80_FR_67668 80 FR 67457 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to Complex Orders, as Modified by Amendment No. 1

80 FR 67457 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to Complex Orders, as Modified by Amendment No. 1

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 211 (November 2, 2015)

Page Range67457-67461
FR Document2015-27793

Federal Register, Volume 80 Issue 211 (Monday, November 2, 2015)
[Federal Register Volume 80, Number 211 (Monday, November 2, 2015)]
[Notices]
[Pages 67457-67461]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-27793]



[[Page 67457]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76273; File No. SR-CBOE-2015-089]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Relating to 
Complex Orders, as Modified by Amendment No. 1

October 27, 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 October 13, 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, II, and III below, which Items have been prepared by the 
Exchange. On October 26, 2015, the Exchange submitted Amendment No. 1 
to the proposed rule change. 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 amend Rule 6.53C. 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 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 Exchange proposes to amend Rule 6.53C regarding complex orders. 
The proposed rule change (1) amends the rule provisions regarding the 
initiation of a complex order auction (``COA''), (2) adds rule 
provisions regarding the impact of certain incoming orders and changes 
in the leg markets on an ongoing COA, and (3) updates the rule text 
regarding who can submit complex orders. The proposed rule change also 
makes technical and other nonsubstantive changes.
    First, the Exchange proposes to amend Rule 6.53C and Interpretation 
and Policy .04 regarding the initiation of a COA. Currently, CBOE Rule 
6.53C(d)(ii) provides that on receipt of (1) a COA-eligible order \3\ 
with two legs and request from the Trading Permit Holder representing 
the order or the PAR operator handling the order, as applicable, that 
it be COA'd or (2) a complex order with three or more legs that (a) 
meets the class, marketability, size and complex order type parameters 
included in the definition of a COA-eligible order or (B) is designated 
as immediate-or-cancel and meets the class, marketability and size 
parameters included in the definition of a COA-eligible order,\4\ in 
both cases regardless of the order's routing parameters or handling 
instructions (except for orders routed for manual handling), the 
Exchange will send a request for response (``RFR'') message to all 
Trading Permit Holders who have elected to receive RFR messages.\5\ 
Interpretation and Policy .04(a) states that, with respect to the 
initiation of a COA, Trading Permit Holders routing complex orders 
directly to the complex order book (``COB'') may request that the 
complex orders be COA'd on a class-by-class basis, and Trading Permit 
Holders with resting complex orders on PAR may request that complex 
orders be COA'd on an order-by-order basis. Currently, all Trading 
Permit Holders have requested that all of their COA-eligible orders 
with two legs process through COA upon entry into the System. 
Therefore, rather than have Trading Permit Holders and PAR operators 
affirmatively request that their COA-eligible orders with two legs COA, 
the Exchange proposes to amend Rule 6.53C(d)(ii) to provide that 
incoming COA-eligible orders with two legs (including orders submitted 
for electronic processing from PAR) will COA by default.\6\
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    \3\ A ``COA-eligible order'' means a complex order that, as 
determined by the Exchange on class-by-class basis, is eligible for 
a COA considering the order's marketability (defined as a number of 
tickets away from the current market), size, complex order type and 
complex order origin types. Currently, in all Hybrid classes, (a) 
only complex orders with origin codes for public and professional 
customers, (b) all complex order types except for immediate-or-
cancel (``IOC'') orders, and (c) marketable orders and ``tweener'' 
limit orders bettering the same side of the derived net market are 
eligible for COA. In Hybrid 3.0 classes (i.e. SPX), (a) all complex 
order types (including IOC orders) and (b) only customer orders are 
eligible for COA. See Regulatory Circulars RG06-73, RG08-38 and 
RG08-97.
    \4\ This description of the current rule includes changes to 
Rule 6.53C proposed in SR-CBOE-2015-081, which CBOE filed for 
immediate effectiveness on October 2, 2015.
    \5\ ``RFR'' stands for a ``request for responses'' that occurs 
in the COA process. The RFR message will identify the component 
series, the size and side of the market of the COA-eligible order 
and any contingencies if applicable.
    \6\ The proposed rule change applies to all COA-eligible orders 
with two legs, including eligible stock-option orders, in all Hybrid 
and Hybrid 3.0 classes. The proposed rule change does not change the 
allocation or priority provisions of complex orders, nor does it 
impact leg order functionality described in Rule 6.53C(c)(iv), which 
functionality the Exchange has the authority to implement (the 
Exchange that leg order functionality is currently not available in 
any classes). The proposed rule change also makes a nonsubstantive 
change to move language regarding the System sending RFR messages to 
the beginning of the provision.
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    The Exchange believes Trading Permit Holders should still maintain 
flexibility to have these two-legged orders not COA. In order to 
provide Trading Permit Holders with this flexibility, the proposed rule 
change adds that, notwithstanding the foregoing, Trading Permit Holders 
may request on an order-by-order basis that a COA-eligible order with 
two legs not COA (referred to as a ``do-not-COA'' request). The 
proposed rule change adds that if a two-legged order with a do-not-COA 
requests rests on PAR, the PAR operator may not request that the order 
COA (in other words, if the PAR operator submits that order for 
electronic processing, the PAR operator cannot override the Trading 
Permit Holder's do-not-COA order request, and the order will enter the 
COB). Because of this proposed rule change, the Exchange deletes the 
language in Interpretation and Policy .04(a) that indicates Trading 
Permit Holders may request that complex orders be COA'd on a class-by-
class basis, as it is no longer necessary.\7\

[[Page 67458]]

While the proposed rule change will not permit Trading Permit Holders 
to not COA orders on a class-by-class basis, the Exchange believes that 
it will not burden Trading Permit Holders because they have not 
requested this in the past. Additionally, allowing Trading Permit 
Holders to make a do-not-COA request on an order-by-order basis will 
better allow them to make decisions regarding the handling of their 
orders based on market conditions at the time they submit their 
orders.\8\
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    \7\ The proposed rule change deletes Interpretation and Policy 
.04(a) in order to include all information regarding the initiation 
of a COA in subparagraph (d)(ii) in the same place within the rule. 
As a result, the proposed rule change deletes the lettering for 
paragraph (b), which will be the only remaining provision in 
Interpretation and Policy .04. The proposed rule change makes a 
corresponding change in subparagraph (d)(ii) to delete a reference 
to making a request pursuant to Interpretation and Policy .04.
    \8\ For organizational purposes, the proposed rule change 
divides paragraph (d)(ii) into two subparagraphs (A) and (B), which 
address the general rule regarding when complex orders will COA and 
the treatment of complex orders with do-not-COA requests, 
respectively, and makes corresponding changes to cross-references in 
the rule.
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    While the proposed rule change provides that Trading Permit Holders 
may include a do-not-COA request on complex orders with two legs, the 
proposed rule change indicates that an order with a do-not-COA request 
may still COA after it has rested on the COB pursuant to Interpretation 
and Policy .04.\9\ The Exchange believes that Trading Permit Holders 
that include a do-not-COA request for an order upon entry into the 
System do so to receive automatic execution with the leg market or the 
COB, as applicable, without the delay of the COA.\10\ However, if that 
does not occur and the order enters the COB to rest, the Exchange 
believes it is appropriate to COA the order after resting on the COB 
(if that functionality has been activated for the class) to try and 
obtain an execution even though the Trading Permit Holder initially did 
not want the order to COA, as the COA will not delay execution at that 
point.
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    \9\ Interpretation and Policy .04(b) (which the proposed rule 
change amends to become Interpretation and Policy .04) provides that 
the Exchange may determine on a class-by-class basis to 
automatically COA nonmarketable orders resting at the top of the COB 
if they are within a number of ticks away from the current derived 
net market.
    \10\ The current COA response time interval is 100 milliseconds.
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    The Exchange notes that an order with a do-not-COA request will 
still have execution opportunities. For example, such an order may 
execute automatically upon entry into the System against the leg 
markets or complex orders on the COB to the extent marketable (in 
accordance with allocation rules set forth in Rule 6.53C). 
Additionally, pursuant to Rule 6.53C(d)(viii)(1), such an order on the 
opposite side of and marketable against a COA-eligible order may trade 
against the COA-eligible order if the System receives the order while a 
COA is ongoing. A do-not-COA request merely provides the order with the 
opportunity to execute upon entry into the System rather than after 
going through an auction; the order will be subject to the same 
priority and allocation rules.\11\
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    \11\ A complex order that COAs upon entry into the System or 
after resting in the COB will not miss any execution opportunities. 
Pursuant to current Interpretation and Policy .04(b), an order that 
COAs after resting on the COB will be nonmarketable and at the top 
of the COB (and thus is the best-priced complex order at the time). 
Rule 6.53C(d)(viii) (including as amended by this rule filing, as 
further discussed below) describes how incoming complex orders 
received during a COA impact the COA, including providing that the 
COA'd order (which may be an order that COAs upon entry into the 
System or after resting in the COB) will have time priority over the 
incoming order, and ultimately provides that a COA'd order will not 
lose execution opportunities to complex orders submitted during the 
COA.
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    Second, the proposed rule change adds subparagraphs Rule 
6.53C(d)(viii)(4) and (5) to describe additional circumstances that 
will cause a COA to end early.\12\ Proposed subparagraph (viii)(4) 
describes how an incoming order with a do-not-COA request or that is 
not COA-eligible may impact an ongoing COA. Rule 6.53C(d)(viii) 
currently describes the handling of unrelated complex orders that are 
received prior to the expiration of the COA Response Time Interval.\13\ 
The proposed rule change states that if an order with a do-not-COA 
request or an order that is not COA-eligible is received prior to the 
expiration of the Response Time Interval for the original COA and is on 
the same side of the market and at a price better than or equal to the 
starting price, then the original COA will end. Similar to the current 
provisions regarding incoming unrelated COA-eligible orders on the same 
side of the COA-eligible order (and at a price better than or equal to 
the starting price), the processing of the original COA pursuant to 
subparagraphs (d)(iv) through (d)(vi) remains the same \14\ with the 
addition that the priority of the original COA-eligible order and the 
order with the do-not-COA request or the order that is not COA-
eligible, as applicable, will be according to time priority. In other 
words, the COA-eligible order would trade before the order with the do-
not-COA request or order that is not COA-eligible, regardless of the 
price of each order.\15\ The purpose of this proposed provision (as it 
is for the current provisions related to unrelated complex orders) is 
to prevent the order with the do-not-COA request or the order that is 
not COA-eligible,\16\ as applicable, from executing prior to the 
original COA-eligible order, which, if it did not COA, may have 
executed or entered the COB

[[Page 67459]]

(because it would have entered the COB first, it potentially would have 
priority over the incoming order to the extent the algorithm applicable 
to the class considered time as a factor for allocation).
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    \12\ The proposed rule change makes corresponding changes to the 
heading and introductory paragraph of subparagraph (d)(viii).
    \13\ Rule 6.53C(d)(viii) states that incoming complex orders 
that are received prior to the expiration of the response time 
interval for a COA-eligible order (the ``original COA'') will impact 
the original COA as follows: (a) Incoming complex orders that are 
received prior to the expiration of the response time interval for 
the original COA that are on the opposite side of the market and are 
marketable against the starting price of the original COA-eligible 
order will cause the original COA to end. The processing of the 
original COA pursuant to subparagraphs (d)(iv) through (d)(vi) 
remains the same. (The ``starting price'' means the better of the 
original COA-eligible order's limit price or the best price, on a 
net debit or credit basis, that existed in the EBook or COB at the 
beginning of the response time interval.) (b) Incoming COA-eligible 
orders that are received prior to the expiration of the response 
time interval for the original COA that are on the same side of the 
market, at the same price or worse than the original COA-eligible 
order and better than or equal to the starting price will join the 
original COA. The processing of the original COA pursuant to 
subparagraphs (d)(iv) through (d)(vi) remains the same with the 
addition that the priority of the original COA-eligible order and 
incoming COA-eligible order(s) will be according to time priority. 
(c) Incoming COA-eligible orders that are received prior to the 
expiration of the response time interval for the original COA that 
are on the same side of the market and at a better price than the 
original COA-eligible order will join the original COA, cause the 
original COA to end, and a new COA to begin for any remaining 
balance on the incoming COA-eligible order. The processing of the 
original COA pursuant to subparagraphs (d)(iv) through (d)(vi) 
remains the same with the addition that the priority of the original 
COA-eligible order and incoming COA-eligible order will be according 
to time priority.
    \14\ Rule 6.53C(d)(iv) through (d)(vi) provides that at the 
expiration of the response time interval, the COA-eligible order 
will trade with orders and quotes in the following order: (a) 
Individual orders and quotes residing in the book (with allocation 
consistent with the ultimate matching algorithm (``UMA'') described 
in Rule 6.45A or 6.45B, as applicable), (b) public customer complex 
orders resting in the COB before, or that are received during, the 
response time interval and public customer RFR responses (with 
allocation according to time priority), (c) nonpublic customer 
orders resting in the COB before the response time interval (with 
allocation consistent with UMA described in Rule 6.45A or 6.45B, as 
applicable), and (d) nonpublic customer orders resting in the COB 
that are received during the response time interval and nonpublic 
customer responses (with allocation consistent with the ultimate 
matching algorithm described in Rule 6.45A or 6.45B, as applicable, 
capped at the response size). If a COA-eligible order cannot be 
filled in whole or in a permissible ratio, the order (or any 
remaining balance) will route to the COB or back to PAR, as 
applicable. Thus, the unrelated order with a do-not-COA request or 
the order that is not COA-eligible will have execution opportunities 
against the leg markets, complex orders in the COB and COA 
responses, with priority after the original COA-eligible order.
    \15\ This time priority is the same provided to COA-eligible 
orders over incoming orders in subparagraphs (d)(viii)(2) and (3).
    \16\ Current paragraph (d)(viii) currently addresses the impact 
of incoming COA-eligible orders on the same side of the original 
COA-eligible order. The proposed rule change adds detail regarding 
the impact of orders that are not COA-eligible and orders with a do-
not-COA request. The Exchange believes this provides a more complete 
description in its rules regarding the impact of unrelated complex 
orders received during a COA.
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    For example, assume that a COA-eligible order to buy with a net 
limit price of $1.20 is received when the book or COB price (and thus 
the starting price) is a net price bid of $1.10. The System will 
initiate a COA at a net price of $1.10. An incoming order with a do-
not-COA request to buy at a net price of $1.10 or higher causes the 
original COA to end. To the extent possible, the original COA-eligible 
order will be filled first, and then the order with the do-not-COA 
request will be filled (subject to the COA allocation provisions 
describe above).\17\ Any remaining balance on the original COA-eligible 
order or the incoming order with the do-not-COA request will route to 
COB or back to PAR. The Exchange believes this result to be 
appropriate, even if the incoming order with the do-not-COA request had 
a higher buy price than the COA-eligible order (e.g. $1.21), because if 
the COA-eligible order had not initiated a COA and was marketable at 
the time it was entered (for example, if the offer in the book was 
$1.15), it could have executed against the book before the order was 
entered. Providing the COA-eligible order with time priority is 
intended to ensure it does not miss an execution opportunity it would 
have otherwise received if it had not initiated a COA.
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    \17\ See id.
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    Proposed subparagraph (viii)(5) provides that if the leg markets 
were not marketable against a COA-eligible order when the order entered 
the System (and thus prior to the initiation of a COA) but became 
marketable with the COA-eligible order prior to the expiration of the 
Response Time Interval, it will cause the COA to end.\18\ The 
processing of the original COA pursuant to subparagraphs (d)(iv) 
through (d)(vi) remains the same.
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    \18\ This is similar to the result described in subparagraph 
(viii)(1), which provides that an incoming complex order on the 
opposite side of the market as and marketable against the COA-
eligible order will cause the COA to end.
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    For example, assume that the derived net leg market is $1.00 to 
$1.05. A COA-eligible order to buy at a net price of $1.02 is entered 
and initiates a COA. During the COA (prior to the end of the Response 
Time Interval), the derived net leg market offer changes to $1.01. 
Because this is marketable against the COA-eligible order, this change 
in the derived net leg markets will cause the COA to end. Assuming the 
derived net leg market offer price of $1.01 is the best net price at 
the end of the COA,\19\ the COA-eligible order will execute against the 
leg markets at that net price, and any remainder will then trade 
against complex orders in the COB and auction responses. If a complex 
order to buy was resting on the COB (for example, at a net price of 
$1.01) at the initiation of the COA (for example, a do-not-COA order or 
an order that is not COA-eligible),\20\ that order and the COA-eligible 
order would be allocated against the leg markets in the same manner as 
any other two complex orders pursuant to Rule 6.53C(c)(ii) regarding 
COB executions, which is by price and then pursuant to the rules of 
trading priority otherwise applicable to incoming orders in the 
individual component legs. The COA-eligible order would always have 
priority over the resting order, as it would always have a higher (if a 
buy order) or lower (if a sell order) net price than the resting order.
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    \19\ The leg market offer would be the best price at the end of 
the COA if no auction response, order resting in the COB, or order 
that entered the System during the COA had a better price.
    \20\ As previously indicated, only orders that are marketable or 
that improve the price on the same side of the market initiate a 
COA. See supra note 1. Thus, for there to be a situation where a 
complex order was already resting on the COB at the initiation of a 
COA, the order resting on the COB would be at a worse price than the 
COA-eligible order that initiated the COA. If there is a complex 
order resting on the COB when that is on the same side and at the 
same or better price than an incoming complex order, then the 
incoming order will not COA and will also enter on the COB.
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    In the example above, if a complex order to buy at a net price of 
$1.01 was resting in the COB at the time the COA-eligible order to buy 
at a net price of $1.02 entered the System and initiated the COA, and 
the same change in the derived net leg markets occurs, assuming the 
derived net leg market offer price of $1.01 is the best net price at 
the end of the COA, the COA-eligible order will trade against the 
derived net leg offer at $1.01 first, because it was entered at (and 
thus willing to pay) a better net price than the resting complex order 
(to the extent there was insufficient size in the leg markets to fill 
the COA-eligible order, the remainder would then execute against 
complex orders in the COB and auction responses). If there is 
sufficient size left in the leg markets to trade against the resting 
complex order, then the resting order will also trade (in full or in a 
permissible ratio).
    Third, the proposed rule change amends Rule 6.53C(c)(ii)(3) and 
Interpretation and Policy .06(c) to provide that all Trading Permit 
Holders and PAR Officials may submit orders or quotes to trade against 
orders in the COB. Currently, the rule provides that market 
participants \21\ may submit these orders or quotes. While the rules 
allow the Exchange to determine which order origin types (i.e., public 
customer, Market-Makers, broker-dealers) are eligible for entry into 
the COB,\22\ orders of the eligible origin types submitted by any 
Trading Permit Holders (as applicable) or PAR Officials may enter the 
COB.\23\ The proposed rule change updates the rule text to match 
current System functionality.
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    \21\ Rules 6.45A and 6.45B define market participants as Market-
Makers, Designated Primary Market-Makers with an appointment in the 
subject class, and floor brokers and PAR Officials representing 
orders in the trading crowd. Trading Permit Holders and PAR 
Officials as a group is larger than market participants as a group, 
as the term market participants does not include other types of 
Trading Permit Holders (such as electronic proprietary traders or 
brokers submitting electronic orders on behalf of customers from off 
of the trading floor).
    \22\ See Rule 6.53C(c)(ii).
    \23\ The Exchange notes that only Market-Makers may submit 
quotes. See Rule 8.7.
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    Finally, the proposed rule change makes technical and other 
nonsubstantive changes. Currently, Interpretation and Policy .09 
provides that the Exchange may determine on a class-by-class basis 
which electronic matching algorithm from Rule 6.45A or 6.45B, as 
applicable, will apply to COB executions in lieu of the algorithm 
specified in Rule 6.53C(c)(ii)(2) and (3). The proposed rule change 
moves that language from Interpretation and Policy .09 to both of those 
paragraphs.\24\ The Exchange believes it is simpler and more convenient 
to have the information regarding how COB executions may allocate in 
one place within the rules. The proposed rule change also amends 
subparagraph (c)(ii)(3) to provide that, like subparagraph (c)(ii)(2), 
the allocation of complex orders submitted to trade against orders or 
quotes in the COB that trade against those orders or quotes (which is 
the trade activity to which that paragraph applies) will default to the 
rules of trading priority otherwise applicable to incoming electronic 
orders in the individual leg components. Interpretation and Policy .09 
currently provides the Exchange with the authority to set this as the 
allocation method for subparagraph (c)(ii)(3). The proposed change 
merely indicates that, like the allocation of COB to COB trades as set 
forth in subparagraph (c)(ii)(2), the allocation method will be the 
same as the legs unless the Exchange provides otherwise.
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    \24\ The proposed rule change also makes a corresponding change 
to Interpretation and Policy .06(c), which relates to executions of 
stock-options orders (types of complex orders) in the COB.

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[[Page 67460]]

    In addition, the proposed rule change amends Rule 6.53C(c)(ii)(3) 
to provide that order and quote types (not just quote types) not 
eligible to rest or trade against the COB will be automatically 
cancelled. The first several sentences in that subparagraph reference 
orders and quotes eligible to rest on the COB. The Exchange intended 
for both non-eligible orders and quotes to be cancelled; this proposed 
change merely makes the language in this paragraph consistent 
throughout. Additional nonsubstantive changes to Rule 6.53C are 
discussed above.
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.\25\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \26\ 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) \27\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ Id.
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    In particular, the proposed rule change removes impediments to a 
free and open market and protects investors by providing Trading Permit 
Holders with more flexibility regarding when complex orders will not 
COA. The proposed rule change removes the affirmative obligation 
currently imposed on Trading Permit Holders to request that their COA-
eligible orders with two legs COA on a class-by-class basis, as Trading 
Permit Holders currently request that all of their COA-eligible orders 
COA upon entry into the System. Therefore, the proposed rule change to 
have COA as the default setting for COA-eligible orders will have no 
impact on COA-eligible orders submitted to the Exchange. The proposed 
rule change will allow Trading Permit Holders to evaluate then-current 
market conditions and determine if they do not want to COA orders with 
two legs based on those conditions and instead want those orders to 
route to the COB for potential immediate execution. These orders with 
do-not COA requests will continue to have execution opportunities and 
be subject to the same priority and allocation rules. In addition, the 
proposed rule change promotes just and equitable principles of trade 
and promotes competition because another options exchange has a 
substantially similar rule, as further described below, which similarly 
allows members to designate that orders not initiate a complex order 
auction on that exchange.\28\
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    \28\ See NASDAQ OMX PHLX LLC (``PHLX'') Rule 1080, Commentary 
.07(a)(viii) and (e) (describing the complex order live auction 
(``COLA'') process and ``do not auction'' orders).
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    The current rules describe how COA-eligible orders received while a 
COA is ongoing would impact the COA. The proposed rule change also adds 
detail regarding how incoming orders with do-not-COA requests or that 
are not COA-eligible, as well as how changes in the leg markets, may 
impact ongoing COAs, which protects investors by enhancing the 
description in CBOE Rules of current COA functionality and 
circumstances that may cause a COA to end early. Because the proposed 
rule change adds a provision regarding no-COA orders to the CBOE Rules, 
the Exchange believes it is appropriate to add the provision regarding 
how no-COA orders would impact a COA to the CBOE Rules as well to 
ensure investors understand how these orders may impact a COA. The 
Exchange believes the proposed rule change promotes just and equitable 
principles of trade because, if these orders cause a COA to end, any 
executions that occur following the COA occur in accordance with 
allocation principles in place, subject to an exception that the 
original COA-eligible order receive time priority. This exception 
prevents an order that was entered after the initiation of a COA from 
trading ahead of an order with the same price that may have executed or 
entered the COB if it did not COA. Similarly, the Exchange believe it 
is fair for a COA-eligible order that was entered at a better price 
than an order that was resting in the COB prior to initiation of the 
COA to execute against leg markets that become marketable against the 
COA-eligible order and resting order during the COA, because the 
Trading Permit Holder who entered the COA-eligible order was willing to 
pay a better price than that of the resting order. Incoming orders that 
do not COA and leg market changes impact a COA in a substantially 
similar manner as incoming COA-eligible orders; the proposed rule 
change just applies to different order types not covered by the current 
Rules. This proposed change does not substantively change the COA or 
allocation process.
    The proposed rule change to update the term market participants to 
Trading Permit Holders and PAR Officials and to reorganize certain 
provisions eliminates potential confusion regarding the processing of 
complex orders. This additional information further perfects the 
mechanism of a free and open market and a national market system and 
protects investors. Additionally, updating the term market participants 
to Trading Permit Holders and PAR Officials further benefits investors 
because it more accurately describes who may enter complex orders into 
the System. The Exchange notes that the Trading Permit Holders and PAR 
Officials includes all participants included in the current market 
participant definition (as well as additional participants).

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 rule change, 
including the ability to designate orders to not COA, is available to 
all Trading Permit Holders. The Exchange believes the proposed rule 
change provides Trading Permit Holders with more flexibility with 
respect to the submission of their complex orders. The proposed rule 
change also eliminates the affirmative obligation imposed on Trading 
Permit Holders to request that COA-eligible orders COA, which they all 
do for all classes. While Trading Permit Holders may need to undertake 
system work to allow them to include a do-not-COA request on orders, 
use of this designation is voluntary. CBOE believes this flexibility 
may promote competition by encouraging submission of complex orders to 
the Exchange. To the extent that proposed rule change makes CBOE a more 
attractive marketplace to market participants on other exchanges, such 
market participants may elect to send orders to CBOE to take advantage 
of the additional functionality. Additionally, other exchanges may 
determine to provide similar functionality and further enhance 
competition. The Exchange also notes that other options exchanges have 
substantially similar

[[Page 67461]]

provisions as the proposed rule change, as described above.
    The proposed rule change to add detail to the rules regarding the 
impact of changes in the leg markets on a COA describes current 
functionality and is merely intended to enhance the description of this 
functionality in the Rules, and thus has no impact on competition. The 
nonsubstantive and technical changes have no impact on competition.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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-2015-089 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-2015-089. 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-2015-089 and should be 
submitted on or before November 23, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-27793 Filed 10-30-15; 8:45 am]
BILLING CODE 8011-01-P



                                                                                   Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices                                                            67457

                                                    SECURITIES AND EXCHANGE                                    A. Self-Regulatory Organization’s                          Trading Permit Holders routing complex
                                                    COMMISSION                                                 Statement of the Purpose of, and                           orders directly to the complex order
                                                                                                               Statutory Basis for, the Proposed Rule                     book (‘‘COB’’) may request that the
                                                    [Release No. 34–76273; File No. SR–CBOE–                   Change                                                     complex orders be COA’d on a class-by-
                                                    2015–089]
                                                                                                                                                                          class basis, and Trading Permit Holders
                                                                                                               1. Purpose                                                 with resting complex orders on PAR
                                                    Self-Regulatory Organizations;                                The Exchange proposes to amend                          may request that complex orders be
                                                    Chicago Board Options Exchange,                            Rule 6.53C regarding complex orders.                       COA’d on an order-by-order basis.
                                                    Incorporated; Notice of Filing of a                        The proposed rule change (1) amends                        Currently, all Trading Permit Holders
                                                                                                               the rule provisions regarding the                          have requested that all of their COA-
                                                    Proposed Rule Change Relating to
                                                                                                               initiation of a complex order auction                      eligible orders with two legs process
                                                    Complex Orders, as Modified by
                                                                                                               (‘‘COA’’), (2) adds rule provisions                        through COA upon entry into the
                                                    Amendment No. 1                                                                                                       System. Therefore, rather than have
                                                                                                               regarding the impact of certain
                                                    October 27, 2015.                                          incoming orders and changes in the leg                     Trading Permit Holders and PAR
                                                                                                               markets on an ongoing COA, and (3)                         operators affirmatively request that their
                                                       Pursuant to Section 19(b)(1) of the                     updates the rule text regarding who can                    COA-eligible orders with two legs COA,
                                                    Securities Exchange Act of 1934 (the                       submit complex orders. The proposed                        the Exchange proposes to amend Rule
                                                    ‘‘Act’’),1 and Rule 19b–4 thereunder,2                     rule change also makes technical and                       6.53C(d)(ii) to provide that incoming
                                                    notice is hereby given that on October                     other nonsubstantive changes.                              COA-eligible orders with two legs
                                                    13, 2015, Chicago Board Options                               First, the Exchange proposes to                         (including orders submitted for
                                                    Exchange, Incorporated (the ‘‘Exchange’’                   amend Rule 6.53C and Interpretation                        electronic processing from PAR) will
                                                    or ‘‘CBOE’’) filed with the Securities                     and Policy .04 regarding the initiation of                 COA by default.6
                                                    and Exchange Commission (the                               a COA. Currently, CBOE Rule                                   The Exchange believes Trading Permit
                                                    ‘‘Commission’’) the proposed rule                          6.53C(d)(ii) provides that on receipt of                   Holders should still maintain flexibility
                                                    change as described in Items I, II, and                    (1) a COA-eligible order 3 with two legs                   to have these two-legged orders not
                                                    III below, which Items have been                           and request from the Trading Permit                        COA. In order to provide Trading Permit
                                                    prepared by the Exchange. On October                       Holder representing the order or the                       Holders with this flexibility, the
                                                    26, 2015, the Exchange submitted                           PAR operator handling the order, as                        proposed rule change adds that,
                                                    Amendment No. 1 to the proposed rule                       applicable, that it be COA’d or (2) a                      notwithstanding the foregoing, Trading
                                                                                                               complex order with three or more legs                      Permit Holders may request on an order-
                                                    change. The Commission is publishing
                                                                                                               that (a) meets the class, marketability,                   by-order basis that a COA-eligible order
                                                    this notice to solicit comments on the
                                                                                                               size and complex order type parameters                     with two legs not COA (referred to as a
                                                    proposed rule change from interested                                                                                  ‘‘do-not-COA’’ request). The proposed
                                                    persons.                                                   included in the definition of a COA-
                                                                                                               eligible order or (B) is designated as                     rule change adds that if a two-legged
                                                    I. Self-Regulatory Organization’s                          immediate-or-cancel and meets the                          order with a do-not-COA requests rests
                                                    Statement of the Terms of Substance of                     class, marketability and size parameters                   on PAR, the PAR operator may not
                                                    the Proposed Rule Change                                   included in the definition of a COA-                       request that the order COA (in other
                                                                                                               eligible order,4 in both cases regardless                  words, if the PAR operator submits that
                                                      The Exchange proposes to amend                           of the order’s routing parameters or                       order for electronic processing, the PAR
                                                    Rule 6.53C. The text of the proposed                       handling instructions (except for orders                   operator cannot override the Trading
                                                    rule change is available on the                            routed for manual handling), the                           Permit Holder’s do-not-COA order
                                                    Exchange’s Web site (http://                               Exchange will send a request for                           request, and the order will enter the
                                                    www.cboe.com/AboutCBOE/                                    response (‘‘RFR’’) message to all Trading                  COB). Because of this proposed rule
                                                    CBOELegalRegulatoryHome.aspx), at                          Permit Holders who have elected to                         change, the Exchange deletes the
                                                    the Exchange’s Office of the Secretary,                    receive RFR messages.5 Interpretation                      language in Interpretation and Policy
                                                    and at the Commission’s Public                             and Policy .04(a) states that, with                        .04(a) that indicates Trading Permit
                                                    Reference Room.                                            respect to the initiation of a COA,                        Holders may request that complex
                                                                                                                                                                          orders be COA’d on a class-by-class
                                                    II. Self-Regulatory Organization’s                            3 A ‘‘COA-eligible order’’ means a complex order        basis, as it is no longer necessary.7
                                                    Statement of the Purpose of, and                           that, as determined by the Exchange on class-by-
                                                    Statutory Basis for, the Proposed Rule                     class basis, is eligible for a COA considering the            6 The proposed rule change applies to all COA-
                                                                                                               order’s marketability (defined as a number of tickets      eligible orders with two legs, including eligible
                                                    Change                                                     away from the current market), size, complex order         stock-option orders, in all Hybrid and Hybrid 3.0
                                                                                                               type and complex order origin types. Currently, in         classes. The proposed rule change does not change
                                                      In its filing with the Commission, the                   all Hybrid classes, (a) only complex orders with           the allocation or priority provisions of complex
                                                    Exchange included statements                               origin codes for public and professional customers,        orders, nor does it impact leg order functionality
                                                    concerning the purpose of and basis for                    (b) all complex order types except for immediate-          described in Rule 6.53C(c)(iv), which functionality
                                                                                                               or-cancel (‘‘IOC’’) orders, and (c) marketable orders      the Exchange has the authority to implement (the
                                                    the proposed rule change and discussed                     and ‘‘tweener’’ limit orders bettering the same side       Exchange that leg order functionality is currently
                                                    any comments it received on the                            of the derived net market are eligible for COA. In         not available in any classes). The proposed rule
                                                    proposed rule change. The text of these                    Hybrid 3.0 classes (i.e. SPX), (a) all complex order       change also makes a nonsubstantive change to move
                                                                                                               types (including IOC orders) and (b) only customer         language regarding the System sending RFR
                                                    statements may be examined at the                          orders are eligible for COA. See Regulatory                messages to the beginning of the provision.
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                                                    places specified in Item IV below. The                     Circulars RG06–73, RG08–38 and RG08–97.                       7 The proposed rule change deletes Interpretation
                                                    Exchange has prepared summaries, set                          4 This description of the current rule includes
                                                                                                                                                                          and Policy .04(a) in order to include all information
                                                    forth in sections A, B, and C below, of                    changes to Rule 6.53C proposed in SR–CBOE–                 regarding the initiation of a COA in subparagraph
                                                                                                               2015–081, which CBOE filed for immediate                   (d)(ii) in the same place within the rule. As a result,
                                                    the most significant aspects of such                       effectiveness on October 2, 2015.                          the proposed rule change deletes the lettering for
                                                    statements.                                                   5 ‘‘RFR’’ stands for a ‘‘request for responses’’ that   paragraph (b), which will be the only remaining
                                                                                                               occurs in the COA process. The RFR message will            provision in Interpretation and Policy .04. The
                                                                                                               identify the component series, the size and side of        proposed rule change makes a corresponding
                                                      1 15   U.S.C. 78s(b)(1).                                 the market of the COA-eligible order and any               change in subparagraph (d)(ii) to delete a reference
                                                      2 17   CFR 240.19b–4.                                    contingencies if applicable.                                                                            Continued




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                                                    67458                       Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices

                                                    While the proposed rule change will not                 ongoing. A do-not-COA request merely                     The proposed rule change states that if
                                                    permit Trading Permit Holders to not                    provides the order with the opportunity                  an order with a do-not-COA request or
                                                    COA orders on a class-by-class basis, the               to execute upon entry into the System                    an order that is not COA-eligible is
                                                    Exchange believes that it will not                      rather than after going through an                       received prior to the expiration of the
                                                    burden Trading Permit Holders because                   auction; the order will be subject to the                Response Time Interval for the original
                                                    they have not requested this in the past.               same priority and allocation rules.11                    COA and is on the same side of the
                                                    Additionally, allowing Trading Permit                     Second, the proposed rule change                       market and at a price better than or
                                                    Holders to make a do-not-COA request                    adds subparagraphs Rule                                  equal to the starting price, then the
                                                    on an order-by-order basis will better                  6.53C(d)(viii)(4) and (5) to describe                    original COA will end. Similar to the
                                                    allow them to make decisions regarding                  additional circumstances that will cause                 current provisions regarding incoming
                                                    the handling of their orders based on                   a COA to end early.12 Proposed                           unrelated COA-eligible orders on the
                                                    market conditions at the time they                      subparagraph (viii)(4) describes how an                  same side of the COA-eligible order (and
                                                    submit their orders.8                                   incoming order with a do-not-COA                         at a price better than or equal to the
                                                       While the proposed rule change                       request or that is not COA-eligible may                  starting price), the processing of the
                                                    provides that Trading Permit Holders                    impact an ongoing COA. Rule                              original COA pursuant to subparagraphs
                                                    may include a do-not-COA request on                     6.53C(d)(viii) currently describes the                   (d)(iv) through (d)(vi) remains the
                                                    complex orders with two legs, the                       handling of unrelated complex orders                     same 14 with the addition that the
                                                    proposed rule change indicates that an                  that are received prior to the expiration                priority of the original COA-eligible
                                                    order with a do-not-COA request may                     of the COA Response Time Interval.13                     order and the order with the do-not-
                                                    still COA after it has rested on the COB                                                                         COA request or the order that is not
                                                    pursuant to Interpretation and Policy                      11 A complex order that COAs upon entry into the      COA-eligible, as applicable, will be
                                                    .04.9 The Exchange believes that                        System or after resting in the COB will not miss any     according to time priority. In other
                                                    Trading Permit Holders that include a                   execution opportunities. Pursuant to current
                                                                                                            Interpretation and Policy .04(b), an order that COAs
                                                                                                                                                                     words, the COA-eligible order would
                                                    do-not-COA request for an order upon                    after resting on the COB will be nonmarketable and       trade before the order with the do-not-
                                                    entry into the System do so to receive                  at the top of the COB (and thus is the best-priced       COA request or order that is not COA-
                                                    automatic execution with the leg market                 complex order at the time). Rule 6.53C(d)(viii)          eligible, regardless of the price of each
                                                    or the COB, as applicable, without the                  (including as amended by this rule filing, as further    order.15 The purpose of this proposed
                                                                                                            discussed below) describes how incoming complex
                                                    delay of the COA.10 However, if that                    orders received during a COA impact the COA,             provision (as it is for the current
                                                    does not occur and the order enters the                 including providing that the COA’d order (which          provisions related to unrelated complex
                                                    COB to rest, the Exchange believes it is                may be an order that COAs upon entry into the            orders) is to prevent the order with the
                                                    appropriate to COA the order after                      System or after resting in the COB) will have time       do-not-COA request or the order that is
                                                                                                            priority over the incoming order, and ultimately
                                                    resting on the COB (if that functionality               provides that a COA’d order will not lose execution      not COA-eligible,16 as applicable, from
                                                    has been activated for the class) to try                opportunities to complex orders submitted during         executing prior to the original COA-
                                                    and obtain an execution even though                     the COA.                                                 eligible order, which, if it did not COA,
                                                    the Trading Permit Holder initially did                    12 The proposed rule change makes
                                                                                                                                                                     may have executed or entered the COB
                                                    not want the order to COA, as the COA                   corresponding changes to the heading and
                                                                                                            introductory paragraph of subparagraph (d)(viii).
                                                    will not delay execution at that point.                    13 Rule 6.53C(d)(viii) states that incoming
                                                                                                                                                                        14 Rule 6.53C(d)(iv) through (d)(vi) provides that

                                                       The Exchange notes that an order                                                                              at the expiration of the response time interval, the
                                                                                                            complex orders that are received prior to the
                                                                                                                                                                     COA-eligible order will trade with orders and
                                                    with a do-not-COA request will still                    expiration of the response time interval for a COA-      quotes in the following order: (a) Individual orders
                                                    have execution opportunities. For                       eligible order (the ‘‘original COA’’) will impact the    and quotes residing in the book (with allocation
                                                                                                            original COA as follows: (a) Incoming complex
                                                    example, such an order may execute                      orders that are received prior to the expiration of
                                                                                                                                                                     consistent with the ultimate matching algorithm
                                                    automatically upon entry into the                                                                                (‘‘UMA’’) described in Rule 6.45A or 6.45B, as
                                                                                                            the response time interval for the original COA that     applicable), (b) public customer complex orders
                                                    System against the leg markets or                       are on the opposite side of the market and are           resting in the COB before, or that are received
                                                    complex orders on the COB to the extent                 marketable against the starting price of the original    during, the response time interval and public
                                                                                                            COA-eligible order will cause the original COA to
                                                    marketable (in accordance with                          end. The processing of the original COA pursuant
                                                                                                                                                                     customer RFR responses (with allocation according
                                                                                                                                                                     to time priority), (c) nonpublic customer orders
                                                    allocation rules set forth in Rule 6.53C).              to subparagraphs (d)(iv) through (d)(vi) remains the     resting in the COB before the response time interval
                                                    Additionally, pursuant to Rule                          same. (The ‘‘starting price’’ means the better of the    (with allocation consistent with UMA described in
                                                    6.53C(d)(viii)(1), such an order on the                 original COA-eligible order’s limit price or the best    Rule 6.45A or 6.45B, as applicable), and (d)
                                                                                                            price, on a net debit or credit basis, that existed in   nonpublic customer orders resting in the COB that
                                                    opposite side of and marketable against                 the EBook or COB at the beginning of the response        are received during the response time interval and
                                                    a COA-eligible order may trade against                  time interval.) (b) Incoming COA-eligible orders         nonpublic customer responses (with allocation
                                                    the COA-eligible order if the System                    that are received prior to the expiration of the         consistent with the ultimate matching algorithm
                                                    receives the order while a COA is                       response time interval for the original COA that are     described in Rule 6.45A or 6.45B, as applicable,
                                                                                                            on the same side of the market, at the same price        capped at the response size). If a COA-eligible order
                                                                                                            or worse than the original COA-eligible order and        cannot be filled in whole or in a permissible ratio,
                                                    to making a request pursuant to Interpretation and      better than or equal to the starting price will join     the order (or any remaining balance) will route to
                                                    Policy .04.                                             the original COA. The processing of the original         the COB or back to PAR, as applicable. Thus, the
                                                       8 For organizational purposes, the proposed rule
                                                                                                            COA pursuant to subparagraphs (d)(iv) through            unrelated order with a do-not-COA request or the
                                                    change divides paragraph (d)(ii) into two               (d)(vi) remains the same with the addition that the      order that is not COA-eligible will have execution
                                                    subparagraphs (A) and (B), which address the            priority of the original COA-eligible order and          opportunities against the leg markets, complex
                                                    general rule regarding when complex orders will         incoming COA-eligible order(s) will be according to      orders in the COB and COA responses, with priority
                                                    COA and the treatment of complex orders with do-        time priority. (c) Incoming COA-eligible orders that     after the original COA-eligible order.
                                                    not-COA requests, respectively, and makes               are received prior to the expiration of the response        15 This time priority is the same provided to COA-
                                                    corresponding changes to cross-references in the
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                                                                                                            time interval for the original COA that are on the       eligible orders over incoming orders in
                                                    rule.                                                   same side of the market and at a better price than       subparagraphs (d)(viii)(2) and (3).
                                                       9 Interpretation and Policy .04(b) (which the
                                                                                                            the original COA-eligible order will join the original      16 Current paragraph (d)(viii) currently addresses
                                                    proposed rule change amends to become                   COA, cause the original COA to end, and a new            the impact of incoming COA-eligible orders on the
                                                    Interpretation and Policy .04) provides that the        COA to begin for any remaining balance on the            same side of the original COA-eligible order. The
                                                    Exchange may determine on a class-by-class basis        incoming COA-eligible order. The processing of the       proposed rule change adds detail regarding the
                                                    to automatically COA nonmarketable orders resting       original COA pursuant to subparagraphs (d)(iv)           impact of orders that are not COA-eligible and
                                                    at the top of the COB if they are within a number       through (d)(vi) remains the same with the addition       orders with a do-not-COA request. The Exchange
                                                    of ticks away from the current derived net market.      that the priority of the original COA-eligible order     believes this provides a more complete description
                                                       10 The current COA response time interval is 100     and incoming COA-eligible order will be according        in its rules regarding the impact of unrelated
                                                    milliseconds.                                           to time priority.                                        complex orders received during a COA.



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                                                                                Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices                                                       67459

                                                    (because it would have entered the COB                  net price at the end of the COA,19 the                  market participants 21 may submit these
                                                    first, it potentially would have priority               COA-eligible order will execute against                 orders or quotes. While the rules allow
                                                    over the incoming order to the extent                   the leg markets at that net price, and any              the Exchange to determine which order
                                                    the algorithm applicable to the class                   remainder will then trade against                       origin types (i.e., public customer,
                                                    considered time as a factor for                         complex orders in the COB and auction                   Market-Makers, broker-dealers) are
                                                    allocation).                                            responses. If a complex order to buy was                eligible for entry into the COB,22 orders
                                                       For example, assume that a COA-                      resting on the COB (for example, at a net               of the eligible origin types submitted by
                                                    eligible order to buy with a net limit                  price of $1.01) at the initiation of the                any Trading Permit Holders (as
                                                    price of $1.20 is received when the book                COA (for example, a do-not-COA order                    applicable) or PAR Officials may enter
                                                    or COB price (and thus the starting                     or an order that is not COA-eligible),20                the COB.23 The proposed rule change
                                                    price) is a net price bid of $1.10. The                 that order and the COA-eligible order                   updates the rule text to match current
                                                    System will initiate a COA at a net price               would be allocated against the leg                      System functionality.
                                                    of $1.10. An incoming order with a do-                  markets in the same manner as any
                                                    not-COA request to buy at a net price of                                                                           Finally, the proposed rule change
                                                                                                            other two complex orders pursuant to
                                                    $1.10 or higher causes the original COA                                                                         makes technical and other
                                                                                                            Rule 6.53C(c)(ii) regarding COB
                                                    to end. To the extent possible, the                                                                             nonsubstantive changes. Currently,
                                                                                                            executions, which is by price and then
                                                    original COA-eligible order will be filled              pursuant to the rules of trading priority               Interpretation and Policy .09 provides
                                                    first, and then the order with the do-not-              otherwise applicable to incoming orders                 that the Exchange may determine on a
                                                    COA request will be filled (subject to                  in the individual component legs. The                   class-by-class basis which electronic
                                                    the COA allocation provisions describe                  COA-eligible order would always have                    matching algorithm from Rule 6.45A or
                                                    above).17 Any remaining balance on the                  priority over the resting order, as it                  6.45B, as applicable, will apply to COB
                                                    original COA-eligible order or the                      would always have a higher (if a buy                    executions in lieu of the algorithm
                                                    incoming order with the do-not-COA                      order) or lower (if a sell order) net price             specified in Rule 6.53C(c)(ii)(2) and (3).
                                                    request will route to COB or back to                    than the resting order.                                 The proposed rule change moves that
                                                    PAR. The Exchange believes this result                     In the example above, if a complex                   language from Interpretation and Policy
                                                    to be appropriate, even if the incoming                 order to buy at a net price of $1.01 was                .09 to both of those paragraphs.24 The
                                                    order with the do-not-COA request had                   resting in the COB at the time the COA-                 Exchange believes it is simpler and
                                                    a higher buy price than the COA-eligible                eligible order to buy at a net price of                 more convenient to have the
                                                    order (e.g. $1.21), because if the COA-                 $1.02 entered the System and initiated                  information regarding how COB
                                                    eligible order had not initiated a COA                  the COA, and the same change in the                     executions may allocate in one place
                                                    and was marketable at the time it was                   derived net leg markets occurs,                         within the rules. The proposed rule
                                                    entered (for example, if the offer in the               assuming the derived net leg market                     change also amends subparagraph
                                                    book was $1.15), it could have executed                 offer price of $1.01 is the best net price              (c)(ii)(3) to provide that, like
                                                    against the book before the order was                   at the end of the COA, the COA-eligible                 subparagraph (c)(ii)(2), the allocation of
                                                    entered. Providing the COA-eligible                     order will trade against the derived net                complex orders submitted to trade
                                                    order with time priority is intended to                 leg offer at $1.01 first, because it was                against orders or quotes in the COB that
                                                    ensure it does not miss an execution                    entered at (and thus willing to pay) a                  trade against those orders or quotes
                                                    opportunity it would have otherwise                     better net price than the resting complex               (which is the trade activity to which
                                                    received if it had not initiated a COA.                 order (to the extent there was                          that paragraph applies) will default to
                                                       Proposed subparagraph (viii)(5)                      insufficient size in the leg markets to fill            the rules of trading priority otherwise
                                                    provides that if the leg markets were not               the COA-eligible order, the remainder                   applicable to incoming electronic orders
                                                    marketable against a COA-eligible order                 would then execute against complex                      in the individual leg components.
                                                    when the order entered the System (and                  orders in the COB and auction                           Interpretation and Policy .09 currently
                                                    thus prior to the initiation of a COA) but              responses). If there is sufficient size left            provides the Exchange with the
                                                    became marketable with the COA-                         in the leg markets to trade against the                 authority to set this as the allocation
                                                    eligible order prior to the expiration of               resting complex order, then the resting                 method for subparagraph (c)(ii)(3). The
                                                    the Response Time Interval, it will                     order will also trade (in full or in a                  proposed change merely indicates that,
                                                    cause the COA to end.18 The processing                  permissible ratio).                                     like the allocation of COB to COB trades
                                                    of the original COA pursuant to                            Third, the proposed rule change                      as set forth in subparagraph (c)(ii)(2),
                                                    subparagraphs (d)(iv) through (d)(vi)                   amends Rule 6.53C(c)(ii)(3) and                         the allocation method will be the same
                                                    remains the same.                                       Interpretation and Policy .06(c) to                     as the legs unless the Exchange provides
                                                       For example, assume that the derived                 provide that all Trading Permit Holders                 otherwise.
                                                    net leg market is $1.00 to $1.05. A COA-                and PAR Officials may submit orders or
                                                    eligible order to buy at a net price of                 quotes to trade against orders in the                      21 Rules 6.45A and 6.45B define market

                                                    $1.02 is entered and initiates a COA.                   COB. Currently, the rule provides that                  participants as Market-Makers, Designated Primary
                                                    During the COA (prior to the end of the                                                                         Market-Makers with an appointment in the subject
                                                    Response Time Interval), the derived net                   19 The leg market offer would be the best price at   class, and floor brokers and PAR Officials
                                                                                                            the end of the COA if no auction response, order        representing orders in the trading crowd. Trading
                                                    leg market offer changes to $1.01.                                                                              Permit Holders and PAR Officials as a group is
                                                                                                            resting in the COB, or order that entered the System
                                                    Because this is marketable against the                  during the COA had a better price.                      larger than market participants as a group, as the
                                                    COA-eligible order, this change in the                     20 As previously indicated, only orders that are
                                                                                                                                                                    term market participants does not include other
                                                    derived net leg markets will cause the                                                                          types of Trading Permit Holders (such as electronic
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                                                                                                            marketable or that improve the price on the same
                                                                                                                                                                    proprietary traders or brokers submitting electronic
                                                    COA to end. Assuming the derived net                    side of the market initiate a COA. See supra note
                                                                                                                                                                    orders on behalf of customers from off of the trading
                                                    leg market offer price of $1.01 is the best             1. Thus, for there to be a situation where a complex
                                                                                                                                                                    floor).
                                                                                                            order was already resting on the COB at the                22 See Rule 6.53C(c)(ii).
                                                                                                            initiation of a COA, the order resting on the COB
                                                      17 Seeid.                                                                                                        23 The Exchange notes that only Market-Makers
                                                                                                            would be at a worse price than the COA-eligible
                                                      18 Thisis similar to the result described in          order that initiated the COA. If there is a complex     may submit quotes. See Rule 8.7.
                                                    subparagraph (viii)(1), which provides that an          order resting on the COB when that is on the same          24 The proposed rule change also makes a

                                                    incoming complex order on the opposite side of the      side and at the same or better price than an            corresponding change to Interpretation and Policy
                                                    market as and marketable against the COA-eligible       incoming complex order, then the incoming order         .06(c), which relates to executions of stock-options
                                                    order will cause the COA to end.                        will not COA and will also enter on the COB.            orders (types of complex orders) in the COB.



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                                                    67460                        Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices

                                                      In addition, the proposed rule change                  evaluate then-current market conditions               order. Incoming orders that do not COA
                                                    amends Rule 6.53C(c)(ii)(3) to provide                   and determine if they do not want to                  and leg market changes impact a COA
                                                    that order and quote types (not just                     COA orders with two legs based on                     in a substantially similar manner as
                                                    quote types) not eligible to rest or trade               those conditions and instead want those               incoming COA-eligible orders; the
                                                    against the COB will be automatically                    orders to route to the COB for potential              proposed rule change just applies to
                                                    cancelled. The first several sentences in                immediate execution. These orders with                different order types not covered by the
                                                    that subparagraph reference orders and                   do-not COA requests will continue to                  current Rules. This proposed change
                                                    quotes eligible to rest on the COB. The                  have execution opportunities and be                   does not substantively change the COA
                                                    Exchange intended for both non-eligible                  subject to the same priority and                      or allocation process.
                                                    orders and quotes to be cancelled; this                  allocation rules. In addition, the                      The proposed rule change to update
                                                    proposed change merely makes the                         proposed rule change promotes just and                the term market participants to Trading
                                                    language in this paragraph consistent                    equitable principles of trade and                     Permit Holders and PAR Officials and to
                                                    throughout. Additional nonsubstantive                    promotes competition because another                  reorganize certain provisions eliminates
                                                    changes to Rule 6.53C are discussed                      options exchange has a substantially                  potential confusion regarding the
                                                    above.                                                   similar rule, as further described below,             processing of complex orders. This
                                                                                                             which similarly allows members to                     additional information further perfects
                                                    2. Statutory Basis                                                                                             the mechanism of a free and open
                                                                                                             designate that orders not initiate a
                                                       The Exchange believes the proposed                    complex order auction on that                         market and a national market system
                                                    rule change is consistent with the Act                   exchange.28                                           and protects investors. Additionally,
                                                    and the rules and regulations                               The current rules describe how COA-                updating the term market participants to
                                                    thereunder applicable to the Exchange                    eligible orders received while a COA is               Trading Permit Holders and PAR
                                                    and, in particular, the requirements of                  ongoing would impact the COA. The                     Officials further benefits investors
                                                    Section 6(b) of the Act.25 Specifically,                 proposed rule change also adds detail                 because it more accurately describes
                                                    the Exchange believes the proposed rule                  regarding how incoming orders with do-                who may enter complex orders into the
                                                    change is consistent with the Section                    not-COA requests or that are not COA-                 System. The Exchange notes that the
                                                    6(b)(5) 26 requirements that the rules of                eligible, as well as how changes in the               Trading Permit Holders and PAR
                                                    an exchange be designed to prevent                       leg markets, may impact ongoing COAs,                 Officials includes all participants
                                                    fraudulent and manipulative acts and                     which protects investors by enhancing                 included in the current market
                                                    practices, to promote just and equitable                 the description in CBOE Rules of                      participant definition (as well as
                                                    principles of trade, to foster cooperation               current COA functionality and                         additional participants).
                                                    and coordination with persons engaged                    circumstances that may cause a COA to
                                                    in regulating, clearing, settling,                                                                             B. Self-Regulatory Organization’s
                                                                                                             end early. Because the proposed rule                  Statement on Burden on Competition
                                                    processing information with respect to,                  change adds a provision regarding no-
                                                    and facilitating transactions in                         COA orders to the CBOE Rules, the                        CBOE does not believe that the
                                                    securities, to remove impediments to                     Exchange believes it is appropriate to                proposed rule change will impose any
                                                    and perfect the mechanism of a free and                  add the provision regarding how no-                   burden on competition that is not
                                                    open market and a national market                                                                              necessary or appropriate in furtherance
                                                                                                             COA orders would impact a COA to the
                                                    system, and, in general, to protect                                                                            of the purposes of the Act. The
                                                                                                             CBOE Rules as well to ensure investors
                                                    investors and the public interest.                                                                             proposed rule change, including the
                                                                                                             understand how these orders may
                                                    Additionally, the Exchange believes the                                                                        ability to designate orders to not COA,
                                                                                                             impact a COA. The Exchange believes
                                                    proposed rule change is consistent with                                                                        is available to all Trading Permit
                                                                                                             the proposed rule change promotes just
                                                    the Section 6(b)(5) 27 requirement that                                                                        Holders. The Exchange believes the
                                                                                                             and equitable principles of trade
                                                    the rules of an exchange not be designed                                                                       proposed rule change provides Trading
                                                                                                             because, if these orders cause a COA to
                                                    to permit unfair discrimination between                                                                        Permit Holders with more flexibility
                                                                                                             end, any executions that occur
                                                    customers, issuers, brokers, or dealers.                                                                       with respect to the submission of their
                                                                                                             following the COA occur in accordance
                                                       In particular, the proposed rule                                                                            complex orders. The proposed rule
                                                                                                             with allocation principles in place,                  change also eliminates the affirmative
                                                    change removes impediments to a free                     subject to an exception that the original
                                                    and open market and protects investors                                                                         obligation imposed on Trading Permit
                                                                                                             COA-eligible order receive time priority.             Holders to request that COA-eligible
                                                    by providing Trading Permit Holders                      This exception prevents an order that
                                                    with more flexibility regarding when                                                                           orders COA, which they all do for all
                                                                                                             was entered after the initiation of a COA             classes. While Trading Permit Holders
                                                    complex orders will not COA. The                         from trading ahead of an order with the
                                                    proposed rule change removes the                                                                               may need to undertake system work to
                                                                                                             same price that may have executed or                  allow them to include a do-not-COA
                                                    affirmative obligation currently imposed                 entered the COB if it did not COA.
                                                    on Trading Permit Holders to request                                                                           request on orders, use of this
                                                                                                             Similarly, the Exchange believe it is fair            designation is voluntary. CBOE believes
                                                    that their COA-eligible orders with two                  for a COA-eligible order that was
                                                    legs COA on a class-by-class basis, as                                                                         this flexibility may promote competition
                                                                                                             entered at a better price than an order               by encouraging submission of complex
                                                    Trading Permit Holders currently                         that was resting in the COB prior to
                                                    request that all of their COA-eligible                                                                         orders to the Exchange. To the extent
                                                                                                             initiation of the COA to execute against              that proposed rule change makes CBOE
                                                    orders COA upon entry into the System.                   leg markets that become marketable
                                                    Therefore, the proposed rule change to                                                                         a more attractive marketplace to market
                                                                                                             against the COA-eligible order and                    participants on other exchanges, such
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                                                    have COA as the default setting for                      resting order during the COA, because
                                                    COA-eligible orders will have no impact                                                                        market participants may elect to send
                                                                                                             the Trading Permit Holder who entered                 orders to CBOE to take advantage of the
                                                    on COA-eligible orders submitted to the                  the COA-eligible order was willing to
                                                    Exchange. The proposed rule change                                                                             additional functionality. Additionally,
                                                                                                             pay a better price than that of the resting           other exchanges may determine to
                                                    will allow Trading Permit Holders to
                                                                                                               28 See NASDAQ OMX PHLX LLC (‘‘PHLX’’) Rule
                                                                                                                                                                   provide similar functionality and
                                                      25 15  U.S.C. 78f(b).                                  1080, Commentary .07(a)(viii) and (e) (describing
                                                                                                                                                                   further enhance competition. The
                                                      26 15 U.S.C. 78f(b)(5).
                                                                                                             the complex order live auction (‘‘COLA’’) process     Exchange also notes that other options
                                                      27 Id.                                                 and ‘‘do not auction’’ orders).                       exchanges have substantially similar


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                                                                                Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices                                             67461

                                                    provisions as the proposed rule change,                 Internet Web site (http://www.sec.gov/                notice to solicit comments on the
                                                    as described above.                                     rules/sro.shtml). Copies of the                       proposed rule change from interested
                                                      The proposed rule change to add                       submission, all subsequent                            persons.
                                                    detail to the rules regarding the impact                amendments, all written statements
                                                                                                                                                                  I. Self-Regulatory Organization’s
                                                    of changes in the leg markets on a COA                  with respect to the proposed rule
                                                                                                                                                                  Statement of the Terms of Substance of
                                                    describes current functionality and is                  change that are filed with the
                                                                                                                                                                  the Proposed Rule Change
                                                    merely intended to enhance the                          Commission, and all written
                                                    description of this functionality in the                communications relating to the                           The Exchange proposes to amend the
                                                    Rules, and thus has no impact on                        proposed rule change between the                      certificate of incorporation and bylaws
                                                    competition. The nonsubstantive and                     Commission and any person, other than                 of its parent Company, CBOE Holdings,
                                                    technical changes have no impact on                     those that may be withheld from the                   Inc. (‘‘CBOE Holdings’’). The text of the
                                                    competition.                                            public in accordance with the                         proposed rule change is available on the
                                                                                                            provisions of 5 U.S.C. 552, will be                   Exchange’s Web site (http://
                                                    C. Self-Regulatory Organization’s                       available for Web site viewing and                    www.cboe.com/AboutCBOE/
                                                    Statement on Comments on the                            printing in the Commission’s Public                   CBOELegalRegulatoryHome.aspx), at
                                                    Proposed Rule Change Received From                      Reference Room, 100 F Street NE.,                     the Exchange’s Office of the Secretary,
                                                    Members, Participants, or Others                        Washington, DC 20549 on official                      and at the Commission’s Public
                                                      The Exchange neither solicited nor                    business days between the hours of                    Reference Room.
                                                    received comments on the proposed                       10:00 a.m. and 3:00 p.m. Copies of the                II. Self-Regulatory Organization’s
                                                    rule change.                                            filing also will be available for                     Statement of the Purpose of, and
                                                                                                            inspection and copying at the principal               Statutory Basis for, the Proposed Rule
                                                    III. Date of Effectiveness of the
                                                                                                            office of the Exchange. All comments                  Change
                                                    Proposed Rule Change and Timing for
                                                                                                            received will be posted without change;
                                                    Commission Action                                                                                                In its filing with the Commission, the
                                                                                                            the Commission does not edit personal
                                                       Within 45 days of the date of                        identifying information from                          Exchange included statements
                                                    publication of this notice in the Federal               submissions. You should submit only                   concerning the purpose of and basis for
                                                    Register or within such longer period                   information that you wish to make                     the proposed rule change and discussed
                                                    up to 90 days (i) as the Commission may                 available publicly. All submissions                   any comments it received on the
                                                    designate if it finds such longer period                should refer to File Number SR–CBOE–                  proposed rule change. The text of these
                                                    to be appropriate and publishes its                     2015–089 and should be submitted on                   statements may be examined at the
                                                    reasons for so finding or (ii) as to which              or before November 23, 2015.                          places specified in Item IV below. The
                                                    the Exchange consents, the Commission                                                                         Exchange has prepared summaries, set
                                                                                                              For the Commission, by the Division of              forth in sections A, B, and C below, of
                                                    will:                                                   Trading and Markets, pursuant to delegated
                                                       A. By order approve or disapprove                    authority.29
                                                                                                                                                                  the most significant aspects of such
                                                    such proposed rule change, or                                                                                 statements.
                                                                                                            Robert W. Errett,
                                                       B. institute proceedings to determine                Deputy Secretary.                                     A. Self-Regulatory Organization’s
                                                    whether the proposed rule change                                                                              Statement of the Purpose of, and
                                                                                                            [FR Doc. 2015–27793 Filed 10–30–15; 8:45 am]
                                                    should be disapproved.                                                                                        Statutory Basis for, the Proposed Rule
                                                                                                            BILLING CODE 8011–01–P
                                                    IV. Solicitation of Comments                                                                                  Change
                                                      Interested persons are invited to                                                                           1. Purpose
                                                                                                            SECURITIES AND EXCHANGE
                                                    submit written data, views, and                                                                                  CBOE Holdings is proposing to make
                                                                                                            COMMISSION
                                                    arguments concerning the foregoing,                                                                           certain amendments to its Certificate
                                                    including whether the proposed rule                     [Release No. 34–76281; File No. SR–C2–                and Bylaws.
                                                    change is consistent with the Act.                      2015–026]
                                                    Comments may be submitted by any of                                                                           Proposed Amendments to the Certificate
                                                    the following methods:                                  Self-Regulatory Organizations; C2                        CBOE Holdings proposes to make
                                                                                                            Exchange, Incorporated; Notice of                     various amendments to its Certificate.
                                                    Electronic Comments                                     Filing and Immediate Effectiveness of                 First, CBOE Holdings proposes to
                                                      • Use the Commission’s Internet                       Proposed Rule Change To Amend the                     eliminate references that are applicable
                                                    comment form (http://www.sec.gov/                       Certificate of Incorporation and Bylaws               only in connection with the CBOE
                                                    rules/sro.shtml); or                                    of Its Parent Company                                 demutualization and CBOE Holdings
                                                      • Send an email to rule-comments@                     October 27, 2015.                                     initial public offering (‘‘IPO’’) in 2010.
                                                    sec.gov. Please include File Number SR–                    Pursuant to Section 19(b)(1) of the                Currently, the Certificate provides for
                                                    CBOE–2015–089 on the subject line.                      Securities Exchange Act of 1934                       the designation, preferences and rights
                                                    Paper Comments                                          (‘‘Act’’),1 and Rule 19b–4 thereunder,2               related to Class A–1 and Class A–2
                                                                                                            notice is hereby given that, on October               common stock that had been authorized
                                                      • Send paper comments in triplicate                   23, 2015, C2 Options Exchange,                        by the Board and CBOE Holdings’
                                                    to Secretary, Securities and Exchange                   Incorporated (the ‘‘Exchange’’ or ‘‘C2’’)             stockholders prior to the IPO. No shares
                                                    Commission, 100 F Street NE.,                           filed with the Securities and Exchange                of Class A–1 or Class A–2 common
                                                    Washington, DC 20549–1090.                                                                                    stock are currently outstanding, nor
asabaliauskas on DSK5VPTVN1PROD with NOTICES




                                                                                                            Commission (‘‘Commission’’) the
                                                    All submissions should refer to File                    proposed rule change as described in                  would CBOE Holdings be able to issue
                                                    Number SR–CBOE–2015–089. This file                      Items I, II, and III below, which Items               such shares at any time in the future as
                                                    number should be included on the                        have been prepared by the Exchange.                   the current Certificate limits their use to
                                                    subject line if email is used. To help the              The Commission is publishing this                     the conversion of Class A and Class B
                                                    Commission process and review your                                                                            common stock, which was issued in
                                                    comments more efficiently, please use                     29 17 CFR 200.30–3(a)(12).                          connection with the IPO and has been
                                                    only one method. The Commission will                      1 15 U.S.C. 78s(b)(1).                              retired. Accordingly, CBOE Holdings
                                                    post all comments on the Commission’s                     2 17 CFR 240.19b–4.                                 proposes to delete obsolete provisions


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Document Created: 2018-03-01 11:30:46
Document Modified: 2018-03-01 11:30:46
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 67457 

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