[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62887-62889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24630]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70618; File No. SR-CBOE-2013-093]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change To Amend Rule
6.42
October 7, 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 September 27, 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 Rule 6.42. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Rule 6.42--Minimum Increments
for Bids and The Exchange proposes to amend its Rule 6.42--Minimum
Increments for Bids and Offers--regarding minimum increments of bids
and offers for complex orders. Currently, Rule 6.42(4) states that bids
and offers on complex orders may be expressed in any increment
regardless of the minimum increments otherwise appropriate to the
individual legs of the order. This language allows for complex order
bids and offers to be expressed in any increment whatsoever. The
Exchange believes that setting a minimum increment for bids and offers
on complex orders of $0.01 will ensure that there is a lowest minimum
increment for bids and offers that makes it simple to monitor and
participate for all market participants (for example, many of the web-
based services that public customers use to enter options orders do not
permit the entry of orders in sub-penny increments, while other types
of market participants may not face that limitation). Further, this
$0.01 minimum increment will put the electronic and manual entry of
complex orders on even footing (as the Exchange's Complex Order Book
(``COB'') and Complex Order Auction
[[Page 62888]]
(``COA'') (both being electronic complex order execution systems) are
not configured to permit quoting in sub-penny increments.\3\) Further,
setting a minimum increment for bids and offers at $0.01 ensures that
price improvement occurs at a meaningful increment. Without this
minimum, it would be possible for a market participant to jump ahead of
another market participant's quoted price by a de minimis amount, and
the knowledge that this could occur could discourage competitive
quoting.
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\3\ See CBOE Rules 6.53C(c)(ii) and 6.53C(d)(iii)(1).
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As such, in order to limit the potential to express orders in any
increment, the Exchange hereby proposes to state that bids and offers
on complex orders, as defined in Interpretation and Policy .01 below,
may be expressed in any net price increment (that may not be less than
$0.01) that may be determined by the Exchange on a class-by-class basis
and announced to the Trading Permit Holders (``TPHs'') via Regulatory
Circular, regardless of the minimum increments otherwise appropriate to
the individual legs of the order.
The Exchange proposes adding the parenthetical language which
allows the Exchange to set minimum increments for bids and offers on
complex orders on a class-by-class basis and announce such minimum
increments to TPHs via Regulatory Circular in order to ensure
uniformity of minimum bid and offer increments within a class (as the
Exchange may already do for bids and offers on complex orders in
options on the S&P 500 Index (``SPX''), p.m.-settled S&P 500 Index
(``SPXPM'') or on the S&P 100 Index (``OEX'' and ``XEO'')). The
proposed parenthetical language would allow the Exchange to set and
vary minimum increments for bids and offers on complex orders for
different classes in response to different market conditions in those
classes and in order to encourage more trading in such classes.\4\ This
language will also ensure that TPHs are notified of such minimum
increments via Regulatory Circular. For example, the Exchange could
release a Regulatory Circular stating that the minimum increments for
complex order bids and offers within a certain class would be $0.01, or
$0.05.
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\4\ The Exchange would not make changes to minimum increments
for bids and offers on complex orders on an intra-day basis.
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This proposed change will ensure that there is a lowest minimum
increment for bids and offers on complex orders that makes it simple to
monitor and participate for all market participants and places market
participants entering orders manually and electronically on an equal
footing. This is simpler and more restrictive than the current rule,
which permits the expression of bids and offers on complex orders in
any increment (though only complex orders entered manually can be in
sub-penny increments), which would allow more sophisticated market
participants entering orders electronically [sic] \5\ to express bids
and offers in complex orders in infinitesimally small amounts.
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\5\ The Commission notes that the word ``electronically'' here
is a typographical error. In an email from CBOE to Commission staff
on October 2, 2013, CBOE made clear that it meant ``manually'' where
it presently says ``electronically.'' Accordingly, the sentence
should read: ``This is simpler and more restrictive than the current
rule, which permits the expression of bids and offers on complex
orders in any increment (though only complex orders entered manually
can be in sub-penny increments), which would allow more
sophisticated market participants entering orders manually to
express bids and offers in complex orders in infinitesimally small
amounts.'' (emphasis added).
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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.\6\ Specifically, 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 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
facilitating 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) \8\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. The Exchange believes that
setting a minimum increment for bids and offers on complex orders of
$0.01 will ensure that there is a lowest minimum increment for bids and
offers in complex orders that makes it simple to monitor and
participate for all market participants, thereby removing impediments
to and perfecting the mechanism of a free and open market. Some market
participants, such as public customers, may not have sophisticated
enough order entry systems to quote in sub-penny increments, and this
would ensure that they are placed on the same competitive footing as
those that can do so. Further, the proposed change would place market
participants bidding and offering electronically and manually on the
same competitive footing, as well, since COB and COA both are not
configured to permit quoting in sub-penny increments.\9\ Moreover,
setting a minimum increment for bids and offers at $0.01 ensures that
price improvement occurs at a meaningful increment. Without this
minimum, it would be possible for a market participant to jump ahead of
another market participant's quoted price by a de minimis amount, and
the knowledge that this could occur could discourage competitive
quoting (which would be an impediment to a free and open market). The
proposed minimum increment would apply to all CBOE market participants.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
\9\ See CBOE Rules 6.53C(c)(ii) and 6.53C(d)(iii)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
BOE 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 believes that the
proposed change will not impose an unnecessary burden on intramarket
competition because it applies to minimum increments for bids and
offers on complex orders from all market participants. The Exchange
believes that the proposed change will not impose an unnecessary burden
on intermarket competition because it applies only to CBOE. To the
extent that setting the lowest possible minimum increment for bids and
offers in complex orders at $0.01 (and the other changes proposed
herein) may be attractive to market participants at other options
exchange, such market participants are always welcome to become CBOE
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
[[Page 62889]]
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-2013-093 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-2013-093. 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 20549-1090, 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 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-2013-093, and should be submitted on or before November 12, 2013.
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\10\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24630 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P