[Federal Register Volume 80, Number 168 (Monday, August 31, 2015)]
[Notices]
[Pages 52526-52528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-21404]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75756; File No. SR-CBOE-2015-073]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to Qualified Contingent Cross (``QCC'') Orders
August 25, 2015.
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 August 14, 2015, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the
[[Page 52527]]
``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 seeks to amend its rules related to QCC Orders. 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
* * * * *
(u) Qualified Contingent Cross Order: A qualified contingent cross
order is an initiating 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 or orders totaling [to sell (buy)] an equal number of contracts.
Qualified contingent cross orders with one option leg may only be
entered in the standard increments applicable to simple orders in the
options class under Rule 6.42. Qualified contingent cross orders with
more than one option leg may be entered in the increments specified for
complex orders under Rule 6.42. For purposes of this order type:
* * * * *
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 purpose of this proposal is to expand the availability of QCC
Orders by permitting multiple contra-parties on a QCC Order. Under the
proposal, multiple contra-parties would be allowed; provided however,
that the initiating QCC Order be for at least 1,000 contracts (in
addition to meeting the other requirements of a QCC Order). This is
intended to accommodate multiple contra-parties, as explained further
below.
Currently, a qualified contingent cross order must be comprised of
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 \3\ coupled with a contra-side order to sell
(buy) an equal number of contracts. QCC Orders may execute without
exposure provided the execution (1) is not at the same price as a
public customer order resting in the electronic book and (2) is at or
between the NBBO. A qualified contingent cross order will be cancelled
if it cannot be executed.
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\3\ A ``qualified contingent trade'' is a transaction consisting
of two or more component orders, executed as agent or principal,
where: (1) At least one component is an NMS stock, as defined in
Rule 600 of Regulation NMS under the Exchange Act; (2) 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; (3) the
execution of one component is contingent upon the execution of all
other components at or near the same time; (4) 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; (5) 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 (6) the transaction is fully hedged
(without regard to any prior existing position) as a result of other
components of the contingent trade.
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As noted above, the Exchange is now proposing to amend the
definition of a QCC Order to allow multiple contra-parties; provided
however, that the initiating QCC Order be for at least 1,000 contracts
(in addition to meeting the other requirements of a QCC Order). The
Exchange notes that with regard to order entry, the first order
submitted into the system is marked as the initiating/agency side and
the second order is marked as the contra-side. Additionally, the
contra-side order to a QCC Order will always be entered as a single
order, even if that order consists of multiple contra-parties who are
allocated their portion of the trade in a post-trade allocation.
The Exchange notes that it will surveil QCC Orders to ensure the
Trading Permit Holder (``TPH'') on the initiating side of the order is
complying with the minimum 1,000 contract size requirement. The
Exchange also checks to see if TPHs are aggregating multiple orders to
meet the 1,000 contract minimum on the initiating side of the trade in
violation of the requirements of the rule, enforcing compliance with
this portion of the rule by checking to see if a TPH breaks up the
initiating side of the order in a post trade allocation to different
clearing firms, allocating less than 1,000 contracts to a party or
multiple parties.
Accordingly, the Exchange is proposing to amend the definition of
QCC Order to clarify that an originating order to buy or sell at least
1,000 contracts coupled with a contra-side order or orders totaling an
equal number of contracts is permitted. This is a competitive filing
that is based on International Securities Exchange, LLC (``ISE'') Rule
715.\4\
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\4\ See Securities Exchange Act Release No. 71182 (December 24,
2013), 78 FR 79721 (January 2014) (SR-ISE-2013-71) (providing that
QCC Orders can be comprised of multiple contra-parties) and
Securities Exchange Act Release No. 71863 (April 3, 2014), 79 FR
19680 (April 9, 2014) (SR-ISE-2013-72) (providing that QCC Orders
can be comprised of multiple contra-parties for less than 1,000
contracts).
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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
[[Page 52528]]
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 removing the size restriction
placed on the contra-side to a QCC Order may increase liquidity and
improve the prices at which QCC Orders get executed and, therefore,
provide more opportunity to participate in QCC trades, consistent with
the key principles behind the QCC Order. Also, consistent with Section
6(b)(8) of the Act, the Exchange seeks to compete with other options
exchanges for QCC Orders involving multiple parties, including where
there are multiple contra-parties. The Exchange believes that this will
be beneficial to participants because allowing multiple contra-parties
should foster competition for filling one side of a QCC Order and
thereby result in potentially better prices, as opposed to only
allowing one contra-party and, thereby requiring that contra-party to
do a larger size order which could result in a worse price for the
trade.
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. As described above, the current
rule change is being proposed as a competitive response to ISE Rule
715. Also, the proposal may relieve burden on competition, which
results from ISE and CBOE having different rules regarding QCC Orders.
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 proposed rule change 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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) \9\
thereunder.
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give 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.
The Exchange has satisfied this requirement.
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The Commission notes that, given the differing requirements as
between the originating side and contra-side for QCC Orders, it is
essential that the Exchange be able to clearly identify and monitor--
throughout the life of a QCC Order, beginning at the time of order
entry on the Exchange through the post-trade allocation process--each
side of the QCC Order and ensure that the requirements of the order
type are being satisfied including, importantly, those relating to the
originating side. The Commission believes this to be critical so that
the Exchange can ensure that market participants are not able to
circumvent the requirements of the QCC Order (as amended by this
proposed rule change), each of which the Commission continues to
believe are critical to ensuring that the QCC Order is narrowly
drawn.\10\ Further, the Commission notes that the Exchange has made
certain representations regarding its enforcement and surveillance of
its TPH's use of QCC Orders, including, for example, not only at the
time of order entry, but through the post-trade allocation process as
well.
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\10\ The Commission expects the Exchange to have the capability
to enable it to surveil that such requirements are being met. Though
the Exchange has stated its ability to do so, if the Exchange is not
able to have such monitoring at any point in time, the Commission
would expect the Exchange to take other steps to ensure that the QCC
Order cannot be improperly used. For example, if the Exchange were
not able to identify and monitor which side of a QCC Order is the
originating order, the Commission would expect that it would require
that both sides of the QCC Order meet the more stringent
requirements of the originating side, i.e., that it be for a single
order for at least 1,000 contracts.
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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 shall institute proceedings to
determine whether the proposed rule 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-2015-073 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-2015-073. 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-2015-073 and should be
submitted on or before September 21, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-21404 Filed 8-28-15; 8:45 am]
BILLING CODE 8011-01-P