80 FR 74149 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Technical Disconnect Mechanism
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 228 (November 27, 2015)
Federal Register Volume 80, Issue 228 (November 27, 2015)
| Page Range | 74149-74151 | |
| FR Document | 2015-30075 |
[Federal Register Volume 80, Number 228 (Friday, November 27, 2015)] [Notices] [Pages 74149-74151] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-30075] [[Page 74149]] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76489; File No. SR-CBOE-2015-103] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Technical Disconnect Mechanism November 20, 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 November 9, 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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 6.23C related to the Exchange's Technical Disconnect Mechanism. The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * Chicago Board Options Exchange, Incorporated Rules * * * * * Rule 6.23C Technical Disconnect (a) When a CBOE Application Server (``CAS'') loses communication with a Client Application such that a CAS does not receive an appropriate response to a Heartbeat Request within ``x'' period of time, the Technical Disconnect Mechanism will automatically logoff the Trading Permit Holder's affected Client Application and[, if applicable, will] automatically cancel all the Trading Permit Holder's Market-Maker quotes, if applicable, and open orders with a time-in- force of ``day'' (``day orders''), if the Trading Permit Holder enables that optional service, posted through the affected Client Application. The following describes how the Technical Disconnect Mechanism works for each of the Exchange's application programming interfaces (``APIs''): [(i) CBOE Market Interface (``CMi'') API. A CAS shall generate a Heartbeat Request to a Client Application every ``n'' period of time. The value of ``n'' shall be set by the Exchange at two (2) seconds. The value of ``x'' shall be set either by the Exchange or a Trading Permit Holder, depending upon the version of CMi being used. If the value of ``x'' is determined by the Exchange, ``x'' shall be set at twenty (20) seconds. If the value of ``x'' is determined by a Trading Permit Holder, ``x'' shall in no event be less than three (3) seconds or exceed twenty (20) seconds.] (i[i]) CBOE Market Interface 2.0 (``CMi 2'') API. A CAS shall generate a Heartbeat Request to a Client Application (i) after the CAS does not receive any messages from a particular Client Application for ``n'' period of time or (ii) after every ``n'' period of time. A Trading Permit Holder shall determine the value of ``n.'' In no event shall ``n'' be less than three (3) seconds or exceed twenty (20) seconds. If a CAS generates a Heartbeat Request only after it does not receive any messages from a particular Client Application for ``n'' period of time, the value of ``x'' shall be set at a half (.5) second. If a CAS generates a Heartbeat Request every ``n'' period of time, the value of ``x'' shall be equal to the value of ``n.'' (ii[i]) Financial Information eXchange (``FIX'') Protocol API. A CAS shall generate a Heartbeat Message to a Client Application after the CAS does not receive any messages from a particular Client Application for ``n'' period of time. If the CAS does not receive a response to the Heartbeat Message from the Client Application for ``n'' period of time, the CAS shall generate a Heartbeat Request to the Client Application. A Trading Permit Holder shall determine the value of ``n'' at logon. In no event shall ``n'' be less than five (5) seconds. The value of ``x'' shall be equal to the value of ``n.'' (b) The Technical Disconnect Mechanism is enabled for all Trading Permit Holders and may not be disabled by Trading Permit Holders, except the automatic cancellation of a Trading Permit Holder's day orders is an optional service that the Trading Permit Holder may enable or disable through the API. (c) The trigger of the Technical Disconnect Mechanism is event- and Client Application-specific. The automatic cancellation of a Market- Maker's quotes (if applicable) or a Trading Permit Holder's day orders (if enabled by the Trading Permit Holder) entered into a CAS via a particular Client Application will neither impact nor determine the treatment of the quotes of the same or other Market-Makers or orders of the same Trading Permit Holder entered into the CAS via a separate and distinct Client Application. Except for day orders the Technical Disconnect Mechanism automatically cancels if a Trading Permit Holder enables that optional service, [T]the Technical Disconnect Mechanism will not impact or determine the treatment of orders a Trading Permit Holder previously entered into the CAS. . . . Interpretations and Policies: .01 No change. * * * * * The text of the proposed rule change is also available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Rule 6.23C related to the Exchange's Technical Disconnect Mechanism. Rule 6.23C(a) provides that when a CBOE Application Server (``CAS'') \3\ loses communication with a Client Application \4\ such that a CAS does not receive an appropriate response to a Heartbeat Request \5\ within ``x'' period of [[Page 74150]] time, the Technical Disconnect Mechanism will automatically logoff the Trading Permit Holder's (``TPH'') affected Client Application. If that occurs, the current rule provides that the Technical Disconnect Mechanism, if applicable, will automatically cancel all the TPH's Market-Maker quotes posted through the affected Client Application.\6\ The Technical Disconnect Mechanism is intended to help mitigate the potential risks associated with a loss of communication with a Client Application, such as erroneous or unintended executions for stale quotes that are resting in the CBOE book. This mechanism serves to assist a TPH when a technical or system issue occurs, as well as assist the Exchange in maintaining a fair and orderly market. --------------------------------------------------------------------------- \3\ CBOE currently has numerous CASs serving TPHs. \4\ For relevant purposes, a ``Client Application'' is the system component, such as a CBOE-supported workstation or a TPH's custom trading application, through which a TPH communicates its quotes and/or orders to a CAS. Messages are passed between a Client Application and a CAS. A Market-Maker may send quotes to the Exchange from one or more Client Applications, and a TPH may send orders to the Exchange from one or more Client Applications. \5\ A ``Heartbeat Request'' refers to a message from a CAS to a Client Application to check connectivity and which requires a response from the Client Application in order to avoid logoff. The Heartbeat Request acts as a virtual pulse between a CAS and a Client Application and allows a CAS to continually monitor its connection with a Client Application. Failure to receive a response to a Heartbeat Request within the Heartbeat Response Time is indicative of a technical or system issue. \6\ See Rule 6.23C and Securities Exchange Act Release No. 34- 70039 (July 25, 2013), 78 FR 46395 (July 31, 2013) (SR-CBOE-2013- 071) for further information regarding the Technical Disconnect Mechanism. --------------------------------------------------------------------------- The proposed rule change provides TPHs with an optional service that, if enabled by a TPH, will cause the Technical Disconnect Mechanism to also automatically cancel all the TPH's open orders with a time-in-force of ``day'' (``day orders'') posted through the affected Client Application if the CAS loses communication with the Client Application. The proposed rule change amends Rule 6.23C(b) to provide that the TPH may enable or disable this optional service through its application programming interface (``API'') (all other aspects of the Technical Disconnect Mechanism continue to otherwise be enabled for all TPHs and may not be disabled by TPHs).\7\ The proposed rule change makes corresponding changes to Rule 6.23C(c) that indicate the Technical Disconnect Mechanism will automatically cancel a TPH's day orders (in addition to a Market-Maker's quotes), if the TPH enables the proposed optional service.\8\ As is the case in the event the Technical Disconnect Mechanism automatically logs a TPH off and cancels its Market-Maker quotes (if applicable), if a TPH enables this proposed optional service, and the Technical Disconnect Mechanism automatically logs a TPH off and cancels the TPH's day orders due to lost communication with TPH's Client Application, the TPH may send messages to the CAS to enter new orders once it reestablishes connectivity to the Client Application. In addition, any nonconnectivity will continue to be event- and Client Application-specific. In other words, any cancellation of day orders entered into a CAS via a particular Client Application will neither impact nor determine the treatment of the quotes of the same TPH entered into a CAS via a separate and distinct Client Application. The Technical Disconnect Mechanism will not impact or determine the treatment of orders previously entered into a CAS if the TPH does not enable this optional service, nor will it impact or determine the treatment of non-day orders previously entered into a CAS by the TPH. The Exchange notes use of this service will be voluntary and within the sole discretion of each TPH. --------------------------------------------------------------------------- \7\ CBOE currently makes available two APIs: CBOE Market Interface 2.0 (``CMi 2'') and Financial Information eXchange Protocol (``FIX''). The proposed rule change deletes Rule 6.23A(a)(i) [sic] regarding the CBOE Market Interface (``CMi'') API, as that has been phased out and is no longer available to TPHs. The proposed rule change also renumbers subparagraphs (ii) and (iii) to become subparagraphs (i) and (ii), respectively. \8\ In addition, the proposed rule change makes nonsubstantive changes to Rule 6.23C(a), including moving the phrase ``if applicable'' to ensure that phrase clearly applies to the cancellation of a Market-Maker's quotes (as that functionality only applies to TPHs that are Market-Makers). --------------------------------------------------------------------------- The proposed optional service is an additional preventative risk control measure that CBOE is making available to TPHs. It is intended to help further mitigate the potential risks associated with a loss of communication with a Client Application. While orders may be static in nature and rest in the book, TPHs often enter day orders more frequently in response to then-current market conditions. Therefore, if a TPH's Client Application is disconnected for any period of time, it is possible that market conditions upon which it based its day orders may change during that time and make those orders stale. Consequently, any resulting executions of those orders may be erroneous or unintended. The Exchange believes it is appropriate to limit this optional service to day orders and exclude good-til-cancelled orders,\9\ as those orders are intended to rest in the book for a period of time and thus have lower risk of erroneous or unintended executions during and after the Technical Disconnect Mechanism logs off a TPH. --------------------------------------------------------------------------- \9\ Currently, the Exchange offers two time-in-force order types: Day and good-til-cancelled. The proposed optional service will apply to orders that include the ``day'' marking. --------------------------------------------------------------------------- 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.\10\ Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) \11\ 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) \12\ requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \10\ 15 U.S.C. 78f(b). \11\ 15 U.S.C. 78f(b)(5). \12\ Id. --------------------------------------------------------------------------- In particular, the proposed rule change helps maintain a fair and orderly market and protects investors and the public interest. The Technical Disconnect Mechanism is a valuable tool that is designed to help maintain a fair and orderly market. The Exchange believes that providing TPHs with the option to have the Technical Disconnect Mechanism cancel its day orders, in addition to Market-Maker quotes (if applicable), further mitigates the potential risks associated with a loss in communication with a Client Application. The Exchange believes it is reasonable to offer to cancel only day orders. Unlike non-day orders, day orders are more likely to be reflective of then-current market conditions and are intended to rest in the book for a limited period of time. As a result, in the event that a CAS loses connectivity with a Client Application, execution of day orders during that time are more likely to result in erroneous or unintended executions, while risk of such executions is lower for non-day orders. The proposed optional service protects TPHs from these potential erroneous or unintended executions, as well as protects investors and the efficiency and fairness of the markets in general. The Exchange believes this functionality enhances the overall market quality for options traded on CBOE. The Exchange notes that other exchanges offer their members similar services that cancels a member's orders if it disconnects from the exchange.\13\ --------------------------------------------------------------------------- \13\ See, e.g., BZX Exchange US Equities FIX Specification, Version 1.33.5 (October 8, 2014), available at http://www.batstrading.com/resources/membership/BATS_FIX_Specification.pdf (see Section 5.1 for description of automatic cancel on disconnection or malfunction); MIAX Options Market Protections Handout (March 2015), available at https://www.miaxoptions.com/sites/default/files/MIAX_Market_Protections_March_2015.pdf (see page 5 for description of auto cancel on disconnect order protection); and NYSE UTPDirect (CGC Binary) API Specification, V1.4 (February 26, 2015), available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSEUTPDirect_Specification.pdf (see Section 3.8 for description of cancel on disconnect service). --------------------------------------------------------------------------- [[Page 74151]] The Exchange also believes that the proposed rule change is designed to not permit unfair discrimination among market participants. Use of the optional service will be voluntary and within the sole discretion of each TPH. The proposed optional service is available to all TPHs and will apply to the same order types of all TPHs. The proposed rule change to delete language related to CMi benefits investors, as that API is no longer available to TPHs and thus deletion of that language helps eliminate confusion. CMi2 and FIX continue to be available to TPHs. 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. Specifically, the Exchange does not believe the proposed rule change will cause any burden on intramarket competition because the optional service will be available to all TPHs. Use of this optional service will be within the sole discretion of each TPH. The proposed rule change will have no impact on TPHs that do not enable the proposed optional service. For TPHs that elect to enable the proposed optional service, the only impact on those TPHs will be cancellation of day orders (in addition to Market-Maker quotes) upon loss of connectivity. The Technical Disconnect Mechanism will otherwise continue to function in the same manner as it does today. Further, the Exchange does not believe that such change will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change modifies a mechanism available on CBOE's system and applies only to orders entered on CBOE. The Exchange notes that, should the proposed change make CBOE a more attractive place for trading, market participants trading on other exchanges are welcome to become TPHs and trade at CBOE if they determine that this proposed change has made CBOE more attractive or favorable. Additionally, as discussed above, other options exchanges offer their members similar functionality.\14\ --------------------------------------------------------------------------- \14\ Id. --------------------------------------------------------------------------- The proposed rule change to delete language regarding CMi has no impact on competition, as it merely deletes a provision regarding an API that is no longer used by, and is no longer available to, TPHs. CMi 2 ultimately replaced CMi, and FIX continues to be available to TPHs as well. 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 The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act \15\ and paragraph (f) of Rule 19b-4 \16\ thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. --------------------------------------------------------------------------- \15\ 15 U.S.C. 78s(b)(3)(A). \16\ 17 CFR 240.19b-4(f). --------------------------------------------------------------------------- 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 commentsUse 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-2015-103 on the subject line. Paper comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CBOE-2015-103. 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-2015-103 and should be submitted on or before December 18, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\17\ --------------------------------------------------------------------------- \17\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2015-30075 Filed 11-25-15; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 80, No. 228 / Friday, November 27, 2015 / Notices 74149
SECURITIES AND EXCHANGE [(i) CBOE Market Interface (‘‘CMi’’) quotes of the same or other Market-
COMMISSION API. A CAS shall generate a Heartbeat Makers or orders of the same Trading
Request to a Client Application every Permit Holder entered into the CAS via
[Release No. 34–76489; File No. SR–CBOE–
2015–103]
‘‘n’’ period of time. The value of ‘‘n’’ a separate and distinct Client
shall be set by the Exchange at two (2) Application. Except for day orders the
Self-Regulatory Organizations; seconds. The value of ‘‘x’’ shall be set Technical Disconnect Mechanism
Chicago Board Options Exchange, either by the Exchange or a Trading automatically cancels if a Trading
Incorporated; Notice of Filing and Permit Holder, depending upon the Permit Holder enables that optional
Immediate Effectiveness of a Proposed version of CMi being used. If the value service, [T]the Technical Disconnect
Rule Change Relating to the Technical of ‘‘x’’ is determined by the Exchange, Mechanism will not impact or
Disconnect Mechanism ‘‘x’’ shall be set at twenty (20) seconds. determine the treatment of orders a
If the value of ‘‘x’’ is determined by a Trading Permit Holder previously
November 20, 2015. Trading Permit Holder, ‘‘x’’ shall in no entered into the CAS.
Pursuant to Section 19(b)(1) of the event be less than three (3) seconds or . . . Interpretations and Policies:
Securities Exchange Act of 1934 (the exceed twenty (20) seconds.] .01 No change.
‘‘Act’’),1 and Rule 19b–4 thereunder,2 (i[i]) CBOE Market Interface 2.0 (‘‘CMi * * * * *
notice is hereby given that on November 2’’) API. A CAS shall generate a The text of the proposed rule change
9, 2015, Chicago Board Options Heartbeat Request to a Client is also available on the Exchange’s Web
Exchange, Incorporated (the ‘‘Exchange’’ Application (i) after the CAS does not site (http://www.cboe.com/AboutCBOE/
or ‘‘CBOE’’) filed with the Securities receive any messages from a particular CBOELegalRegulatoryHome.aspx), at
and Exchange Commission (the Client Application for ‘‘n’’ period of the Exchange’s Office of the Secretary,
‘‘Commission’’) the proposed rule time or (ii) after every ‘‘n’’ period of and at the Commission’s Public
change as described in Items I, II, and time. A Trading Permit Holder shall Reference Room.
III below, which Items have been determine the value of ‘‘n.’’ In no event
prepared by the Exchange. The shall ‘‘n’’ be less than three (3) seconds II. Self-Regulatory Organization’s
Commission is publishing this notice to or exceed twenty (20) seconds. If a CAS Statement of the Purpose of, and
solicit comments on the proposed rule generates a Heartbeat Request only after Statutory Basis for, the Proposed Rule
change from interested persons. it does not receive any messages from a Change
particular Client Application for ‘‘n’’ In its filing with the Commission, the
I. Self-Regulatory Organization’s
period of time, the value of ‘‘x’’ shall be Exchange included statements
Statement of the Terms of Substance of
the Proposed Rule Change set at a half (.5) second. If a CAS concerning the purpose of and basis for
generates a Heartbeat Request every ‘‘n’’ the proposed rule change and discussed
The Exchange proposes to amend period of time, the value of ‘‘x’’ shall be any comments it received on the
Rule 6.23C related to the Exchange’s equal to the value of ‘‘n.’’ proposed rule change. The text of these
Technical Disconnect Mechanism. The (ii[i]) Financial Information eXchange statements may be examined at the
text of the proposed rule change is (‘‘FIX’’) Protocol API. A CAS shall places specified in Item IV below. The
provided below. (additions are generate a Heartbeat Message to a Client Exchange has prepared summaries, set
italicized; deletions are [bracketed]) Application after the CAS does not forth in sections A, B, and C below, of
* * * * * receive any messages from a particular the most significant aspects of such
Client Application for ‘‘n’’ period of statements.
Chicago Board Options Exchange,
time. If the CAS does not receive a
Incorporated A. Self-Regulatory Organization’s
response to the Heartbeat Message from
Rules the Client Application for ‘‘n’’ period of Statement of the Purpose of, and
time, the CAS shall generate a Heartbeat Statutory Basis for, the Proposed Rule
* * * * * Change
Request to the Client Application. A
Rule 6.23C Technical Disconnect Trading Permit Holder shall determine 1. Purpose
(a) When a CBOE Application Server the value of ‘‘n’’ at logon. In no event
The Exchange proposes to amend
(‘‘CAS’’) loses communication with a shall ‘‘n’’ be less than five (5) seconds.
Rule 6.23C related to the Exchange’s
Client Application such that a CAS does The value of ‘‘x’’ shall be equal to the
Technical Disconnect Mechanism. Rule
not receive an appropriate response to a value of ‘‘n.’’
(b) The Technical Disconnect 6.23C(a) provides that when a CBOE
Heartbeat Request within ‘‘x’’ period of Application Server (‘‘CAS’’) 3 loses
time, the Technical Disconnect Mechanism is enabled for all Trading
Permit Holders and may not be disabled communication with a Client
Mechanism will automatically logoff the Application 4 such that a CAS does not
Trading Permit Holder’s affected Client by Trading Permit Holders, except the
automatic cancellation of a Trading receive an appropriate response to a
Application and[, if applicable, will] Heartbeat Request 5 within ‘‘x’’ period of
automatically cancel all the Trading Permit Holder’s day orders is an
Permit Holder’s Market-Maker quotes, if optional service that the Trading Permit 3 CBOE currently has numerous CASs serving
applicable, and open orders with a time- Holder may enable or disable through TPHs.
in-force of ‘‘day’’ (‘‘day orders’’), if the the API. 4 For relevant purposes, a ‘‘Client Application’’ is
Trading Permit Holder enables that (c) The trigger of the Technical the system component, such as a CBOE-supported
optional service, posted through the Disconnect Mechanism is event- and workstation or a TPH’s custom trading application,
through which a TPH communicates its quotes and/
mstockstill on DSK4VPTVN1PROD with NOTICES
affected Client Application. The Client Application-specific. The
or orders to a CAS. Messages are passed between
following describes how the Technical automatic cancellation of a Market- a Client Application and a CAS. A Market-Maker
Disconnect Mechanism works for each Maker’s quotes (if applicable) or a may send quotes to the Exchange from one or more
of the Exchange’s application Trading Permit Holder’s day orders (if Client Applications, and a TPH may send orders to
enabled by the Trading Permit Holder) the Exchange from one or more Client Applications.
programming interfaces (‘‘APIs’’): 5 A ‘‘Heartbeat Request’’ refers to a message from
entered into a CAS via a particular a CAS to a Client Application to check connectivity
1 15 U.S.C. 78s(b)(1). Client Application will neither impact and which requires a response from the Client
2 17 CFR 240.19b–4. nor determine the treatment of the Continued
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![74150 Federal Register / Vol. 80, No. 228 / Friday, November 27, 2015 / Notices
time, the Technical Disconnect Mechanism automatically logs a TPH off and, in particular, the requirements of
Mechanism will automatically logoff the and cancels its Market-Maker quotes (if Section 6(b) of the Act.10 Specifically,
Trading Permit Holder’s (‘‘TPH’’) applicable), if a TPH enables this the Exchange believes the proposed rule
affected Client Application. If that proposed optional service, and the change is consistent with the Section
occurs, the current rule provides that Technical Disconnect Mechanism 6(b)(5) 11 requirements that the rules of
the Technical Disconnect Mechanism, if automatically logs a TPH off and cancels an exchange be designed to prevent
applicable, will automatically cancel all the TPH’s day orders due to lost fraudulent and manipulative acts and
the TPH’s Market-Maker quotes posted communication with TPH’s Client practices, to promote just and equitable
through the affected Client Application, the TPH may send principles of trade, to foster cooperation
Application.6 The Technical Disconnect messages to the CAS to enter new orders and coordination with persons engaged
Mechanism is intended to help mitigate once it reestablishes connectivity to the in regulating, clearing, settling,
the potential risks associated with a loss Client Application. In addition, any processing information with respect to,
of communication with a Client nonconnectivity will continue to be and facilitating transactions in
Application, such as erroneous or event- and Client Application-specific. securities, to remove impediments to
unintended executions for stale quotes In other words, any cancellation of day and perfect the mechanism of a free and
that are resting in the CBOE book. This orders entered into a CAS via a open market and a national market
mechanism serves to assist a TPH when particular Client Application will system, and, in general, to protect
a technical or system issue occurs, as neither impact nor determine the investors and the public interest.
well as assist the Exchange in treatment of the quotes of the same TPH Additionally, the Exchange believes the
maintaining a fair and orderly market. entered into a CAS via a separate and proposed rule change is consistent with
The proposed rule change provides distinct Client Application. The the Section 6(b)(5) 12 requirement that
TPHs with an optional service that, if Technical Disconnect Mechanism will the rules of an exchange not be designed
enabled by a TPH, will cause the not impact or determine the treatment of to permit unfair discrimination between
Technical Disconnect Mechanism to orders previously entered into a CAS if customers, issuers, brokers, or dealers.
also automatically cancel all the TPH’s the TPH does not enable this optional In particular, the proposed rule
open orders with a time-in-force of service, nor will it impact or determine change helps maintain a fair and orderly
‘‘day’’ (‘‘day orders’’) posted through the the treatment of non-day orders market and protects investors and the
affected Client Application if the CAS previously entered into a CAS by the public interest. The Technical
loses communication with the Client TPH. The Exchange notes use of this Disconnect Mechanism is a valuable
Application. The proposed rule change service will be voluntary and within the tool that is designed to help maintain a
amends Rule 6.23C(b) to provide that sole discretion of each TPH. fair and orderly market. The Exchange
the TPH may enable or disable this The proposed optional service is an believes that providing TPHs with the
optional service through its application additional preventative risk control option to have the Technical Disconnect
programming interface (‘‘API’’) (all other measure that CBOE is making available Mechanism cancel its day orders, in
aspects of the Technical Disconnect to TPHs. It is intended to help further addition to Market-Maker quotes (if
Mechanism continue to otherwise be mitigate the potential risks associated applicable), further mitigates the
enabled for all TPHs and may not be with a loss of communication with a potential risks associated with a loss in
disabled by TPHs).7 The proposed rule Client Application. While orders may be communication with a Client
change makes corresponding changes to static in nature and rest in the book, Application. The Exchange believes it is
Rule 6.23C(c) that indicate the reasonable to offer to cancel only day
TPHs often enter day orders more
Technical Disconnect Mechanism will orders. Unlike non-day orders, day
frequently in response to then-current
automatically cancel a TPH’s day orders orders are more likely to be reflective of
market conditions. Therefore, if a TPH’s
(in addition to a Market-Maker’s then-current market conditions and are
Client Application is disconnected for
quotes), if the TPH enables the proposed intended to rest in the book for a limited
any period of time, it is possible that
optional service.8 As is the case in the period of time. As a result, in the event
market conditions upon which it based
event the Technical Disconnect that a CAS loses connectivity with a
its day orders may change during that
time and make those orders stale. Client Application, execution of day
Application in order to avoid logoff. The Heartbeat
Request acts as a virtual pulse between a CAS and Consequently, any resulting executions orders during that time are more likely
a Client Application and allows a CAS to of those orders may be erroneous or to result in erroneous or unintended
continually monitor its connection with a Client unintended. The Exchange believes it is executions, while risk of such
Application. Failure to receive a response to a executions is lower for non-day orders.
Heartbeat Request within the Heartbeat Response appropriate to limit this optional service
Time is indicative of a technical or system issue. to day orders and exclude good-til- The proposed optional service protects
6 See Rule 6.23C and Securities Exchange Act cancelled orders,9 as those orders are TPHs from these potential erroneous or
Release No. 34–70039 (July 25, 2013), 78 FR 46395 intended to rest in the book for a period unintended executions, as well as
(July 31, 2013) (SR–CBOE–2013–071) for further protects investors and the efficiency and
information regarding the Technical Disconnect
of time and thus have lower risk of
Mechanism. erroneous or unintended executions fairness of the markets in general. The
7 CBOE currently makes available two APIs: during and after the Technical Exchange believes this functionality
CBOE Market Interface 2.0 (‘‘CMi 2’’) and Financial Disconnect Mechanism logs off a TPH. enhances the overall market quality for
Information eXchange Protocol (‘‘FIX’’). The options traded on CBOE. The Exchange
proposed rule change deletes Rule 6.23A(a)(i) [sic] 2. Statutory Basis notes that other exchanges offer their
regarding the CBOE Market Interface (‘‘CMi’’) API,
as that has been phased out and is no longer The Exchange believes the proposed members similar services that cancels a
mstockstill on DSK4VPTVN1PROD with NOTICES
available to TPHs. The proposed rule change also rule change is consistent with the Act member’s orders if it disconnects from
renumbers subparagraphs (ii) and (iii) to become and the rules and regulations the exchange.13
subparagraphs (i) and (ii), respectively.
8 In addition, the proposed rule change makes thereunder applicable to the Exchange
10 15 U.S.C. 78f(b).
nonsubstantive changes to Rule 6.23C(a), including
9 Currently, 11 15 U.S.C. 78f(b)(5).
moving the phrase ‘‘if applicable’’ to ensure that the Exchange offers two time-in-force
12 Id.
phrase clearly applies to the cancellation of a order types: Day and good-til-cancelled. The
Market-Maker’s quotes (as that functionality only proposed optional service will apply to orders that 13 See, e.g., BZX Exchange US Equities FIX
applies to TPHs that are Market-Makers). include the ‘‘day’’ marking. Specification, Version 1.33.5 (October 8, 2014),
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![Federal Register / Vol. 80, No. 228 / Friday, November 27, 2015 / Notices 74151
The Exchange also believes that the attractive or favorable. Additionally, as number should be included on the
proposed rule change is designed to not discussed above, other options subject line if email is used. To help the
permit unfair discrimination among exchanges offer their members similar Commission process and review your
market participants. Use of the optional functionality.14 comments more efficiently, please use
service will be voluntary and within the The proposed rule change to delete only one method. The Commission will
sole discretion of each TPH. The language regarding CMi has no impact post all comments on the Commission’s
proposed optional service is available to on competition, as it merely deletes a Internet Web site (http://www.sec.gov/
all TPHs and will apply to the same provision regarding an API that is no rules/sro.shtml). Copies of the
order types of all TPHs. longer used by, and is no longer submission, all subsequent
The proposed rule change to delete available to, TPHs. CMi 2 ultimately amendments, all written statements
language related to CMi benefits replaced CMi, and FIX continues to be with respect to the proposed rule
investors, as that API is no longer available to TPHs as well. change that are filed with the
available to TPHs and thus deletion of C. Self-Regulatory Organization’s Commission, and all written
that language helps eliminate confusion. Statement on Comments on the communications relating to the
CMi2 and FIX continue to be available Proposed Rule Change Received From proposed rule change between the
to TPHs. Members, Participants, or Others Commission and any person, other than
those that may be withheld from the
B. Self-Regulatory Organization’s The Exchange neither solicited nor public in accordance with the
Statement on Burden on Competition received comments on the proposed provisions of 5 U.S.C. 552, will be
CBOE does not believe that the rule change. available for Web site viewing and
proposed rule change will impose any III. Date of Effectiveness of the printing in the Commission’s Public
burden on competition that is not Proposed Rule Change and Timing for Reference Room, 100 F Street NE.,
necessary or appropriate in furtherance Commission Action Washington, DC 20549 on official
of the purposes of the Act. Specifically, business days between the hours of
The foregoing rule change has become 10:00 a.m. and 3:00 p.m. Copies of the
the Exchange does not believe the effective pursuant to Section 19(b)(3)(A)
proposed rule change will cause any filing also will be available for
of the Act 15 and paragraph (f) of Rule inspection and copying at the principal
burden on intramarket competition 19b–4 16 thereunder. At any time within
because the optional service will be office of the Exchange. All comments
60 days of the filing of the proposed rule received will be posted without change;
available to all TPHs. Use of this change, the Commission summarily may
optional service will be within the sole the Commission does not edit personal
temporarily suspend such rule change if identifying information from
discretion of each TPH. The proposed it appears to the Commission that such
rule change will have no impact on submissions. You should submit only
action is necessary or appropriate in the information that you wish to make
TPHs that do not enable the proposed public interest, for the protection of
optional service. For TPHs that elect to available publicly. All submissions
investors, or otherwise in furtherance of should refer to File Number SR–CBOE–
enable the proposed optional service, the purposes of the Act. If the
the only impact on those TPHs will be 2015–103 and should be submitted on
Commission takes such action, the or before December 18, 2015.
cancellation of day orders (in addition Commission will institute proceedings
to Market-Maker quotes) upon loss of to determine whether the proposed rule For the Commission, by the Division of
connectivity. The Technical Disconnect Trading and Markets, pursuant to delegated
change should be approved or
Mechanism will otherwise continue to authority.17
disapproved.
function in the same manner as it does Robert W. Errett,
today. Further, the Exchange does not IV. Solicitation of Comments Deputy Secretary.
believe that such change will impose Interested persons are invited to [FR Doc. 2015–30075 Filed 11–25–15; 8:45 am]
any burden on intermarket competition submit written data, views, and BILLING CODE 8011–01–P
that is not necessary or appropriate in arguments concerning the foregoing,
furtherance of the purposes of the Act. including whether the proposed rule
The proposed rule change modifies a change is consistent with the Act. SECURITIES AND EXCHANGE
mechanism available on CBOE’s system Comments may be submitted by any of COMMISSION
and applies only to orders entered on the following methods: [Release No. 34–76498; File No. SR–CBOE–
CBOE. The Exchange notes that, should 2015–105]
Electronic comments
the proposed change make CBOE a more
attractive place for trading, market • Use the Commission’s Internet Self-Regulatory Organizations;
participants trading on other exchanges comment form (http://www.sec.gov/ Chicago Board Options Exchange,
are welcome to become TPHs and trade rules/sro.shtml); or Incorporated; Notice of Filing and
at CBOE if they determine that this • Send an email to rule-comments@ Immediate Effectiveness of a Proposed
proposed change has made CBOE more sec.gov. Please include File Number SR– Rule Change To Amend the Fees
CBOE–2015–103 on the subject line. Schedule
available at http://www.batstrading.com/resources/ Paper comments
membership/BATS_FIX_Specification.pdf (see November 20, 2015.
Section 5.1 for description of automatic cancel on • Send paper comments in triplicate Pursuant to Section 19(b)(1) of the
disconnection or malfunction); MIAX Options to Brent J. Fields, Secretary, Securities Securities Exchange Act of 1934 (the
Market Protections Handout (March 2015),
mstockstill on DSK4VPTVN1PROD with NOTICES
available at https://www.miaxoptions.com/sites/
and Exchange Commission, 100 F Street ‘‘Act’’),1 and Rule 19b–4 thereunder,2
default/files/MIAX_Market_Protections_March_ NE., Washington, DC 20549–1090. notice is hereby given that on November
2015.pdf (see page 5 for description of auto cancel All submissions should refer to File 16, 2015, Chicago Board Options
on disconnect order protection); and NYSE Number SR–CBOE–2015–103. This file Exchange, Incorporated (the ‘‘Exchange’’
UTPDirect (CGC Binary) API Specification, V1.4
(February 26, 2015), available at https://
14 Id. 17 17 CFR 200.30–3(a)(12).
www.nyse.com/publicdocs/nyse/markets/nyse/
15 15 U.S.C. 78s(b)(3)(A). 1 15 U.S.C. 78s(b)(1).
NYSEUTPDirect_Specification.pdf (see Section 3.8
for description of cancel on disconnect service). 16 17 CFR 240.19b–4(f). 2 17 CFR 240.19b–4.
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Document Created: 2015-12-14 14:05:22
Document Modified: 2015-12-14 14:05:22
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 80 FR 74149 |
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