[Federal Register Volume 79, Number 150 (Tuesday, August 5, 2014)]
[Notices]
[Pages 45560-45562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18379]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72704; File No. SR-CBOE-2014-060
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change To Amend Rule
24.19
July 29, 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 July 25, 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 and II 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 amend its rule related to Multi-Class
Broad-Based Index Option Spread Orders. 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 Rule 24.19. This Rule allows Trading
Permit Holders (``TPHs'') to execute Multi-Class Broad-Based Index
Option Spread Orders (``Multi-Class Spread Orders'') that meet certain
qualifying criteria. Currently, not all Multi-Class Spread Orders may
be entered electronically due to systems constraints. The Exchange is
in the process of modifying its electronic order-entry systems to
provide for the electronic entry and validation of all Multi-Class
Spread Orders to the floor of the Exchange. This will provide for an
enhanced audit trail that will better allow regulatory oversight in
connection with the provisions of Rule 24.19. For the Exchange's
systems to determine that two separate legs are part of the same Multi-
Class Spread Order (allowing for treatment as a Multi-Class Spread
Order), both legs must be entered together on a single order ticket. As
such, the Exchange proposes to amend Rule 24.19 to state that ``Multi-
Class Spread Orders must be entered on a single order ticket at time of
systemization to be eligible for the procedures and relief set out in
this Rule.'' \3\ The Multi-Class Spread Order type will enforce the
permitted combinations of options covered by Rule 24.19. The Exchange
will not accept Multi-Class Spread Orders with invalid combinations.
While the proposed rule change allows for all Multi-Class Spread Orders
to be entered electronically, all Multi-Class Spread Orders will still
be executed in open outcry on the Exchange's trading floor.
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\3\ The Exchange notes that the substance of this proposal was
published in a prior proposal which was published for the entire 21
day comment period, and no comments were received. That prior
proposal provided for several changes to Rule 24.19; however, this
proposal specifically relates to the electronic entry and validation
of Multi-Class Spread Orders and can be considered and approved
without reference to the other proposed changes in the prior
proposal. See Securities Exchange Act Release No. 71872 (April 4,
2014), 79 FR 19940 (April 10, 2014) (SR-CBOE-2014-026).
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Because the current method for representing and executing Multi-
Class Spread Orders is manual and must occur only in open outcry, the
current language states that a Multi-Class Spread Order may be
represented at the trading station of either Broad-Based Option
comprising the order, and also requires that the TPH initiating the
order in the trading crowd to contact an Order Book Official (``OBO''),
Designated Primary Market-Maker (``DPM''), or appropriate Exchange
staff, as applicable, at the other trading station to have a notice of
such order disseminated to the other trading crowd. The proposed rule
change will require that a Multi-Class Spread Order be represented at
the primary trading station, and states that the TPH representing the
order must contact the DPM or Exchange staff \4\ (as applicable) at the
other trading station in order to provide notice of such order for
dissemination to the other trading crowd. Each Broad-Based Index Option
has a trading station. The primary trading station is the first trading
station at which the Multi-Class Spread Order is represented. The floor
broker representing the Multi-Class Spread Order may determine which
trading station should be the primary trading station. The current rule
states that notice of a Multi-Class Spread order ``shall be
disseminated by the Recipient who shall verbalize the terms of the
order to the other trading crowd.'' However, the Exchange proposes to
replace the word ``verbalize'' with the word ``announce'', as the
Exchange is currently contemplating changes that will allow such notice
to be posted on screens electronically to the other trading crowd
(which could be a more efficient method of posting such order
information). This ensures that all market participants at both
physical trading locations are aware of the terms of the order being
processed.
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\4\ The Exchange proposes to remove the reference to contacting
an OBO, as the Exchange no longer has OBOs.
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The proposed rule change will enhance and improve the process of
sending Multi-Class Spread Orders to the floor of the Exchange, as well
as enhance the Exchange's audit trail with respect to such orders. No
later than 90 days following the effective date of the proposed rule
change, the Exchange will announce to TPHs via Regulatory Circular the
implementation date by which TPHs must be in compliance with the
changes described herein. The implementation date will be no later than
180 days following the effective date of the proposed rule change, and
will be at least 30 days following the release of the abovementioned
Regulatory Circular (in order to give TPHs ample time to come into
[[Page 45561]]
compliance with the changes described herein).
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\5\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ Id.
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In particular, the Exchange believes that automating the Multi-
Class Spread Order creation process for all Multi-Class Spread Orders
serves to remove impediments to and to perfect the mechanism for a free
and open market and a national market system by providing market
participants the ability to route Multi-Class Spread Orders to the
Exchange electronically. Further, enhancing the audit trail with
respect to Multi-Class Spread Orders promotes transparency and aids in
surveillance, thereby protecting investors.
The Exchange also believes the proposed rule change is consistent
with Section 6(b)(1) of the Act,\8\ 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. Enhancing the audit trail with respect to Multi-Class Spread
Orders will allow the Exchange to better enforce compliance by the
Exchange's TPHs and persons associated with its TPHs with the Act, the
rules and regulations thereunder, and the rules of the Exchange.
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\8\ 15 U.S.C. 78f(b)(1).
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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 believes that
automating the Multi-Class Spread Order creation process for all Multi-
Class Spread Orders promotes fair and orderly markets, as well as
assists the Exchange in its ability to effectively attract order flow
and liquidity to its market, and ultimately benefits all CBOE TPHs and
all investors. The Exchange 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 Multi-Class Spread Orders are available to all market
participants through CBOE TPHs. The Exchange 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, again, Multi-Class Spread Orders are available to all
market participants through CBOE TPHs, which makes CBOE a more
effective marketplace. Further, the proposed changes only affect
trading on CBOE. To the extent that the proposed changes make CBOE more
attractive to market participants at other exchanges, such market
participants may elect 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 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.
The Exchange has requested accelerated approval of the proposed
rule change. The Commission is considering granting accelerated
approval of the proposed rule change at the end of a 15-day comment
period.
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-2014-060 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-2014-060. 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-2014-060 and should be
submitted on or before August 20, 2014.
[[Page 45562]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill.
Deputy Secretary.
[FR Doc. 2014-18379 Filed 8-4-14; 8:45 am]
BILLING CODE 8011-01-P