All submissions should refer to File Number SR-
CBOE-2013-041, and should be submitted on or before May 7, 2013.
---------------------------------------------------------------------------
\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08865 Filed 4-15-13; 8:45 am]
BILLING CODE 8011-01-P