[Federal Register Volume 78, Number 223 (Tuesday, November 19, 2013)]
[Notices]
[Pages 69491-69492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27622]
[[Page 69491]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70856; File No. SR-CBOE-2013-109)
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Proposed Rule Change Relating to
Market Maker Appointment Cost Rebalances
November 13, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on November 1, 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 and II below, which Items have been prepared by
the self-regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 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 regarding Market-Maker
appointment cost rebalances. 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, on the Commission's Web site (http://www.sec.gov), 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
The Exchange proposes to amend its rules regarding Market-Maker
appointment cost rebalances. Appointments to act as a Market-Maker
``cost'' different amounts for different classes (with no classes
costing more than 1.0). For purposes of ease of organization, the
Exchange places classes into different tiers, with all the classes in a
certain tier costing the same amount per appointment (so, for example,
all the classes in tier B cost 0.05 per class appointment, all the
classes in tier E cost .01 per class appointment, etc.). Each Trading
Permit held by a Market-Maker has an appointment credit of 1.0. A
Market-Maker may select for each Trading Permit the Market-Maker holds
any combination of Hybrid classes and Hybrid 3.0 classes, whose
aggregate appointment cost does not exceed 1.0.\4\ The Exchange, on a
quarterly basis, can rebalance the tiers into which different classes
fall, meaning that the Exchange can elect to move a class from one tier
to another (with that class' corresponding appointment cost changing).
The Exchange proposes to memorialize in the rule that the Exchange will
announce any rebalances at least ten (10) business days before the
rebalance takes effect. Such rebalances will be announced to Trading
Permit Holders (``TPHs'') via Regulatory Circular. Current Exchange
practice includes announcing such rebalances more than ten business
days prior to taking effect, but this practice is not codified in the
rules. The Exchange proposes to make this codification.
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\4\ See CBOE Rule 8.3(c)(iv).
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When the Exchange effects a rebalancing (a class changing tiers),
the class is assigned the appointment cost of that new tier. Upon such
rebalancing, each Market-Maker with a Virtual Trading Crowd (``VTC'')
appointment \5\ will be required to hold the appropriate number of
Trading Permits reflecting the revised appointment costs of the Hybrid
classes constituting the Market-Maker's appointment. This means that,
when classes are rebalanced, the sum of a Market-Maker's appointment
costs cannot exceed the number of Trading Permits that a Market-Maker
holds. Market-Makers adjust their own appointments via an online
appointment system that allows them to select classes and assigns the
relevant appointment cost to each class. The Exchange proposes to add
language to this rule to provide for the handling of situations in
which, upon notice of rebalancing, a Market-Maker fails to adjust his
appointments such that the sum of his appointment costs do not exceed
the number of Trading Permits the Market-Maker holds. The proposed
language would state that if a Market-Maker with a VTC appointment
holds a combination of appointments whose aggregate revised appointment
cost is greater than the number of Trading Permits that Market-Maker
holds, the Market-Maker will be assigned as many Trading Permits as
necessary to ensure that the Market-Maker no longer holds a combination
of appointments whose aggregate revised appointment cost is greater
than the number of Trading Permits that Market-Maker holds.
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\5\ A VTC appointment allows a Market-Maker to quote
electronically in a class.
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This means that, upon rebalancing, if a Market-Maker's aggregate
appointment cost is higher than the number of permits he holds, the
Exchange will give the Market-Maker the number of permits necessary to
ensure that the Market-Maker's aggregate appointment cost is no longer
higher than the number of permits he holds (and the Market-Maker will
be assessed the corresponding Trading Permit fees for such added
Trading Permits). So, for example, consider a situation in which a
Market-Maker's aggregate appointment cost for the classes for which he
holds Market-Maker appointments prior to a rebalancing is 4.90 and the
Market-Maker holds 5 Trading Permits. The Exchange then rebalances the
appointment costs of classes and announces such rebalancing at least
ten days prior to the rebalancing takes effect. Upon this rebalancing
taking effect, the Market-Maker's appointment cost is now going to be
5.40. If the Market-Maker does not adjust his appointments prior to
such rebalancing taking effect, the Exchange will simply assign that
Market-Maker a sixth Market-Maker Trading Permit.
This solution prevents the Exchange from having to institute
regulatory proceedings against a Market-Maker whose revised aggregate
appointment cost exceeds the number of Trading Permits the Market-Maker
holds. Otherwise, the Exchange must expend considerable resources
coordinating with the Market-Maker to ensure that the Market-Maker
adjusts his appointments such that the Market-Maker's aggregate
appointment cost does not exceed the number of Trading Permits the
Market-Maker holds (as the Exchange does not have the ability to
[[Page 69492]]
adjust the Market-Maker's VTC appointments).
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 also believes the
proposed rule change is consistent with Section 6(b)(1) of the Act,\9\
which provides that the Exchange be organized and have the capacity to
be able to carry out the purposes of the Act and to enforce compliance
by the Exchange's Trading Permit Holders and persons associated with
its Trading Permit Holders with the Act, the rules and regulations
thereunder, and the rules of the Exchange.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
\9\ 15 U.S.C. 78f(b)(1).
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The proposed rule change would allow the Exchange to ensure that no
Market-Maker has an aggregate appointment cost that exceeds the number
of Trading Permits the Market-Maker holds. As such, the proposed rule
change removes an impediment to and perfects the mechanism of a free
and open market system and, in general, protects investors and the
public interest (as having an aggregate appointment cost that exceeds
the number of Trading Permits a Market-Maker holds would provide an
unfair advantage to that Market-Maker). Because the Exchange does not
have the ability to adjust the VTC appointments of a Market-Maker whose
aggregate appointment cost exceeds the number of Trading Permits that
the Market-Maker holds, the proposed rule change also helps the
Exchange to ensure compliance by TPHs with Exchange rules. The proposed
rule change would apply to all Market-Makers equally.
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. CBOE does not believe that the
proposed rule change will impose any burden on intramarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act because it will apply to all Market-Makers (and only Market-
Makers can have a Market-Maker appointment). CBOE does not believe that
the proposed rule change will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the proposed rule change only applies to
the Market-Maker appointment process on CBOE, and also because the
proposed rule change is intended for a compliance, and not competitive,
purpose.
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 self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the 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 No. SR-CBOE-2013-109 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 No. SR-CBOE-2013-109. 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 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 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 No. SR-CBOE-2013-109 and should be
submitted on or before December 10, 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. 2013-27622 Filed 11-18-13; 8:45 am]
BILLING CODE 8011-01-P