[Federal Register Volume 78, Number 230 (Friday, November 29, 2013)]
[Notices]
[Pages 71688-71689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28573]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70930; File No. SR-CBOE-2013-093]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Approving a Proposed Rule Change To Amend CBOE Rule
6.42
November 22, 2013.
I. Introduction
On September 27, 2013, the Chicago Board Options Exchange,
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities
and Exchange Commission (the ``Commission''), pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (the ``Act'') \1\ and
Rule 19b-4 thereunder,\2\ a proposed rule change to amend CBOE Rule
6.42, ``Minimum Increments for Bids and Offers,'' to establish a
minimum quoting increment for complex orders. The proposed rule change
was published for comment in the Federal Register on October 22,
2013.\3\ The Commission received no comment letters regarding the
proposed rule change. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 70618 (October 7,
2013), 78 FR 62887 (``Notice'').
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II. Description of the Proposal
Currently, CBOE Rule 6.42(4) provides 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.\4\ CBOE
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states that this language allows bids and offers for complex orders to
be expressed in any increment whatsoever.\5\ To establish a minimum
quoting increment for complex orders, CBOE proposes to revise CBOE Rule
6.42(4) to state that bids and offers for complex orders may be
expressed in any net price increment that may not be less than $0.01,
which CBOE may determine on a class-by-class basis and announce to
Trading Permit Holders (``TPHs'') via Regulatory Circular.\6\ CBOE
would notify TPHs of the minimum quoting increments for complex orders
via Regulatory Circular.\7\ CBOE would not change the minimum quoting
increments for complex orders on an intra-day basis.\8\
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\4\ For the purposes of CBOE Rule 6.42, a complex order is a
spread, straddle, combination, or ratio order as defined in CBOE
Rule 6.53, a stock-option order as defined in CBOE Rule 1.1(ii), a
security future-option order as defined in Rule 1.1(zz), or any
other complex order as defined in CBOE Rule 6.53C. See CBOE Rule
6.42, Interpretation and Policy .01.
\5\ See Notice 78 FR at 62887.
\6\ CBOE states that the rule would allow the Exchange to
establish uniform complex order quoting increments within a class,
and to set and vary the minimum complex order quoting increments for
different classes in response to different market conditions in
those classes and to encourage more trading in those classes. CBOE
notes that its rules currently allow it to establish minimum quoting
increments for complex orders in options on the S&P 500 Index
(``SPX''), the p.m.-settled S&P 500 Index (``SPXPM''), and on the
S&P 100 Index (``OEX'' and ``XEO''). See Notice 78 FR at 62888 and
CBOE Rule 6.42(4).
\7\ See Notice 78 FR at 62888.
\8\ See id. at note 4.
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According to CBOE, many web-based services that public customers
use to enter options orders do not permit the entry of orders in sub-
penny increments, a limitation that other market participants may not
face.\9\ CBOE believes that the proposal will establish a minimum
complex order quoting increment that all market participants will be
able to monitor and in which all market participants will be able to
enter orders.\10\ In addition, because CBOE's electronic complex order
execution systems, the Complex Order Book (``COB'') and Complex Order
Auction (``COA''), are not configured to permit quoting in sub-penny
increments, the $0.01 minimum increment would place electronic and
manually entered complex orders on an even footing.\11\ CBOE also
believes that establishing a minimum quoting increment of $0.01 will
assure that price improvement occurs at a meaningful increment, and
will prevent market participants from jumping ahead of an existing
quote by providing a de minimus amount of price improvement.\12\
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\9\ See Notice 78 FR at 62887.
\10\ See id.
\11\ See Notice 78 FR at 62887-62888. See also CBOE Rules
6.53C(c)(ii) and 6.53C(d)(iii)(1) (providing for quoting increments
of no less than $0.01 in the COB and Requests for Responses
(``RFRs'') in increments of no less than $0.01 in the COA). CBOE
notes that the $0.01 minimum increment would prevent sophisticated
market participants from manually entering complex order quotations
in sub-penny amounts. See Notice 78 FR at 62888, note 5.
\12\ See Notice 78 FR at 62888.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\13\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\14\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, 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. As discussed above, CBOE Rule 6.42(4) currently allows
bids and offers for complex orders to be expressed in any increment,
which potentially could permit bids and offers for complex orders to be
expressed in increments smaller than $0.01. In contrast, complex orders
entered in the COB and RFR Responses to a COA auction may not be
entered in increments smaller than $0.01.\15\ Thus, under CBOE's
current rules, complex orders that are entered manually potentially
could be entered in increments smaller than $0.01, while complex order
trading interest entered electronically in the COB and the COA may not
be entered in increments smaller than $0.01. By establishing a $0.01
minimum quoting increment for complex orders, the proposal is designed
to protect investors by establishing a consistent minimum quoting
increment for complex orders that are entered manually and complex
orders that are entered electronically through the COB and COA.
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\13\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\14\ 15 U.S.C. 78f(b)(5).
\15\ See CBOE Rules 6.53C(c)(ii) and (d)(iii)(1).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-CBOE-2013-093) is approved.
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\16\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28573 Filed 11-27-13; 8:45 am]
BILLING CODE 8011-01-P