[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40230-40232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-15917]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69867; File No. SR-CBOE-2013-066]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Extending AIM Pilot Programs

 June 27, 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 June 26, 2013, 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 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 rules related to its Automated 
Improvement Mechanism (``AIM''). The text of the proposed rule change 
is provided below.
    (Additions are italicized; deletions are [bracketed].)
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 6.74A. Automated Improvement Mechanism (``AIM'')

    Notwithstanding the provisions of Rule 6.74, a Trading Permit 
Holder that represents agency orders may electronically execute an 
order it represents as agent (``Agency Order'') against principal 
interest or against a solicited order provided it submits the Agency 
Order for electronic execution into the AIM auction (``Auction'') 
pursuant to this Rule.
    (a)-(b) No change.
    * * * Interpretations and Policies:
    .01-.02 No change.
    .03 Initially, and for at least a Pilot Period expiring on July 18, 
2014[3], there will be no minimum size requirement for orders to be 
eligible for the Auction. During this Pilot Period, the Exchange will 
submit certain data, periodically as required by the Commission, to 
provide supporting evidence that, among other things, there is 
meaningful competition for all size orders and that there is an active 
and liquid market functioning on the Exchange outside of the Auction 
mechanism. Any data which is submitted to the Commission will be 
provided on a confidential basis.
    .04-.05 No change.
    .06 Subparagraph (b)(2)(E) of this rule will be effective for a 
Pilot Period until July 18, 2014[3]. During the Pilot Period, the 
Exchange will submit certain data, periodically as required by the 
Commission, relating to the frequency with which early termination of 
the Auction occurs pursuant to this provision as well as any other 
provision, and also the frequency with which early termination pursuant 
to this provision results in favorable pricing for the Agency Order. 
Any data which is submitted to the Commission will be provided on a 
confidential basis.
    .07-.08 No change.
* * * * *
    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
    In February 2006, CBOE obtained approval from the Commission to 
adopt the AIM auction process.\3\ AIM exposes certain orders 
electronically to an auction process to provide these orders with the 
opportunity to receive an execution at an improved price. The AIM 
auction is available only for orders that a Trading Permit Holder 
represents as agent (``Agency Order'') and for which a second order of 
the same size as the Agency Order (and on the opposite side of the 
market) is also submitted (effectively stopping the Agency Order at a 
given price).
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    \3\ See Securities Exchange Release No. 53222 (February 3, 
2006), 71 FR 7089 (February 10, 2006) (SR-CBOE-2005-060).
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    The Commission approved two components of AIM on a pilot basis: (1) 
That there is no minimum size requirement for orders to be eligible for 
the auction; and (2) that the auction will conclude prematurely anytime 
there is a quote lock on the Exchange pursuant to Rule 6.45A(d).\4\ In 
connection with the pilot programs, the Exchange has submitted to the 
Commission reports providing detailed AIM auction and order execution 
data, and the Exchange will continue to submit to the Commission these 
reports. Seven one-year extensions to the pilot programs have 
previously become effective.\5\ The proposed rule change merely extends 
the duration of the pilot programs until July 18, 2014. Extending the 
pilots for an additional year will allow the Commission more time to 
consider the impact of the pilot programs on AIM order executions.
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    \4\ A quote lock occurs when a CBOE Market-Maker's quote 
interacts with the quote of another CBOE Market-Maker (i.e. when 
internal quotes lock).
    \5\ See Securities Exchange Act Release Nos. 54147 (July 14, 
2006), 71 FR 41487 (July 21, 2006) (SR-CBOE-2006-064); 56094 (July 
18, 2007), 72 FR 40910 (July 25, 2007) (SR-CBOE-2007-080); 58196 
(July 18, 2008), 73 FR 43803 (July 28, 2008) (SR-CBOE-2008-076) (in 
this filing, the Exchange agreed to provide to the Commission 
additional information relating to the AIM auctions each month in 
order to aid the Commission in its evaluation of the pilot program, 
which the Exchange will continue to do); 60338 (July 17, 2009), 74 
FR 36803 (July 24, 2009) (SR-CBOE-2009-051); 62522 (July 16, 2010), 
75 FR 43596 (July 26, 2010) (SR-CBOE-2010-067); 64930 (July 20, 
2011), 76 FR 44636 (July 26, 2011) (SR-CBOE-2011-066); and 67302 
(June 28, 2012), 77 FR 39779 (July 5, 2012) (SR-CBOE-2012-061).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the

[[Page 40231]]

Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    In particular, the proposed rule change protects investors and the 
public interest by allowing for an extension of the AIM pilot programs, 
and thus allowing additional time for the Commission to evaluate the 
AIM pilot programs. The AIM pilot programs will continue to allow (1) 
smaller orders to receive the opportunity for price improvement 
pursuant to the AIM auction, and (2) Agency Orders in AIM auctions that 
are concluded early because of quote lock on the Exchange to receive 
the benefit of the lock price.

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. The Exchange does not believe 
the proposed rule change imposes any burden on intramarket competition 
because it applies to all Trading Permit Holders. All Trading Permit 
Holders that submit orders into an AIM auction are still subject to the 
same requirements. In addition, the Exchange does not believe the 
proposed rule change will impose any burden on intermarket competition, 
as it merely extends the duration of existing pilot programs, which are 
available to all market participants through Trading Permit Holders. 
AIM will continue to function in the same manner as it currently 
functions for an extended period of time.

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: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
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)(ii) of the Act \9\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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 
Commission deems this requirement to have been met.
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    A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \12\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requested 
that the Commission waive the 30-day operative delay. The Exchange 
noted that such waiver will permit the AIM pilot programs to continue 
without interruption.
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    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the pilot programs to continue uninterrupted, thereby 
avoiding any potential investor confusion that could result from a 
temporary interruption in the pilot programs. Further, the Commission 
notes that, because the filing was submitted for immediate 
effectiveness on June 26, 2013, the fact that the current rule 
provision does not expire until July 18, 2013 will afford interested 
parties the opportunity to comment on the proposal before the Exchange 
requires it to become operative. For this reason, the Commission 
designates the proposed rule change to be operative on July 18, 
2013.\13\
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    \13\ For purposes only of waiving the 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-2013-066 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-2013-066. 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 10:00 a.m. and 3:00 p.m., located at 
100 F Street NE., Washington, DC 20549. Copies of

[[Page 40232]]

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-2013-066 and should be submitted on or before July 
24, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
 Kevin M. O'Neill,
Deputy Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-15917 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P