[Federal Register Volume 83, Number 9 (Friday, January 12, 2018)]
[Notices]
[Pages 1639-1641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00410]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82459; File No. SR-CBOE-2017-084]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 6.13, CBOE Hybrid System Automatic Execution Feature

January 8, 2018.
    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 December 27, 2017, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') 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)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \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 proposes to amend its rules related to stop orders.
(Additions are in Italics; Deletions are [Bracketed])
* * * * *

Cboe Exchange, Inc.

Rules

* * * * *

Rule 6.13. [CBOE]Cboe Options Hybrid System Automatic Execution Feature

    (a) No change.
    (b) Automatic Execution: Orders eligible for automatic execution 
through the Cboe Options Hybrid System may be automatically executed in 
accordance

[[Page 1640]]

with the provisions of this Rule, Rule 6.13A or 6.14A, as applicable. 
This section governs automatic executions and split-price automatic 
executions. The allocation of orders or quotes that automatically 
execute through the Cboe Options Hybrid System is governed by Rule 
6.45.
    (i)-(vi) No change.
    (vii) Stop and Stop-Limit Orders. The System cancels a buy (sell) 
stop or stop-limit order if the Exchange best bid (offer) at the time 
the System receives the order is equal to or above (below) the stop 
price.
    (c) No change.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (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 proposed rule change amends Rule 6.13 to modify the automatic 
handling of stop and stop-limit orders. As defined in Rule 6.53(c), a 
stop order is a contingency order to buy or sell when the market for a 
particular option contract reaches a specified price on the Cboe 
Options floor. A stop order to buy becomes a market order when the 
option contract trades or is bid at or above the stop price on the Cboe 
Options floor. A stop order to sell becomes a market order when the 
option contract trades or is offered at or below the stop-limit price 
on the Cboe Options floor. A stop-limit order is a contingency order to 
buy or sell when the market for a particular option contract reaches a 
specified price. A stop order to buy becomes a limit order when the 
option contract trades or is bid at or above the stop-limit price. A 
stop-limit order to sell becomes a limit order when the option contract 
trades or is offered at or below the stop-limit price.
    The proposed rule change adds Rule 6.13(b)(vii), which states the 
System cancels a buy (sell) stop or stop-limit order if the Exchange 
best bid (offer) (``BBO'') at the time the System receives the order is 
equal to or above (below) the stop price. The purpose of a stop or 
stop-limit order is for it to become a market or limit order, 
respectively, after the price in a series reaches the stop price. 
Therefore, there is an implication the submitting Trading Permit Holder 
intends for the order to not become a market or limit order, 
respectively, until after an amount of time passes and the series price 
changes. If the BBO is above or below, as applicable, the stop price 
when the System receives a stop or stop-limit order, the order converts 
immediately to a market or limit order, respectively. This is 
inconsistent with the purpose of the order and the intentions of the 
submitting Trading Permit Holder. The Exchange believes if a Trading 
Permit Holder submitted an order at such a price, there is a strong 
possibility the order was submitted at that price as an error by the 
Trading Permit Holder. Pursuant to the proposed rule change, the System 
will reject a stop or stop-limit order that would otherwise immediately 
convert to a market or limit order, respectively, based on the BBO, 
which is consistent with the definitions and purposes of these orders.
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.\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 proposed rule change will protect investors and 
the public interest and maintain fair and orderly markets by mitigating 
potential risks associated with market participants entering stop and 
stop-limit orders at unintended prices, and risks associated with 
orders trading at prices that are potentially erroneous, which may 
likely have resulted from human or operational error. The proposed rule 
change is consistent with the definitions and purposes of stop and 
stop-limit orders.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 proposed rule change 
will apply in the same manner to all stop and stop-limit orders Trading 
Permit Holders submit to the Exchange and will help prevent potentially 
erroneous executions, which benefits all market participants. Because 
pursuant to the proposed rule change the System will reject stop and 
stop-limit orders it receives under certain conditions, the proposed 
rule change will only impact stop and stop-limit orders Trading Permit 
Holders submit to the Exchange, based on quotes on the Exchange, and 
thus will have no impact on intermarket competition.

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 Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \8\ of the Act and Rule 19b-4(f)(6) \9\ 
thereunder. Because the 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

[[Page 1641]]

Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

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-2017-084 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2017-084. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CBOE-2017-084 and should be submitted on 
or before February 2, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00410 Filed 1-11-18; 8:45 am]
 BILLING CODE 8011-01-P