[Federal Register Volume 79, Number 212 (Monday, November 3, 2014)]
[Notices]
[Pages 65263-65268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26010]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73450; File No. SR-CBOE-2014-081]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Functionality of Public Automated
Routing System
October 28, 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 October 15, 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 proposes to adopt Rule 6.12A (Public Automated Routing
System (PAR)) to describe the functionality of the PAR workstation. The
text of the proposed rule change is below and in Exhibit 1 (additions
are italicized; deletions are [bracketed]).
* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Rule 6.12. Reserved
* * * * *
6.12A. Public Automated Routing System (PAR)
Rule 6.12A. The PAR workstation (PAR) is an Exchange-provided order
management tool for use on the Exchange's trading floor by Trading
Permit Holders or Exchange PAR Officials (see Rule 7.12 for a
description of the responsibilities of PAR Officials). The Exchange's
Order Handling System allows for orders to be routed to and from PAR in
accordance with TPH and Exchange order routing parameters and the Rules
including, but not limited to, this Rule 6.12A and Chapters VI, VII,
and VIII of the Rules and Rules 6.2B, 6.13, 6.14B, 6.53, 6.53C, 6.74,
7.12, and 8.51 thereunder.
(a) Order Routing. Eligible orders will be routed to PAR in
accordance with TPH and Exchange order routing parameters and the
order's terms.
(b) Order Handling. Once an order is on PAR, the order shall be
processed in accordance with the manual or automatic settings
established by the user and the order's terms. Subject to the forgoing,
once an order is on PAR, the user may:
(i) Submit the order into the Hybrid Trading System (including for
execution against quotes and orders resting in the electronic book and
exposure to appropriate electronic auctions pursuant to Rules 6.13A,
6.14A, 6.53C, 6.74B, and 24B.5B);
(ii) Execute the order in open outcry, including against other
orders on PAR and with other TPHs or PAR Officials in accordance with
Rules 6.74 and 7.12;
(iii) Route the order to an Order Management Terminal (OMT)
[[Page 65264]]
designated by the TPH or otherwise return the order to the order entry
firm or originating TPH;
(iv) Route the order or a portion thereof to an away exchange in
accordance with Rules 6.14B and 6.81;
(v) Reflect the price and/or quantity related to the order or a
portion thereof in the displayed Exchange BBO (applicable only in
options classes on the Hybrid 3.0 Platform); or
(vi) Cancel the unexecuted order, including upon receipt of a
cancel request from the order entry firm or originating TPH or as
prescribed by Exchange or TPH order routing parameters.
(c) Eligible Order Types. Unless otherwise specified in the Rules,
all order types specified in Rule 6.53 are eligible to route to PAR,
except that the order types defined in Rules 6.53(h), 6.53(o)-(r), and
6.53(t)-(v) may not be routed to PAR.
(d) Preemption. To the extent that any provision(s) of this Rule
6.12A conflicts with any provision(s) of any Regulatory Circular
previously issued by the Exchange regarding the operation or
functionality of PAR, this Rule supersedes and supplants the limited
conflicting provision(s) of any such Regulatory Circular.
* * * * *
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt new Rule 6.12A to describe its
existing PAR operations and PAR workstation \3\ functionality. The
Exchange notes that PAR is currently in use on the Exchange and that
PAR is referenced throughout the Rules \4\ and in various Regulatory
Circulars.\5\ While there are various references to PAR throughout the
Rules and in Regulatory Circulars, the Rules do not describe the
substantive aspects of the order handling process available to users
once orders are received on PAR (and thus how Trading Permit Holders
(``TPHs'') or PAR Officials,\6\ as applicable, may process such
orders). The purpose of this rule filing is to codify the details of
the Exchange's existing PAR operations and functionalities within the
Rules. The Exchange believes that adding details to the Rules regarding
PAR would be useful to TPHs.
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\3\ The PAR workstation is an Exchange-provided facility used to
operate the Exchange's Public Automated Routing System. The Public
Automated Routing System and Public Automated Routing workstation
are referred to collectively as ``PAR'' herein.
\4\ The Exchange is currently working on a separate filing that
would consolidate the Rules that interact with PAR (see, e.g., Rule
6.2B.03(c)(ii); Rule 6.8(d)(iv)(A); Rule 6.13(b)(i)(A)(2); Rule
6.13(b)(iii); Rule 6.13(b)(iv); Rule 6.13(b)(v)(B); Rule 6.53C(c);
Rule 6.53C(d)(vi); Rule 6.53C.06(b); Rule 6.53C.07(a)(3); Rule
6.53C.07(b); Rule 6.53C.07(e); Rule 7.12; Rule 8.51.10) into a
single Rule.
\5\ See, e.g., Regulatory Circular RG97-018 (Order Routing of
Contingency Orders) (February 7, 1997); RG97-019 (New PAR
Functionality--Contingency, Discretionary Orders) (February 7,
1997); RG03-003 (Limit Order Display Requirements) (January 10,
2003); RG03-029 (Market Linkage Implementation II) (April 17, 2003);
RG03-043 (Failure to Address Orders and Honor Firm Quote) (June 25,
2003); RG03-064 (Market Maker Orders Now Book-Eligible in Hybrid
Classes) (July 31, 2003); RG04-056 (How Firm Quote Applies to
Marketable Orders Entered At or Near the Close) (April 30, 2004);
RG04-066 (All or None (AON) Orders in Hybrid Classes) (June 2,
2004); RG04-068 (Routing of Discretionary Orders to DPM PAR
Workstations) (June 4, 2004); RG05-017 (Autobook) (February 11,
2005); RG07-046 (PAR Reporting Enhancements) (April 13, 2007); RG07-
084 (Hybrid 2.0 Auto-Ex on Single-List Classes) (August 3, 2007);
RG07-104 (EPW Activation in Single-List, Hybrid 2.0 Classes)
(October 8, 2007); RG07-112 (Hybrid Auto-Ex and ``Exchange
Prescribed Widths'' (EPWs)) (November 5, 2007); RG09-084 (New Option
Linkage Implementation) (August 14, 2009); RG11-005 (CBOEdirect
Version 8.5 System Modifications) (January 13, 2011); RG11-074
(Processing of Stock-Option Strategy Orders) (June 17, 2011); RG11-
102 (Price Protection Enhancements) (August 26, 2011); RG12-037
(Prefix Usage for SPX Combination (``Combo'') Orders) (February 29,
2012); RG13-083 (New Order Designations) (June 5, 2013); RG13-105
(New Order Designations) (July 29, 2013); RG13-154 (Exchange Rule
6.51--``Reporting Duties'') (November 29, 2013); RG14-037 (PAR
Enhancements) (March 25, 2014); RG14-047 (PAR Enhancements) (April
2, 2014); RG14-096 (PAR Enhancements) (June 20, 2014); see also
Information Circular IC03-08 (Systems Enhancements--Complex Orders
and Linkage) (January 23, 2003); IC03-38 (Complex Order TNT Entry)
(March 21, 2003); IC04-018 (Floor Broker Workstation (FBW
Enhancements) (February 17, 2004); IC04-020 (CBOE Systems
Enhancements) (February 17, 2004); IC05-006 (Complex Order TNT
Entry) (January 24, 2005); IC05-112 (PAR AutoLink and COB) (August
31, 2005); IC06-076 (PAR Routed Orders) (June 23, 2006).
\6\ A PAR Official is an Exchange employee or independent
contractor whom the Exchange may designate as being responsible for
(i) operating the PAR workstation in a DPM trading crowd with
respect to the classes of options assigned to him/her; (ii) when
applicable, maintaining the book with respect to the classes of
options assigned to him/her; and (iii) effecting proper executions
of orders placed with him/her. The PAR Official may not be
affiliated with any Trading Permit Holder that is approved to act as
a Market-Maker. Rule 7.12(a). The duties and obligations of PAR
Officials are set forth in Rule 7.12.
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The Exchange is continuously evaluating additions to the Rules,
particularly with respect to systems processes and order handling. The
Exchange believes that the adoption of Rule 6.12A describing PAR
functionality is consistent with this effort.
Background
PAR is a touch-screen order routing and handling tool that is used
by TPHs and PAR Officials on the floor of the Exchange to manage and
process orders that are routed to PAR for processing. PAR is equipped
with a dynamic, graphical display that allows users to manually and
automatically execute orders electronically through the Exchange's
central trading engine and in open outcry. In general, PAR allows users
to specify execution quantities, split trades among multiple contra
parties, report trades, route orders to the book, and generate trading
reports, including a detailed history on all activity conducted on the
workstation.
The Exchange operates a dynamic order handling system (``OHS''),\7\
which allows orders to be routed, processed, and transmitted to the
Exchange's trade engine, in a variety of ways on the Hybrid Trading
System. The OHS may route orders directly to the Exchange's trade
engine for automatic execution and book entry, to PAR workstations
located in the trading crowds for manual handling, and/or to other
order management terminals (``OMTs'') located in booths on the floor of
the Exchange. PAR receives orders through the OHS according to Exchange
and TPH routing parameter configurations.
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\7\ The Exchange completed the rollout of the OHS in 2008, which
replaced the Exchange's Order Routing System (``ORS''). OHS resides
within the Exchange's central trading platform, CBOE Command and
thus, functions on same platform as the Exchange's trade processing
engine, resulting in speedier processing and improved order
handling.
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A TPH or PAR Official may select an order on the workstation and
enter trade information such as execution quantity, price, and contra
party information. The PAR interface also allows the user to direct an
order to be executed or booked
[[Page 65265]]
by the Exchange's trade engine. Once execution of an order is
completed, PAR transmits the completed execution (also referred to as a
``fill''), back to the OHS. PAR users can also transmit to the trade
engine a portion of a selected order to be executed or booked within
the trade engine. In addition, PAR allows users to execute orders in
open outcry and record information about open outcry trades for audit-
trail purposes. These functions are described in greater detail below.
PAR workstations may be used in the form of fixed workstation terminals
or mobile devices.
PAR was introduced at the Exchange in 1994 as an innovative trading
automation solution. In general, PAR was developed to automate the
manual trading process in open outcry, which previously required the
use of paper tickets to execute customer orders. Rather than entering
orders and executions into TPH computer systems, transmitting order and
trade execution information to and from the Exchange's trade engine,
printing order tickets and fill reports, and physically delivering the
order tickets and fill reports to counterparty brokers on the floor of
the Exchange and to the Options Clearing Corporation, PAR allows users
to process orders directly through the OHS and from TPH trading
systems.
Initially, PAR was placed in use in limited areas on the floor of
the Exchange.\8\ By 1997, PAR functionality was enhanced to allow the
direct routing of various order types from the Exchange's system to
PAR, including the following types of orders: All or None; Opening
Only; Immediate or Cancel; Market on Close; Fill or Kill; Closing Only;
Minimum Quantity; Market if Touched; Stop; Not Held; and Stop Limit.\9\
Notably, whether a particular order or order type routed to PAR was
(and continues to be) a function of parameter controls, set by TPHs and
the Exchange, that allow different order types to be selectively routed
at the discretion of, and in accordance with, TPH order routing and
handling instructions.\10\ As technology, regulation, and trading
practices have shifted, the Exchange has adapted and enhanced PAR to
meet the trading needs of TPHs and the Exchange. The systemic
flexibility of PAR has been (and continues to be) essential in
maintaining PAR as an effective order management tool.
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\8\ See Securities and Exchange Act Release No. 34-34876
(October 21, 1994), FR Doc No: 94-26765 (October 28, 1994) (Order
Approving Proposed Rule Change and Amendment No. 1 to a Proposed
Rule Change and Notice of Filing and Order Granting Accelerated
Approval of Amendment No. 2 to a Proposed Rule Change by the Chicago
Board Options Exchange, Inc. Relating to Firm Quote
Responsibilities) (SR-CBOE-94-17).
\9\ See Regulatory Circular RG97-67 (Permanent Approval of Order
Routing of Contingency Orders) (June 4, 1997); see also Securities
and Exchange Act Release No. 34-38702 (May 30, 1997), 62 FR 31184
[sic] (Notice of Filing and Order Granting Accelerated Approval of
Proposed Rule Change Relating to Enhancements to the Electronic
Order Routing System) (June 6, 1997) (SR-CBOE-97-22).
\10\ See Id.
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Until 2005, only Floor Brokers and DPMs used PAR on the floor of
the Exchange, with DPMs handling agency orders on PAR including orders
that could not be automatically executed and thus, routed to PAR for
manual handling. In 2005, the Exchange adopted Rule 7.12, which
prohibited DPMs from executing agency orders in their appointed classes
and allowed the Exchange to place PAR Officials at PAR workstations for
the handling of orders routed to PAR in accordance with Exchange and
TPH order routing parameters.\11\ TPHs and PAR Officials have
continually used PAR on the floor of the Exchange since Rule 7.12 was
adopted.
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\11\ See Securities and Exchange Act Release No. 34-52798
(November 18, 2005), 70 FR 71134 [sic] (Order Approving a Proposed
Rule Change and Amendment No. 1 Thereto and Notice of Filing and
Order Granting Accelerated Approval to Amendments No. 2 and 4
Thereto Relating to the Removal of Agency Responsibilities From
Designated Primary Market-Makers and the Establishment of PAR
Officials) (November 28, 2005) (SR-CBOE-2005-46); see also
Regulatory Circular RG05-117 (Separation of DPM Agency and Principal
Functions) (November 22, 2005).
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The Exchange considers PAR an important Exchange facility and order
management tool for market participants on the Exchange. Many of the
orders that cannot be automatically processed by the Exchange's central
trade engine are routed to PAR for handling. The functionalities
provided on PAR that allow these orders to be processed are essential
to the functioning of the Exchange and the maintenance of fair and
orderly markets. The proposed rule describes the substantive functions
of PAR and its central operation.
Proposal
The Exchange proposes to adopt Rule 6.12A to describe the operation
of PAR and and [sic] functionality of its PAR workstations. Among other
things, Rule 6.12A would describe how orders may be routed to PAR and
what PAR users may do to process orders once they are received on PAR.
Proposed Rule 6.12A describes the substantive operation of PAR and the
primary functionality of the PAR workstation. The proposed Rule is not
intended as a user manual or software tutorial. The Exchange notes that
PAR does not allow market participants to perform any functions that
are not already authorized under the Rules. Rather, PAR is a tool that
may be used by market participants, at their discretion, to help
facilitate the efficient and orderly processing of orders in a manner
already authorized under the Rules. Thus, the purpose of the proposed
rule is simply to describe and clarify the substantive functions of
PAR. The Exchange believes that the proposed rule will add clarity to
the Rules (inasmuch as PAR is already referenced throughout the Rules
without a description of PAR or the substantive functions that may be
performed on PAR) and that the proposed rule would be useful for TPHs.
Under the Exchange's proposal, the rule would describe the order
processing functions of PAR including, but not limited to how PAR users
may: Interact with the electronic trade engine (including executions
with quotes and orders resting in the electronic book and exposure to
applicable electronic auctions); execute orders in open outcry
(including against other orders on the same PAR terminal (i.e., cross
orders), or with other TPHs and PAR Officials); route orders to Order
Management Terminals (``OMTs'') or otherwise return orders to order
entry firms or the TPH that entered the order; route orders or portion
thereof to an away exchange; route orders to the electronic book;
reflect a price and/or quantity of orders or portion thereof in the
CBOE BBO for classes trading on the Hybrid 3.0 Platform; \12\ and
cancel unexecuted orders. Proposed Rule 6.12A(a) would describe the
process by which orders may be routed to PAR. Proposed Rule 6.12A(b)
would describe the order handling process on PAR, including the
functionalities that may be achieved using a PAR workstation. Proposed
Rule 6.12A(c) would describe the order types that may be handled on
PAR. Proposed Rule 6.12A(d) would establish the controlling nature of
the Rule with respect to previously issued Regulatory
[[Page 65266]]
Circulars concerning PAR and its functionality. Each of these sections
and the introductory paragraph of the proposed Rule are described in
greater detail below.
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\12\ The Hybrid 3.0 Platform is an electronic trading platform
on the Hybrid Trading System that allows one or more quoters to
submit electronic quotes which represent the aggregate Market-Maker
quoting interest in a series for the trading crowd. Standard SPX
options contracts are traded on the Hybrid 3.0 Platform. The Hybrid
Trading System refers to the Exchange's trading platform that allows
automatic executions to occur electronically and open outcry trades
to occur on the floor of the Exchange. To operate in this ``hybrid''
environment, the Exchange has a dynamic order handling system that
has the capability to route orders to the trade engine for automatic
execution and book entry, to Trading Permit Holder and PAR Official
workstations located in the trading crowds for manual handling, and/
or to other order management terminals generally located in booths
on the trading floor for manual handling.
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The Exchange proposes to adopt an introductory paragraph to Rule
6.12A that would generally describe order handling and processing on
PAR and PAR workstation functionality. Under the proposed introductory
paragraph to Rule 6.12A, PAR would be described as an Exchange-provided
order management tool for use on the Exchange's trading floor by
Trading Permit Holders or PAR Officials. The introductory paragraph
would also describe the order routing process to PAR, explaining that
the OHS allows for orders to be routed to and from a PAR workstation in
accordance with Exchange and TPH routing parameters and as set forth in
the Rules.\13\
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\13\ As stated above, various rules reference PAR and Exchange
routing parameters for orders handled on PAR including, but not
limited to Rules 6.2B(a), Rule 6.13(b), Rule 6.53; and Rules
6.53C(c) and 6.53C(d). See supra, note 4. The proposed rule change
is consistent with Rules and the current authority of the Exchange
under the Rules.
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Proposed Rule 6.12A(a) would reflect the process by which eligible
orders will route to PAR. Where an order is routed for processing
depends on various parameters configured by the Exchange and the TPH.
TPHs are afforded discretion in where they route orders and may route
orders onto various order management tools available on the Exchange
according to preset or order- specific routing parameters. Depending on
the order routing parameters, certain orders may route to PAR. For
example, a TPH may or the Exchange may set default auto-execution
``drill-through'' protection limits in the Hybrid Trading System such
that any order that exceeds a limit will be routed to PAR on the floor
of the Exchange. These parameters may be used, to limit ``drill-
throughs'' or protect against extreme and potentially erroneous limit
prices as part of the Exchange's risk controls. TPHs may also customize
routing instructions to route certain orders to PAR for more detailed
handling. Thus, the OHS provides TPHs with some flexibility in
determining how best to process their orders on the Hybrid Trading
System. The Exchange believes that the use of routing parameters
supports TPHs' various trading strategies, mitigates order handling and
processing risks, assists the Exchange in attracting order flow and
liquidity, and promotes the maintenance of a fair and orderly market.
The Exchange views the use of routing parameters as an important tool
to assist TPHs efficiently manage, process, and execute orders in the
``hybrid'' trading environment.
The discretion to set order routing parameters to route an order to
a preferred order management tool on the floor of the Exchange,
including PAR, is codified throughout the Rules.\14\ For example, under
Rule 6.13(b)(i)(B), orders that are not eligible for automatic
execution will route on a class-by-class basis to PAR or, at the order
entry firm's discretion, to the order entry firm's booth or OMT.
Similarly, under Rule 6.53C(e), complex orders that are marketable, but
would executed at a price that is not within an acceptable percentage
distance from the derived net price of the individual leg series that
existed at the start of a Complex Order Auction (``COA'') will route on
a class-by-class basis to PAR, or, at the order entry firm's
discretion, to the order entry firm's booth. Accordingly, proposed Rule
6.12A(a) is modeled to reflect the discretion afforded to TPHs under
the Rules with routing orders to PAR according to an order's terms and
Exchange order routing parameters.
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\14\ See supra, notes 4 and 13.
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In addition to TPH order routing parameters, the Exchange sets
certain order eligibility requirements for orders routing to PAR. For
example, reserve orders (which are limit orders that have both a
displayed size as well as an additional non-displayed size amount) are
currently not eligible to route to PAR. Accordingly, the Exchange's
proposal is modeled to reflect the fact that only eligible orders will
be accepted on PAR. Under proposed Rule 6.12A(a) only ``eligible''
orders will be routed to PAR.
Proposed paragraph 6.12A(b) would describe the substantive aspects
of PAR functionality, which include: Routing an order for electronic
processing; executing an order; booking an order; routing an order to
an away exchange; and cancelling an order. Proposed Rule 6.12A(b)(i),
would provide that orders may be submitted into the Hybrid System
(including for execution against quotes and orders resting in the
electronic book and exposure to appropriate electronic auctions
including auctions pursuant to Rules 6.13A, 6.14A, 6.53C, 6.74B, and
24B.5B).
PAR workstations are capable of handling both single-legged
(``simple'') and multi-legged (``complex'') options orders, including
those with a stock leg. Simple orders on PAR that are marketable may be
automatically routed to the electronic book to trade with quotes or
orders in the book or may be manually executed in open outcry in
accordance with preset PAR user parameters and the order's terms. Upon
partial execution of an order on PAR, any remaining balance of an order
that was previously on PAR may be returned to PAR or booked, provided
it does not lock or cross a quote of another exchange. Similarly,
complex orders on PAR that are marketable may automatically initiate an
electronic auction or trade against orders in the Complex Order Book
(``COB'') or with quotes of the individual leg series or may be
manually executed in open outcry after the COB is cleared in accordance
with preset user parameters and the order's terms. The automatic
routing functions available on PAR are reflected in the language of
proposed Rule 6.12A(b), which provides orders on PAR shall be processed
in accordance with the automatic settings established by the user and
the order's terms.
Proposed Rule 6.12A(b)(i) would also reference the auction
functions that may be performed on PAR. Eligible simple and complex
orders routed to PAR in classes where electronic auction functionality
is active may also be auctioned from PAR. The proposed rule would
reference the auction functions available on the Hybrid Trading System
under Rules 6.13A, 6.14A, 6.53C(d), 6.74B, and 24B.5B reflecting the
fact that orders on PAR may be submitted for auction pursuant to
routing parameter configurations and specific order handling
instructions. Orders auctioned from PAR, which do not fully execute at
the conclusion of the auction process, may be returned to PAR or booked
in accordance with order routing parameters and order handling
instructions as permitted under the Rules.\15\
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\15\ See, e.g., Rule 6.53C(d).
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Proposed Rule 6.12A(b)(ii) would provide for the execution of
orders on PAR in open outcry, including against other orders on PAR and
with other TPHs or PAR Officials in accordance with Rule 6.74 (Crossing
Orders). Both simple and complex orders on PAR may be crossed with
other orders on PAR by PAR users, including by PAR Officials. Proposed
Rule 6.12A(b)(ii) would describe the process by which orders may be
crossed on PAR in open outcry, including by PAR Officials, after being
verbalized to the crowd. Orders that may be crossed on PAR include, but
are not limited to buy and sell orders in the same options series that
are marketable against each other and complex orders and inter-
regulator spreads (as defined in Rule 1.1).
As provided in proposed Rule 6.12A(b)(iii), PAR workstations also
[[Page 65267]]
allow users to route orders to an OMT designated by the TPH that
entered the order or otherwise return the order to the TPH or order
entry firm. Proposed Rule 6.12A(b)(iii) is a reflection of current
rules which permit PAR users to route orders to a designated OMT or
otherwise return an order to its originator. Under proposed Rule
6.12A(b)(iv), orders on PAR may also be routed to an away market for
best execution in accordance with order protection rules under the
Federal Securities Laws and the Rules including, but not limited to
Rules 6.81 \16\ and 7.12(b)(ii).\17\
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\16\ Rule 6.81 (Order Protection) forbids TPHs from effecting
Trade-Throughs except as prescribed under Rule 6.81(b).
\17\ Rule 7.12(b)(ii) (Execution) provides that a ``PAR Official
shall use due diligence to execute the orders placed in the PAR
Official's custody at the best prices available to him or her under
the Rules of the Exchange.''
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Proposed Rule 6.12A(b)(v) describes the display functionality of a
PAR workstation. CBOE PAR Officials may reflect bids and offers for
orders, or portions of orders, in Hybrid 3.0 classes in the displayed
CBOE BBO using the ``PAR in the Quote'' feature. Currently, there are
no CBOE PAR Officials on the trading floor in Hybrid 3.0 trading
crowds. Accordingly, PAR allows the user to reflect the price and/or
quantity related to an order or portion of an order in the displayed
Exchange BBO in classes of options on the Hybrid 3.0 Platform. This
functionality allows PAR users to protect customer orders at specified
price points while not displaying the full size of such orders
(oftentimes customers may not want the full size of an order reflected
in the quote). Proposed Rule 6.12A(b)(vi) would provide that unexecuted
orders resting on PAR may be cancelled. All un-executed orders on PAR
may be cancelled upon receipt of a cancel request from the order entry
TPH or as prescribed in the routing parameters of the Exchange or order
entry TPH.
Proposed Rule 6.12A(c) would codify the ability of the Exchange to
designate order types eligible to route to PAR and describe the types
of orders that the Exchange may designate as eligible. Under the
Exchange's proposal, the Exchange would have the ability to designate
any order type that it makes available to TPHs pursuant to Rule 6.53
eligible to route to PAR. Current Rule 6.53 describes and defines the
order types that may be made available for trading on a class-by-class
basis by the Exchange. Under the Exchange's proposal, all order types
specified in Rule 6.53 would be eligible to route to PAR, except that
the order types defined in Rules 6.53(h), 6.53(o)-(r), and 6.53(t)-(v)
would not be eligible to be routed to PAR. Proposed Rule 6.12A(c) is
consistent with the current practices and Rules of the Exchange in that
all of the order types listed in Rule 6.53 other that those listed in
Rules 6.53(h), 6.53(o)-(r), and 6.53(t)-(v) are currently eligible to
be routed to PAR. PAR is a technology that supports the processing of
order types authorized for trading on the Exchange under Rule 6.53.
Accordingly, the Exchange may make future enhancements that would
permit other order types to be processed on PAR or technological issues
may prevent the Exchange from processing certain order types on PAR at
any given time. Proposed Rule 6.12A(c) reflects the fluidity of the PAR
technology as well as the fact that PAR is an order handling tool,
which only gives TPHs the ability to process orders pursuant to the
Rules.
Finally, under proposed Rule 6.12A(d) to the extent that any
provision(s) of the proposed rule conflicts with any provision of any
Regulatory Circular previously issued by the Exchange regarding the
operation or functionality of PAR, the proposed rule would supersedes
the limited conflicting provisions of any such Regulatory Circular. PAR
has been in use for approximately a decade on the Exchange. Over the
years, PAR has been enhanced and reconfigured and changed to reflect
updates and changes in the Rules. Numerous Regulatory Circulars
contemplate the use of PAR by DPMs rather than PAR Officials.\18\ Other
Regulatory Circulars reflect old Linkage rules no longer in effect
under the new Order Protection rules.\19\ Accordingly, to the extent
that any provisions of any Regulatory Circular are in conflict with the
proposed rule, such provisions would be superseded by the rule.
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\18\ See, e.g., Regulatory Circular RG04-68 (Routing of
Discretionary Orders to DPM PAR Workstations) (June 4, 2004).
\19\ See, e.g., Regulatory Circular RG03-29 (Market Linkage
Implementation II) (April 17, 2003).
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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.\20\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \21\ 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) \22\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
\22\ Id.
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The Exchange views PAR as an important tool that allows TPHs on the
trading floor of the Exchange to manage and process orders. The
Exchange believes that the adoption of rules regarding the
functionality of PAR will contribute to fair and orderly markets by
making the Exchange's order handling processes more transparent and
understandable for users. The proposed rules are intended to assist
TPHs and order entry firms in their ability to efficiently manage,
process, and execute orders on the Exchange as well as assist the
Exchange in its ability to effectively attract order flow and liquidity
to the market. The Exchange also believes that adding transparency and
efficiency to the market are goals that benefit all investors. The
Exchange believes that the proposed would further these goals, which
the Exchange believes are consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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
proposed Rule 6.12A will promote competition by making the
functionality of the Exchange's order processing workstations more
understandable to users and the general public. The Exchange believes
that by better explaining its order management and order handling
systems to PAR users and TPHs, PAR users and TPHs will better
understand the Exchange's systems. The Exchange believes that
additional clarity and transparency in the Rules will make it easier
for market participants to compete with one another on equal footing in
the markets and ultimately benefits all investors.
[[Page 65268]]
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 written comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \23\ and
Rule 19b-4(f)(6) \24\ thereunder. At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f)(6).
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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-2014-081 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-2014-081. 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-2014-081, and should be
submitted on or before November 24, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26010 Filed 10-31-14; 8:45 am]
BILLING CODE 8011-01-P