82 FR 13678 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Complex Order Price Protections

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 48 (March 14, 2017)

Page Range		13678-13685
FR Document		2017-04928
Federal Register, Volume 82 Issue 48 (Tuesday, March 14, 2017)
[Federal Register Volume 82, Number 48 (Tuesday, March 14, 2017)]
[Notices]
[Pages 13678-13685]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-04928]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80181; File No. SR-CBOE-2017-016]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Complex Order Price Protections

 March 8, 2017.
    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 February 23, 2017, 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 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 Exchange proposes to amend current price protections related to 
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 1.1. Definitions

    When used in these Rules, unless the context otherwise requires:
    (a)-(yyy) No change.

National Spread Market

    (zzz) ``National spread market'' is the derived net market based 
on the NBBOs in the individual series legs comprising a complex 
order and, if a stock-option order, the NBBO of the stock leg.

Exchange Spread Market

    (aaaa) ``Exchange spread market'' is the derived net market 
based on the BBOs in the individual series legs comprising a complex 
order and, if a stock-option order, the NBBO of the stock leg.
* * * * *

Rule 6.12. CBOE Hybrid Order Handling System

    This rule describes the process for routing orders through the 
Exchange's order handling system in classes designated for trading 
on the CBOE Hybrid System. The order handling system is a feature 
within the Hybrid System to route orders for automatic execution, 
book entry, open outcry, or further handling by a broker, agent, or 
PAR Official, in a manner consistent with Exchange Rules and the Act 
(e.g., resubmit the order to the Hybrid System for automatic 
execution, route the order from a booth to a PAR workstation, cancel 
the order, contact the customer for further instructions, and/or 
otherwise handle the order in accordance with Exchange Rules and the 
order's terms).
    (a) Orders may route through the order handling system for 
electronic processing in the Hybrid System or to a designated order 
management terminal or PAR Workstation in any of the circumstances 
described below. Routing designations may be established based on 
various parameters defined by the Exchange, order entry firm or 
Trading Permit Holder, as applicable.
    (1)-(3) No change.
    (4) Limit Order Price Parameter for Complex Orders: [Limit 
orders will route directly from an order entry firm to an order 
management terminal designated by the order entry firm if]The System 
rejects back to a Trading Permit Holder a complex limit order with a 
net debit (credit) price more than a specified amount above (below):

[[Page 13679]]

    (i) prior to the opening (including during any pre-opening 
period and opening rotation)[before a series is opened following a 
halt), the order is priced at a net debit that is more than an 
acceptable tick distance above] the derived net market using the 
Exchange's previous day's closing[e] prices in the individual series 
legs comprising the complex order. However, this does not apply[ or 
the order is priced at a net credit that is more than an acceptable 
tick distance below the derived net market using the Exchange's 
previous day's close in the individual series legs comprising the 
complex order (this subparagraph is not applicable] to stock-option 
orders, [or]to orders for the account of Exchange Market-Makers or 
away Market-Makers[)], or if there is no Exchange previous day's 
closing price in any leg; or
    (ii) [once a series has opened, the order is priced at a net 
debit that is more than an acceptable tick distance above]intraday, 
the opposite side of the national spread [derived net ]market. This 
applies to stock-option orders, but does not apply [using the 
Exchange's best bid or offer in the individual series legs 
comprising the complex order or the order is priced at a net credit 
that is more than an acceptable tick distance below the opposite 
side derived net market based on the individual series legs 
comprising the complex order (this subparagraph is not applicable to 
stock-option orders)]if the NBBO in any leg is locked, crossed or 
unavailable or if there is no Exchange spread market.
    For purposes of this subparagraph (a)(4), [: An ``acceptable 
tick distance'' (which is also referred to as an ``ATD''), as 
determined by] the Exchange determines the amount, which may be no 
less than $0.02, on a class-[ ]by-[ ]class and net premium basis and 
announce[d]s the amount to [the ]Trading Permit Holders via 
Regulatory Circular[, shall be no less than 5 minimum net price 
increment ticks for complex orders]. The Exchange may determine to 
apply a different amount to orders entered during the pre-opening or 
a trading rotation. No limit order price parameter applies to 
complex orders submitted during a halt (including during any pre-
opening period and opening rotation prior to re-opening following 
the halt) or to pairs of orders submitted to AIM and SAM. The 
[Exchange may determine on a class by class basis and announce via 
Regulatory Circular whether to apply paragraphs (a)(4)(i) and/or 
(ii) to immediate-or-cancel complex orders]checks in subparagraphs 
(i) and (ii) do not apply to complex orders routed from a PAR 
workstation or order management terminal, or to multi-class spreads. 
The limit order price parameter will take precedence over another 
routing parameter to the extent that both are applicable to an 
incoming limit order.
    (5) [Limit Order Price Parameter for Stock-Option Orders: Limit 
orders received after a series is opened will be cancelled if the 
order is priced at a net debit that is more than an acceptable tick 
distance above the opposite side derived net market using the 
Exchange's best bid or offer in the individual series leg and the 
national best bid or offer of the stock component comprising the 
stock-option order or the order is priced at a net credit that is 
more than an acceptable tick distance below the opposite side 
derived net market based on the Exchange's best bid or offer in the 
individual series leg and the national best bid or offer of the 
stock component comprising the stock-option order.
    For purposes of this subparagraph (a)(5): An ``acceptable tick 
distance'' (which is also referred to as an ``ATD''), as determined 
by the Exchange on a class by class and net premium basis and 
announced to the Trading Permit Holders via Regulatory Circular, 
shall be no less than 5 minimum net price increment ticks for stock-
option orders. The Exchange may determine on a class by class basis 
and announce via Regulatory Circular whether to apply paragraph 
(a)(5) to immediate-or-cancel complex orders. The limit order price 
parameter will take precedence over another routing parameter to the 
extent that both are applicable to an incoming limit 
order.]Reserved.
    (6)-(7) No change.
    (b) No change.
    . . . Interpretations and Policies:
    .01 For purposes of subparagraphs (a)(3)[,] and (4)[ and (5):], 
the senior official on the Exchange Help Desk or two Floor Officials 
may grant [intra-day ]relief on any trading day (including prior to 
opening) by widening or inactivating one or more of the applicable 
[ATD]amount parameter settings in the interest of a fair and orderly 
market.
    (a) Notification of [intra-day]this relief will be announced as 
soon as reasonably practical via verbal message to the trading 
floor, order management terminal message to TPH organizations on the 
trading floor, and electronic message to Trading Permit Holders that 
request to receive such messages. Such [intra-day ]relief will not 
extend beyond the trade day on which it is granted, unless a 
determination to extend such relief is announced to Trading Permit 
Holders via Regulatory Circular. The Exchange will make and keep 
records to document all determinations to grant [intra-day]this 
relief under this Rule, and shall maintain those records in 
accordance with Rule 17a-1 under the Exchange Act.
    (b) The Exchange will periodically review determinations to 
grant [intra-day ]relief on any trading day for consistency with the 
interest of a fair and orderly market.
* * * * *

Rule 6.53C. Complex Orders on the Hybrid System

    (a)-(c) No change.
    (d) Process for Complex Order RFR Auction: Prior to routing to 
the COB or once on PAR, eligible complex orders may be subject to an 
automated request for responses (``RFR'') auction process.
    (i) No change.
    (ii) Initiation of a COA:
    (A) The System will send an RFR message to all Trading Permit 
Holders who have elected to receive RFR messages on receipt of (1) a 
COA-eligible order with two legs (including orders submitted for 
electronic processing from PAR) that is better than the same side of 
the [derived net]Exchange spread market or (2) a complex order with 
three or more legs that (A) meets the class, size, and complex order 
type parameters of subparagraph (d)(i)(2) and is better than the 
same side of the [derived net]Exchange spread market or (B) is 
marketable against the [derived net]Exchange spread market, 
designated as immediate or cancel and meets the class and size 
parameters of subparagraph (d)(i)(2). Complex orders as described in 
subparagraph (ii)(A)(2) will initiate a COA regardless of the 
order's routing parameters or handling instructions (except for 
orders routed for manual handling). Immediate or cancel orders that 
are not marketable against the [derived net]Exchange spread market 
in accordance with subparagraph (ii)(A)(2)(B) will be cancelled. The 
RFR message will identify the component series, the size and side of 
the market of the COA-eligible order and any contingencies, if 
applicable.
    (B) No change.
    (iii)-(ix) No change.
    . . . Interpretations and Policies:
    .01-.03 No change.
    .04 For each class where COA is activated, the Exchange may also 
determine to activate COA for complex orders resting in COB. For 
such classes, any non-marketable order resting at the top of COB may 
be automatically subject to COA if the order is within a number of 
ticks away from the opposite side of the current [derived 
net]Exchange spread market. [The ``derived net market'' will be 
calculated based on the derived net price of the individual series 
legs. For stock-option orders, the derived net market for a strategy 
will be calculated using the Exchange's best bid or offer in the 
individual option series leg(s) and the NBBO in the stock leg.] The 
Exchange may also determine on a class-by-class and strategy basis 
to limit the frequency of COAs initiated for complex orders resting 
in COB. Notwithstanding the foregoing, if a leg order has been 
generated for a complex order resting in the COB pursuant to 
paragraph (c)(iv) of this Rule, the complex order will not be 
eligible for COA.
    .05-.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. Paragraph[s] (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

[[Page 13680]]

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)-(d) No change.
    (e) Acceptable Percentage [Distance]Range Parameter:
    (i) An incoming complex order (including a stock-option order) 
after the series for all legs of the complex order are open for 
trading that is marketable and would execute immediately upon 
submission to the COB or following a COA if[, following COA,] the 
execution would be at a price [that is not within]outside an 
acceptable percentage [distance from the derived net price of the 
individual series legs ]range. The ``acceptable percentage range'' 
is the national spread market (or Exchange spread market if the NBBO 
in any leg is locked, crossed or unavailable and for pairs of orders 
submitted to AIM or SAM) that existed when the System received the 
order or at the start of the COA[. The ``acceptable percentage 
distance'' will be a percentage determined by the Exchange on a 
class-by-class basis and it shall be not less than 3 percent. Such a 
complex order will route via the order handling system pursuant to 
Rule 6.12.], as applicable, plus/minus:
    (A) the amount equal to a percentage (which may not be less than 
3%) of the national spread market (the ``percentage amount'') if 
that amount is not less than a minimum amount or greater than a 
maximum amount (the Exchange will determine the percentage and 
minimum and maximum amounts and announce them to Trading Permit 
Holders by Regulatory Circular);
    (B) the minimum amount, if the percentage amount is less than 
the minimum amount; or
    (C) the maximum amount, if the percentage amount is greater than 
the maximum amount.
    (ii) The System cancels an order (or any remaining size after 
partial execution of the order) that would execute or rest in the 
COB at a price outside the acceptable price range.
    (iii) If the System rejects either order in a pair of orders 
submitted to AIM or SAM pursuant to this parameter, then the System 
also cancels the paired order. Notwithstanding the foregoing, with 
respect to an AIM Retained (``A:AIR'') order as defined in 
Interpretation and Policy .09 to Rule 6.74A, if the System rejects 
the Agency Order pursuant to this check, then the System also 
rejects the contra-side order; however, if the System rejects the 
contra-side order pursuant to this check, the System still accepts 
the Agency Order if it satisfies the check. To the extent a contra-
side order or response is marketable against the Agency Order, the 
execution price will be capped at the opposite side of the 
acceptable price range.
    (f) [Stock-Option Derived Net Market Parameters: A stock-option 
order that is marketable if, following COA, the execution would not 
be within the acceptable derived net market for the strategy that 
existed at the start of COA.
    (1) An ``acceptable derived net market'' for a strategy will be 
calculated using the Exchange's best bid or offer in the individual 
option series leg(s) and the NBBO in the stock leg plus/minus an 
acceptable tick distance. An ``acceptable tick distance'' will be 
determined by the Exchange on a class-by-class and premium basis.
    (2) Such a stock-option order will route via the order handling 
system pursuant to Rule 6.12.
    In classes where this price check parameter is available, it 
will also be available for COA responses under Rule 6.53C(d), AIM 
and Solicitation Auction Mechanism stock-option orders and responses 
under Rule 6.74A and 6.74B, and customer-to-customer immediate cross 
stock-option orders under Rule 6.74A.08. Under these provisions, 
such paired stock-option orders and responses will not be accepted 
except that, to the extent that only a paired contra-side order 
subject to an auction under Rule 6.74A or 6.74B exceeds this price 
check parameter, the contra-side order will not be accepted and the 
paired original Agency Order will not be accepted or, at the order 
entry firm's discretion (i.e. an AIM Retained (``A:AIR'') order, as 
defined in Interpretation and Policy .09 to Rule 6.74A), continue 
processing as an unpaired stock-option order. To the extent that a 
contra-side order or response is marketable, its price will be 
capped at the price inside the acceptable derived net 
market.]Reserved.
    (g) No change.
    .09-.10 No change.
    .11 Execution of Complex Orders on the COB Open:
    (a) Complex orders, including stock-option orders, do not 
participate in opening rotations for individual component option 
series legs conducted pursuant to Rule 6.2B. When the last of the 
individual component option series legs that make up a complex order 
strategy has opened (and, in the case of a stock-option order, the 
underlying stock has opened), the COB for that strategy will open. 
The COB will open with no trade, except as follows:
    (i) The COB will open with a trade against the individual 
component option series legs if there are complex orders on only one 
side of the COB that are marketable against the opposite side of the 
[derived net]Exchange spread market. The resulting execution will 
occur at the [derived net]Exchange spread market price to the extent 
marketable pursuant to the rules of trading priority otherwise 
applicable to incoming electronic orders in the individual component 
legs. To the extent there is any remaining balance, the complex 
orders will trade pursuant to subparagraph (ii) below or, if unable 
to trade, be processed as they would on an intra-day basis under 
Rule 6.53C. This subparagraph (i) is not applicable to stock-option 
orders because stock-option orders do not trade against the 
individual component option series legs when the COB opens.
    (ii) The COB will open (or continue to open with another trade 
if a trade occurred pursuant to subparagraph (i) above) with a trade 
against complex orders if there are complex orders in the COB 
(including any remaining balance of an order that enters the COB 
after a partial trade with the legs pursuant to subparagraph (i)) 
that are marketable against each other and priced within the 
[derived net]Exchange spread market. The resulting execution will 
occur at a market clearing price that is inside the [derived 
net]Exchange spread market and that matches complex orders to the 
extent marketable pursuant to the electronic allocation algorithm 
from Rule 6.45A or 6.45B, as applicable, as determined by the 
Exchange on a class-by-class basis with the addition that the COB 
gives priority to complex orders whose net price is better than the 
market clearing price first, and then to complex orders at the 
market clearing price. To the extent there is any remaining balance, 
the complex orders will be processed as they would on an intra-day 
basis under Rule 6.53C. This subparagraph (ii) is applicable to 
stock-option orders.
    (b) [The ``derived net market'' for a stock-option order 
strategy will be calculated using the Exchange's best bid or offer 
in the individual option series leg(s) and the NBBO in the stock 
leg. The ``derived net market'' for any other complex order strategy 
will be calculated using the Exchange's best bid or offer in the 
individual option series legs.
    (c) ]The Exchange may also use the process described in 
paragraph (a) of this Interpretation and Policy .11 when the COB 
reopens a strategy after a time period during which trading of that 
strategy was unavailable.
    .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 Exchange has in place various price protection mechanisms that 
are designed to prevent complex orders from executing at potentially 
erroneous

[[Page 13681]]

prices.\5\ These mechanisms are designed to help maintain a fair and 
orderly market by mitigating potential risks associated with complex 
orders trading at prices that are extreme or potentially erroneous. 
Currently, certain of these price protection mechanisms applicable to 
complex orders compare a complex order's net price, or the net price at 
which a complex order would execute, against the derived net market 
price based on the Exchange's best bid or offer (``BBO'') in the 
individual series legs.\6\ The Exchange proposes to amend these 
mechanisms to provide they will use the derived net market based on the 
national best bid or offer (``NBBO'') in the individual series legs 
rather than the BBO. The Exchange also proposes to update the parameter 
that requires a complex order to execute at a range within an 
acceptable percentage distance from the current market.
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    \5\ See, e.g., Rules 6.12(a)(4) and 6.53C, Interpretation and 
Policy .08.
    \6\ See id.
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Limit Order Price Parameter for Complex Orders
    The proposed rule change amends the limit order price parameters 
for complex and stock-option orders, which are intended to block 
executions at prices that exceed the derived net market by more than a 
reasonable amount. Rule 6.12(a)(4) currently provides complex limit 
orders will route directly from an order entry firm to an order 
management terminal designated by the order entry firm if:
     prior to the opening (including before a series is opened 
following a halt), the order is priced at a net debit that is more than 
an acceptable tick distance above the derived net market using the 
Exchange's previous day's close in the individual series legs 
comprising the complex order or the order is priced at a net credit 
that is more than an acceptable tick distance below the derived net 
market using the Exchange's previous day's close in the individual 
series legs comprising the complex order \7\; or
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    \7\ This provision currently does not apply to stock-option 
orders or orders for the account of Exchange Market-Makers or away 
Market-Makers.
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     once a series has opened, the order is priced at a net 
debit that is more than an acceptable tick distance above the opposite 
side derived net market using the Exchange's best bid or offer in the 
individual series legs comprising the complex order or the order is 
priced at a net credit that is more than an acceptable tick distance 
below the opposite side derived net market based on the individual 
series legs comprising the complex order.
    For purposes of current subparagraph (a)(4), an ``acceptable tick 
distance'' (or ``ATD''), as determined by the Exchange on a class-by-
class and net premium basis and announced to Trading Permit Holders by 
regulatory circular, will be no less than 5 minimum net price increment 
ticks for complex orders. The Exchange may determine on a class-by-
class basis and announce by Regulatory Circular whether to apply the 
limit price parameters in subparagraph (a)(4)(i), (ii), or both, to 
immediate-or-cancel complex orders. This price parameter takes 
precedence over other routing parameters to the extent that both are 
applicable to an incoming limit order.
    Rule 6.12(a)(5) currently provides that stock-option limit orders 
received after a series is opened will be cancelled if the order is 
priced at a net debit that is more than an acceptable tick distance 
above the opposite side derived net market using the Exchange's best 
bid or offer in the individual series leg and the national best bid or 
offer of the stock component comprising the stock-option order or the 
order is priced at a net credit that is more than an acceptable tick 
distance below the opposite side derived net market based on the 
Exchange's best bid or offer in the individual series leg and the 
national best bid or offer of the stock component comprising the stock-
option order. For purposes of current subparagraph (a)(5), an ATD, as 
determined by the Exchange on a class-by-class basis and net premium 
basis and announced to the Trading Permit Holders by regulatory 
circular, will be no less than five minimum net price increment ticks 
for stock-option orders. The Exchange may determine on a class-by-class 
basis and announce by regulatory circular whether to apply subparagraph 
(a)(5) to immediate-or-cancel complex orders. This price parameter 
takes precedence over another [sic] routing parameters to the extent 
that both are applicable to an incoming limit order.
    The Exchange proposes to amend these provisions to provide a 
complex order's price generally will be compared to the derived net 
price based on the national spread market.\8\ Specifically, proposed 
subparagraph (a)(4) states the System rejects back to a Trading Permit 
Holder a complex limit order with a net debit (credit) price more than 
distance specified amount above (below): \9\
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    \8\ The proposed rule change adds the definition of national 
spread market to proposed Rule 1.1(zzz), defined as the derived net 
market based on the NBBOs in the individual series legs comprising a 
complex order and, if a stock-option order, the NBBO of the stock 
leg.
    \9\ Additionally, under the proposed rule change to subparagraph 
(a)(4), the System rejects the order rather than routes it via the 
order handling system. This will allow the Trading Permit Holder to 
reevaluate the order price based on current market prices and ensure 
it was not erroneous, which the Exchange understands Trading Permit 
Holders often prefer (under current subparagraph (a)(5), the System 
currently cancels stock-option orders that do not satisfy the limit 
order price parameter). This is also consistent with functionality 
of various other price protections and risk controls, which reject 
orders rather than route them via the order handling system. See, 
e.g., Rule 6.53C, Interpretation and Policy .08(c) and (g).
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     prior to the opening of a series (including during any 
pre-opening period and opening rotation), the derived net market using 
the Exchange's previous day's closing prices in the individual series 
legs comprising the complex order. However, this does not apply to 
stock-option orders, to orders of CBOE or away market-makers, or if 
there is no Exchange previous day's closing price in any leg; or
     intraday, the opposite side of the national spread market. 
This applies to stock-option orders, but does not apply if the NBBO in 
any leg is locked, crossed or unavailable \10\ or if there is no 
national spread market or no Exchange spread market.

    \10\ If the NBBO (or BBO) is not currently being disseminated, 
the NBBO (or BBO) will be considered ``unavailable.''
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While the Exchange believes Trading Permit Holders are generally 
willing to accept executions at prices that exceed the maximum possible 
value of the applicable spread to a certain extent, executions too far 
away from the market may be erroneous. The current limit order price 
parameter when trading is open compares the order prices to the 
Exchange spread market,\11\ which is the derived net market based on 
the BBOs of the individual series legs comprising a complex order and, 
if a stock-option order, the NBBO of the stock leg. The proposed rule 
change amends this parameter so it compares an order's price to the 
national spread market intraday (i.e. when open for trading). As 
discussed above, the NBBO of the legs (upon which the national spread 
market is based) more accurately reflects the entire market for the 
legs comprising a complex order at the time of execution

[[Page 13682]]

than the Exchange spread market (based on the BBO of the legs). 
Therefore, the Exchange believes it is appropriate for complex order 
net execution prices during the trading day to be based on the best 
prices throughout the entire market rather than those only on CBOE's 
market.\12\
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    \11\ The proposed rule change adds the definition of Exchange 
spread market to proposed Rule 1.1(aaaa), defined as the derived net 
market based on the BBOs in the individual series legs comprising a 
complex order and, if a stock-option order, the NBBO of the stock 
leg. The proposed rule change makes corresponding changes to Rules 
6.53C(d)(ii)(A) and Interpretations and Policies .04 and .11 to 
incorporate the proposed defined term (as well as delete the 
definition currently in those provision [sic] to avoid duplication). 
The proposed rule change also clarifies in Interpretation and Policy 
.04 the number of ticks is applied to the opposite side of the 
Exchange spread market, which is consistent with System 
functionality and language in other rules that incorporate the 
Exchange spread market or national spread market.
    \12\ The proposed rule change also makes nonsubstantive changes 
to subparagraph (a)(4).
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    Prior to individual series legs opening on CBOE (which the rule 
clarifies includes any pre-opening period and opening rotation \13\), 
the System will continue to use the derived net market using the 
Exchange's previous day's closing prices as the comparison figure. The 
check will continue to not apply to stock-option orders or orders of 
CBOE or away market-makers. The check will also not apply if there is 
no Exchange previous day's closing price in any leg (and thus no 
reliable measure against which to compare the price of the order to 
determine its reasonability).
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    \13\ Pursuant to Rule 6.2B, the procedure used to open classes 
for trading on the Exchange includes use of a pre-opening period 
(which currently begins at 6:30 a.m. for Regular Trading Hours and 
4:00 p.m. on the previous trading day for Extended Trading Hours) 
and trading rotation. The pre-opening period and rotation occur 
prior to a class being open, and the proposed rule change merely 
makes this clear.
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    With respect to complex orders entered during a trading halt (which 
includes any pre-opening period or opening rotation prior to re-opening 
following a halt),\14\ current subparagraph (4)(i) applies, using the 
derived net market using the Exchange's previous day's closing prices. 
The proposed rule change states in subparagraph (4) the System will no 
longer apply the limit order price parameter to complex orders entered 
during a trading halt. If a halt occurs during the trading day, it is 
difficult for the System at this time to determine reliable pricing for 
each leg during a likely volatile time when quotes may be available for 
some legs but not others. The Exchange believes this is preferable to 
applying the check using the previous day's closing price, which would 
be stale by that time.
---------------------------------------------------------------------------

    \14\ Pursuant to Rule 6.2B(f), the Exchange may reopen a class 
following a trading halt using the procedure described in the rule, 
including use of a pre-opening period and rotation. Any such pre-
opening period and rotation would occur while trading is still 
halted, as trading would not yet be reopened, and the proposed rule 
change merely makes this clear.
---------------------------------------------------------------------------

    The proposed rule change states this price parameter will not apply 
to pairs of orders submitted to AIM or SAM. The AIM and SAM 
functionality separately limits the prices at which those pairs may be 
submitted and executed, and thus it would be duplicative for the System 
to apply this price parameter to those pairs of orders.\15\
---------------------------------------------------------------------------

    \15\ See Rules 6.74A(a) and Interpretation and Policy .07, and 
6.74B(a) and Interpretation and Policy .01, respectively.
---------------------------------------------------------------------------

    Once a series has opened on CBOE, this check will compare the price 
of a complex order with a net debit (credit) price to the opposite side 
of the national spread market. The national spread market would more 
accurately reflect the then-current market, rather than the Exchange 
spread market, and thus the Exchange believes it would be a better 
measure to use for purposes of determining the reasonability of the 
prices of orders. This applies to stock-option orders, but does not 
apply if the NBBO in any leg is locked, crossed or unavailable \16\ or 
if there is no Exchange spread market \17\ (and thus no reliable 
measure against which to compare the price of the order to determine 
its reasonability).
---------------------------------------------------------------------------

    \16\ If the NBBO (or BBO) is not currently being disseminated, 
the NBBO (or BBO) will be considered ``unavailable.''
    \17\ The Exchange notes this is consistent with functionality 
today--the System does not apply the limit order price parameter to 
an order if there is no Exchange spread market (which includes if 
there is no CBOE-disseminated quote in any leg comprising the 
complex order).
---------------------------------------------------------------------------

    Current subparagraph (a)(4)(i) does not apply to stock-option 
orders, and proposed subparagraph (a)(4)(i) will continue to not apply 
to stock-option orders. However, current subparagraph (a)(4)(ii) also 
does not apply to stock-option orders, and current subparagraph (a)(5) 
applies to stock-option orders. However, the limit order price 
parameter in current subparagraph (a)(4)(ii) applies to complex orders 
other than stock-option orders in the same manner as current 
subparagraph (a)(5) applies to stock-option orders using the Exchange 
spread market as the comparison figure.\18\ Following the proposed rule 
change, the limit order price parameter will apply to stock-option 
orders and other complex orders in the same manner using the National 
Spread Market. Therefore, the proposed rule change states that in the 
rules and also deletes subparagraph (a)(5) as it would be duplicative. 
The proposed rule change amends Rule 6.12, Interpretation and Policy 
.01 to delete the cross-reference to subparagraph (5), which is being 
deleted.
---------------------------------------------------------------------------

    \18\ The one difference is, under subparagraph (a)(5), the 
System cancels stock-option orders that do not satisfy the price 
parameter while, under subparagraph (a)(4)(ii), the System routes 
for manual handling complex orders that do not satisfy the price 
parameter. As discussed above, under proposed subparagraph 
(a)(4)(ii), the System will reject complex orders and stock-option 
orders that do not satisfy the price parameter.
---------------------------------------------------------------------------

    The rule currently states the Exchange determines the ATD on a 
class-by-class and premium basis and will be no less than five minimum 
increment ticks. The proposed rule change states the Exchange will 
determine a specified amount, rather than an ATD, which may be no less 
than $0.02. With respect to complex orders, the Exchange has determined 
pursuant to Rule 6.42(4) the minimum increment for complex orders in 
all but three classes (SPX, OEX and XEO) is $0.01, which would be the 
minimum increment tick under current Rule 6.12(a)(4) (thus the current 
minimum is essentially $0.01 for almost all classes). The Exchange 
generally announces the setting for this parameter in a monetary amount 
rather than number of ticks, so the Exchange believes amending the rule 
to use the term amount rather than ticks is consistent with this 
practice.\19\
---------------------------------------------------------------------------

    \19\ See Regulatory Circular RG17-013.
---------------------------------------------------------------------------

    Additionally, because market conditions during pre-opening periods 
and trading rotations \20\ are different than those present during 
regular trading hours, the proposed rule change provides the Exchange 
with flexibility to apply a different amount during those times. The 
Exchange believes it is appropriate to have the ability to apply a 
different amount during the pre-open period or opening rotation so the 
check does not impact the Exchange's ability to open an option or 
determination of the opening price.\21\
---------------------------------------------------------------------------

    \20\ Pursuant to Rule 6.1A(i), the Exchange may make a 
determination for Extended Trading Hours different from that made 
for Regular Trading Hours to the extent the rules allow the Exchange 
to make a determination, including on a class-by-class basis. Thus, 
the Exchange may set a different amount for classes trading during 
Extended Trading Hours than the amount set for those classes during 
Regular Trading Hours.
    \21\ Note current Rule 6.12, Interpretation and Policy .01 
permits a senior official on the Exchange Help Desk or two Floor 
Officials to grant intra-day relief by widening or inactivating one 
or more of the applicable ATD parameters settings in the interest of 
a fair and orderly market. The proposed rule change amends 
Interpretation and Policy .01 to provide this relief (with respect 
to an amount rather than ATD) can be on any trading day (including 
prior to opening). The term intraday used elsewhere in Rule 6.12 
generally refers to when trading is open, while this temporary 
relief may be granted at any time on a trading day, including prior 
to the open of trading. Granting this relief at any of those times 
may be necessary to address market events or volatility, which may 
occur prior to an opening, in addition to when the Exchange is open 
for trading, and maintain a fair and orderly market during those 
times. The proposed rule change clarifies when this relief may be 
granted. The Exchange will continue to make and keep records of any 
determination to grant relief, and periodically review these 
determinations.
---------------------------------------------------------------------------

    The proposed rule change deletes the Exchange's flexibility to not 
apply this price parameter to immediate-or-cancel complex orders, as 
the Exchange believes these orders are also at risk of execution at 
extreme and potentially

[[Page 13683]]

erroneous prices and thus will benefit from applicability of these 
checks. The proposed rule change states this price parameter will not 
apply to complex orders routed from a PAR workstation or OMT. Orders 
routed from a PAR workstation or OMT are subject to manual handling, so 
the PAR or OMT operator will have evaluated the net price of a complex 
order based on then-existing market conditions prior to submitting the 
order for electronic execution, and thus there is minimal risk of 
execution at an erroneous price. The proposed rule change also states 
this price parameter will not apply to multi-class spreads, as these 
orders may execute in open outcry only, and thus the TPH will have the 
opportunity to evaluate the net price of the multi-class spread based 
on then-existing market conditions prior to representing the order on 
the trading floor, and thus there is minimal risk of execution at an 
erroneous price.

Example

    The System receives a complex order to buy Series A and sell Series 
B for a net debit price of $1.50. Suppose the NBBO for Series A is 
$2.00 to $2.20 and the NBBO for Series B is $1.00 to $1.20, making the 
national spread market for a strategy with a buy Series A leg and sell 
Series B leg $0.80 to $1.20. The Exchange has set the limit order price 
parameter at $0.20 (thus a limit order will be rejected if more than 
$0.20 above (below) the opposite side of the national spread market). 
Because the net debit price of the complex order is $0.30 above the 
offer of the national spread market, the System rejects this order.

Acceptable Percentage Range Parameter

    The proposed rule change amends Rule 6.53C, Interpretation and 
Policy .08(e), which currently provides the Exchange will not 
automatically execute an eligible complex order (and instead route the 
order via the order handling system pursuant to Rule 6.12) that is 
marketable if, following a complex order auction (``COA''), the 
execution would be at a price that is not within an acceptable 
percentage distance from the derived net price of the individual series 
legs that existed at the start of COA. The acceptable percentage 
distance is a percentage determined by the Exchange on a class-by-class 
basis and is no less than 3%.
    The proposed rule change amends this price protection mechanism to 
provide the Exchange will not automatically execute an incoming complex 
order (including a stock-option order) after the series for all legs of 
the complex order are open for trading \22\ that is marketable and 
would execute immediately upon submission to the complex order book 
(``COB'') or following a COA if the execution would be at a price 
outside an acceptable percentage range, which is the national spread 
market that existed when the System received the order or at the start 
of COA, as applicable, plus/minus:
---------------------------------------------------------------------------

    \22\ Rule 6.2B has separate price protections applicable to 
execution prices during pre-open and the opening rotation. The 
Exchange believes it is appropriate to apply the acceptable price 
range protection to orders when the leg series comprising the 
complex order are open to avoid interfering with the orderly opening 
process during which the System matches as many orders as possible.
---------------------------------------------------------------------------

     The amount equal to a percentage (which may not be less 
than 3%) of the national spread market (the ``percentage amount'') if 
that amount is not less than a minimum amount or greater than a maximum 
amount (the Exchange will determine the percentage and minimum and 
maximum amounts and announce them to Trading Permit Holders by 
Regulatory Circular);
     the minimum amount, if the percentage amount is less than 
the minimum amount; or
     the maximum amount, if the percentage amount is greater 
than the maximum amount.\23\
---------------------------------------------------------------------------

    \23\ The proposed rule change also amends the name of this price 
parameter to be consistent with the proposed changes.
---------------------------------------------------------------------------

    The System cancels an order (or any remaining size after partial 
execution of the order) that would execute or rest in the COB at a 
price outside the acceptable price range.
    This proposed rule change expands this parameter to incoming 
complex orders that do not COA and may immediately execute, as well as 
orders that do COA (to which the current parameter applies), which will 
potentially prevent erroneous executions of more complex orders. 
Additionally, under the proposed rule change, the System cancels the 
order (or remainder) that would execute or rest in the COB at a price 
outside the acceptable price range rather than routes it via the order 
handling system. Cancelling the order (or remainder) will prevent any 
future execution at a price ``too far away'' from the market and allow 
the Trading Permit Holder to reevaluate the order price based on 
current market prices and ensure it was not erroneous. The proposed 
rule change provides, while the acceptable price range will continue to 
be based on a percentage away from the market, the System will use the 
national spread market rather than the Exchange spread market for the 
reasons set forth above.\24\ The proposed rule change also puts in 
place a ``maximum'' price range (with the minimum and maximum amounts), 
which will keep the acceptable price range from being too wide and thus 
enhance the effectiveness of this price parameter to prevent erroneous 
executions.\25\
---------------------------------------------------------------------------

    \24\ Proposed subparagraph (e)(i) states the acceptable price 
range uses the Exchange spread market rather than the national 
spread market if the NBBO in any leg is locked, crossed or 
unavailable (and thus there is no reliable measure against which to 
compare the price of the order to determine its reasonability). 
Pursuant to proposed subparagraph (e)(i), the acceptable price range 
will also continue to use the Exchange spread market for pairs of 
orders submitted to AIM or SAM (as it does today), as the AIM and 
SAM functionality separately limits the prices at which those pairs 
may be submitted and executed. See Rules 6.74A(a) and Interpretation 
and Policy .07, and 6.74B(a) and Interpretation and Policy .01, 
respectively. If the System rejects either order in the pair 
pursuant to this parameter, then the System also cancels the paired 
order. Notwithstanding the foregoing, with respect to an AIM 
Retained (``A:AIR'') order as defined in Interpretation and Policy 
.09 to Rule 6.74A, if the System rejects the Agency Order pursuant 
to this check, then the System also rejects the contra-side order; 
however, if the System rejects the contra-side order pursuant to 
this check, the System still accepts the Agency Order if it 
satisfies the check. This currently is codified in paragraph (f) for 
stock-option orders and is being codified for all complex orders in 
proposed subparagraph (e)(iii), as it is consistent with current 
System functionality and the contingencies attached to those types 
of orders, as well as rules related to other price protections. See, 
e.g., Rule 6.53C, Interpretations and Policies .08(c) and (g). 
Additionally, the proposed rule change applies the provision in 
current paragraph (f), which states to the extent a contra-side 
order or response is marketable against the Agency Order, the 
execution price will be capped at the opposite side of the 
acceptable price range, to all complex orders in proposed paragraph 
(e)(iii).
    \25\ The maximum value acceptable price range in Rule 6.53C, 
Interpretation and Policy .08(g) similarly uses an acceptable price 
range determined by a percentage away from the maximum possible 
value of a spread, with a minimum and maximum amount.
---------------------------------------------------------------------------

    Rule 6.53C, Interpretation and Policy .08(f) sets forth a parameter 
currently applicable to stock-option orders, which is the same as the 
parameter in current paragraph (e), except the parameter in current 
paragraph (f) blocks executions of stock-option orders at prices more 
than a specified number of ticks away from the Exchange spread market, 
while current paragraph (e) blocks executions of complex orders at 
prices more than a specified percentage away from the Exchange spread 
market. Current paragraph (f) states the Exchange will not 
automatically execute a stock-option order that is marketable if, 
following a COA, the execution would not be within the acceptable 
derived net market for the strategy that existed at the start of COA. 
An ``acceptable derived net market'' for a strategy is calculated using 
the BBO in the individual option

[[Page 13684]]

series leg(s) and the NBBO in the stock leg plus/minus an acceptable 
tick distance, which is determined by the Exchange on a class-by-class 
and premium basis. The order would route via the order handling system 
pursuant to Rule 6.12.\26\ The proposed rule change deletes paragraph 
(f) and applies the parameter in paragraph (e) (as proposed to be 
amended) to stock-option orders. Proposed paragraph (e) will apply to 
stock-option orders in the same manner as it does to other complex 
orders.\27\ Therefore, the Exchange believes it simplifies its rules to 
include the enhanced parameter once in the rules using the proposed 
defined terms.
---------------------------------------------------------------------------

    \26\ Current paragraph (f) includes a provision regarding how 
the parameter applies to paired orders and auction responses. 
Proposed paragraph (e) will apply to incoming orders and will not 
apply to auction responses, but will apply to paired orders 
submitted to AIM and SAM (and A:AIR orders) as described in current 
paragraph (f) (including continued use of the Exchange spread market 
rather than the national spread market), and thus the proposed rule 
change moves this language to proposed paragraph (e)(iii), with 
nonsubstantive changes to make the language consistent with other 
rules. While this price protection will not cancel auction responses 
that would execute outside the acceptable price range, this price 
protection will prevent an order from executing outside the 
acceptable price range (including against an auction response), and 
thus responses will not execute against an order outside the 
acceptable price range.
    \27\ The proposed rule change makes a conforming change to the 
introductory paragraph of Interpretation and Policy .08.
---------------------------------------------------------------------------

Example

    Suppose the NBBO for Series A is $2.00 to $2.20 (50 x 50) and the 
NBBO for Series B is $1.00 to $1.20 (50 x 50), making the national 
spread market for a strategy with a buy Series A leg and sell Series B 
leg $0.80 to $1.20. Also suppose the BBO for Series A is $1.98 to $2.22 
(10 x 10) and the BBO for Series B is $0.98 to $1.22 (10 x 10), making 
the Exchange spread market for a strategy with a buy Series A leg and 
sell Series B leg $0.76 to $1.24. Pursuant to proposed Rule 6.12(a)(4), 
the Exchange has set the limit order price parameter at $0.20 (thus a 
limit order will be rejected if more than $0.20 above (below) the 
opposite side of the national spread market). The Exchange determined 
the following settings for the acceptable percentage range parameter: 
10%, with a minimum amount of $0.05 and a maximum amount of $0.10. 
Therefore, the acceptable percentage range is $0.72 to $1.30.\28\ The 
System receives a COA-eligible \29\ complex order to buy 35 Series A 
and sell 35 Series B for a net debit price of $1.40. A COA begins, and 
at the end of the COA, there are no auction responses or opposite side 
complex orders resting in the COB. The complex order executes against 
the 10 contracts in the leg market at a net price of $1.24 (buy 10 
contracts in Series A at the $2.22 offer, and sell 10 contracts in 
Series B at the $0.98 bid), which price is within the acceptable price 
range. The resulting BBO for Series A is $1.98 to $2.26 (10 x 10), and 
the resulting BBO for Series B is $0.94 to $1.22 (10 x 10), making the 
resulting Exchange spread market for a strategy with a buy Series A leg 
and sell Series B leg $0.76 to $1.32. The System cancels the remaining 
25 contracts of the order, because the next execution price with the 
leg markets of $1.32 and the $1.40 net debit price of the order are 
each outside the acceptable price range, and therefore, the order 
cannot trade or rest in the book at a price not outside the acceptable 
price range.
---------------------------------------------------------------------------

    \28\ The bid side of this range equals $0.72, which is $0.80 
minus 10% of $0.80 (or $0.08), an amount greater than the minimum 
and less than the maximum. The offer side of this range equals 
$1.30, which is $1.20 plus the maximum amount of $0.10, because 10% 
of $1.20 (or $0.12) is greater than that maximum amount.
    \29\ See Rule 6.53C(d) for a description of the COA process and 
order eligibility requirements. Note, in this example, the same 
result occurs for a non-COA eligible order--such order would execute 
against the 10 contracts resting in the leg markets at a net price 
of $1.24 upon submission to the COB rather than following a COA, and 
the System would cancel the remainder.
---------------------------------------------------------------------------

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.\30\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \31\ 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) \32\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
    \32\ Id.
---------------------------------------------------------------------------

    In particular, the proposed rule change removes impediments to and 
perfects the mechanism of a free and open market and national market 
system because the limit order price parameter (intraday) and the 
acceptable percentage range parameter for complex orders will be based 
on the national spread market when available, which is based on the 
NBBO, and thus will more accurately reflect the entire market for a 
complex order at the time of execution than the Exchange spread market 
(which is based on the BBO). The Exchange believes the enhanced price 
protection mechanisms will further protect investors and the public 
interest and maintain fair and orderly markets by mitigating potential 
risks associated with market participants entering orders at extreme 
and potentially erroneous prices.
    With respect to the limit order price parameter for complex orders, 
the Exchange believes the national spread market when trading is open 
would be a better measure to use for purposes of determining the 
reasonability of the prices of orders and more accurately prevent 
executions of limit orders at erroneous prices, which ultimately 
protects investors. The Exchange also believes applying this check to 
immediate-or-cancel complex orders may prevent executions at extreme 
and potentially erroneous prices of these orders. The Exchange believes 
it is appropriate to have flexibility to determine to apply a different 
amount to complex orders entered during the pre-opening, a trading 
rotation, or a trading halt to reflect different market conditions 
during those times. Additionally, the Exchange believes it is 
appropriate to not apply this price check to complex orders routed from 
a PAR workstation or OMT, as those orders were subject to manual 
handling by a PAR or OMT operator who will have evaluated the net price 
of a complex order based on then-existing market conditions prior to 
submitted it for electronic execution, thus minimizing risk of an 
erroneous execution. Similarly, the Exchange believes it is appropriate 
to not apply this price check to multi-class spreads, as those will be 
handled by brokers who will have evaluated the net price of the spread 
based on then-existing market conditions prior to representation on the 
trading floor. This flexibility and non-applicability, as applicable, 
will further assist the Exchange with its efforts to maintain a fair 
and orderly market, which will ultimately protect investors.
    With respect to the acceptable percentage range parameter, the 
national

[[Page 13685]]

spread market would be a better measure to use for purposes of 
preventing executions of complex orders at erroneous prices, which 
ultimately protects investors. The proposed parameter will apply to 
complex orders that do not COA (and would execute against orders in the 
COB) in addition to those that do, which may prevent additional 
erroneous trades at prices that are extreme or ``too far away'' from 
the market.\33\ The Exchange believes the methodology to determine the 
acceptable price range is reasonable because using a percentage amount 
provides Trading Permit Holders with precise protection, while the pre-
set minimum and maximum ensures that the acceptable price range cannot 
be too wide or narrow to the point that the parameter would become 
ineffective.
---------------------------------------------------------------------------

    \33\ As further discussed below, the proposed rule change is 
substantially similar to NASDAQ OMX [sic] PHLX LLC (``PHLX'') Rule 
1098(i).
---------------------------------------------------------------------------

    The Exchange also believes the proposed rule change regarding how 
the acceptable percentage range parameter will apply to AIM and SAM 
orders is reasonable, as the proposed rule change is consistent with 
the contingencies attached to those types of orders.
    The proposed rule change to apply a single limit order price 
parameter and acceptable price range to all complex orders, including 
stock-option orders (subject to certain exceptions consistent with the 
current rules), will protect investors, as it simplifies the rules.

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 
apply to all complex orders submitted to CBOE in the same manner. The 
enhancements to the price protection mechanisms applicable to all 
incoming orders will help further prevent potentially erroneous 
executions, which benefits all market participants. The proposed rule 
change will not impose any burden on intermarket competition, as it 
merely incorporates best prices available on other markets into current 
price protection mechanisms applicable to complex orders. Additionally, 
the proposed rule change is substantially similar to a rule of another 
options exchange.\34\
---------------------------------------------------------------------------

    \34\ See PHLX Rule 1098(i).
---------------------------------------------------------------------------

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 \35\ and Rule 19b-
4(f)(6) thereunder.\36\
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(3)(A).
    \36\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with 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.
---------------------------------------------------------------------------

    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-2017-016 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-2017-016. 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-2017-016 and should be 
submitted on or before April 4, 2017.
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-04928 Filed 3-13-17; 8:45 am]
BILLING CODE 8011-01-P
13678 Federal Register / Vol. 82, No. 48 / Tuesday, March 14, 2017 / Notices

Completing the Self-Certification of the ages of 18 and 22 to determine if Commission is publishing this notice to
Full-Time School Attendance For The they meet the requirements of Section solicit comments on the proposed rule
School Year, RI 25–14A. 8341(a)(4)(C), and Section 8441, title 5, change from interested persons.
DATES: Comments are encouraged and U.S. Code, to receive benefits as a
I. Self-Regulatory Organization’s
will be accepted until April 13, 2017. student. RI 25–14A provides
Statement of the Terms of Substance of
ADDRESSES: Interested persons are instructions for completing the Self-
the Proposed Rule Change
invited to submit written comments on Certification of Full-Time School
Attendance for the School Year survey The Exchange proposes to amend
the proposed information collection to
form. current price protections related to
Office of Information and Regulatory
complex orders. The text of the
Affairs, Office of Management and Analysis proposed rule change is provided
Budget, 725 17th Street NW.,
Agency: Retirement Operations, below. (additions are italicized;
Washington, DC 20503, Attention: Desk
Retirement Services, Office of Personnel deletions are [bracketed])
Officer for the Office of Personnel
Management or sent by email to oira_ Management. * * * * *
submission@omb.eop.gov or faxed to Title: Self-Certification of Full-Time
Chicago Board Options Exchange,
(202) 395–6974. School Attendance for the School Year Incorporated Rules
and Information and Instructions for
FOR FURTHER INFORMATION CONTACT: A * * * * *
Completing the Self-Certification of
copy of this ICR, with applicable
Full-Time School Attendance for the Rule 1.1. Definitions
supporting documentation, may be
School Year. When used in these Rules, unless the
obtained by contacting the Office of
OMB Number: 3206–0032. context otherwise requires:
Information and Regulatory Affairs,
Frequency: On occasion. (a)–(yyy) No change.
Office of Management and Budget, 725
Affected Public: Individuals or National Spread Market
17th Street NW., Washington, DC 20503,
Households.
Attention: Desk Officer for the Office of Number of Respondents: 14,000. (zzz) ‘‘National spread market’’ is the
Personnel Management or sent by email derived net market based on the NBBOs in
Estimated Time per Respondent: 12 the individual series legs comprising a
to oira_submission@omb.eop.gov or minutes.
faxed to (202) 395–6974. complex order and, if a stock-option order,
Total Burden Hours: 2,800. the NBBO of the stock leg.
SUPPLEMENTARY INFORMATION: As
required by the Paperwork Reduction U.S. Office of Personnel Management. Exchange Spread Market
Act of 1995, (Pub. L. 104–13, 44 U.S.C. Kathleen McGettigan, (aaaa) ‘‘Exchange spread market’’ is the
chapter 35) as amended by the Clinger- Acting Director. derived net market based on the BBOs in the
Cohen Act (Pub. L. 104–106), OPM is [FR Doc. 2017–04935 Filed 3–13–17; 8:45 am] individual series legs comprising a complex
soliciting comments for this collection. BILLING CODE 6325–38–P order and, if a stock-option order, the NBBO
of the stock leg.
The information collection (OMB No.
3206–0032) was previously published in * * * * *
the Federal Register on September 21, SECURITIES AND EXCHANGE Rule 6.12. CBOE Hybrid Order Handling
2016 at 81 FR 64956 allowing for a 60- COMMISSION System
day public comment period. No This rule describes the process for routing
[Release No. 34–80181; File No. SR–CBOE–
comments were received for this 2017–016] orders through the Exchange’s order handling
information collection. system in classes designated for trading on
The purpose of this notice is to allow Self-Regulatory Organizations; the CBOE Hybrid System. The order handling
an additional 30 days for public system is a feature within the Hybrid System
Chicago Board Options Exchange,
comments. The Office of Management to route orders for automatic execution, book
Incorporated; Notice of Filing and entry, open outcry, or further handling by a
and Budget is particularly interested in Immediate Effectiveness of a Proposed broker, agent, or PAR Official, in a manner
comments that: Rule Change Relating to Complex consistent with Exchange Rules and the Act
1. Evaluate whether the proposed Order Price Protections (e.g., resubmit the order to the Hybrid System
collection of information is necessary for automatic execution, route the order from
for the proper performance of functions March 8, 2017. a booth to a PAR workstation, cancel the
of OPM, including whether the Pursuant to Section 19(b)(1) of the order, contact the customer for further
information will have practical utility; Securities Exchange Act of 1934 (the instructions, and/or otherwise handle the
2. Evaluate the accuracy of OPM’s ‘‘Act’’),1 and Rule 19b–4 thereunder,2 order in accordance with Exchange Rules and
estimate of the burden of the proposed the order’s terms).
notice is hereby given that on February
collection of information, including the (a) Orders may route through the order
23, 2017, Chicago Board Options handling system for electronic processing in
validity of the methodology and Exchange, Incorporated (the ‘‘Exchange’’ the Hybrid System or to a designated order
assumptions used; or ‘‘CBOE’’) filed with the Securities management terminal or PAR Workstation in
3. Enhance the quality, utility, and and Exchange Commission (the any of the circumstances described below.
clarity of the information to be ‘‘Commission’’) the proposed rule Routing designations may be established
collected; and minimize the burden of change as described in Items I and II based on various parameters defined by the
the collection of information on those below, which Items have been prepared Exchange, order entry firm or Trading Permit
who are to respond, including through Holder, as applicable.
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by the Exchange. The Exchange filed the
the use of appropriate automated, (1)–(3) No change.
proposal pursuant to Section (4) Limit Order Price Parameter for
electronic, mechanical, or other 19(b)(3)(A)(iii) of the Act 3 and Rule Complex Orders: [Limit orders will route
technological collection techniques or 19b–4(f)(6) thereunder.4 The directly from an order entry firm to an order
other forms of information technology, management terminal designated by the
e.g., permitting electronic submissions 1 15 U.S.C. 78s(b)(1). order entry firm if]The System rejects back to
of responses. 2 17 CFR 240.19b–4. a Trading Permit Holder a complex limit
Form RI 25–14 is used to survey 3 15 U.S.C. 78s(b)(3)(A)(iii). order with a net debit (credit) price more
survivor annuitants who are between 4 17 CFR 240.19b–4(f)(6). than a specified amount above (below):

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13680 Federal Register / Vol. 82, No. 48 / Tuesday, March 14, 2017 / Notices

calls and one leg to sell puts with one strike net market for the strategy that existed at the remaining balance of an order that enters the
price, and one leg to sell calls and one leg start of COA. COB after a partial trade with the legs
to buy puts with another strike price, all of (1) An ‘‘acceptable derived net market’’ for pursuant to subparagraph (i)) that are
which have the same expiration date and are a strategy will be calculated using the marketable against each other and priced
for the same number of contracts. Exchange’s best bid or offer in the individual within the [derived net]Exchange spread
To the extent a price check parameter is option series leg(s) and the NBBO in the market. The resulting execution will occur at
applicable, the Exchange will not stock leg plus/minus an acceptable tick a market clearing price that is inside the
automatically execute an eligible complex distance. An ‘‘acceptable tick distance’’ will [derived net]Exchange spread market and
order that is: be determined by the Exchange on a class-by- that matches complex orders to the extent
(a)–(d) No change. class and premium basis. marketable pursuant to the electronic
(e) Acceptable Percentage [Distance]Range (2) Such a stock-option order will route via allocation algorithm from Rule 6.45A or
Parameter: the order handling system pursuant to Rule 6.45B, as applicable, as determined by the
(i) An incoming complex order (including 6.12. Exchange on a class-by-class basis with the
a stock-option order) after the series for all In classes where this price check parameter addition that the COB gives priority to
legs of the complex order are open for trading is available, it will also be available for COA complex orders whose net price is better than
that is marketable and would execute responses under Rule 6.53C(d), AIM and the market clearing price first, and then to
immediately upon submission to the COB or Solicitation Auction Mechanism stock-option complex orders at the market clearing price.
following a COA if[, following COA,] the orders and responses under Rule 6.74A and To the extent there is any remaining balance,
execution would be at a price [that is not 6.74B, and customer-to-customer immediate the complex orders will be processed as they
within]outside an acceptable percentage cross stock-option orders under Rule would on an intra-day basis under Rule
[distance from the derived net price of the 6.74A.08. Under these provisions, such 6.53C. This subparagraph (ii) is applicable to
individual series legs ]range. The paired stock-option orders and responses will stock-option orders.
‘‘acceptable percentage range’’ is the not be accepted except that, to the extent that (b) [The ‘‘derived net market’’ for a stock-
national spread market (or Exchange spread only a paired contra-side order subject to an option order strategy will be calculated using
market if the NBBO in any leg is locked, auction under Rule 6.74A or 6.74B exceeds the Exchange’s best bid or offer in the
crossed or unavailable and for pairs of orders this price check parameter, the contra-side individual option series leg(s) and the NBBO
submitted to AIM or SAM) that existed when order will not be accepted and the paired in the stock leg. The ‘‘derived net market’’ for
the System received the order or at the start original Agency Order will not be accepted any other complex order strategy will be
of the COA[. The ‘‘acceptable percentage or, at the order entry firm’s discretion (i.e. an calculated using the Exchange’s best bid or
distance’’ will be a percentage determined by AIM Retained (‘‘A:AIR’’) order, as defined in offer in the individual option series legs.
the Exchange on a class-by-class basis and it Interpretation and Policy .09 to Rule 6.74A), (c) ]The Exchange may also use the process
shall be not less than 3 percent. Such a continue processing as an unpaired stock- described in paragraph (a) of this
complex order will route via the order option order. To the extent that a contra-side Interpretation and Policy .11 when the COB
handling system pursuant to Rule 6.12.], as order or response is marketable, its price will reopens a strategy after a time period during
applicable, plus/minus: be capped at the price inside the acceptable which trading of that strategy was
(A) the amount equal to a percentage derived net market.]Reserved. unavailable.
(which may not be less than 3%) of the (g) No change. .12 No change.
national spread market (the ‘‘percentage .09–.10 No change. * * * * *
amount’’) if that amount is not less than a .11 Execution of Complex Orders on the The text of the proposed rule change
minimum amount or greater than a COB Open: is also available on the Exchange’s Web
maximum amount (the Exchange will (a) Complex orders, including stock-option site (http://www.cboe.com/AboutCBOE/
determine the percentage and minimum and orders, do not participate in opening
maximum amounts and announce them to rotations for individual component option
CBOELegalRegulatoryHome.aspx), at
Trading Permit Holders by Regulatory series legs conducted pursuant to Rule 6.2B. the Exchange’s Office of the Secretary,
Circular); When the last of the individual component and at the Commission’s Public
(B) the minimum amount, if the percentage option series legs that make up a complex Reference Room.
amount is less than the minimum amount; or order strategy has opened (and, in the case
(C) the maximum amount, if the of a stock-option order, the underlying stock
II. Self-Regulatory Organization’s
percentage amount is greater than the has opened), the COB for that strategy will Statement of the Purpose of, and
maximum amount. open. The COB will open with no trade, Statutory Basis for, the Proposed Rule
(ii) The System cancels an order (or any except as follows: Change
remaining size after partial execution of the (i) The COB will open with a trade against In its filing with the Commission, the
order) that would execute or rest in the COB the individual component option series legs Exchange included statements
at a price outside the acceptable price range. if there are complex orders on only one side
(iii) If the System rejects either order in a of the COB that are marketable against the
concerning the purpose of and basis for
pair of orders submitted to AIM or SAM opposite side of the [derived net]Exchange the proposed rule change and discussed
pursuant to this parameter, then the System spread market. The resulting execution will any comments it received on the
also cancels the paired order. occur at the [derived net]Exchange spread proposed rule change. The text of these
Notwithstanding the foregoing, with respect market price to the extent marketable statements may be examined at the
to an AIM Retained (‘‘A:AIR’’) order as pursuant to the rules of trading priority places specified in Item IV below. The
defined in Interpretation and Policy .09 to otherwise applicable to incoming electronic Exchange has prepared summaries, set
Rule 6.74A, if the System rejects the Agency orders in the individual component legs. To forth in sections A, B, and C below, of
Order pursuant to this check, then the the extent there is any remaining balance, the the most significant aspects of such
System also rejects the contra-side order; complex orders will trade pursuant to
however, if the System rejects the contra-side subparagraph (ii) below or, if unable to trade,
statements.
order pursuant to this check, the System still be processed as they would on an intra-day A. Self-Regulatory Organization’s
accepts the Agency Order if it satisfies the basis under Rule 6.53C. This subparagraph (i)
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Statement of the Purpose of, and
check. To the extent a contra-side order or is not applicable to stock-option orders Statutory Basis for, the Proposed Rule
response is marketable against the Agency because stock-option orders do not trade
Order, the execution price will be capped at against the individual component option
Change
the opposite side of the acceptable price series legs when the COB opens. 1. Purpose
range. (ii) The COB will open (or continue to
(f) [Stock-Option Derived Net Market open with another trade if a trade occurred The Exchange has in place various
Parameters: A stock-option order that is pursuant to subparagraph (i) above) with a price protection mechanisms that are
marketable if, following COA, the execution trade against complex orders if there are designed to prevent complex orders
would not be within the acceptable derived complex orders in the COB (including any from executing at potentially erroneous

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13682 Federal Register / Vol. 82, No. 48 / Tuesday, March 14, 2017 / Notices

than the Exchange spread market (based System to apply this price parameter to and premium basis and will be no less
on the BBO of the legs). Therefore, the those pairs of orders.15 than five minimum increment ticks. The
Exchange believes it is appropriate for Once a series has opened on CBOE, proposed rule change states the
complex order net execution prices this check will compare the price of a Exchange will determine a specified
during the trading day to be based on complex order with a net debit (credit) amount, rather than an ATD, which may
the best prices throughout the entire price to the opposite side of the national be no less than $0.02. With respect to
market rather than those only on spread market. The national spread complex orders, the Exchange has
CBOE’s market.12 market would more accurately reflect determined pursuant to Rule 6.42(4) the
Prior to individual series legs opening the then-current market, rather than the minimum increment for complex orders
on CBOE (which the rule clarifies Exchange spread market, and thus the in all but three classes (SPX, OEX and
includes any pre-opening period and Exchange believes it would be a better XEO) is $0.01, which would be the
opening rotation 13), the System will measure to use for purposes of minimum increment tick under current
continue to use the derived net market determining the reasonability of the Rule 6.12(a)(4) (thus the current
using the Exchange’s previous day’s prices of orders. This applies to stock- minimum is essentially $0.01 for almost
closing prices as the comparison figure. option orders, but does not apply if the all classes). The Exchange generally
The check will continue to not apply to NBBO in any leg is locked, crossed or announces the setting for this parameter
stock-option orders or orders of CBOE or unavailable 16 or if there is no Exchange in a monetary amount rather than
away market-makers. The check will spread market 17 (and thus no reliable number of ticks, so the Exchange
also not apply if there is no Exchange measure against which to compare the believes amending the rule to use the
previous day’s closing price in any leg price of the order to determine its term amount rather than ticks is
(and thus no reliable measure against reasonability). consistent with this practice.19
which to compare the price of the order Current subparagraph (a)(4)(i) does Additionally, because market
to determine its reasonability). not apply to stock-option orders, and conditions during pre-opening periods
With respect to complex orders proposed subparagraph (a)(4)(i) will and trading rotations 20 are different
entered during a trading halt (which continue to not apply to stock-option than those present during regular
includes any pre-opening period or orders. However, current subparagraph trading hours, the proposed rule change
opening rotation prior to re-opening (a)(4)(ii) also does not apply to stock- provides the Exchange with flexibility
following a halt),14 current option orders, and current subparagraph to apply a different amount during those
subparagraph (4)(i) applies, using the (a)(5) applies to stock-option orders. times. The Exchange believes it is
derived net market using the Exchange’s However, the limit order price appropriate to have the ability to apply
previous day’s closing prices. The parameter in current subparagraph a different amount during the pre-open
proposed rule change states in (a)(4)(ii) applies to complex orders other period or opening rotation so the check
subparagraph (4) the System will no than stock-option orders in the same does not impact the Exchange’s ability
longer apply the limit order price manner as current subparagraph (a)(5) to open an option or determination of
parameter to complex orders entered applies to stock-option orders using the the opening price.21
during a trading halt. If a halt occurs Exchange spread market as the The proposed rule change deletes the
during the trading day, it is difficult for comparison figure.18 Following the Exchange’s flexibility to not apply this
the System at this time to determine proposed rule change, the limit order price parameter to immediate-or-cancel
reliable pricing for each leg during a price parameter will apply to stock- complex orders, as the Exchange
likely volatile time when quotes may be option orders and other complex orders believes these orders are also at risk of
available for some legs but not others. in the same manner using the National execution at extreme and potentially
The Exchange believes this is preferable Spread Market. Therefore, the proposed
to applying the check using the previous rule change states that in the rules and 19 See Regulatory Circular RG17–013.
day’s closing price, which would be also deletes subparagraph (a)(5) as it 20 Pursuant to Rule 6.1A(i), the Exchange may
would be duplicative. The proposed make a determination for Extended Trading Hours
stale by that time. different from that made for Regular Trading Hours
The proposed rule change states this rule change amends Rule 6.12, to the extent the rules allow the Exchange to make
price parameter will not apply to pairs Interpretation and Policy .01 to delete a determination, including on a class-by-class basis.
of orders submitted to AIM or SAM. The the cross-reference to subparagraph (5), Thus, the Exchange may set a different amount for
which is being deleted. classes trading during Extended Trading Hours than
AIM and SAM functionality separately the amount set for those classes during Regular
limits the prices at which those pairs The rule currently states the Exchange Trading Hours.
may be submitted and executed, and determines the ATD on a class-by-class 21 Note current Rule 6.12, Interpretation and

thus it would be duplicative for the Policy .01 permits a senior official on the Exchange
15 See Rules 6.74A(a) and Interpretation and Help Desk or two Floor Officials to grant intra-day
Policy .07, and 6.74B(a) and Interpretation and relief by widening or inactivating one or more of the
12 The proposed rule change also makes Policy .01, respectively. applicable ATD parameters settings in the interest
nonsubstantive changes to subparagraph (a)(4). 16 If the NBBO (or BBO) is not currently being of a fair and orderly market. The proposed rule
13 Pursuant to Rule 6.2B, the procedure used to
disseminated, the NBBO (or BBO) will be change amends Interpretation and Policy .01 to
open classes for trading on the Exchange includes considered ‘‘unavailable.’’ provide this relief (with respect to an amount rather
use of a pre-opening period (which currently begins 17 The Exchange notes this is consistent with than ATD) can be on any trading day (including
at 6:30 a.m. for Regular Trading Hours and 4:00 functionality today—the System does not apply the prior to opening). The term intraday used elsewhere
p.m. on the previous trading day for Extended limit order price parameter to an order if there is in Rule 6.12 generally refers to when trading is
Trading Hours) and trading rotation. The pre- no Exchange spread market (which includes if there open, while this temporary relief may be granted at
opening period and rotation occur prior to a class
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is no CBOE-disseminated quote in any leg any time on a trading day, including prior to the
being open, and the proposed rule change merely comprising the complex order). open of trading. Granting this relief at any of those
makes this clear. 18 The one difference is, under subparagraph times may be necessary to address market events or
14 Pursuant to Rule 6.2B(f), the Exchange may volatility, which may occur prior to an opening, in
(a)(5), the System cancels stock-option orders that
reopen a class following a trading halt using the do not satisfy the price parameter while, under addition to when the Exchange is open for trading,
procedure described in the rule, including use of a subparagraph (a)(4)(ii), the System routes for and maintain a fair and orderly market during those
pre-opening period and rotation. Any such pre- manual handling complex orders that do not satisfy times. The proposed rule change clarifies when this
opening period and rotation would occur while the price parameter. As discussed above, under relief may be granted. The Exchange will continue
trading is still halted, as trading would not yet be proposed subparagraph (a)(4)(ii), the System will to make and keep records of any determination to
reopened, and the proposed rule change merely reject complex orders and stock-option orders that grant relief, and periodically review these
makes this clear. do not satisfy the price parameter. determinations.

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erroneous prices and thus will benefit complex order are open for trading 22 market for the reasons set forth above.24
from applicability of these checks. The that is marketable and would execute The proposed rule change also puts in
proposed rule change states this price immediately upon submission to the place a ‘‘maximum’’ price range (with
parameter will not apply to complex complex order book (‘‘COB’’) or the minimum and maximum amounts),
orders routed from a PAR workstation or following a COA if the execution would which will keep the acceptable price
OMT. Orders routed from a PAR be at a price outside an acceptable range from being too wide and thus
workstation or OMT are subject to percentage range, which is the national enhance the effectiveness of this price
manual handling, so the PAR or OMT spread market that existed when the parameter to prevent erroneous
operator will have evaluated the net System received the order or at the start executions.25
price of a complex order based on then- of COA, as applicable, plus/minus: Rule 6.53C, Interpretation and Policy
existing market conditions prior to • The amount equal to a percentage .08(f) sets forth a parameter currently
submitting the order for electronic (which may not be less than 3%) of the applicable to stock-option orders, which
execution, and thus there is minimal national spread market (the ‘‘percentage is the same as the parameter in current
risk of execution at an erroneous price. amount’’) if that amount is not less than paragraph (e), except the parameter in
The proposed rule change also states a minimum amount or greater than a current paragraph (f) blocks executions
this price parameter will not apply to maximum amount (the Exchange will of stock-option orders at prices more
multi-class spreads, as these orders may determine the percentage and minimum than a specified number of ticks away
execute in open outcry only, and thus and maximum amounts and announce from the Exchange spread market, while
the TPH will have the opportunity to them to Trading Permit Holders by current paragraph (e) blocks executions
evaluate the net price of the multi-class Regulatory Circular); of complex orders at prices more than
spread based on then-existing market a specified percentage away from the
conditions prior to representing the • the minimum amount, if the
percentage amount is less than the Exchange spread market. Current
order on the trading floor, and thus paragraph (f) states the Exchange will
there is minimal risk of execution at an minimum amount; or
not automatically execute a stock-option
erroneous price. • the maximum amount, if the order that is marketable if, following a
percentage amount is greater than the COA, the execution would not be within
Example maximum amount.23 the acceptable derived net market for
The System receives a complex order The System cancels an order (or any the strategy that existed at the start of
to buy Series A and sell Series B for a remaining size after partial execution of COA. An ‘‘acceptable derived net
net debit price of $1.50. Suppose the the order) that would execute or rest in market’’ for a strategy is calculated
NBBO for Series A is $2.00 to $2.20 and the COB at a price outside the using the BBO in the individual option
the NBBO for Series B is $1.00 to $1.20, acceptable price range.
making the national spread market for a
This proposed rule change expands 24 Proposed subparagraph (e)(i) states the
strategy with a buy Series A leg and sell acceptable price range uses the Exchange spread
this parameter to incoming complex
Series B leg $0.80 to $1.20. The market rather than the national spread market if the
orders that do not COA and may NBBO in any leg is locked, crossed or unavailable
Exchange has set the limit order price
immediately execute, as well as orders (and thus there is no reliable measure against which
parameter at $0.20 (thus a limit order
that do COA (to which the current to compare the price of the order to determine its
will be rejected if more than $0.20 above reasonability). Pursuant to proposed subparagraph
parameter applies), which will
(below) the opposite side of the national (e)(i), the acceptable price range will also continue
potentially prevent erroneous to use the Exchange spread market for pairs of
spread market). Because the net debit
executions of more complex orders. orders submitted to AIM or SAM (as it does today),
price of the complex order is $0.30
Additionally, under the proposed rule as the AIM and SAM functionality separately limits
above the offer of the national spread the prices at which those pairs may be submitted
change, the System cancels the order (or
market, the System rejects this order. and executed. See Rules 6.74A(a) and Interpretation
remainder) that would execute or rest in and Policy .07, and 6.74B(a) and Interpretation and
Acceptable Percentage Range the COB at a price outside the Policy .01, respectively. If the System rejects either
Parameter acceptable price range rather than routes order in the pair pursuant to this parameter, then
it via the order handling system. the System also cancels the paired order.
The proposed rule change amends Notwithstanding the foregoing, with respect to an
Rule 6.53C, Interpretation and Policy Cancelling the order (or remainder) will AIM Retained (‘‘A:AIR’’) order as defined in
.08(e), which currently provides the prevent any future execution at a price Interpretation and Policy .09 to Rule 6.74A, if the
Exchange will not automatically execute ‘‘too far away’’ from the market and System rejects the Agency Order pursuant to this
allow the Trading Permit Holder to check, then the System also rejects the contra-side
an eligible complex order (and instead order; however, if the System rejects the contra-side
route the order via the order handling reevaluate the order price based on order pursuant to this check, the System still
system pursuant to Rule 6.12) that is current market prices and ensure it was accepts the Agency Order if it satisfies the check.
marketable if, following a complex order not erroneous. The proposed rule This currently is codified in paragraph (f) for stock-
change provides, while the acceptable option orders and is being codified for all complex
auction (‘‘COA’’), the execution would orders in proposed subparagraph (e)(iii), as it is
be at a price that is not within an price range will continue to be based on consistent with current System functionality and
acceptable percentage distance from the a percentage away from the market, the the contingencies attached to those types of orders,
derived net price of the individual System will use the national spread as well as rules related to other price protections.
market rather than the Exchange spread See, e.g., Rule 6.53C, Interpretations and Policies
series legs that existed at the start of .08(c) and (g). Additionally, the proposed rule
COA. The acceptable percentage change applies the provision in current paragraph
22 Rule 6.2B has separate price protections (f), which states to the extent a contra-side order or
distance is a percentage determined by
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applicable to execution prices during pre-open and response is marketable against the Agency Order,
the Exchange on a class-by-class basis the opening rotation. The Exchange believes it is the execution price will be capped at the opposite
and is no less than 3%. appropriate to apply the acceptable price range side of the acceptable price range, to all complex
The proposed rule change amends protection to orders when the leg series comprising orders in proposed paragraph (e)(iii).
this price protection mechanism to the complex order are open to avoid interfering 25 The maximum value acceptable price range in

provide the Exchange will not with the orderly opening process during which the Rule 6.53C, Interpretation and Policy .08(g)
System matches as many orders as possible. similarly uses an acceptable price range determined
automatically execute an incoming 23 The proposed rule change also amends the by a percentage away from the maximum possible
complex order (including a stock-option name of this price parameter to be consistent with value of a spread, with a minimum and maximum
order) after the series for all legs of the the proposed changes. amount.

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13684 Federal Register / Vol. 82, No. 48 / Tuesday, March 14, 2017 / Notices

series leg(s) and the NBBO in the stock eligible 29 complex order to buy 35 to permit unfair discrimination between
leg plus/minus an acceptable tick Series A and sell 35 Series B for a net customers, issuers, brokers, or dealers.
distance, which is determined by the debit price of $1.40. A COA begins, and In particular, the proposed rule
Exchange on a class-by-class and at the end of the COA, there are no change removes impediments to and
premium basis. The order would route auction responses or opposite side perfects the mechanism of a free and
via the order handling system pursuant complex orders resting in the COB. The open market and national market system
to Rule 6.12.26 The proposed rule complex order executes against the 10 because the limit order price parameter
change deletes paragraph (f) and applies contracts in the leg market at a net price (intraday) and the acceptable percentage
the parameter in paragraph (e) (as of $1.24 (buy 10 contracts in Series A range parameter for complex orders will
proposed to be amended) to stock- at the $2.22 offer, and sell 10 contracts be based on the national spread market
option orders. Proposed paragraph (e) in Series B at the $0.98 bid), which when available, which is based on the
will apply to stock-option orders in the price is within the acceptable price NBBO, and thus will more accurately
same manner as it does to other range. The resulting BBO for Series A is reflect the entire market for a complex
complex orders.27 Therefore, the order at the time of execution than the
$1.98 to $2.26 (10 × 10), and the
Exchange believes it simplifies its rules Exchange spread market (which is based
resulting BBO for Series B is $0.94 to
to include the enhanced parameter once on the BBO). The Exchange believes the
$1.22 (10 × 10), making the resulting
in the rules using the proposed defined enhanced price protection mechanisms
Exchange spread market for a strategy will further protect investors and the
terms. with a buy Series A leg and sell Series public interest and maintain fair and
Example B leg $0.76 to $1.32. The System cancels orderly markets by mitigating potential
the remaining 25 contracts of the order, risks associated with market
Suppose the NBBO for Series A is because the next execution price with participants entering orders at extreme
$2.00 to $2.20 (50 × 50) and the NBBO the leg markets of $1.32 and the $1.40 and potentially erroneous prices.
for Series B is $1.00 to $1.20 (50 × 50), net debit price of the order are each With respect to the limit order price
making the national spread market for a outside the acceptable price range, and parameter for complex orders, the
strategy with a buy Series A leg and sell therefore, the order cannot trade or rest Exchange believes the national spread
Series B leg $0.80 to $1.20. Also in the book at a price not outside the market when trading is open would be
suppose the BBO for Series A is $1.98 acceptable price range. a better measure to use for purposes of
to $2.22 (10 × 10) and the BBO for Series determining the reasonability of the
B is $0.98 to $1.22 (10 × 10), making the 2. Statutory Basis
prices of orders and more accurately
Exchange spread market for a strategy prevent executions of limit orders at
The Exchange believes the proposed
with a buy Series A leg and sell Series erroneous prices, which ultimately
rule change is consistent with the Act
B leg $0.76 to $1.24. Pursuant to protects investors. The Exchange also
proposed Rule 6.12(a)(4), the Exchange and the rules and regulations
thereunder applicable to the Exchange believes applying this check to
has set the limit order price parameter immediate-or-cancel complex orders
at $0.20 (thus a limit order will be and, in particular, the requirements of
Section 6(b) of the Act.30 Specifically, may prevent executions at extreme and
rejected if more than $0.20 above potentially erroneous prices of these
(below) the opposite side of the national the Exchange believes the proposed rule
change is consistent with the Section orders. The Exchange believes it is
spread market). The Exchange appropriate to have flexibility to
determined the following settings for 6(b)(5) 31 requirements that the rules of
determine to apply a different amount to
the acceptable percentage range an exchange be designed to prevent
complex orders entered during the pre-
parameter: 10%, with a minimum fraudulent and manipulative acts and
opening, a trading rotation, or a trading
amount of $0.05 and a maximum practices, to promote just and equitable
halt to reflect different market
amount of $0.10. Therefore, the principles of trade, to foster cooperation
conditions during those times.
acceptable percentage range is $0.72 to and coordination with persons engaged Additionally, the Exchange believes it is
$1.30.28 The System receives a COA- in regulating, clearing, settling, appropriate to not apply this price
processing information with respect to, check to complex orders routed from a
26 Current paragraph (f) includes a provision and facilitating transactions in PAR workstation or OMT, as those
regarding how the parameter applies to paired securities, to remove impediments to orders were subject to manual handling
orders and auction responses. Proposed paragraph and perfect the mechanism of a free and
(e) will apply to incoming orders and will not apply by a PAR or OMT operator who will
to auction responses, but will apply to paired orders
open market and a national market have evaluated the net price of a
submitted to AIM and SAM (and A:AIR orders) as system, and, in general, to protect complex order based on then-existing
described in current paragraph (f) (including investors and the public interest. market conditions prior to submitted it
continued use of the Exchange spread market rather Additionally, the Exchange believes the
than the national spread market), and thus the for electronic execution, thus
proposed rule change moves this language to proposed rule change is consistent with minimizing risk of an erroneous
proposed paragraph (e)(iii), with nonsubstantive the Section 6(b)(5) 32 requirement that execution. Similarly, the Exchange
changes to make the language consistent with other the rules of an exchange not be designed believes it is appropriate to not apply
rules. While this price protection will not cancel
auction responses that would execute outside the this price check to multi-class spreads,
acceptable price range, this price protection will because 10% of $1.20 (or $0.12) is greater than that as those will be handled by brokers who
prevent an order from executing outside the maximum amount. will have evaluated the net price of the
29 See Rule 6.53C(d) for a description of the COA
acceptable price range (including against an auction spread based on then-existing market
asabaliauskas on DSK3SPTVN1PROD with NOTICES

response), and thus responses will not execute process and order eligibility requirements. Note, in
against an order outside the acceptable price range. this example, the same result occurs for a non-COA conditions prior to representation on the
27 The proposed rule change makes a conforming eligible order—such order would execute against trading floor. This flexibility and non-
change to the introductory paragraph of the 10 contracts resting in the leg markets at a net applicability, as applicable, will further
Interpretation and Policy .08. price of $1.24 upon submission to the COB rather
than following a COA, and the System would
assist the Exchange with its efforts to
28 The bid side of this range equals $0.72, which
cancel the remainder. maintain a fair and orderly market,
is $0.80 minus 10% of $0.80 (or $0.08), an amount
greater than the minimum and less than the
30 15 U.S.C. 78f(b). which will ultimately protect investors.
maximum. The offer side of this range equals $1.30, 31 15 U.S.C. 78f(b)(5). With respect to the acceptable
which is $1.20 plus the maximum amount of $0.10, 32 Id. percentage range parameter, the national

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Federal Register / Vol. 82, No. 48 / Tuesday, March 14, 2017 / Notices 13685

spread market would be a better C. Self-Regulatory Organization’s All submissions should refer to File
measure to use for purposes of Statement on Comments on the Number SR–CBOE–2017–016. This file
preventing executions of complex Proposed Rule Change Received From number should be included on the
orders at erroneous prices, which Members, Participants, or Others subject line if email is used. To help the
ultimately protects investors. The Commission process and review your
The Exchange neither solicited nor
proposed parameter will apply to comments more efficiently, please use
received comments on the proposed
complex orders that do not COA (and only one method. The Commission will
rule change.
would execute against orders in the post all comments on the Commission’s
COB) in addition to those that do, which III. Date of Effectiveness of the Internet Web site (http://www.sec.gov/
may prevent additional erroneous trades Proposed Rule Change and Timing for rules/sro.shtml). Copies of the
at prices that are extreme or ‘‘too far Commission Action submission, all subsequent
away’’ from the market.33 The Exchange amendments, all written statements
Because the foregoing proposed rule
with respect to the proposed rule
believes the methodology to determine change does not: (i) Significantly affect
change that are filed with the
the acceptable price range is reasonable the protection of investors or the public
Commission, and all written
because using a percentage amount interest; (ii) impose any significant
communications relating to the
provides Trading Permit Holders with burden on competition; and (iii) become
proposed rule change between the
precise protection, while the pre-set operative for 30 days from the date on
Commission and any person, other than
minimum and maximum ensures that which it was filed, or such shorter time
those that may be withheld from the
the acceptable price range cannot be too as the Commission may designate, it has
public in accordance with the
wide or narrow to the point that the become effective pursuant to Section
provisions of 5 U.S.C. 552, will be
parameter would become ineffective. 19(b)(3)(A) of the Act 35 and Rule 19b–
available for Web site viewing and
4(f)(6) thereunder.36
The Exchange also believes the printing in the Commission’s Public
At any time within 60 days of the Reference Room, 100 F Street NE.,
proposed rule change regarding how the filing of the proposed rule change, the
acceptable percentage range parameter Washington, DC 20549 on official
Commission summarily may business days between the hours of
will apply to AIM and SAM orders is temporarily suspend such rule change if
reasonable, as the proposed rule change 10:00 a.m. and 3:00 p.m. Copies of the
it appears to the Commission that such filing also will be available for
is consistent with the contingencies action is: (i) Necessary or appropriate in
attached to those types of orders. inspection and copying at the principal
the public interest; (ii) for the protection office of the Exchange. All comments
The proposed rule change to apply a of investors; or (iii) otherwise in received will be posted without change;
single limit order price parameter and furtherance of the purposes of the Act. the Commission does not edit personal
acceptable price range to all complex If the Commission takes such action, the identifying information from
orders, including stock-option orders Commission shall institute proceedings submissions. You should submit only
(subject to certain exceptions consistent to determine whether the proposed rule information that you wish to make
with the current rules), will protect change should be approved or available publicly. All submissions
investors, as it simplifies the rules. disapproved. should refer to File Number SR–CBOE–
IV. Solicitation of Comments 2017–016 and should be submitted on
B. Self-Regulatory Organization’s
or before April 4, 2017.
Statement on Burden on Competition Interested persons are invited to
submit written data, views, and For the Commission, by the Division of
CBOE does not believe that the arguments concerning the foregoing, Trading and Markets, pursuant to delegated
proposed rule change will impose any authority.37
including whether the proposed rule
burden on competition that is not change is consistent with the Act. Eduardo A. Aleman,
necessary or appropriate in furtherance Comments may be submitted by any of Assistant Secretary.
of the purposes of the Act. The the following methods: [FR Doc. 2017–04928 Filed 3–13–17; 8:45 am]
proposed rule change will apply to all BILLING CODE 8011–01–P
complex orders submitted to CBOE in Electronic Comments
the same manner. The enhancements to • Use the Commission’s Internet
the price protection mechanisms comment form (http://www.sec.gov/ SECURITIES AND EXCHANGE
applicable to all incoming orders will rules/sro.shtml); or COMMISSION
help further prevent potentially • Send an email to rule-comments@ [Release No. 34–80172; File No. SR–NYSE–
erroneous executions, which benefits all sec.gov. Please include File Number SR– 2017–10]
market participants. The proposed rule CBOE–2017–016 on the subject line.
change will not impose any burden on Self-Regulatory Organizations; New
Paper Comments
intermarket competition, as it merely York Stock Exchange LLC; Notice of
incorporates best prices available on • Send paper comments in triplicate Filing and Immediate Effectiveness of
other markets into current price to Secretary, Securities and Exchange Proposed Rule Change Amending Rule
protection mechanisms applicable to Commission, 100 F Street NE., 67 To Modify the Date of Appendix B
complex orders. Additionally, the Washington, DC 20549–1090. Web Site Data Publication Pursuant to
asabaliauskas on DSK3SPTVN1PROD with NOTICES

proposed rule change is substantially the Regulation NMS Plan To Implement
similar to a rule of another options
35 15 U.S.C. 78s(b)(3)(A). a Tick Size Pilot Program
36 17 CFR 240.19b–4(f)(6). As required under Rule
exchange.34 19b–4(f)(6)(iii), the Exchange provided the March 8, 2017.
Commission with written notice of its intent to file Pursuant to Section 19(b)(1) 1 of the
33 As
the proposed rule change, along with a brief Securities Exchange Act of 1934 (the
further discussed below, the proposed rule description and the text of the proposed rule
change is substantially similar to NASDAQ OMX change, at least five business days prior to the date
[sic] PHLX LLC (‘‘PHLX’’) Rule 1098(i). of filing of the proposed rule change, or such 37 17 CFR 200.30–3(a)(12).
34 See PHLX Rule 1098(i). shorter time as designated by the Commission. 1 15 U.S.C. 78s(b)(1).

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Document Created: 2017-03-14 02:51:36
Document Modified: 2017-03-14 02:51:36
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		82 FR 13678