[Federal Register Volume 80, Number 4 (Wednesday, January 7, 2015)]
[Notices]
[Pages 911-913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30972]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73974; File No. SR-CBOE-2014-093]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Rule 6.54
December 31, 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 December 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 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 extend its program that allows
transactions to take place at a price that is below $1 per option
contract through January 5, 2016. 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
[[Page 912]]
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
An ``accommodation'' or ``cabinet'' trade refers to trades in
listed options on the Exchange that are worthless or not actively
traded. Cabinet trading is generally conducted in accordance with the
Exchange Rules, except as provided in Exchange Rule 6.54, Accommodation
Liquidations (Cabinet Trades), which sets forth specific procedures for
engaging in cabinet trades. Rule 6.54 currently provides for cabinet
transactions to occur via open outcry at a cabinet price of $1 per
option contract in any options series open for trading in the Exchange,
except that the Rule is not applicable to trading in option classes
participating in the Penny Pilot Program. Under the procedures, bids
and offers (whether opening or closing a position) at a price of $1 per
option contract may be represented in the trading crowd by a Floor
Broker or by a Market-Maker or provided in response to a request by a
PAR Official/OBO, a Floor Broker or a Market-Maker, but must yield
priority to all resting orders in the PAR Official/OBO cabinet book
(which resting cabinet book orders may be closing only). So long as
both the buyer and the seller yield to orders resting in the cabinet
book, opening cabinet bids can trade with opening cabinet offers at $1
per option contract.
The Exchange has temporarily amended the procedures through January
5, 2015 to allow transactions to take place in open outcry at a price
of at least $0 but less than $1 per option contract.\3\ These lower
priced transactions are traded pursuant to the same procedures
applicable to $1 cabinet trades, except that (i) bids and offers for
opening transactions are only permitted to accommodate closing
transactions in order to limit use of the procedure to liquidations of
existing positions, and (ii) the procedures are also available for
trading in option classes participating in the Penny Pilot Program.\4\
The Exchange believes that allowing a price of at least $0 but less
than $1 better accommodates the closing of options positions in series
that are worthless or not actively traded, particularly due to market
conditions which may result in a significant number of series being
out-of-the-money. For example, a market participant might have a long
position in a call series with a strike price of $100 and the
underlying stock might now be trading at $30. In such an instance,
there might not otherwise be a market for that person to close-out the
position even at the $1 cabinet price (e.g., the series might be quoted
no bid).\5\
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\3\ See Securities Exchange Act Release Nos. 59188 (December 30,
2008), 74 FR 480 (January 6, 2009)(SR-CBOE-2008-133)(adopting the
amended procedures on a temporary basis through January 30, 2009),
59331 (January 30, 2009), 74 FR 6333 (February 6, 2009)(extending
the amended procedures on a temporary basis through May 29, 2009),
60020 (June 1, 2009), 74 FR 27220 (June 8, 2009)(SR-CBOE-2009-
034)(extending the amended procedures on a temporary basis through
June 1, 2010), 62192 (May 28, 2010), 75 FR 31828 (June 4, 2010)(SR-
CBOE-2010-052)(extending the amended procedures on a temporary basis
through June 1, 2011); 64403 (May 4, 2011), 76 FR 27110 (May 10,
2011)(SR-CBOE-2011-048)(extending the amended procedures on a
temporary basis through December 30, 2011); 65872 (December 2,
2011), 76 FR 76788 (December 8, 2011)(SR-CBOE-2011-113)(extending
the amended procedures on a temporary basis through June 29, 2012)
67144 (June 6, 2012), 77 FR 35095 (June 12, 2012)(SR-CBOE-2012-
053)(extending the amended procedures on a temporary basis through
June 28, 2013), and 69854 (June 25, 2013), 78 FR 39424 (July 1,
2013)(SR-CBOE-2013-063); 69893 (June 28, 2013), 78 FR 40539 (July 5,
2013)(both extending the amended procedures on a temporary basis
through January 5, 2014) and 71090 (December 17, 2013), 78 FR 77532
(December 23, 2013)(SR-CBOE-2013-118)(extending the amended
procedures on a temporary basis through January 5, 2015).
\4\ Currently the $1 cabinet trading procedures are limited to
options classes traded in $0.05 or $0.10 standard increment. The $1
cabinet trading procedures are not available in Penny Pilot Program
classes because in those classes an option series can trade in a
standard increment as low as $0.01 per share (or $1.00 per option
contract with a 100 share multiplier). Because the temporary
procedures allow trading below $0.01 per share (or $1.00 per option
contract with a 100 share multiplier), the procedures are available
for all classes, including those classes participating in the Penny
Pilot Program.
\5\ As with other accommodation liquidations under Rule 6.54,
transactions that occur for less than $1 are not be disseminated to
the public on the consolidated tape. In addition, as with other
accommodation liquidations under Rule 6.54, the transactions are
exempt from the Consolidated Options Audit Trail (``COATS'')
requirements of Exchange Rule 6.24, Required Order Information.
However, the Exchange maintains quotation, order and transaction
information for the transactions in the same format as the COATS
data is maintained. In this regard, all transactions for less than
$1 must be reported to the Exchange following the close of each
business day. The rule also provides that transactions for less than
$1 will be reported for clearing utilizing forms, formats and
procedures established by the Exchange from time to time. In this
regard, the Exchange initially intends to have clearing firms
directly report the transactions to The Options Clearing Corporation
(``OCC'') using OCC's position adjustment/transfer procedures. This
manner of reporting transactions for clearing is similar to the
procedure that CBOE currently employs for on-floor position transfer
packages executed pursuant to Exchange Rule 6.49A, Transfer of
Positions.
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The purpose of the instant rule change is to extend the operation
of these temporary procedures through January 5, 2016, so that the
procedures can continue without interruption while CBOE considers
whether to seek permanent approval of the temporary procedures.
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.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \7\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \8\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
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In particular, the Exchange believes that allowing for liquidations
at a price less than $1 per option contract better facilitates the
closing of options positions that are worthless or not actively
trading. Further, the Exchange believes the proposal is consistent with
the Act because the proposed extension is of appropriate length to
allow the Exchange and the Commission to continue to assess the impact
of the Exchange's authority to allow transactions to take place in open
outcry at a price of at least $0 but less than $1 per option in
accordance with its attendant obligations and conditions, including the
process for submitting such transactions to OCC for clearing.
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
allowing for liquidations at a price less than $1 per option contract
better facilitates the
[[Page 913]]
closing of options positions that are worthless or not actively
trading. The Exchange believes this 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 benefit all CBOE
Trading Permit Holders (``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 the
proposed rule change does not make any changes to Exchange rules, but
simply extends an existing temporary program. Further, the program is
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, the proposed
rule change does not make any changes to Exchange rules, but simply
extends an existing temporary program. Moreover, to the extent that the
program makes CBOE a more attractive marketplace, as noted above, the
program is available to all market participants through CBOE TPHs.
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
Because the foregoing rule does not (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest, provided that the self-regulatory organization
has given the Commission written notice of its intent to file the
proposed rule change at least five business days prior to the date of
filing of the proposed rule change or such shorter time as designated
by the Commission,\9\ the proposed rule change has become effective
pursuant to section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6)
thereunder.\11\
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\9\ The Exchange has satisfied this requirement.
\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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Under Rule 19b-4(f)(6) of the Act,\12\ the proposal does not become
operative for 30 days after the date of its filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest. The Exchange has requested that
the Commission waive the 30-day operative delay period after which a
proposed rule change under Rule 19b-4(f)(6) becomes operative so that
the pilot may continue without interruption. The Commission believes
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest because it will allow
the pilot to continue uninterrupted, thereby avoiding any potential
investor confusion that could result from a temporary interruption in
the pilot and allowing members to continue to benefit from the program.
Based on the foregoing, the Commission hereby waives the 30-day
operative delay and designates the proposal operative upon filing.\13\
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\12\ Id.
\13\ For purposes only of waiving the operative delay, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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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.
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-2014-093 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2014-093. 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-2014-093 and should be
submitted on or before January 28, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30972 Filed 1-6-15; 8:45 am]
BILLING CODE 8011-01-P