82 FR 14768 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Complex Orders
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 54 (March 22, 2017)
Federal Register Volume 82, Issue 54 (March 22, 2017)
| Page Range | 14768-14774 | |
| FR Document | 2017-05608 |
[Federal Register Volume 82, Number 54 (Wednesday, March 22, 2017)] [Notices] [Pages 14768-14774] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-05608] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80264; File No. SR-CBOE-2017-021] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Complex Orders March 16, 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 March 6, 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. --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange seeks to amend its rules related to complex orders. The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * [[Page 14769]] Chicago Board Options Exchange, Incorporated Rules * * * * * 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) For purposes of paragraph (d): (1) ``COA'' is the automated complex order RFR auction process. (2) A ``COA-eligible order'' means a complex order that, as determined by the Exchange on a class-by-class basis, is eligible for a COA considering the order's size, complex order type (as defined in paragraphs (a) and (b) above) and complex order origin types (as defined in subparagraph (c)(i) above). Complex orders processed through a COA may be executed without consideration to prices of the same complex orders that might be available on other exchanges. (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 or more legs (including orders submitted for electronic processing from PAR) that is better than the same side of the derived net 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 market or (B)] is marketable against the derived net 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 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. * * * * * The text of the proposed rule change is also available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose On February 25, 2016, the Exchange submitted immediately effective filing SR-CBOE-2016-014, which amended Exchange rules related to the initiation of a complex order auction (``COA'').\5\ The purpose of SR- CBOE-2016-014 (as well as predecessor filings SR-CBOE-2015-081 \6\ and SR-CBOE-2014-017) \7\ was to limit a potential source of unintended Market-Maker risk related to how the Exchange's Hybrid Trading System (the ``System'') \8\ calculates risk parameters under Rule 8.18 when complex orders leg into the market.\9\ --------------------------------------------------------------------------- \5\ See Securities Exchange Act Release No. 77297 (March 4, 2016), 81 FR 12764 (March 10, 2016) (SR-CBOE-2016-014) (``2016 Notice). \6\ See Securities Exchange Act Release No. 76106 (October 8, 2015), 80 FR 62125 (October 15, 2015) (SR-CBOE-2015-081) (``2015 Notice). \7\ See Securities Exchange Act Release No. 72986 (September 4, 2014), 79 FR 53798 (September 10, 2014) (SR-CBOE-2014-017) (``Approval Order''). \8\ The System is a trading platform that allows automatic executions to occur electronically and open outcry trades to occur on the floor of the Exchange. To operate in this ``hybrid'' environment, the Exchange has a dynamic order handling system that has the capability to route orders to the trade engine for automatic execution and book entry, to Trading Permit Holder and PAR Official workstations located in the trading crowds for manual handling, and/ or to other order management terminals generally located in booths on the trading floor for manual handling. Where an order is routed for processing by the Exchange order handling system depends on various parameters configured by the Exchange and the order entry firm itself. \9\ See the Approval Order, the 2015 Notice, and the 2016 Notice. --------------------------------------------------------------------------- Quote Risk Monitor Under Rule 8.18, CBOE offers Market-Makers that are obligated to provide and maintain continuous electronic quotes in an option class the Quote Risk Monitor Mechanism (``QRM''), which is functionality to help Market-Makers manage their quotes and related risk. Market-Makers with appointments in classes that trade on the System must, among other things, provide and maintain continuous electronic quotes in a specified percentage of series in each class for a specified percentage of time.\10\ To comply with this requirement, each Market-Maker may use its own proprietary quotation and risk management system to determine the prices and sizes at which it quotes. In addition, each Market-Maker may use QRM. --------------------------------------------------------------------------- \10\ See Rules 8.7(d)(ii)(iv) (Market-Makers), 8.13(d) (Preferred Market-Makers), 8.15A(b)(i) (Lead Market-Makers) and 8.85(a)(i) (Designated Primary Market-Makers). --------------------------------------------------------------------------- A Market-Maker's risk in a class is not limited to the risk in a single series of that class. Rather, a Market-Maker is generally actively quoting in multiple classes, and each class may comprise hundreds or thousands of individual series. The System automatically executes orders against a Market-Maker's quotes in accordance with the Exchange's priority and allocation rules.\11\ As a result, a Market- Maker has exposure and risk in all series in which it is quoting in each of its appointed classes. QRM is an optional functionality that helps Market-Makers, and TPH organizations with which a Market-Maker is associated, limit this overall exposure and risk. --------------------------------------------------------------------------- \11\ See Rules 6.45 and 6.53C. --------------------------------------------------------------------------- Specifically, if a Market-Maker elects to use QRM, the System will cancel a Market-Maker's quotes in all series in an appointed class if certain parameters the Market-Maker establishes are triggered. Market- Makers may set the following QRM parameters (Market-Makers may set none, some or all of these parameters):A maximum number of contracts for that class (the ``contract limit'') and a specified rolling time period in seconds within which such contract limit is to be measured (the ``measurement interval''); a maximum cumulative percentage (which is the sum of the percentages of the original quoted size of each side of each series that trade) (the ``cumulative percentage limit'') that the Market-Maker is willing to trade within a specified measurement interval; or a maximum number of series for which either side of the quote is fully traded (the ``number of series fully traded'') within a specified measurement interval. If the Exchange determines the Market-Maker has traded more than the contract limit or cumulative percentage limit, or has traded at least the number of series fully traded, of a class during the specified measurement interval, the System will cancel all of the Market-Maker's electronic quotes in that class (and any other cases with the same underlying security) until the Market-Maker refreshes those quotes (a ``QRM Incident''). A Market-Maker, or TPH organization with which the Market-Maker is associated, may also specify a [[Page 14770]] maximum number of QRM Incidents that may occur on an Exchange-wide basis during a specified measurement interval. If the Exchange determines that a Market-Maker or TPH Organization, as applicable, has reached its QRM Incident limit during the specified measurement interval, the System will cancel all of the Market-Maker's or TPH Organization's quotes, as applicable, and the Market-Maker's orders resting in the book in all classes and prevent the Market-Maker and TPH organization from sending additional quotes or orders to the Exchange until the earlier to occur of (1) the Market-Maker or TPH organization reactivates this ability or (2) the next trading day. The purpose of the QRM functionality is to allow Market-Makers to provide liquidity across most series in their appointed classes without being at risk of executing the full cumulative size of all their quotes before being given adequate opportunity to adjust their quotes. For example, if a Market-Maker can enter quotes with a size of 25 contracts in 100 series of class ABC, its potential exposure is 2,500 contracts in ABC. To mitigate the risk of having all 2,500 contracts in ABC execute without the opportunity to evaluate its positions, the Market- Maker may elect to use QRM. If the Market-Maker elects to use the contract limit functionality and sets the contract limit at 100 and the measurement interval at five seconds for ABC, the System will automatically cancel the Market-Maker's quotes in all series of ABC if 100 or more contracts in series of ABC execute during any five-second period. To assure that all quotations are firm for their full size, the System performs the parameter calculations after an execution against a Market-Maker's quote occurs. For example, using the same parameters in class ABC as above, if a Market-Maker has executed a total of 95 contracts in ABC within the previous three seconds, a quote in a series of ABC with a size of 25 contracts continues to be firm for all 25 contracts. An incoming order in that series could execute all 25 contracts of that quote, and, following the execution, the total size parameter would add 25 contracts to the previous total of 95 for a total of 120 contracts executed in ABC. Because the total size executed within the previous five seconds now exceeds the 100 contract limit for ABC, the System would, following the execution, immediately cancel all of the Market-Maker's quotes in series of ABC. The Market-Maker would then enter new quotes for series in ABC. Thus, QRM limits the amount by which a Market-Maker's executions in a class may exceed its contract limit to the largest size of its quote in a single series of the class (or 25 in this example). Proposal SR-CBOE-2016-014 indicated that the Exchange would announce the implementation date of that rule change in a Regulatory Circular to be published no later than 90 days following the effective date of that filing and that the implementation date would be no later than 180 days following the effective date of that filing. The Exchange was unable to make the necessary system changes in time to meet the deadlines set forth in SR-CBOE-2016-014. Thus, the Exchange proposes to revise the implementation date of SR-CBOE-2016-014. In conjunction with revising the implementation date of SR-CBOE-2016-014, the Exchange is proposing to revise the relevant rule text of Rule 6.53C to modify the manner in which the rule text describes complex orders that will initiate a COA. The purpose of the rule filings in this series (SR-CBOE-2014-017, SR-CBOE-2015-081, and SR-CBOE-2016-014), including the instant filing, is to limit a potential source of unintended Market-Maker risk related to how the System calculates risk parameters under Rule 8.18 when complex orders leg into the market.\12\ As discussed above, and described in the previous filings, by checking the risk parameters following each execution in a series, the risk parameters allow a Market-Maker to provide liquidity across multiple series of a class without being at risk of executing the full cumulative size of all its quotes. This is not the case, however, when a complex order legs into the regular market (i.e. the market for individual, or simple, orders). Because the execution of each leg of a complex order is contingent on the execution of the other legs, the execution of all the legs in the regular market is processed as a single transaction, not as a series of individual transactions. --------------------------------------------------------------------------- \12\ Rule 6.53C(c)(ii)(1) provides that complex orders in the complex order book (``COB'') may execute against individual orders or quotes in the book provided the complex order can be executed in full (or a permissible ratio) by the orders and quotes in the book. Rule 6.53C(d)(v)(1) provides that orders that are eligible for the complex order auction (``COA'') may trade with individual orders and quotes in the book provided the COA-eligible order can be executed in full (or a permissible ratio) by the orders and quotes in the book. COA is an automated request for responses (``RFR'') auction process. Upon initiation of a COA, the Exchange sends an RFR message to all Trading Permit Holders who have elected to receive RFR messages, which RFR message identifies the series, size and side of the market of the COA-eligible order and any contingencies. Eligible market participants may submit responses during a response time interval. At the conclusion of the response time interval, COA- eligible orders are allocated in accordance with Rule 6.53C(d)(v), including against individual orders and quotes in the book. --------------------------------------------------------------------------- For example, if market participants enter into the System individual orders to buy 25 contracts for the Jan 30 call, Jan 35 call, Jan 40 call and Jan 45 call in class ABC, the System processes each order as it is received and calculates the Market-Makers parameters in class ABC following the execution of each 25-contract call. However, if a market participant enters into the System a complex order to buy all four of these strikes in class ABC 25 times, which complex order executes against bids and offers for the individual series (i.e. legs into the market), the System will calculate the Market-Maker's parameters in class ABC following the execution of all 100 contracts. If the Market-Maker had set the same parameters in class ABC as discussed above (100-contract limit with five-second measurement interval) and had executed 95 contracts in class ABC within the previous three seconds, the amount by which the next transaction might exceed 100 is limited to the largest size of its quote in a single series of the class. In that example, since the largest size of the Market-Maker's quotes in any series was 25 contracts, the Market-Maker could not have exceeded the 100-contract limit by more than 20 contracts (95 + 25 = 120). However, with respect to the complex order with four legs 25 times, the next transaction against the Market- Maker's quotes potentially could be as large as 100 contracts (depending upon whether there are other market participants at the same price), creating the potential in this example for the Market-Maker to exceed the 100-contract limit by 95 contracts (95 + 100 = 195) instead of 20 contracts. As this example demonstrates, legging of complex orders into the regular market presents higher risk to Market-Makers than executing their quotes against individual orders entered in multiple series of a class in the regular market, because it may result in Market-Makers exceeding their risk parameters by a greater number of contracts. This risk is directly proportional to the number of legs associated with a complex order. Market-Makers have expressed concerns to the Exchange regarding this risk. In order to alleviate this potential risk to Market-Makers, the Exchange, in SR-CBOE-2015-081, amended Rule 6.53C(d) to, among other things, provide that a COA will be initiated when a complex order with three or more legs is designated as immediate or cancel (``IOC'') and meets the class, marketability, and size parameters of [[Page 14771]] subparagraph (d)(i)(2).\13\ The Exchange observed IOC orders causing the risk to Market-Makers described above and believed the previous amendment proposed in SR-CBOE-2015-081 would reduce that risk by initiating a COA in those circumstances. SR-CBOE-2016-014 attempted to fine tune this requirement by amending Rule 6.53C(d)(ii)(A)(2)(B) to provide that a COA will be initiated when a complex order with three or more legs that is marketable against the derived net market is designated as immediate or cancel and the order meets the class and size parameters of subparagraph (d)(i)(2). SR-CBOE-2016-014 also hardcoded the price at which an order could initiate a COA. --------------------------------------------------------------------------- \13\ See Rule 6.53C(d)(ii)(A)(2)(B). The Exchange has not yet implemented the changes described in SR-CBOE-2015-081 in anticipation of this proposal. --------------------------------------------------------------------------- The Exchange is proposing to further fine tune the rule text by amending Rule 6.53C(d)(ii)(A)(1) and (2).\14\ Currently the term COA- eligible order in Rule 6.53C(d)(ii)(A)(1) is used in relation to orders with two legs. The Exchange is proposing to keep the term COA-eligible as the starting point for orders with three or more legs as well,\15\ because all orders with two or more legs that are COA-eligible (i.e., meets the class, size, order type, and origin code parameters of Rule 6.53C(d)(i)(2)) will be treated the same by the Exchange--meaning the number of legs of an order under Rule 6.53C(d)(ii)(A)(1) will not be a factor in determining whether a complex order will or will not COA. In order to effectuate this change the Exchange is also modifying subparagraph (ii)(A)(2)(A) because all orders with three legs or more that are priced better than the same side of the derived net market will only COA if they are COA-eligible under subparagraph (ii)(A)(1), which means the current rule text of (ii)(A)(2)(A) is unnecessary. The Exchange notes that the difference between the current rule text with regards to orders with three legs that are priced better than the same side of the derived net market is that current subparagraph (ii)(A)(2)(A) requires a complex order with three or more legs that meets the class, size, and order type parameter to COA, regardless of the origin code, and proposed subparagraph (ii)(A)(1) provides that the origin code is an additional parameter the Exchange may set with regards to complex orders with three legs that are priced better than the same side of the derived net market. The Exchange believes it's appropriate to apply the origin code parameter to such orders because the flexibility allows the Exchange to use its considerable expertise in an effort to ensure COAs are beneficial to the marketplace, which is why the Exchange is proposing this particular rule change and why the Exchange developed the COA origin code parameter in 2008.\16\ Applying the origin code parameter to complex orders with three legs that are priced better than the same side of the derived net market is consistent with the manner in which the rule text was written prior to SR-CBOE-2014-017. To illustrate, SR-CBOE-2008-082 added the origin type parameter to the definition of a COA-eligible order, such that a COA- eligible order was defined as: --------------------------------------------------------------------------- \14\ As with SR-CBOE-2015-081 and SR-CBOE-2016-014, this proposed change applies to Hybrid classes only, and not Hybrid 3.0 classes. The Exchange does not believe the risk discussed in this rule filing is present in Hybrid 3.0 classes because in Hybrid 3.0 classes complex orders are not legged into the regular market. See Rule 6.53C.10 (providing flexibility for the Exchange to determine to not allow marketable complex orders entered into COB and/or COA to automatically execute against individual quotes residing in the EBook). \15\ See Proposed Rule 6.53C(d)(ii)(A)(1). \16\ See Securities Exchange Act Release No. 58326 (August 7, 2008), 73 FR 47986 (August 15, 2008) (SR-CBOE-2008-82). A complex order that, as determined by the Exchange on a class-by- class basis, is eligible for a COA considering the order's marketability (defined as a number of ticks away from the current market), size, complex order type (as defined in paragraphs (a) and (b) above) and complex order origin types (as defined in --------------------------------------------------------------------------- subparagraph (c)(i) above).\17\ \17\ Id. --------------------------------------------------------------------------- Making current subparagraph (ii)(A)(2)(A) inapplicable to complex orders that are priced better than the derived net market and making subparagraph (ii)(A)(1) applicable to all such orders (i.e., allowing the origin code parameter to apply to complex orders that are priced better than the same side of the derived net market) is consistent with the Act because it essentially reverts rule text regarding COA-eligible orders back to how the rule text read prior to SR-CBOE-2014-017. Additionally, prior to SR-CBOE-2014-017, the rule text essentially provided that any COA-eligible order will COA (as long as a member requested that a particular order COA), and as previously noted, what determines COA-eligibility has included the origin code parameter since 2008.\18\ To illustrate, SR-CBOE-2005-65, which created COA, provided that a COA would be initiated ``[o]n receipt of a COA-eligible order and request from the member representing the order that it be COA'd[.]'' \19\ SR-CBOE-2015-089 removed the requirement that an order include a request to initiate a COA, and instead implemented the opposite--a ``do-not-COA'' request that is only allowed for certain orders.\20\ This particular proposed rule change essentially provides that all COA-eligible orders will COA (unless the ``do-not-COA provision of Rule 6.53C(d)(ii)(B) applies) provided that the complex order is priced better than the same side of the derived net market, except the proposal goes further by allowing certain orders that are not COA-eligible to still COA according to proposed subparagraph (ii)(A)(2). In short, it was consistent with the Securities Exchange Act of 1934 (the ``Act'') to: Initiate a COA for COA-eligible order when COA was established in 2005; include the origin type parameter in the COA-eligibility definition when the origin type parameter was applied to the COA-eligibility definition in 2008; and allow COA- eligible orders to COA unless a ``do-not-COA'' accompanies certain orders when the ``do-not-COA'' request was established in 2015. Thus, it remains consistent with the Act to initiate a COA for a COA-eligible order today, which is essentially all proposed subparagraph (ii)(A)(1) states. It similarly remains consistent with the Act to allow COA- eligibility to include the origin type parameter and to COA all COA- eligible orders unless particular orders defined in Rule 6.53C(d)(ii)(B) include a ``do-not-COA'' request. --------------------------------------------------------------------------- \18\ Id. \19\ See Securities Exchange Act Release No. 54135 (July 12, 2006), 71 FR 41287 (July 20, 2006) (SR-CBOE-2005-65). \20\ See current Rule 6.53C(d)(ii)(B), which provides: Notwithstanding subparagraph (ii)(A)(1), Trading Permit Holders may request on an order-by-order basis that an incoming COA-eligible order with two legs not COA (a ``do-not-COA'' request). Notwithstanding subparagraph (ii)(A)(2), the System will reject back to a Trading Permit Holder any complex order described in that subparagraph that includes a do-not-COA request. Any complex order in subparagraph (ii)(A)(2) on PAR will COA even if the PAR operator includes a do-not-COA request. If a two-legged order with a do-not- COA request rests on PAR, then the PAR operator may not request that the order COA. An order initially submitted to the Exchange with a do-not-COA request may still COA after it has rested on the COB pursuant to Interpretation and Policy .04. Securities Exchange Act Release No. 76622 (December 11, 2015), 80 FR 78803 (December 17, 2015) (SR-CBOE-2015-089). --------------------------------------------------------------------------- The Exchange also notes that adding the words ``or more'' to current subparagraph (ii)(A)(1) to provide that a COA-eligible order ``with two legs or more'' will COA is consistent with the Exchange Act because it is no different than not identifying the number of legs at all, which is how the rule text read from COA's inception in 2005 until the [[Page 14772]] Exchange submitted SR-CBOE-2014-017. As previously noted, SR-CBOE-2005- 65, provided that a COA would be initiated ``[o]n receipt of a COA- eligible order and request from the member representing the order that it be COA'd[.]'' \21\ In both cases--a ``COA-eligible order with two or more legs'' as proposed or ``a COA-eligible order'' as provided in SR- CBOE-2005-65-- the phrase means a complex order with two or more legs. In fact, there really is no purpose to identifying the number of legs of a COA-eligible order in subparagraph (d)(ii)(A)(1), but it might provide some kind of clarity to market participants, considering that proposed subparagraph (d)(ii)(A)(2) will indicate that that particular provision applies to complex orders with three or more legs. Thus, it was consistent with the Act to initiate a COA upon receipt of COA- eligible order when COA was established in 2005, and it remains consistent with the Act to initiate a COA for a COA-eligible order, even if the rule text indicates that a COA will be initiated upon receipt of a COA-eligible order with two or more legs. --------------------------------------------------------------------------- \21\ See Securities Exchange Act Release No. 54135 (July 12, 2006), 71 FR 41287 (July 20, 2006) (SR-CBOE-2005-65). --------------------------------------------------------------------------- The purpose of proposed subparagraph (2) of Rule 6.53C(d)(ii)(A) is simply to allow certain orders with three legs that will not COA under subparagraph (1) to COA pursuant to subparagraph (2). Proposed Rule 6.53C(d)(ii)(A)(2) provides that a COA will be initiated upon receipt of a complex order with three or more legs that meets the class, size, and complex order type parameters of subparagraph (d)(i)(2) and is marketable against the derived net market. In short, if an order with three or more legs does not COA pursuant to Rule 6.53C(d)(ii)(A)(1)-- because it is not COA-eligible--it may still COA pursuant to Rule 6.53C(d)(ii)(A)(2), as long as the order meets the class, size, complex order type parameters of subparagraph (d)(i)(2) and is marketable against the derived net market. The Exchange notes that the flaw with SR-CBOE-2016-014 lies in current rule 6.53C(d)(ii)(A)(2)(B), which provides that a COA will be initiated when a complex order with three or more legs: is marketable against the derived net market, designated as immediate or cancel and meets the class and size parameters of subparagraph (d)(i)(2). This provision would prevent the Exchange from initiating a COA for an order that does not have the IOC contingency--even though the order has three or more legs, the order is marketable against the derived net market, and the order meets the class the class and size parameters of subparagraph (d)(i)(2). As previously noted, the purpose of the rule filings in this series (SR-CBOE-2014-017, SR-CBOE-2015-081, and SR- CBOE-2016-014), including the instant filing, is to limit a potential source of unintended Market-Maker risk related to how the System calculates risk parameters under Rule 8.18 when complex orders leg into the market. Complex orders with three or more legs that are not designated as IOC may still cause the risk to Market-Makers; thus, it is prudent for the Exchange to include the order type parameter in proposed Rule 6.53C(d)(ii)(A)(2) instead of singling out IOCs. The Exchange believes the reason SR-CBOE-2016-014 specifically identified IOCs in Rule 6.53C(d)(ii)(A)(2)(B) is because IOC's are not currently COA-eligible so all IOC orders with two or more legs do not currently initiate a COA and identifying IOCs in the rule text provided further notice to market participants that orders designated as IOC may COA. However, the Exchange believes it's unnecessary to identify IOCs in the rule text in this manner--although the Exchange notes that the rule text will continue to state that IOCs that are not marketable against the derived net market in accordance with subparagraph (ii)(A)(2) will be cancelled, which serves as notice to market participants that IOCs will initiate a COA in certain circumstances, especially considering that upon filing this proposal the Exchange will also be publishing a circular that identifies IOCs as a contingency that may initiate a COA in certain circumstances. The Exchange also notes that SR-CBOE-2016-014 proposed to treat all market participants the same when the Exchange received an order with three or more legs that met the class, size, complex order type parameters of subparagraph (d)(i)(2) and was better than the same side of the derived net market. Proposed subparagraph (2) of Rule 6.53C(d)(ii)(A) will continue to treat all market participants the same when the Exchange receives an order with three or more legs that meets the class, size, and complex order type parameters of subparagraph (d)(i)(2)--except the Exchange will only utilize subparagraph (2) when the incoming order is marketable against the derived net market-- instead of when the orders is priced better than the same side of the derived net market as SR-CBOE-2016-014 proposed. Ultimately, the Exchange believes this proposal represents much simpler rule text than what was proposed in SR-CBOE-2016-014. In sum, if a complex order with two or more legs is COA-eligible and priced better than the same side of the derived net market, the order will initiate a COA. If a complex order with three more legs is not otherwise COA-eligible it will still initiate a COA if it is marketable against the derived net market and it meets the class, size, and order type parameters. To illustrate, assuming all of the non-price specific requirements are met, a complex order with two or more legs under subparagraph (d)(ii)(A)(1) will initiate a COA if the derived net market is 1-1.20 and the complex order is to buy at $1.01 or higher or to sell at 1.19 or lower.\22\ As described above, assuming the non- price specific requirements are met, a complex order with three legs under subparagraph (d)(ii)(A)(2) will initiate a COA if the derived net market is 1--1.20 and the complex order is to buy at $1.20 or higher or to sell at $1.00 or lower. Initiating a COA in these situations will relieve the risk to Market-Makers noted above and throughout this series of rule filings, which helps promote just and equitable principles of trade by relieving risk to Market-Makers allowing them to more efficiently and effectively provide important liquidity. --------------------------------------------------------------------------- \22\ As previously noted, the price at which an order may initiate a COA was hardcoded by SR-CBOE-2016-014. This proposal makes no changes to the price at which an order may initiate a COA. --------------------------------------------------------------------------- As previously noted, the Exchange was unable to implement the amendments made by SR-CBOE-2016-014 in the timeframe set forth in SR- CBOE-2016-014. Thus, the Exchange will announce the implementation date of amendments made in SR-CBOE-2016-014, as modified by this proposed rule change, in a Regulatory Circular to be published no later than 90 days following the effective date of this filing. The implementation date will be no later than 180 days following the effective date of this filing. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ``Act'') and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.\23\ Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) \24\ requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable [[Page 14773]] 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) \25\ requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \23\ 15 U.S.C. 78f(b). \24\ 15 U.S.C. 78f(b)(5). \25\ Id. --------------------------------------------------------------------------- In particular, the Exchange believes the proposed rule change is consistent with the purpose of SR-CBOE-2014-017, SR-CBOE-2015-081, and SR-CBOE-2016-14, which was to alleviate a potential risk to Market- Makers that arises through the use of QRM. Complex orders with three or more legs that are designated that meet the class, size, and order type (including IOCs) parameters of subparagraph (d)(i)(2) and that are marketable against the derived net market (which the Exchange has identified as potentially causing risk to Market-Makers) will initiate a COA, which helps promote just and equitable principles of trade by relieving risk to Market-Makers allowing them to more efficiently and effectively provide important liquidity. Orders that are designated as IOC and meet the class and size parameters of subparagraph (d)(i)(2), but that are not marketable against the derived net market, will be cancelled, which allows order entry firms to use their own sophisticated technology to manage their orders helping to remove impediments to and perfect the mechanism of a free and open market. SR- CBOE-2016-014 removed the Exchange's flexibility to determine that price at which an order may initiate a COA, and this proposal makes no changes in that regard. Although the Exchange prefers flexibility, the Exchange does not foresee the need to retain flexibility in this regard and hardcoding the parameter may help avoid confusion with regards to the price at which a complex order may initiate a COA, which also helps to remove impediments to and perfect the mechanism of a free and open market. The Exchange also believes the proposed rule change to initiate a COA upon receipt of complex orders with three or more legs that meet the class, size, and order type (including IOCs) parameters of subparagraph (d)(i)(2) and that are marketable against the derived net market is consistent with the requirement that Market-Makers' quotes be firm under Rule 602 of Regulation NMS.\26\ The proposed rule change does not relieve Market-Makers of their obligation to provide ``firm'' quotes. If a complex order in a Hybrid class with three or more legs goes through COA and then legs into the market for execution upon completion of the COA, at which point the complex order would execute against a Market-Maker's quotes based on priority rules, the Market- Maker must execute its quotes against the order at its then-published bid or offer up to its published quote size, even if such execution would cause the Market-Maker to significantly exceed its risk parameters. However, prior to the end of COA (and thus prior to a complex order legging into the market), a Market-Maker may adjust its published quotes to manage its risk in a class as it deems necessary, including to prevent executions that would exceed its risk parameters. In this case, the firm quote rule does not obligate the Market-Maker to execute its quotes against the complex order at the quote price and size that was published when the order entered the System and initiated the COA. Rather, the Market-Maker's firm quote obligation applies only to its disseminated quote at the time an order is presented to the Market-Maker for execution, which presentation does not occur until the System processes the order against the leg markets after completion of the COA.\27\ Thus, the proposed rule change is consistent with the firm quote rule. --------------------------------------------------------------------------- \26\ Rule 602(b)(2) obligates a Market-Maker to execute any order to buy or sell a subject security presented to it by another broker or dealer or any other person belonging to a category of persons with whom the Market-Maker customarily deals, at a price at least as favorable to the buyer or sell as the Market-Maker's published bid or offer in any amount up to its published quotation size. Rule 602(b)(3) provides that no Market-Maker is obligated to execute a transaction for any subject security to purchase or sell that subject security in an amount greater than its revised quotation size if, prior to the presentation of an order for the purchase or sale of a subject security, the Market-Maker communicated to the Exchange a revised quotation size. Similarly, no Market-Maker is obligated to execute a transaction for any subject security if, before the order sought to be executed is presented, the Market-Maker has communicated to the Exchange a revised bid or offer. CBOE Rule 8.51 imposes a similar obligation (Market-Maker must sell (buy) at least the established number of contracts at the offer (bid) which is displayed when the Market-Maker receives a buy (sell) order at the trading station where the reported security is located for trading; however, no Market-Maker is obligated to execute a transaction for a listed option when, prior to the presentation of an order to sell (buy) to the Market-Maker, the Market-Maker has communicated to the Exchange a revised quote). \27\ See Staff Legal Bulletin No. 16, Transaction in Listed Options Under Exchange Act Rule 11Ac1-1, U.S. Securities and Exchange Commission, Division of Market Regulation, January 20, 2004 (``Scenario 3: When an Order is ``Presented'' . . . If an individual market maker generates its own quotations . . . and exchange systems route incoming orders to the responsible broker-dealer with priority, when is an order presented to a responsible broker-dealer? Response:. . . . When each market maker is the responsible broker- dealer with respect to its own quote, an order is presented to it when received by the market maker from the exchange system.''). When a complex order is processing through COA, the order is still in the System and has not yet been presented to a broker or dealer (including a Market-Maker) for execution. Only after completion of the COA, when the System allocates the complex order for execution in accordance with priority rules, will that order be ``presented'' to the Market-Maker for firm quote purposes. --------------------------------------------------------------------------- The Exchange also notes making subparagraph (ii)(A)(2)(A) inapplicable to complex orders that are priced better than the derived net market and making subparagraph (ii)(A)(1) applicable to all such orders is consistent with the Act because it essentially reverts rule text regarding COA-eligible orders back to how the rule text read prior to SR-CBOE-2014-017. Prior to SR-CBOE-2014-017, the rule text essentially provided that any COA-eligible order will COA.\28\ This proposed rule change essentially provides the same, except certain orders that are not COA-eligible may still COA according to proposed subparagraph (ii)(A)(2). Thus, it was consistent with the Securities Exchange Act of 1934 (the ``Act'') to initiate a COA-eligible order when COA was established in 2005, and it remains consistent with the Act to initiate a COA-eligible order. --------------------------------------------------------------------------- \28\ See Securities Exchange Act Release No. 54135 (July 12, 2006), 71 FR 41287 (July 20, 2006) (SR-CBOE-2005-65). --------------------------------------------------------------------------- The Exchange also notes that adding the words ``or more'' to current subparagraph (ii)(A)(1) to provide that a COA-eligible order ``with two legs or more'' will COA is consistent with the Exchange Act because it is no different than not identifying the number of legs at all, which is how the rule text read from COA's inception in 2005 \29\ until the Exchange submitted SR-CBOE-2014-017. In both cases--a ``COA- eligible order with two or more legs'' or ``a COA-eligible order''--the phrase means a complex order with two or more legs. In fact, there really is no purpose to identifying the number of legs of a COA- eligible order in subparagraph (d)(ii)(A)(1), but it might provide some kind of clarity to market participants, considering that proposed subparagraph (d)(ii)(A)(2) will indicate that that particular provision applies to complex orders with three or more legs. Thus, it was consistent with the Act to initiate a COA-eligible order when COA was established in 2005, and it remains [[Page 14774]] consistent with the Act to initiate a COA-eligible order, even if the rule text indicates that a COA will be initiated upon receipt of a COA- eligible order with two or more legs. --------------------------------------------------------------------------- \29\ [sic] --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any burden on intramarket or intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe the proposed rule change will impose any burden on intramarket competition because all IOC orders will be treated equally by the Exchange. The proposed rule change is intended to reduce risk to Market-Makers that are quoting in the regular market. CBOE believes that the proposed rule change will promote competition by encouraging Market-Makers to increase the size of and to more aggressively price their quotes, which will increase liquidity on the Exchange. To the extent that the rule change makes CBOE a more attractive marketplace, market participants are free to become Trading Permit Holders on CBOE and other exchanges are free to amend their rules in a similar manner. Furthermore, the Exchange does not believe the proposed rule change will impose any burden on intermarket competition because the rule change does not materially affect the outcome or purpose of SR-CBOE- 2014-017, SR-CBOE-2015-081, or SR-CBOE-2016-014, which was to alleviate potential risk to Market-Makers using QRM. The Exchange also does not believe that the hardcoding of the price at which a complex order may initiate a COA, as described in SR-CBOE-2016-014, will impose a burden on competition. Finally, the Exchange does not believe initiating a COA for a COA-eligible order pursuant to Rule 6.53C(d)(ii)(A)(1) will impose any burden on competition as the Exchange has initiated a COA for such orders since the inception of COA in 2005. 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 \30\ and Rule 19b- 4(f)(6) thereunder.\31\ --------------------------------------------------------------------------- \30\ 15 U.S.C. 78s(b)(3)(A). \31\ 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-2017-021 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-2017-021. 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-2017-021 and should be submitted on or before April 12, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\32\ --------------------------------------------------------------------------- \32\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-05608 Filed 3-21-17; 8:45 am] BILLING CODE 8011-01-P
![14768 Federal Register / Vol. 82, No. 54 / Wednesday, March 22, 2017 / Notices
II. Docketed Proceeding(s) gives notice that, pursuant to 39 U.S.C. FOR FURTHER INFORMATION CONTACT:
1. Docket No(s).: CP2017–141; Filing 3642 and 3632(b)(3), on March 15, 2017, Elizabeth A. Reed, 202–268–3179.
Title: Notice of United States Postal it filed with the Postal Regulatory SUPPLEMENTARY INFORMATION: The
Service of Filing a Functionally Commission a Request of the United United States Postal Service® hereby
Equivalent Global Expedited Package States Postal Service to Add Priority gives notice that, pursuant to 39 U.S.C.
Services 7 Negotiated Service Mail Express, Priority Mail, & First-Class 3642 and 3632(b)(3), on March 15, 2017,
Agreement and Application for Non- Package Service Contract 15 to it filed with the Postal Regulatory
Public Treatment of Materials Filed Competitive Product List. Documents Commission a Request of the United
Under Seal; Filing Acceptance Date: are available at www.prc.gov, Docket States Postal Service to Add First-Class
March 16, 2017; Filing Authority: 39 Nos. MC2017–97, CP2017–137. Package Service Contract 74 to
CFR 3015.5; Public Representative: Stanley F. Mires, Competitive Product List. Documents
Christopher C. Mohr; Comments Due: Attorney, Federal Compliance.
are available at www.prc.gov, Docket
March 24, 2017. Nos. MC2017–96, CP2017–136.
[FR Doc. 2017–05590 Filed 3–21–17; 8:45 am]
2. Docket No(s).: CP2017–142; Filing BILLING CODE 7710–12–P Stanley F. Mires,
Title: Notice of United States Postal Attorney, Federal Compliance.
Service of Filing a Functionally
[FR Doc. 2017–05582 Filed 3–21–17; 8:45 am]
Equivalent Global Expedited Package POSTAL SERVICE BILLING CODE 7710–12–P
Services 3 Negotiated Service
Agreement and Application for Non- Product Change—Priority Mail
Public Treatment of Materials Filed Negotiated Service Agreement
Under Seal; Filing Acceptance Date: SECURITIES AND EXCHANGE
March 16, 2017; Filing Authority: 39 AGENCY: Postal ServiceTM. COMMISSION
CFR 3015.5; Public Representative: ACTION: Notice.
Gregory Stanton; Comments Due: March [Release No. 34–80264; File No. SR–CBOE–
24, 2017. SUMMARY: The Postal Service gives 2017–021]
3. Docket No(s).: CP2017–143; Filing notice of filing a request with the Postal
Title: Notice of United States Postal Regulatory Commission to add a Self-Regulatory Organizations;
Service of Filing a Functionally domestic shipping services contract to Chicago Board Options Exchange,
Equivalent Global Expedited Package the list of Negotiated Service Incorporated; Notice of Filing and
Services 7 Negotiated Service Agreements in the Mail Classification Immediate Effectiveness of a Proposed
Agreement and Application for Non- Schedule’s Competitive Products List. Rule Change Related to Complex
Public Treatment of Materials Filed DATES: Effective date: March 22, 2017. Orders
Under Seal; Filing Acceptance Date: FOR FURTHER INFORMATION CONTACT: March 16, 2017.
March 16, 2017; Filing Authority: 39 Elizabeth A. Reed, 202–268–3179. Pursuant to Section 19(b)(1) of the
CFR 3015.5; Public Representative: Securities Exchange Act of 1934 (the
SUPPLEMENTARY INFORMATION: The
Gregory Stanton; Comments Due: March ‘‘Act’’),1 and Rule 19b–4 thereunder,2
United States Postal Service® hereby
24, 2017. notice is hereby given that on March 6,
gives notice that, pursuant to 39 U.S.C.
This notice will be published in the 2017, Chicago Board Options Exchange,
3642 and 3632(b)(3), on March 15, 2017,
Federal Register. Incorporated (the ‘‘Exchange’’ or
it filed with the Postal Regulatory
Ruth Ann Abrams, Commission a Request of the United ‘‘CBOE’’) filed with the Securities and
Acting Secretary. States Postal Service to Add Priority Exchange Commission (the
[FR Doc. 2017–05695 Filed 3–21–17; 8:45 am] Mail Contract 297 to Competitive ‘‘Commission’’) the proposed rule
Product List. Documents are available at change as described in Items I and II
BILLING CODE 7710–FW–P
www.prc.gov, Docket Nos. MC2017–95, below, which Items have been prepared
CP2017–135. by the Exchange. The Exchange filed the
proposal pursuant to Section
POSTAL SERVICE Stanley F. Mires, 19(b)(3)(A)(iii) of the Act3 and Rule
Attorney, Federal Compliance. 19b–4(f)(6) thereunder.4 The
Product Change—Priority Mail
Express, Priority Mail, & First-Class
[FR Doc. 2017–05581 Filed 3–21–17; 8:45 am] Commission is publishing this notice to
Package Service Negotiated Service BILLING CODE 7710–12–P solicit comments on the proposed rule
Agreement change from interested persons.
POSTAL SERVICE I. Self-Regulatory Organization’s
AGENCY: Postal ServiceTM.
Statement of the Terms of Substance of
ACTION: Notice. the Proposed Rule Change
Product Change—First-Class Package
SUMMARY: The Postal Service gives Service Negotiated Service Agreement The Exchange seeks to amend its rules
notice of filing a request with the Postal AGENCY: Postal ServiceTM. related to complex orders. The text of
Regulatory Commission to add a the proposed rule change is provided
domestic shipping services contract to ACTION: Notice. below.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
the list of Negotiated Service SUMMARY: The Postal Service gives (additions are italicized; deletions are
Agreements in the Mail Classification notice of filing a request with the Postal [bracketed])
Schedule’s Competitive Products List. Regulatory Commission to add a
DATES: Effective date: March 22, 2017.
* * * * *
domestic shipping services contract to
FOR FURTHER INFORMATION CONTACT: the list of Negotiated Service 1 15 U.S.C. 78s(b)(1).
Elizabeth A. Reed, 202–268–3179. Agreements in the Mail Classification 2 17 CFR 240.19b–4.
SUPPLEMENTARY INFORMATION: The Schedule’s Competitive Products List. 3 15 U.S.C. 78s(b)(3)(A)(iii).
United States Postal Service® hereby DATES: Effective date: March 22, 2017. 4 17 CFR 240.19b–4(f)(6).
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![Federal Register / Vol. 82, No. 54 / Wednesday, March 22, 2017 / Notices 14769
Chicago Board Options Exchange, proposed rule change. The text of these requirement, each Market-Maker may
Incorporated Rules statements may be examined at the use its own proprietary quotation and
* * * * * places specified in Item IV below. The risk management system to determine
Rule 6.53C. Complex Orders on the Hybrid Exchange has prepared summaries, set the prices and sizes at which it quotes.
System forth in sections A, B, and C below, of In addition, each Market-Maker may use
(a)–(c) No change.
the most significant aspects of such QRM.
(d) Process for Complex Order RFR statements. A Market-Maker’s risk in a class is not
Auction: Prior to routing to the COB or once limited to the risk in a single series of
A. Self-Regulatory Organization’s that class. Rather, a Market-Maker is
on PAR, eligible complex orders may be
Statement of the Purpose of, and generally actively quoting in multiple
subject to an automated request for responses
(‘‘RFR’’) auction process. Statutory Basis for, the Proposed Rule classes, and each class may comprise
(i) For purposes of paragraph (d): Change hundreds or thousands of individual
(1) ‘‘COA’’ is the automated complex order 1. Purpose series. The System automatically
RFR auction process.
(2) A ‘‘COA-eligible order’’ means a
executes orders against a Market-
On February 25, 2016, the Exchange
complex order that, as determined by the Maker’s quotes in accordance with the
submitted immediately effective filing
Exchange on a class-by-class basis, is eligible Exchange’s priority and allocation
SR–CBOE–2016–014, which amended
for a COA considering the order’s size, rules.11 As a result, a Market-Maker has
Exchange rules related to the initiation
complex order type (as defined in paragraphs exposure and risk in all series in which
(a) and (b) above) and complex order origin of a complex order auction (‘‘COA’’).5
it is quoting in each of its appointed
types (as defined in subparagraph (c)(i) The purpose of SR–CBOE–2016–014 (as
classes. QRM is an optional
above). Complex orders processed through a well as predecessor filings SR–CBOE–
functionality that helps Market-Makers,
COA may be executed without consideration 2015–081 6 and SR–CBOE–2014–017) 7
to prices of the same complex orders that and TPH organizations with which a
was to limit a potential source of
might be available on other exchanges. Market-Maker is associated, limit this
unintended Market-Maker risk related to
(ii) Initiation of a COA: overall exposure and risk.
how the Exchange’s Hybrid Trading Specifically, if a Market-Maker elects
(A) The System will send an RFR message
to all Trading Permit Holders who have System (the ‘‘System’’) 8 calculates risk to use QRM, the System will cancel a
elected to receive RFR messages on receipt of parameters under Rule 8.18 when Market-Maker’s quotes in all series in an
(1) a COA-eligible order with two or more complex orders leg into the market.9 appointed class if certain parameters the
legs (including orders submitted for Market-Maker establishes are triggered.
Quote Risk Monitor
electronic processing from PAR) that is better
Market-Makers may set the following
than the same side of the derived net market Under Rule 8.18, CBOE offers Market-
or (2) a complex order with three or more QRM parameters (Market-Makers may
Makers that are obligated to provide and set none, some or all of these
legs that [(A)] meets the class, size, and maintain continuous electronic quotes
complex order type parameters of parameters):
in an option class the Quote Risk • A maximum number of contracts
subparagraph (d)(i)(2) and [is better than the
same side of the derived net market or (B)] Monitor Mechanism (‘‘QRM’’), which is for that class (the ‘‘contract limit’’) and
is marketable against the derived net market[, functionality to help Market-Makers a specified rolling time period in
designated as immediate or cancel and meets manage their quotes and related risk. seconds within which such contract
the class and size parameters of subparagraph Market-Makers with appointments in limit is to be measured (the
(d)(i)(2)]. Complex orders as described in classes that trade on the System must,
subparagraph (ii)(A)(2) will initiate a COA
‘‘measurement interval’’);
among other things, provide and • a maximum cumulative percentage
regardless of the order’s routing parameters maintain continuous electronic quotes
or handling instructions (except for orders (which is the sum of the percentages of
in a specified percentage of series in the original quoted size of each side of
routed for manual handling). Immediate or
cancel orders that are not marketable against each class for a specified percentage of each series that trade) (the ‘‘cumulative
the derived net market in accordance with time.10 To comply with this percentage limit’’) that the Market-
subparagraph (ii)(A)(2)[(B)] will be cancelled. Maker is willing to trade within a
5 See Securities Exchange Act Release No. 77297
The RFR message will identify the specified measurement interval; or
(March 4, 2016), 81 FR 12764 (March 10, 2016) (SR–
component series, the size and side of the
CBOE–2016–014) (‘‘2016 Notice). • a maximum number of series for
market of the COA-eligible order and any
6 See Securities Exchange Act Release No. 76106 which either side of the quote is fully
contingencies, if applicable.
(B) No change. (October 8, 2015), 80 FR 62125 (October 15, 2015) traded (the ‘‘number of series fully
(SR–CBOE–2015–081) (‘‘2015 Notice). traded’’) within a specified
(iii)–(ix) No change. 7 See Securities Exchange Act Release No. 72986
measurement interval.
* * * * * (September 4, 2014), 79 FR 53798 (September 10,
2014) (SR–CBOE–2014–017) (‘‘Approval Order’’). If the Exchange determines the
The text of the proposed rule change 8 The System is a trading platform that allows Market-Maker has traded more than the
is also available on the Exchange’s Web automatic executions to occur electronically and contract limit or cumulative percentage
site (http://www.cboe.com/AboutCBOE/ open outcry trades to occur on the floor of the limit, or has traded at least the number
CBOELegalRegulatoryHome.aspx), at Exchange. To operate in this ‘‘hybrid’’ environment,
the Exchange has a dynamic order handling system
of series fully traded, of a class during
the Exchange’s Office of the Secretary, that has the capability to route orders to the trade the specified measurement interval, the
and at the Commission’s Public engine for automatic execution and book entry, to System will cancel all of the Market-
Reference Room. Trading Permit Holder and PAR Official Maker’s electronic quotes in that class
workstations located in the trading crowds for
II. Self-Regulatory Organization’s manual handling, and/or to other order
(and any other cases with the same
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Statement of the Purpose of, and management terminals generally located in booths underlying security) until the Market-
Statutory Basis for, the Proposed Rule on the trading floor for manual handling. Where an Maker refreshes those quotes (a ‘‘QRM
order is routed for processing by the Exchange order Incident’’). A Market-Maker, or TPH
Change handling system depends on various parameters
configured by the Exchange and the order entry
organization with which the Market-
In its filing with the Commission, the Maker is associated, may also specify a
firm itself.
Exchange included statements 9 See the Approval Order, the 2015 Notice, and
concerning the purpose of and basis for the 2016 Notice. Market-Makers) and 8.85(a)(i) (Designated Primary
the proposed rule change and discussed 10 See Rules 8.7(d)(ii)(iv) (Market-Makers), 8.13(d) Market-Makers).
any comments it received on the (Preferred Market-Makers), 8.15A(b)(i) (Lead 11 See Rules 6.45 and 6.53C.
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![Federal Register / Vol. 82, No. 54 / Wednesday, March 22, 2017 / Notices 14771
subparagraph (d)(i)(2).13 The Exchange origin code, and proposed subparagraph COA’d[.]’’ 19 SR–CBOE–2015–089
observed IOC orders causing the risk to (ii)(A)(1) provides that the origin code is removed the requirement that an order
Market-Makers described above and an additional parameter the Exchange include a request to initiate a COA, and
believed the previous amendment may set with regards to complex orders instead implemented the opposite—a
proposed in SR–CBOE–2015–081 would with three legs that are priced better ‘‘do-not-COA’’ request that is only
reduce that risk by initiating a COA in than the same side of the derived net allowed for certain orders.20 This
those circumstances. SR–CBOE–2016– market. The Exchange believes it’s particular proposed rule change
014 attempted to fine tune this appropriate to apply the origin code essentially provides that all COA-
requirement by amending Rule parameter to such orders because the eligible orders will COA (unless the
6.53C(d)(ii)(A)(2)(B) to provide that a flexibility allows the Exchange to use its ‘‘do-not-COA provision of Rule
COA will be initiated when a complex considerable expertise in an effort to 6.53C(d)(ii)(B) applies) provided that
order with three or more legs that is ensure COAs are beneficial to the the complex order is priced better than
marketable against the derived net marketplace, which is why the the same side of the derived net market,
market is designated as immediate or Exchange is proposing this particular except the proposal goes further by
cancel and the order meets the class and rule change and why the Exchange allowing certain orders that are not
size parameters of subparagraph developed the COA origin code COA-eligible to still COA according to
(d)(i)(2). SR–CBOE–2016–014 also parameter in 2008.16 Applying the proposed subparagraph (ii)(A)(2). In
hardcoded the price at which an order origin code parameter to complex orders short, it was consistent with the
could initiate a COA. with three legs that are priced better Securities Exchange Act of 1934 (the
The Exchange is proposing to further than the same side of the derived net ‘‘Act’’) to: Initiate a COA for COA-
fine tune the rule text by amending Rule market is consistent with the manner in eligible order when COA was
6.53C(d)(ii)(A)(1) and (2).14 Currently which the rule text was written prior to established in 2005; include the origin
the term COA-eligible order in Rule SR–CBOE–2014–017. To illustrate, SR– type parameter in the COA-eligibility
6.53C(d)(ii)(A)(1) is used in relation to CBOE–2008–082 added the origin type definition when the origin type
orders with two legs. The Exchange is parameter to the definition of a COA- parameter was applied to the COA-
proposing to keep the term COA-eligible eligible order, such that a COA-eligible eligibility definition in 2008; and allow
as the starting point for orders with order was defined as: COA-eligible orders to COA unless a
three or more legs as well,15 because all ‘‘do-not-COA’’ accompanies certain
orders with two or more legs that are A complex order that, as determined by the
orders when the ‘‘do-not-COA’’ request
Exchange on a class-by-class basis, is eligible
COA-eligible (i.e., meets the class, size, was established in 2015. Thus, it
for a COA considering the order’s
order type, and origin code parameters marketability (defined as a number of ticks remains consistent with the Act to
of Rule 6.53C(d)(i)(2)) will be treated the away from the current market), size, complex initiate a COA for a COA-eligible order
same by the Exchange—meaning the order type (as defined in paragraphs (a) and today, which is essentially all proposed
number of legs of an order under Rule (b) above) and complex order origin types (as subparagraph (ii)(A)(1) states. It
6.53C(d)(ii)(A)(1) will not be a factor in defined in subparagraph (c)(i) above).17 similarly remains consistent with the
determining whether a complex order Making current subparagraph Act to allow COA-eligibility to include
will or will not COA. In order to (ii)(A)(2)(A) inapplicable to complex the origin type parameter and to COA
effectuate this change the Exchange is orders that are priced better than the all COA-eligible orders unless particular
also modifying subparagraph derived net market and making orders defined in Rule 6.53C(d)(ii)(B)
(ii)(A)(2)(A) because all orders with subparagraph (ii)(A)(1) applicable to all include a ‘‘do-not-COA’’ request.
three legs or more that are priced better such orders (i.e., allowing the origin The Exchange also notes that adding
than the same side of the derived net the words ‘‘or more’’ to current
code parameter to apply to complex
market will only COA if they are COA- subparagraph (ii)(A)(1) to provide that a
orders that are priced better than the
eligible under subparagraph (ii)(A)(1), COA-eligible order ‘‘with two legs or
same side of the derived net market) is
which means the current rule text of more’’ will COA is consistent with the
consistent with the Act because it
(ii)(A)(2)(A) is unnecessary. The Exchange Act because it is no different
essentially reverts rule text regarding
Exchange notes that the difference than not identifying the number of legs
COA-eligible orders back to how the
between the current rule text with at all, which is how the rule text read
rule text read prior to SR–CBOE–2014–
regards to orders with three legs that are from COA’s inception in 2005 until the
017.
priced better than the same side of the
derived net market is that current Additionally, prior to SR–CBOE– 19 See Securities Exchange Act Release No. 54135
subparagraph (ii)(A)(2)(A) requires a 2014–017, the rule text essentially (July 12, 2006), 71 FR 41287 (July 20, 2006) (SR–
complex order with three or more legs provided that any COA-eligible order CBOE–2005–65).
20 See current Rule 6.53C(d)(ii)(B), which
that meets the class, size, and order type will COA (as long as a member
provides: Notwithstanding subparagraph (ii)(A)(1),
parameter to COA, regardless of the requested that a particular order COA), Trading Permit Holders may request on an order-
and as previously noted, what by-order basis that an incoming COA-eligible order
13 See Rule 6.53C(d)(ii)(A)(2)(B). The Exchange determines COA-eligibility has included with two legs not COA (a ‘‘do-not-COA’’ request).
has not yet implemented the changes described in the origin code parameter since 2008.18 Notwithstanding subparagraph (ii)(A)(2), the
SR–CBOE–2015–081 in anticipation of this System will reject back to a Trading Permit Holder
proposal. To illustrate, SR–CBOE–2005–65, which any complex order described in that subparagraph
14 As with SR–CBOE–2015–081 and SR–CBOE– created COA, provided that a COA that includes a do-not-COA request. Any complex
asabaliauskas on DSK3SPTVN1PROD with NOTICES
2016–014, this proposed change applies to Hybrid would be initiated ‘‘[o]n receipt of a order in subparagraph (ii)(A)(2) on PAR will COA
classes only, and not Hybrid 3.0 classes. The COA-eligible order and request from the even if the PAR operator includes a do-not-COA
Exchange does not believe the risk discussed in this request. If a two-legged order with a do-not-COA
rule filing is present in Hybrid 3.0 classes because member representing the order that it be request rests on PAR, then the PAR operator may
in Hybrid 3.0 classes complex orders are not legged not request that the order COA. An order initially
into the regular market. See Rule 6.53C.10 16 See Securities Exchange Act Release No. 58326 submitted to the Exchange with a do-not-COA
(providing flexibility for the Exchange to determine (August 7, 2008), 73 FR 47986 (August 15, 2008) request may still COA after it has rested on the COB
to not allow marketable complex orders entered (SR–CBOE–2008–82). pursuant to Interpretation and Policy .04. Securities
into COB and/or COA to automatically execute Exchange Act Release No. 76622 (December 11,
against individual quotes residing in the EBook). 17 Id.
2015), 80 FR 78803 (December 17, 2015) (SR–
15 See Proposed Rule 6.53C(d)(ii)(A)(1). 18 Id. CBOE–2015–089).
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Exchange submitted SR–CBOE–2014– marketable against the derived net simpler rule text than what was
017. As previously noted, SR–CBOE– market, and the order meets the class proposed in SR–CBOE–2016–014.
2005–65, provided that a COA would be the class and size parameters of In sum, if a complex order with two
initiated ‘‘[o]n receipt of a COA-eligible subparagraph (d)(i)(2). As previously or more legs is COA-eligible and priced
order and request from the member noted, the purpose of the rule filings in better than the same side of the derived
representing the order that it be this series (SR–CBOE–2014–017, SR– net market, the order will initiate a
COA’d[.]’’ 21 In both cases—a ‘‘COA- CBOE–2015–081, and SR–CBOE–2016– COA. If a complex order with three
eligible order with two or more legs’’ as 014), including the instant filing, is to more legs is not otherwise COA-eligible
proposed or ‘‘a COA-eligible order’’ as limit a potential source of unintended it will still initiate a COA if it is
provided in SR–CBOE–2005–65— the Market-Maker risk related to how the marketable against the derived net
phrase means a complex order with two System calculates risk parameters under market and it meets the class, size, and
or more legs. In fact, there really is no Rule 8.18 when complex orders leg into order type parameters. To illustrate,
purpose to identifying the number of the market. Complex orders with three assuming all of the non-price specific
legs of a COA-eligible order in requirements are met, a complex order
or more legs that are not designated as
subparagraph (d)(ii)(A)(1), but it might with two or more legs under
IOC may still cause the risk to Market-
provide some kind of clarity to market subparagraph (d)(ii)(A)(1) will initiate a
Makers; thus, it is prudent for the
participants, considering that proposed COA if the derived net market is 1–1.20
Exchange to include the order type and the complex order is to buy at $1.01
subparagraph (d)(ii)(A)(2) will indicate
parameter in proposed Rule or higher or to sell at 1.19 or lower.22
that that particular provision applies to
6.53C(d)(ii)(A)(2) instead of singling out As described above, assuming the non-
complex orders with three or more legs.
Thus, it was consistent with the Act to IOCs. The Exchange believes the reason price specific requirements are met, a
initiate a COA upon receipt of COA- SR–CBOE–2016–014 specifically complex order with three legs under
eligible order when COA was identified IOCs in Rule subparagraph (d)(ii)(A)(2) will initiate a
established in 2005, and it remains 6.53C(d)(ii)(A)(2)(B) is because IOC’s are COA if the derived net market is 1—1.20
consistent with the Act to initiate a COA not currently COA-eligible so all IOC and the complex order is to buy at $1.20
for a COA-eligible order, even if the rule orders with two or more legs do not or higher or to sell at $1.00 or lower.
text indicates that a COA will be currently initiate a COA and identifying Initiating a COA in these situations will
initiated upon receipt of a COA-eligible IOCs in the rule text provided further relieve the risk to Market-Makers noted
order with two or more legs. notice to market participants that orders above and throughout this series of rule
The purpose of proposed designated as IOC may COA. However, filings, which helps promote just and
subparagraph (2) of Rule 6.53C(d)(ii)(A) the Exchange believes it’s unnecessary equitable principles of trade by relieving
is simply to allow certain orders with to identify IOCs in the rule text in this risk to Market-Makers allowing them to
three legs that will not COA under manner—although the Exchange notes more efficiently and effectively provide
subparagraph (1) to COA pursuant to that the rule text will continue to state important liquidity.
subparagraph (2). Proposed Rule that IOCs that are not marketable against As previously noted, the Exchange
6.53C(d)(ii)(A)(2) provides that a COA the derived net market in accordance was unable to implement the
will be initiated upon receipt of a with subparagraph (ii)(A)(2) will be amendments made by SR–CBOE–2016–
complex order with three or more legs cancelled, which serves as notice to 014 in the timeframe set forth in SR–
that meets the class, size, and complex market participants that IOCs will CBOE–2016–014. Thus, the Exchange
order type parameters of subparagraph initiate a COA in certain circumstances, will announce the implementation date
(d)(i)(2) and is marketable against the especially considering that upon filing of amendments made in SR–CBOE–
derived net market. In short, if an order this proposal the Exchange will also be 2016–014, as modified by this proposed
with three or more legs does not COA publishing a circular that identifies rule change, in a Regulatory Circular to
pursuant to Rule 6.53C(d)(ii)(A)(1)— IOCs as a contingency that may initiate be published no later than 90 days
because it is not COA-eligible—it may a COA in certain circumstances. following the effective date of this filing.
still COA pursuant to Rule The implementation date will be no
The Exchange also notes that SR– later than 180 days following the
6.53C(d)(ii)(A)(2), as long as the order
CBOE–2016–014 proposed to treat all effective date of this filing.
meets the class, size, complex order
market participants the same when the
type parameters of subparagraph 2. Statutory Basis
Exchange received an order with three
(d)(i)(2) and is marketable against the
or more legs that met the class, size, The Exchange believes the proposed
derived net market.
The Exchange notes that the flaw with complex order type parameters of rule change is consistent with the
SR–CBOE–2016–014 lies in current rule subparagraph (d)(i)(2) and was better Securities Exchange Act of 1934 (the
6.53C(d)(ii)(A)(2)(B), which provides than the same side of the derived net ‘‘Act’’) and the rules and regulations
that a COA will be initiated when a market. Proposed subparagraph (2) of thereunder applicable to the Exchange
complex order with three or more legs: Rule 6.53C(d)(ii)(A) will continue to and, in particular, the requirements of
treat all market participants the same Section 6(b) of the Act.23 Specifically,
is marketable against the derived net market, when the Exchange receives an order the Exchange believes the proposed rule
designated as immediate or cancel and meets
the class and size parameters of subparagraph with three or more legs that meets the change is consistent with the Section
(d)(i)(2). class, size, and complex order type 6(b)(5) 24 requirements that the rules of
parameters of subparagraph (d)(i)(2)— an exchange be designed to prevent
asabaliauskas on DSK3SPTVN1PROD with NOTICES
This provision would prevent the fraudulent and manipulative acts and
except the Exchange will only utilize
Exchange from initiating a COA for an practices, to promote just and equitable
subparagraph (2) when the incoming
order that does not have the IOC
order is marketable against the derived
contingency—even though the order has
net market—instead of when the orders 22 As previously noted, the price at which an
three or more legs, the order is order may initiate a COA was hardcoded by SR–
is priced better than the same side of the CBOE–2016–014. This proposal makes no changes
21 See Securities Exchange Act Release No. 54135
derived net market as SR–CBOE–2016– to the price at which an order may initiate a COA.
(July 12, 2006), 71 FR 41287 (July 20, 2006) (SR– 014 proposed. Ultimately, the Exchange 23 15 U.S.C. 78f(b).
CBOE–2005–65). believes this proposal represents much 24 15 U.S.C. 78f(b)(5).
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![Federal Register / Vol. 82, No. 54 / Wednesday, March 22, 2017 / Notices 14773
principles of trade, to foster cooperation net market is consistent with the proposed rule change is consistent with
and coordination with persons engaged requirement that Market-Makers’ quotes the firm quote rule.
in regulating, clearing, settling, be firm under Rule 602 of Regulation The Exchange also notes making
processing information with respect to, NMS.26 The proposed rule change does subparagraph (ii)(A)(2)(A) inapplicable
and facilitating transactions in not relieve Market-Makers of their to complex orders that are priced better
securities, to remove impediments to obligation to provide ‘‘firm’’ quotes. If a than the derived net market and making
and perfect the mechanism of a free and complex order in a Hybrid class with subparagraph (ii)(A)(1) applicable to all
open market and a national market three or more legs goes through COA such orders is consistent with the Act
system, and, in general, to protect and then legs into the market for because it essentially reverts rule text
investors and the public interest. execution upon completion of the COA, regarding COA-eligible orders back to
Additionally, the Exchange believes the at which point the complex order would how the rule text read prior to SR–
proposed rule change is consistent with execute against a Market-Maker’s quotes CBOE–2014–017. Prior to SR–CBOE–
the Section 6(b)(5) 25 requirement that based on priority rules, the Market- 2014–017, the rule text essentially
the rules of an exchange not be designed Maker must execute its quotes against provided that any COA-eligible order
to permit unfair discrimination between the order at its then-published bid or will COA.28 This proposed rule change
customers, issuers, brokers, or dealers. offer up to its published quote size, even essentially provides the same, except
In particular, the Exchange believes if such execution would cause the certain orders that are not COA-eligible
the proposed rule change is consistent Market-Maker to significantly exceed its may still COA according to proposed
with the purpose of SR–CBOE–2014– risk parameters. However, prior to the subparagraph (ii)(A)(2). Thus, it was
017, SR–CBOE–2015–081, and SR– end of COA (and thus prior to a consistent with the Securities Exchange
CBOE–2016–14, which was to alleviate complex order legging into the market), Act of 1934 (the ‘‘Act’’) to initiate a
a potential risk to Market-Makers that a Market-Maker may adjust its COA-eligible order when COA was
arises through the use of QRM. Complex published quotes to manage its risk in established in 2005, and it remains
orders with three or more legs that are a class as it deems necessary, including consistent with the Act to initiate a
designated that meet the class, size, and to prevent executions that would exceed COA-eligible order.
order type (including IOCs) parameters its risk parameters. In this case, the firm The Exchange also notes that adding
of subparagraph (d)(i)(2) and that are quote rule does not obligate the Market- the words ‘‘or more’’ to current
marketable against the derived net Maker to execute its quotes against the subparagraph (ii)(A)(1) to provide that a
market (which the Exchange has complex order at the quote price and COA-eligible order ‘‘with two legs or
identified as potentially causing risk to size that was published when the order more’’ will COA is consistent with the
Market-Makers) will initiate a COA, entered the System and initiated the Exchange Act because it is no different
which helps promote just and equitable COA. Rather, the Market-Maker’s firm than not identifying the number of legs
principles of trade by relieving risk to at all, which is how the rule text read
quote obligation applies only to its
Market-Makers allowing them to more from COA’s inception in 2005 29 until
disseminated quote at the time an order
efficiently and effectively provide the Exchange submitted SR–CBOE–
is presented to the Market-Maker for
important liquidity. Orders that are 2014–017. In both cases—a ‘‘COA-
execution, which presentation does not
designated as IOC and meet the class eligible order with two or more legs’’ or
occur until the System processes the
and size parameters of subparagraph ‘‘a COA-eligible order’’—the phrase
order against the leg markets after
(d)(i)(2), but that are not marketable means a complex order with two or
completion of the COA.27 Thus, the
against the derived net market, will be more legs. In fact, there really is no
cancelled, which allows order entry 26 Rule 602(b)(2) obligates a Market-Maker to
purpose to identifying the number of
firms to use their own sophisticated execute any order to buy or sell a subject security legs of a COA-eligible order in
technology to manage their orders presented to it by another broker or dealer or any subparagraph (d)(ii)(A)(1), but it might
helping to remove impediments to and other person belonging to a category of persons with provide some kind of clarity to market
whom the Market-Maker customarily deals, at a participants, considering that proposed
perfect the mechanism of a free and price at least as favorable to the buyer or sell as the
open market. SR–CBOE–2016–014 Market-Maker’s published bid or offer in any subparagraph (d)(ii)(A)(2) will indicate
removed the Exchange’s flexibility to amount up to its published quotation size. Rule that that particular provision applies to
determine that price at which an order 602(b)(3) provides that no Market-Maker is complex orders with three or more legs.
obligated to execute a transaction for any subject Thus, it was consistent with the Act to
may initiate a COA, and this proposal security to purchase or sell that subject security in
makes no changes in that regard. an amount greater than its revised quotation size if, initiate a COA-eligible order when COA
Although the Exchange prefers prior to the presentation of an order for the was established in 2005, and it remains
flexibility, the Exchange does not purchase or sale of a subject security, the Market-
foresee the need to retain flexibility in Maker communicated to the Exchange a revised individual market maker generates its own
quotation size. Similarly, no Market-Maker is quotations . . . and exchange systems route
this regard and hardcoding the obligated to execute a transaction for any subject incoming orders to the responsible broker-dealer
parameter may help avoid confusion security if, before the order sought to be executed with priority, when is an order presented to a
with regards to the price at which a is presented, the Market-Maker has communicated responsible broker-dealer? Response:. . . . When
complex order may initiate a COA, to the Exchange a revised bid or offer. CBOE Rule each market maker is the responsible broker-dealer
8.51 imposes a similar obligation (Market-Maker with respect to its own quote, an order is presented
which also helps to remove must sell (buy) at least the established number of to it when received by the market maker from the
impediments to and perfect the contracts at the offer (bid) which is displayed when exchange system.’’). When a complex order is
mechanism of a free and open market. the Market-Maker receives a buy (sell) order at the processing through COA, the order is still in the
The Exchange also believes the trading station where the reported security is System and has not yet been presented to a broker
asabaliauskas on DSK3SPTVN1PROD with NOTICES
located for trading; however, no Market-Maker is or dealer (including a Market-Maker) for execution.
proposed rule change to initiate a COA obligated to execute a transaction for a listed option Only after completion of the COA, when the System
upon receipt of complex orders with when, prior to the presentation of an order to sell allocates the complex order for execution in
three or more legs that meet the class, (buy) to the Market-Maker, the Market-Maker has accordance with priority rules, will that order be
size, and order type (including IOCs) communicated to the Exchange a revised quote). ‘‘presented’’ to the Market-Maker for firm quote
27 See Staff Legal Bulletin No. 16, Transaction in purposes.
parameters of subparagraph (d)(i)(2) and 28 See Securities Exchange Act Release No. 54135
Listed Options Under Exchange Act Rule 11Ac1–1,
that are marketable against the derived U.S. Securities and Exchange Commission, Division (July 12, 2006), 71 FR 41287 (July 20, 2006) (SR–
of Market Regulation, January 20, 2004 (‘‘Scenario CBOE–2005–65).
25 Id. 3: When an Order is ‘‘Presented’’ . . . If an 29 [sic]
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![14774 Federal Register / Vol. 82, No. 54 / Wednesday, March 22, 2017 / Notices
consistent with the Act to initiate a burden on competition; and (iii) become proposed rule change between the
COA-eligible order, even if the rule text operative for 30 days from the date on Commission and any person, other than
indicates that a COA will be initiated which it was filed, or such shorter time those that may be withheld from the
upon receipt of a COA-eligible order as the Commission may designate, it has public in accordance with the
with two or more legs. become effective pursuant to Section provisions of 5 U.S.C. 552, will be
B. Self-Regulatory Organization’s 19(b)(3)(A) of the Act 30 and Rule 19b– available for Web site viewing and
Statement on Burden on Competition 4(f)(6) thereunder.31 printing in the Commission’s Public
At any time within 60 days of the Reference Room, 100 F Street NE.,
CBOE does not believe that the filing of the proposed rule change, the Washington, DC 20549 on official
proposed rule change will impose any Commission summarily may business days between the hours of
burden on intramarket or intermarket temporarily suspend such rule change if 10:00 a.m. and 3:00 p.m. Copies of the
competition that is not necessary or it appears to the Commission that such filing also will be available for
appropriate in furtherance of the action is: (i) Necessary or appropriate in inspection and copying at the principal
purposes of the Act. The Exchange does the public interest; (ii) for the protection office of the Exchange. All comments
not believe the proposed rule change of investors; or (iii) otherwise in received will be posted without change;
will impose any burden on intramarket furtherance of the purposes of the Act. the Commission does not edit personal
competition because all IOC orders will If the Commission takes such action, the identifying information from
be treated equally by the Exchange. The Commission shall institute proceedings submissions. You should submit only
proposed rule change is intended to to determine whether the proposed rule information that you wish to make
reduce risk to Market-Makers that are change should be approved or available publicly. All submissions
quoting in the regular market. CBOE disapproved. should refer to File Number SR–CBOE–
believes that the proposed rule change 2017–021 and should be submitted on
will promote competition by IV. Solicitation of Comments
or before April 12, 2017.
encouraging Market-Makers to increase Interested persons are invited to
the size of and to more aggressively For the Commission, by the Division of
submit written data, views, and Trading and Markets, pursuant to delegated
price their quotes, which will increase arguments concerning the foregoing, authority.32
liquidity on the Exchange. To the extent including whether the proposed rule
that the rule change makes CBOE a more Eduardo A. Aleman,
change is consistent with the Act.
attractive marketplace, market Assistant Secretary.
Comments may be submitted by any of
participants are free to become Trading [FR Doc. 2017–05608 Filed 3–21–17; 8:45 am]
the following methods:
Permit Holders on CBOE and other BILLING CODE 8011–01–P
exchanges are free to amend their rules Electronic Comments
in a similar manner. Furthermore, the • Use the Commission’s Internet
Exchange does not believe the proposed comment form (http://www.sec.gov/ SECURITIES AND EXCHANGE
rule change will impose any burden on rules/sro.shtml); or COMMISSION
intermarket competition because the • Send an email to rule-comments@ Proposed Collection; Comment
rule change does not materially affect sec.gov. Please include File Number SR– Request
the outcome or purpose of SR–CBOE– CBOE–2017–021 on the subject line.
2014–017, SR–CBOE–2015–081, or SR– Upon Written Request, Copies Available
CBOE–2016–014, which was to alleviate Paper Comments
From: Securities and Exchange
potential risk to Market-Makers using • Send paper comments in triplicate Commission, Office of Investor
QRM. The Exchange also does not to Secretary, Securities and Exchange Education and Advocacy,
believe that the hardcoding of the price Commission, 100 F Street NE., Washington, DC 20549–0213
at which a complex order may initiate Washington, DC 20549–1090. Extension:
a COA, as described in SR–CBOE–2016– All submissions should refer to File Rule 482; SEC File No. 270–508, OMB
014, will impose a burden on Number SR–CBOE–2017–021. This file Control No. 3235–0565
competition. Finally, the Exchange does number should be included on the
not believe initiating a COA for a COA- Notice is hereby given that, pursuant
subject line if email is used. To help the to the Paperwork Reduction Act of 1995
eligible order pursuant to Rule Commission process and review your
6.53C(d)(ii)(A)(1) will impose any (44 U.S.C. 3501 et seq.) (‘‘Paperwork
comments more efficiently, please use Reduction Act’’), the Securities and
burden on competition as the Exchange only one method. The Commission will
has initiated a COA for such orders Exchange Commission (the
post all comments on the Commission’s ‘‘Commission’’) is soliciting comments
since the inception of COA in 2005. Internet Web site (http://www.sec.gov/ on the collection of information
C. Self-Regulatory Organization’s rules/sro.shtml). Copies of the summarized below. The Commission
Statement on Comments on the submission, all subsequent plans to submit this existing collection
Proposed Rule Change Received From amendments, all written statements of information to the Office of
Members, Participants, or Others with respect to the proposed rule Management and Budget (‘‘OMB’’) for
change that are filed with the extension and approval.
The Exchange neither solicited nor Commission, and all written
received comments on the proposed Like most issuers of securities, when
communications relating to the an investment company (‘‘fund’’) 1 offers
asabaliauskas on DSK3SPTVN1PROD with NOTICES
rule change.
30 15
its shares to the public, its promotional
III. Date of Effectiveness of the U.S.C. 78s(b)(3)(A).
31 17 CFR 240.19b–4(f)(6). As required under Rule
efforts become subject to the advertising
Proposed Rule Change and Timing for
19b–4(f)(6)(iii), the Exchange provided the
Commission Action Commission with written notice of its intent to file 32 17CFR 200.30–3(a)(12).
Because the foregoing proposed rule the proposed rule change, along with a brief 1 ‘‘Investment
company’’ refers to both
description and the text of the proposed rule investment companies registered under the
change does not: (i) Significantly affect change, at least five business days prior to the date Investment Company Act of 1940 (‘‘Investment
the protection of investors or the public of filing of the proposed rule change, or such Company Act’’) (15 U.S.C. 80a–1 et seq.) and
interest; (ii) impose any significant shorter time as designated by the Commission. business development companies.
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Document Created: 2017-03-22 03:59:04
Document Modified: 2017-03-22 03:59:04
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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