82 FR 48550 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to the Creation of an Electronic-Only Order Type

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 200 (October 18, 2017)

[Federal Register Volume 82, Number 200 (Wednesday, October 18, 2017)]
[Notices]
[Pages 48550-48552]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-22537]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81862; File No. SR-CBOE-2017-064]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Relating to 
the Creation of an Electronic-Only Order Type

October 12, 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 September 29, 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, II, and III 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 a rule change to create an electronic-only 
order type.
    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
Background
    Exchange Rules describe the process by which orders sent into the 
CBOE will execute electronically and/or via manual handling on the 
Exchange floor. Orders entered by Trading Permit Holders (``TPHs'') 
that are marketable against the Exchange's disseminated quotation may 
execute automatically \3\ or after an electronic auction process such 
as the Exchange's Simple Auction Liaison (``SAL'').\4\ In addition, 
eligible orders may be entered into the Exchanges electronic order 
book.\5\
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    \3\ See CBOE Rules 6.2B, 6.13, 6.14A, and 6.53A.
    \4\ See CBOE Rule 6.13A.
    \5\ See CBOE Rule 7.4.
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    Orders that do not execute via electronic processing and are not 
entered into the electronic book are, by default, routed to either a 
Public Automated Routing (``PAR'') workstation or an Order Management 
Terminal (``OMT'') designated by the TPH entering the order. Orders 
routed to a PAR or OMT can then be executed in open outcry on the 
Exchange floor. CBOE Rule 6.12 describes the process for routing orders 
through the Exchange's order handling system (``OHS''). Rule 6.12 
states, ``The order handling system is a feature within the Hybrid 
System to route orders for automatic execution, book entry, open 
outcry, or further handling by a broker, agent, or PAR Official, in a 
manner consistent with Exchange Rules and the Act (e.g., resubmit the 
order to the Hybrid System for automatic execution, route the order 
from a booth to a PAR workstation, cancel the order, contact the 
customer for further instructions, and/or otherwise handle the order in 
accordance with Exchange Rules and the order's terms).''
    Rule 6.12(a) states, ``Orders may route through the order handling 
system for electronic processing in the Hybrid System or to a 
designated order management terminal or PAR Workstation in any of the 
circumstances described below. Routing designations may be established 
based on various parameters defined by the Exchange, order entry firm 
or Trading Permit Holder, as applicable.'' Rule 6.12(a)(1) further 
states, ``Under Rules 6.2B, 6.13 and 6.53C, orders or the remaining 
balance of orders initially routed from an order entry firm for 
electronic processing that are not eligible for automatic execution or 
book entry will by default route to a PAR workstation designated by the 
order entry firm. If an order entry firm has not designated a PAR 
workstation or if a PAR workstation is unavailable, the remaining 
balance will route to an order management terminal designated by the 
order entry firm. If it is not eligible to route to a PAR workstation 
or order management terminal designated by the order entry firm, the 
remaining balance will be returned to the order entry firm.''
    Rule 6.12A describes PAR functionality. Rule 6.12A specifies that 
orders will be routed to PAR in accordance with TPH and Exchange order 
routing parameters. And the orders terms. [sic] Rule 6.12A further 
specifies that once an order is on PAR the PAR user may (a) submit the 
order electronically, (b) execute the order in open outcry, (c) route 
the order to a designated OMT or return the order to the order entry 
firm, or (d) route the order to an away exchange.
Proposed Rule
    The Exchange is proposing a new type of order within CBOE Rule 
6.53, electronic-only. The proposed rule states, ``An electronic-only 
order is an order to buy or sell that is to be executed in whole or in 
part via electronic processing on the Exchange without routing the 
order to a PAR workstation or an order management terminal for manual 
handling on the Exchange floor. Electronic-only orders will be 
cancelled if routing for manual handling would be required under 
Exchange Rules.''
    Exchange systems will recognize electronic-only orders and will 
only allow the orders to (a) auto-execute electronically, (b) route to 
an electronic exchange auction process, or (c) route to the electronic 
book. If Exchange systems

[[Page 48551]]

determine that, based on the existing routing parameters, an 
electronic-only order would route to a PAR or a OMT, the order will be 
cancelled back to the TPH who entered the order. The cancellation will 
be accompanied by a reason code that indicates it occurred because the 
order was designated electronic-only.
    As noted above Exchange Rules specify that order routing 
designations may be established based on various parameters defined by 
the Exchange, order-entry firm or TPH as applicable. Functionally, 
``electronic-only'' will act as an order handling designation from the 
TPH that will prevent an order from routing to a PAR or OMT. TPHs are 
today free to set routing designations for their orders and move or 
cancel orders as needed. In today's world, if an order is routed to a 
PAR or OMT and TPH who entered the order prefers the order not be 
handled manually, they are free to resubmit the order electronically or 
cancel the order. However, today, it could result in a manual and time-
consuming process of contacting a PAR broker or OMT operator and 
informing them of their instructions regarding an order. As such, the 
electronic order type is simply creating an easy and convenient way for 
market participants to indicate they want a specific order to avoid 
manual handling.
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.\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 facilitation 
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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    As mentioned above, electronic-only will act as an order routing 
designation and does not materially change how orders can be handled or 
processed today. The electronic-only designation will simply allow 
order entry firms and TPH to avoid potentially time-consuming steps of 
retrieving or resubmitting their orders from PAR or OMT. Accordingly 
the Rule change is specifically designed to remove impediments to and 
perfect the mechanism of a free and open market.
    The proposed rule will not permit unfair discrimination between 
customers, issuers, brokers, or dealers as it is available to any TPH 
who routes an order to the Exchange electronically. The electronic-only 
designation does not provide or remove any routing destinations or 
functionality TPHs do not already have today through less automated 
means. The electronic-only designation simply makes keeping an order in 
the electronic space faster and less labor intensive on TPHs.

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

    The Exchange 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. Specifically, the 
electronic-only order designation will be available to all TPHs who 
route orders electronically to the exchange. Further, the electronic-
only designation acts only as a more convenient alternative to TPHs 
already defined ability to set their own routing parameters on the 
orders they send to the Exchange. As such, the Exchange does not 
anticipate the proposed change will result in a reduction of business 
or order flow to any market participant. Finally, the proposed change 
will not affect TPHs ability to route or request routing of orders to 
better priced markets outside CBOE.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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-2017-064 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-2017-064. 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-

[[Page 48552]]

2017-064 and should be submitted on or before November 8, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-22537 Filed 10-17-17; 8:45 am]
BILLING CODE 8011-01-P