81 FR 50036 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Tied to Stock Orders

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 146 (July 29, 2016)

Page Range		50036-50041
FR Document		2016-17910
Federal Register, Volume 81 Issue 146 (Friday, July 29, 2016)
[Federal Register Volume 81, Number 146 (Friday, July 29, 2016)]
[Notices]
[Pages 50036-50041]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-17910]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78407; File No. SR-CBOE-2016-057]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Tied to Stock Orders

July 25, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 21, 2016, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the 
Exchange. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change deletes Rules 6.53(y), 6.77(e) and 15.2A. 
The text of the proposed rule change is provided below.

(additions are underlined; deletions are [bracketed])
* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Rule 6.53. Certain Types of Orders Defined
    One or more of the following order types may be made available on a 
class-by-class basis. Certain order types may not be made available for 
all Exchange systems. The classes and/or systems for which the order 
types shall be available will be as provided in the Rules, as the 
context may indicate, or as otherwise specified via Regulatory 
Circular.
    (a)-(x) No change.
    [(y) Tied to Stock Order. An order is ``tied to stock'' if, at the 
time the Trading Permit Holder representing the order on the Exchange 
receives or initiates the order, the Trading Permit Holder has 
knowledge that the order is coupled with an order(s) for the underlying 
stock or a security convertible into the underlying stock 
(``convertible security''). The representing Trading Permit Holder must 
include an indicator on each tied to stock order upon systemization, 
unless:
    (i) The order is submitted to the Exchange as part of a qualified 
contingent cross order (as defined in this Rule 6.53) through an 
Exchange-approved device;
    (ii) the order is submitted to the Exchange for electronic 
processing as a stock-option order (as defined in Rule 6.53C); or
    (iii) all of the component orders are systematized on a single 
order ticket.
    An order is not ``tied to stock'' if it is not coupled with an 
order(s) for the underlying stock or convertible security at the time 
of receipt or initiation (e.g., an option order that is received or 
initiated to hedge a previously executed stock transaction, an option 
transaction or position that is hedged with a subsequently received or 
initiated stock order).]
    . . . Interpretations and Policies:
    .01-.02 No change.
* * * * *
Rule 6.77. Order Service Firms
    (a)-(d) No change.
    [(e) Order service firms must submit reports pursuant to Rule 15.2A 
with respect to the stock transactions it executes on behalf of market-
makers pursuant to this Rule 6.77.]
* * * * *
[Rule 15.2A. Reports of Execution of Stock Transactions
    In a manner and form prescribed by the Exchange, each Trading 
Permit Holder must, on the business day following the order execution 
date, report to the Exchange the following information for the executed 
stock or convertible security legs of QCC orders, stock-option orders 
and other tied to stock orders that the Trading Permit Holder executed 
on the Exchange that trading day: (a) Time of execution, (b) execution 
quantity, (c) execution price, (d) venue of execution, and (e) any 
other information requested by the Exchange. A Trading Permit Holder 
may arrange for its clearing firm to submit these reports on its 
behalf; provided that if the clearing firm does not report an executed 
stock order, the Trading Permit Holder will be responsible for 
reporting the information.
    . . . Interpretation and Policies:

[[Page 50037]]

    .01 The Exchange will announce by Regulatory Circular any 
determinations, including the manner and form of the report, that it 
makes pursuant to Rule 15.2A.
    .02 A Trading Permit Holder (or its clearing firm) does not need to 
report information pursuant to Rule 15.2A with respect to (a) stock-
option orders (as defined in Rule 6.53C) submitted to the Exchange for 
electronic processing or (b) stock or convertible security orders 
entered into an Exchange-approved device.
    .03 A Market-Maker (or its clearing firm) may include the 
information required by Rule 15.2A in the equity reports submitted to 
the Exchange pursuant to Rule 8.9(b).
    .04 If a tied to stock order executed at multiple options 
exchanges, a Trading Permit Holder (or its clearing firm) may report to 
the Exchange the information pursuant to Rule 15.2A for the entire 
stock or convertible security component(s) rather than the portion of 
the stock or convertible security component(s) applicable to the 
portion of the order that executed at the Exchange.
    .05 In lieu of the time of execution pursuant to Rule 15.2A(a), the 
Exchange may accept the time of the trade report if that time is 
generally within 90 seconds of the time of execution.]
* * * * *
    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
    On August 13, 2014, the Securities and Exchange Commission (the 
``Commission'') approved CBOE Rules 6.53(y), 6.77(e) and 15.2A.\5\ Rule 
6.53(y) defines a tied to stock order \6\ and requires the representing 
Trading Permit Holder to include an indicator on each tied to stock 
order upon systemization, subject to certain exceptions. Rule 15.2A 
requires, in a manner and form prescribed by the Exchange, each Trading 
Permit Holder (``TPH''), on the business day following the order 
execution date, to report to the Exchange certain information regarding 
the executed stock or convertible security legs of qualified contingent 
cross (``QCC'') orders,\7\ stock-option orders and other tied to stock 
orders that the TPH executed on the Exchange that trading day. Rule 
6.77(e) subjects order service firms \8\ to the reporting requirements 
set forth in Rule 15.2A with respect to stock transactions they execute 
on behalf of market-makers on the floor of the Exchange. The Exchange 
stated in rule filing SR-CBOE-2014-040 that it would issue a circular 
announcing the implementation date for these rules within 90 days of 
the date of filing, which implementation date would be within 180 days 
of the date of filing.
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    \5\ Securities Exchange Act release No. 34-72839 (August 13, 
2014), 79 FR 49123 (August 19, 2014) (SR-CBOE-2014-040).
    \6\ Rule 6.53(y) provides that an order is ``tied to stock'' if, 
at the time the Trading Permit Holder representing the order on the 
Exchange receives the order (if the order is a customer order) or 
initiates the order (if the order is a proprietary order), has 
knowledge that the order is coupled with an order(s) for the 
underlying stock or a security convertible into the underlying stock 
(``convertible security'' and, together with underlying stock, 
``non-option'').
    \7\ A QCC order is an order to buy (sell) at least 1,000 
standard option contracts or 10,000 mini-option contracts that is 
identified as being part of a qualified contingent trade coupled 
with a contra-side order to sell (buy) an equal number of contracts. 
These orders may only be entered in the standard increments 
applicable to simple orders in the options class under Rule 6.42. 
For purposes of this order type, a ``qualified contingent trade'' is 
a transaction consisting of two or more component orders, executed 
as agent or principal, where: (a) At least one component is an NMS 
stock, as defined in Rule 600 of Regulation NMS under the Act; (b) 
all components are effected with a product or price contingency that 
either has been agreed to by all the respective counterparties or 
arranged for by a broker-dealer as principal or agent; (c) the 
execution of one component is contingent upon the execution of all 
other components at or near the same time; (d) the specific 
relationship between the component orders (e.g., the spread between 
the prices of the component orders) is determined by the time the 
contingent order is placed; (e) the component orders bear a 
derivative relationship to one another, represent different classes 
of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been 
announced or cancelled; and (f) the transaction is fully hedged 
(without regard to any prior existing position) as a result of other 
components of the contingent trade. QCC orders may execute without 
exposure provided the execution is not at the same price as a public 
customer order resting in the electronic book and is at or between 
the national best bid or offer. A QCC order will be cancelled if it 
cannot be executed. See Rule 6.53(u).
    \8\ Order service firms are TPH organizations that are 
registered with the Exchange for the purpose of taking orders for 
the purchase or sale of stocks or commodity futures contracts (and 
options thereon) from market-makers on the floor of the Exchange and 
forwarding such orders for execution. Rule 6.77(a).
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    On January 7, 2015, CBOE submitted a rule filing to delay the 
implementation of these rules based on feedback it received from 
TPHs.\9\ The Exchange stated in that rule filing that it would issue a 
circular announcing the implementation date for the rules within 90 
days of the date of the rule filing, which implementation date would be 
within 180 days of the date of filing. In accordance with that filing, 
the Exchange issued a regulatory circular on April 7, 2015, which 
announced a July 1, 2015 implementation date for the tied to stock 
marking and reporting requirements.\10\ On May 20, 2015, the Exchange 
submitted a rule filing to further delay implementation of the 
reporting requirement set forth in Rule 15.2A \11\ for 12 to 18 months 
in order to evaluate the format of the reports in light of its entry 
into a Regulatory Services Agreement with the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') \12\ to ensure information in 
the reports could be incorporated into surveillances in an efficient 
and effective manner. In that filing, CBOE announced its intention to 
proceed with the implementation of the marking requirements set forth 
in Rule 6.53(y) on July 1, 2015. On July 1, 2015, the Exchange 
submitted a rule filing to further delay implementation of the marking 
requirement set forth in Rule 6.53(y) with respect to orders submitted 
to the Exchange for electronic processing for six to 18 months (the 
filing confirmed implementation of the marking requirement with respect 
to orders submitted to the Exchange for

[[Page 50038]]

nonelectronic processing).\13\ In addition to the evaluation of the 
proposed report format, CBOE indicated it intended to review the number 
of tied to stock orders received and evaluate the number of reports it 
could expect to receive with respect to those orders and the potential 
impact of the reports on CBOE surveillances.
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    \9\ Securities Exchange Act Release No. 34-74067 (January 15, 
2015), 80 FR 3267 (January 22, 2015) (SR-CBOE-2015-004).
    \10\ CBOE Regulatory Circular RG15-056 (April 7, 2015).
    \11\ Pursuant to CBOE Regulatory Circular RG13-102 (July 19, 
2013), CBOE imposed a reporting requirement with respect to QCC 
orders prior to the adoption of Rule 15.2A. As stated in that 
circular, as long as the QCC functionality remains active, the 
reporting requirement for QCC orders described in Regulatory 
Circular RG13-102 would continue to be in effect until the 
implementation of Rule 15.2A. Once implemented, the reporting 
requirement in Rule 15.2A would supersede the QCC order reporting 
requirement described in that circular. See also CBOE Regulatory 
Circular RG15-087 (May 29, 2015).
    \12\ Securities Exchange Act Release No. 34-75029 (May 21, 
2015), 80 FR 30506 (May 28, 2015) (SR-CBOE-2015-051) (notice of 
filing and immediate effectiveness of proposed rule change).
    \13\ Securities Exchange Act Release No. 34-75378 (July 7, 
2016), 80 FR 40116 (July 13, 2015) (SR-CBOE-2015-067) (notice of 
filing and immediate effectiveness of proposed rule change); see 
also CBOE Regulatory Circular RG15-093 (June 19, 2015). CBOE notes 
that it performed the systems work necessary for Exchange-approved 
devices the Exchange makes available to floor brokers to have the 
functionality to allow floor brokers to mark orders as tied to stock 
at the time of systemization of the order.
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    Based on this evaluation, the Exchange does not believe it is 
necessary to maintain or fully implement the marking requirement or 
implement the reporting requirement; therefore, the Exchange proposes 
to delete these requirements in their entirety from its rules.\14\ 
Because the definition of tied to stock orders is only used in the 
rules for the marking and reporting requirements, the proposed rule 
change also deletes the definition of tied to stock orders. While CBOE 
continues to believe this type of information would benefit its cross-
market activity surveillances, based on our evaluation, CBOE believes 
the requirements would apply to only a small number of orders.\15\ 
During the evaluation period discussed above (during which the tied to 
stock marking requirement was in effect for orders submitted to the 
Exchange for nonelectronic processing), fewer than 0.25% of orders 
submitted to the Exchange for nonelectronic processing included the 
tied to stock indicator.\16\ If the marking and reporting requirements 
were fully implemented, the number of orders to which they would apply 
would be limited given the exceptions that currently exist in the rules 
and other changes that CBOE has implemented. For example, subsequent to 
the approval of SR-CBOE-2015-040, the Exchange amended CBOE Rule 6.53 
to require complex orders of twelve (12) legs or less--one leg of which 
may be for an underlying security or security future, as applicable--to 
be entered on a single order ticket at time of systemization (referred 
to herein as the ``single order ticket rule change'').\17\ These orders 
are excepted from the tied to stock marking requirement under Rule 
6.53(y)(iii) (which provides an exception if all the component orders 
of a tied to stock order are systemized on a single order ticket) and 
would often qualify for an exception from the reporting requirement 
under Rule 15.2A (e.g., the exceptions under Interpretation and Policy 
.02 which apply to (1) stock-option orders (as defined in Rule 6.53C) 
submitted to the Exchange for electronic processing or (2) stock or 
convertible securities orders entered onto an Exchange-approved 
device). The single order ticket rule change--as well as provisions in 
the rules exempting certain orders from the tied to stock marking and 
reporting requirements--result in a number of orders qualifying for an 
exemption from the tied to stock marking and reporting requirements. 
This, in turn, reduces the number of orders to which the tied to stock 
marking and reporting requirements would apply once implemented. As a 
result, at this time, CBOE believes the benefits to its surveillances 
for so few orders are outweighed by the additional costs to TPHs to 
implement the marking requirement (for orders submitted for electronic 
processing) and the reporting requirement.
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    \14\ As discussed above, prior to the adoption of Rule 15.2A, 
the Exchange required TPHs to submit reports of stock trades related 
to QCC transactions. This QCC stock leg reporting requirement 
continued to apply during the delay to implementation of Rule 15.2A 
and will continue to apply after deletion of the tied to stock 
reporting requirement from the Rules. See supra note 11.
    \15\ As set forth in Rule 6.53(y), orders coupled with an order 
for stock are defined as tied to stock orders; however, various tied 
to stock orders are exempt from the marking requirement, including 
QCC orders, stock-option orders submitted for electronic processing, 
and orders for which all components are systematized on a single 
order ticket. Similarly, as set forth in Rule 15.2A, Interpretation 
and Policy .02, TPHs do not need to submit reports for stock-option 
orders submitted to the Exchange for electronic processing or stock 
or convertible security orders entered into an Exchange-approved 
device. As a result, only a subset of tied to stock orders would be 
subject to the marking and reporting requirements.
    \16\ Specifically, during the third quarter of 2015, the fourth 
quarter of 2015 and the first quarter of 2016, the percentage of 
orders submitted to the Exchange for nonelectronic processing that 
included the tied to stock indictor was approximately 0.17%, 0.16% 
and 0.21%, respectively.
    \17\ See Rule 6.53, Interpretation and Policy 02. In addition, 
orders of more than twelve (12) legs (one leg of which may be for an 
underlying security or security future, as applicable) may be split 
across multiple order tickets subject to certain requirements. See 
Securities Exchange Act Release Nos. 34-74389 (February 26, 2015), 
80 FR 11717 (March 4, 2015) (SR-CBOE-2015-011) and 34-75026 (May 21, 
2015), 80 FR 30514 (May 28, 2015) (SR-CBOE-2015-048). Mandatory 
compliance with this requirement went into effect June 1, 2015. See 
CBOE Regulatory Circulars RG15-067 (April 22, 2015) and RG15-092 
(June 17, 2015).
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    CBOE acknowledged in the initial filing to adopt the tied to stock 
marking and reporting requirements relevant stock information would be 
captured by the Consolidated Audit Trail (``CAT''), once the relevant 
CAT provisions have been approved and implemented. Specifically, once 
approved and implemented, Section 6.3 of the National Market System 
Plan Governing the Consolidated Audit Trail would require each national 
securities exchange to record and report to the CAT central repository 
specified information for each order and execution, among other things, 
on its exchange for eligible securities, which include stock and listed 
options.\18\ Additionally, once approved and implemented, Section 6.4 
of the Plan would require each national securities exchange to require 
its members to report certain data to the central repository specified 
information for each order and execution for eligible securities, among 
other things.\19\ Under the Plan, as proposed, the central repository 
would be responsible for the receipt, consolidation and retention of 
all information reported to CAT pursuant to Rule 613 under Regulation 
NMS.\20\ Exchanges would have access to the central repository, 
including access to and use of the CAT data stored in the central 
repository, for the purpose of performing their respective regulatory 
and oversight responsibilities pursuant to federal securities laws, 
rules and regulations.\21\
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    \18\ See Securities Exchange Act Release No. 34-77724 (April 27, 
2016), 81 FR 30614 (May 17, 2016) (notice of filing of the National 
Market System Plan Governing the Consolidated Audit Trail (the 
``Plan'')), at Section 6.3(d); see also 17 CFR 242.600(b)(46) 
(definition of NMS security).
    \19\ See id. at Section 6.4(d).
    \20\ See id. at Section 1.1.
    \21\ See id. at Section 6.5(c).
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    At the time of that initial tied to stock filing, the Exchange 
expected implementation of CAT would not occur for several years. 
However, since that time, an amended and restated version of the Plan 
has been submitted by the self-regulatory organizations to the 
Commission and published by the Commission for comment and 
approval.\22\ As a result, the Exchange believes the implementation of 
CAT may occur in the near future. The order and execution information 
described above that would be reported to CAT is the same information 
that the tied to stock reporting requirement was designed to capture 
from TPHs. Because the Exchange would have access to this information 
from the CAT central repository once implemented, CBOE no longer 
believes the short-term benefits it may obtain from the tied to stock 
marking and reporting requirements prior to the implementation of CAT 
outweigh the costs to be undertaken by

[[Page 50039]]

CBOE and TPHs in connection with efforts related to CAT's 
implementation, especially in light of the small number of orders 
expected to be impacted by the tied to stock requirements, as discussed 
above.\23\ The Exchange also notes it may continue to request from TPHs 
information regarding stock executions when necessary to perform cross-
market surveillances in connection with its regulatory duties.\24\ The 
marking and reporting requirements were intended to reduce TPHs' and 
the Exchange's administrative burden of manually gathering cross-market 
information to tie non-option legs to option orders. Because the 
Exchange has not yet implemented the reporting requirement, since 
approval of the initial tied to stock rule filing, the Exchange has 
continued, and will continue, to maintain the ability with this manual 
process of requesting information, as necessary or appropriate. The 
Exchange has, and expects to continue to have, sufficient resources to 
perform these ad hoc reviews in connection with its surveillances, 
particularly given the reduced number of orders with a stock component 
for which CBOE may need this information and the implementation of the 
single order ticket rule change.
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    \22\ See id.
    \23\ While the Plan does not require orders to be marked as tied 
to stock, because the Exchange will have access to all order and 
execution information for stock and options through the central 
depository, including timing information, the Exchange would not 
need those orders to be marked. The purpose of the marking 
requirement was to notify the Exchange the TPH that submitted a tied 
to stock option order on CBOE would separately be submitting 
execution information for a stock trade related to that marked 
option order.
    \24\ See SR-CBOE-2014-040.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\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, CBOE believes it efficiently and effectively 
conducts its regulatory surveillances of CBOE trading activity and 
cross-market trading activity. While the information that would be 
provided to CBOE from the tied to stock marking and reporting 
requirements would enhance these surveillances, based on an evaluation 
of the factors described above, CBOE has determined these enhancements 
would apply to a small number of orders. The single order ticket rule 
change--as well as provisions in the rules exempting certain orders 
from the tied to stock marking and reporting requirements--result in a 
number of orders qualifying for an exemption from the tied to stock 
marking and reporting requirements. This, in turn, further reduces the 
number of orders to which the tied to stock marking and reporting 
requirements would apply once implemented. As a result, CBOE no longer 
believes the benefits to its surveillances for a smaller number of 
orders that may be obtained from implementation of these requirements 
outweigh the additional costs to TPHs to implement the marking 
requirement for orders submitted for electronic processing and the 
reporting requirement. As discussed above, during an evaluation period 
when the marking requirement for orders submitted for nonelectronic 
processing was effective, fewer than 0.25% of orders submitted for 
nonelectronic processing included the tied to stock indicator. 
Additionally, as discussed above, CAT will capture this information, at 
which time CBOE will be able to realize these potential benefits. CBOE 
may continue to request from TPHs information regarding stock 
executions when necessary so that it can continue to effectively 
conduct its regulatory surveillances of CBOE trading activity and 
cross-market activity.
    The proposed rule change has minimal impact on TPHs. With respect 
to orders submitted to the Exchange for electronic processing, there 
will be no change for TPHs, as they are currently not required, and no 
longer will be in the future, to mark tied to stock orders (or perform 
the system development work to comply with this marking requirement). 
Additionally, TPHs currently are not required, and no longer will be in 
the future, to submit reports related to tied to stock orders.\28\ With 
respect to orders submitted to the Exchange for nonelectronic 
processing, floor brokers will no longer be required to mark those 
orders upon systemization, which was a small number of orders as noted 
above. The marking and reporting requirements were intended to reduce 
TPHs' and the Exchange's administrative burden of manually gathering 
cross-market information to tie non-option legs to option orders. 
Because the Exchange has not yet implemented the reporting requirement, 
since approval of the initial tied to stock rule filing, the Exchange 
has continued, and will continue, to maintain the ability with this 
manual process of requesting information, as necessary or appropriate. 
Deletion of these requirements merely changes the timing when TPHs may 
need to submit information regarding tied to stock orders (within one 
business day of execution of a tied to stock order v. in response to a 
regulatory request). The Exchange has, and expects to continue to have, 
sufficient resources to perform these ad hoc reviews in connection with 
its surveillances, particularly given the reduced number of orders with 
a stock component for which CBOE may need this information and the 
implementation of the single order ticket rule change.
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    \28\ As discussed above, prior to the adoption of Rule 15.2A, 
the Exchange required TPHs to submit reports of stock trades related 
to QCC transactions. This QCC stock leg reporting requirement 
continued to apply during the delay to implementation of Rule 15.2A 
and will continue to apply after deletion of the tied to stock 
reporting requirement from the Rules. See supra note 11.
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    The term tied to stock order is used only in the rules for the tied 
to stock marking and reporting requirements, which this filing proposes 
to delete. Therefore, the Exchange believes deleting the definition is 
consistent with the Act, as continued inclusion of the definition of a 
term not used elsewhere in the rules would otherwise confuse investors.

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 
deletes rules the Exchange only partially implemented. With respect to 
orders submitted to the Exchange for electronic processing, there will 
be no change for TPHs, as

[[Page 50040]]

they are currently not required, and no longer will be in the future, 
to mark tied to stock orders (or perform the system development work to 
comply with this marking requirement). Additionally, TPHs currently are 
not required, and no longer will be in the future, to submit reports 
related to tied to stock orders.\29\ With respect to orders submitted 
to the Exchange for nonelectronic processing, floor brokers will no 
longer be required to mark those orders upon systemization. The 
Exchange notes that floor brokers were not burdened with any costs upon 
implementation of that limited marking requirements, as CBOE was 
responsible for that development work for devices that floor brokers 
may use to systematize orders represented in open outcry. Therefore, 
deletion of these rules has no impact on TPHs with respect to orders 
submitted for electronic processing and eliminates a requirement for 
floor brokers to include an indicator on a small number of orders. As 
the Exchange never implement the reporting requirement for any orders, 
deletion of that rule will have no impact on TPHs.
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    \29\ Id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\30\
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    \30\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's intent to file 
the proposed rule change, along with a brief description and text of 
the proposed rule change, at least five business days prior to the 
date of filing of the proposed rule change, or such shorter time as 
designated by the Commission. The Exchange has satisfied this 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \31\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \32\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchanges requests a 
waiver because of the minimal impact this proposed rule change will 
have on TPHs, the small number of orders to which the tied to stock 
marking and reporting requirements would apply, and the Exchange's 
continued ability to access to information regarding stock executions 
by requesting it from TPHs when necessary so that it can continue to 
effectively conduct its regulatory surveillances of CBOE trading 
activity and cross-market activity. Additionally, the Exchange notes 
that in the rule filings to delay implementation of the marking 
requirement set forth in Rule 6.53(y) with respect to orders submitted 
to the Exchange for electronic processing and the reporting requirement 
set forth in Rule 15.2A, the Exchange has stated that it would 
implement these requirements by July 1, 2016.
---------------------------------------------------------------------------

    \31\ 17 CFR 240.19b-4(f)(6).
    \32\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission believes that waiver of the 30-day operative delay 
is consistent with the protection of investors and the public interest. 
The Commission notes that the Exchange notes that: (1) The number of 
orders to which the tied to stock marking and reporting requirements 
would apply are low and (2) even without the marking and reporting 
requirements, the Exchange has, and expects to continue to have, 
sufficient resources to perform ad hoc reviews in connection with its 
surveillance. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change as operative 
upon filing.\33\
---------------------------------------------------------------------------

    \33\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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 shall institute proceedings under 
Section 19(b)(2)(B) \34\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-2016-057 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-2016-057. 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-2016-057 and should be 
submitted on or before August 19, 2016.
---------------------------------------------------------------------------

    \35\ 17 CFR 200.30-3(a)(12).


[[Page 50041]]


---------------------------------------------------------------------------

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17910 Filed 7-28-16; 8:45 am]
 BILLING CODE 8011-01-P
50036 Federal Register / Vol. 81, No. 146 / Friday, July 29, 2016 / Notices

when the trade is executed.10 Because of SECURITIES AND EXCHANGE initiates the order, the Trading Permit
this, Members will not know the COMMISSION Holder has knowledge that the order is
identity of the party to whom they sold coupled with an order(s) for the
[Release No. 34–78407; File No. SR–CBOE–
securities or from whom they purchased 2016–057]
underlying stock or a security
securities. Without this information, convertible into the underlying stock
Members would not be able to comply Self-Regulatory Organizations; (‘‘convertible security’’). The
with the Contra-Party Identity Chicago Board Options Exchange, representing Trading Permit Holder
Requirement of Rule 10b–10. To permit Incorporated; Notice of Filing and must include an indicator on each tied
IEX Members to utilize the Exchange Immediate Effectiveness of a Proposed to stock order upon systemization,
without violating Rule 10b–10 under the Rule Change Relating to Tied to Stock unless:
Exchange Act, on behalf of its Members, Orders (i) The order is submitted to the
is seeking an exemption under Rule Exchange as part of a qualified
July 25, 2016. contingent cross order (as defined in
10b–10(f) from the Contra-Party Identity Pursuant to Section 19(b)(1) of the this Rule 6.53) through an Exchange-
Requirement of Rule 10b–10 when Securities Exchange Act of 1934 (the approved device;
Members execute transactions at IEX, as ‘‘Act’’),1 and Rule 19b–4 thereunder,2 (ii) the order is submitted to the
described in the Application. notice is hereby given that on July 21, Exchange for electronic processing as a
IV. Conclusion 2016, Chicago Board Options Exchange, stock-option order (as defined in Rule
Incorporated (the ‘‘Exchange’’ or 6.53C); or
Based on the facts and representations ‘‘CBOE’’) filed with the Securities and (iii) all of the component orders are
contained in the Application, we find Exchange Commission (the systematized on a single order ticket.
that it is appropriate and in the public ‘‘Commission’’) the proposed rule An order is not ‘‘tied to stock’’ if it is
interest and consistent with the change as described in Items I and II not coupled with an order(s) for the
protection of investors to grant the below, which Items have been prepared underlying stock or convertible security
Exchange, on behalf of its Members, a by the Exchange. The Exchange filed the at the time of receipt or initiation (e.g.,
limited exemption from the Contra- proposal as a ‘‘non-controversial’’ an option order that is received or
Party Identity Requirement in Rule 10b– proposed rule change pursuant to initiated to hedge a previously executed
10(a)(2)(i)(A). Section 19(b)(3)(A)(iii) of the Act 3 and stock transaction, an option transaction
Rule 19b–4(f)(6) thereunder.4 The or position that is hedged with a
IT IS HEREBY ORDERED, pursuant to Commission is publishing this notice to subsequently received or initiated stock
Rule 10b–10(f) of the Exchange Act, that solicit comments on the proposed rule order).]
IEX Members, based on the change from interested persons. . . . Interpretations and Policies:
representations and facts contained in .01–.02 No change.
the Application, are exempt from the I. Self-Regulatory Organization’s
Statement of the Terms of Substance of * * * * *
requirements of Rule 10b–10(a)(2)(i)(A)
of the Exchange Act, to the extent that the Proposed Rule Change Rule 6.77. Order Service Firms
Members execute trades for their The proposed rule change deletes (a)–(d) No change.
customers on the Exchange using the Rules 6.53(y), 6.77(e) and 15.2A. The [(e) Order service firms must submit
IEX Trading System. This exemption is text of the proposed rule change is reports pursuant to Rule 15.2A with
limited to trades that Members execute provided below. respect to the stock transactions it
on IEX using the post trade anonymity (additions are underlined; deletions are executes on behalf of market-makers
feature described in the Application.11 [bracketed]) pursuant to this Rule 6.77.]
The foregoing exemption is subject to * * * * * * * * * *
modification or revocation if at any time Chicago Board Options Exchange, [Rule 15.2A. Reports of Execution of
the Commission determines that such Incorporated Rules Stock Transactions
action is necessary or appropriate in * * * * *
furtherance of the purposes of the In a manner and form prescribed by
Exchange Act. Rule 6.53. Certain Types of Orders the Exchange, each Trading Permit
Defined Holder must, on the business day
For the Commission, by the Division of following the order execution date,
Trading and Markets, pursuant to delegated One or more of the following order
report to the Exchange the following
authority.12 types may be made available on a class-
information for the executed stock or
Robert W. Errett, by-class basis. Certain order types may
convertible security legs of QCC orders,
not be made available for all Exchange
Deputy Secretary. stock-option orders and other tied to
systems. The classes and/or systems for
[FR Doc. 2016–18020 Filed 7–28–16; 8:45 am] stock orders that the Trading Permit
which the order types shall be available
Holder executed on the Exchange that
BILLING CODE 8011–01–P will be as provided in the Rules, as the
trading day: (a) Time of execution, (b)
context may indicate, or as otherwise
execution quantity, (c) execution price,
specified via Regulatory Circular.
10 Except for the conditions set forth in IEX Rule
(a)–(x) No change. (d) venue of execution, and (e) any other
11.250(d)(2). See supra note 3.
[(y) Tied to Stock Order. An order is information requested by the Exchange.
11 This exemption does not apply: (a) To orders
A Trading Permit Holder may arrange
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routed to an away trading center for execution; (b)
‘‘tied to stock’’ if, at the time the
Trading Permit Holder representing the for its clearing firm to submit these
under the circumstances described in note 3 supra;
order on the Exchange receives or reports on its behalf; provided that if the
or (c) if the functionality of IEX’s order book were
to be changed to allow a broker-dealer to select or
clearing firm does not report an
influence against whom its orders will be executed 1 15 U.S.C. 78s(b)(1). executed stock order, the Trading
as described in the Application on page 5 and note 2 17 CFR 240.19b–4. Permit Holder will be responsible for
10. 3 15 U.S.C. 78s(b)(3)(A)(iii). reporting the information.
12 17 CFR 200.30–3(32). 4 17 CFR 240.19b–4(f)(6). . . . Interpretation and Policies:

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.01 The Exchange will announce by ‘‘Commission’’) approved CBOE Rules execute on behalf of market-makers on
Regulatory Circular any determinations, 6.53(y), 6.77(e) and 15.2A.5 Rule 6.53(y) the floor of the Exchange. The Exchange
including the manner and form of the defines a tied to stock order 6 and stated in rule filing SR–CBOE–2014–040
report, that it makes pursuant to Rule requires the representing Trading Permit that it would issue a circular
15.2A. Holder to include an indicator on each announcing the implementation date for
.02 A Trading Permit Holder (or its tied to stock order upon systemization, these rules within 90 days of the date of
clearing firm) does not need to report subject to certain exceptions. Rule filing, which implementation date
information pursuant to Rule 15.2A 15.2A requires, in a manner and form would be within 180 days of the date of
with respect to (a) stock-option orders prescribed by the Exchange, each filing.
(as defined in Rule 6.53C) submitted to Trading Permit Holder (‘‘TPH’’), on the On January 7, 2015, CBOE submitted
the Exchange for electronic processing business day following the order a rule filing to delay the implementation
or (b) stock or convertible security execution date, to report to the of these rules based on feedback it
orders entered into an Exchange- Exchange certain information regarding received from TPHs.9 The Exchange
approved device. the executed stock or convertible stated in that rule filing that it would
.03 A Market-Maker (or its clearing security legs of qualified contingent issue a circular announcing the
firm) may include the information cross (‘‘QCC’’) orders,7 stock-option implementation date for the rules
required by Rule 15.2A in the equity orders and other tied to stock orders that within 90 days of the date of the rule
reports submitted to the Exchange the TPH executed on the Exchange that filing, which implementation date
pursuant to Rule 8.9(b). trading day. Rule 6.77(e) subjects order would be within 180 days of the date of
.04 If a tied to stock order executed service firms 8 to the reporting filing. In accordance with that filing, the
at multiple options exchanges, a requirements set forth in Rule 15.2A Exchange issued a regulatory circular on
Trading Permit Holder (or its clearing with respect to stock transactions they April 7, 2015, which announced a July
firm) may report to the Exchange the 1, 2015 implementation date for the tied
information pursuant to Rule 15.2A for 5 Securities Exchange Act release No. 34–72839 to stock marking and reporting
the entire stock or convertible security (August 13, 2014), 79 FR 49123 (August 19, 2014) requirements.10 On May 20, 2015, the
(SR–CBOE–2014–040). Exchange submitted a rule filing to
component(s) rather than the portion of 6 Rule 6.53(y) provides that an order is ‘‘tied to
the stock or convertible security further delay implementation of the
stock’’ if, at the time the Trading Permit Holder
component(s) applicable to the portion representing the order on the Exchange receives the reporting requirement set forth in Rule
of the order that executed at the order (if the order is a customer order) or initiates 15.2A 11 for 12 to 18 months in order to
Exchange. the order (if the order is a proprietary order), has evaluate the format of the reports in
knowledge that the order is coupled with an light of its entry into a Regulatory
.05 In lieu of the time of execution order(s) for the underlying stock or a security
pursuant to Rule 15.2A(a), the Exchange convertible into the underlying stock (‘‘convertible
Services Agreement with the Financial
may accept the time of the trade report security’’ and, together with underlying stock, Industry Regulatory Authority, Inc.
if that time is generally within 90 ‘‘non-option’’). (‘‘FINRA’’) 12 to ensure information in
seconds of the time of execution.]
7 A QCC order is an order to buy (sell) at least
the reports could be incorporated into
1,000 standard option contracts or 10,000 mini- surveillances in an efficient and
* * * * * option contracts that is identified as being part of
The text of the proposed rule change a qualified contingent trade coupled with a contra- effective manner. In that filing, CBOE
is also available on the Exchange’s Web side order to sell (buy) an equal number of announced its intention to proceed with
site (http://www.cboe.com/AboutCBOE/
contracts. These orders may only be entered in the the implementation of the marking
standard increments applicable to simple orders in requirements set forth in Rule 6.53(y) on
CBOELegalRegulatoryHome.aspx), at the options class under Rule 6.42. For purposes of
the Exchange’s Office of the Secretary, this order type, a ‘‘qualified contingent trade’’ is a
July 1, 2015. On July 1, 2015, the
transaction consisting of two or more component Exchange submitted a rule filing to
and at the Commission’s Public
orders, executed as agent or principal, where: (a) At further delay implementation of the
Reference Room. least one component is an NMS stock, as defined marking requirement set forth in Rule
in Rule 600 of Regulation NMS under the Act; (b)
II. Self-Regulatory Organization’s all components are effected with a product or price
6.53(y) with respect to orders submitted
Statement of the Purpose of, and contingency that either has been agreed to by all the to the Exchange for electronic
Statutory Basis for, the Proposed Rule respective counterparties or arranged for by a processing for six to 18 months (the
Change broker-dealer as principal or agent; (c) the execution filing confirmed implementation of the
of one component is contingent upon the execution
In its filing with the Commission, the of all other components at or near the same time;
marking requirement with respect to
Exchange included statements (d) the specific relationship between the component orders submitted to the Exchange for
concerning the purpose of and basis for orders (e.g., the spread between the prices of the
component orders) is determined by the time the 9 Securities Exchange Act Release No. 34–74067
the proposed rule change and discussed contingent order is placed; (e) the component (January 15, 2015), 80 FR 3267 (January 22, 2015)
any comments it received on the orders bear a derivative relationship to one another, (SR–CBOE–2015–004).
proposed rule change. The text of these represent different classes of shares of the same 10 CBOE Regulatory Circular RG15–056 (April 7,

statements may be examined at the issuer, or involve the securities of participants in 2015).
mergers or with intentions to merge that have been 11 Pursuant to CBOE Regulatory Circular RG13–
places specified in Item IV below. The announced or cancelled; and (f) the transaction is 102 (July 19, 2013), CBOE imposed a reporting
Exchange has prepared summaries, set fully hedged (without regard to any prior existing requirement with respect to QCC orders prior to the
forth in sections A, B, and C below, of position) as a result of other components of the adoption of Rule 15.2A. As stated in that circular,
the most significant aspects of such contingent trade. QCC orders may execute without as long as the QCC functionality remains active, the
exposure provided the execution is not at the same reporting requirement for QCC orders described in
statements. price as a public customer order resting in the Regulatory Circular RG13–102 would continue to be
electronic book and is at or between the national in effect until the implementation of Rule 15.2A.
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A. Self-Regulatory Organization’s best bid or offer. A QCC order will be cancelled if Once implemented, the reporting requirement in
Statement of the Purpose of, and it cannot be executed. See Rule 6.53(u). Rule 15.2A would supersede the QCC order
Statutory Basis for, the Proposed Rule 8 Order service firms are TPH organizations that reporting requirement described in that circular.
Change are registered with the Exchange for the purpose of See also CBOE Regulatory Circular RG15–087 (May
taking orders for the purchase or sale of stocks or 29, 2015).
1. Purpose commodity futures contracts (and options thereon) 12 Securities Exchange Act Release No. 34–75029

from market-makers on the floor of the Exchange (May 21, 2015), 80 FR 30506 (May 28, 2015) (SR–
On August 13, 2014, the Securities and forwarding such orders for execution. Rule CBOE–2015–051) (notice of filing and immediate
and Exchange Commission (the 6.77(a). effectiveness of proposed rule change).

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50038 Federal Register / Vol. 81, No. 146 / Friday, July 29, 2016 / Notices

nonelectronic processing).13 In addition the marking and reporting requirements once the relevant CAT provisions have
to the evaluation of the proposed report were fully implemented, the number of been approved and implemented.
format, CBOE indicated it intended to orders to which they would apply Specifically, once approved and
review the number of tied to stock would be limited given the exceptions implemented, Section 6.3 of the
orders received and evaluate the that currently exist in the rules and National Market System Plan Governing
number of reports it could expect to other changes that CBOE has the Consolidated Audit Trail would
receive with respect to those orders and implemented. For example, subsequent require each national securities
the potential impact of the reports on to the approval of SR–CBOE–2015–040, exchange to record and report to the
CBOE surveillances. the Exchange amended CBOE Rule 6.53 CAT central repository specified
Based on this evaluation, the to require complex orders of twelve (12) information for each order and
Exchange does not believe it is legs or less—one leg of which may be execution, among other things, on its
necessary to maintain or fully for an underlying security or security exchange for eligible securities, which
implement the marking requirement or future, as applicable—to be entered on include stock and listed options.18
implement the reporting requirement; a single order ticket at time of Additionally, once approved and
therefore, the Exchange proposes to systemization (referred to herein as the implemented, Section 6.4 of the Plan
delete these requirements in their ‘‘single order ticket rule change’’).17 would require each national securities
entirety from its rules.14 Because the These orders are excepted from the tied exchange to require its members to
definition of tied to stock orders is only to stock marking requirement under report certain data to the central
used in the rules for the marking and Rule 6.53(y)(iii) (which provides an repository specified information for
reporting requirements, the proposed exception if all the component orders of each order and execution for eligible
rule change also deletes the definition of a tied to stock order are systemized on securities, among other things.19 Under
tied to stock orders. While CBOE a single order ticket) and would often the Plan, as proposed, the central
continues to believe this type of qualify for an exception from the repository would be responsible for the
information would benefit its cross- reporting requirement under Rule 15.2A receipt, consolidation and retention of
market activity surveillances, based on (e.g., the exceptions under all information reported to CAT
our evaluation, CBOE believes the Interpretation and Policy .02 which pursuant to Rule 613 under Regulation
requirements would apply to only a apply to (1) stock-option orders (as NMS.20 Exchanges would have access to
small number of orders.15 During the defined in Rule 6.53C) submitted to the the central repository, including access
evaluation period discussed above Exchange for electronic processing or (2) to and use of the CAT data stored in the
(during which the tied to stock marking stock or convertible securities orders central repository, for the purpose of
requirement was in effect for orders entered onto an Exchange-approved performing their respective regulatory
submitted to the Exchange for device). The single order ticket rule and oversight responsibilities pursuant
nonelectronic processing), fewer than change—as well as provisions in the to federal securities laws, rules and
0.25% of orders submitted to the rules exempting certain orders from the regulations.21
Exchange for nonelectronic processing tied to stock marking and reporting At the time of that initial tied to stock
included the tied to stock indicator.16 If requirements—result in a number of filing, the Exchange expected
orders qualifying for an exemption from implementation of CAT would not
13 Securities Exchange Act Release No. 34–75378
the tied to stock marking and reporting occur for several years. However, since
(July 7, 2016), 80 FR 40116 (July 13, 2015) (SR– that time, an amended and restated
CBOE–2015–067) (notice of filing and immediate requirements. This, in turn, reduces the
effectiveness of proposed rule change); see also number of orders to which the tied to version of the Plan has been submitted
CBOE Regulatory Circular RG15–093 (June 19, stock marking and reporting by the self-regulatory organizations to
2015). CBOE notes that it performed the systems the Commission and published by the
work necessary for Exchange-approved devices the requirements would apply once
Exchange makes available to floor brokers to have implemented. As a result, at this time, Commission for comment and
the functionality to allow floor brokers to mark CBOE believes the benefits to its approval.22 As a result, the Exchange
orders as tied to stock at the time of systemization surveillances for so few orders are believes the implementation of CAT
of the order. may occur in the near future. The order
14 As discussed above, prior to the adoption of outweighed by the additional costs to
TPHs to implement the marking and execution information described
Rule 15.2A, the Exchange required TPHs to submit
reports of stock trades related to QCC transactions. requirement (for orders submitted for above that would be reported to CAT is
This QCC stock leg reporting requirement electronic processing) and the reporting the same information that the tied to
continued to apply during the delay to
requirement. stock reporting requirement was
implementation of Rule 15.2A and will continue to designed to capture from TPHs. Because
apply after deletion of the tied to stock reporting CBOE acknowledged in the initial
requirement from the Rules. See supra note 11. filing to adopt the tied to stock marking the Exchange would have access to this
15 As set forth in Rule 6.53(y), orders coupled
and reporting requirements relevant information from the CAT central
with an order for stock are defined as tied to stock stock information would be captured by repository once implemented, CBOE no
orders; however, various tied to stock orders are longer believes the short-term benefits it
exempt from the marking requirement, including the Consolidated Audit Trail (‘‘CAT’’),
QCC orders, stock-option orders submitted for
may obtain from the tied to stock
electronic processing, and orders for which all approximately 0.17%, 0.16% and 0.21%, marking and reporting requirements
components are systematized on a single order respectively. prior to the implementation of CAT
ticket. Similarly, as set forth in Rule 15.2A, 17 See Rule 6.53, Interpretation and Policy 02. In
outweigh the costs to be undertaken by
Interpretation and Policy .02, TPHs do not need to addition, orders of more than twelve (12) legs (one
submit reports for stock-option orders submitted to leg of which may be for an underlying security or 18 See Securities Exchange Act Release No. 34–
the Exchange for electronic processing or stock or security future, as applicable) may be split across
ebenthall on DSK5MVXVN1PROD with NOTICES

convertible security orders entered into an 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016)
multiple order tickets subject to certain
Exchange-approved device. As a result, only a (notice of filing of the National Market System Plan
requirements. See Securities Exchange Act Release
subset of tied to stock orders would be subject to Governing the Consolidated Audit Trail (the
Nos. 34–74389 (February 26, 2015), 80 FR 11717
the marking and reporting requirements. ‘‘Plan’’)), at Section 6.3(d); see also 17 CFR
(March 4, 2015) (SR–CBOE–2015–011) and 34–
16 Specifically, during the third quarter of 2015, 242.600(b)(46) (definition of NMS security).
75026 (May 21, 2015), 80 FR 30514 (May 28, 2015) 19 See id. at Section 6.4(d).
the fourth quarter of 2015 and the first quarter of (SR–CBOE–2015–048). Mandatory compliance with
20 See id. at Section 1.1.
2016, the percentage of orders submitted to the this requirement went into effect June 1, 2015. See
21 See id. at Section 6.5(c).
Exchange for nonelectronic processing that CBOE Regulatory Circulars RG15–067 (April 22,
included the tied to stock indictor was 2015) and RG15–092 (June 17, 2015). 22 See id.

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CBOE and TPHs in connection with investors and the public interest. currently are not required, and no
efforts related to CAT’s implementation, Additionally, the Exchange believes the longer will be in the future, to submit
especially in light of the small number proposed rule change is consistent with reports related to tied to stock orders.28
of orders expected to be impacted by the the Section 6(b)(5) 27 requirement that With respect to orders submitted to the
tied to stock requirements, as discussed the rules of an exchange not be designed Exchange for nonelectronic processing,
above.23 The Exchange also notes it may to permit unfair discrimination between floor brokers will no longer be required
continue to request from TPHs customers, issuers, brokers, or dealers. to mark those orders upon
information regarding stock executions In particular, CBOE believes it systemization, which was a small
when necessary to perform cross-market efficiently and effectively conducts its number of orders as noted above. The
surveillances in connection with its regulatory surveillances of CBOE marking and reporting requirements
regulatory duties.24 The marking and trading activity and cross-market trading were intended to reduce TPHs’ and the
reporting requirements were intended to activity. While the information that Exchange’s administrative burden of
reduce TPHs’ and the Exchange’s would be provided to CBOE from the manually gathering cross-market
administrative burden of manually tied to stock marking and reporting information to tie non-option legs to
gathering cross-market information to requirements would enhance these option orders. Because the Exchange has
tie non-option legs to option orders. surveillances, based on an evaluation of not yet implemented the reporting
Because the Exchange has not yet the factors described above, CBOE has requirement, since approval of the
implemented the reporting requirement, determined these enhancements would initial tied to stock rule filing, the
since approval of the initial tied to stock apply to a small number of orders. The Exchange has continued, and will
rule filing, the Exchange has continued, single order ticket rule change—as well continue, to maintain the ability with
and will continue, to maintain the as provisions in the rules exempting this manual process of requesting
ability with this manual process of certain orders from the tied to stock information, as necessary or
requesting information, as necessary or marking and reporting requirements— appropriate. Deletion of these
appropriate. The Exchange has, and result in a number of orders qualifying requirements merely changes the timing
expects to continue to have, sufficient for an exemption from the tied to stock when TPHs may need to submit
resources to perform these ad hoc marking and reporting requirements. information regarding tied to stock
reviews in connection with its This, in turn, further reduces the orders (within one business day of
surveillances, particularly given the number of orders to which the tied to execution of a tied to stock order v. in
reduced number of orders with a stock stock marking and reporting response to a regulatory request). The
component for which CBOE may need requirements would apply once Exchange has, and expects to continue
this information and the implemented. As a result, CBOE no to have, sufficient resources to perform
implementation of the single order longer believes the benefits to its these ad hoc reviews in connection with
ticket rule change. surveillances for a smaller number of its surveillances, particularly given the
orders that may be obtained from reduced number of orders with a stock
2. Statutory Basis implementation of these requirements component for which CBOE may need
The Exchange believes the proposed outweigh the additional costs to TPHs to this information and the
rule change is consistent with the Act implement the marking requirement for implementation of the single order
and the rules and regulations orders submitted for electronic ticket rule change.
thereunder applicable to the Exchange processing and the reporting The term tied to stock order is used
and, in particular, the requirements of requirement. As discussed above, only in the rules for the tied to stock
Section 6(b) of the Act.25 Specifically, during an evaluation period when the marking and reporting requirements,
the Exchange believes the proposed rule marking requirement for orders which this filing proposes to delete.
change is consistent with the Section submitted for nonelectronic processing Therefore, the Exchange believes
6(b)(5) 26 requirements that the rules of was effective, fewer than 0.25% of deleting the definition is consistent with
an exchange be designed to prevent orders submitted for nonelectronic the Act, as continued inclusion of the
fraudulent and manipulative acts and processing included the tied to stock definition of a term not used elsewhere
practices, to promote just and equitable indicator. Additionally, as discussed in the rules would otherwise confuse
principles of trade, to foster cooperation above, CAT will capture this investors.
and coordination with persons engaged information, at which time CBOE will
in regulating, clearing, settling, be able to realize these potential B. Self-Regulatory Organization’s
processing information with respect to, benefits. CBOE may continue to request Statement on Burden on Competition
and facilitating transactions in from TPHs information regarding stock CBOE does not believe that the
securities, to remove impediments to executions when necessary so that it can proposed rule change will impose any
and perfect the mechanism of a free and continue to effectively conduct its burden on competition that is not
open market and a national market regulatory surveillances of CBOE necessary or appropriate in furtherance
system, and, in general, to protect trading activity and cross-market of the purposes of the Act. The
activity. proposed rule change deletes rules the
23 While the Plan does not require orders to be The proposed rule change has Exchange only partially implemented.
marked as tied to stock, because the Exchange will minimal impact on TPHs. With respect With respect to orders submitted to the
have access to all order and execution information to orders submitted to the Exchange for
for stock and options through the central Exchange for electronic processing,
depository, including timing information, the
electronic processing, there will be no there will be no change for TPHs, as
change for TPHs, as they are currently
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Exchange would not need those orders to be
marked. The purpose of the marking requirement not required, and no longer will be in 28 As discussed above, prior to the adoption of
was to notify the Exchange the TPH that submitted the future, to mark tied to stock orders Rule 15.2A, the Exchange required TPHs to submit
a tied to stock option order on CBOE would
separately be submitting execution information for
(or perform the system development reports of stock trades related to QCC transactions.
work to comply with this marking This QCC stock leg reporting requirement
a stock trade related to that marked option order. continued to apply during the delay to
24 See SR–CBOE–2014–040. requirement). Additionally, TPHs implementation of Rule 15.2A and will continue to
25 15 U.S.C. 78f(b).
apply after deletion of the tied to stock reporting
26 15 U.S.C. 78f(b)(5). 27 Id. requirement from the Rules. See supra note 11.

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50040 Federal Register / Vol. 81, No. 146 / Friday, July 29, 2016 / Notices

they are currently not required, and no 19b–4(f)(6)(iii) 32 permits the change should be approved or
longer will be in the future, to mark tied Commission to designate a shorter time disapproved.
to stock orders (or perform the system if such action is consistent with the
IV. Solicitation of Comments
development work to comply with this protection of investors and the public
marking requirement). Additionally, interest. The Exchange has asked the Interested persons are invited to
TPHs currently are not required, and no Commission to waive the 30-day submit written data, views, and
longer will be in the future, to submit operative delay so that the proposal may arguments concerning the foregoing,
reports related to tied to stock orders.29 become operative immediately upon including whether the proposed rule
With respect to orders submitted to the filing. The Exchanges requests a waiver change is consistent with the Act.
Exchange for nonelectronic processing, because of the minimal impact this Comments may be submitted by any of
floor brokers will no longer be required proposed rule change will have on the following methods:
to mark those orders upon TPHs, the small number of orders to
systemization. The Exchange notes that which the tied to stock marking and Electronic Comments
floor brokers were not burdened with reporting requirements would apply, • Use the Commission’s Internet
any costs upon implementation of that and the Exchange’s continued ability to comment form (http://www.sec.gov/
limited marking requirements, as CBOE access to information regarding stock rules/sro.shtml); or
was responsible for that development executions by requesting it from TPHs
work for devices that floor brokers may when necessary so that it can continue • Send an email to rule-
use to systematize orders represented in to effectively conduct its regulatory comments@sec.gov. Please include File
open outcry. Therefore, deletion of these surveillances of CBOE trading activity Number SR–CBOE–2016–057 on the
rules has no impact on TPHs with and cross-market activity. Additionally, subject line.
respect to orders submitted for the Exchange notes that in the rule Paper Comments
electronic processing and eliminates a filings to delay implementation of the
requirement for floor brokers to include marking requirement set forth in Rule • Send paper comments in triplicate
an indicator on a small number of 6.53(y) with respect to orders submitted to Secretary, Securities and Exchange
orders. As the Exchange never to the Exchange for electronic Commission, 100 F Street NE.,
implement the reporting requirement for processing and the reporting Washington, DC 20549–1090.
any orders, deletion of that rule will requirement set forth in Rule 15.2A, the All submissions should refer to File
have no impact on TPHs. Exchange has stated that it would Number SR–CBOE–2016–057. This file
implement these requirements by July 1, number should be included on the
C. Self-Regulatory Organization’s
2016. subject line if email is used. To help the
Statement on Comments on the The Commission believes that waiver
Proposed Rule Change Received From Commission process and review your
of the 30-day operative delay is
Members, Participants, or Others comments more efficiently, please use
consistent with the protection of
The Exchange neither solicited nor only one method. The Commission will
investors and the public interest. The
received comments on the proposed post all comments on the Commission’s
Commission notes that the Exchange
rule change. Internet Web site (http://www.sec.gov/
notes that: (1) The number of orders to
rules/sro.shtml). Copies of the
III. Date of Effectiveness of the which the tied to stock marking and
submission, all subsequent
Proposed Rule Change and Timing for reporting requirements would apply are
low and (2) even without the marking amendments, all written statements
Commission Action with respect to the proposed rule
and reporting requirements, the
Because the proposed rule change Exchange has, and expects to continue change that are filed with the
does not: (i) Significantly affect the to have, sufficient resources to perform Commission, and all written
protection of investors or the public ad hoc reviews in connection with its communications relating to the
interest; (ii) impose any significant surveillance. Accordingly, the proposed rule change between the
burden on competition; and (iii) become Commission hereby waives the 30-day Commission and any person, other than
operative prior to 30 days from the date operative delay and designates the those that may be withheld from the
on which it was filed, or such shorter proposed rule change as operative upon public in accordance with the
time as the Commission may designate, filing.33 provisions of 5 U.S.C. 552, will be
if consistent with the protection of At any time within 60 days of the available for Web site viewing and
investors and the public interest, the filing of such proposed rule change, the printing in the Commission’s Public
proposed rule change has become Commission summarily may Reference Room, 100 F Street NE.,
effective pursuant to Section 19(b)(3)(A) temporarily suspend such rule change if Washington, DC 20549 on official
of the Act and Rule 19b–4(f)(6)(iii) it appears to the Commission that such business days between the hours of
thereunder.30 action is necessary or appropriate in the 10:00 a.m. and 3:00 p.m. Copies of the
A proposed rule change filed under public interest, for the protection of filing also will be available for
Rule 19b–4(f)(6) 31 normally does not investors, or otherwise in furtherance of inspection and copying at the principal
become operative prior to 30 days after the purposes of the Act. If the office of the Exchange. All comments
the date of the filing. However, Rule Commission takes such action, the received will be posted without change;
Commission shall institute proceedings the Commission does not edit personal
29 Id.
under Section 19(b)(2)(B) 34 of the Act to identifying information from
30 In addition, Rule 19b–4(f)(6)(iii) requires the
determine whether the proposed rule submissions. You should submit only
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Exchange to give the Commission written notice of
the Exchange’s intent to file the proposed rule
information that you wish to make
change, along with a brief description and text of 32 17
CFR 240.19b–4(f)(6)(iii). available publicly. All submissions
the proposed rule change, at least five business days 33 For
purposes only of waiving the 30-day should refer to File Number SR–CBOE–
prior to the date of filing of the proposed rule operative delay, the Commission has also 2016–057 and should be submitted on
change, or such shorter time as designated by the considered the proposed rule’s impact on
Commission. The Exchange has satisfied this efficiency, competition, and capital formation. See
or before August 19, 2016.
requirement. 15 U.S.C. 78c(f).
31 17 CFR 240.19b–4(f)(6). 34 15 U.S.C. 78s(b)(2)(B). 35 17 CFR 200.30–3(a)(12).

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Document Created: 2018-02-08 07:52:00
Document Modified: 2018-02-08 07:52:00
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		81 FR 50036