[Federal Register Volume 78, Number 140 (Monday, July 22, 2013)]
[Notices]
[Pages 43953-43956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-17469]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69990; File No. SR-CBOE-2013-062]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to PULSe Workstation Functionality

July 16, 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 July 9, 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, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to expand on the Exchange's past description of the 
routing functionality made available through the PULSe workstation. No 
changes to Exchange rule text are being proposed.

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
    The purpose of this proposed rule change is to expand on the 
Exchange's past description of the routing functionality made available 
through the PULSe workstation and to explain

[[Page 43954]]

some new functionality. No changes to Exchange rule text are being 
proposed.
Background
    By way of background, the PULSe workstation is a front-end order 
entry system designed for use with respect to orders that may be sent 
to the trading systems of CBOE and CBOE Stock Exchange, LLC (``CBSX''). 
In addition, the PULSe workstation provides a user with the capability 
to send options orders to other U.S. options exchanges and/or stock 
orders to other U.S. stock exchanges and trading centers \3\ (``away-
market routing'').\4\ To use the away-market routing functionality, a 
CBOE or CBSX Trading Permit Holder (``TPH'') must either be a PULSe 
Routing Intermediary or establish a relationship with a third party 
PULSe Routing Intermediary. A ``PULSe Routing Intermediary'' is a CBOE 
or CBSX TPH that has connectivity to, and is a member of, other options 
and/or stock exchanges and other trading centers. If a TPH sends an 
order from the PULSe workstation, the PULSe Routing Intermediary will 
route that order to the designated market on behalf of the entering 
TPH. Among other things, the PULSe workstation also causes CBOE and/or 
C2 (CBSX) to be the default destination exchange(s) (trading center) 
for individually executed marketable option (stock) orders if CBOE and/
or C2 (CBSX) is at the national best bid or offer (``NBBO''), 
regardless of size or time, but allows any user to manually override 
CBOE and/or C2 (CBSX) as the default destination on an order-by-order 
basis (the ``default destination function'').\5\ Under the current Fees 
Schedule, the Exchange assesses, in relevant part: \6\
---------------------------------------------------------------------------

    \3\ A ``trading center,'' as provided under Rule 600(b)(78) of 
Regulation NMS, 17 CFR 242.600(b)(78), means a national securities 
exchange or national securities association that operates an SRO 
trading facility, an alternative trading system, an exchange market 
maker, an OTC market maker, or any other broker or dealer that 
executes orders internally by trading as principal or crossing 
orders as agent.
    \4\ For a more detailed description of the PULSe workstation and 
its other functionalities, see, e.g., Securities Exchange Act 
Release Nos. 62286 (June 11, 2010), 75 FR 34799 (June 18, 2010) (SR-
CBOE-2010-051), 63244 (November 4, 2010), 75 FR 69148 (November 10, 
2010) (SR-CBOE-2010-100), 63721 (January 14, 2011), 76 FR 3929 
(January 21, 2011) (SR-CBOE-2011-001), 65280 (September 7, 2011), 76 
FR 56838 (September 14, 2011) (SR-CBOE-2011-083), and 65491 (October 
6, 2011), 76 FR 63680 (October 13, 2011) (SR-CBOE-2011-092).
    \5\ Nothing about the PULSe order routing functionality would 
relieve any TPH that is using the PULSe workstation from complying 
with its best execution obligations. Specifically, just as with any 
customer order and any other routing functionality, a TPH would have 
an obligation to consider the availability of price improvement at 
various markets and whether routing a customer order through the 
PULSe functionality would allow for access to opportunities for 
price improvement if readily available. Moreover, a TPH would need 
to conduct best execution evaluations on a regular basis, at a 
minimum quarterly, that would include its use of the PULSe 
workstation.
    \6\ For a complete listing of PULSe workstation-related fees, 
please refer to the CBOE Fees Schedule.
---------------------------------------------------------------------------

     An Away-Market Routing fee to the entering TPH of $0.02 
per executed options contract (or equivalent share amount in the case 
of stock) for away-market routing of orders through the PULSe 
workstation;
     an Away-Market Routing Intermediary fee to a Routing 
Intermediary for utilizing the PULSe away-market routing technology of 
$0.02 per executed contract or share equivalent for the first 1 million 
contracts or share equivalent executed in a given month, and $0.03 per 
contract or share equivalent for each additional contract or share 
equivalent executed in the same month; \7\ and
---------------------------------------------------------------------------

    \7\ This fee is assessed to Routing Intermediaries whether the 
Routing Intermediary is routing orders on behalf of itself as a TPH 
or as a third party Routing Intermediary for other TPHs. The fee is 
only applicable for away-market routing from any PULSe workstation. 
The fee rates are determined based on the aggregate level of 
transactions across all away-markets and across all PULSe 
workstations for which firm serves as the Routing Intermediary. See, 
e.g., SR-CBOE-2011-083, note 1, supra.
    The Exchange notes that the Away-Market Routing Intermediary fee 
is not applicable for routes to the C2 Options Exchange, 
Incorporated (``C2'') to the extent that the CBOE/CBSX TPH 
submitting the order to C2 is also a C2 TPH. By way of background, 
the PULSe workstation offers the ability to route orders to any 
market, including CBOE/CBSX affiliate C2. To the extent a CBOE/CBSX 
TPH that is also a C2 TPH obtains a PULSe workstation through CBOE, 
it is not necessary for that TPH to obtain a separate PULSe 
workstation through C2 to route orders to C2. It is also not 
necessary for that TPH to utilize the services of a Routing 
Intermediary to route orders to C2. As such, to the extent a CBOE/
CBSX TPH is also a C2 TPH, a Routing Intermediary fee would not be 
applicable because the fee is only applicable for away-market 
routing through a Routing Intermediary. The TPH would not be routing 
away through a Routing Intermediary, but instead would be submitting 
orders directly to CBOE as a CBOE TPH, CBSX as a CBSX TPH or C2 as a 
C2 TPH, as applicable, where the TPH's activity would be subject to 
the transaction fee schedule of CBOE, CBSX or C2, respectively. To 
the extent a CBOE/CBSX TPH is not a C2 TPH and utilizes the services 
of a third party Routing Intermediary to route orders to C2, the 
Routing Intermediary would be subject to the fee for the CBOE/CBSX 
TPH's executions on C2.
---------------------------------------------------------------------------

     a CBOE/CBSX Routing fee to a TPH that makes the PULSe 
workstation available to non-TPHs. This fee is only applicable for 
routing to CBOE/CBSX from such non-TPH PULSe workstations. The fee is 
$0.02 per contract or share equivalent for the first 1 million 
contracts or share equivalent executed in a month on CBOE/CBSX that 
originate from the non-TPH PULSe workstations made available by the 
TPH, and $0.03 per contract or share equivalent for each additional 
contract or share equivalent executed on CBOE/CBSX in the same month 
from the non-TPH PULSe workstations made available by the TPH.\8\
---------------------------------------------------------------------------

    \8\ The Exchange notes that C2 has a similar ``C2 Routing'' fee 
in the C2 Fees Schedule that is applicable to C2 TPHs. To the extent 
that a CBOE TPH making the non-TPH PULSe workstations available is 
not also a CBSX TPH or a C2 TPH, routing from the non-TPH 
workstations to CBSX or C2 is not considered ``CBOE/CBSX Routing'' 
or ``C2 Routing,'' respectively, and, therefore, is not subject to 
those fees (it would instead be considered ``away-market routing'' 
and subject to the Away-Market Routing and Away-Market Routing 
Intermediary fees described above). To the extent that a CBOE TPH 
making the non-TPH PULSe workstations available is also a CBSX TPH 
or C2 TPH, routing from the non-TPH workstations to CBSX or C2 is 
considered ``CBOE/CBSX Routing'' or ``C2 Routing,'' respectively, 
and therefore is subject to the respective fee.
    Example 1: Assume a CBOE TPH that is not a C2 TPH makes a PULSe 
workstation available to Non-TPH User A. To the extent that orders 
originating from Non-TPH User A's PULSe workstation are routed to 
CBOE, any resulting executions would be subject to the CBOE/CBSX 
Routing fee. To the extent that orders originating from Non-TPH User 
A's PULSe workstation are routed to C2, any resulting executions 
would be considered away-market routing and subject to the Away-
Market Routing and Routing Intermediary fees (and not subject to the 
C2 Routing fee).
    Example 2: Assume a CBOE TPH that is also a C2 TPH makes a PULSe 
workstation available to Non-TPH User A. To the extent that orders 
originating from Non-TPH User A's PULSe workstation are routed to 
CBOE, any resulting executions would be subject to the CBOE/CBSX 
Routing fee. To the extent that orders originating from Non-TPH User 
A's PULSe workstation are routed to C2, any resulting executions 
would be subject to the C2 Routing fee. (Given the CBOE TPH's status 
as a C2 TPH, such orders are not considered away-market routing and 
therefore are not subject to the Away-Market Routing and Routing 
Intermediary fees.)
---------------------------------------------------------------------------

Proposal
    The Exchange is proposing to expand on its past description of the 
PULSe workstation routing functionality in various respects. First, 
with respect to the default destination function, the Exchange proposes 
to revise its past description of the function to note that, when the 
Exchange has finished building the functionality, besides allowing a 
user to manually override CBOE and/or C2 (CBSX) as the default 
destination exchange(s) (trading center) for individually executed 
marketable option (stock) orders if CBOE and/or C2 (CBSX) is at the 
NBBO on an order-by-order basis, users will be able to change the 
default destination setting to any other options exchange (trading 
center) on a global basis (e.g., rather than defaulting to CBOE or C2, 
a user will be able to select another options exchange as the default 
exchange and a user could determine to manually override that exchange 
as the default destination on

[[Page 43955]]

an order-by-order basis). The Exchange notes that having the ability to 
change the default destination market will have no impact on the 
application of the current PULSe workstation-related fees.
    Second, the Exchange proposes to expand on its past description of 
a PULSe Routing Intermediary. The Exchange notes that, currently, TPHs 
may determine to utilize a Routing Intermediary that employs ``smart 
router'' functionality which, generally, is functionality that 
determines where to route an order based on pre-set algorithmic logic. 
Thus, in addition to a user having the ability to designate a 
destination market to which to a Routing Intermediary is to route an 
order received from a PULSe workstation, a user may direct a Routing 
Intermediary to use its smart router functionality to determine the 
destination options exchange(s) (trading center(s)) on the TPH's 
behalf. The Exchange further notes that users currently have the 
flexibility to determine when to route orders from PULSe to a Routing 
Intermediary's smart router, e.g., the determination could be made by 
default, on an order-by-order basis, etc. When it comes to the default 
destination function (described above), rather than defaulting to an 
options exchange (trading center) for individually executed marketable 
option (stock) orders if the default market is at the NBBO, a user will 
have the flexibility to instead to utilize a Routing Intermediary's 
smart router functionality as a default for determining where to route 
such orders on a global basis or as a manual override on an order-by-
order basis if some other destination is configured for the default 
destination function. The Exchange notes that having the ability to 
route orders through a smart router will have no impact on the 
application of the current PULSe workstation-related fees.
    Finally, the third purpose of this proposed rule change is to 
expand on our past description of the PULSe workstation routing 
functionality to note that users will also have the capability to send 
orders between PULSe workstations. For example, a user will be able to 
send an order from a PULSe workstation located in New York to a PULSe 
workstation located on the floor of the CBOE. The ability to send 
orders ``PULSe-to-PULSe'' will be available for use within a TPH (and 
any Non-TPHs to whom the TPH makes the PULSe workstation available) and 
between TPHs that use the PULSe workstation. A TPH may establish a 
PULSe-to-PULSe connection with another TPH by contacting CBOE, who will 
permission the connection. Before setting up the connection, both TPHs 
would need to acknowledge in writing (e.g., including via email) their 
agreement to establish the mutual connection. The Exchanges notes that 
there are no fees applicable to the sending of orders from one PULSe 
workstation to another. The Exchange also notes that the Away-Market 
Routing, Away-Market Routing Intermediary and CBOE/CBSX Routing fees 
(described above) apply to the TPH associated with the PULSe 
workstation that ultimately routes an order for execution.
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.\9\ Specifically, 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 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 
facilitation 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. 
Expanding on the Exchange's past description of the routing 
functionality made available through the PULSe workstation (for which 
the Exchange assesses Away-Market Routing, Away-Market Routing 
Intermediary, and CBOE/CBSX Routing fees) provides more information to 
the public about such functionality and confirmation of the application 
of applicable fees, and the availability of such information helps to 
perfect the mechanism of a free and open market and a national market 
system. Further, permitting PULSe workstation users to set their own 
default destinations, use smart router as a default, and send orders 
between PULSe workstations provides such users with more freedom in 
their uses of the PULSe workstations, which perfects the mechanism of a 
free and open market and a national market system.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 
that the proposed rule change will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the features and functionalities described 
in this expanded description apply to all PULSe workstation users. The 
Exchange does not believe that the proposed rule change will impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed rule 
change does not make any changes to Exchange rules or the Exchange Fees 
Schedule, but merely expands on the Exchange's past description of the 
routing functionality made available through the PULSe workstation and 
confirms the application of applicable fees. To the extent the features 
and functionalities described in this expanded description of PULSe 
workstations make CBOE (or CBSX) a more attractive marketplace for 
market participants at other exchanges, such market participants may 
elect to become CBOE market participants.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and paragraph (f) of Rule 19b-4 \12\ 
thereunder. 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. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule

[[Page 43956]]

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-2013-062 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-2013-062. 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 publicly available. All 
submissions should refer to File Number SR-CBOE-2013-062 and should be 
submitted on or before August 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17469 Filed 7-19-13; 8:45 am]
BILLING CODE 8011-01-P