[Federal Register Volume 77, Number 180 (Monday, September 17, 2012)]
[Notices]
[Pages 57171-57173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-22787]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67827; File No. SR-CBOE-2012-085]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Relating to 
Complex Order Auctions

September 11, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 30, 2012, Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and

[[Page 57172]]

Exchange Commission (``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 proposed to amend its Rules regarding complex order 
auctions. 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
    On a class-by-class basis, the Exchange may activate the electronic 
complex order request for responses (``RFR'') auction (``COA''), which 
is a process by which eligible complex orders \3\ are given an 
opportunity for price improvement before being routed to the electronic 
complex order book (``COB'') or once on a PAR workstation. Rule 
6.53C(d) provides that prior to routing a complex order to the COB or 
once on PAR, eligible complex orders may be subject to a COA. On 
receipt of a COA-eligible order and request from the Trading Permit 
Holder representing the order that it be COA'd, the Exchange will send 
an RFR message to all Trading Permit Holders who have elected to 
receive RFR messages.\4\ The RFR message identifies the component 
series, the size of the COA-eligible order and any contingencies, but 
not the side of the market. Eligible Trading Permit Holders may then 
submit responses to the RFR message (``RFR Responses'') during the 
Response Time Interval.\5\
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    \3\ An eligible complex order, referred to in Rule 6.53C as a 
``COA-eligible order,'' means a complex order that, as determined by 
the Exchange on a class-by-class basis, is eligible for a COA 
considering the order's marketability (defined as a number of ticks 
away from the current market), size, complex order type, and complex 
order origin type (i.e. non-broker-dealer public customer, broker-
dealers that are not Market-Makers or specialists on an options 
exchange, and/or Market-Makers or specialists on an options 
exchange). All determinations by the Exchange on COA-eligible order 
parameters are announced to Trading Permit Holders by Regulatory 
Circular. See Rule 6.53C(d)(i)(2) and Interpretation and Policy .01 
to Rule 6.53C.
    \4\ See Rule 6.53C(d)(ii).
    \5\ Each Market-Maker with an appointment in the relevant option 
class, and each Trading Permit Holder acting as agent for orders 
resting at the top of the COB in the relevant option series, may 
submit responses to the RFR message. Alternatively, the Exchange may 
determine on a class-by-class basis to permit COA responses by all 
Trading Permit Holders. See Rule 6.53C(d)(iii). A ``Response Time 
Interval'' means the period of time during which RFR Responses may 
be entered, the length of which is determined by the Exchange on a 
class-by-class basis but may not exceed three seconds. See Rule 
6.53C(d)(iii)(2). RFR Response sizes will be limited to the size of 
the COA-eligible order for allocation purposes and may be expressed 
on a net price basis in a multiple of the minimum increment or in a 
smaller increment that may not be less than $0.01, as determined by 
the Exchange on a class-by-class basis. RFR responses are not 
visible other than by the COA system. See Rule 6.53C(d)(iii)(1). 
Rule 6.53C(d)(iv) through (viii) describes the processing, 
execution, and routing of COA-eligible orders, firm quote 
requirements for COA-eligible orders, and handling of unrelated 
complex orders.
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    Responders to the auction, not knowing the side of the COA order, 
may send RFR Responses on both sides of the market. The CBOE Hybrid 
System (the ``System'') \6\ only considers RFR Responses on the 
opposite side of the COA order. RFR Responses that are on the same side 
as the COA order cannot trade with it and thus are unnecessary, and as 
a result, the System automatically rejects these RFR Responses.
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    \6\ The System is a trading platform that allows automatic 
executions to occur electronically and open outcry trades to occur 
on the floor of the Exchange. To operate in this ``hybrid'' 
environment, the Exchange has a dynamic order handling system that 
has the capability to route orders to the trade engine for automatic 
execution and book entry, to Trading Permit Holder and PAR Official 
workstations located in the trading crowds for manual handling, and/
or to other order management terminals generally located in booths 
on the trading floor for manual handling. Where an order is routed 
for processing by the Exchange order handling system depends on 
various parameters configured by the Exchange and the order entry 
firm itself.
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    The Exchange proposes to amend its rules to provide that the RFR 
message will identify the side of the market of the COA-eligible order 
and to clarify that RFR Responses must be on the opposite side of the 
market of the COA order. Identification of the side of the market of 
the COA order in the RFR message will eliminate the entry of 
unnecessary RFR Responses on the same side of the market of the COA 
order that the System automatically rejects. The Exchange believes that 
the proposed rule change will therefore improve the efficiency of the 
COA process by eliminating excess RFR Responses that can never actually 
trade with the COA order. The Exchange believes that providing this 
additional information to Trading Permit Holders in the RFR message 
could result in more meaningful and effective RFR Responses. RFR 
Responses that exist at the end of the Response Time Interval with 
respect to COA-eligible orders will still be firm. The Exchange will 
announce the implementation date of the proposed rule change by 
Regulatory Circular to be published no later than 90 days following the 
effective date. The implementation date will be no later than 180 days 
following the effective date.
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.\7\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes the proposed rule change 
protects investors and is in the public interest because it will 
eliminate the submission of unnecessary RFR Responses on the same side 
of the market as a COA order (which the System rejects because they 
cannot trade with the COA order), which will ultimately make the COA 
process more efficient. The Exchange believes this added efficiency 
could lead to more meaningful and competitive price RFR Responses, 
which responses may result in better prices for customers.

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

[[Page 57173]]

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 
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-2012-085 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-2012-085. 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-2012-085 and should be 
submitted on or before October 9, 2012.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22787 Filed 9-14-12; 8:45 am]
BILLING CODE 8011-01-P