[Federal Register Volume 77, Number 19 (Monday, January 30, 2012)]
[Notices]
[Pages 4591-4593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-1869]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66213; File No. SR-CBOE-2012-009]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to the Appointments in Hybrid 3.0 Classes

January 23, 2012.
    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 January 17, 2012, the Chicago Board Options Exchange, 
Incorporated (``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 has designated the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 19(b)(3)(A) 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 Lead Market-
Maker (``LMM'') and Supplemental Market-Maker (``SMM'') appointments in 
Hybrid 3.0 classes.\5\ The text of the proposed rule change is 
available on the Exchange's Web site (www.cboe.org/Legal), at the 
Exchange's Office of the Secretary and at the Commission.
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    \5\ ``Hybrid Trading System'' refers to the Exchange's trading 
platform that allows Market-Makers to submit electronic quotes in 
their appointed classes. ``Hybrid 3.0 Platform'' is an electronic 
trading platform on the Hybrid Trading System that allows one or 
more quoters to submit electronic quotes which represent the 
aggregate Market-Maker quoting interest in a series for the trading 
crowd. Classes authorized by the Exchange for trading on the Hybrid 
Trading System are referred to as ``Hybrid classes.'' Classes 
authorized by the Exchange for trading on the Hybrid 3.0 Platform 
are referred to as ``Hybrid 3.0 classes.'' References to ``Hybrid,'' 
``Hybrid System,'' or ``Hybrid Trading System'' in the Exchange's 
Rules include all platforms unless otherwise provided by rule. See 
Rule 1.1(aaa).

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[[Page 4592]]

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 those 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 parts 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 Exchange is proposing to amend its rules to permit the 
appointment of one or more LMMs or SMMs to participate in modified 
opening rotations and/or other opening rotations in Hybrid 3.0 classes.
    By way of background, Hybrid 3.0 is an electronic trading platform 
on CBOE's Hybrid System that allows one or more quoters to submit 
electronic quotes which represent the aggregate Market-Maker quoting 
interest in a series for the trading crowd. Under Rule 8.15, Lead 
Market-Makers and Supplemental Market-Makers in Hybrid 3.0 Classes, if 
a Designated Primary Market-Maker (``DPM'') has not been appointed for 
a given Hybrid 3.0 class, the Exchange may appoint one or more LMMs and 
SMMs to perform this quoting function.\6\ As part of their obligations, 
appointed LMMs and SMMs in Hybrid 3.0 classes determine the formula for 
generating automatically updated market quotations during the trading 
day and provide opening quotes during the opening rotation process.
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    \6\ For example, currently the only class traded on the Hybrid 
3.0 Platform is the S&P 500 Index option class, symbol SPX. For this 
class, currently the Exchange has approved four Market-Maker 
organizations to function as LMMs in SPX on a rotating basis. Under 
the current rotation procedures, the Exchange has determined to 
appoint two LMMs per expiration month to perform this quoting 
function. Currently the Exchange does not utilize any SMMs.
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    In order to facilitate a fair and orderly market during opening 
rotations, the Exchange is proposing to amend the appointment 
procedures to permit the Exchange to appoint one or more LMMs and SMMs 
to participate in the modified opening rotation described in 
Interpretation .01 to Rule 6.2B, Hybrid Opening System (``HOSS''), \7\ 
to participate in other opening rotations using HOSS described more 
generally in Rule 6.2B,\8\ and/or determine the formula for generating 
automatically updated market quotations during the trading day. Thus, 
as proposed, one or more LMMs and SMMs could be appointed to perform 
some of [sic] all of these three functions.\9\
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    \7\ The modified HOSS opening rotation procedure is used on 
settlement days of volatility index options and futures contracts 
for which the index options used to calculate the volatility index 
are Hybrid 3.0 classes. Currently, the SPX option class is the only 
Hybrid 3.0 option class in which the modified HOSS opening procedure 
is utilized. Specifically, the modified HOSS opening procedure is 
utilized in certain SPX option series on settlement days for CBOE 
Volatility Index (VIX) options and futures contracts.
    The settlement date for volatility index options and futures 
contracts is on the Wednesday that is thirty days prior to the third 
Friday of the calendar month immediately following the month in 
which the applicable volatility index options or futures contract 
expires. If the third Friday of the month subsequent to expiration 
of the applicable volatility index futures or options contract is a 
CBOE holiday, the final settlement date for the respective contract 
shall be thirty days prior to the CBOE business day immediately 
preceding that Friday. On these settlement dates, Rule 6.2B.01 
provides for a modified HOSS opening procedure only in those index 
option series (i) that are Hybrid 3.0 classes and (ii) whose prices 
are used to calculate a volatility index on which an option or 
future is traded. (The modified HOSS opening procedure may be 
suspended by two Floor Officials in the event of unusual market 
conditions.)
    \8\ There are two other HOSS opening rotation procedures in Rule 
6.2B: the normal HOSS opening rotation procedure referenced in Rule 
6.2B and the Hybrid Agency Liaison opening rotation procedure 
referenced in Rule 6.2B.03 (referred to as ``HAL-O''). Either the 
normal opening procedure or the HAL-O procedure, as determined by 
the Exchange, is used on all other days in those index options and 
on the volatility index options and futures settlement date in all 
contract months whose prices are not used to calculate the 
applicable volatility index. (The Exchange notes that, currently for 
SPX, the normal opening procedure referenced in Rule 6.2B is used.)
    \9\ By comparison, for example, currently, the appointed LMMs in 
SPX perform all of these functions. Under the proposed rule change 
the Exchange may determine, for example, to appoint two LMMs to 
perform all three functions for a given expiration month, and may 
also to [sic] determine to appoint one or more additional LMMs to 
participate in the modified opening rotation process described in 
Rule 6.2B.01.
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    The Exchange believes that having the ability to appoint LMMs and 
SMMs in this fashion--and thereby having the flexibility to appoint 
additional LMMs and SMMs for opening rotations, particularly for 
modified opening rotations--would help the Exchange to maintain a fair 
and orderly market, including in those instances on the opening where 
there may be significant order imbalances and/or where a quoter(s) may 
be experiencing system problems and back-up quotes are needed. The 
Exchange also believes the proposal is consistent with a provision in 
the Exchange Rules that had been applicable to LMM and SMM appointments 
in Non-Hybrid System classes. That provision permitted the Exchange to 
appoint one or more LMMs and SMMs to participate in modified rotations 
in S&P 100 Index options (symbol OEX) described in Interpretation .02 
to Rule 24.13, Trading Rotations, opening rotations using the 
Exchange's Rapid Opening System (``ROS'') described in Rule 6.2A, Rapid 
Opening System, and/or to determine a formula for generating 
automatically updated market quotations during the trading day. This 
provision had applied when the Exchange operated on a different trading 
platform (referred to as the ``Non-Hybrid System''), which utilized the 
ROS technology for opening rotations.\10\
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    \10\ See introductory language to Rule 8.15. Since the Exchange 
not [sic] longer utilizes the Non-Hybrid System and ROS (instead, 
options that trade on the Hybrid 3.0 Platform must use the HOSS 
system described in Rule 6.2B), this provision is outdated and 
unnecessary. See Securities Exchange Act Release No. 58422 (August 
25, 2008), 73 FR 51029 (August 29, 2008) (SR-CBOE-2008-089) (which, 
among other things, amended the title of Rule 8.15 to delete an 
outdated reference to ``Non-Hybrid''). Therefore, in conjunction 
with this instant proposed rule change, the Exchange is also 
proposing to delete this outdated provision in Rule 8.15. In 
addition, the Exchange is proposing certain non-substantive changes 
to reorganize the text so that it is easier to read and understand 
(in particular, the phrase ``with an appointment in an option class 
for which a DPM has not been appointed'' is being deleted and the 
phrase ``in an option class for which a DPM has not been appointed'' 
is being inserted elsewhere within the introductory language to Rule 
8.15.
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2. Statutory Basis
    The Exchange believes the rule proposal is consistent with the 
Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations under the Act applicable to a national securities exchange 
and, in particular, the requirements of Section 6(b) of the Act.\11\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with the Section 6(b)(5) Act \12\ [sic] requirements that 
the rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts and, 
in general, to protect investors and the public interest. In 
particular, the Exchange believes having the ability to appoint LMMs 
and SMMs as proposed would help the Exchange to maintain a fair and 
orderly market, including in those instances on the opening where there 
may be significant order imbalances and/or where a quoter(s) may be 
experiencing system problems and back-up quotes are needed, in a

[[Page 4593]]

manner that is consistent with a provision on [sic] the Exchange Rules 
that had been applicable to LMM and SMM appointments in Non-Hybrid 
System classes.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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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.

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 
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not 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 \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and 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. The 
Exchange has satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because such waiver will help the Exchange to maintain a fair 
and orderly market. Therefore, the Commission designates the proposal 
operative upon filing.\15\
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    \15\ For purposes only of waiving the 30-day 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.

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-2012-009 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-2012-009. 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 a.m. and 3 p.m. Copies of such 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 
publicly available. All submissions should refer to File Number SR-
CBOE-2012-009, and should be submitted on or before February 21, 2012.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-1869 Filed 1-27-12; 8:45 am]
BILLING CODE 8011-01-P