[Federal Register Volume 77, Number 200 (Tuesday, October 16, 2012)]
[Notices]
[Pages 63399-63401]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-25333]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68010; File No. SR-CBOE-2012-096]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Order Routing Rules

October 9, 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 October 4, 2012, 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 to amend its order routing rules. 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

[[Page 63400]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule 6.14B governs the Exchange's process for routing sweep orders 
to other markets pursuant to intermarket linkage rules and states that 
the Exchange may contract with one or more routing brokers that are not 
affiliated with the Exchange to route sweep orders to other exchanges. 
The Rule imposes certain obligations on the Exchange and routing 
brokers. In particular, Rule 6.14B(e) provides that the Exchange will 
determine the logic that provides when, how and where orders are routed 
away to other exchanges. Additionally, Rule 6.14B(f) provides that a 
routing broker cannot change the terms of an order or the routing 
instructions, nor does the routing broker have any discretion about 
where to route an order.
    The proposed rule change adds Interpretation and Policy .01 to Rule 
6.14B to clarify that the Rule does not prohibit a routing broker from 
designating a preferred market-maker (or equivalent market participant) 
at the other exchange to which an outbound sweep order is being routed. 
The proposed rule change has no impact on customer orders, which 
receive the same level of order protection and trade at the best market 
prices regardless of whether the routing broker designates a preferred 
market-maker recipient at the destination exchange. The Exchange still 
makes the sole determination as to which exchange an order will be 
routed, as well as when and how the order will be routed. Additionally, 
routing brokers are still prohibited from changing the terms of an 
order or the Exchange's routing instructions and still have no 
discretion about to which exchange an order will be routed.
    The proposed rule change merely clarifies that a routing broker may 
indicate which market-maker at the away exchange may trade against the 
routed order in accordance with the order terms and the Exchange's 
routing instructions. In other words, if a routing broker preferences a 
customer order that is to be routed to another exchange, the order is 
not handled any differently by the routing broker than if the routing 
broker did not preference the order.\3\ Further, the order is executed 
at the same exchange and at the same price and in accordance with the 
same order terms as it would if the routing broker did not preference 
the order. Therefore, the proposed rule change does not disadvantage 
customers in any way. The Exchange believes that other exchanges allow 
this practice and that its routing brokers should be able to do the 
same.
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    \3\ The Exchange notes that orders that may be routed to other 
exchanges under Rule 6.14B are all immediate-or-cancel orders. 
Therefore, routed orders would not be subject to any automated price 
improvement mechanisms that may exist under other exchanges' rules.
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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.\4\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change helps remove impediments to 
and perfect the mechanism for a free and open market and a national 
market system because it still provides customer order protection and 
facilitates trading at away exchanges so that customer orders trade at 
the best market prices. Additionally, customer orders still trade in 
compliance with the Exchange's routing instructions in accordance with 
the Options Order Protection and Locked/Crossed Market Plan. The 
proposed rule change also protects investors and the public interest 
because it clarifies in the rules an existing practice of the 
Exchange's routing brokers, which the Exchange believes other exchanges 
allow their routing brokers to do as well. Finally, codifying this 
practice in the Rules provides additional transparency to Trading 
Permit Holders regarding routing of their orders to away exchanges.

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 
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:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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) \6\ of the Act and 
Rule 19b-4(f)(6) \7\ thereunder.\8\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
    \8\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to provide the Commission with written 
notice of its 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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    At any time within 60 days of the filing of this 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-2012-096 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 63401]]

100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2012-096. 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 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 available publicly. All 
submissions should refer to File Number SR-CBOE-2012-096 and should be 
submitted on or before November 6, 2012.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25333 Filed 10-15-12; 8:45 am]
BILLING CODE 8011-01-P