[Federal Register Volume 79, Number 135 (Tuesday, July 15, 2014)]
[Notices]
[Pages 41337-41339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-16496]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72570; File No. SR-CBOE-2014-054]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Related To Extending AIM and FLEX AIM Pilot 
Programs Until July 18, 2015

July 9, 2014.
    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 July 1, 2014, Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``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 proposed rule changes propose to amend the Exchange's rules 
related to its Automated Improvement Mechanism (``AIM'') and its 
Automated Improvement Mechanism (``AIM'') for Flexible Exchange Options 
(``FLEX Options'').\3\ The text of the proposed rule change is provided 
below.
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    \3\ FLEX Options provide investors with the ability to customize 
basic option features including size, expiration date, exercise 
style, and certain exercise prices. The rules governing the trading 
of FLEX Options on the FLEX Request for Quote (RFQ) System platform 
are contained in Chapter XXIVA. The rules governing the trading of 
FLEX Options on the FLEX Hybrid Trading System platform are 
contained in Chapter XXIVB.
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    (additions are underlined; 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, 
201[4]5, 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, 201[4]5. 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.
* * * * *

Rule 24B.5A. FLEX Automated Improvement Mechanism

    Notwithstanding the provisions of Rule 24B.5, a FLEX Trader that 
represents agency orders may electronically execute an order it 
represents as agent (``Agency Order'') against principal interest and/
or against solicited orders provided it submits the Agency Order for 
execution into the automated improvement mechanism auction (``AIM 
Action'') pursuant to this Rule.
    (a)-(b) No change.
    This rule supersedes Exchange Rule 6.74A.
    . . . Interpretations and Policies:
    .01-.02 No change.
    .03 Initially, and for at least a Pilot Period expiring on July 18, 
201[4]5, there will be no minimum size requirement for orders to be 
eligible for the AIM 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

[[Page 41338]]

liquid market functioning on the Exchange outside of the AIM Auction. 
Any data which is submitted to the Commission will be provided on a 
confidential basis.
    .04-.07 No change.
* * * * *
    The text of the proposed rule change is also 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.\4\ 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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    \4\ See Securities Exchange Release No. 53222 (February 3, 
2006), 71 FR 7089 (February 10, 2006) (SR-CBOE-2005-60).
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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).\5\ 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. Eight one-year extensions to the pilot programs have 
previously become effective.\6\ The proposed rule change merely extends 
the duration of the pilot programs until July 18, 2015. 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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    \5\ 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).
    \6\ See Securities Exchange Act Release Nos. 54147 (July 14, 
2006), 71 FR 41487 (July 21, 2006) (SR-CBOE-2006-64); 56094 (July 
18, 2007), 72 FR 40910 (July 25, 2007) (SR-CBOE-2007-80); 58196 
(July 18, 2008), 73 FR 43803 (July 28, 2008) (SR-CBOE-2008-76) (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); 67302 (June 
28, 2012), 77 FR 39779 (July 5, 2012) (SR-CBOE-2012-061); and 69867 
(June 27, 2013), 78 FR 40230 (July 3, 2013) (SR-CBOE-2013-066).
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    Additionally, in March 2012, CBOE obtained approval from the 
Commission to adopt the AIM auction process for FLEX Options.\7\ AIM 
for FLEX Options exposes certain FLEX Options orders electronically to 
an auction process to provide these orders with the opportunity to 
receive an execution at an improved price. The FLEX AIM auction is 
available only for Agency Orders 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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    \7\ See Securities Exchange Release No. 66702 (March 30, 2012), 
77 FR 20675 (April 5, 2012) (SR-CBOE-2011-123).
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    The Commission approved on a pilot basis the component of AIM for 
FLEX Options that there is no minimum size requirement for orders to be 
eligible for the auction.\8\ In connection with the pilot program, the 
Exchange has submitted to the Commission reports providing detailed 
FLEX AIM auction and order execution data, and the Exchange will 
continue to submit to the Commission these reports. Two one-year 
extensions to the pilot program have previously become effective.\9\ 
The proposed rule change merely extends the duration of the pilot 
program until July 18, 2015. Extending the pilot for an additional year 
will allow the Commission more time to consider the impact of the pilot 
program on AIM order executions for FLEX Options.
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    \8\ The pilot for the FLEX AIM auction process was modeled after 
the pilot for non-FLEX Options described above, and included an 
initial expiration date of July 18, 2012 so that the FLEX pilot 
would coincide with the existing non-FLEX pilot.
    \9\ See Securities Exchange Act Release No. 67302 (June 28, 
2012), 77 FR 39779 (July 5, 2012) (SR-CBOE-2012-061); and 69938 
(July 5, 2013), 78 FR 41481 (July 10, 2013) (SR-CBOE-2013-069).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the 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.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ 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)\12\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 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 and FLEX AIM 
pilot programs, and thus allowing additional time for the Commission to 
evaluate the pilot programs. The pilot programs will continue to allow 
(1) smaller non-FLEX option and FLEX Option orders to receive the 
opportunity for price improvement pursuant to the AIM auction, and (2) 
with respect to non-FLEX options, 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 changes 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 changes impose any burden on intramarket competition 
because it applies to all Trading Permit Holders.

[[Page 41339]]

All Trading Permit Holders that submit orders into an AIM or FLEX AIM 
auction are still subject to the same requirements. In addition, the 
Exchange does not believe the proposed rule changes will impose any 
burden on intermarket competition, as they merely extend the duration 
of an existing pilot programs, which are available to all market 
participants through Trading Permit Holders. AIM and FLEX AIM will 
continue to function in the same manner as they currently function 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 \13\ and Rule 
19b-4(f)(6) \14\ thereunder.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
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 
Exchange has satisfied 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 the filing. However, 
pursuant to Rule 19b-4(f)(6)(iii), 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 
waiver will permit the AIM and FLEX AIM pilot programs to continue 
without interruption.
    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 July 1, 2014, the fact that the current pilot programs do not expire 
until July 18, 2014 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, 2014.\15\
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    \15\ For purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 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.\16\
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    \16\ 15 U.S.C. 78s(b)(3)(C).
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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-2014-054 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2014-054. 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-2014-054 and should be 
submitted on or before August 5, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-16496 Filed 7-14-14; 8:45 am]
BILLING CODE 8011-01-P