82 FR 173 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 6.54

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 1 (January 3, 2017)

[Federal Register Volume 82, Number 1 (Tuesday, January 3, 2017)]
[Notices]
[Pages 173-175]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-31765]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79696; File No. SR-CBOE-2016-093]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Rule 6.54

December 27, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 20, 2016, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend its program that allows 
transactions to take place at a price that is below $1 per option 
contract through March 5, 2018. The text of the proposed rule change is 
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
    An ``accommodation'' or ``cabinet'' trade refers to trades in 
listed options on the Exchange that are worthless or not actively 
traded. Cabinet trading is generally conducted in accordance with the 
Exchange Rules, except as provided in Exchange Rule 6.54, Accommodation 
Liquidations (Cabinet Trades), which sets forth specific procedures for 
engaging in cabinet trades. Rule 6.54 currently provides for cabinet 
transactions to occur via open outcry at a cabinet price of $1 per 
option contract in any options series open for trading in the Exchange, 
except that the Rule is not applicable to trading in option classes 
participating in the Penny Pilot Program. Under the procedures, bids 
and offers (whether opening or closing a position) at a price of $1 per 
option contract may be represented in the trading crowd by a Floor 
Broker or by a Market-Maker or provided in response to a request by a 
PAR Official/OBO, a Floor Broker or a Market-Maker, but must yield 
priority to all resting orders in the PAR Official/OBO cabinet book 
(which resting cabinet book orders may be closing only). So long as 
both the buyer and the seller yield to orders resting in the cabinet 
book, opening cabinet bids can trade with opening cabinet offers at $1 
per option contract.
    The Exchange has temporarily amended the procedures through January 
5, 2017 to allow transactions to take place in open outcry at a price 
of at least $0 but less than $1 per option contract.\3\ These lower 
priced transactions are traded pursuant to the same procedures 
applicable to $1 cabinet trades, except that (i) bids and offers for 
opening transactions are only permitted to accommodate closing 
transactions in order to limit use of the procedure to liquidations of 
existing positions, and (ii) the procedures are also available for 
trading in option classes participating in the Penny Pilot Program.\4\ 
The Exchange believes that allowing a price of at least $0 but less 
than $1 better accommodates the closing of options positions in series 
that are worthless or not actively traded, particularly due to market 
conditions which may result in a significant number of series being 
out-of-the-

[[Page 174]]

money. For example, a market participant might have a long position in 
a call series with a strike price of $100 and the underlying stock 
might now be trading at $30. In such an instance, there might not 
otherwise be a market for that person to close-out the position even at 
the $1 cabinet price (e.g., the series might be quoted no bid).\5\
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    \3\ See Securities Exchange Act Release Nos. 59188 (December 30, 
2008), 74 FR 480 (January 6, 2009) (SR-CBOE-2008-133) (adopting the 
amended procedures on a temporary basis through January 30, 2009), 
59331 (January 30, 2009), 74 FR 6333 (February 6, 2009)(extending 
the amended procedures on a temporary basis through May 29, 2009), 
60020 (June 1, 2009), 74 FR 27220 (June 8, 2009) (SR-CBOE-2009-034) 
(extending the amended procedures on a temporary basis through June 
1, 2010), 62192 (May 28, 2010), 75 FR 31828(June 4, 2010) (SR-CBOE-
2010-052) (extending the amended procedures on a temporary basis 
through June 1, 2011); 64403 (May 4, 2011), 76 FR 27110 (May 10, 
2011) (SR-CBOE-2011-048) (extending the amended procedures on a 
temporary basis through December 30, 2011); 65872 (December 2, 
2011), 76 FR 76788 (December 8, 2011) (SR-CBOE-2011-113) (extending 
the amended procedures on a temporary basis through June 29, 2012) 
67144 (June 6, 2012), 77 FR 35095 (June 12, 2012) (SR-CBOE-2012-053) 
(extending the amended procedures on a temporary basis through June 
28, 2013), and 69854 (June 25, 2013), 78 FR 39424 (July 1, 2013) 
(SR-CBOE-2013-063); 69893 (June 28, 2013), 78 FR 40539 (July 5, 
2013) (both extending the amended procedures on a temporary basis 
through January 5, 2014), 71090 [sic] (December 17, 2013), 78 FR 
77532 (December 23, 2013) (SR-CBOE-2013-118) (extending the amended 
procedures on a temporary basis through January 5, 2015), 73974 
(December 31, 2014), 80 FR 911 (January 7, 2015) (SR-CBOE-2014-093) 
(extending the amended procedures on a temporary basis through 
January 5, 2016), and 76566 (December 7, 2015), 80 FR 77061 
(December 11, 2015) (SR-CBOE-2015-108) (extending the amended 
procedures on a temporary basis through January 5, 2017).
    \4\ Currently the $1 cabinet trading procedures are limited to 
options classes traded in $0.05 or $0.10 standard increment. The $1 
cabinet trading procedures are not available in Penny Pilot Program 
classes because in those classes an option series can trade in a 
standard increment as low as $0.01 per share (or $1.00 per option 
contract with a 100 share multiplier). Because the temporary 
procedures allow trading below $0.01 per share (or $1.00 per option 
contract with a 100 share multiplier), the procedures are available 
for all classes, including those classes participating in the Penny 
Pilot Program.
    \5\ As with other accommodation liquidations under Rule 6.54, 
transactions that occur for less than $1 are not be disseminated to 
the public on the consolidated tape. In addition, as with other 
accommodation liquidations under Rule 6.54, the transactions are 
exempt from the Consolidated Options Audit Trail (``COATS'') 
requirements of Exchange Rule 6.24, Required Order Information. 
However, the Exchange maintains quotation, order and transaction 
information for the transactions in the same format as the COATS 
data is maintained. In this regard, all transactions for less than 
$1 must be reported to the Exchange following the close of each 
business day. The rule also provides that transactions for less than 
$1 will be reported for clearing utilizing forms, formats and 
procedures established by the Exchange from time to time. In this 
regard, the Exchange initially intends to have clearing firms 
directly report the transactions to The Options Clearing Corporation 
(``OCC'') using OCC's position adjustment/transfer procedures. This 
manner of reporting transactions for clearing is similar to the 
procedure that CBOE currently employs for on-floor position transfer 
packages executed pursuant to Exchange Rule 6.49A, Transfer of 
Positions.
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    The purpose of the instant rule change is to extend the operation 
of these temporary procedures through March 5, 2018, so that the 
procedures can continue without interruption while CBOE considers 
whether to seek permanent approval of the temporary procedures.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\6\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \7\ requirements that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    In particular, the Exchange believes that allowing for liquidations 
at a price less than $1 per option contract better facilitates the 
closing of options positions that are worthless or not actively 
trading. Further, the Exchange believes the proposal is consistent with 
the Act because the proposed extension is of appropriate length to 
allow the Exchange and the Commission to continue to assess the impact 
of the Exchange's authority to allow transactions to take place in open 
outcry at a price of at least $0 but less than $1 per option in 
accordance with its attendant obligations and conditions, including the 
process for submitting such transactions to OCC for clearing.

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that 
allowing for liquidations at a price less than $1 per option contract 
better facilitates the closing of options positions that are worthless 
or not actively trading. The Exchange believes this promotes fair and 
orderly markets, as well as assists the Exchange in its ability to 
effectively attract order flow and liquidity to its market, and 
ultimately benefit all CBOE Trading Permit Holders (``TPHs'') and all 
investors.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed rule change does not make any changes to Exchange rules, but 
simply extends an existing temporary program. Further, the program is 
available to all market participants through CBOE TPHs. The Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because, again, the proposed 
rule change does not make any changes to Exchange rules, but simply 
extends an existing temporary program. Moreover, to the extent that the 
program makes CBOE a more attractive marketplace, as noted above, the 
program is available to all market participants through CBOE TPHs.

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 \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) \11\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing with the Commission, 
the Exchange requests that the Commission waive the 30-day operative 
delay so that the pilot may continue without interruption. The 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow the pilot to continue uninterrupted, avoiding any 
potential investor confusion that could result from a temporary 
interruption in the pilot and allowing members to continue to benefit 
from the program. Therefore, the Commission designates the proposed 
rule change operative upon filing.\12\
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    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the

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Commission takes such action, the Commission will institute proceedings 
to determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2016-093 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2016-093. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2016-093 and should be 
submitted on or before January 24, 2017.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31765 Filed 12-30-16; 8:45 am]
 BILLING CODE 8011-01-P