81 FR 94469 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Debit/Credit Price Reasonability Checks for Complex Orders
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 247 (December 23, 2016)
Federal Register Volume 81, Issue 247 (December 23, 2016)
| Page Range | 94469-94473 | |
| FR Document | 2016-30937 |
[Federal Register Volume 81, Number 247 (Friday, December 23, 2016)] [Notices] [Pages 94469-94473] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-30937] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79589; File No. SR-CBOE-2016-086] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Debit/Credit Price Reasonability Checks for Complex Orders December 19, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on December 9, 2016, Chicago Board Options Exchange, Incorporated (``Exchange'' or ``CBOE'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- [[Page 94470]] I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the debit/credit price reasonability check for complex orders. The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * Chicago Board Options Exchange, Incorporated Rules * * * * * Rule 6.53C. Complex Orders on the Hybrid System (a)-(d) No change. . . . Interpretations and Policies: .01-.07 No change. .08 Price Check Parameters: On a class-by-class basis, the Exchange may determine (and announce to the Trading Permit Holders via Regulatory Circular) which of the following price check parameters will apply to eligible complex orders. Paragraphs (b) and (e) will not be applicable to stock-option orders. For purposes of this Interpretation and Policy .08: Vertical Spread. A ``vertical'' spread is a two-legged complex order with one leg to buy a number of calls (puts) and one leg to sell the same number of calls (puts) with the same expiration date but different exercise prices. Butterfly Spread. A ``butterfly'' spread is a three-legged complex order with two legs to buy (sell) the same number of calls (puts) and one leg to sell (buy) twice as many calls (puts), all with the same expiration date but different exercise prices, and the exercise price of the middle leg is between the exercise prices of the other legs. If the exercise price of the middle leg is halfway between the exercise prices of the other legs, it is a ``true'' butterfly; otherwise, it is a ``skewed'' butterfly. Box Spread. A ``box'' spread is a four-legged complex order with one leg to buy calls and one leg to sell puts with one strike price, and one leg to sell calls and one leg to buy puts with another strike price, all of which have the same expiration date and are for the same number of contracts. To the extent a price check parameter is applicable, the Exchange will not automatically execute an eligible complex order that is: (a)-(b) No change. (c) Debit/Credit Price Reasonability Checks: (1) No change. (2) The System defines a complex order as a debit or credit as follows: (A)-(B) No change. (C) an order for which all pairs and loners are debits (credits) is a debit (credit). For purposes of this check, a ``pair'' is a pair of legs in an order for which both legs are calls or both legs are puts, one leg is a buy and one leg is a sell, and [both]the legs have the same expiration date but different exercise prices or, for all options except European-style index options, [the same exercise price but ]different expiration dates and the exercise price for the call (put) with the farther expiration date is the same as or lower (higher) than the exercise price for the nearer expiration date. A ``loner'' is any leg in an order that the System cannot pair with another leg in the order (including legs in orders for European-style index options that have the same exercise price but different expiration dates). The System treats the stock leg of a stock-option order as a loner. (i) No change. (ii) The System then, for options except European-style index options, pairs legs to the extent possible [with the same exercise prices ]across expiration dates, pairing one [leg]call (put) with the [leg]call (put) that has the next nearest expiration date and the same or next lower (higher) exercise price. (iii) A pair of calls is a credit (debit) if the exercise price of the buy (sell) leg is higher than the exercise price of the sell (buy) leg (if the pair has the same expiration date) or if the expiration date of the sell (buy) leg is farther than the expiration date of the buy (sell) leg (if the [pair has the same ]exercise price of the sell (buy) leg is the same as or lower than the exercise price of the buy (sell) leg). (iv) A pair of puts is a credit (debit) if the exercise price of the sell (buy) leg is higher than the exercise price of the buy (sell) leg (if the pair has the same expiration date) or if the expiration date of the sell (buy) leg is farther than the expiration date of the buy (sell) leg (if the [pair has the same ]exercise price of the sell (buy) leg is the same as or higher than the exercise price of the buy (sell) leg). (v) No change. The System does not apply the check in subparagraph (1) to an order for which the System cannot define whether it is a debit or credit. (3)-(6) No change. (d)-(g) No change. .09-.12 No change. * * * * * The text of the proposed rule change is also available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The proposed rule change amends the debit/credit price reasonability check for complex orders in Rule 6.53C, Interpretation and Policy .08(c) to expand its applicability. Pursuant to the debit/ credit price reasonability check, the System rejects back to the Trading Permit Holder any limit order for a debit strategy with a net credit price or any limit order for a credit strategy with a net debit price, and cancels any market order (or any remaining size after partial execution of the order) for a credit strategy that would be executed at a net debit price. The System defines a complex order as a debit (credit) if all pairs and loners are debits (credits).\3\ For purposes of this check, a ``pair'' is a pair of legs in an order for which both legs are calls or both legs are puts, one leg is a buy and one leg is a sell, and both legs have the same expiration date but different exercise prices or, for all options except European-style index options, the same exercise price but different expiration dates. A ``loner'' is any leg in an order that the System cannot pair with another leg in the order (including legs in orders for European-style index options that have the same exercise price but different expiration dates).\4\ --------------------------------------------------------------------------- \3\ Rule 6.53C, Interpretation and Policy .08(c)(2)(C). The System also determines certain call and put butterfly spreads as debits and credits. See Rule 6.53C, Interpretation and Policy .08(c)(2)(A) and (B). \4\ The System treats the stock leg of a stock-option order as a loner. --------------------------------------------------------------------------- (1) The System first pairs legs to the extent possible within each expiration [[Page 94471]] date, pairing one leg with the leg that has the next highest exercise price. (2) The System then, for options except European-style index options, pairs legs to the extent possible with the same exercise prices across expiration dates, pairing one leg with the leg that has the next nearest expiration date. (3) A pair of calls is a credit (debit) if the exercise price of the buy (sell) leg is higher than the exercise price of the sell (buy) leg (if the pair has the same expiration date) or if the expiration date of the sell (buy) leg is farther than the expiration date of the buy (sell) leg (if the pair has the same exercise price). (4) A pair of puts is a credit (debit) if the exercise price of the sell (buy) leg is higher than the exercise price of the buy (sell) leg (if the pair has the same expiration date) or if the expiration date of the sell (buy) leg is farther than the expiration date of the buy (sell) leg (if the pair has the same exercise price). (5) A loner to buy is a debit, and a loner to sell is a credit. The System does not apply the check in subparagraph (1) to an order for which the System cannot define whether it is a debit or credit. As discussed in the rule filing proposing the current check, the System determines whether an order is a debit or credit based on general options volatility and pricing principles, which the Exchange understands are used by market participants in their option pricing models.\5\ With respect to options with the same underlying: --------------------------------------------------------------------------- \5\ Securities Exchange Act Release No. 34-76960 (January 21, 2016), 81 FR 4728 (January 27, 2016) (SR-CBOE-2015-107) (Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, Relating to Price Protection Mechanisms for Quotes and Orders). ---------------------------------------------------------------------------If two calls have the same expiration date, the price of the call with the lower exercise price is more than the price of the call with the higher exercise price; if two puts have the same expiration date, the price of the put with the higher exercise price is more than the price of the put with the lower exercise price; and if two calls (puts) have the same exercise price, the price of the call (put) with the nearer expiration is less than the price of the call (put) with the farther expiration. In other words, a call (put) with a lower (higher) exercise price is more expensive than a call (put) with a higher (lower) exercise price, because the ability to buy stock at a lower price is more valuable than the ability to buy stock at a higher price, and the ability to sell stock at a higher price is more valuable than the ability to sell stock at a lower price. A call (put) with a farther expiration is more expensive than the price of a call (put) with a nearer expiration, because locking in a price further into the future involves more risk for the buyer and seller and thus is more valuable, making an option (call or put) with a farther expiration more expensive than an option with a nearer expiration. Under the current check, the System only pairs calls (puts) if they have the same expiration date but different exercise prices or the same exercise price but different expiration dates. With respect to pairs with different expiration dates but the same exercise price,\6\ a pair of calls is a credit (debit) strategy if the expiration date of the sell (buy) leg is farther than the expiration date of the buy (sell) leg)[sic], and a pair of puts is a credit (debit) strategy if the expiration date of the sell (buy) leg is farther than the expiration date of the buy (sell) leg)[sic]. However, based on the principles described above, if the sell (buy) leg of a pair of calls has a farther expiration date (and thus is more expensive) than the expiration date of the buy (sell) leg as well as a lower exercise price (and thus is more expensive) than the exercise price of the sell (buy) leg, then the pair is a credit (debit) (as is the case if the exercise prices of each call were the same under the current rule). Similarly, if the sell (buy) leg of a pair of puts has a farther expiration date (and thus is more expensive) than the expiration date of the buy (sell) leg as well as a higher exercise price (and thus is more expensive) than the exercise price of the buy (sell) leg, then the pair of puts is a credit (as is the case if the exercise prices of each put were the same under the current rule). --------------------------------------------------------------------------- \6\ A complex order consisting of a buy leg and a sell leg with different expiration dates are commonly referred to in the industry as ``calendar spreads.'' --------------------------------------------------------------------------- Therefore, the proposed rule change expands this check to pair calls (puts) with different expiration dates if the exercise price for the call (put) with the farther expiration date is lower (higher) than the exercise price for the nearer expiration date in addition to those with different expiration dates and the same exercise price. Specifically, the proposed rule change amends subparagraph (c)(2)(C) to state, for purposes of this check, a ``pair'' is a pair of legs in an order for which both legs are calls or both legs are puts, one leg is a buy and one leg is a sell, and the legs have different expiration dates and the exercise price for the call (put) with the farther expiration date is the same as or lower (higher) than the exercise price for the nearer expiration date. The proposed rule change also amends subparagraphs (c)(2)(C)(ii) through (iv) to incorporate these additional pairs of calls (puts). When pairing legs across expiration dates, the System will pair one call (put) with the call (put) that has the next nearest expiration date and the same or next lower (higher) exercise price. Based on the pricing principles described above, a pair of calls is a credit (debit) strategy if the expiration date of the sell (buy) leg is farther than the expiration date of the buy (sell) leg (if the exercise price of the sell (buy) leg is the same as or lower than the exercise price of the buy (sell) leg). A pair of puts is a credit (debit) strategy if the expiration date of the sell (buy) leg is farther than the expiration date of the buy (sell) leg (if the exercise price of the sell (buy) leg is the same as or higher than the exercise price of the buy (sell) leg).\7\ Entering a calendar spread with a credit (debit) strategy at a debit (credit) price (or that would execute at a debit (credit) price), which price is inconsistent with the strategy, may result in executions at prices that are extreme and potentially erroneous. --------------------------------------------------------------------------- \7\ The proposed rule change makes no changes to this check with respect to pairs of orders with the same expiration date but different exercise prices. Therefore, the rule filing omits references to the portions of the current rule related to those pairs to focus on the changes made to pairs with different expiration dates. --------------------------------------------------------------------------- Below are examples demonstrating how the System determines whether a complex order with two legs, which have different expiration dates and exercise prices, is a debit or credit, and whether the System will reject the order pursuant to the debit/credit price reasonability check.\8\ --------------------------------------------------------------------------- \8\ The same principles would apply to complex orders with more than two legs, which include two legs that can be paired in this way. --------------------------------------------------------------------------- Example #1--Limit Call Spread A Trading Permit Holder enters a spread to buy 10 Sept 30 XYZ calls and sell 10 Oct 20 XYZ calls at a net debit price of -$10.00. The System defines this order as a credit, because the buy leg is for the call with the nearer expiration date and higher exercise price (and is thus the less expensive leg). The System rejects the order back to the Trading Permit Holder because it is a limit order for a credit strategy that contains a net debit price. Example #2--Limit Put Spread A Trading Permit Holder enters a spread to buy 20 Oct 30 XYZ puts and sell 20 Sept 20 XYZ puts at a net credit price of $9.00. The System defines this [[Page 94472]] order as a debit, because the buy leg is for the put with the farther expiration date and the higher exercise price (and thus the more expensive leg). The System rejects the order back to the Trading Permit Holder because it is a limit order for a debit strategy that contains a net credit price. 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.\9\ Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) \10\ 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) \11\ requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78f(b). \10\ 15 U.S.C. 78f(b)(5). \11\ Id. --------------------------------------------------------------------------- In particular, the proposed rule change expands the applicability of the current debit/credit price reasonability check to additional complex orders for which the Exchange can determine whether the order is a debit or credit. By expanding the orders to which these checks apply, the Exchange can further assist with the maintenance of a fair and orderly market by mitigating the potential risks associated with additional complex orders trading at prices that are inconsistent with their strategies (which may result in executions at prices that are extreme and potentially erroneous), which ultimately protects investors. This proposed expansion of the debit/credit price reasonability check promotes just and equitable principles of trade, as it is based on the same general option and volatility pricing principles the System currently uses to pair calls and puts, which principles the Exchange understands are used by market participants in their option pricing models. 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 will not impose any burden on intramarket competition, because the debit/ credit price reasonability check will continue to apply to all incoming complex orders of all Trading Permit Holders in the same manner. The proposed rule change expands the applicability of the current check to additional complex orders for which the Exchange can determine whether the order is a debit or credit, which will help further prevent potentially erroneous executions and benefits all market participants. The proposed rule change does not impose any burden on intercompany competition, as it is intended to prevent potentially erroneously priced orders from entering CBOE's system and executing on CBOE's market. The Exchange believes the proposed rule change would ultimately provide all market participants with additional protection from anomalous or erroneous executions. The individual firm benefits of enhanced risk protections flow downstream to counterparties both at the Exchange and at other options exchanges, which increases systemic protections as well. The Exchange believes enhancing risk protections will allow Trading Permit Holders to enter orders and quotes with further reduced fear of inadvertent exposure to excessive risk, which will benefit investors through increased liquidity for the execution of their orders. Without adequate risk management tools, such as the one proposed to be enhanced in this filing, Trading Permit Holders could reduce the amount of order flow and liquidity they provide. Such actions may undermine the quality of the markets available to customers and other market participants. Accordingly, the proposed rule change is designed to encourage Trading Permit Holders to submit additional order flow and liquidity to the Exchange, which may ultimately promote competition. In addition, providing Trading Permit Holders with more tools for managing risk will facilitate transactions in securities because, as noted above, Trading Permit Holders will have more confidence protections are in place that reduce the risks from potential system errors and market events. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b- 4(f)(6) thereunder.\13\ --------------------------------------------------------------------------- \12\ 15 U.S.C. 78s(b)(3)(A). \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and the 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. --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (1) Necessary or appropriate in the public interest; (2) for the protection of investors; or (3) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-CBOE-2016-086 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. [[Page 94473]] All submissions should refer to File Number SR-CBOE-2016-086. 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-2016-086 and should be submitted on or before January 13, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\14\ --------------------------------------------------------------------------- \14\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016-30937 Filed 12-22-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 247 / Friday, December 23, 2016 / Notices 94469
contracts traded.17 The lower fee, C. Self-Regulatory Organization’s Commission and any person, other than
coupled with not charging new Options Statement on Comments on the those that may be withheld from the
Members the Participant Fee during Proposed Rule Change Received From public in accordance with the
their first three (3) months of Members, Participants, or Others provisions of 5 U.S.C. 552, will be
membership, is designed to encourage The Exchange has not solicited, and available for Web site viewing and
membership and to allow firms to grow does not intend to solicit, comments on printing in the Commission’s Public
their business on BZX Options. this proposed rule change. The Reference Room, 100 F Street NE.,
Therefore, the Exchange believes the Exchange has not received any Washington, DC 20549, on official
proposed tiered Participant Fee if unsolicited written comments from business days between the hours of
equitable, reasonable, and not unfairly Members or other interested parties. 10:00 a.m. and 3:00 p.m. Copies of the
discriminatory because it is designed to III. Date of Effectiveness of the filing also will be available for
recoup costs related to membership Proposed Rule Change and Timing for inspection and copying at the principal
administration while not serving as a Commission Action office of the Exchange. All comments
deterrent to firms seeking to become received will be posted without change;
The foregoing rule change has become
new members of BZX Options. the Commission does not edit personal
effective pursuant to Section 19(b)(3)(A)
of the Act 19 and paragraph (f) of Rule identifying information from
B. Self-Regulatory Organization’s
19b–4 thereunder.20 At any time within submissions. You should submit only
Statement on Burden on Competition
60 days of the filing of the proposed rule information that you wish to make
The Exchange does not believe that change, the Commission summarily may available publicly. All submissions
the proposed rule change will impose temporarily suspend such rule change if should refer to File Number SR–
any burden on competition not it appears to the Commission that such BatsBZX–2016–91 and should be
necessary or appropriate in furtherance action is necessary or appropriate in the submitted on or before January 13, 2017.
of the purposes of the Act. The public interest, for the protection of For the Commission, by the Division of
Exchange believes the proposed investors, or otherwise in furtherance of Trading and Markets, pursuant to delegated
Participant Fee will not impose an the purposes of the Act. authority.21
undue burden on competition because IV. Solicitation of Comments Eduardo A. Aleman,
the Exchange will uniformly assess the Assistant Secretary.
Interested persons are invited to
participant fee on all Member based on submit written data, views, and [FR Doc. 2016–30946 Filed 12–22–16; 8:45 am]
their ADV of contracts traded. The arguments concerning the foregoing, BILLING CODE 8011–01–P
Exchange does not believe that the including whether the proposed rule
proposed changes represent a significant change is consistent with the Act.
departure from pricing offered by the Comments may be submitted by any of SECURITIES AND EXCHANGE
Exchange’s competitors.18 Additionally, the following methods: COMMISSION
Members may opt to disfavor the
Exchange’s pricing if they believe that Electronic Comments
[Release No. 34–79589; File No. SR–CBOE–
alternatives offer them better value or if • Use the Commission’s Internet
2016–086]
they view the proposed fee as excessive. comment form (http://www.sec.gov/
Further, excessive fees for participation rules/sro.shtml); or Self-Regulatory Organizations;
would serve to impair an exchange’s • Send an email to rule-comments@
Chicago Board Options Exchange,
ability to compete for order flow and sec.gov. Please include File Number SR–
Incorporated; Notice of Filing and
members rather than burdening BatsBZX–2016–91 on the subject line.
Immediate Effectiveness of a Proposed
competition. Paper Comments Rule Change Relating to the Debit/
• Send paper comments in triplicate Credit Price Reasonability Checks for
17 The fee is also less than similar fees charged
to Brent J. Fields, Secretary, Securities Complex Orders
by other exchanges, some of which also charged
different rates based on the type of member or that
and Exchange Commission, 100 F Street
December 19, 2016.
member’s participation on that exchange. See e.g., NE., Washington, DC 20549–1090.
The Chicago Board Options Exchange, All submissions should refer to File Pursuant to Section 19(b)(1) of the
Incorporated’s Fees Schedule (charging per month Number SR–BatsBZX–2016–91. This file Securities Exchange Act of 1934
a Market Maker Trading Permit is $5,500, an SPX number should be included on the (‘‘Act’’),1 and Rule 19b–4 thereunder,2
Tier appointment is $3,000, a VIX Tier
subject line if email is used. To help the notice is hereby given that on December
Appointment is $2,000, and an electronic Access
Permit is $1,600); the International Securities Commission process and review your 9, 2016, Chicago Board Options
Exchange LLC’s Schedule of Fees (charging per comments more efficiently, please use Exchange, Incorporated (‘‘Exchange’’ or
month an Electronic Access Member is assessed only one method. The Commission will ‘‘CBOE’’) filed with the Securities and
$500.00 for membership and a market maker is post all comments on the Commission’s Exchange Commission (‘‘Commission’’)
assessed from $2,000 to $4,000 per membership Internet Web site (http://www.sec.gov/
depending on the type of market maker); C2
the proposed rule change as described
Options Exchange, Incorporated’s Fees Schedule
rules/sro.shtml). Copies of the in Items I and II below, which Items
(charging per month, a market-maker is assessed a submission, all subsequent have been prepared by the Exchange.
$5,000 permit fee, an Electronic Access Permit is amendments, all written statements The Commission is publishing this
mstockstill on DSK3G9T082PROD with NOTICES
assessed a $1,000 permit fee); and NYSE Arca, with respect to the proposed rule notice to solicit comments on the
Inc.’s Fee Schedule (charging per month, a Clearing change that are filed with the
Firm is assessed a $1,000 per month fee for the first proposed rule change from interested
Commission, and all written persons.
Options Trading Permit (‘‘OTP’’) and $250
thereafter, and a market maker is assessed a permit communications relating to the
based on the maximum number of OTPs held by an proposed rule change between the
21 17 CFR 200.30–3(a)(12).
OTP Firm or OTP Holder during a calendar month
ranging from $1,000 to $6,000 a month). 19 15 1 15 U.S.C. 78s(b)(1).
U.S.C. 78s(b)(3)(A).
18 Id. 20 17 CFR 240.19b–4(f). 2 17 CFR 240.19b–4.
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![94470 Federal Register / Vol. 81, No. 247 / Friday, December 23, 2016 / Notices
I. Self-Regulatory Organization’s (A)–(B) No change. CBOELegalRegulatoryHome.aspx), at
Statement of the Terms of Substance of (C) an order for which all pairs and the Exchange’s Office of the Secretary,
the Proposed Rule Change loners are debits (credits) is a debit and at the Commission’s Public
The Exchange proposes to amend the (credit). For purposes of this check, a Reference Room.
debit/credit price reasonability check ‘‘pair’’ is a pair of legs in an order for
II. Self-Regulatory Organization’s
for complex orders. The text of the which both legs are calls or both legs are
Statement of the Purpose of, and
proposed rule change is provided puts, one leg is a buy and one leg is a
Statutory Basis for, the Proposed Rule
below. sell, and [both]the legs have the same
Change
(additions are italicized; deletions are expiration date but different exercise
prices or, for all options except In its filing with the Commission, the
[bracketed])
European-style index options, [the same Exchange included statements
* * * * * exercise price but ]different expiration concerning the purpose of and basis for
Chicago Board Options Exchange, dates and the exercise price for the call the proposed rule change and discussed
Incorporated Rules (put) with the farther expiration date is any comments it received on the
the same as or lower (higher) than the proposed rule change. The text of these
* * * * *
exercise price for the nearer expiration statements may be examined at the
Rule 6.53C. Complex Orders on the date. A ‘‘loner’’ is any leg in an order places specified in Item IV below. The
Hybrid System that the System cannot pair with Exchange has prepared summaries, set
(a)–(d) No change. another leg in the order (including legs forth in sections A, B, and C below, of
. . . Interpretations and Policies: in orders for European-style index the most significant aspects of such
.01–.07 No change. options that have the same exercise statements.
.08 Price Check Parameters: On a price but different expiration dates). The A. Self-Regulatory Organization’s
class-by-class basis, the Exchange may System treats the stock leg of a stock- Statement of the Purpose of, and
determine (and announce to the Trading option order as a loner. Statutory Basis for, the Proposed Rule
Permit Holders via Regulatory Circular) (i) No change. Change
which of the following price check (ii) The System then, for options
parameters will apply to eligible except European-style index options, 1. Purpose
complex orders. Paragraphs (b) and (e) pairs legs to the extent possible [with The proposed rule change amends the
will not be applicable to stock-option the same exercise prices ]across debit/credit price reasonability check
orders. expiration dates, pairing one [leg]call for complex orders in Rule 6.53C,
For purposes of this Interpretation (put) with the [leg]call (put) that has the Interpretation and Policy .08(c) to
and Policy .08: next nearest expiration date and the expand its applicability. Pursuant to the
Vertical Spread. A ‘‘vertical’’ spread is same or next lower (higher) exercise debit/credit price reasonability check,
a two-legged complex order with one leg price. the System rejects back to the Trading
to buy a number of calls (puts) and one (iii) A pair of calls is a credit (debit) Permit Holder any limit order for a debit
leg to sell the same number of calls if the exercise price of the buy (sell) leg strategy with a net credit price or any
(puts) with the same expiration date but is higher than the exercise price of the limit order for a credit strategy with a
different exercise prices. sell (buy) leg (if the pair has the same net debit price, and cancels any market
Butterfly Spread. A ‘‘butterfly’’ spread expiration date) or if the expiration date order (or any remaining size after partial
is a three-legged complex order with of the sell (buy) leg is farther than the execution of the order) for a credit
two legs to buy (sell) the same number expiration date of the buy (sell) leg (if strategy that would be executed at a net
of calls (puts) and one leg to sell (buy) the [pair has the same ]exercise price of
twice as many calls (puts), all with the debit price. The System defines a
the sell (buy) leg is the same as or lower complex order as a debit (credit) if all
same expiration date but different than the exercise price of the buy (sell)
exercise prices, and the exercise price of pairs and loners are debits (credits).3
leg). For purposes of this check, a ‘‘pair’’ is
the middle leg is between the exercise (iv) A pair of puts is a credit (debit)
prices of the other legs. If the exercise a pair of legs in an order for which both
if the exercise price of the sell (buy) leg legs are calls or both legs are puts, one
price of the middle leg is halfway is higher than the exercise price of the
between the exercise prices of the other leg is a buy and one leg is a sell, and
buy (sell) leg (if the pair has the same both legs have the same expiration date
legs, it is a ‘‘true’’ butterfly; otherwise, expiration date) or if the expiration date
it is a ‘‘skewed’’ butterfly. but different exercise prices or, for all
of the sell (buy) leg is farther than the options except European-style index
Box Spread. A ‘‘box’’ spread is a four- expiration date of the buy (sell) leg (if
legged complex order with one leg to options, the same exercise price but
the [pair has the same ]exercise price of different expiration dates. A ‘‘loner’’ is
buy calls and one leg to sell puts with the sell (buy) leg is the same as or higher
one strike price, and one leg to sell calls any leg in an order that the System
than the exercise price of the buy (sell) cannot pair with another leg in the order
and one leg to buy puts with another leg).
strike price, all of which have the same (including legs in orders for European-
(v) No change. style index options that have the same
expiration date and are for the same The System does not apply the check
number of contracts. exercise price but different expiration
in subparagraph (1) to an order for dates).4
To the extent a price check parameter
which the System cannot define (1) The System first pairs legs to the
is applicable, the Exchange will not
whether it is a debit or credit.
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automatically execute an eligible extent possible within each expiration
(3)–(6) No change.
complex order that is:
(a)–(b) No change. (d)–(g) No change. 3 Rule 6.53C, Interpretation and Policy
(c) Debit/Credit Price Reasonability .09–.12 No change. .08(c)(2)(C). The System also determines certain call
* * * * * and put butterfly spreads as debits and credits. See
Checks: Rule 6.53C, Interpretation and Policy .08(c)(2)(A)
(1) No change. The text of the proposed rule change and (B).
(2) The System defines a complex is also available on the Exchange’s Web 4 The System treats the stock leg of a stock-option
order as a debit or credit as follows: site (http://www.cboe.com/AboutCBOE/ order as a loner.
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![Federal Register / Vol. 81, No. 247 / Friday, December 23, 2016 / Notices 94471
date, pairing one leg with the leg that valuable than the ability to sell stock at the farther expiration date is the same
has the next highest exercise price. a lower price. A call (put) with a farther as or lower (higher) than the exercise
(2) The System then, for options expiration is more expensive than the price for the nearer expiration date. The
except European-style index options, price of a call (put) with a nearer proposed rule change also amends
pairs legs to the extent possible with the expiration, because locking in a price subparagraphs (c)(2)(C)(ii) through (iv)
same exercise prices across expiration further into the future involves more to incorporate these additional pairs of
dates, pairing one leg with the leg that risk for the buyer and seller and thus is calls (puts). When pairing legs across
has the next nearest expiration date. more valuable, making an option (call or expiration dates, the System will pair
(3) A pair of calls is a credit (debit) put) with a farther expiration more one call (put) with the call (put) that has
if the exercise price of the buy (sell) leg expensive than an option with a nearer the next nearest expiration date and the
is higher than the exercise price of the expiration. same or next lower (higher) exercise
sell (buy) leg (if the pair has the same Under the current check, the System price. Based on the pricing principles
expiration date) or if the expiration date only pairs calls (puts) if they have the described above, a pair of calls is a
of the sell (buy) leg is farther than the same expiration date but different credit (debit) strategy if the expiration
expiration date of the buy (sell) leg (if exercise prices or the same exercise date of the sell (buy) leg is farther than
the pair has the same exercise price). price but different expiration dates. the expiration date of the buy (sell) leg
(4) A pair of puts is a credit (debit) if With respect to pairs with different (if the exercise price of the sell (buy) leg
the exercise price of the sell (buy) leg is expiration dates but the same exercise is the same as or lower than the exercise
higher than the exercise price of the buy price,6 a pair of calls is a credit (debit) price of the buy (sell) leg). A pair of puts
(sell) leg (if the pair has the same strategy if the expiration date of the sell is a credit (debit) strategy if the
expiration date) or if the expiration date (buy) leg is farther than the expiration expiration date of the sell (buy) leg is
of the sell (buy) leg is farther than the date of the buy (sell) leg)[sic], and a pair farther than the expiration date of the
expiration date of the buy (sell) leg (if of puts is a credit (debit) strategy if the buy (sell) leg (if the exercise price of the
the pair has the same exercise price). expiration date of the sell (buy) leg is sell (buy) leg is the same as or higher
(5) A loner to buy is a debit, and a farther than the expiration date of the than the exercise price of the buy (sell)
loner to sell is a credit. buy (sell) leg)[sic]. However, based on leg).7 Entering a calendar spread with a
The System does not apply the check the principles described above, if the credit (debit) strategy at a debit (credit)
in subparagraph (1) to an order for sell (buy) leg of a pair of calls has a price (or that would execute at a debit
which the System cannot define farther expiration date (and thus is more (credit) price), which price is
whether it is a debit or credit. expensive) than the expiration date of inconsistent with the strategy, may
As discussed in the rule filing the buy (sell) leg as well as a lower result in executions at prices that are
proposing the current check, the System exercise price (and thus is more extreme and potentially erroneous.
determines whether an order is a debit expensive) than the exercise price of the Below are examples demonstrating
or credit based on general options sell (buy) leg, then the pair is a credit how the System determines whether a
volatility and pricing principles, which (debit) (as is the case if the exercise complex order with two legs, which
the Exchange understands are used by prices of each call were the same under have different expiration dates and
market participants in their option the current rule). Similarly, if the sell exercise prices, is a debit or credit, and
pricing models.5 With respect to options (buy) leg of a pair of puts has a farther whether the System will reject the order
with the same underlying: expiration date (and thus is more pursuant to the debit/credit price
• If two calls have the same expensive) than the expiration date of reasonability check.8
expiration date, the price of the call the buy (sell) leg as well as a higher Example #1—Limit Call Spread
with the lower exercise price is more exercise price (and thus is more
than the price of the call with the higher A Trading Permit Holder enters a
expensive) than the exercise price of the spread to buy 10 Sept 30 XYZ calls and
exercise price; buy (sell) leg, then the pair of puts is a
• if two puts have the same credit (as is the case if the exercise
sell 10 Oct 20 XYZ calls at a net debit
expiration date, the price of the put with price of -$10.00. The System defines
prices of each put were the same under this order as a credit, because the buy
the higher exercise price is more than the current rule).
the price of the put with the lower leg is for the call with the nearer
Therefore, the proposed rule change expiration date and higher exercise
exercise price; and expands this check to pair calls (puts)
• if two calls (puts) have the same with different expiration dates if the
price (and is thus the less expensive
exercise price, the price of the call (put) leg). The System rejects the order back
exercise price for the call (put) with the to the Trading Permit Holder because it
with the nearer expiration is less than farther expiration date is lower (higher)
the price of the call (put) with the is a limit order for a credit strategy that
than the exercise price for the nearer contains a net debit price.
farther expiration. expiration date in addition to those with
In other words, a call (put) with a different expiration dates and the same Example #2—Limit Put Spread
lower (higher) exercise price is more exercise price. Specifically, the
expensive than a call (put) with a higher A Trading Permit Holder enters a
proposed rule change amends spread to buy 20 Oct 30 XYZ puts and
(lower) exercise price, because the subparagraph (c)(2)(C) to state, for
ability to buy stock at a lower price is sell 20 Sept 20 XYZ puts at a net credit
purposes of this check, a ‘‘pair’’ is a pair price of $9.00. The System defines this
more valuable than the ability to buy of legs in an order for which both legs
stock at a higher price, and the ability are calls or both legs are puts, one leg 7 The proposed rule change makes no changes to
mstockstill on DSK3G9T082PROD with NOTICES
to sell stock at a higher price is more is a buy and one leg is a sell, and the this check with respect to pairs of orders with the
legs have different expiration dates and same expiration date but different exercise prices.
5 Securities Exchange Act Release No. 34–76960 Therefore, the rule filing omits references to the
(January 21, 2016), 81 FR 4728 (January 27, 2016) the exercise price for the call (put) with portions of the current rule related to those pairs
(SR–CBOE–2015–107) (Notice of Filing of to focus on the changes made to pairs with different
Amendment No. 2 and Order Granting Accelerated 6 A complex order consisting of a buy leg and a expiration dates.
Approval of Proposed Rule Change, as Modified by sell leg with different expiration dates are 8 The same principles would apply to complex
Amendment Nos. 1 and 2 Thereto, Relating to Price commonly referred to in the industry as ‘‘calendar orders with more than two legs, which include two
Protection Mechanisms for Quotes and Orders). spreads.’’ legs that can be paired in this way.
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![Federal Register / Vol. 81, No. 247 / Friday, December 23, 2016 / Notices 94473
All submissions should refer to File notice is hereby given that, on December was created, NYSE Arca Equities Rules
Number SR–CBOE–2016–086. This file 8, 2016, NYSE Arca, Inc. (‘‘Exchange’’ or 10.3 (Ex Parte Communications), 10.12
number should be included on the ‘‘NYSE Arca’’) filed with the Securities (Minor Rule Plan) and 10.13 (Hearing
subject line if email is used. To help the and Exchange Commission and Review of Decisions) were amended
Commission process and review your (‘‘Commission’’) the proposed rule to replace outdated references to the
comments more efficiently, please use change as described in Items I and II ‘‘NYSE Arca Board of Governors’’ with
only one method. The Commission will below, which Items have been prepared the ‘‘NYSE Arca Board of Directors.’’ 5
post all comments on the Commission’s by the self-regulatory organization. The However, outdated references to the
Internet Web site (http://www.sec.gov/ Commission is publishing this notice to ‘‘NYSE Arca Board of Governors’’ in
rules/sro.shtml). Copies of the solicit comments on the proposed rule NYSE Arca Rule 3.2 and NYSE Arca
submission, all subsequent change from interested persons. Equities Rules 1.1, 3.2, 10.3, 10.8, 10.13,
amendments, all written statements and 14 were inadvertently omitted. The
I. Self-Regulatory Organization’s
with respect to the proposed rule Exchange accordingly proposes to
Statement of the Terms of Substance of
change that are filed with the replace references to ‘‘Governors’’ with
the Proposed Rule Change
Commission, and all written ‘‘Directors’’ in these rules as follows:
communications relating to the The Exchange proposes to amend • NYSE Arca Rule 3.2 (Options
proposed rule change between the NYSE Arca Rule 3.2 and NYSE Arca Committees) governs the organization,
Commission and any person, other than Equities Rules 1.1, 3.2, 10.3, 10.8, 10.13, structure and membership of NYSE
those that may be withheld from the and 14 to delete outdated references. Arca Options committees. NYSE Arca
public in accordance with the The proposed rule change is available Rule 3.2(b) sets forth the eligibility
provisions of 5 U.S.C. 552, will be on the Exchange’s Web site at requirements for three [sic] specific
available for Web site viewing and www.nyse.com, at the principal office of Options Committees, including the
printing in the Commission’s Public the Exchange, and at the Commission’s Nominating Committee which is
Reference Room, 100 F Street NE., Public Reference Room. governed by Rule 3.2(b)(2). The
Washington, DC 20549 on official II. Self-Regulatory Organization’s Exchange proposes one replacement of
business days between the hours of Statement of the Purpose of, and ‘‘Governors’’ with ‘‘Directors’’ in
10:00 a.m. and 3:00 p.m. Copies of the Statutory Basis for, the Proposed Rule subsection (C)(i) of Rule 3.2(b)(2).
filing also will be available for • NYSE Arca Equities Rule 1.1(n)
Change
inspection and copying at the principal defines ETP Holder and describes ETP
office of the Exchange. All comments In its filing with the Commission, the Holder’s limited voting rights to, among
received will be posted without change; self-regulatory organization included other things, nominate directors to the
the Commission does not edit personal statements concerning the purpose of, Board of Directors of NYSE Arca. The
identifying information from and basis for, the proposed rule change Exchange proposes to replace
submissions. You should submit only and discussed any comments it received ‘‘Governor’’ and ‘‘Governors’’ with
information that you wish to make on the proposed rule change. The text ‘‘Director’’ and ‘‘Directors,’’
available publicly. All submissions of those statements may be examined at respectively, in NYSE Arca Equities
should refer to File Number SR–CBOE– the places specified in Item IV below. Rule 1.1(n).
2016–086 and should be submitted on The Exchange has prepared summaries, • NYSE Arca Equities Rule 3.2
or before January 13, 2017. set forth in sections A, B, and C below, (Equity Committees) governs the
of the most significant parts of such organization, structure and membership
For the Commission, by the Division of statements.
Trading and Markets, pursuant to delegated
of NYSE Arca Equities committees.
authority.14 A. Self-Regulatory Organization’s NYSE Arca Equities Rule 3.2(b) sets
Eduardo A. Aleman, Statement of the Purpose of, and the forth the eligibility requirements for
Statutory Basis for, the Proposed Rule three [sic] specific Options Committees
Assistant Secretary.
Change [sic], including the Nominating
[FR Doc. 2016–30937 Filed 12–22–16; 8:45 am]
Committee which is governed by Rule
BILLING CODE 8011–01–P 1. Purpose 3.2(b)(2). The Exchange proposes one
The Exchange proposes to amend the replacement of ‘‘Governors’’ with
SECURITIES AND EXCHANGE following rules to delete outdated ‘‘Directors’’ in subsection (C)(ii) of Rule
COMMISSION references to the ‘‘NYSE Arca Board of 3.2(b)(2). The Exchange also proposes a
Governors’’ in NYSE Arca Rule 3.2 and non-substantive change to delete ‘‘the’’
[Release No. 34–79594; File No. SR– NYSE Arca Equities Rules 1.1, 3.2, 10.3, before ‘‘NYSE Arca, Inc.’’ in the last
NYSEArca–2016–164] 10.8, 10.13, and 14. section of subsection (C)(ii).
In 2016, the Exchange amended, • Subsection (a) of NYSE Arca
Self-Regulatory Organizations; NYSE among other rules, Rule 10.8 in order to Equities Rule 10.3 (Ex Parte
Arca, Inc.; Notice of Filing and establish a Committee for Review Communications) governs certain
Immediate Effectiveness of Proposed (‘‘CFR’’) as a sub-committee of the prohibited communications. The
Rule Change Amending NYSE Arca Regulatory Oversight Committee Exchange proposes to replace
Rule 3.2 and NYSE Arca Equities Rules (‘‘ROC’’).4 When the Exchange’s CFR ‘‘Governors’’ with ‘‘Directors’’ in NYSE
1.1, 3.2, 10.3, 10.8, 10.13, and 14 Arca Equities Rule 10.3(a)(2)(e) and in
December 19, 2016.
4 See Securities Exchange Act Release No. 77898
NYSE Arca Equities Rule 10.3(a)(3)(d).
(May 24, 2016), 81 FR 34404 (May 31, 2016) (SR– • NYSE Arca Equities Rule 10.8
mstockstill on DSK3G9T082PROD with NOTICES
Pursuant to Section 19(b)(1) 1
of the NYSEArca–2016–11). Specifically, the Exchange
Securities Exchange Act of 1934 amended NYSE Arca Equities Rule 10.8(a) and (b)
(Review) governs review of review [sic]
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3 to replace references to the NYSE Arca Equities of disciplinary decisions. The Exchange
Board Appeals Committee with references to the proposes three replacements of
14 17
‘‘Committee for Review’’ or ‘‘CFR’’ and to replace ‘‘Governors’’ with ‘‘Directors’’ in
CFR 200.30–3(a)(12). references to the ‘‘Appeals Panel’’ with the ‘‘CFR
1 15 U.S.C. 78s(b)(1). Appeals Panel.’’ See id., 81 FR at 34406. NYSE Arca subsection (c) of NYSE Arca Equities
2 15 U.S.C. 78a.
Equities Rule 10.8(a) and (b) did not contain
3 17 CFR 240.19b–4. references to the ‘‘NYSE Arca Board of Governors.’’ 5 See id., 81 FR at 34406.
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Document Created: 2016-12-23 12:29:15
Document Modified: 2016-12-23 12:29:15
| 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 94469 |
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