[Federal Register Volume 78, Number 62 (Monday, April 1, 2013)]
[Notices]
[Pages 19552-19555]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07414]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69235; File No. SR-CBOE-2013-036]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Order Type and Auction Rules in Advance 
of Mini-Option Launch

March 25, 2013.
    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 March 20, 2013, 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 and II below, which Items have been prepared by 
the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) 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)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to amend Rules 6.53 (Certain Types of Orders 
Defined), 6.74 (Crossing Orders), 6.74A (Automated Improvement 
Mechanism (``AIM'')) and 6.74B (Solicitation Auction Mechanism). Each 
of these rules sets forth minimum order quantities predicated on an 
option contract delivering 100 shares. The proposal would amend these 
rules to maintain the same minimum order quantities in amounts 
proportional to mini-options delivering 10 shares (i.e., the same 
number of underlying securities). The Exchange is not proposing to 
change the substantive content of these 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 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 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
    CBOE recently amended its rules to allow for the listing of mini-
options that deliver 10 physical shares on SPDR S&P 500 (``SPY''), 
Apple, Inc. (``AAPL''), SPDR Gold Trust (``GLD''), Google Inc. 
(``GOOG'') and Amazon.com Inc. (``AMZN'').\5\ Mini-options trading is 
expected to commence on March 18, 2013.
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    \5\ See Securities Exchange Act Release No. 68656 (January 15, 
2013), 78 FR 4526 (January 22, 2013) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change to List and Trade Option 
Contracts Overlying 10 Shares of Certain Securities) (SR-CBOE-2013-
001). See also CBOE Rule 5.5.22.
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    Standard equity and exchange-traded fund (``ETF'') option contracts 
have a unit of trading of 100 shares deliverable and mini-options will 
have a unit of trading of 10 shares deliverable.\6\ Except for the 
difference in the number of deliverable shares, mini-options will have 
the same terms and contract characteristics as standard equity and ETF 
options, including exercise style. Accordingly, the Exchange 
represented in its original mini-option filing that Exchange rules that 
apply to the trading of standard option contracts will apply to mini-
options as well.\7\
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    \6\ Strike prices for mini-options will be set at the same level 
as for standard options. See CBOE Rule 5.5.22(b). Bids and offers 
for mini-options will be expressed in terms of dollars per 1/10th 
part of the total value of the contract. See CBOE Rule 6.41(c). No 
additional series of mini-options may be added if the underlying 
security is trading at $90 or less. The underlying security must 
trade above $90 for five consecutive days prior to listing mini-
option contracts in an additional expiration month. See CBOE Rule 
5.5.22(c).
    \7\ 78 FR 4527.
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    Prior to the commencement of trading mini-options, the Exchange 
proposes to amend Rules 6.53 (Certain Types of Orders Define), 6.74 
(Crossing Orders), 6.74A (AIM) and 6.74B (Solicitation Auction 
Mechanism). Each of these rules sets forth minimum order quantities 
predicated on an option contract delivering 100 shares. The purpose of 
the proposed rule change is to amend these rules to maintain the same 
minimum order quantities in amounts proportional to mini-options 
delivering 10 shares (i.e., the same number of underlying securities). 
The Exchange is not proposing to change the substantive content of 
these rules.
CBOE Rule 6.53(u): Certain Types of Orders Defined--Qualified 
Contingent Crosses (``QCC'')
    CBOE Rule 6.53 sets forth different order types that may be made 
available on a class-by-class basis for trading on the Exchange. 
Subparagraph (u) to CBOE Rule 6.53 provides for the availability of QCC 
orders, which are orders to buy (sell) at least 1,000 standard options 
that are identified as being a part of a qualified contingent trade 
coupled with a contra-side order to buy (sell) an equal number of 
contracts.
    A controversial feature of QCC orders is that they ``may execute 
without exposure provided the execution (1) is not at the same price as 
a public customer order resting in the electronic book and (2) is at or 
between the [National Best Bid or Offer]''.\8\ The Commission approved 
the availability of QCC orders in which the order has a minimum size of 
1,000 standard option contracts (which is equivalent to 10,000 mini-
option contracts). Because QCC orders may be executed without exposure, 
the Exchange believes that it is imperative to maintain the minimum QCC 
order size for mini-options that is required for standard options in 
proportion.
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    \8\ See CBOE Rule 6.53(u)(ii). CBOE commented extensively when 
QCC orders were initially proposed by the International Securities 
Exchange, LLC (``ISE'') and a protracted regulatory review of QCC 
orders culminated with the Commission approving the introduction of 
QCC orders, notwithstanding CBOE's strong objections to the order 
type. See Exchange Act Release No. 63955 (February 24, 2011), 76 FR 
11533 (March 2, 2011) (SR-ISE-2010-73). CBOE adopted rules to permit 
QCC orders as a competitive response but continues to remain 
critical of the order type. See Exchange Act Release No. 64653 (June 
13, 2011), 76 FR 35491 (June 17, 2011) (SR-CBOE-2011-041).
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    Accordingly, CBOE proposes to amend CBOE Rule 6.53(u) to specify 
that the minimum QCC order size for standard options is 1,000 contracts 
and the minimum order size for mini-

[[Page 19553]]

options is 10,000 contracts. Contra-side orders to sell (buy) must 
contain an equal number of contracts that are comprised exclusively of 
the same option type (i.e., all standard options or all mini-options).
CBOE Rule 6.74: Crossing Orders, SizeQuote Mechanism and Tied Hedges
    CBOE Rule 6.74 sets forth rules of priority and order allocation 
procedures that apply to crossing orders in open outcry. Subparagraph 
(d) to Rule 6.74 provides that Floor Brokers may cross a certain 
percentage of a public customer order with a facilitation order of the 
originating firm (i.e., the firm from which the original customer order 
originated). That provision further provides that the Exchange may 
determine to include solicited orders within the provision of the rule 
and may determine (on a class-by-class basis) the eligible size for an 
order that may be transacted under subparagraph (d), however, the 
eligible order size may not be less than 50 standard option contracts 
(which is equivalent to 500 mini-option contracts). The Exchange 
proposes to maintain the minimum eligible order size for mini-options 
that is required for standard options in proportion.
    Accordingly, CBOE proposes to amend CBOE Rule 6.74(d) to specify 
that the minimum crossing order size for standard options may not be 
less than 50 contracts and the minimum crossing order size for mini-
options may not be less than 500 contracts.
    CBOE Rule 6.74(f) sets forth rules regarding the Open Outcry 
``SizeQuote Mechanism,'' which is a process by which a Floor Broker may 
execute and facilitate large-size orders in open outcry. The eligible 
order size may not be less than 250 standard option contracts (which is 
equivalent to 2,500 mini-option contracts). The Exchange proposes to 
maintain the minimum eligible order size for mini-options that is 
required for standard options in proportion.
    Accordingly, CBOE proposes to amend CBOE Rule 6.74(f)(i)(A) to 
specify that the minimum order size for standard options may not be 
less than 250 contracts and the minimum order size for mini-options may 
not be less than 2,500 contracts.
    The Exchange proposes to make a technical, non-substantive change 
to CBOE Rule 6.74(f)(i) to delete obsolete rule text that references a 
pilot program that expired on February 15, 2008.
    CBOE Rule 6.74.10 provides that Rule 6.9 (Solicited Transactions) 
does not prohibit a Trading Permit Holder (``TPH'') or TPH organization 
from buying or selling a stock, security futures or futures position 
following receipt of an option order, including a complex order. Prior 
to announcing such an order to the trading crowd, the option order must 
be in a class that has been designated eligible for ``tied hedge'' 
transactions and must be within the designated tied hedge eligibility 
size parameters, which are established by CBOE on class-by-class basis 
and which may not be smaller than 500 standard option contracts per 
order (which is equivalent to 5,000 mini-option contracts). Multiple 
orders may not be aggregated to satisfy the size parameter. The 
Exchange proposes to maintain the minimum designated tied hedge 
eligibility size parameters for mini-options that are required for 
standard options in proportion.
    Accordingly, CBOE proposes to amend CBOE Rule 6.74.10 to specify 
that the minimum order size for standard options may not be smaller 
than 500 contracts and the minimum order size for mini-options may not 
be smaller than 5,000 contracts.
CBOE Rule 6.74A: AIM
    CBOE Rule 6.74A permits a TPH that represents agency orders to 
electronically execute an order it represents as an agent (``Agency 
Order'') against principal interest or against a solicited order 
provided it submits the Agency Order for electronic execution into the 
AIM auction pursuant to the requirements of CBOE Rule 6.74A. CBOE Rule 
6.74A sets forth minimum size requirements for initiating auctions. 
Specifically, CBOE Rule 6.74A(a)(1) and (2) provide:
     if the Agency Order is for 50 standard option contracts 
(which is equivalent to 500 mini-option contracts) or more, the 
Initiating Trading Permit Holder must stop the entire Agency Order as 
principal or with a solicited order at the better of the NBBO or the 
Agency Order's limit price (if the order is a limit order); and
     if the Agency Order is for less than 50 option standard 
contracts (which is equivalent to 500 mini-option contracts), the 
Initiating Trading Permit Holder must stop the entire Agency Order as 
principal or with a solicited order at the better of (A) the NBBO price 
improved by one minimum price improvement increment, which increment 
shall be determined by the Exchange but may not be smaller than one 
cent; or (B) the Agency Order's limit price (if the order is a limit 
order).
    Similarly, CBOE Rule 6.74A(b)(1)(A) sets forth provisions governing 
the auction period and request for responses (``RFRs''). CBOE Rule 
6.74A(b)(1)(A) sets forth order procedures for automatic matching based 
on size that provide:
     the Agency Order will be stopped at the NBBO (if 50 
standard contracts or greater (which is equivalent to 500 mini-option 
contracts)), or
     one cent/one minimum increment better than the NBBO (if 
less than 50 contracts (which is equivalent to 500 mini-option 
contracts)).
    The Exchange proposes to maintain the order sizes for mini-options 
that are required for standard options in proportion.
    Accordingly, CBOE proposes to amend CBOE Rule 6.74A(a)(2) and (3) 
and 6.74A(b)(1)(A) to specify that order size for standard options is 
50 contracts and the order size for mini-options is 500 contracts.
CBOE Rule 6.74B: Solicitation Auction Mechanism
    CBOE Rule 6.74B permits a TPH that represents agency orders to 
electronically execute orders it represents as agent (``Agency Order'') 
against solicited orders provided it submits the Agency Order for 
electronic execution into the solicitation auction mechanism (the 
``Auction'') pursuant to the requirements of CBOE Rule 6.74B. CBOE Rule 
6.74B requires the Exchange to determine minimum eligible size 
parameters for participation in Auctions, however, the eligible order 
size may not be less than 500 standard option contracts (which is 
equivalent to 5,000 mini-option contracts). The Exchange proposes to 
maintain the minimum eligibility size parameters for mini-options that 
are required for standard options in proportion.
    Accordingly, CBOE proposes to amend CBOE Rule 6.74B(a)(1) to 
specify that the minimum order size for standard options may not be 
less than 500 contracts and the minimum order size for mini-option may 
not be less than 5,000 contracts.
    Standard option series subject to an adjustment will be subject to 
the minimum order quantities for standard options contained in the CBOE 
Rules addressed by this filing and mini-option series subject to an 
adjustment will be subject to the minimum order quantities for mini-
options contained in the CBOE Rules addressed by this filing.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements

[[Page 19554]]

of Section 6(b) of the Act.\9\ In particular, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \10\ 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts, to foster cooperation and coordination with persons 
engaged in facilitating transactions in securities, 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that investors would benefit 
from the current rule proposal because it would clarify how minimum 
order quantities that are predicated on an option contract delivering 
100 shares will apply to mini-options. The Exchange believes that the 
marketplace and investors will be expecting clarification by the 
Exchange on this issue. As a result, the Exchange believes that this 
change would lessen investor and marketplace confusion because the 
rules being amended by this filing will be clear as to the application 
to mini-options.
    The Exchange also believes that the current proposal is designed to 
promote just and equitable principles of trade because it will maintain 
the same minimum order quantities in amounts proportional to mini-
options.

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

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. In this regard, since mini-options are permitted on multiply-
listed classes, the Exchange understands and expects similar rule 
filings will be submitted by other exchanges to similarly change any 
order type and auction rules so that their rules that set forth minimum 
order quantities for standard options will apply in amounts 
proportional to mini-options. CBOE also believes that the proposed rule 
change will enhance competition by providing for the same proportional 
minimum order quantities contained in order type and auction rules to 
apply to standard and mini-options on the same security.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). 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 fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that the proposed rule change may 
coincide with the anticipated launch of trading in Mini Options. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\13\ Waiver of the operative delay will allow the Exchange to 
implement its proposal consistent with the commencement of trading in 
Mini Options as scheduled and expected by members and other 
participants on March 18, 2013. For these reasons, the Commission 
designates the proposed rule change as operative upon filing.
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    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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-2013-036 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-2013-036. 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-2013-036 and should be 
submitted on or before April 22, 2013.


[[Page 19555]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-07414 Filed 3-29-13; 8:45 am]
BILLING CODE 8011-01-P