[Federal Register Volume 80, Number 102 (Thursday, May 28, 2015)]
[Notices]
[Pages 30514-30517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12832]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75026; File No. SR-CBOE-2015-048]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change To Amend
Exchange Rules Related to Order Tickets
May 21, 2015.
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 May 11, 2015, 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 Exchange filed the proposal as a ``non-controversial''
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing this
notice to solicit comments on the
[[Page 30515]]
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).
\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
The Exchange seeks to amend its rules related to order tickets. The
text of the proposed rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Rule 6.53. Certain Types of Orders Defined
* * * * *
. . . Interpretations and Policies:
.01 No change.
.02 Complex orders of twelve (12) legs or less (one leg of which
may be for an underlying security or security future, as applicable)
must be entered on a single order ticket at time of systemization. If
permitted by the Exchange (which the Exchange will announce by
Regulatory Circular), complex orders of more than twelve (12) legs (one
leg of which may be for an underlying security or security future, as
applicable) may be split across multiple order tickets if the Trading
Permit Holder representing the complex order [includes twelve (12) legs
on one of the order tickets] uses the fewest order tickets necessary to
systematize the order and identifies for the Exchange the order tickets
that are part of the same complex order (in a form and manner
prescribed by the Exchange).
* * * * *
Rule 24.20. SPX Combo Orders
* * * * *
. . . Interpretations and Policies:
.01 An SPX Combo Order for twelve (12) legs or less must be entered
on a single order ticket at time of systemization. If permitted by the
Exchange (which the Exchange will announce by Regulatory Circular), an
SPX Combo Order for more than twelve (12) legs may be represented or
executed as a single SPX Combo Order in accordance with this Rule 24.20
if it is split across multiple order tickets and the Trading Permit
Holder representing the SPX Combo Order [includes twelve (12) legs on
one of the order tickets] uses the fewest order tickets necessary to
systematize the order and identifies for the Exchange the order tickets
that are part of the same SPX Combo Order (in a manner and form
prescribed by the Exchange).
* * * * *
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
The Exchange proposes to amend the order ticket requirements
applicable to complex orders in open outcry pursuant to Rule 6.53, as
well as SPX Combo Orders \5\ pursuant to Rule 24.20.
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\5\ An ``SPX Combo Order'' consists of an order to purchase or
sell one or more SPX option series and the offsetting number of SPX
combinations defined by the delta, where an ``SPX combination'' is a
purchase (sale) of an SPX call and sale (purchase) of an SPX put
having the same expiration date and strike price and a ``delta'' is
the positive (negative) number of SPX combinations that must be sold
(bought) to establish a market neutral hedge with one or more SPX
option series.
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Background
On February 26, 2015, rule change filing SR-CBOE-2015-011 was
approved by the Securities and Exchange Commission (the
``Commission'').\6\ As amended by SR-CBOE-2015-011, Rule 6.53 requires
complex orders of twelve (12) legs or less (one leg of which may be for
an underlying security or security future, as applicable) to be entered
on a single order ticket at time of systemization. Rule 6.53, as
amended, also states that if permitted by the Exchange (which the
Exchange will announce by Regulatory Circular), complex orders of more
than twelve (12) legs (one leg of which may be for an underlying
security or security future, as applicable) may be split across
multiple order tickets, if the Trading Permit Holder (``TPH'')
representing the complex order includes twelve (12) legs on one of the
order tickets and identifies for the Exchange the order tickets that
are part of the same complex order (in a form and manner prescribed by
the Exchange).
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\6\ Securities Exchange Act Release No. 34-74389 (February 26,
2015), 80 FR 11717 (March 4, 2015) (``Order'').
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Rule 24.20, as amended, also requires that an SPX Combo Order for
twelve (12) legs or less be entered on a single order ticket at time of
systemization. An SPX Combo Order that contains more than twelve (12)
legs may be represented and executed as a single SPX Combo Order in
accordance with Rule 24.20 if it is split across multiple order tickets
and the TPH representing the SPX Combo Order includes twelve (12) legs
on one of the order tickets and identifies for the Exchange the order
tickets that are part of the same SPX Combo Order (in a manner and form
prescribed by the Exchange).
As noted above, SR-CBOE-2015-011 specifically provided that if an
open outcry complex order or an SPX Combo Order with more than twelve
legs is split across multiple order tickets, one of the order tickets
must contain twelve legs. For example, a thirteen leg order could not
have seven legs on one ticket and six legs on another ticket; rather,
one ticket must have twelve legs and the other ticket must have one
leg. However, prior to the Commission's approval of SR-CBOE-2015-011,
the Exchange held an informational session for Floor Broker Trading
Permit Holders regarding the requirement to use a single order ticket
to enter complex orders and SPX Combo Orders of twelve legs or
fewer.\7\ At the informational session, Floor Broker TPHs indicated
that for a 13 leg order in SPX (where the rule requires 12 legs to be
on 1 order ticket and the 13th leg to be on a
[[Page 30516]]
separate order ticket), the 13th leg would not be able to execute in
complex order increments (pennies) because CBOE's Hybrid System (the
``System'') would block the trade.\8\ In effect, the System would treat
the 13th leg as a simple order that is ineligible to execute in penny
increments.\9\
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\7\ See CBOE Information Circular IC15-012 (February 24, 2015).
\8\ For certain options, SPX options included, single leg orders
may not be executed in $0.01 increments, but individual legs of
complex orders may be executed in $0.01 increments. See Rule 6.42.
\9\ The Exchange notes that the System would treat any
standalone leg of a complex order in the same manner.
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Additionally, for complex orders with over twelve legs and an equal
number of put legs versus call legs, Floor Broker TPHs expressed the
desire to place the put legs on one order ticket and the call legs on a
separate order ticket. The Floor Broker TPHs indicated that splitting
an order across multiple order tickets in this manner is a more
efficient and simpler way to price the entire complex order.
Proposal
In an effort to address the above concerns and maintain an
effective audit trail, the Exchange is seeking to amend Rules 6.53.02
and 24.20.1 by removing the requirement that for orders with over 12
legs TPHs must include 12 legs on one of the order tickets. As
proposed, Rule 6.53.02 will provide:
Complex orders of twelve (12) legs or less (one leg of
which may be for an underlying security or security future, as
applicable) must be entered on a single order ticket at time of
systemization. If permitted by the Exchange (which the Exchange will
announce by Regulatory Circular), complex orders of more than twelve
(12) legs (one leg of which may be for an underlying security or
security future, as applicable) may be split across multiple order
tickets if the Trading Permit Holder representing the complex order
uses the fewest order tickets necessary to systematize the order and
identifies for the Exchange the order tickets that are part of the same
complex order (in a form and manner prescribed by the Exchange).
Proposed Rule 24.20.01 will similarly provide:
An SPX Combo Order for twelve (12) legs or less must be entered on
a single order ticket at time of systemization. If permitted by the
Exchange (which the Exchange will announce by Regulatory Circular), an
SPX Combo Order for more than twelve (12) legs may be represented or
executed as a single SPX Combo Order in accordance with this Rule 24.20
if it is split across multiple order tickets and the Trading Permit
Holder representing the SPX Combo Order uses the fewest order tickets
necessary to systematize the order and identifies for the Exchange the
order tickets that are part of the same SPX Combo Order (in a manner
and form prescribed by the Exchange).
As noted in the rule text, the Exchange will announce via Regulatory
Circular whether an open outcry complex order or SPX Combo Order may
have more than 12 legs.\10\ In addition, for orders with more than 12
legs, the Exchange will not prescribe the number of legs that must be
on each order ticket, except that TPHs must use the fewest number of
tickets necessary to systematize the order.\11\ This will allow TPHs to
split orders with more than 12 legs across multiple order tickets in
any manner they choose, provided they use the fewest number of order
tickets. For example, a 13 legged order could be split across two order
tickets with 6 legs on one order ticket and 7 legs on another ticket
but the order could not be split across three order tickets because the
fewest number of order tickets required for an order with 13 to 24 legs
is two.\12\ The only restriction, as provided in the rule text, is that
for orders greater than 12 legs TPHs must use the fewest number of
order tickets necessary to systematize the order. Without the proposed
restriction there would be no limit on the number of order tickets a
TPH could use to systematize an order, which could burden the manual
process by which the CBOE Regulatory Division reviews these large
orders. For example, without the restriction, an order with 13 legs
could potentially be split across 13 different order tickets, which
would require the Regulatory Division to manually review 13 different
order tickets.
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\10\ As noted in SR-CBOE-2015-011, current Exchange system
limitations prevent a multi-part order with more than 12 legs from
being entered on a single order ticket for representation and
execution in open outcry as a complex order or SPX Combo Order.
\11\ The Exchange notes that the requirement to use the fewest
order tickets necessary to systematize an order is not meant to
allow the Exchange the flexibility to increase the number of legs
that must be on a single order ticket; rather, the Exchange will
submit a rule filing to amend Rules 6.53.02 and 24.20.01 if the
Exchange seeks to modify the number of legs required to be on a
single order ticket.
\12\ The fewest number of order tickets necessary to systematize
an order is based on the current Exchange system limitation, which
caps the number of legs that can be on a single order ticket at 12
legs. Thus, orders with 12-24 legs would be required to be on no
more than two order tickets, orders with 25-36 legs would be
required to be on no more than three order tickets, and so forth. As
previously noted, the Exchange will submit a rule filing to amend
Rules 6.53.02 and 24.20.01 if the Exchange seeks to modify the
number of legs required to be on a single order ticket.
The Exchange will announce the implementation date of the proposed
rule change, as well as the specific order ticket requirements to be
set by the Exchange in accordance with this proposed rule, in a
Regulatory Circular to be published within 90 days of the effective
date of this filing. The implementation date of this filing will be
within 180 days of the effective date of this filing.
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.\13\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ 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
[[Page 30517]]
proposed rule change is consistent with the Section 6(b)(5) \15\
requirement that the rules of an exchange not be designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
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In particular, the Exchange believes the proposed rule change will
allow the Exchange to maintain an enhanced audit trail with respect to
open outcry complex order processing and SPX Combo Orders, which helps
to protect investors and the public interest because an enhanced audit
trail promotes transparency and aids in surveillance, as well as,
provides the Exchange the ability 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,
thereby protecting investors. Additionally, the Exchange believes
allowing TPHs to split orders across multiple order tickets as proposed
would allow TPHs to more quickly and efficiently systematize and
execute open outcry complex orders and SPX Combo Orders, which helps to
remove impediments to and perfect the mechanism of a free and open
market. Finally, the proposal to require TPHs to use the fewest number
of order tickets to systematize an order will prevent TPHs from
utilizing five order tickets, for example, when two would suffice,
which aids in surveillance and provides the Exchange the ability to
better enforce compliance by TPHs.
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 or
intermarket competition because the order ticket requirements will be
applicable to all TPHs executing complex orders in open outcry and SPX
Combo Orders.
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
proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. 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) of the Act \16\ and
Rule 19b-4(f)(6) \17\ 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.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6).
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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-2015-048 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-2015-048. 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-2015-048 and should be
submitted on or before June 12, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12832 Filed 5-27-15; 8:45 am]
BILLING CODE 8011-01-P