[Federal Register Volume 76, Number 250 (Thursday, December 29, 2011)]
[Notices]
[Pages 82016-82017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-33450]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66038; File No. SR-CBOE-2011-117]


 Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Relating to 
Its Automated Improvement Mechanism

December 22, 2011.
    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 14, 2011, the 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its rules relating to its Automated 
Improvement Mechanism (``AIM''). 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.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 self-regulatory organization 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend Rule 6.74A to 
permit an Initiating TPH to elect to have last priority in AIM's order 
allocation. AIM allows a TPH to submit an Agency Order along with a 
contra-side second order (a principal order or a solicited order for 
the same size as the Agency Order) into an Auction where other 
participants could compete with the Initiating TPH's second order to 
execute against the Agency Order, which guarantees that the Agency 
Order will receive an execution.\3\ Initiating TPHs must submit the 
Agency Order at the better of the NBBO or the Agency Order's limit 
price (if the order is a limit order).\4\ Once an Auction commences, 
the Initiating TPH cannot cancel it.\5\ Upon receipt of an Agency Order 
(and the Initiating TPH's second order), the Exchange will commence the 
Auction by issuing an RFR detailing the side and size of the Agency 
Order. The RFR period will last for one (1) second.\6\ At the 
conclusion of an Auction, an Agency Order will be allocated at the best 
price(s) in accordance with the applicable matching algorithm rules for 
that class, subject to the allocation provisions of Rule 6.74A(b)(3).
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    \3\ See CBOE Rule 6.74A.
    \4\ See CBOE Rule 6.74A(a)(2).
    \5\ See CBOE Rule 6.74A(b)(1)(A).
    \6\ See CBOE Rule 6.74A(b)(1). Several types of events will 
cause an Auction to conclude. See CBOE Rule 6.74A(b)(2).
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    Under this proposal, when submitting an Agency Order to initiate an 
Auction against a single-price submission, the Initiating TPH will have 
the opportunity to elect to have last priority in AIM's order 
allocation. If the Initiating TPH makes this election, the Initiating 
TPH would be allocated only the amount of contracts remaining, if any, 
after the Agency Order is allocated to all other Auction participants 
willing to trade with the Agency Order at the single-price submission 
price.\7\ If it makes this election, the Initiating TPH may not be 
allocated any contracts, or may be allocated fewer contracts than it 
would otherwise receive pursuant to Rule 6.74A(b)(3)(F) (generally 
40%).
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    \7\ The Exchange notes that Chapter V, Section 18(f)(v), The 
Price Improvement Period (``PIP''), of the Rules of the Boston 
Exchange Group, LLC includes a similar provision that permits an 
options participant initiating a PIP auction to designate a lower 
amount for which it will retain certain priority and trade 
allocation privileges upon the conclusion of the PIP auction than 
the 40% of the PIP order to which the initiating options participant 
is otherwise entitled pursuant to PIP's allocation order.
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    As an example, suppose an Initiating TPH submits to an Auction an 
Agency Order for 1,000 contracts and makes the election described 
above:
     If at the conclusion of the Auction, other Auction 
participants are willing to trade with 800 of these contracts at the 
single-price submission price or better price(s) resulting from the 
Auction, then the Initiating TPH will be allocated the remaining 200 
contracts (or 20%) for execution against its contra-side order at its 
specified single price.
     If at the conclusion of the Auction, other Auction 
participants are willing to trade with 600 of these contracts at the 
single-price submission price or better price(s) resulting from the 
Auction, then the Initiating TPH will be allocated the remaining 400 
contracts (or 40%) for execution against its contra-side order at its 
specified single price.
     If at the conclusion of the Auction, other Auction 
participants are willing to trade with 400 of these contracts at the 
single-price submission price or better price(s) resulting from the 
Auction, then the Initiating TPH will be allocated 600 contracts for 
execution against its contra-side order at its specified single price.
     If at the conclusion of the Auction, other Auction 
participants are willing to trade with the entire Agency Order at the 
single-price submission price or better price(s) resulting from the 
Auction, then the Initiating TPH will be allocated no contracts.
    Under this proposal, Agency Orders submitted to AIM will continue 
to be guaranteed execution at a price at least as good as the NBBO 
while providing the opportunity for execution at a price better than 
the NBBO.
    The Exchange believes this proposal will incent more TPHs to 
initiate Auctions, because the additional flexibility encourages 
increased participation by TPHs willing to trade with Agency Orders at 
the NBBO but

[[Page 82017]]

not at a price better than the NBBO and by TPHs willing to facilitate 
and stop a customer order at a particular price even when there is not 
a desire to trade against any or all of the customer order. 
Additionally, this proposal provides the possibility that other TPHs 
may receive increased order allocations through AIM, which the Exchange 
believes could increase participation in Auctions. The Exchange 
believes that this proposal may ultimately provide additional 
opportunities for price improvement over the NBBO for its customers.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange and, in particular, the 
requirements of Section 6(b) of the Act\8\. Specifically, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5)\9\ requirements that the rules of an exchange be designed to 
promote just and equitable principles of trade, to prevent fraudulent 
and manipulative acts, to remove impediments to and to perfect the 
mechanism for a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes this proposed rule change is a 
reasonable modification designed to provide additional flexibility for 
TPHs to obtain executions on behalf of their customers while continuing 
to provide meaningful, competitive Auctions. The Exchange also believes 
that the proposed rule change will increase the number of and 
participation in Auctions, which will ultimately enhance competition in 
the AIM Auctions and provide customers with additional opportunities 
for price improvement.

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 not necessary or appropriate in furtherance of 
the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to 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 (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization 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-2011-117 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2011-117. 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 on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of such filing also will be available for inspection and copying at the 
principal office of the CBOE. 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-2011-117, and should be submitted on or before 
January 19, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-33450 Filed 12-28-11; 8:45 am]
BILLING CODE 8011-01-P