80 FR 40116 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Delay Implementation of Tied to Stock Marking Requirement for Certain Orders

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 133 (July 13, 2015)

[Federal Register Volume 80, Number 133 (Monday, July 13, 2015)]
[Notices]
[Pages 40116-40118]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-16980]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75378; File No. SR-CBOE-2015-067]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change to Delay Implementation of Tied to Stock Marking 
Requirement for Certain Orders

July 7, 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 July 1, 2015, 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 Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to delay the implementation of the marking 
requirement set forth in Rule 6.53(y) with respect to certain orders. 
There is no proposed change to the rule text.

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
    On August 13, 2014, the Securities and Exchange Commission (the 
``Commission'') approved CBOE Rules 6.53(y) and 15.2A.\5\ Rule 6.53(y) 
defines a tied to stock order \6\ and requires the representing Trading 
Permit Holder to include an indicator on each tied to stock order upon 
systemization, subject to certain exceptions. Rule 15.2A requires, in a 
manner and form prescribed by the Exchange, each Trading Permit Holder 
(``TPH''), on the business day following the order execution date, to 
report to the Exchange certain information regarding the executed stock 
or convertible security legs of qualified contingent cross (``QCC'') 
orders,\7\ stock-option orders and other tied to stock orders that the 
TPH executed on the Exchange that trading day. The Exchange stated in 
rule filing SR-CBOE-2014-040 that it would issue a circular announcing 
the implementation date for these rules within 90 days of the date of 
filing, which implementation date would be within 180 days of the date 
of filing.
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    \5\ Securities Exchange Act Release No. 72839 (August 13, 2014), 
79 FR 49123 (August 19, 2014) (SR-CBOE-2014-040) (order approving 
Rules 6.53(y) and 15.2A).
    \6\ Rule 6.53(y) provides that an order is ``tied to stock'' if, 
at the time the Trading Permit Holder representing the order on the 
Exchange receives the order (if the order is a customer order) or 
initiates the order (if the order is a is a proprietary order), has 
knowledge that the order is coupled with an order(s) for the 
underlying stock or a security convertible into the underlying stock 
(``convertible security'' and, together with underlying stock, 
``non-option'').
    \7\ A QCC order is 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 coupled 
with a contra-side order to sell (buy) an equal number of contracts. 
These orders may only be entered in the standard increments 
applicable to simple orders in the options class under Rule 6.42. 
For purposes of this order type, a ``qualified contingent trade'' is 
a transaction consisting of two or more component orders, executed 
as agent or principal, where: (a) at least one component is an NMS 
stock, as defined in Rule 600 of Regulation NMS under the Act; (b) 
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; (c) the 
execution of one component is contingent upon the execution of all 
other components at or near the same time; (d) 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; (e) 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 (f) the transaction is fully hedged 
(without regard to any prior existing position) as a result of other 
components of the contingent trade. QCC orders may execute without 
exposure provided the execution is not at the same price as a public 
customer order resting in the electronic book and is at or between 
the national best bid or offer. A QCC order will be cancelled if it 
cannot be executed. See Rule 6.53(u). The Exchange notes that it 
deactivated the QCC functionality effective August 11, 2014 and will 
announce any reactivation of QCC functionality by Regulatory 
Circular. See Regulatory Circular RG14-121.
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    On January 7, 2015, CBOE submitted a rule filing to delay the 
implementation of these rules based on feedback it received from 
TPHs.\8\ The Exchange stated in that rule filing that it would issue a 
circular announcing the implementation date for the rules within 90 
days of the date of the rule

[[Page 40117]]

filing, which implementation date would be within 180 days of the date 
of filing. In accordance with that filing, the Exchange recently issued 
a regulatory circular on April 7, 2015, which announced a July 1, 2015 
implementation date for the tied to stock marking and reporting 
requirements.\9\ On May 20, 2015, CBOE submitted a rule filing to 
further delay the implementation of the reporting requirement set forth 
in Rule 15.2A in order to evaluate the format of the reports in light 
of its entry into a Regulatory Services Agreement with the Financial 
Industry Regulatory Authority, Inc. (``FINRA'').\10\ In that filing, 
CBOE announced its intention to proceed with the implementation of the 
marking requirement set forth in Rule 6.53(y) on July 1, 2015.
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    \8\ Securities Exchange Act Release No. 34-74067 (January 15, 
2015), 80 FR 3267 (January 22, 2015) (SR-CBOE-2015-004) (notice of 
immediate effectiveness of rule filing).
    \9\ CBOE Regulatory Circular RG15-056 (April 7, 2015).
    \10\ Securities Exchange Act Release No. 34-75029 (May 21, 
2015), 80 FR 30506 (May 28, 2015) (SR-CBOE-2015-051) (notice of 
immediate effectiveness of rule filing).
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    The Exchange believes it is appropriate to implement on a limited 
basis the marking requirement on July 1, 2015 with respect to orders 
sent to the Exchange for nonelectronic processing (i.e., orders 
received and systematized by floor brokers handling orders on the CBOE 
trading floor), but proposes to delay the implementation of the marking 
requirement with respect to all other orders (i.e., orders submitted to 
the Exchange for electronic processing). While the Exchange continues 
to believe that there has been sufficient notice, training and 
circulars provided to Trading Permit Holders on the marking requirement 
with respect to electronic orders, based on recent feedback from 
Trading Permit Holders regarding their development efforts related to 
the marking requirement, CBOE believes it is appropriate to provide 
Trading Permit Holders with additional time to complete their necessary 
systems development work to comply with this new marking requirement. 
However, since CBOE has completed development work to allow floor 
brokers to mark orders as tied to stock on devices approved by the 
Exchange that may be used on the trading floor for the systemization of 
orders represented in open outcry,\11\ CBOE believes it is appropriate 
to move forward with implementing the tied to stock marking requirement 
with respect to those orders.
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    \11\ Currently, the only Exchange-approved devices are the PULSe 
workstation, the Floor Broker Workstation (``FBW'') and FBW 2, which 
CBOE makes available to floor brokers. Pursuant to Rule 6.53(y), 
Trading Permit Holders representing tied to stock orders on the 
Exchange must apply the marking at the time of systemization of the 
order.
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    CBOE delayed the implementation of Rule 15.2A for 12 to 18 months 
from the date of the filing that proposed that delay.\12\ CBOE proposes 
to similarly delay implementation of the tied to stock marking 
requirement in Rule 6.53(y) with respect to orders submitted for 
electronic processing for 6 to 18 months from the date of this 
filing.\13\ This will provide Trading Permit Holders with sufficient 
time to complete their systems development work to comply with the tied 
to stock marking requirement. During the delay, as part of CBOE's 
evaluation it is conducting in connection with the delay of the 
implementation of the reporting requirement, CBOE will evaluate the 
number of orders represented in open outcry that are marked as tied to 
stock, which will permit CBOE to evaluate the number of reports it can 
expect to receive with respect to those orders and the potential impact 
of the reports on CBOE's surveillances. The Exchange will issue a 
regulatory circular announcing the new implementation date for the 
reporting requirement as least 180 days prior to that date.
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    \12\ See supra note 10. In that filing, CBOE indicated that it 
planned to evaluate the format of the reports with FINRA to ensure 
that the information to be provided in the reports can be 
incorporated into surveillances in an efficient and effective 
manner. During the delay, CBOE intends to review the number of tied 
to stock orders for which information regarding the stock or 
convertible security leg is not available from CBOE's internal data 
(which will permit CBOE to evaluate the number of reports it can 
expect to receive and the potential impact of the reports on CBOE's 
surveillances) and determine whether this additional information is 
necessary in order to enhance its ability to effectively monitor and 
conduct surveillance of the CBOE markets with respect to tied to 
stock orders whose execution information is not electronically 
captured by the audit trail.
    \13\ The Exchange may still implement the reporting requirement 
and the marking requirement for electronic orders at separate times.
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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.\14\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \15\ 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) \16\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \14\ 15 U.S. C. 78f(b).
    \15\ 15 U.S. C. 78f(b)(5).
    \16\ Id.
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    In particular, the Exchange believes the delayed implementation of 
Rule 6.53(y) with respect to orders submitted to the Exchange for 
electronic processing will provide Trading Permit Holders with 
sufficient time to perform systems development work that will allow 
them to comply with the marking requirement for those orders, which 
will prevent fraudulent and manipulative acts and practices and promote 
just and equitable principles of trade. Additionally, the proposed 
delay will provide the Exchange with sufficient time to evaluate the 
information obtained through the marking requirement with respect to 
orders submitted for nonelectronic processing, as part of its ongoing 
evaluation of the related reporting requirement format. The Exchange 
believes the ability to tie executed non-option legs to the applicable 
option legs that were separately submitted for execution will assist in 
the Exchange's efforts to prevent fraudulent and manipulative acts and 
practices with respect to tied to stock orders, but only if Trading 
Permit Holders are able to apply the marking in accordance with the 
rule.

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 proposed change does not 
impose any burden on competition, as it is simply seeking to delay the 
implementation of the tied to stock marking requirement with respect to 
certain orders. The implementation on July 1, 2015 of the marking 
requirement with respect to orders sent to the Exchange for 
nonelectronic processing is consistent with previous rule filings and 
was announced to Trading Permit Holders in regulatory circulars.

[[Page 40118]]

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 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)(ii) of the Act \17\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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    \17\ 15 U.S. C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change along with a 
brief description and text of 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 met this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \20\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requested 
that the Commission waive the 30-day operative delay. The Exchange 
noted this proposed rule change merely further delays implementation of 
a marking requirement with respect to certain orders. The Exchange also 
previously indicated it would implement the marking requirement by July 
6, 2015, which date is less than 30 days from the date of the filing. 
According to the Exchange, Trading Permit Holders have provided 
feedback that they will not be in a position to comply the marking 
requirement for electronic orders by that date. The Exchange believes 
the Commission should waive the operative delay to ensure that the 
Exchange will not be required to implement the marking requirement with 
respect to those orders prior to Trading Permit Holders having 
compliant systems ready to apply the marking.
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Delaying the July 1, 2015 implementation date will allow more time for 
the Exchange and Trading Permit Holders to work together to ensure that 
Trading Permit Holder have compliant systems. For this reason, the 
Commission designates the proposed rule change to be operative on July 
1, 2015.\21\
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    \21\ 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.

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-2015-067 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-2015-067. 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-2015-067 and should be 
submitted on or before August 3, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-16980 Filed 7-10-15; 8:45 am]
 BILLING CODE 8011-01-P