[Federal Register Volume 79, Number 96 (Monday, May 19, 2014)]
[Notices]
[Pages 28787-28791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-11435]
[[Page 28787]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72154; File No. SR-CBOE-2014-040]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change Relating to
Orders That Are Tied to Stock
May 13, 2014.
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 April 30, 2014, 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 proposed to add rules regarding orders that are tied
to stock. The text of the proposed rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Rule 6.53. Certain Types of Orders Defined
One or more of the following order types may be made available on a
class-by-class basis. Certain order types may not be made available for
all Exchange systems. The classes and/or systems for which the order
types shall be available will be as provided in the Rules, as the
context may indicate, or as otherwise specified via Regulatory
Circular.
(a)-(x) No change.
(y) Tied to Stock Order. An order is ``tied to stock'' if, at the
time the Trading Permit Holder representing the order on the Exchange
receives or initiates the order, the Trading Permit Holder has
knowledge that the order is coupled with an order(s) for the underlying
stock or a security convertible into the underlying stock
(``convertible security''). The representing Trading Permit Holder must
include an indicator on each tied to stock order upon systemization,
unless:
(i) the order is submitted to the Exchange as part of a qualified
contingent cross order (as defined in this Rule 6.53) through an
Exchange-approved device;
(ii) the order is submitted to the Exchange for electronic
processing as a stock-option order (as defined in Rule 6.53C); or
(iii) all of the component orders are systematized on a single
order ticket.
An order is not ``tied to stock'' if it is not coupled with an order(s)
for the underlying stock or convertible security at the time of receipt
or initiation (e.g., an option order that is received or initiated to
hedge a previously executed stock transaction, an option transaction or
position that is hedged with a subsequently received or initiated stock
order).
. . . Interpretations and Policies:
.01 No change.
* * * * *
Rule 6.77. Order Service Firms
(a)-(d) No change.
(e) Order service firms must submit reports pursuant to Rule 15.2A
with respect to the stock transactions it executes on behalf of market-
makers pursuant to this Rule 6.77.
* * * * *
Rule 15.2A. Reports of Execution of Stock Transactions
In a manner and form prescribed by the Exchange, each Trading
Permit Holder must, on the business day following the order execution
date, report to the Exchange the following information for the executed
stock or convertible security legs of QCC orders, stock-option orders
and other tied to stock orders that the Trading Permit Holder executed
on the Exchange that trading day: (a) Time of execution, (b) execution
quantity, (c) execution price, (d) venue of execution, and (e) any
other information requested by the Exchange. A Trading Permit Holder
may arrange for its clearing firm to submit these reports on its
behalf; provided that if the clearing firm does not report an executed
stock order, the Trading Permit Holder will be responsible for
reporting the information.
. . . Interpretation and Policies:
.01 The Exchange will announce by Regulatory Circular any
determinations, including the manner and form of the report, that it
makes pursuant to Rule 15.2A.
.02 A Trading Permit Holder (or its clearing firm) does not need to
report information pursuant to Rule 15.2A with respect to (a) stock-
option orders (as defined in Rule 6.53C) submitted to the Exchange for
electronic processing or (b) stock or convertible security orders
entered into an Exchange-approved device.
.03 A Market-Maker (or its clearing firm) may include the
information required by Rule 15.2A in the equity reports submitted to
the Exchange pursuant to Rule 8.9(b).
.04 If a tied to stock order executed at multiple options
exchanges, a Trading Permit Holder (or its clearing firm) may report to
the Exchange the information pursuant to Rule 15.2A for the entire
stock or convertible security component(s) rather than the portion of
the stock or convertible security component(s) applicable to the
portion of the order that executed at the Exchange.
.05 In lieu of the time of execution pursuant to Rule 15.2A(a), the
Exchange may accept the time of the trade report if that time is
generally within 90 seconds of the time of execution.
* * * * *
The text of the proposed rule change is also 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 add rules regarding orders that are tied
to stock, which include a proposed definition of tied to stock orders
and a related reporting requirement.
Tied to Stock Orders
The Exchange proposes to add a definition of a tied to stock order
as
[[Page 28788]]
Rule 6.53(y). Proposed paragraph (y) provides that an order is tied to
stock if, at the time the Trading Permit Holder representing the order
on the Exchange receives the order (if the order is a customer order)
or initiates the order (if the order is a proprietary order), has
knowledge that the order is coupled with an order(s) for the underlying
stock or a security convertible into the underlying stock
(``convertible security'' and, together with underlying stock, ``non-
option''). Tied to stock orders may be simple or complex orders and may
be part of, among other things, buy-write strategies, married put
strategies, delta neutral strategies, contingent strategies and other
stock-option trading strategies with definitive option orders and stock
orders.
The representing Trading Permit Holder must include an indicator on
each tied to stock order upon systemization unless:
The order is submitted to the Exchange as part of a
qualified contingent cross (``QCC'') \3\ order through an Exchange-
approved device;
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\3\ A QCC order is an order to buy (sell) at least 1,000
standard option contracts or 10,000 mini-option contracts that is
identified as being part of a qualified contingent trade coupled
with a contra-side order to sell (buy) an equal number of contracts.
These orders may only be entered in the standard increments
applicable to simple orders in the options class under Rule 6.42.
For purposes of this order type, a ``qualified contingent trade'' is
a transaction consisting of two or more component orders, executed
as agent or principal, where: (a) At least one component is an NMS
stock, as defined in Rule 600 of Regulation NMS under the Act; (b)
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; (c) the
execution of one component is contingent upon the execution of all
other components at or near the same time; (d) 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; (e) 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 (f) the transaction is fully hedged
(without regard to any prior existing position) as a result of other
components of the contingent trade. QCC orders may execute without
exposure provided the execution is not at the same price as a public
customer order resting in the electronic book and is at or between
the national best bid or offer. A QCC order will be cancelled if it
cannot be executed. See Rule 6.53(u).
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the order is submitted to the Exchange for electronic
processing as a stock-option order;\4\ or
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\4\ A ``stock-option order'' is an order buy or sell a stated
number of units of any underlying stock or convertible security
coupled with the purchase or sale of options contract(s) on the
opposite side of the market representing either (i) the same number
of units of the underlying stock necessary to create a delta neutral
position, but in no case in a ratio greater than eight-to-one, where
the ratio represents the total number of units of the underlying
stock or convertible security in the option leg to the total number
of the underlying stock or convertible security in the stock leg (or
such lower ratio as may be determined by the Exchange on a class-by-
class basis) [sic]. Only those stock-option orders with no more than
the applicable number of legs, as determined by the Exchange on a
class-by-class basis, are eligible for processing. See Rule
6.53C(a)(2).
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all components of the trading strategy of which the order
is a part, including the non-option orders, are systematized on a
single order ticket.
The purpose of the indicator is to enhance the Exchange's audit
trail. The Exchange believes there are circumstances in which investors
do not submit to or systematize at the Exchange the non-option
component(s) of trading strategies with the related option
component(s). Instead, they separately submit the non-option
component(s) for execution, such as to a broker or directly to another
trading venue, which prevents the Exchange from knowing that it relates
to an order(s) that executed on the Exchange. For example, suppose a
Trading Permit Holder receives a stock-option strategy from a customer
to buy 10,000 shares of stock XYZ and buy 100 XYZ puts. The Trading
Permit Holder submits the put order to CBOE for execution but requests
that a broker at the New York Stock Exchange (``NYSE'') execute the
stock order. In this case, the Trading Permit Holder must include the
tied to stock indicator on the XYZ put order. If the Trading Permit
Holder had instead submitted the option and stock orders to CBOE as a
stock-option order, then no indicator would have been required. The
indicator will alert the Exchange of any non-option order that is part
of a trading strategy for which the option order executed on the
Exchange.
The proposed rule excludes from the requirement to include the
indicator for tied to stock orders upon systemization the situation in
the first bullet above because devices used for order submissions may
be modified to automatically apply the tied to stock indicator to QCC
orders after systemization, in which case the representing Trading
Permit Holder would not also need to add the indicator to those orders
upon systemization.\5\ With respect to the situation in the second and
third bullets above (for which no indicator is required), the stock or
convertible security component(s) is systematized at the Exchange with
the option component, so the Exchange is already aware that these
orders include a stock or convertible security component(s). Thus, the
Exchange does not believe it is necessary to require Trading Permit
Holders to add the ``tied to stock'' marking to these orders to
indicate the stock components for audit trail purposes.
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\5\ Currently, the Floor Broker Workstation (``FBW'') and PULSe
workstation would be the only Exchange-approved devices for this
proposed rule. If additional devices (whether provided by the
Exchange or a third party) are modified to automatically apply the
tied to stock indicator to QCC orders when those orders are
submitted to the Exchange, then the Exchange may ``approve'' those
devices for purposes of this exclusion.
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As the proposed definition indicates, a Trading Permit Holder must
have knowledge of the non-option order. In the example above, the
customer instructed the Trading Permit Holder to execute a stock-option
strategy (buy 10,000 shares of stock XYZ and buy 100 XYZ puts) and thus
had knowledge of the stock component at the time it received the order
from the customer. Thus, the Trading Permit Holder must mark the put
order as tied to stock when it systematizes the order.\6\ However,
assume the customer gave the put order to the Trading Permit Holder and
separately called another broker at NYSE to execute the stock order
(but never told the Trading Permit Holder about the related stock
order), the Trading Permit Holder would have no knowledge of the stock
component and thus would not be required to include the tied to stock
marking.
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\6\ Similar reasoning applies if the Trading Permit Holder had
developed the trading strategy for its proprietary account.
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The marking obligation falls on the representing Trading Permit
Holder. If a Trading Permit Holder is a routing broker and receives an
option order with no knowledge of a related stock component submitted
separately for execution, then the routing broker is not required to
include the tied to stock indicator. Thus, routing brokers do not need
to take any steps to require non-Trading Permit Holder clients to
identify orders as tied to stock. If a routing client is a Trading
Permit Holder, and that Trading Permit Holder client separates the
stock order (or is aware of a separate non-option order) prior to
submitting the option order to the routing broker (who ultimately sends
the order to the Exchange), the Trading Permit Holder client has the
responsibility to include the tied to stock marking (the order would
already be marked when received by the routing broker, so the routing
broker would have no ``re-marking'' obligation). However, while routing
brokers generally do not populate order information, the Exchange
believes they do in certain circumstances. In the event a routing
broker does populate order information and either elects to route
[[Page 28789]]
the non-option order of a trading strategy separately for execution (or
has knowledge of a separate non-option component), then the routing
broker must include the tied to stock indicator on the option order.
An order is not tied to stock if it is not coupled with an order(s)
for the non-option order at the time of receipt or initiation. An order
is tied to stock only if part of a trading strategy coupled with at
least one non-option component, which trading strategy comprised of a
single investment decision for which the investor has the intent of
execution of these orders at or near the same time. For example, an
option order that is received or initiated to hedge a previously
executed stock transaction is not tied to stock. The option order is a
separate and subsequent investment decision based on an existing stock
position; thus, there is no intent for execution of the option order at
or near the same time as a stock order. Similarly, an option
transaction or position that is hedged with a subsequently received or
initiated stock order is not tied to stock. The decision to submit the
stock order was a subsequent investment decision based on an existing
option position. Thus, a Trading Permit Holder does not need to include
a tied to stock indicator on option orders that hedge currently held
positions (whether in options or non-options). Similarly, a Trading
Permit Holder does not need to go back and add the indicator to a
previously executed option order for which it later submits a stock
order to offset the option position. For example, if a Market-Maker has
a current option position (i.e., an option quote or order has already
executed), and then submits a stock order to hedge that option
position, the original option order is not tied to the subsequent stock
order and does not require a tied to stock indicator. The Exchange does
not require identification of these types of hedging strategies for
audit trail purposes. Trading Permit Holders only need to include the
tied to stock indicator on orders that are coupled with non-option
orders as part of a trading strategy comprised of a single investment
decision for which the intent is to have all components execute at or
near the same time.
Reporting Requirement
The proposed rule change adopts Rule 15.2A, which provides that in
a manner and form prescribed by the Exchange, each Trading Permit
Holder must, on the business day following the order execution date,
report to the Exchange the following information for the executed stock
or convertible security legs of QCC orders, stock-option orders and
other tied to stock orders that the Trading Permit Holder executed on
the Exchange that trading day: (a) Time of execution, (b) execution
quantity, (c) execution price, (d) venue of execution, and (e) any
other information requested by the Exchange. The proposed rule change
also allows a Trading Permit Holder to arrange for its clearing firm to
submit these reports on its behalf; provided that if the clearing firm
does not report an executed stock order, the Trading Permit Holder will
be responsible for reporting the information. Allowing clearing firms
to report the information to the Exchange provides Trading Permit
Holders with flexibility in the event that clearing firms are better-
positioned to report the information.\7\ However, the ultimate
responsibility lies with the executing Trading Permit Holder (who would
also have the responsibility to report the option transaction
information).
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\7\ The Exchange provides Market-Makers with similar flexibility
in Rule 8.9(b) with respect to equity trade reports.
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Proposed Interpretation and Policy .01 provides that the Exchange
will designate by Regulatory Circular any determinations \8\ that it
makes under Rule 15.2A, including the manner and form in which Trading
Permit Holders should submit these reports to the Exchange.
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\8\ This includes the implementation date of the reporting
requirement and any updates or changes to any determinations made by
the Exchange.
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Proposed Interpretation and Policy .02 provides that Trading Permit
Holders do not need to report information pursuant to Rule 15.2A with
respect (a) stock-option orders submitted to the Exchange for
electronic processing (such as to the complex order book (COB), the
complex order auction (COA) or the automated improvement mechanism
(AIM)) or (b) stock or convertible security orders entered into an
Exchange-approved device. Because the Exchange routes for execution
through a routing broker to stock exchanges or trading centers the
stock components of these orders, the Exchange will already have access
to the transaction information for the stock components of stock-option
orders submitted to the Exchange for electronic processing. With
respect to stock or convertible legs that are entered into an Exchange-
approved device, the Exchange is able to receive the applicable data
for these orders and thus does not need to also receive the data
directly from Trading Permit Holders.\9\
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\9\ The Exchange will announce by Regulatory Circular which
devices provided by the Exchange (e.g., FBW, PULSe) will be
``Exchange-approved'' for purposes of this rule. The Exchange will
also announce by Regulatory Circular how other devices may become
approved for purposes of this rule.
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Proposed Interpretation and Policy .03 provides that a Market-Maker
(or its clearing firm, if applicable) may include the information
required by proposed Rule 15.2A in the equity reports it must already
submit to the Exchange pursuant to Rule 8.9(b). Allowing Market-Makers
to combine these reports will eliminate potential duplicate reports.
Proposed Interpretation and Policy .04 provides that if a tied to
stock order executed at multiple options exchanges, a Trading Permit
Holder (or its clearing firm, as applicable) may report to the exchange
the information pursuant to Rule 15.2A for the entire stock or
convertible security component(s) rather than the portion applicable to
the portion of the order that executed at the Exchange. The Exchange
believes this flexibility is appropriate given the potential for
executions in multiple markets. For example, suppose a Trading Permit
Holder sells 100 calls on XYZ, 20 of which execute at CBOE, and
contemporaneously purchases 10,000 shares of XYX. CBOE appreciates the
difficulty in identifying the 2,000 shares of XYZ that ``relate'' to
the 20 options sold at CBOE. The proposed rule change will provide the
Exchange with the information it needs while minimizing the burden on
Trading Permit Holders.
Proposed Interpretation and Policy .05 provides that in lieu of
time of execution, the Exchange may accept the time of the trade report
for the non-option transaction if that time is generally within 90
seconds of the time of execution. This timing is consistent with Rule
6.51, which requires Trading Permit Holders to report option
transaction information within 90 seconds of execution. The time of the
trade report, if it is generally within this 90-second time frame,\10\
will provide the Exchange with sufficient information for surveillance
purposes while providing Trading Permit Holders with flexibility if
they determine that the trade report time is easier to provide than
trade execution time.
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\10\ Under Rule 6.51, a pattern or practice of late reporting
options transactions without exceptional circumstances may be
considered conduct inconsistent with just and equitable principles
of trades. Similarly, the Exchange may not accept this substitute
information for non-option transactions from Trading Permit Holders
that exhibit such a pattern or practice of late reporting, as
regular late reporting times would not provide the Exchange with the
information necessary to conduct its surveillances.
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The Exchange is responsible for regulating its markets and Trading
[[Page 28790]]
Permit Holders. To carry out its regulatory responsibilities, the
Exchange needs to have sufficient trade data to effectively monitor
cross-market trading activity, assist with investigations of potential
violations of federal securities laws and Exchange rules, and perform
market reconstructions or other analysis necessary to understand
trading activity. CBOE currently requires Trading Permit Holders to
submit various execution data in real-time or daily to help the
Exchange monitor trading activity.\11\ The Exchange believes that as
use of electronic, interconnected markets continues to increase, access
to additional cross-market order information, specifically information
regarding stock trades tied to stock orders, would enhance the
Exchange's ability to monitor this trading activity and therefore allow
it to more effectively fulfill its regulatory responsibilities.\12\
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\11\ See, e.g., Rules 4.13 (requires Trading Permit Holders to
submit reports to the Exchange related to position limits); 6.24
(which requires Trading Permit Holders to systemize certain order
information); 6.51 (requires Trading Permit Holders to report to the
Exchange certain information regarding transactions on and off the
Exchange); 8.9 (requires Clearing Trading Permit Holders to report
to the Exchange executed orders by Market-Makers for the purchase or
sale of equity securities, as well as opening and closing positions
in those securities); 15.2 (requires Trading Permit Holders to
submit to the Exchange a daily report of all transactions); and 15.3
(requires Trading Permit Holders, upon request of the Exchange, to
submit a report of the total uncovered short positions in each
option contract class); see also Rule 15.1, Interpretation and
Policy .01.
\12\ The Consolidated Audit Trail (``CAT'') highlights the need
for self-regulatory organizations to have access to cross-market
activity. While CBOE appreciates that CAT will capture this stock
transaction information when implemented, the Exchange believes that
the implementation of CAT may be several years away and that it
should continue to enhance its audit trail when it identifies
opportunities to do so, particularly when the enhancements will
reduce the long-term costs and burdens on both the Exchange and
Trading Permit Holders.
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The Exchange believes the additional information it will receive
pursuant to proposed Rule 15.2A (including information from orders
service firms) will enhance its ability to effectively monitor and
conduct surveillance of the CBOE market and its Trading Permit Holders
with respect to stock orders whose execution information is not
electronically captured by its audit trail, and their relevant cross-
market trading activity, and thus to detect and investigate illegal
activity in a more timely fashion. The Exchange also believes that the
proposed rule change will improve its ability to conduct more timely
and accurate trading analyses, market reconstructions, complex
enforcement inquiries or investigations, and inspections and
examinations. The proposed marking of tied to stock orders will greatly
improve the Exchange's ability to tie an executed non-option leg to the
applicable option order and thus the Exchange's ability to conduct
surveillances related to these orders, such as surveillances for
compliance with Regulation SHO and frontrunning rules.
The Exchange believes the proposed rule change to mark tied to
stock orders will place minimal additional burden on Trading Permit
Holders, because the indicator will merely be adding one additional
notation when entering a tied to stock order. The Exchange also
believes the proposed rule change to report to the Exchange information
regarding stock trades will place minimal additional burden on Trading
Permit Holders, as the Exchange believes Trading Permit Holders keep
records of their stock transaction information and, to the extent stock
executions occur on registered exchanges, must report stock transaction
to stock exchanges. Additionally, as discussed above, Exchange rules
already require Trading Permit Holders to systemize or report various
types of information regarding their orders and transactions to the
Exchange. Further, while Trading Permit Holders may need to perform
systems work to allow for the indicator, the Exchange believes that
this proposed rule change will substantially decrease Trading Permit
Holders' administrative burden in the long-term, in addition to the
Exchange's administrative burden, in having to otherwise manually
gather this cross-market information and tie non-option legs to option
orders in connection with the Exchange's regulatory duties.
Order service firms,\13\ which are Trading Permit Holders, will be
subject to the reporting requirements set forth in proposed Rule 15.2A
with respect to stock transactions that they execute on behalf of
market-makers on the floor of the Exchange. The proposed rule change
adds paragraph (e) to Rule 6.77 to include this reporting requirement,
as the Exchange believes that including all requirements applicable to
order service firms in a single Exchange rule will benefit these firms.
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\13\ Order service firms are regular Trading Permit Holder
organizations that are registered with the Exchange for the purpose
of taking orders for the purchase or sale of stocks or commodity
futures contracts (and options thereon) from market-makers on the
floor of the Exchange and forwarding such orders for execution. Rule
6.77(a).
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The Exchange will announce the implementation date of the proposed
rule change in a Regulatory Circular to be published no later than 90
days following the effective date. The implementation date will be no
later than 180 days following the effective date.
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.\14\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \15\ 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) \16\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
\16\ Id.
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In particular, the Exchange believes the proposed rule change will
significantly aid the Exchange's efforts to prevent fraudulent and
manipulative acts and practices with respect to tied to stock orders,
because it will greatly improve the Exchange's ability to tie executed
non-option legs to the applicable option orders that were separately
submitted for execution. This, along with the additional stock
transaction information that the Exchange will receive pursuant to
proposed Rule 15.2A, will provide the Exchange with information that
will permit CBOE to more efficiently and effectively conduct its
regulatory surveillances of CBOE trading activity and cross-market
trading activity, such as surveillances to ensure compliance with
Regulation SHO and frontrunning rules. Because the proposed rule change
will enhance the Exchange's surveillance of cross-market trading
activity, the Exchange believes the proposed rule change will also
remove impediments to and perfect the mechanism of a free and open
market and a national market system. In addition, the Exchange believes
the proposed rule change will promote just
[[Page 28791]]
and equitable principles of trade and protect investors by allowing the
Exchange to detect and investigate illegal activity in a more timely
fashion and improving the Exchange's ability to conduct more timely and
accurate trading analyses, market reconstructions, complex enforcement
inquiries or investigations, and inspections and examinations. Finally,
the Exchange believes that the proposed changes to Rule 6.77 will
benefit investors by including all requirements with respect to stock
transactions executed by orders service firms, respectively, in a
single place within the Exchange's rules.
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 not necessary or appropriate in furtherance of
the purposes of the Act. The proposed rule change will impose the same
marking and reporting requirements on all Trading Permit Holders with
respect to tied to stock orders. The Exchange believes that the
proposed rule change does not impose any burden on intermarket
competition not necessary or appropriate in furtherance of the purposes
of the Act. While the proposed rule change may impose requirements with
respect to tied to stock orders submitted to CBOE that other options
exchanges do not, the Exchange believes that, as discussed above, any
additional burden imposed on Trading Permit Holders by this proposed
rule change is minimal. The Exchange believes that, while the proposed
rule change is imposing a new marking and reporting requirement on
Trading Permit Holders, it requires only an indicator with respect to
the marking requirement and it provides flexibility with respect to the
reporting requirement (such as allowing clearing firms to report the
stock transaction information and allowing Market-Makers to combine the
required information with reports they already provide to the Exchange)
to minimize any additional burden. The Exchange believes Trading Permit
Holder already have records of the non-option transaction information
in order to satisfy other reporting requirements (such as those of
stock exchanges). The Exchange recognizes that Trading Permit Holders
may need to perform system work to allow for the indicator and the
reports. However, the Exchange believes these upfront costs on Trading
Permit Holders will offset their long-term burden associated with
providing the Exchange with this information pursuant to individual
requests. In addition, the Exchange believes that the flexibility
provided within the proposed reporting rule further reduces any
additional burdens that the rule imposes on Trading Permit Holder.
Additionally, the proposed rule change will reduce the Exchange's
costs associated with identifying and gathering this information.
Currently, the Exchange is not aware of separate non-option components
and does not have access to non-option transaction information of
trading strategies that were not submitted to the Exchange for
electronic processing. It must gather this information manually, which
is time-consuming and expensive for both the Exchange and Trading
Permit Holders. The Exchange believes the benefits that the proposed
rule change will provide to the Exchange and Trading Permit Holders
outweigh any minimal additional burden and upfront costs imposed on
Trading Permit Holders.
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
proposal.
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-2014-040 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2014-040. 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 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-2014-040 and should be
submitted on or before June 9, 2014.
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. 2014-11435 Filed 5-16-14; 8:45 am]
BILLING CODE 8011-01-P