82 FR 14926 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change Related to Rules Regarding the Responsibility for Ensuring Compliance With Priority and Allocation Requirements and Trade-Through Prohibitions in Open Outcry Trading
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 55 (March 23, 2017)
Federal Register Volume 82, Issue 55 (March 23, 2017)
| Page Range | 14926-14929 | |
| FR Document | 2017-05741 |
[Federal Register Volume 82, Number 55 (Thursday, March 23, 2017)] [Notices] [Pages 14926-14929] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-05741] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80270; File No. SR-CBOE-2016-082] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change Related to Rules Regarding the Responsibility for Ensuring Compliance With Priority and Allocation Requirements and Trade-Through Prohibitions in Open Outcry Trading March 17, 2017. I. Introduction On December 1, 2016, the Chicago Board Options Exchange, Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend Exchange rules regarding responsibility [[Page 14927]] for ensuring compliance with open outcry priority and allocation requirements and trade-through prohibitions. The proposed rule change was published for comment in the Federal Register on December 19, 2016.\3\ The Commission received two comments on the proposed rule change, plus a response letter from CBOE.\4\ On January 31, 2017, pursuant to Section 19(b)(2) of the Exchange Act,\5\ the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.\6\ --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 79540 (December 13, 2016), 81 FR 91967 (``Notice''). \4\ See Letter to Brent J. Fields, Secretary, Commission, from Joan C. Conley, Senior Vice President and Corporate Secretary, Nasdaq, dated December 22, 2016 (``Nasdaq Letter'') and Letter to Brent J. Fields, Secretary, Commission from Steve Crutchfield, Head of Market Structure, CTC Trading Group, LLC; Kevin Coleman, Chief Compliance Officer, Belvedere Trading LLC; Scott Kloin, Chief Compliance Officer, Citadel Securities LLC; Steven Gaston, Chief Compliance Officer, Consolidated Trading LLC; Rob Armour, Chief Compliance Officer, DRW Securities, LLC; John Kinahan, Chief Executive Officer, Group One Trading L.P.; Daniel Overmyer, Chief Compliance Officer, IMC Financial Markets; Steven Gaston, Chief Compliance Officer, Lamberson Capital LLC; and Patrick Hickey, Head of Market Structure, Optiver US LLC, dated February 16, 2017 (``Market Makers Letter''). See also Letter to Brent J. Fields, Secretary, Commission, from Kyle Edwards, Counsel, CBOE, dated March 14, 2017 (``CBOE Response Letter''). The comment letters and CBOE's response are available at https://www.sec.gov/comments/sr-cboe-2016-082/cboe2016082.shtml. \5\ 15 U.S.C. 78s(b)(2). \6\ See Securities Exchange Act Release No. 79910, 82 FR 9464 (February 6, 2017). The Commission designated March 19, 2017, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. --------------------------------------------------------------------------- The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and to institute proceedings under Section 19(b)(2)(B) of the Exchange Act \7\ to determine whether to approve or disapprove the proposed rule change, as discussed in Section III below. The institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved, nor does it mean that the Commission will ultimately disapprove the proposed rule change. Rather, as described in Section III below, the Commission seeks and encourages interested persons to provide additional comment on the proposed rule change in order to inform the Commission's analysis of whether to approve or disapprove the proposed rule change. --------------------------------------------------------------------------- \7\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- II. Summary of Proposal A. Description of Proposal According to the Exchange, currently, if a transaction executed on the trading floor is executed at a price that violates the priority and allocation provisions of 6.45A(b) and 6.45B(b) (``Book Priority'') or the trade-through prohibitions set forth in CBOE Rule 6.81 (``Trade- Through''), the Exchange enforces the violations against both parties to the transaction.\8\ Under the proposed rule change, with respect to an open outcry transaction between a Floor Broker and a Market-Maker, only the party that initiated the transaction on the trading floor would be held responsible for Book Priority and Trade-Through violations.\9\ With respect to an open outcry transaction between a Floor Broker and another Floor Broker, or a Market-Maker and another Market-Maker, the Exchange would hold both parties responsible for Book Priority and Trade-Through violations, consistent with the Exchange's current practice.\10\ --------------------------------------------------------------------------- \8\ See Notice, supra note 3, at 91968. \9\ See proposed Interpretation and Policy .05 to Rule 6.45A, Interpretation and Policy .06 to Rule 6.45B, and Interpretation and Policy .07 to Rule 6.73. \10\ See id. See also Notice, supra note 3, at 91969. --------------------------------------------------------------------------- The Exchange observes that generally, Floor Brokers initiate transactions on the Exchange's trading floor by representing orders and executing the orders against bids and offers of other in-crowd market participants, including Market-Makers.\11\ The Exchange asserts that when Floor Brokers trade with Market-Makers, the Floor Brokers are in a better position to prevent Trade-Through and Book Priority violations because, unlike Market-Makers, Floor Brokers have access to the Public Automatic Routing System (``PAR'') offered by CBOE that provides Floor Brokers with the necessary market data to avoid Trade-Through and Book Priority violations, as well as provides alerts that warn Floor Brokers in advance that a proposed execution price for a given order may violate Book Priority rules or result in a potential Trade-Through.\12\ The Exchange states that generally, a Floor Broker will verbally communicate a request for quote for a given order to the trading crowd, and the Market-Makers will then provide a responsive quote without the aid of PAR.\13\ The Exchange states that Market-Makers evaluate a Floor Broker's request for a quote against the Market-Maker's theoretical values for the given options series, a process which the Exchange observes becomes increasingly complicated when there are multiple options series that must be evaluated for a complex order.\14\ The Exchange asserts that it is therefore reasonable for a Market-Maker to rely on the Floor Broker initiating a trade to ensure that an open outcry transaction is executed in accordance with the Book Priority and Trade-Through provisions.\15\ --------------------------------------------------------------------------- \11\ See Notice, supra note 3, at 91968. \12\ See id. at 91969. \13\ See id. \14\ See id. \15\ See id. In the event a Market-Maker initiates a transaction with a Floor Broker, the Market-Maker would be responsible for ensuring that the transaction is executed in accordance with the Book Priority and Trade-Through provisions. See id. --------------------------------------------------------------------------- The Exchange represents that this rule change, consistent with the Options Intermarket Linkage Plan,\16\ is reasonably designed to prevent Trade-Throughs, as well as Book Priority violations, because it would place the responsibility for ensuring transactions are executed in accordance with the Exchange's rules on the ``specific party or parties in a good position to ensure compliance.'' \17\ The Exchange also believes that the proposed rule change ``may help limit the number of [Book Priority] and Trade-Through violations because the proposal identifies a particular party or parties to each transaction (as opposed to all parties) as responsible for ensuring compliance with the rules.'' \18\ --------------------------------------------------------------------------- \16\ See generally Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000) (Order approving Options Intermarket Linkage Plan). \17\ See Notice, supra note 3, at 91969. \18\ See id. --------------------------------------------------------------------------- B. Summary of Comments As previously noted, the Commission received two comment letters on the proposed rule change, and a response from CBOE.\19\ One commenter states that it neither supports nor opposes the Exchange's proposal,\20\ and the other commenter expresses support for the proposed rule change.\21\ --------------------------------------------------------------------------- \19\ See supra note 4. \20\ See Nasdaq Letter, supra note 4. \21\ See Nasdaq Letter, supra note 4. See Market Makers Letter, supra note 4. --------------------------------------------------------------------------- One commenter suggests that the Exchange explain how PAR operates, and how the Exchange validates trades and conducts surveillances for purposes of regulating Book Priority and Trade-Through violations.\22\ In addition, the commenter suggests that the Commission articulate a principle of governing enforcement of book priority and trade-through requirements to floor trading in standardized options.\23\ Though beyond the scope of CBOE's [[Page 14928]] proposal, the commenter believes that disparities between how markets enforce these requirements could impact intramarket and intermarket competition.\24\ --------------------------------------------------------------------------- \22\ See Nasdaq Letter, supra note 4, at 3. \23\ See id. at 4. \24\ See id. at 3. --------------------------------------------------------------------------- Other commenters (in a joint letter submitted by nine CBOE market participants) support the proposal and assert that the proposed rule change seeks to assign responsibility for ensuring compliance with open outcry priority and allocation requirements and trade-through prohibitions in a ``fair, reasonable, and logical manner,'' particularly in the case of an open-outcry trade initiated by a Floor Broker and responded to by a Market-Maker, because Market-Makers ``generally lack access to'' the tools and alerts CBOE offers to Floor Brokers that help assure compliance with those rules.\25\ The commenters observe that pursuant to the Exchange's rules, it is a Floor Broker's responsibility to use due diligence to execute an order at the best price available, and to ascertain whether a better price than the one displayed is being quoted by another party, and that therefore, a Market-Maker should be able to assume that the Floor Broker has cleared the customer limit order book of any order at a better price in accordance with applicable rules.\26\ The commenters assert that ``the Floor Broker--as the party controlling the precise timing of any execution he or she initiates--is definitively in the best position to ascertain whether a Trade-Through or other rule violation would occur up to the instant of trade consummation, and should therefore appropriately hold sole responsibility for compliance with the applicable rules.'' \27\ The commenters believe that by clearly allocating this responsibility, the proposal would remove impediments to and better align with the mechanism of a free and open market.\28\ --------------------------------------------------------------------------- \25\ See Market Makers Letter, supra note 4, at 1-2. In addition, the commenter asserted that the issues raised by the Nasdaq letter ``have no bearing on'' the Exchange's proposal. See id. \26\ See id. at 2. \27\ See id. \28\ See id. --------------------------------------------------------------------------- In its response letter, the Exchange asserts that the Nasdaq Letter does not address the substance of the proposal but rather offers general comment regarding open outcry trading.\29\ In addition, in response to the Nasdaq Letter, the Exchange notes that its proposal does not describe how PAR operates or its surveillance parameters because this information is described in its rules.\30\ --------------------------------------------------------------------------- \29\ See CBOE Response Letter, supra note 4, at 1. \30\ See id. at 3. --------------------------------------------------------------------------- III. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE- 2016-082 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Exchange Act \31\ to determine whether the proposed rule change should be approved or disapproved. Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as stated below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change to inform the Commission's analysis of whether to approve or disapprove the proposed rule change. --------------------------------------------------------------------------- \31\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- Pursuant to Section 19(b)(2)(B) of the Exchange Act,\32\ the Commission is providing notice of the grounds for disapproval under consideration, as discussed below. The Commission believes that instituting proceedings will allow for additional analysis of, and input from commenters with respect to, the proposed rule change's consistency with Section 6(b)(1) of the Exchange Act, which requires that a national securities exchange is so organized and has the capacity to be able to carry out the purposes of the Exchange Act and to comply, and to enforce compliance by its members and persons associated with its members, with the provisions of the Exchange Act, the rules and regulations thereunder, and the rules of the exchange.\33\ --------------------------------------------------------------------------- \32\ Id. \33\ 15 U.S.C. 78f(b)(1). --------------------------------------------------------------------------- The Commission also is instituting proceedings to allow for additional analysis and input concerning the proposed rule change's consistency with Section 6(b)(5) of the Exchange Act,\34\ which requires that the rules of a national securities exchange be designed, among other things, to promote just and equitable principles of trade and, in general, to protect investors and the public interest and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \34\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Specifically, the Commission is concerned whether the proposed rule change could adversely impact the ability of the Exchange, consistent with Section 6(b)(1) of the Exchange Act, to comply, and to enforce compliance by its members on the CBOE trading floor, with applicable rules and regulations, including the Book Priority and Trade-Through provisions. In particular, the Commission wishes to consider further whether CBOE has sufficiently demonstrated how absolving from liability for Book Priority and Trade-Through rule violations one party to a trade (i.e., the responder, for trades involving a Floor Broker on one side and a Market Maker on the other) while placing sole liability on the other party (i.e., the initiator, for trades involving a Floor Broker on one side and a Market Maker on the other) will foster compliance with those rules by its members and not diminish the Exchange's ability to ensure compliance with these critically important rules. Further, the Exchange's stated justification for its proposal, which relies on the control an initiator has over the execution and price of the order as well as the fact that CBOE supplies its Floor Brokers with a system (PAR) that helps automate the necessary pre-trade checks, appears inconsistent with continuing to hold both parties to a trade liable when the trade is between two Market Makers or two Floor Brokers. Similarly, the proposal raises questions under Section 6(b)(5) of the Exchange Act, in that not enforcing Trade-Through and Book Priority violations against a party based on the identity of its counter-party (i.e., not enforcing against the responder when a Market- Maker trades with a Floor Broker, but enforcing against both parties when a Market-Maker trades with a Market-Maker or a Floor Broker trades with a Floor Broker) may be unfairly discriminatory. IV. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal. In particular, the Commission invites the written views of interested persons concerning whether the proposal is consistent with Sections 6(b)(1), 6(b)(5), or any other provision of the Exchange Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b-4, any request for an [[Page 14929]] opportunity to make an oral presentation.\35\ --------------------------------------------------------------------------- \35\ Section 19(b)(2) of the Exchange Act, as amended by the Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding--either oral or notice and opportunity for written comments--is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). --------------------------------------------------------------------------- Interested persons are invited to submit written data, views, and arguments regarding whether the proposal should be approved or disapproved by April 13, 2017. Any person who wishes to file a rebuttal to any other person's submission must file that rebuttal by April 27, 2017. The Commission asks that commenters address the sufficiency of the Exchange's statements in support of the proposal, in addition to any other comments they may wish to submit about the proposed rule change. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-CBOE-2016-082 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 Numbers SR-CBOE-2016-082. 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 these filings also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2016-082 and should be submitted on or before April 13, 2017. Rebuttal comments should be submitted by April 27, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\36\ --------------------------------------------------------------------------- \36\ 17 CFR 200.30-3(a)(57). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-05741 Filed 3-22-17; 8:45 am] BILLING CODE 8011-01-P
![14926 Federal Register / Vol. 82, No. 55 / Thursday, March 23, 2017 / Notices
contracts and transactions, the Europe will notify the Commission of between the Commission and any
safeguarding of securities and funds in any written comments received by ICE person, other than those that may be
the custody or control of ICE Clear Clear Europe. withheld from the public in accordance
Europe or for which it is responsible with the provisions of 5 U.S.C. 552, will
III. Date of Effectiveness of the
and the protection of investors and the be available for Web site viewing and
Proposed Rule Change, Security-Based printing in the Commission’s Public
public interest, within the meaning of
Swap Submission and Advance Notice Reference Room, 100 F Street NE.,
Section 17A(b)(3)(F) of the Act.5 The
and Timing for Commission Action Washington, DC 20549, on official
amendments are intended to simplify
and increase the efficiency of ICE Clear Within 45 days of the date of business days between the hours of
Europe’s price discovery process. In publication of this notice in the Federal 10:00 a.m. and 3:00 p.m. Copies of such
particular, the changes will decrease Register or within such longer period filings will also be available for
external operational risk, as ICE Clear up to 90 days (i) as the Commission may inspection and copying at the principal
Europe will no longer rely on the designate if it finds such longer period office of ICE Clear Europe and on ICE
services of an intermediary agent to to be appropriate and publishes its Clear Europe’s Web site at https://
perform key aspects of its price reasons for so finding or (ii) as to which www.theice.com/clear-europe/
discovery process. In ICE Clear Europe’s the self-regulatory organization regulation#rule-filings.
view, the amendments will generally consents, the Commission will: All comments received will be posted
enhance the end-of-day settlement (A) By order approve or disapprove without change; the Commission does
process, and thus promote the prompt the proposed rule change or not edit personal identifying
and accurate clearance and settlement of (B) institute proceedings to determine information from submissions. You
cleared contracts, within the meaning of whether the proposed rule change should submit only information that
Section 17A(b)(3)(F) of the Act.6 The should be disapproved. you wish to make available publicly. All
amendments are also consistent with The proposal shall not take effect submissions should refer to File
the requirements regarding the until all regulatory actions required Number SR–ICEEU–2017–003 and
management of operational risk in Rule with respect to the proposal are should be submitted on or before April
17Ad–22(d)(4) 7 and (as and when completed. 13, 2017.
compliance therewith is required) Rule IV. Solicitation of Comments For the Commission, by the Division of
17Ad–22(e)(17).8 Trading and Markets, pursuant to delegated
Interested persons are invited to authority.9
B. Clearing Agency’s Statement on submit written data, views, and
Eduardo A. Aleman,
Burden on Competition arguments concerning the foregoing,
Assistant Secretary.
ICE Clear Europe does not believe the including whether the proposed rule
[FR Doc. 2017–05740 Filed 3–22–17; 8:45 am]
proposed changes to the rules would change, security-based swap submission
or advance notice is consistent with the BILLING CODE 8011–01–P
have any impact, or impose any burden,
on competition not necessary or Act. Comments may be submitted by
appropriate in furtherance of the any of the following methods:
SECURITIES AND EXCHANGE
purpose of the Act. ICE Clear Europe is Electronic Comments COMMISSION
adopting the amendments to the EOD
• Use the Commission’s Internet [Release No. 34–80270; File No. SR–CBOE–
Price Discovery Policy in order to
comment form (http://www.sec.gov/ 2016–082]
enhance certain aspects of the price
rules/sro.shtml) or
discovery process. The amendments
• Send an email to rule-comments@ Self-Regulatory Organizations;
will apply uniformly across all Clearing Chicago Board Options Exchange,
sec.gov. Please include File Number SR–
Members, and will not change the Incorporated; Order Instituting
ICEEU–2017–003 on the subject line.
nature of information to be submitted by Proceedings To Determine Whether To
Clearing Members. ICE Clear Europe Paper Comments Approve or Disapprove a Proposed
does not believe the amendments would • Send paper comments in triplicate Rule Change Related to Rules
materially affect the cost of clearing, to Secretary, Securities and Exchange Regarding the Responsibility for
adversely affect access to clearing in Commission, 100 F Street NE., Ensuring Compliance With Priority and
CDS Contracts for Clearing Members or Washington, DC 20549–1090. Allocation Requirements and Trade-
their customers, or otherwise adversely All submissions should refer to File Through Prohibitions in Open Outcry
affect competition in clearing services. Number SR–ICEEU–2017–003. This file Trading
As a result, ICE Clear Europe does not number should be included on the
believe that the amendments would March 17, 2017.
subject line if email is used. To help the
impose any impact or burden on Commission process and review your I. Introduction
competition that is not appropriate in comments more efficiently, please use
furtherance of the purpose of the Act. On December 1, 2016, the Chicago
only one method. The Commission will Board Options Exchange, Incorporated
C. Clearing Agency’s Statement on post all comments on the Commission’s (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with
Comments on the Proposed Rule Internet Web site (http://www.sec.gov/ the Securities and Exchange
Change Received From Members, rules/sro.shtml). Copies of the Commission (‘‘Commission’’), pursuant
Participants or Others submission, all subsequent to Section 19(b)(1) of the Securities
amendments, all written statements
sradovich on DSK3GMQ082PROD with NOTICES
Written comments relating to the Exchange Act of 1934 (‘‘Exchange
proposed changes to the rules have not with respect to the proposed rule Act’’) 1 and Rule 19b–4 thereunder,2 a
been solicited or received. ICE Clear change, security-based swap submission proposed rule change to amend
or advance notice that are filed with the Exchange rules regarding responsibility
5 15 U.S.C. 78q–1(b)(3)(F). Commission, and all written
6 15 U.S.C. 78q–1(b)(3)(F). communications relating to the 9 17 CFR 200.30–3(a)(12).
7 17 CFR 240.17Ad–22(d)(4). proposed rule change, security-based 1 15 U.S.C. 78s(b)(1).
8 17 CFR 240.17Ad–22(e)(17). swap submission or advance notice 2 17 CFR 240.19b–4.
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![Federal Register / Vol. 82, No. 55 / Thursday, March 23, 2017 / Notices 14927
for ensuring compliance with open II. Summary of Proposal Exchange observes becomes
outcry priority and allocation increasingly complicated when there are
A. Description of Proposal
requirements and trade-through multiple options series that must be
prohibitions. The proposed rule change According to the Exchange, currently, evaluated for a complex order.14 The
was published for comment in the if a transaction executed on the trading Exchange asserts that it is therefore
Federal Register on December 19, floor is executed at a price that violates reasonable for a Market-Maker to rely on
2016.3 The Commission received two the priority and allocation provisions of the Floor Broker initiating a trade to
comments on the proposed rule change, 6.45A(b) and 6.45B(b) (‘‘Book Priority’’) ensure that an open outcry transaction
plus a response letter from CBOE.4 On or the trade-through prohibitions set is executed in accordance with the Book
January 31, 2017, pursuant to Section forth in CBOE Rule 6.81 (‘‘Trade- Priority and Trade-Through
19(b)(2) of the Exchange Act,5 the Through’’), the Exchange enforces the provisions.15
Commission designated a longer period violations against both parties to the The Exchange represents that this rule
within which to approve the proposed transaction.8 Under the proposed rule change, consistent with the Options
rule change, disapprove the proposed change, with respect to an open outcry Intermarket Linkage Plan,16 is
rule change, or institute proceedings to transaction between a Floor Broker and reasonably designed to prevent Trade-
determine whether to disapprove the a Market-Maker, only the party that Throughs, as well as Book Priority
proposed rule change.6 initiated the transaction on the trading violations, because it would place the
floor would be held responsible for responsibility for ensuring transactions
The Commission is publishing this Book Priority and Trade-Through
notice to solicit comments on the are executed in accordance with the
violations.9 With respect to an open Exchange’s rules on the ‘‘specific party
proposed rule change from interested outcry transaction between a Floor
persons and to institute proceedings or parties in a good position to ensure
Broker and another Floor Broker, or a compliance.’’ 17 The Exchange also
under Section 19(b)(2)(B) of the Market-Maker and another Market-
Exchange Act 7 to determine whether to believes that the proposed rule change
Maker, the Exchange would hold both ‘‘may help limit the number of [Book
approve or disapprove the proposed parties responsible for Book Priority and
rule change, as discussed in Section III Priority] and Trade-Through violations
Trade-Through violations, consistent because the proposal identifies a
below. The institution of proceedings with the Exchange’s current practice.10
does not indicate that the Commission particular party or parties to each
The Exchange observes that generally,
has reached any conclusions with transaction (as opposed to all parties) as
Floor Brokers initiate transactions on
respect to any of the issues involved, responsible for ensuring compliance
the Exchange’s trading floor by
nor does it mean that the Commission with the rules.’’ 18
representing orders and executing the
will ultimately disapprove the proposed orders against bids and offers of other B. Summary of Comments
rule change. Rather, as described in in-crowd market participants, including As previously noted, the Commission
Section III below, the Commission seeks Market-Makers.11 The Exchange asserts received two comment letters on the
and encourages interested persons to that when Floor Brokers trade with proposed rule change, and a response
provide additional comment on the Market-Makers, the Floor Brokers are in from CBOE.19 One commenter states
proposed rule change in order to inform a better position to prevent Trade- that it neither supports nor opposes the
the Commission’s analysis of whether to Through and Book Priority violations Exchange’s proposal,20 and the other
approve or disapprove the proposed because, unlike Market-Makers, Floor commenter expresses support for the
rule change. Brokers have access to the Public proposed rule change.21
Automatic Routing System (‘‘PAR’’) One commenter suggests that the
3 See Securities Exchange Act Release No. 79540 offered by CBOE that provides Floor Exchange explain how PAR operates,
(December 13, 2016), 81 FR 91967 (‘‘Notice’’). Brokers with the necessary market data
4 See Letter to Brent J. Fields, Secretary, and how the Exchange validates trades
to avoid Trade-Through and Book and conducts surveillances for purposes
Commission, from Joan C. Conley, Senior Vice
President and Corporate Secretary, Nasdaq, dated Priority violations, as well as provides of regulating Book Priority and Trade-
December 22, 2016 (‘‘Nasdaq Letter’’) and Letter to alerts that warn Floor Brokers in Through violations.22 In addition, the
Brent J. Fields, Secretary, Commission from Steve advance that a proposed execution price commenter suggests that the
Crutchfield, Head of Market Structure, CTC Trading for a given order may violate Book
Group, LLC; Kevin Coleman, Chief Compliance Commission articulate a principle of
Officer, Belvedere Trading LLC; Scott Kloin, Chief Priority rules or result in a potential governing enforcement of book priority
Compliance Officer, Citadel Securities LLC; Steven Trade-Through.12 The Exchange states and trade-through requirements to floor
Gaston, Chief Compliance Officer, Consolidated that generally, a Floor Broker will trading in standardized options.23
Trading LLC; Rob Armour, Chief Compliance verbally communicate a request for
Officer, DRW Securities, LLC; John Kinahan, Chief Though beyond the scope of CBOE’s
Executive Officer, Group One Trading L.P.; Daniel quote for a given order to the trading
Overmyer, Chief Compliance Officer, IMC Financial crowd, and the Market-Makers will then 14 See id.
Markets; Steven Gaston, Chief Compliance Officer, provide a responsive quote without the 15 See id. In the event a Market-Maker initiates a
Lamberson Capital LLC; and Patrick Hickey, Head aid of PAR.13 The Exchange states that transaction with a Floor Broker, the Market-Maker
of Market Structure, Optiver US LLC, dated would be responsible for ensuring that the
February 16, 2017 (‘‘Market Makers Letter’’). See Market-Makers evaluate a Floor Broker’s
transaction is executed in accordance with the Book
also Letter to Brent J. Fields, Secretary, request for a quote against the Market- Priority and Trade-Through provisions. See id.
Commission, from Kyle Edwards, Counsel, CBOE, Maker’s theoretical values for the given 16 See generally Securities Exchange Act Release
dated March 14, 2017 (‘‘CBOE Response Letter’’). options series, a process which the No. 43086 (July 28, 2000), 65 FR 48023 (August 4,
The comment letters and CBOE’s response are
2000) (Order approving Options Intermarket
available at https://www.sec.gov/comments/sr-cboe-
sradovich on DSK3GMQ082PROD with NOTICES
8 See Notice, supra note 3, at 91968. Linkage Plan).
2016-082/cboe2016082.shtml. 17 See Notice, supra note 3, at 91969.
5 15 U.S.C. 78s(b)(2). 9 See proposed Interpretation and Policy .05 to
18 See id.
6 See Securities Exchange Act Release No. 79910, Rule 6.45A, Interpretation and Policy .06 to Rule
82 FR 9464 (February 6, 2017). The Commission 6.45B, and Interpretation and Policy .07 to Rule 19 See supra note 4.
designated March 19, 2017, as the date by which 6.73. 20 See Nasdaq Letter, supra note 4.
10 See id. See also Notice, supra note 3, at 91969. 21 See Nasdaq Letter, supra note 4. See Market
the Commission shall either approve or disapprove,
11 See Notice, supra note 3, at 91968. Makers Letter, supra note 4.
or institute proceedings to determine whether to
disapprove, the proposed rule change. 12 See id. at 91969. 22 See Nasdaq Letter, supra note 4, at 3.
7 15 U.S.C. 78s(b)(2)(B). 13 See id. 23 See id. at 4.
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![Federal Register / Vol. 82, No. 55 / Thursday, March 23, 2017 / Notices 14929
opportunity to make an oral filings also will be available for at www.ise.com, at the principal office
presentation.35 inspection and copying at the principal of the Exchange, and at the
Interested persons are invited to office of the Exchange. All comments Commission’s Public Reference Room.
submit written data, views, and received will be posted without change;
arguments regarding whether the the Commission does not edit personal II. Self-Regulatory Organization’s
proposal should be approved or identifying information from Statement of the Purpose of, and
disapproved by April 13, 2017. Any submissions. You should submit only Statutory Basis for, the Proposed Rule
person who wishes to file a rebuttal to information that you wish to make Change
any other person’s submission must file available publicly. All submissions In its filing with the Commission, the
that rebuttal by April 27, 2017. The should refer to File Number SR–CBOE–
Exchange included statements
Commission asks that commenters 2016–082 and should be submitted on
concerning the purpose of and basis for
address the sufficiency of the or before April 13, 2017. Rebuttal
Exchange’s statements in support of the the proposed rule change and discussed
comments should be submitted by April
proposal, in addition to any other any comments it received on the
27, 2017.
comments they may wish to submit proposed rule change. The text of these
For the Commission, by the Division of statements may be examined at the
about the proposed rule change. Trading and Markets, pursuant to delegated
Comments may be submitted by any places specified in Item IV below. The
authority.36
of the following methods: Exchange has prepared summaries, set
Eduardo A. Aleman,
forth in sections A, B, and C below, of
Electronic Comments Assistant Secretary. the most significant aspects of such
• Use the Commission’s Internet [FR Doc. 2017–05741 Filed 3–22–17; 8:45 am] statements.
comment form (http://www.sec.gov/ BILLING CODE 8011–01–P
rules/sro.shtml); or A. Self-Regulatory Organization’s
• Send an email to rule-comments@ Statement of the Purpose of, and
sec.gov. Please include File Number SR– SECURITIES AND EXCHANGE Statutory Basis for, the Proposed Rule
CBOE–2016–082 on the subject line. COMMISSION Change
Paper Comments [Release No. 34–80267; File No. SR–ISE– 1. Purpose
2017–24]
• Send paper comments in triplicate On April 1, 2015, the Exchange
to Secretary, Securities and Exchange Self-Regulatory Organizations; launched the Member Order Routing
Commission, 100 F Street NE., International Securities Exchange, Program (‘‘MORP’’),3 which is a
Washington, DC 20549–1090. LLC; Notice of Filing and Immediate program that provides enhanced rebates
All submissions should refer to File Effectiveness of Proposed Rule to order routing firms that select the
Numbers SR–CBOE–2016–082. This file Change To Amend the Schedule of Exchange as the default routing
number should be included on the Fees To Modify the Member Order destination for unsolicited Crossing
subject line if email is used. To help the Routing Program Orders.4 The purpose of the proposed
Commission process and review your rule change is to amend the Schedule of
March 17, 2017.
comments more efficiently, please use Fees to allow members to opt in to
Pursuant to Section 19(b)(1) of the
only one method. The Commission will MORP for specific sessions rather than
Securities Exchange Act of 1934
post all comments on the Commission’s on a member-wide basis, and to increase
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
Internet Web site (http://www.sec.gov/ MORP rebates for members that
notice is hereby given that on March 10,
rules/sro.shtml). Copies of the participate in the program. The
2017, the International Securities
submission, all subsequent Exchange believes that these changes
Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’)
amendments, all written statements will encourage members to participate
filed with the Securities and Exchange
with respect to the proposed rule in MORP.
Commission (‘‘Commission’’) the
change that are filed with the
proposed rule change as described in MORP Qualifications
Commission, and all written
Items I, II, and III, below, which Items
communications relating to the
have been prepared by the Exchange. Currently, to be eligible to participate
proposed rule change between the
The Commission is publishing this in MORP, an Electronic Access Member
Commission and any person, other than
notice to solicit comments on the (‘‘EAM’’) must: (1) Provide to its clients,
those that may be withheld from the
proposed rule change from interested systems that enable the electronic
public in accordance with the
persons. routing of option orders to all of the U.S.
provisions of 5 U.S.C. 552, will be
available for Web site viewing and I. Self-Regulatory Organization’s options exchanges, including ISE; (2)
printing in the Commission’s Public Statement of the Terms of Substance of interface with ISE to access the
Reference Room, 100 F Street NE., the Proposed Rule Change Exchange’s electronic options trading
Washington, DC 20549, on official platform; (3) offer to its clients a
The Exchange proposes to amend its customized interface and routing
business days between the hours of Schedule of Fees to allow members to
10:00 a.m. and 3:00 p.m. Copies of these functionality such that ISE will be the
opt in to MORP for specific sessions default destination for all unsolicited
rather than on a member-wide basis,
35 Section 19(b)(2) of the Exchange Act, as
and to increase MORP rebates for 3 See Securities Exchange Act Release No. 74706
amended by the Securities Act Amendments of
sradovich on DSK3GMQ082PROD with NOTICES
1975, Public Law 94–29 (June 4, 1975), grants the members that participate in the (April 10, 2016), 80 FR 20522 (April 16, 2016) (SR–
Commission flexibility to determine what type of program. ISE–2015–11).
proceeding—either oral or notice and opportunity The text of the proposed rule change 4 A ‘‘Crossing Order’’ is an order executed in the
for written comments—is appropriate for is available on the Exchange’s Web site Exchange’s Facilitation Mechanism, Solicited Order
consideration of a particular proposal by a self- Mechanism, Price Improvement Mechanism
regulatory organization. See Securities Act (‘‘PIM’’) or submitted as a Qualified Contingent
36 17 CFR 200.30–3(a)(57).
Amendments of 1975, Senate Comm. on Banking, Cross (‘‘QCC’’) order. For purposes of the fee
1 15 U.S.C. 78s(b)(1).
Housing & Urban Affairs, S. Rep. No. 75, 94th schedule, orders executed in the Block Order
Cong., 1st Sess. 30 (1975). 2 17 CFR 240.19b–4. Mechanism are also considered Crossing Orders.
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Document Created: 2017-03-23 02:45:18
Document Modified: 2017-03-23 02:45:18
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 14926 |
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