Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Continuous Electronic Quotes, 42040-42045 [2012-17348]

Download as PDF 42040 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Notices their appointed classes, which the Exchange believes eliminates the risk of a material decrease in liquidity. While the time during which Market-Makers must provide continuous quotes will be slightly reduced, Market-Makers will still be obligated to provide continuous electronic quotes for a significant part of the trading day in 60% of series of each appointed class. Additionally, all Market-Makers will continue to be obligated to quote the series when requested by an Exchange official, or if the need otherwise arises. Accordingly, the proposal supports the quality of C2’s market by helping to ensure that Market-Makers will continue to be obligated to quote in series when necessary. The proposed rule change also will allow the Exchange to require its Market-Makers to provide continuous quotes in their appointed classes for a portion of the trading day that is the same as that of market-makers at other exchanges, which the Exchange believes will help remove impediments to and promote a free and open market. Finally, the proposed rule change to Rule 8.13(d) protects investors and the public interest by clarifying in the Rules the continuous quoting obligations of Preferred Market-Makers. For the foregoing reasons, the Exchange believes that the balance between the benefits provided to Market-Makers and the obligations imposed upon Market-Makers by the proposed rule change is appropriate. B. Self-Regulatory Organization’s Statement on Burden on Competition tkelley on DSK3SPTVN1PROD with NOTICES C2 does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In this regard and as indicated above, the Exchange notes that the proposed rule change is comparable to current rules at competing options exchanges related to market-maker continuous quoting obligations 10 and will ensure fair competition among the options exchanges with respect to these obligations. 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: 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) 11 of the Act and Rule 19b–4(f)(6) 12 thereunder. At any time within 60 days of the filing of this 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. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–C2–2012–022 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–C2–2012–022. 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 (https://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 U.S.C. 78s(b)(3)(A). 12 17 CFR 240.19b–4(f)(6). supra note 3. VerDate Mar<15>2010 16:53 Jul 16, 2012 Jkt 226001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–17347 Filed 7–16–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67410; File No. SR–CBOE– 2012–064] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Continuous Electronic Quotes July 11, 2012. 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 5, 2012, the 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. 13 17 11 15 10 See 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–C2– 2012–022 and should be submitted on or before August 7, 2012. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\17JYN1.SGM 17JYN1 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Notices I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Rules relating to continuous electronic quotes. The text of the proposed rule change is available on the Exchange’s Web site (https://www.cboe.com/ AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, and at the Commission. 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. tkelley on DSK3SPTVN1PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend Rule 1.1(ccc), ‘‘Continuous Electronic Quotes,’’ to reduce to 90% the percentage of time for which a Market-Maker is required to provide electronic quotes in an appointed option class on a given trading day. Additionally, the proposed rule change amends Rules 8.13, 8.15A, 8.85 and 8.93 to increase to the lesser of 99% or 100% minus one call-put pair the percentage of series in each class in which Preferred Market-Makers (‘‘PMMs’’), LMMs, Designated Primary Market-Makers (‘‘DPMs’’), and electronic DPMs (‘‘e-DPMs’’), respectively (Market-Makers, PMMs, LMMs, DPMs and e-DPMs are collectively referred to in this filing as ‘‘Market-Makers’’ unless the context provides otherwise), must provide continuous electronic quotes. The proposed rule change is comparable to the rules of other options exchanges applicable to equivalent market participants.3 3 The continuous quoting obligations for NASDAQ Options Market (‘‘NOM’’) market-makers and NASDAQ OMX PHLX LLC (‘‘PHLX’’) streaming quote trades (‘‘SQTs’’) and remote SQTs (‘‘RSQTs’’) (similar to Market-Makers) are generally as follows: (1) NOM Chapter VII, Section 6(d)—market-makers must enter continuous bids and offers in at least VerDate Mar<15>2010 16:53 Jul 16, 2012 Jkt 226001 Rules 8.7, 8.13, 8.15A, 8.85, and 8.93 impose certain obligations on MarketMakers, PMMs, LMMs, DPMs, and eDPMs, respectively. These Rules require that Market-Makers generally maintain continuous electronic quotes as follows: • Rule 8.7(d)(ii)(B) requires that Market-Makers provide continuous electronic quotes when quoting in a particular class on a given trading day in 60% of the non-adjusted option series of the Market-Maker’s appointed class that have a time to expiration of less than nine months; • Rule 8.13(d) requires that PMMs provide continuous electronic quotes 60% of the series in options in which the marketmaker is registered for 90% of the trading day (as a percentage of the total number of minutes in such trading day) or such higher percentage as NASDAQ may announce in advance; and (2) PHLX Rule 1014(b)(ii)(D)(1)–SQTs and RSQTs must quote twosided markets in 60% of series of the options in which they are assigned for at least 90% of the trading day (as a percentage of the total number of minutes in such trading day). The continuous quoting obligations for NYSE Amex LLC (‘‘NYSE Amex’’) and NYSE Arca, Inc. (‘‘NYSE Arca’’) directed order market-makers and PHLX directed SQTs and RSQTs (similar to PMMs) are as follows: (1) NYSE Amex Options Rules 964.1NY—directed order market-makers must provide continuous two-sided quotations throughout the trading day in issues for which it receives directed orders for 90% of the time NYSE Amex is open for trading in each issue (applies to all of the directed order market-maker’s appointed issues collectively); (2) NYSE Arca Options Rules 6.88—directed order market-makers must provide continuous two-sided quotations throughout the trading day in issues for which it receives directed orders for 90% of the time NYSE Arca is open for trading in each issue (applies to all of the directed order market-maker’s appointed issues collectively); and (3) PHLX Rule 1014(b)(ii)(D)(1)—directed SQTs and RSQTs must quote two-sided markets in the lesser of 99% of series listed on the exchange or 100% of the series listed on the exchange minus one call-put pair, in each case in at least 60% of the options classes in which they are assigned for at least 90% of the trading day (as a percentage of the total number of minutes in such trading day); once they enter a quote in an assigned class, they must maintain until the close of that trading day quotations for the lesser of 99% of the series of the option listed on the Exchange or 100% of the series of the option listed on the Exchange minus one callput pair. The continuous quoting obligations for NYSE Amex and PHLX specialists and NYSE Arca lead market-makers (similar to LMMs, DPMs and eDPMs) are as follows: (1) NYSE Amex Options Rules 925.1NY—specialists must provide continuous two-sided quotations throughout the trading day in its appointed issues for 90% of the time NYSE Amex is open for trading in each issue (applies to all of the specialist’s appointed issues collectively); (2) NYSE Arca Options Rules 6.37B— lead market-makers must provide continuous twosided quotations throughout the trading day in its appointed issues for 90% of the time NYSE Arca is open for trading in each issue (applies to all of the lead market-maker’s appointed issues collectively); and (3) PHLX Rule 1014(b)(ii)(D)(1)— specialists are responsible to quote two-sided markets in the lesser of 99% of the series or 100% of the series minus one call-put pair in each option in which such specialist is assigned for 90% of the trading day (as a percentage of the total number of minutes in such trading day). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 42041 when the Exchange is open for trading in at least 90% of the non-adjusted option series of each class for which it receives Preferred Market-Maker orders; • Rule 8.15A(b)(i) requires that LMMs provide continuous electronic quotes when the Exchange is open for trading in at least 90% of the non-adjusted option series within their assigned classes; • Rule 8.85(a)(i) requires DPMs to provide continuous electronic quotes when the Exchange is open for trading in at least 90% of the non-adjusted option series of each multiply listed option class allocated to it and in 100% of the non-adjusted option series of each singly listed option class allocated to it; and • Rule 8.93 requires e-DPMs to provide continuous electronic quotes when the Exchange is open for trading in at least 90% of the non-adjusted option series of each allocated class. Rule 1.1(ccc) currently provides that a Market-Maker who is obligated by CBOE Rules to provide continuous electronic quotes will be deemed to have provided ‘‘continuous electronic quotes’’ if the Market-Maker provides electronic twosided quotes for 99% of the time that the Market-Maker is required to provide electronic quotes in an appointed option class on a given trading day. The rule also provides that if a technical failure or limitation of a system of the Exchange prevents the Market-Maker from maintaining, or from communicating to the Exchange, timely and accurate electronic quotes in a class, the duration of such failure will not be considered in determining whether the Market-Maker has satisfied the 99% quoting standard with respect to that option class. The Exchange may consider other exceptions to this continuous electronic quote obligation based on demonstrated legal or regulatory requirements or other mitigating circumstances. The Exchange proposes to amend the definition of continuous electronic quotes to mean 90% of the time a Market-Maker is required to quote in an appointed option class on a given trading day. The rule will still provide for automatic exceptions for technical failures or system limitations and discretionary exceptions based on demonstrated legal or regulatory requirements or other mitigating circumstances. The Exchange also proposes to increase the percentage of series in each option class in which PMMs, LMMs, DPMs and e-DPMs are required to provide continuous electronic quotes. The proposed rule change amends: (i) Rule 8.13(d) to require PMMs to provide E:\FR\FM\17JYN1.SGM 17JYN1 42042 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Notices continuous electronic quotes when the Exchange is open for trading in at least the lesser of 99% of the non-adjusted option series or 100% of the nonadjusted option series minus one callput pair 4 of each class for which it receives Preferred Market-Maker orders; (ii) Rule 8.15A(b)(i) to require LMMs to provide continuous electronic quotes when the Exchange is open for trading in at least the lesser of 99% of the nonadjusted option series or 100% of the non-adjusted option series minus one call-put pair within their assigned classes; (iii) Rule 8.85(a)(i) to require DPMs to provide continuous electronic quotes when the Exchange is open for trading in at least the lesser of 99% of the non-adjusted option series or 100% of the non-adjusted option series minus one call-put pair of each option class allocated to them; and (iv) Rule 8.93 to require e-DPMs to provide continuous electronic quotes when the Exchange is open for trading in at least the lesser of 99% of the non-adjusted option series or 100% of the non-adjusted option series minus one call-put pair of each allocated class. The proposed rule change also makes additional changes to create consistency among the continuous quoting obligations for all CBOE Market-Makers. The proposed rule change eliminates the separate quoting requirements for DPMs in singly listed and multiply listed classes. This will cause the quoting obligation for multiply listed classes to increase from 90% to 99% of the series and for singly listed classes to decrease slightly from 100% to 99%. The Exchange believes that is no longer necessary to have a separate, slightly higher requirement for singly listed classes given the increase in the obligation for multiply listed series. The proposed rule change also deletes the requirement that e-DPMs will alternatively be required to respond to 98% of the requests for quotes (‘‘RFQs’’) if the Exchange has enabled RFQ functionality in a class. The Exchange never enabled the RFQ functionality in any class for e-DPMs, and it is no longer available. Therefore, the Exchange believes it is appropriate to delete this provision from the e-DPM rules. The Exchange does not believe that the proposed rule change would adversely affect the quality of the Exchange’s markets or lead to a material decrease in liquidity. Rather, the Exchange believes that its current market structure with its high rate of participation by Market-Makers permits the lowering of the quoting time obligation without fear of losing liquidity. Market-Makers will continue to be required to provide continuous electronic quotes in 60% of each allocated class. Additionally, for PMMs, LMMs, DPMs and e-DPMS, the proposed reduction in required quoting time will be offset by the increase in percentage of series in each appointed class in which PMMs, LMMs, DPMs and e-DPMs are required to provide continuous electronic quotes. The proposed rule change to require PMMs, LMMs, DPMs and e-DPMs to quote in the lesser of 99% of the series or 100% of the series minus one call-put pair in each class provides flexibility in assignments that contain relatively fewer series and avoids situations when failure to quote 90% of the trading day in merely one individual option or one pair breaches the quoting requirement. The Exchange Rules also impose a number of other obligations on Market- Makers that will continue to ensure that they create and maintain a fair and orderly market in the option classes to which they are assigned. The proposed rule change would not excuse a MarketMaker that is present on the trading floor from its obligation to provide a two-sided market complying with the bid/ask differential requirements in response to any request for quote by a floor broker, Trading Permit Holder or PAR Official.5 The proposed rule change would also not excuse a MarketMaker that is present on the trading floor from its obligation to provide an open outcry two-sided market complying with the bid/ask differential requirements in response to a request for a quote by a Trading Permit Holder or PAR Official directed at that MarketMaker or when, in response to a general request for a quote by a Trading Permit Holder or PAR Official, a market is not then being vocalized by a reasonable number of Market-Makers.6 Further, the proposed rule change would not excuse a Market-Maker from its obligation to submit a single quote or maintain continuous quotes in one or more series of a class to which the Market-Maker is appointed when called upon by an Exchange official if, in the judgment of such official, it is necessary to do so in the interest of maintaining a fair and orderly market.7 In support of this proposal, the Exchange notes that other competing options exchanges impose continuous quoting obligations on their market participants that have equivalent rights and obligations as Market-Makers, PMMs, LMMs, DPMs and e-DPMs that are comparable to the obligations proposed in this filing: MARKET-MAKERS % Time CBOE (current rule) ................. NOM ......................................... PHLX (SQTs and RSQTs) ....... % Series 99% of the time required to provide quotes on a trading day when quoting. 90% of a trading day .................................................................. 90% of the trading day ............................................................... Classes 60 Class-by-class. 60 60 All classes collectively. All classes collectively. PMMS tkelley on DSK3SPTVN1PROD with NOTICES % Time CBOE (current rule) ................. NYSE Amex (directed order market-makers). 99% of the time required to provide quotes on a trading day ... 90% of the time open for trading ............................................... 4 A ‘‘call-put pair’’ consists of two individual options, one call and one put, which cover the same underlying instrument and have the same expiration date and exercise price. Failure to maintain a qualifying (90% of the time, as proposed in this filing) quote in just one call, one put, or in VerDate Mar<15>2010 16:53 Jul 16, 2012 % Series Jkt 226001 one call and one ‘‘paired’’ put, would not by itself (assuming all other series of a class are being quoted as required) constitute a violation of 99%-of-theseries requirement. 5 See Rule 8.7(d)(i)(C) (relating to a request for quote by a floor broker) and (ii)(C) (relating to a PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 90 N/A Classes Class-by-class. All classes collectively. request for a quote by a Trading Permit Holder or PAR Official). 6 See Rule 8.7(d)(iv). 7 Id. E:\FR\FM\17JYN1.SGM 17JYN1 42043 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Notices PMMS—Continued % Time NYSE Arca (directed order market-makers). PHLX (directed SQTs and RSQTs). % Series Classes 90% of the time open for trading ............................................... N/A 90% of the trading day ............................................................... 99% (or 100% minus one call-put pair) 60 All classes collectively. 60% of classes (and any classes in which they enter quotes during a trading day). Remaining classes. LMMS/DPMS/E-DPMS % Time CBOE (current rule) ....... NYSE Amex (specialists) NYSE Arca (lead market-makers). PHLX (specialists) .......... % Series 99% of the time required to provide quotes on a trading day. 90% of the time open for trading ........................... 90% of the time open for trading ........................... 90% * 90% of the trading day ........................................... 99% (or 100% minus one call-put pair) N/A N/A Classes Class-by-class. All classes collectively. All classes collectively. Class-by-class. * DPMs are required to quote in 100% of the series in a class for singly listed options. E–DPMs are alternatively required to respond to 98% of the RFQ if the Exchange has enabled RFQ functionality in a class. The proposed rule change eliminates both of those alternative requirements. As the above tables show, there are slight differences among the quoting obligations of these exchanges, including differences in the application of these obligations to appointed option classes collectively or on a class-byclass basis and slight differences in the percentages of series of appointed classes in which market-makers must provide continuous electronic quotes. However, the Exchange believes that Exchange % time required to quote CBOE ................. NOM .................. PHLX ................. 90% (351 90% (351 90% (351 Exchange NYSE Amex * ..... tkelley on DSK3SPTVN1PROD with NOTICES NYSE Arca * ...... 90% (351 90% (351 90% (351 16:53 Jul 16, 2012 Jkt 226001 ........................................................ series) ............................................ ........................................................ series) ............................................ ........................................................ series) ............................................ Frm 00077 Fmt 4703 Sfmt 4703 105,300 (351 minutes × 300 series) 105,300 (351 minutes × 300 series) 105,300 (351 minutes × 300 series) (assuming effectiveness of the proposed rule change): Minimum total quoting minutes 99% ........................................................ (495 series) ............................................ 100% ...................................................... (500 series) ............................................ 100% ...................................................... (500 series) ............................................ 9 The ‘‘maximum total quoting minutes’’ in a trading day would equal 390 minutes times 500 series, or 195,000. 10 Given CBOE’s current 99% requirement, the minimum total quoting minutes for CBOE MarketMakers quoting in all classes for an entire trading day is 115,830 (386.1 minutes × 300 series), assuming they are quoting in all appointed classes PO 00000 Minimum total quoting minutes % series required to quote ........................................................ minutes) ......................................... ........................................................ minutes) ......................................... ........................................................ minutes) ......................................... 8 The Exchange notes that Rule 8.7(d)(iii) provides that the continuous quoting obligation applies to a Market-Maker on a per class basis only when the Market-Maker is quoting in a particular class on a given trading day. For purposes of this example, the Exchange assumes that a MarketMaker is quoting in all of its appointed classes for an entire trading day. 60% (300 60% (300 60% (300 Arca directed order market-makers, and PHLX directed SQTs and RSQTs % time required to quote CBOE ................. a total of 500 series, quoting in each class during a regular 390-minute trading day.8 The following table shows the ‘‘minimum total quoting minutes,’’ which equals the number of required minutes in a trading day times the number of series required to be quoted,9 of CBOE Market-Makers, NOM marketmakers and PHLX SQTs or RSQTs (assuming effectiveness of the proposed rule change): 10 % series required to quote ........................................................ minutes) ......................................... ........................................................ minutes) ......................................... ........................................................ minutes) ......................................... The following table shows the ‘‘minimum total quoting minutes’’ of CBOE PMMs, NYSE Amex and NYSE VerDate Mar<15>2010 despite these slight variations, upon effectiveness of the proposed rule change, Market-Makers will be required to provide continuous electronic quotes for the same amount of time in the same or a substantially similar percentage of series as market-makers at these other exchanges. To demonstrate this point, consider a Market-Maker with 10 appointed classes, each of which has 50 series, for 173,745 (351 minutes × 495 series) 175,500 (351 minutes × 500 series) 175,500 (351 minutes × 500 series) for an entire trading day, which is higher than that of NOM market-makers and PHLX SQTs and RSQTs. 11 See supra note 3. E:\FR\FM\17JYN1.SGM 17JYN1 42044 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Notices Exchange % time required to quote % series required to quote Minimum total quoting minutes PHLX * * ............. 90% ........................................................ (351 minutes) ......................................... 99% ........................................................ (495 series) ............................................ 173,745 (351 minutes × 495 series) *NYSE Amex and NYSE Arca rules do not specify a minimum percentage of series in which their directed order market-makers must maintain continuous electronic quotes in their appointed classes.11 The Exchange assumes for purposes of this example that the continuous quoting obligation applies to 100% of series in all appointed classes. **Phlx rules provide that directed SQTs and RSQTs must quote two-sided markets in the lesser of 99% of series listed on the exchange or 100% of the series listed on the exchange minus one call-put pair, in each case in at least 60% of the options classes in which they are assigned for at least 90% of the trading day (as a percentage of the total number of minutes in such trading day). Additionally, once they enter a quote in an assigned class, they must maintain until the close of that trading day quotations for the lesser of 99% of the series of the option listed on the Exchange or 100% of the series of the option listed on the Exchange minus one call-put pair. The Exchange assumes for purposes of this example that the directed SQT/RSQT enters quotes in all of its assigned classes during the trading day. The following table shows the ‘‘minimum total quoting minutes’’ of CBOE LMMs/DPMs/e-DPMs, NYSE Exchange Amex specialists, NYSE Arca lead market-makers, and PHLX specialists % time required to quote CBOE ................. NYSE Amex * ..... NYSE Arca * ...... PHLX ................. 90% (351 90% (351 90% (351 90% (351 (assuming effectiveness of the proposed rule change): % series required to quote ........................................................ minutes) ......................................... ........................................................ minutes) ......................................... ........................................................ minutes) ......................................... ........................................................ minutes) ......................................... Minimum total quoting minutes 99% ........................................................ (495 series) ............................................ 100% ...................................................... (500 series) ............................................ 100% ...................................................... (500 series) ............................................ 99% ........................................................ (495 series) ............................................ 173,745 (351 minutes 175,500 (351 minutes 175,500 (351 minutes 173,745 (351 minutes × 495 series) × 500 series) × 500 series) × 495 series) * NYSE Amex and NYSE Arca rules do not specify a minimum percentage of series in which their specialists and lead market-makers, respectively, must maintain continuous electronic quotes in their appointed classes.12 The Exchange assumes for purposes of this example that the continuous quoting obligation applies to 100% of series in all appointed classes. tkelley on DSK3SPTVN1PROD with NOTICES As the above example demonstrates, upon effectiveness of the proposed rule change, the minimum quoting minutes for Market-Makers will be the same as those of NOM market-makers and PHLX SQTs and RSQTs.13 The minimum quoting minutes of PMMs will be slightly less than NYSE Amex and NYSE Arca directed order marketmakers and the same as PHLX directed SQTs and RSQTs. The minimum quoting minutes of LMMs, DPMs and eDPMs will be the same as PHLX specialists and slightly less than NYSE Amex specialists and NYSE Arca lead market-market makers.14 The Exchange believes this proposal will make the quoting time requirements of Market-Makers more comparable to those at other options exchanges and is therefore essential for competitive purposes. CBOE believes it is disadvantageous to CBOE MarketMakers if they are subject to stricter timing requirements with respect to their continuous quoting obligations than market-makers at other options exchanges. 12 Id. 13 In addition, because CBOE applies its continuous quoting obligation to Market-Makers on a class-by-class basis as opposed to all classes collectively as the other exchanges do, CBOE’s rules ensure that Market-Makers, when they are quoting in all appointed classes for an entire trading day, VerDate Mar<15>2010 16:53 Jul 16, 2012 Jkt 226001 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.15 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 16 requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. In particular, the Exchange believes this proposed rule change promotes just and equitable principles of trade because it reduces burdens and unnecessary restrictiveness on MarketMakers. The Exchange still imposes many obligations on Market-Makers to maintain a fair and orderly market in their appointed classes, which the Exchange believes eliminates the risk of a material decrease in liquidity. While the time during which Market-Makers must provide continuous electronic quotes will be slightly reduced, MarketMakers will still be obligated to provide continuous electronic quotes for a significant part of the trading day in 60% of series of each appointed class. PMMs, LMMs, DPMs and e-DPMs will be obligated to provide continuous electronic quotes for a significant part of the trading date in an increased percentage (99% or 100% minus one call-put pair) of series of each appointed class. Additionally, all Market-Makers will continue to be obligated to quote the series when requested by a floor broker, Trading Permit Holder or PAR Official, or if the need otherwise arises. Accordingly, the proposal supports the quality of CBOE’s markets by helping to ensure that Market-Makers will continue to be obligated to quote in series when necessary. With respect to PMMs, LMMs, DPMs and e-DPMs, the benefit provided to these Market-Makers from the proposed reduction in required quoting time is offset by the proposed increased in required percentage of series in which these Market-Makers must provide continuous electronic quotes. Ultimately, the benefits the provide liquidity in a significant number of series in each class in which they are quoting, whereas the other exchanges’ rules could result in reduced or no liquidity in certain classes. 14 The Exchange notes that for PMMs, LMMs, DPMs and e-DPMs, upon effectiveness of the proposed rule change, the ‘‘minimum quoting minutes’’ will be the same as it is currently for those Market-Makers (using the above example, the current minimum quoting minutes is 386.1 minutes × 450 series = 173,745 quoting minutes). 15 15 U.S.C. 78f(b). 16 15 U.S.C. 78f(b)(5). PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 E:\FR\FM\17JYN1.SGM 17JYN1 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Notices proposed rule change confers upon Market-Makers are offset by the continued, and for PMMs, LMMs, DPMs and e-DPMs increased, responsibilities to provide significant liquidity to the market to the benefit of market participants. In addition, the proposal allows flexibility with respect to PMMs’, LMMs’, DPMs’ and e-DPMs’ assignments that contain relatively fewer series and reduces unnecessary rigidity in DPMs’ quoting obligations with respect to singly listed series. The proposed rule change also protects investors and the public interest by creating more uniformity and consistency among the Exchange’s rules related to Market-Maker quoting obligations and deleting a provision regarding functionality that is no longer used by the Exchange. Finally, the proposed rule change allows the Exchange to require its Market-Makers to provide continuous quotes in a percentage of series in their appointed classes for a portion of the trading day that is the same as that of market-makers at other exchanges, which the Exchange believes will ultimately make the Exchange more competitive and help remove impediments to and promote a free and open market. For the foregoing reasons, the Exchange believes that the balance between the benefits provided to Market-Makers and the obligations imposed upon Market-Makers by the proposed rule change is appropriate. B. Self-Regulatory Organization’s Statement on Burden on Competition tkelley on DSK3SPTVN1PROD with NOTICES CBOE does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In this regard and as indicated above, the Exchange notes that the proposed rule change is comparable to current rules at competing options exchanges related to market-maker continuous quoting obligations 17 and will ensure fair competition among the options exchanges with respect to these obligations. 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: 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) 18 of the Act and Rule 19b–4(f)(6) 19 thereunder. At any time within 60 days of the filing of this 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. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–CBOE–2012–064 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–2012–064. 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 (https://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 17 See U.S.C. 78s(b)(3)(A). 19 17 CFR 240.19b–4(f)(6). supra note 3. VerDate Mar<15>2010 16:53 Jul 16, 2012 Jkt 226001 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– 2012–064 and should be submitted on or before August 7, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–17348 Filed 7–16–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67413; File No. SR– NASDAQ–2012–084] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Rule 4751(f)(7) Concerning the Processing of the Price To Comply Order July 11, 2012. 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 2, 2012, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to modify how the processing of a Price to Comply 20 17 18 15 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 42045 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\17JYN1.SGM 17JYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 137 (Tuesday, July 17, 2012)]
[Notices]
[Pages 42040-42045]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17348]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67410; File No. SR-CBOE-2012-064]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Continuous Electronic Quotes

July 11, 2012.
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 5, 2012, the 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.

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

[[Page 42041]]

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

The Exchange proposes to amend its Rules relating to continuous
electronic quotes. The text of the proposed rule change is available on
the Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission.

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 the proposed rule change is to amend Rule 1.1(ccc),
``Continuous Electronic Quotes,'' to reduce to 90% the percentage of
time for which a Market-Maker is required to provide electronic quotes
in an appointed option class on a given trading day. Additionally, the
proposed rule change amends Rules 8.13, 8.15A, 8.85 and 8.93 to
increase to the lesser of 99% or 100% minus one call-put pair the
percentage of series in each class in which Preferred Market-Makers
(``PMMs''), LMMs, Designated Primary Market-Makers (``DPMs''), and
electronic DPMs (``e-DPMs''), respectively (Market-Makers, PMMs, LMMs,
DPMs and e-DPMs are collectively referred to in this filing as
``Market-Makers'' unless the context provides otherwise), must provide
continuous electronic quotes. The proposed rule change is comparable to
the rules of other options exchanges applicable to equivalent market
participants.\3\
---------------------------------------------------------------------------

\3\ The continuous quoting obligations for NASDAQ Options Market
(``NOM'') market-makers and NASDAQ OMX PHLX LLC (``PHLX'') streaming
quote trades (``SQTs'') and remote SQTs (``RSQTs'') (similar to
Market-Makers) are generally as follows: (1) NOM Chapter VII,
Section 6(d)--market-makers must enter continuous bids and offers in
at least 60% of the series in options in which the market-maker is
registered for 90% of the trading day (as a percentage of the total
number of minutes in such trading day) or such higher percentage as
NASDAQ may announce in advance; and (2) PHLX Rule 1014(b)(ii)(D)(1)-
SQTs and RSQTs must quote two-sided markets in 60% of series of the
options in which they are assigned for at least 90% of the trading
day (as a percentage of the total number of minutes in such trading
day).
The continuous quoting obligations for NYSE Amex LLC (``NYSE
Amex'') and NYSE Arca, Inc. (``NYSE Arca'') directed order market-
makers and PHLX directed SQTs and RSQTs (similar to PMMs) are as
follows: (1) NYSE Amex Options Rules 964.1NY--directed order market-
makers must provide continuous two-sided quotations throughout the
trading day in issues for which it receives directed orders for 90%
of the time NYSE Amex is open for trading in each issue (applies to
all of the directed order market-maker's appointed issues
collectively); (2) NYSE Arca Options Rules 6.88--directed order
market-makers must provide continuous two-sided quotations
throughout the trading day in issues for which it receives directed
orders for 90% of the time NYSE Arca is open for trading in each
issue (applies to all of the directed order market-maker's appointed
issues collectively); and (3) PHLX Rule 1014(b)(ii)(D)(1)--directed
SQTs and RSQTs must quote two-sided markets in the lesser of 99% of
series listed on the exchange or 100% of the series listed on the
exchange minus one call-put pair, in each case in at least 60% of
the options classes in which they are assigned for at least 90% of
the trading day (as a percentage of the total number of minutes in
such trading day); once they enter a quote in an assigned class,
they must maintain until the close of that trading day quotations
for the lesser of 99% of the series of the option listed on the
Exchange or 100% of the series of the option listed on the Exchange
minus one call-put pair.
The continuous quoting obligations for NYSE Amex and PHLX
specialists and NYSE Arca lead market-makers (similar to LMMs, DPMs
and e-DPMs) are as follows: (1) NYSE Amex Options Rules 925.1NY--
specialists must provide continuous two-sided quotations throughout
the trading day in its appointed issues for 90% of the time NYSE
Amex is open for trading in each issue (applies to all of the
specialist's appointed issues collectively); (2) NYSE Arca Options
Rules 6.37B--lead market-makers must provide continuous two-sided
quotations throughout the trading day in its appointed issues for
90% of the time NYSE Arca is open for trading in each issue (applies
to all of the lead market-maker's appointed issues collectively);
and (3) PHLX Rule 1014(b)(ii)(D)(1)--specialists are responsible to
quote two-sided markets in the lesser of 99% of the series or 100%
of the series minus one call-put pair in each option in which such
specialist is assigned for 90% of the trading day (as a percentage
of the total number of minutes in such trading day).
---------------------------------------------------------------------------

Rules 8.7, 8.13, 8.15A, 8.85, and 8.93 impose certain obligations
on Market-Makers, PMMs, LMMs, DPMs, and e-DPMs, respectively. These
Rules require that Market-Makers generally maintain continuous
electronic quotes as follows:
Rule 8.7(d)(ii)(B) requires that Market-Makers provide
continuous electronic quotes when quoting in a particular class on a
given trading day in 60% of the non-adjusted option series of the
Market-Maker's appointed class that have a time to expiration of less
than nine months;
Rule 8.13(d) requires that PMMs provide continuous
electronic quotes when the Exchange is open for trading in at least 90%
of the non-adjusted option series of each class for which it receives
Preferred Market-Maker orders;
Rule 8.15A(b)(i) requires that LMMs provide continuous
electronic quotes when the Exchange is open for trading in at least 90%
of the non-adjusted option series within their assigned classes;
Rule 8.85(a)(i) requires DPMs to provide continuous
electronic quotes when the Exchange is open for trading in at least 90%
of the non-adjusted option series of each multiply listed option class
allocated to it and in 100% of the non-adjusted option series of each
singly listed option class allocated to it; and
Rule 8.93 requires e-DPMs to provide continuous electronic
quotes when the Exchange is open for trading in at least 90% of the
non-adjusted option series of each allocated class.
Rule 1.1(ccc) currently provides that a Market-Maker who is
obligated by CBOE Rules to provide continuous electronic quotes will be
deemed to have provided ``continuous electronic quotes'' if the Market-
Maker provides electronic two-sided quotes for 99% of the time that the
Market-Maker is required to provide electronic quotes in an appointed
option class on a given trading day. The rule also provides that if a
technical failure or limitation of a system of the Exchange prevents
the Market-Maker from maintaining, or from communicating to the
Exchange, timely and accurate electronic quotes in a class, the
duration of such failure will not be considered in determining whether
the Market-Maker has satisfied the 99% quoting standard with respect to
that option class. The Exchange may consider other exceptions to this
continuous electronic quote obligation based on demonstrated legal or
regulatory requirements or other mitigating circumstances.
The Exchange proposes to amend the definition of continuous
electronic quotes to mean 90% of the time a Market-Maker is required to
quote in an appointed option class on a given trading day. The rule
will still provide for automatic exceptions for technical failures or
system limitations and discretionary exceptions based on demonstrated
legal or regulatory requirements or other mitigating circumstances.
The Exchange also proposes to increase the percentage of series in
each option class in which PMMs, LMMs, DPMs and e-DPMs are required to
provide continuous electronic quotes. The proposed rule change amends:
(i) Rule 8.13(d) to require PMMs to provide

[[Page 42042]]

continuous electronic quotes when the Exchange is open for trading in
at least the lesser of 99% of the non-adjusted option series or 100% of
the non-adjusted option series minus one call-put pair \4\ of each
class for which it receives Preferred Market-Maker orders; (ii) Rule
8.15A(b)(i) to require LMMs to provide continuous electronic quotes
when the Exchange is open for trading in at least the lesser of 99% of
the non-adjusted option series or 100% of the non-adjusted option
series minus one call-put pair within their assigned classes; (iii)
Rule 8.85(a)(i) to require DPMs to provide continuous electronic quotes
when the Exchange is open for trading in at least the lesser of 99% of
the non-adjusted option series or 100% of the non-adjusted option
series minus one call-put pair of each option class allocated to them;
and (iv) Rule 8.93 to require e-DPMs to provide continuous electronic
quotes when the Exchange is open for trading in at least the lesser of
99% of the non-adjusted option series or 100% of the non-adjusted
option series minus one call-put pair of each allocated class.
---------------------------------------------------------------------------

\4\ A ``call-put pair'' consists of two individual options, one
call and one put, which cover the same underlying instrument and
have the same expiration date and exercise price. Failure to
maintain a qualifying (90% of the time, as proposed in this filing)
quote in just one call, one put, or in one call and one ``paired''
put, would not by itself (assuming all other series of a class are
being quoted as required) constitute a violation of 99%-of-the-
series requirement.
---------------------------------------------------------------------------

The proposed rule change also makes additional changes to create
consistency among the continuous quoting obligations for all CBOE
Market-Makers. The proposed rule change eliminates the separate quoting
requirements for DPMs in singly listed and multiply listed classes.
This will cause the quoting obligation for multiply listed classes to
increase from 90% to 99% of the series and for singly listed classes to
decrease slightly from 100% to 99%. The Exchange believes that is no
longer necessary to have a separate, slightly higher requirement for
singly listed classes given the increase in the obligation for multiply
listed series. The proposed rule change also deletes the requirement
that e-DPMs will alternatively be required to respond to 98% of the
requests for quotes (``RFQs'') if the Exchange has enabled RFQ
functionality in a class. The Exchange never enabled the RFQ
functionality in any class for e-DPMs, and it is no longer available.
Therefore, the Exchange believes it is appropriate to delete this
provision from the e-DPM rules.
The Exchange does not believe that the proposed rule change would
adversely affect the quality of the Exchange's markets or lead to a
material decrease in liquidity. Rather, the Exchange believes that its
current market structure with its high rate of participation by Market-
Makers permits the lowering of the quoting time obligation without fear
of losing liquidity. Market-Makers will continue to be required to
provide continuous electronic quotes in 60% of each allocated class.
Additionally, for PMMs, LMMs, DPMs and e-DPMS, the proposed reduction
in required quoting time will be offset by the increase in percentage
of series in each appointed class in which PMMs, LMMs, DPMs and e-DPMs
are required to provide continuous electronic quotes. The proposed rule
change to require PMMs, LMMs, DPMs and e-DPMs to quote in the lesser of
99% of the series or 100% of the series minus one call-put pair in each
class provides flexibility in assignments that contain relatively fewer
series and avoids situations when failure to quote 90% of the trading
day in merely one individual option or one pair breaches the quoting
requirement.
The Exchange Rules also impose a number of other obligations on
Market-Makers that will continue to ensure that they create and
maintain a fair and orderly market in the option classes to which they
are assigned. The proposed rule change would not excuse a Market-Maker
that is present on the trading floor from its obligation to provide a
two-sided market complying with the bid/ask differential requirements
in response to any request for quote by a floor broker, Trading Permit
Holder or PAR Official.\5\ The proposed rule change would also not
excuse a Market-Maker that is present on the trading floor from its
obligation to provide an open outcry two-sided market complying with
the bid/ask differential requirements in response to a request for a
quote by a Trading Permit Holder or PAR Official directed at that
Market-Maker or when, in response to a general request for a quote by a
Trading Permit Holder or PAR Official, a market is not then being
vocalized by a reasonable number of Market-Makers.\6\ Further, the
proposed rule change would not excuse a Market-Maker from its
obligation to submit a single quote or maintain continuous quotes in
one or more series of a class to which the Market-Maker is appointed
when called upon by an Exchange official if, in the judgment of such
official, it is necessary to do so in the interest of maintaining a
fair and orderly market.\7\
---------------------------------------------------------------------------

\5\ See Rule 8.7(d)(i)(C) (relating to a request for quote by a
floor broker) and (ii)(C) (relating to a request for a quote by a
Trading Permit Holder or PAR Official).
\6\ See Rule 8.7(d)(iv).
\7\ Id.
---------------------------------------------------------------------------

In support of this proposal, the Exchange notes that other
competing options exchanges impose continuous quoting obligations on
their market participants that have equivalent rights and obligations
as Market-Makers, PMMs, LMMs, DPMs and e-DPMs that are comparable to
the obligations proposed in this filing:

Market-Makers
----------------------------------------------------------------------------------------------------------------
% Time % Series Classes
----------------------------------------------------------------------------------------------------------------
CBOE (current rule)...................... 99% of the time required to 60 Class-by-class.
provide quotes on a
trading day when quoting.
NOM...................................... 90% of a trading day....... 60 All classes collectively.
PHLX (SQTs and RSQTs).................... 90% of the trading day..... 60 All classes collectively.
----------------------------------------------------------------------------------------------------------------

PMMs
----------------------------------------------------------------------------------------------------------------
% Time % Series Classes
----------------------------------------------------------------------------------------------------------------
CBOE (current rule)...................... 99% of the time required to 90 Class-by-class.
provide quotes on a
trading day.
NYSE Amex (directed order market-makers). 90% of the time open for N/A All classes collectively.
trading.

[[Page 42043]]

NYSE Arca (directed order market-makers). 90% of the time open for N/A All classes collectively.
trading.
PHLX (directed SQTs and RSQTs)........... 90% of the trading day..... 99% (or 60% of classes (and any
100% minus classes in which they
one call- enter quotes during a
put pair) trading day).
60 Remaining classes.
----------------------------------------------------------------------------------------------------------------

LMMs/DPMs/e-DPMs
----------------------------------------------------------------------------------------------------------------
% Time % Series Classes
----------------------------------------------------------------------------------------------------------------
CBOE (current rule)...................... 99% of the time required to 90% * Class-by-class.
provide quotes on a
trading day.
NYSE Amex (specialists).................. 90% of the time open for N/A All classes collectively.
trading.
NYSE Arca (lead market-makers)........... 90% of the time open for N/A All classes collectively.
trading.
PHLX (specialists)....................... 90% of the trading day..... 99% (or Class-by-class.
100% minus
one call-
put pair)
----------------------------------------------------------------------------------------------------------------
* DPMs are required to quote in 100% of the series in a class for singly listed options. E-DPMs are
alternatively required to respond to 98% of the RFQ if the Exchange has enabled RFQ functionality in a class.
The proposed rule change eliminates both of those alternative requirements.

As the above tables show, there are slight differences among the
quoting obligations of these exchanges, including differences in the
application of these obligations to appointed option classes
collectively or on a class-by-class basis and slight differences in the
percentages of series of appointed classes in which market-makers must
provide continuous electronic quotes. However, the Exchange believes
that despite these slight variations, upon effectiveness of the
proposed rule change, Market-Makers will be required to provide
continuous electronic quotes for the same amount of time in the same or
a substantially similar percentage of series as market-makers at these
other exchanges.
To demonstrate this point, consider a Market-Maker with 10
appointed classes, each of which has 50 series, for a total of 500
series, quoting in each class during a regular 390-minute trading
day.\8\ The following table shows the ``minimum total quoting
minutes,'' which equals the number of required minutes in a trading day
times the number of series required to be quoted,\9\ of CBOE Market-
Makers, NOM market-makers and PHLX SQTs or RSQTs (assuming
effectiveness of the proposed rule change): \10\
---------------------------------------------------------------------------

\8\ The Exchange notes that Rule 8.7(d)(iii) provides that the
continuous quoting obligation applies to a Market-Maker on a per
class basis only when the Market-Maker is quoting in a particular
class on a given trading day. For purposes of this example, the
Exchange assumes that a Market-Maker is quoting in all of its
appointed classes for an entire trading day.
\9\ The ``maximum total quoting minutes'' in a trading day would
equal 390 minutes times 500 series, or 195,000.
\10\ Given CBOE's current 99% requirement, the minimum total
quoting minutes for CBOE Market-Makers quoting in all classes for an
entire trading day is 115,830 (386.1 minutes x 300 series), assuming
they are quoting in all appointed classes for an entire trading day,
which is higher than that of NOM market-makers and PHLX SQTs and
RSQTs.

The following table shows the ``minimum total quoting minutes'' of
CBOE PMMs, NYSE Amex and NYSE Arca directed order market-makers, and
PHLX directed SQTs and RSQTs (assuming effectiveness of the proposed
rule change):
---------------------------------------------------------------------------

\11\ See supra note 3.

[[Page 42044]]

PHLX * *............. 90%............ 99%............ 173,745
(351 minutes).. (495 series)... (351 minutes x
495 series)
------------------------------------------------------------------------
*NYSE Amex and NYSE Arca rules do not specify a minimum percentage of
series in which their directed order market-makers must maintain
continuous electronic quotes in their appointed classes.\11\ The
Exchange assumes for purposes of this example that the continuous
quoting obligation applies to 100% of series in all appointed classes.
**Phlx rules provide that directed SQTs and RSQTs must quote two-sided
markets in the lesser of 99% of series listed on the exchange or 100%
of the series listed on the exchange minus one call-put pair, in each
case in at least 60% of the options classes in which they are assigned
for at least 90% of the trading day (as a percentage of the total
number of minutes in such trading day). Additionally, once they enter
a quote in an assigned class, they must maintain until the close of
that trading day quotations for the lesser of 99% of the series of the
option listed on the Exchange or 100% of the series of the option
listed on the Exchange minus one call-put pair. The Exchange assumes
for purposes of this example that the directed SQT/RSQT enters quotes
in all of its assigned classes during the trading day.

The following table shows the ``minimum total quoting minutes'' of
CBOE LMMs/DPMs/e-DPMs, NYSE Amex specialists, NYSE Arca lead market-
makers, and PHLX specialists (assuming effectiveness of the proposed
rule change):
---------------------------------------------------------------------------

\12\ Id.

------------------------------------------------------------------------
% series
Exchange % time required required to Minimum total
to quote quote quoting minutes
------------------------------------------------------------------------
CBOE................. 90%............ 99%............ 173,745
(351 minutes).. (495 series)... (351 minutes x
495 series)
NYSE Amex *.......... 90%............ 100%........... 175,500
(351 minutes).. (500 series)... (351 minutes x
500 series)
NYSE Arca *.......... 90%............ 100%........... 175,500
(351 minutes).. (500 series)... (351 minutes x
500 series)
PHLX................. 90%............ 99%............ 173,745
(351 minutes).. (495 series)... (351 minutes x
495 series)
------------------------------------------------------------------------
* NYSE Amex and NYSE Arca rules do not specify a minimum percentage of
series in which their specialists and lead market-makers,
respectively, must maintain continuous electronic quotes in their
appointed classes.\12\ The Exchange assumes for purposes of this
example that the continuous quoting obligation applies to 100% of
series in all appointed classes.

As the above example demonstrates, upon effectiveness of the
proposed rule change, the minimum quoting minutes for Market-Makers
will be the same as those of NOM market-makers and PHLX SQTs and
RSQTs.\13\ The minimum quoting minutes of PMMs will be slightly less
than NYSE Amex and NYSE Arca directed order market-makers and the same
as PHLX directed SQTs and RSQTs. The minimum quoting minutes of LMMs,
DPMs and e-DPMs will be the same as PHLX specialists and slightly less
than NYSE Amex specialists and NYSE Arca lead market-market makers.\14\
---------------------------------------------------------------------------

\13\ In addition, because CBOE applies its continuous quoting
obligation to Market-Makers on a class-by-class basis as opposed to
all classes collectively as the other exchanges do, CBOE's rules
ensure that Market-Makers, when they are quoting in all appointed
classes for an entire trading day, provide liquidity in a
significant number of series in each class in which they are
quoting, whereas the other exchanges' rules could result in reduced
or no liquidity in certain classes.
\14\ The Exchange notes that for PMMs, LMMs, DPMs and e-DPMs,
upon effectiveness of the proposed rule change, the ``minimum
quoting minutes'' will be the same as it is currently for those
Market-Makers (using the above example, the current minimum quoting
minutes is 386.1 minutes x 450 series = 173,745 quoting minutes).
---------------------------------------------------------------------------

The Exchange believes this proposal will make the quoting time
requirements of Market-Makers more comparable to those at other options
exchanges and is therefore essential for competitive purposes. CBOE
believes it is disadvantageous to CBOE Market-Makers if they are
subject to stricter timing requirements with respect to their
continuous quoting obligations than market-makers at other options
exchanges.
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.\15\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \16\ requirements that the rules
of an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest.
---------------------------------------------------------------------------

\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

In particular, the Exchange believes this proposed rule change
promotes just and equitable principles of trade because it reduces
burdens and unnecessary restrictiveness on Market-Makers. The Exchange
still imposes many obligations on Market-Makers to maintain a fair and
orderly market in their appointed classes, which the Exchange believes
eliminates the risk of a material decrease in liquidity. While the time
during which Market-Makers must provide continuous electronic quotes
will be slightly reduced, Market-Makers will still be obligated to
provide continuous electronic quotes for a significant part of the
trading day in 60% of series of each appointed class. PMMs, LMMs, DPMs
and e-DPMs will be obligated to provide continuous electronic quotes
for a significant part of the trading date in an increased percentage
(99% or 100% minus one call-put pair) of series of each appointed
class. Additionally, all Market-Makers will continue to be obligated to
quote the series when requested by a floor broker, Trading Permit
Holder or PAR Official, or if the need otherwise arises.
Accordingly, the proposal supports the quality of CBOE's markets by
helping to ensure that Market-Makers will continue to be obligated to
quote in series when necessary. With respect to PMMs, LMMs, DPMs and e-
DPMs, the benefit provided to these Market-Makers from the proposed
reduction in required quoting time is offset by the proposed increased
in required percentage of series in which these Market-Makers must
provide continuous electronic quotes. Ultimately, the benefits the

[[Page 42045]]

proposed rule change confers upon Market-Makers are offset by the
continued, and for PMMs, LMMs, DPMs and e-DPMs increased,
responsibilities to provide significant liquidity to the market to the
benefit of market participants. In addition, the proposal allows
flexibility with respect to PMMs', LMMs', DPMs' and e-DPMs' assignments
that contain relatively fewer series and reduces unnecessary rigidity
in DPMs' quoting obligations with respect to singly listed series.
The proposed rule change also protects investors and the public
interest by creating more uniformity and consistency among the
Exchange's rules related to Market-Maker quoting obligations and
deleting a provision regarding functionality that is no longer used by
the Exchange.
Finally, the proposed rule change allows the Exchange to require
its Market-Makers to provide continuous quotes in a percentage of
series in their appointed classes for a portion of the trading day that
is the same as that of market-makers at other exchanges, which the
Exchange believes will ultimately make the Exchange more competitive
and help remove impediments to and promote a free and open market.
For the foregoing reasons, the Exchange believes that the balance
between the benefits provided to Market-Makers and the obligations
imposed upon Market-Makers by the proposed rule change is appropriate.

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 not necessary or appropriate in furtherance of
the purposes of the Act. In this regard and as indicated above, the
Exchange notes that the proposed rule change is comparable to current
rules at competing options exchanges related to market-maker continuous
quoting obligations \17\ and will ensure fair competition among the
options exchanges with respect to these obligations.
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\17\ See supra note 3.
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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:
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) \18\ of the Act and
Rule 19b-4(f)(6) \19\ thereunder.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of this 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.

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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2012-064 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-2012-064. 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 (https://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-2012-064 and should be
submitted on or before August 7, 2012.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17348 Filed 7-16-12; 8:45 am]
BILLING CODE 8011-01-P

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