80_FR_29239 80 FR 29142 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of a Proposed Rule Change Relating to Stock-Option Order Handling

80 FR 29142 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of a Proposed Rule Change Relating to Stock-Option Order Handling

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 97 (May 20, 2015)

Page Range29142-29143
FR Document2015-12141

Federal Register, Volume 80 Issue 97 (Wednesday, May 20, 2015) 
[Federal Register Volume 80, Number 97 (Wednesday, May 20, 2015)]
[Notices]
[Pages 29142-29143]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-12141]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74960; File No. SR-CBOE-2015-029]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval of a Proposed Rule Change 
Relating to Stock-Option Order Handling

May 14, 2015.

I. Introduction

    On March 16, 2015, Chicago Board Options Exchange, Incorporated 
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and 
Rule 19b-4 thereunder,\2\ a proposed rule change to amend its rules 
regarding the handling and processing of stock-option orders on the 
Exchange. The proposed rule change was published for comment in the 
Federal Register on April 1, 2015.\3\ The Commission received no 
comments on the proposal. This order grants approval of the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 74590 (March 26, 
2015), 80 FR 17528 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend its rules regarding the handling and 
processing of stock-option orders represented in open outcry on the 
floor of the Exchange. As described in more detail below, the Exchange 
proposes to amend CBOE Rule 6.48 to allow Trading Permit Holders 
(``TPHs'') or PAR Officials \4\ to electronically route the stock 
component of a stock-option order represented in open outcry on the 
floor of the CBOE directly from a Public Automated Routing (``PAR'') 
workstation \5\ to an Exchange-designated broker-dealer for electronic 
execution on a stock venue. In addition, the Exchange proposes to amend 
Interpretation .06 to Rule 6.53C to require that the Clearing Trading 
Permit Holder (``CTPH'') \6\ identified as the Designated Give Up by 
the executing TPH in accordance with CBOE Rule 6.21 on a stock-option 
order enter into a brokerage agreement with the non-affiliated 
Exchange-designated broker-dealers before the TPH electronically routes 
the stock component of the stock-option order to that Exchange-
designated broker-dealer for execution on a stock venue.
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    \4\ See Notice, supra note 3 at 17529, defining ``PAR 
Officials.''
    \5\ Id., defining ``PAR workstations.''
    \6\ Id. at footnote 5, discussing the obligations of TPHs and 
CTPHs.
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    Routing Stock Component of a Stock-Option Order via PAR. Currently, 
the stock component of stock-option orders handled and processed on the 
Exchange in open outcry are manually transmitted (e.g., via telephone) 
by the PAR user (i.e., a floor broker or PAR Official) on the floor to 
a broker on a stock trading venue for execution. The Exchange proposes 
to adopt subparagraph (d) to Exchange Rule 6.48 (Contract Made on 
Acceptance of Bid or Offer) to allow TPHs or PAR Officials to 
electronically route the stock component of such stock-option orders to 
an Exchange-designated broker-dealer not affiliated with the Exchange 
for electronic execution at a stock trading venue directly from PAR.\7\ 
Proposed Rule 6.48(d) also provides that the stock component of a 
stock-option order represented in open outcry may be routed to an 
Exchange-designated broker-dealer not affiliated with the Exchange for 
electronic execution at a stock trading venue as single orders or as 
paired orders (including with orders transmitted from separate PAR 
workstations), and that the stock-option order must comply with the 
Qualified Contingent Trade (``QCT'') Exemption of Rule 611(a) of 
Regulation NMS.\8\ Finally, Rule 6.48(d) would require TPHs who route 
the stock component of a stock-option order represented in open outcry 
through PAR to comply with Rule 6.53C.06, which governs the trading of 
complex orders, including stock-option orders, on the CBOE Hybrid 
System.\9\
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    \7\ See Notice, supra note 3 at 17530.
    \8\ Id.
    \9\ See Proposed Rule 6.48(d).
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    The Exchange represents that for any order whose stock component is 
routed via PAR to an Exchange-designated broker-dealer for execution at 
a stock trading venue, the Exchange-designated broker-dealer would be 
responsible for the proper execution, trade reporting, and submission 
to clearing of the stock trade that is part of the stock-option 
order.\10\ The Exchange also represents that once the stock component 
of a stock-option order is transmitted to the Exchange-designated 
broker-dealer, the Exchange-designated broker-dealers is responsible 
for determining whether the orders may be executed in accordance with 
all of the rules applicable to the execution of equity orders, 
including compliance with applicable short sale, trade-through, and 
reporting rules.\11\
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    \10\ See Notice, supra note 3 at 17530.
    \11\ Id.
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    The Exchange believes that the proposed rule change will support 
more efficient stock-option order execution, streamline the steps 
required for open-outcry stock-option order trading, and enhance the 
Exchange's audit trail by creating a more robust record of the stock 
component of stock-option order executions on the floor of the 
Exchange.\12\ The Exchange also believes that the proposed rule change 
will promote liquidity on the national market system by allowing TPHs 
to more easily use stock-option orders and more quickly send the stock 
component of a stock-option order to a stock trading venue.\13\
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    \12\ Id.
    \13\ See Notice, supra note 3 at 17532.
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    Brokerage Agreement between the Clearing Trading Permit Holder and 
the Exchange-designated Broker-Dealer. Under current Interpretation and 
Policy .06(a) to CBOE Rule 6.53C, the stock component of a stock-option 
order cannot be processed automatically unless the executing TPH has 
entered into a brokerage agreement with one or more Exchange-designated 
broker-dealer(s) not affiliated with the Exchange that can 
electronically execute the equity order on a stock trading venue.\14\ 
Under the proposed rule change, Interpretation and Policy .06 to CBOE 
Rule 6.53C would instead require the CTPH that was previously 
identified by the TPH as the ``Designated Give Up'' pursuant to CBOE 
Rule 6.21 to enter into a brokerage agreement with the non-affiliated 
Exchange-designated broker-dealer(s) before the TPH electronically 
routes the stock component a of stock-option order to the Exchange-
designated broker-dealer for execution at a stock-trading venue.\15\ 
The Exchange notes that it is the CTPH, not the order entry TPH that 
guarantees

[[Page 29143]]

authorization of a trade and accepts financial responsibility for all 
Exchange transactions made by the execution TPH. Accordingly, the 
Exchange believes that, consistent with CBOE Rule 6.21 (relating to 
give-ups), the CTPH should be responsible for order handling and 
processing requirements for trades that it guarantees.\16\ In 
connection with the Exchange's proposal to amend Interpretation and 
Policy .06 to Rule 6.53C, the Exchange also clarified that the stock 
component of a stock-option order represented in open outcry shall be 
routed from PAR to the Exchange-designated broker-dealer for automated 
processing in accordance with the order's terms.\17\
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    \14\ Id. at 17531.
    \15\ Id.
    \16\ Id. at 17532.
    \17\ See Proposed Interpretation and Policy .06(a) to Rule 
6.53C.
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    Conforming and Clarifying Changes. Finally, the Exchange also 
proposes conforming changes to Exchange Rules 6.45A (Priority and 
Allocation of Equity Option Trades on the CBOE Hybrid System) and 6.45B 
(Priority and Allocation of Trades in Index Options and Options on ETFs 
on the CBOE Hybrid System) to reference the revised functionality set 
forth in this proposal.\18\ The Exchange also proposes to specify that 
stock-option orders may be executed against other electronic stock-
option orders in general, rather than state that such orders may be 
executed against other stock-option orders specifically through either 
the COB or COA.\19\
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    \18\ See Notice, supra note 3 at 17531.
    \19\ Id. According to the Exchange, this latter change reflects 
the fact that such orders may be subjected to the Automated 
Improvement Mechanism (``AIM'') as well as executed through the COB 
or COA.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\20\ In particular, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6(b)(5) of 
the Act,\21\ which requires, among other things, that the Exchange's 
rules 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 
facilitation 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; 
and are not designed to permit unfair discrimination between customers, 
issuers, brokers or dealers. The Commission believes that the proposed 
change to extend electronic stock component routing functionality to 
PAR users will create another method for processing stock-option orders 
entered into on the Exchange that is designed to facilitate 
transactions in stock-option orders on the Exchange. The Commission 
also believes that it is reasonable for the CTPH that guarantees a 
stock-option order transaction to enter into a brokerage agreement with 
the Exchange-designated broker-dealer that will execute the stock 
component of the stock-option order on a stock trading venue.
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    \20\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-CBOE-2015-029) be, and it 
hereby is, approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12141 Filed 5-19-15; 8:45 am]
BILLING CODE 8011-01-P

29142 Federal Register / Vol. 80, No. 97 / Wednesday, May 20, 2015 / Notices the Commission does not edit personal of the CBOE directly from a Public broker-dealer for execution at a stock identifying information from Automated Routing (‘‘PAR’’) trading venue, the Exchange-designated submissions. You should submit only workstation 5 to an Exchange-designated broker-dealer would be responsible for information that you wish to make broker-dealer for electronic execution the proper execution, trade reporting, available publicly. All submissions on a stock venue. In addition, the and submission to clearing of the stock should refer to File Number SR–BATS– Exchange proposes to amend trade that is part of the stock-option 2015–38 and should be submitted on or Interpretation .06 to Rule 6.53C to order.10 The Exchange also represents before June 10, 2015. require that the Clearing Trading Permit that once the stock component of a For the Commission, by the Division of Holder (‘‘CTPH’’) 6 identified as the stock-option order is transmitted to the Trading and Markets, pursuant to delegated Designated Give Up by the executing Exchange-designated broker-dealer, the authority.17 TPH in accordance with CBOE Rule Exchange-designated broker-dealers is Robert W. Errett, 6.21 on a stock-option order enter into responsible for determining whether the Deputy Secretary. a brokerage agreement with the non- orders may be executed in accordance [FR Doc. 2015–12147 Filed 5–19–15; 8:45 am] affiliated Exchange-designated broker- with all of the rules applicable to the BILLING CODE 8011–01–P dealers before the TPH electronically execution of equity orders, including routes the stock component of the stock- compliance with applicable short sale, option order to that Exchange- trade-through, and reporting rules.11 SECURITIES AND EXCHANGE designated broker-dealer for execution The Exchange believes that the COMMISSION on a stock venue. proposed rule change will support more Routing Stock Component of a Stock- efficient stock-option order execution, [Release No. 34–74960; File No. SR–CBOE– Option Order via PAR. Currently, the streamline the steps required for open- 2015–029] outcry stock-option order trading, and stock component of stock-option orders Self-Regulatory Organizations; handled and processed on the Exchange enhance the Exchange’s audit trail by Chicago Board Options Exchange, in open outcry are manually transmitted creating a more robust record of the Incorporated; Order Granting Approval (e.g., via telephone) by the PAR user stock component of stock-option order of a Proposed Rule Change Relating to (i.e., a floor broker or PAR Official) on executions on the floor of the Stock-Option Order Handling the floor to a broker on a stock trading Exchange.12 The Exchange also believes venue for execution. The Exchange that the proposed rule change will May 14, 2015. proposes to adopt subparagraph (d) to promote liquidity on the national I. Introduction Exchange Rule 6.48 (Contract Made on market system by allowing TPHs to Acceptance of Bid or Offer) to allow more easily use stock-option orders and On March 16, 2015, Chicago Board TPHs or PAR Officials to electronically more quickly send the stock component Options Exchange, Incorporated route the stock component of such of a stock-option order to a stock trading (‘‘CBOE’’ or the ‘‘Exchange’’) filed with stock-option orders to an Exchange- venue.13 the Securities and Exchange designated broker-dealer not affiliated Brokerage Agreement between the Commission (‘‘Commission’’), pursuant with the Exchange for electronic Clearing Trading Permit Holder and the to Section 19(b)(1) of the Securities execution at a stock trading venue Exchange-designated Broker-Dealer. Exchange Act of 1934 (‘‘Act’’ or directly from PAR.7 Proposed Rule Under current Interpretation and Policy ‘‘Exchange Act’’) 1 and Rule 19b–4 6.48(d) also provides that the stock .06(a) to CBOE Rule 6.53C, the stock thereunder,2 a proposed rule change to component of a stock-option order component of a stock-option order amend its rules regarding the handling cannot be processed automatically represented in open outcry may be and processing of stock-option orders on unless the executing TPH has entered routed to an Exchange-designated the Exchange. The proposed rule change into a brokerage agreement with one or broker-dealer not affiliated with the was published for comment in the more Exchange-designated broker- Exchange for electronic execution at a Federal Register on April 1, 2015.3 The dealer(s) not affiliated with the stock trading venue as single orders or Commission received no comments on Exchange that can electronically execute as paired orders (including with orders the proposal. This order grants approval the equity order on a stock trading transmitted from separate PAR of the proposed rule change. venue.14 Under the proposed rule workstations), and that the stock-option II. Description of the Proposed Rule order must comply with the Qualified change, Interpretation and Policy .06 to Change Contingent Trade (‘‘QCT’’) Exemption of CBOE Rule 6.53C would instead require The Exchange proposes to amend its Rule 611(a) of Regulation NMS.8 the CTPH that was previously identified rules regarding the handling and Finally, Rule 6.48(d) would require by the TPH as the ‘‘Designated Give Up’’ processing of stock-option orders TPHs who route the stock component of pursuant to CBOE Rule 6.21 to enter represented in open outcry on the floor a stock-option order represented in open into a brokerage agreement with the of the Exchange. As described in more outcry through PAR to comply with non-affiliated Exchange-designated detail below, the Exchange proposes to Rule 6.53C.06, which governs the broker-dealer(s) before the TPH amend CBOE Rule 6.48 to allow Trading trading of complex orders, including electronically routes the stock Permit Holders (‘‘TPHs’’) or PAR stock-option orders, on the CBOE component a of stock-option order to Officials 4 to electronically route the Hybrid System.9 the Exchange-designated broker-dealer stock component of a stock-option order The Exchange represents that for any for execution at a stock-trading venue.15 represented in open outcry on the floor order whose stock component is routed The Exchange notes that it is the CTPH, mstockstill on DSK4VPTVN1PROD with NOTICES via PAR to an Exchange-designated not the order entry TPH that guarantees 17 17 CFR 200.30–3(a)(12). 5 Id., 10 See Notice, supra note 3 at 17530. 1 15 U.S.C. 78s(b)(1). defining ‘‘PAR workstations.’’ 6 Id. 11 Id. 2 17 CFR 240.19b–4. at footnote 5, discussing the obligations of 3 See Securities Exchange Act Release No. 74590 TPHs and CTPHs. 12 Id. 7 See Notice, supra note 3 at 17530. 13 See Notice, supra note 3 at 17532. (March 26, 2015), 80 FR 17528 (‘‘Notice’’). 4 See Notice, supra note 3 at 17529, defining 8 Id. 14 Id. at 17531. ‘‘PAR Officials.’’ 9 See Proposed Rule 6.48(d). 15 Id. VerDate Sep<11>2014 23:50 May 19, 2015 Jkt 235001 PO 00000 Frm 00214 Fmt 4703 Sfmt 4703 E:\FR\FM\20MYN1.SGM 20MYN1

Federal Register / Vol. 80, No. 97 / Wednesday, May 20, 2015 / Notices 29143 authorization of a trade and accepts information with respect to, and Office of Business Development, Small financial responsibility for all Exchange facilitation transactions in securities, to Business Administration, 409 3rd Street, transactions made by the execution remove impediments to and perfect the 8th Floor, Washington, DC 20416. TPH. Accordingly, the Exchange mechanism of a free and open market FOR FURTHER INFORMATION CONTACT: believes that, consistent with CBOE and a national market system, and, in Melinda Edwards, Program Analyst, Rule 6.21 (relating to give-ups), the general, to protect investors and the Office of Business Development, CTPH should be responsible for order public interest; and are not designed to Melinda.Edwards@sba.gov, 202–619– handling and processing requirements permit unfair discrimination between 1843, or Curtis B. Rich, Management for trades that it guarantees.16 In customers, issuers, brokers or dealers. Analyst, 202–205–7030, Curtis.Rich@ connection with the Exchange’s The Commission believes that the sba.gov. proposal to amend Interpretation and proposed change to extend electronic Policy .06 to Rule 6.53C, the Exchange stock component routing functionality SUPPLEMENTARY INFORMATION: In also clarified that the stock component to PAR users will create another method accordance with 13 CFR 124.604, as part of a stock-option order represented in for processing stock-option orders of its annual review submission, each open outcry shall be routed from PAR entered into on the Exchange that is Participant owned by a Tribe, ANC, to the Exchange-designated broker- designed to facilitate transactions in NHO or CDC must submit to SBA dealer for automated processing in stock-option orders on the Exchange. information showing how they have accordance with the order’s terms.17 The Commission also believes that it is provided benefits to their members and Conforming and Clarifying Changes. reasonable for the CTPH that guarantees communities. This data includes Finally, the Exchange also proposes a stock-option order transaction to enter information relating to funded cultural conforming changes to Exchange Rules into a brokerage agreement with the programs, employment assistance, jobs, 6.45A (Priority and Allocation of Equity Exchange-designated broker-dealer that scholarships, internships, subsistence Option Trades on the CBOE Hybrid will execute the stock component of the activities, and other services provided. System) and 6.45B (Priority and stock-option order on a stock trading Solicitation of Public Comments Allocation of Trades in Index Options venue. and Options on ETFs on the CBOE SBA is requesting comments on (a) Hybrid System) to reference the revised IV. Conclusion whether the collection of information is functionality set forth in this proposal.18 It is therefore ordered, pursuant to necessary for the agency to properly The Exchange also proposes to specify Section 19(b)(2) of the Act,22 that the perform its functions; (b) whether the that stock-option orders may be proposed rule change (SR–CBOE–2015– burden estimates are accurate; (c) executed against other electronic stock- 029) be, and it hereby is, approved. whether there are ways to minimize the option orders in general, rather than For the Commission, by the Division of burden, including through the use of state that such orders may be executed Trading and Markets, pursuant to delegated automated techniques or other forms of against other stock-option orders authority.23 information technology; and (d) whether specifically through either the COB or Robert W. Errett, there are ways to enhance the quality, COA.19 Deputy Secretary. utility, and clarity of the information. III. Discussion and Commission [FR Doc. 2015–12141 Filed 5–19–15; 8:45 am] Summary of Information Collection Findings BILLING CODE 8011–01–P Title: 8(a) Participant Benefits Report. After careful review, the Commission Description of Respondents: 8(a) finds that the proposed rule change is Program Participants—Entity Owned consistent with the requirements of the SMALL BUSINESS ADMINISTRATION (Indian Tribe, Alaskan Native Act and the rules and regulations Corporations, Native Hawaiian Data Collection Available for Public thereunder applicable to a national Organizations, and Community Comments securities exchange.20 In particular, the Development Corporations). Commission finds that the proposed 60-day notice and request for ACTION: Form Number: N/A. rule change is consistent with the comments. Total Estimated Annual Responses: requirements of Section 6(b)(5) of the 329. Act,21 which requires, among other SUMMARY: The Small Business Total Estimated Annual Hour Burden: things, that the Exchange’s rules be Administration (SBA) intends to request 165. designed to prevent fraudulent and approval, from the Office of Management and Budget (OMB) for the Curtis B. Rich, manipulative acts and practices, to new collection of information described Management Analyst. promote just and equitable principles of trade, to foster cooperation and below. The Paperwork Reduction Act [FR Doc. 2015–12166 Filed 5–19–15; 8:45 am] coordination with persons engaged in (PRA) of 1995, 44 U.S.C. Chapter 35, BILLING CODE 8025–01–P regulating, clearing, settling, processing required federal agencies to publish a notice in the Federal Register 16 Id. at 17532. concerning each proposed collection of SMALL BUSINESS ADMINISTRATION 17 See Proposed Interpretation and Policy .06(a) to information before submission to OMB, Rule 6.53C. and to allow 60 days for public Reporting and Recordkeeping 18 See Notice, supra note 3 at 17531. comment in response to the notice. This Requirements Under OMB Review 19 Id. According to the Exchange, this latter notice complies with that requirement. mstockstill on DSK4VPTVN1PROD with NOTICES change reflects the fact that such orders may be AGENCY: Small Business Administration. subjected to the Automated Improvement DATES: Submit comments on or before ACTION: 30-day notice. Mechanism (‘‘AIM’’) as well as executed through July 20, 2015. the COB or COA. SUMMARY: The Small Business 20 In approving this proposed rule change, the ADDRESSES: Send all comments to Melinda Edwards, Program Analyst, Administration (SBA) is publishing this Commission has considered the proposed rule’s impact on efficiency, competition, and capital notice to comply with requirements of formation. See 15 U.S.C. 78c(f). 22 15 U.S.C. 78s(b)(2). the Paperwork Reduction Act (PRA) (44 21 15 U.S.C. 78f(b)(5). 23 17 CFR 200.30–3(a)(12). U.S.C. Chapter 35), which requires VerDate Sep<11>2014 23:50 May 19, 2015 Jkt 235001 PO 00000 Frm 00215 Fmt 4703 Sfmt 4703 E:\FR\FM\20MYN1.SGM 20MYN1


Document Created: 2018-02-21 10:30:02
Document Modified: 2018-02-21 10:30:02
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation80 FR 29142 
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