[Federal Register Volume 79, Number 150 (Tuesday, August 5, 2014)]
[Notices]
[Pages 45560-45562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18379]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72704; File No. SR-CBOE-2014-060


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change To Amend Rule 
24.19

July 29, 2014.
    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 25, 2014, 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 rule related to Multi-Class 
Broad-Based Index Option Spread Orders. 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
    The Exchange proposes to amend Rule 24.19. This Rule allows Trading 
Permit Holders (``TPHs'') to execute Multi-Class Broad-Based Index 
Option Spread Orders (``Multi-Class Spread Orders'') that meet certain 
qualifying criteria. Currently, not all Multi-Class Spread Orders may 
be entered electronically due to systems constraints. The Exchange is 
in the process of modifying its electronic order-entry systems to 
provide for the electronic entry and validation of all Multi-Class 
Spread Orders to the floor of the Exchange. This will provide for an 
enhanced audit trail that will better allow regulatory oversight in 
connection with the provisions of Rule 24.19. For the Exchange's 
systems to determine that two separate legs are part of the same Multi-
Class Spread Order (allowing for treatment as a Multi-Class Spread 
Order), both legs must be entered together on a single order ticket. As 
such, the Exchange proposes to amend Rule 24.19 to state that ``Multi-
Class Spread Orders must be entered on a single order ticket at time of 
systemization to be eligible for the procedures and relief set out in 
this Rule.'' \3\ The Multi-Class Spread Order type will enforce the 
permitted combinations of options covered by Rule 24.19. The Exchange 
will not accept Multi-Class Spread Orders with invalid combinations. 
While the proposed rule change allows for all Multi-Class Spread Orders 
to be entered electronically, all Multi-Class Spread Orders will still 
be executed in open outcry on the Exchange's trading floor.
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    \3\ The Exchange notes that the substance of this proposal was 
published in a prior proposal which was published for the entire 21 
day comment period, and no comments were received. That prior 
proposal provided for several changes to Rule 24.19; however, this 
proposal specifically relates to the electronic entry and validation 
of Multi-Class Spread Orders and can be considered and approved 
without reference to the other proposed changes in the prior 
proposal. See Securities Exchange Act Release No. 71872 (April 4, 
2014), 79 FR 19940 (April 10, 2014) (SR-CBOE-2014-026).
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    Because the current method for representing and executing Multi-
Class Spread Orders is manual and must occur only in open outcry, the 
current language states that a Multi-Class Spread Order may be 
represented at the trading station of either Broad-Based Option 
comprising the order, and also requires that the TPH initiating the 
order in the trading crowd to contact an Order Book Official (``OBO''), 
Designated Primary Market-Maker (``DPM''), or appropriate Exchange 
staff, as applicable, at the other trading station to have a notice of 
such order disseminated to the other trading crowd. The proposed rule 
change will require that a Multi-Class Spread Order be represented at 
the primary trading station, and states that the TPH representing the 
order must contact the DPM or Exchange staff \4\ (as applicable) at the 
other trading station in order to provide notice of such order for 
dissemination to the other trading crowd. Each Broad-Based Index Option 
has a trading station. The primary trading station is the first trading 
station at which the Multi-Class Spread Order is represented. The floor 
broker representing the Multi-Class Spread Order may determine which 
trading station should be the primary trading station. The current rule 
states that notice of a Multi-Class Spread order ``shall be 
disseminated by the Recipient who shall verbalize the terms of the 
order to the other trading crowd.'' However, the Exchange proposes to 
replace the word ``verbalize'' with the word ``announce'', as the 
Exchange is currently contemplating changes that will allow such notice 
to be posted on screens electronically to the other trading crowd 
(which could be a more efficient method of posting such order 
information). This ensures that all market participants at both 
physical trading locations are aware of the terms of the order being 
processed.
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    \4\ The Exchange proposes to remove the reference to contacting 
an OBO, as the Exchange no longer has OBOs.
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    The proposed rule change will enhance and improve the process of 
sending Multi-Class Spread Orders to the floor of the Exchange, as well 
as enhance the Exchange's audit trail with respect to such orders. No 
later than 90 days following the effective date of the proposed rule 
change, the Exchange will announce to TPHs via Regulatory Circular the 
implementation date by which TPHs must be in compliance with the 
changes described herein. The implementation date will be no later than 
180 days following the effective date of the proposed rule change, and 
will be at least 30 days following the release of the abovementioned 
Regulatory Circular (in order to give TPHs ample time to come into

[[Page 45561]]

compliance with the changes described herein).
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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
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    In particular, the Exchange believes that automating the Multi-
Class Spread Order creation process for all Multi-Class Spread Orders 
serves to remove impediments to and to perfect the mechanism for a free 
and open market and a national market system by providing market 
participants the ability to route Multi-Class Spread Orders to the 
Exchange electronically. Further, enhancing the audit trail with 
respect to Multi-Class Spread Orders promotes transparency and aids in 
surveillance, thereby protecting investors.
    The Exchange also believes the proposed rule change is consistent 
with Section 6(b)(1) of the Act,\8\ which provides that the Exchange be 
organized and have the capacity to be able to carry out the purposes of 
the Act and to enforce compliance by the Exchange's Trading Permit 
Holders and persons associated with its Trading Permit Holders with the 
Act, the rules and regulations thereunder, and the rules of the 
Exchange. Enhancing the audit trail with respect to Multi-Class Spread 
Orders will allow the Exchange to better enforce compliance by the 
Exchange's TPHs and persons associated with its TPHs with the Act, the 
rules and regulations thereunder, and the rules of the Exchange.
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    \8\ 15 U.S.C. 78f(b)(1).
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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 believes that 
automating the Multi-Class Spread Order creation process for all Multi-
Class Spread Orders promotes fair and orderly markets, as well as 
assists the Exchange in its ability to effectively attract order flow 
and liquidity to its market, and ultimately benefits all CBOE TPHs and 
all investors. 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 Multi-Class Spread Orders are available to all market 
participants through CBOE TPHs. 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, again, Multi-Class Spread Orders are available to all 
market participants through CBOE TPHs, which makes CBOE a more 
effective marketplace. Further, the proposed changes only affect 
trading on CBOE. To the extent that the proposed changes make CBOE more 
attractive to 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The Exchange has requested accelerated approval of the proposed 
rule change. The Commission is considering granting accelerated 
approval of the proposed rule change at the end of a 15-day comment 
period.

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-2014-060 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-2014-060. 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-2014-060 and should be 
submitted on or before August 20, 2014.


[[Page 45562]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill.
Deputy Secretary.
[FR Doc. 2014-18379 Filed 8-4-14; 8:45 am]
BILLING CODE 8011-01-P