[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28906-28908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-11676]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69560; File No. SR-CBOE-2013-050]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to the Complex Order Router Subsidy
Program
May 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 May 8, 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 adopt an additional qualification
requirement to participate in CBOE's Complex Order Router Subsidy
Program. 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
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
On March 8, 2013, CBOE established the Complex Order Router Subsidy
Program (the ``CORS Program'' or ``Program'') which allows CBOE to
enter into subsidy arrangements with any CBOE Trading Permit Holder
(``TPH'') (each, a ``Participating TPH'') or Non-CBOE TPH broker-dealer
(each a ``Participating Non-CBOE TPH'') that provide certain order
routing functionalities to other CBOE TPHs, Non-CBOE TPHs and/or use
such functionalities themselves.\3\ (The term ``Participant'' as used
in this filing refers to either a Participating TPH or a Participating
Non-CBOE TPH). Specifically, CBOE TPHs and non-CBOE TPHs that
participate in the CORS Program receive a payment from CBOE for every
executed contract for complex orders routed to CBOE through their
system. The purpose of this proposed change is to add an additional
feature that a Participant's order routing functionality must have to
qualify for the Program.
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\3\ See Securities Exchange Act Release No. 69203 (March 21,
2013), 78 FR 18655 (March 27, 2013) (SR-CBOE-2013-032).
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SR-CBOE-2013-032 includes a description of the features that an
order routing functionality of a Participant must have, and the
performance requirements that the order routing functionality must
satisfy, in order to qualify for the program.\4\ Any CBOE TPH or
broker-dealer that is not a CBOE TPH is permitted to avail itself of
this arrangement, provided that its order routing functionality
incorporates the features required in SR-CBOE-2013-032. In addition to
the features described in SR-CBOE-2013-032, the Exchange is proposing
to require a Participant's order routing functionality to provide
current consolidated market data for complex orders from the U.S.
options exchanges that offer complex order execution systems in order
for the Participant to qualify to participate in the Program. A
Participant shall have forty-five (45) days from the date that an
exchange launches trading of complex orders to provide that exchange's
market data for complex orders as part of its
[[Page 28907]]
order routing functionality for any exchange that does not yet exist or
that does not offer complex order execution systems as of May 6, 2013.
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\4\ SR-CBOE-2013-032, pp. 5-7. The primary functional
requirements under the CORS Program are that an order routing
functionality has to: (i) be capable of interfacing with CBOE's API
to access current CBOE trade engine functionality and (ii) cause
CBOE to be the default destination exchange for complex orders, but
allow any user to manually override CBOE as the default destination
on an order-by-order basis.
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Nothing in the proposed subsidy arrangement relieves any CBOE TPH
or non-CBOE TPH broker-dealer that is using an order routing
functionality whose provider is participating in the CORS Program
(``Users'') from complying with its best execution obligations. Just as
with any customer order and any other routing functionality, both a
CBOE TPH and a non-CBOE TPH broker dealer have an obligation to
consider the availability of price improvement at various markets and
whether routing a customer order through a functionality that
incorporates the features described above would allow for access to
such opportunities if readily available. The Exchange recognizes that,
unlike simple, non-complex orders, there is no NBBO for complex orders
and an exception from the prohibition on trade-throughs is provided for
any transaction that is effected as a portion of a complex order.\5\
The Exchange believes that the proposed additional requirement to
provide consolidated market data for complex orders provides an
additional tool for Users to assess the availability of price
improvement at other markets and therefore facilitates compliance with
their best execution obligations. Finally, any User, whether or not a
CBOE TPH, needs to conduct best execution evaluations on a regular
basis, at a minimum quarterly, that include its use of any router
incorporating the features described above.
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\5\ See CBOE Rule 6.81(b)(7).
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (``Act''), in general. Specifically,
the Exchange believes the proposed rule change is consistent with
Section 6(b)(4) of the Act,\6\ which requires that Exchange rules
provide for the equitable allocation of reasonable dues, fees, and
other charges among its Trading Permit Holders and other persons using
its facilities. Additionally, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) \7\ 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.
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\6\ 15 U.S.C. 78f(b)(4).
\7\ 15 U.S.C. 78f(b)(5).
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In particular, the proposed rule change ensures that CBOE TPHs and
non-CBOE TPH broker dealers that use a Participant's order router
functionality are provided current consolidated market data for complex
orders, which lets them assess the availability of price improvement at
other markets. This information facilitates a User's compliance with
its best execution obligations, thereby enhancing investor protection
and promoting just and equitable principles of trade.
In addition, the Exchange believes that this proposed change is not
unfairly discriminatory because the proposed additional requirement is
applicable to every Participating CBOE TPH and Participating Non-CBOE
TPH. Additionally, every user of a Participant's order routing
functionality would be receiving the consolidated market data for
complex orders. Finally, any CBOE TPH or broker-dealer that is not a
CBOE TPH may participate in the CORS Program, provided that its complex
order routing functionality incorporates the requirements set forth in
SR-CBOE-2013-032 and above.
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 change will impose an unnecessary burden on
intramarket competition because it will apply equally to all
participating parties. Additionally, the Exchange believes the proposed
rule change will reduce the burdens on investors who use a
Participant's order routing functionality that result from having to
comply with best execution obligations, as they will not themselves
individually receive market data for complex orders from each exchange
that offers complex order execution systems. Further, the Exchange does
not believe that such change will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The Exchange notes that, should the proposed
changes make CBOE more attractive for trading, market participants
trading on other exchanges can always elect to provide order routing
functionality to CBOE for complex orders or use order routing
functionalities that are a part of the CORS Program for complex orders.
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \8\ and paragraph (f) of Rule 19b-4 \9\
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. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f).
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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-2013-050 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-2013-050. 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
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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-2013-050, and should be submitted on or before June
6, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11676 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P