80_FR_79045 80 FR 78803 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of a Proposed Rule Change Relating to Complex Orders as Modified by Amendment No. 1

80 FR 78803 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of a Proposed Rule Change Relating to Complex Orders as Modified by Amendment No. 1

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 242 (December 17, 2015)

Page Range78803-78804
FR Document2015-31682

Federal Register, Volume 80 Issue 242 (Thursday, December 17, 2015) 
[Federal Register Volume 80, Number 242 (Thursday, December 17, 2015)]
[Notices]
[Pages 78803-78804]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-31682]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76622; File No. SR-CBOE-2015-089]


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

December 11, 2015.

I. Introduction

    On October 13, 2015, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and 
Rule 19b-4 thereunder,\2\ a proposed rule change to: (1) amend the rule 
provisions regarding the initiation of a complex order auction 
(``COA''), (2) add rule provisions regarding the impact of certain 
incoming orders and changes in the leg markets on an ongoing COA, and 
(3) update the rule text regarding who can submit complex orders. On 
October 26, 2015, the Exchange submitted Amendment No. 1 to the 
proposed rule change. The proposed rule change, as modified by 
Amendment No. 1, was published for comment in the Federal Register on 
November 2, 2015.\3\ The Commission received no comments on the 
proposal. This order grants approval of the proposed rule change, as 
modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 76273 (October 27, 
2015), 80 FR 67457 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend CBOE Rule 6.53C and Interpretation 
and Policy .04 regarding the initiation of a COA. Currently, Trading 
Permit Holders and PAR operators must affirmatively request that their 
incoming two-legged COA-eligible orders be COA'd.\4\ The Exchange 
proposes to amend CBOE Rule 6.53C(d)(ii) to provide that such COA-
eligible orders (including orders submitted for electronic processing 
from PAR) be COA'd by default.\5\ Under the proposed rule, Trading 
Permit Holders would be permitted to request that a COA-eligible order 
with two legs not COA (referred to as a ``do-not-COA'' request) on an 
order-by-order basis.\6\ The Exchange believes that 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.
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    \4\ See Notice, supra 3, at 67457.
    \5\ Id. The Exchange represents that all Trading Permit Holders 
have requested that all of their COA-eligible orders with two legs 
process through COA upon entry into the System. Id.
    \6\ Id.
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    A PAR operator will not be permitted to override a Trading Permit 
Holder's ``do-not-COA'' order request; such orders, therefore, will 
enter the Complex Order Book (``COB'').\7\ An order with a ``do-not-
COA'' request, however, would still be COA'd after it has rested on the 
COB pursuant to Interpretation and Policy .04.\8\
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    \7\ Id. In light of this proposed change, the Exchange proposes 
to delete 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. Id.
    \8\ Id. at 67458.
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    The Exchange notes that an order with a ``do-not-COA'' request will 
still have execution opportunities.\9\ The Exchange explains that a 
``do-not-COA'' 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).\10\ Further, the Exchange notes that 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.\11\
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    \9\ Id.
    \10\ Id.
    \11\ Id.
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    Second, the Exchange proposes to add subparagraphs 
6.53C(d)(viii)(4) and (5) to CBOE Rule 6.53C to describe additional 
circumstances that will cause a COA to end early.\12\ Proposed 
subparagraph (d)(viii)(4) will provide 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.\13\ 
Proposed subparagraph (d)(viii)(5) will provide 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

[[Page 78804]]

cause the COA to end.\14\ The Exchange believes that these provisions 
prevent 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 believes 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.\15\
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    \12\ Id. The proposed rule change makes corresponding changes to 
the heading and introductory paragraph of subparagraph (d)(viii). 
Id.
    \13\ Id. at 67458-9.
    \14\ Id.
    \15\ Id. at 67460.
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    Third, the Exchange proposes to amend CBOE 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, as opposed to market participants,\16\ as the Rule 
currently states.\17\ In addition, the Exchange proposes to amend 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.\18\
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    \16\ Id. at 67459. CBOE 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. The Exchange 
explains that 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). Id.
    \17\ Id.
    \18\ Id. at 67460. The Exchange notes that first several 
sentences of CBOE Rule 6.53C(c)(ii)(3) reference both orders and 
quotes eligible to rest on the COB. The Exchange intended for Rule 
to provide that both orders and quotes that are not eligible to rest 
on the COB be cancelled. Id.
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    Finally, the Exchange proposes to make technical and other 
nonsubstantive changes, which are described in the Notice.\19\
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    \19\ Id. at 64759.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\20\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\21\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, 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.
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    \20\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that it is reasonable for CBOE to require 
that incoming two-legged COA-eligible orders be COA'd by default unless 
a Trading Permit Holder requests, on an order-by-order basis, that such 
orders not COA. The Commission notes that, should a Trading Permit 
Holder not wish its orders to be COA'd, the proposed rule will allow 
the Trading Permit Holder to request that its orders not be COA'd on an 
order-by-order basis. In addition, the Commission notes that the rules 
of another options exchange provide that certain complex orders be 
routed to a complex order auction unless a member designates that such 
orders not initiate a complex order auction on that exchange.\22\
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    \22\ 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 Commission also believes that it is reasonable for the Exchange 
to add new provisions 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. Such additions enhance the 
description of current COA functionality and the circumstances that may 
cause a COA to end early to help ensure investors understand how ``do-
not-COA'' orders may impact a COA. As noted above, these rules provide 
that if entry of a ``do-not-COA'' order causes a COA to end, any 
executions that occur following the COA will occur in accordance with 
allocation principles in place, subject to an exception that the 
original COA-eligible order will receive time priority.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-CBOE-2015-089), as modified 
by Amendment No. 1, be, and it hereby is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-31682 Filed 12-16-15; 8:45 am]
BILLING CODE 8011-01-P

Federal Register / Vol. 80, No. 242 / Thursday, December 17, 2015 / Notices 78803 and Exchange Commission SECURITIES AND EXCHANGE COA (referred to as a ‘‘do-not-COA’’ (‘‘Commission’’) has submitted to the COMMISSION request) on an order-by-order basis.6 Office of Management and Budget this The Exchange believes that allowing [Release No. 34–76622; File No. SR–CBOE– request for extension of the previously Trading Permit Holders to make a ‘‘do- 2015–089] approved collections of information not-COA’’ request on an order-by-order discussed below. Self-Regulatory Organizations; basis will better allow them to make Chicago Board Options Exchange, decisions regarding the handling of their Form T–4 (17 CFR 269.4) is a form orders based on market conditions at the used by an issuer to apply for an Incorporated; Order Granting Approval of a Proposed Rule Change Relating to time they submit their orders. exemption under Section 304(c) (15 A PAR operator will not be permitted U.S.C 77ddd(c)) of the Trust Indenture Complex Orders as Modified by Amendment No. 1 to override a Trading Permit Holder’s Act of 1939 (15 U.S.C. 77aaa et seq.). ‘‘do-not-COA’’ order request; such Form T–4 is filed on occasion. The December 11, 2015. orders, therefore, will enter the Complex information required by Form T–4 is Order Book (‘‘COB’’).7 An order with a I. Introduction mandatory. This information is publicly ‘‘do-not-COA’’ request, however, would available on EDGAR. Form T–4 takes On October 13, 2015, Chicago Board still be COA’d after it has rested on the approximately 5 hours per response to Options Exchange, Incorporated (the COB pursuant to Interpretation and prepare and is filed by approximately 3 ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Policy .04.8 respondents. We estimate that 25% of Securities and Exchange Commission The Exchange notes that an order the 5 hours per response (1 hour) is (the ‘‘Commission’’), pursuant to with a ‘‘do-not-COA’’ request will still prepared by the filer for a total annual Section 19(b)(1) of the Securities have execution opportunities.9 The Exchange Act of 1934 (‘‘Act’’ or Exchange explains that a ‘‘do-not-COA’’ reporting burden of 3 hours (1 hour per ‘‘Exchange Act’’) 1 and Rule 19b–4 order may execute automatically upon response x 3 responses). thereunder,2 a proposed rule change to: entry into the System against the leg An agency may not conduct or (1) amend the rule provisions regarding markets or complex orders on the COB sponsor, and a person is not required to the initiation of a complex order auction to the extent marketable (in accordance respond to, a collection of information (‘‘COA’’), (2) add rule provisions with allocation rules set forth in Rule unless it displays a currently valid regarding the impact of certain 6.53C).10 Further, the Exchange notes control number. incoming orders and changes in the leg that an order on the opposite side of, The public may view the background markets on an ongoing COA, and (3) and marketable against, a COA-eligible documentation for this information update the rule text regarding who can order may trade against the COA- submit complex orders. On October 26, eligible order if the System receives the collection at the following Web site, 2015, the Exchange submitted order while a COA is ongoing.11 www.reginfo.gov. Comments should be Second, the Exchange proposes to add Amendment No. 1 to the proposed rule directed to: (i) Desk Officer for the subparagraphs 6.53C(d)(viii)(4) and (5) change. The proposed rule change, as Securities and Exchange Commission, to CBOE Rule 6.53C to describe modified by Amendment No. 1, was Office of Information and Regulatory additional circumstances that will cause published for comment in the Federal Affairs, Office of Management and Register on November 2, 2015.3 The a COA to end early.12 Proposed Budget, Room 10102, New Executive Commission received no comments on subparagraph (d)(viii)(4) will provide Office Building, Washington, DC 20503, the proposal. This order grants approval that if an order with a ‘‘do-not-COA’’ or by sending an email to: Shagufta_ of the proposed rule change, as request or an order that is not COA- Ahmed@omb.eop.gov; and (ii) Pamela modified by Amendment No. 1. eligible is received prior to the Dyson, Director/Chief Information expiration of the Response Time Officer, Securities and Exchange II. Description of the Proposed Rule Interval for the original COA and is on Commission, c/o Remi Pavlik-Simon, Change the same side of the market and at a 100 F Street NE., Washington, DC 20549 The Exchange proposes to amend price better than or equal to the starting or send an email to: PRA_Mailbox@ CBOE Rule 6.53C and Interpretation and price, then the original COA will end.13 sec.gov. Comments must be submitted to Policy .04 regarding the initiation of a Proposed subparagraph (d)(viii)(5) will OMB within 30 days of this notice. COA. Currently, Trading Permit Holders provide that if the leg markets were not and PAR operators must affirmatively marketable against a COA-eligible order Dated: December 11, 2015. when the order entered the System (and request that their incoming two-legged Robert W. Errett, COA-eligible orders be COA’d.4 The thus prior to the initiation of a COA) but Deputy Secretary. Exchange proposes to amend CBOE became marketable with the COA- [FR Doc. 2015–31677 Filed 12–16–15; 8:45 am] Rule 6.53C(d)(ii) to provide that such eligible order prior to the expiration of BILLING CODE 8011–01–P COA-eligible orders (including orders the Response Time Interval, it will submitted for electronic processing from 6 Id. PAR) be COA’d by default.5 Under the 7 Id. In light of this proposed change, the proposed rule, Trading Permit Holders Exchange proposes to delete the language in would be permitted to request that a Interpretation and Policy .04(a) that indicates COA-eligible order with two legs not Trading Permit Holders may request that complex asabaliauskas on DSK5VPTVN1PROD with NOTICES orders be COA’d on a class-by-class basis, as it is 1 15 U.S.C. 78s(b)(1). no longer necessary. Id. 2 17 8 Id. at 67458. CFR 240.19b–4. 3 See Securities Exchange Act Release No. 76273 9 Id. 10 Id. (October 27, 2015), 80 FR 67457 (‘‘Notice’’). 4 See Notice, supra 3, at 67457. 11 Id. 5 Id. The Exchange represents that all Trading 12 Id. The proposed rule change makes Permit Holders have requested that all of their corresponding changes to the heading and COA-eligible orders with two legs process through introductory paragraph of subparagraph (d)(viii). Id. COA upon entry into the System. Id. 13 Id. at 67458–9. VerDate Sep<11>2014 16:53 Dec 16, 2015 Jkt 238001 PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 E:\FR\FM\17DEN1.SGM 17DEN1

78804 Federal Register / Vol. 80, No. 242 / Thursday, December 17, 2015 / Notices cause the COA to end.14 The Exchange rule change is consistent with Section believes that these provisions prevent 6(b)(5) of the Act,21 which requires, Robert W. Errett, an order that was entered after the among other things, that the rules of a Deputy Secretary. initiation of a COA from trading ahead national securities exchange be [FR Doc. 2015–31682 Filed 12–16–15; 8:45 am] of an order with the same price that may designed to prevent fraudulent and BILLING CODE 8011–01–P have executed or entered the COB if it manipulative acts and practices, to did not COA. Similarly, the Exchange promote just and equitable principles of believes it is fair for a COA-eligible trade, to remove impediments to and SECURITIES AND EXCHANGE order that was entered at a better price perfect the mechanism of a free and COMMISSION than an order that was resting in the open market and a national market COB prior to initiation of the COA to [Release No. 34–76625; File No. SR–BYX– system, and, in general, to protect 2015–49] execute against leg markets that become investors and the public interest. marketable against the COA-eligible The Commission believes that it is Self-Regulatory Organizations; BATS order and resting order during the COA, reasonable for CBOE to require that Y-Exchange, Inc.; Notice of Filing and because the Trading Permit Holder who incoming two-legged COA-eligible Immediate Effectiveness of a Proposed entered the COA-eligible order was orders be COA’d by default unless a Rule Change to Rule 11.13(b)(4)(A), willing to pay a better price than that of Trading Permit Holder requests, on an Amending Aggressive Re-Route the resting order.15 order-by-order basis, that such orders Instruction Third, the Exchange proposes to not COA. The Commission notes that, amend CBOE Rule 6.53C(c)(ii)(3) and should a Trading Permit Holder not December 11, 2015. Interpretation and Policy .06(c) to wish its orders to be COA’d, the Pursuant to Section 19(b)(1) of the provide that all Trading Permit Holders proposed rule will allow the Trading Securities Exchange Act of 1934 (the and PAR Officials may submit orders or Permit Holder to request that its orders ‘‘Act’’),1 and Rule 19b–4 thereunder,2 quotes to trade against orders in the not be COA’d on an order-by-order notice is hereby given that on December COB, as opposed to market basis. In addition, the Commission notes 2, 2015, BATS Y-Exchange, Inc. (the participants,16 as the Rule currently that the rules of another options ‘‘Exchange’’ or ‘‘BYX’’) filed with the states.17 In addition, the Exchange exchange provide that certain complex Securities and Exchange Commission proposes to amend Rule 6.53C(c)(ii)(3) orders be routed to a complex order (‘‘Commission’’) the proposed rule to provide that order and quote types auction unless a member designates that change as described in Items I and II (not just quote types) not eligible to rest such orders not initiate a complex order below, which Items have been prepared or trade against the COB will be auction on that exchange.22 by the Exchange. The Exchange has automatically cancelled.18 The Commission also believes that it designated this proposal as a ‘‘non- Finally, the Exchange proposes to controversial’’ proposed rule change is reasonable for the Exchange to add make technical and other pursuant to Section 19(b)(3)(A) of the new provisions regarding how incoming nonsubstantive changes, which are Act 3 and Rule 19b–4(f)(6) thereunder,4 orders with ‘‘do-not-COA’’ requests or described in the Notice.19 which renders it effective upon filing that are not COA-eligible, as well as III. Discussion and Commission how changes in the leg markets, may with the Commission. The Commission Findings impact ongoing COAs. Such additions is publishing this notice to solicit After careful review, the Commission enhance the description of current COA comments on the proposed rule change finds that the proposed rule change is functionality and the circumstances that from interested persons. consistent with the requirements of the may cause a COA to end early to help I. Self-Regulatory Organization’s Act and the rules and regulations ensure investors understand how ‘‘do- Statement of the Terms of the Substance thereunder applicable to a national not-COA’’ orders may impact a COA. As of the Proposed Rule Change securities exchange.20 In particular, the noted above, these rules provide that if entry of a ‘‘do-not-COA’’ order causes a The Exchange is proposing to amend Commission finds that the proposed COA to end, any executions that occur the Aggressive Re-Route instruction 14 Id. following the COA will occur in under Exchange Rule 11.13(b)(4)(A) to 15 Id. at 67460. accordance with allocation principles in route such orders where that order has 16 Id. at 67459. CBOE Rules 6.45A and 6.45B place, subject to an exception that the been locked or crossed by other Trading define market participants as Market-Makers, original COA-eligible order will receive Centers. Designated Primary Market-Makers with an The text of the proposed rule change appointment in the subject class, and floor brokers time priority. and PAR Officials representing orders in the trading is available at the Exchange’s Web site crowd. The Exchange explains that Trading Permit IV. Conclusion at www.batstrading.com, at the Holders and PAR Officials as a group is larger than It is therefore ordered, pursuant to principal office of the Exchange, and at market participants as a group, as the term market the Commission’s Public Reference participants does not include other types of Trading Section 19(b)(2) of the Act,23 that the Permit Holders (such as electronic proprietary proposed rule change (SR–CBOE–2015– Room. traders or brokers submitting electronic orders on 089), as modified by Amendment No. 1, behalf of customers from off of the trading floor). II. Self-Regulatory Organization’s Id. be, and it hereby is, approved. Statement of the Purpose of, and 17 Id. For the Commission, by the Division of Statutory Basis for, the Proposed Rule 18 Id. at 67460. The Exchange notes that first Trading and Markets, pursuant to delegated Change asabaliauskas on DSK5VPTVN1PROD with NOTICES several sentences of CBOE Rule 6.53C(c)(ii)(3) authority.24 reference both orders and quotes eligible to rest on In its filing with the Commission, the the COB. The Exchange intended for Rule to 21 15 Exchange included statements provide that both orders and quotes that are not U.S.C. 78f(b)(5). 22 See NASDAQ OMX PHLX LLC (‘‘PHLX’’) Rule concerning the purpose of and basis for eligible to rest on the COB be cancelled. Id. 19 Id. at 64759. 1080, Commentary .07(a)(viii) and (e) (describing 1 15 U.S.C. 78s(b)(1). 20 In approving this proposal, the Commission has the complex order live auction (‘‘COLA’’) process considered the proposed rule’s impact on and ‘‘do not auction’’ orders). 2 17 CFR 240.19b–4. 23 15 U.S.C. 78s(b)(2). 3 15 U.S.C. 78s(b)(3)(A). efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 24 17 CFR 200.30–3(a)(12). 4 17 CFR 240.19b–4(f)(6). VerDate Sep<11>2014 16:53 Dec 16, 2015 Jkt 238001 PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 E:\FR\FM\17DEN1.SGM 17DEN1


Document Created: 2018-03-02 09:19:01
Document Modified: 2018-03-02 09:19:01
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 78803 
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