Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Rules Relating to Preferred Market-Makers' Continuous Quoting Obligation, 5544-5548 [2013-01485]
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Federal Register / Vol. 78, No. 17 / Friday, January 25, 2013 / Notices
BrokerCheck and will consider them in
the future. When considering the
commenters’ suggestions, FINRA will
examine, among other things, whether
the inclusion of the BrokerCheck Web
site address on materials such as public
communications, new account
documents, and monthly statements
would materially increase investor
awareness or use of BrokerCheck, as
well as the potential additional costs
that the suggested changes would
impose on members and their associated
persons.
One commenter suggested that no
changes be made to Rule 2267.16 As
previously mentioned, FINRA believes
that the proposed rule change will
benefit investors by increasing the
awareness and use of BrokerCheck.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
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:
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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–FINRA–2013–002 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–FINRA–2013–002. 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 such
filing also will be available for
inspection and copying at the principal
office of FINRA. 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–FINRA–
2013–002 and should be submitted on
or before February 15, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–01494 Filed 1–24–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68691; File No. SR–CBOE–
2013–008]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Its Rules
Relating to Preferred Market-Makers’
Continuous Quoting Obligation
January 18, 2013.
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 January
11, 2013, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
16 Dorsey.
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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.
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 Preferred MarketMakers’ (‘‘PMMs’’) continuous quoting
obligations. The text of the proposed
rule change is provided below.3
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Chicago Board Options Exchange,
Incorporated Rules
*
*
*
*
*
Rule 8.13. Preferred Market-Maker
Program
(a) Generally. The Exchange may
allow, on a class-by-class basis, for the
receipt of marketable orders, through
the Exchange’s Order Routing System
when the Exchange’s disseminated
quote is the NBBO, that carry a
designation from the Trading Permit
Holder transmitting the order that
specifies a Market-Maker in that class as
the ‘‘Preferred Market-Maker’’ for that
order. A qualifying recipient of a
3 The Exchange recently proposed to, among
other things, (a) reduce to 90% the percentage of
time for which a PMM is required to provide
electronic quotes in an appointed option class on
a given trading day and (b) to increase to the lesser
of 99% or 100% minus one call-put pair the
percentage of series in each class in which a PMM
must provide continuous electronic quotes in
classes in which it receives PMM orders, which
proposed rule change was immediately effective
upon filing. Securities Exchange Act Release No.
34–67410 (July 11, 2012), 77 FR 42040 (July 17,
2012) (SR–CBOE–2012–064); see also Securities
Exchange Act Release No. 34–67644 (August 13,
2012), 77 FR 49846 (August 17, 2012) (SR–CBOE–
2012–077) (immediately effective rule change to
delay the implementation date of the proposed rule
change in rule filing SR–CBOE–2012–064 and to
indicate that the Exchange will announce the new
implementation date by Regulatory Circular); and
Securities Exchange Act Release No. 34–68218
(November 13, 2012), 77 FR 69667 (November 20,
2012) (SR–CBOE–2012–106) (immediately effective
rule change to further delay the implementation
date of the proposed rule change in rule filing SR–
CBOE–2012–064 and to indicate that the Exchange
will announce the new implement date by
Regulatory Circular). The rule text in this filing
includes the effective (but not implemented)
changes to the rule text made by rule filing SR–
CBOE–2012–064. The Exchange expects to
implement the effective rule changes to quoting
obligations in filing SR–CBOE–2012–064 in
conjunction with the implementation of the
proposed rule change in this filing.
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Preferred Market-Maker order shall be
afforded a participation entitlement as
set forth in subparagraph (c) below.
(b) Eligibility. No change.
(c) Entitlement Rate. No change.
(d) Quoting Obligations: The Preferred
Market-Maker must comply with the
quoting obligations applicable to its
Market-Maker type under Exchange
rules and must provide continuous
electronic quotes (as defined in Rule
1.1(ccc)) in at least the lesser of 99% of
the non-adjusted option series that have
a time to expiration of less than nine
months or 100% of the non-adjusted
option series that have a time to
expiration of less than nine months
minus one call-put pair of each class for
which it receives Preferred MarketMaker orders, with the term ‘‘call-put
pair’’ referring to one call and one put
that cover the same underlying
instrument and have the same
expiration date and exercise price.
* * * Interpretations and Policies:
.01 No change.
.02 Rule 8.13(d) does not require a
Preferred Market-Maker to provide
continuous electronic quotes in series
that have a time to expiration of nine
months or more in the classes for which
it receives Preferred Market-Maker
orders. However, a Preferred MarketMaker may still receive a participation
entitlement in such series if it elects to
quote in such series and otherwise
satisfies the requirements set forth in
Rule 8.13(b).
*
*
*
*
*
The text of the proposed rule change
is also 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.
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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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Rule 8.13(d) currently requires that
PMMs provide continuous electronic
quotes when the Exchange is open for
trading in at least 90% of the nonadjusted option series of each class for
which it receives PMM orders.4 Rule
1.1(ccc) currently provides that a PMM
will be deemed to have provided
‘‘continuous electronic quotes’’ if the
PMM provides electronic two-sided
quotes for 99% of the time.5
The Exchange proposes to exclude
series that have a time to expiration of
nine months or more (i.e., Long-Term
Equity Options Series, or ‘‘LEAPS’’)
from PMMs’ continuous quoting
obligation. As a result, PMMs’
continuous quoting obligation will not
apply to options series with a time to
expiration of nine months or more.6
Exchange Rule 8.7(d)(ii)(B) currently
excludes series that have a time to
expiration of nine months or more from
the quoting obligations of MarketMakers.
The Exchange is proposing this rule
change for competitive reasons.
NASDAQ OMX PHLX LLC (‘‘PHLX’’)
excludes, among other series, option
series with a time to expiration of nine
4 See supra note 3 for a discussion regarding the
implementation of a change to increase PMMs’
continuous quoting obligations to require
continuous electronic quotes in the lesser of 99%
of the non-adjusted option series or 100% of the
non-adjusted option series minus one put-class pair
of each appointed class.
5 See Rule 1.1(ccc), which provides that a Hybrid
Market-Maker will be deemed to have provided
‘‘continuous electronic quotes’’ if the Hybrid
Market-Maker provides electronic two-sided quotes
for 99% of the time that the Hybrid Market-Maker
is required to provide electronic quotes in an
appointed option class on a given trading day. As
discussed above, rule filing SR–CBOE–2012–064
reduced this percentage of time from 99% to 90%
(which change is effective but not yet operative, and
the Exchange expects to implement in conjunction
with this proposed rule change). See supra note 3.
The Rule also provides that if a technical failure or
limitation of a system of the Exchange prevents the
Hybrid Market-Maker from maintaining, or prevents
the Hybrid Market-Maker from communicating to
the Exchange, timely and accurate electronic quotes
in a class, the duration of the failure will not be
considered in determining whether the Hybrid
Market-Maker has satisfied the 99% (and soon to be
90%) 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.
6 As set forth in Rule 8.13(d), PMMs also have no
quoting obligations in adjusted option series, which
are option series for which, as a result of a corporate
action by the issuer of the underlying security, one
option contract in the series represents the delivery
of other than 100 shares of underlying stock or
Units.
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5545
months or more from the quoting
obligations of its streaming quote traders
(‘‘SQTs), remote SQTs (‘‘RSQTs’’),
directed SQTs (‘‘DSQTs’’) and directed
RSQTs (‘‘DRSQTs’’), the PHLX market
participants generally equivalent to
Market-Makers (SQTs and RSQTs) and
PMMs (DSQTs and DRSQTs).7 The
Exchange believes this proposal changes
the continuous quoting obligation of
PMMs so that PMMs are required to
quote in substantially similar types of
series as equivalent market participants
at another options exchange and is
therefore essential for competitive
purposes.8 CBOE believes it is
disadvantageous to PMMs if they are
subject to stricter quoting requirements
with respect to their continuous quoting
obligations than equivalent market
participants at a competing options
exchange.
The Exchange also notes that this
proposed rule change is consistent with
the approach in current Rule 5.8, which
states that strike price interval, bid/ask
differential and continuity rules will not
apply to equity LEAPS until the time to
expiration is less than nine months.9
The Exchange believes the proposed
rule change will continue to ensure that
PMMs create a fair and orderly market
in classes in which they receive PMM
orders, as it does not absolve PMMs
from providing continuous electronic
quotes in a significant percentage of
series of each class for a substantial
portion of the trading day. PMMs must
engage in activities that constitute a
course of dealings reasonably calculated
to contribute to the maintenance of a
fair and orderly market, including (1)
Competing with other Market-Makers to
improve markets in all series of options
classes comprising their appointments,
(2) making markets that, absent changed
market conditions, will be honored in
accordance with firm quote rules, and
(3) updating market quotations in
7 See PHLX Rule 1014(b)(ii)(D)(4). Additionally,
while not specified in its rules, International
Securities Exchange (‘‘ISE’’) Regulatory Information
Circular 2009–248 similarly excludes these option
series from the quoting obligations of competitive
market-makers, including competitive marketmakers that receive preferenced orders, the ISE
market participants generally equivalent to PMMs.
The Exchange notes that other exchanges exclude
these long-term options from the quoting
obligations of market participants that are
equivalent to Lead Market-Makers (‘‘LMMs’’) or
Designated Primary Market-Makers (‘‘DPMs’’), but
not PMMs. See, e.g., NYSE MKT Options Rule
925.1NY, Commentary .01; and NYSE Arca Options
Rule 6.37B, Commentary .01.
8 As noted below, PMMs will still be required to
quote in quarterly options series, which DSQTs and
DRSQTs are not.
9 Similarly, Rule 24.9(b)(1)(A) states that strike
price interval, bid/ask differential and continuity
rules will not apply to index LEAPS until the time
to expiration is less than twelve months.
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response to changed market conditions
in their appointed options classes and to
assure that any market quote it causes
to be disseminated is accurate.10
The relief proposed in this filing is
mitigated by a PMM’s other obligations.
The proposed rule change would not
excuse a PMM 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.11 The
proposed rule change would also not
excuse a PMM 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.12
Further, the proposed rule change
would not excuse a PMM from its
obligation to submit a single quote or
maintain continuous quotes in one or
more series of a class to which the PMM
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.13
The proposed rule change also adds
Interpretation and Policy .02 to Rule
8.13 to clarify that while Rule 8.13(d)
does not require a PMM to provide
continuous electronic quotes in LEAPS
in the classes for which it receives
Preferred Market-Maker orders, a PMM
may still receive a participation
entitlement in a LEAPS series if it elects
to quote in that series and otherwise
satisfies the requirements set forth in
Rule 8.13(b). If a PMM elects to quote
in a LEAPS series in one of its preferred
classes, in order to receive the
participation entitlement in that series,
the PMM must still be quoting at the
best bid or offer on the Exchange and
satisfying its other obligations set forth
in Rule 8.13(b). PMMs already receive
participation entitlements in series they
are not required to quote. As discussed
above, a PMM is currently required to
provide continuous electronic quotes in
at least 90% of the non-adjusted option
series of each class for which it receives
10 See
Rule 8.7(a) and (b).
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).
12 See Rule 8.7(d)(iv).
13 Id.
11 See
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PMM orders.14 If the PMM elects to
quote in 100% of the non-adjusted
series in the class, it will receive a
participation entitlement in all of those
series when quoting at the best price,
including the 10% of the series in
which it is not required to quote. Thus,
under the proposed rule change, the
market would continue to function as it
does now. The Exchange believes this
benefit is appropriate, as it incentivizes
PMMs to quote in as many series as
possible in the classes in which it
receives PMM orders, even LEAPS,
which Rule 8.13 does not require them
to continuously quote.
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 proposed rule change without fear of
losing liquidity. This is especially true
given that the quoting obligations of
LMMs, DPMs, and electronic DPMs (‘‘eDPMs’’) in Hybrid option classes set
forth in Rules 8.15A, 8.85, and 8.93,
respectively, will still apply to LEAPS,
so the Exchange may still have a
disseminated continuous two-sided
market in LEAPS. Further, the Exchange
believes that the current quoting
obligation in LEAPS is a minor part of
PMMs’ overall obligations, so the
burden of continuous quoting in these
series by PMMs while DPMs and LMMs
are also required to continuously quote
in those series is counter to efforts to
mitigate the number of quotes collected
and disseminated. The Exchange also
believes that market-making activity
may increase as a result of adopting a
provision that is already in place at
another options exchange. Additionally,
the Exchange believes that the proposed
rule change to clarify that PMMs may
still receive participation entitlements
in LEAPS in the classes for which they
received PMM orders in which they are
quoting, even though Rule 8.13(d) does
not require the PMMs to continuously
quote in LEAPS, will incent PMMs to
quote in LEAPS, which may increase
liquidity in those classes.
The Exchange will announce the
implementation date of the proposed
rule change in a Regulatory Circular to
be published no later than 90 days
following the effective date. The
implementation date will be no later
than 150 days following the effective
date.
14 As discussed above, this obligation will change
upon implementation of a recent rule change. See
supra note 3.
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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 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 facilitation 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) 17 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
the proposed rule change promotes just
and equitable principles of trade
because it reduces burdens and
unnecessary restrictiveness on PMMs.
The quoting obligations of LMMs,
DPMs, and e-DPMS will still apply to
LEAPS, which the Exchange believes
eliminates the risk of a material
decrease in liquidity of LEAPS. The
Exchange still imposes many obligations
on PMMs to maintain a fair and orderly
market in their appointed classes,
including obligations to provide
continuous electronic quotes for a
significant part of the trading day in a
substantial number of series of each
appointed class. Further, the
elimination of PMMs’ continuous
quoting obligations in LEAPS is a minor
change and should not impact the
quality of CBOE’s market. Consequently,
continuous quotes in these series by
PMMs, in addition to DPMs and LMMs,
increases quote traffic and burdens
systems without a corresponding
benefit. Thus, by not requiring PMMs to
continuously quote in LEAPS, the
Exchange’s proposed rule change would
further the Exchange’s goal of measured
quote mitigation. Additionally, PMMs
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.
15 15
16 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
17 Id.
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Accordingly, the proposal supports the
quality of CBOE’s markets by helping to
ensure that PMMs will continue to be
obligated to quote in series when
necessary. The Exchange believes these
changes are reasonable and are offset by
PMMs’ continued responsibilities to
provide significant liquidity to the
market to the benefit of market
participants. In addition, the proposed
rule change removes impediments to
and allows for a free and open market,
while protecting investors, by
promoting additional transparency
regarding PMMs’ obligations and
benefits in the Exchange Rules. In
addition, the Exchange believes that the
proposed rule change is designed to not
permit unfair discrimination, as the
proposed rule change provides the
proposed relief for all PMMs.
The proposed rule change to clarify
that PMMs may still receive
participation entitlements in LEAPS in
the classes for which they received
PMM orders in which they are quoting,
even though Rule 8.13(d) does not
require the PMMs to continuously quote
in LEAPS, further supports the quality
of the Exchange’s trading markets
because it encourages PMMs to quote in
LEAPS, which ultimately benefits all
investors. This benefit is offset by the
PMMs’ continued quoting obligations
and the fact that they must still satisfy
all of their other obligations in order to
receive the entitlement in these ‘‘nonrequired’’ series. The Exchange also
believes that this proposed change is
consistent with its current practice,
pursuant to which PMMs receive
participation entitlements in additional
series in which they elect to quote above
the minimum percentage of series in
which they are required to continuously
quote under Rule 8.13.
The proposed rule change is also
consistent with the rules of another
options exchange.18 The proposed rule
change requires its PMMs to provide
continuous quotes in the same types of
series as equivalent market participants
at a competing options exchange, which
the Exchange believes could increase
market-making activity on the
Exchange.
For the foregoing reasons, the
Exchange believes that the balance
between the benefits provided to and
the obligations imposed upon PMMs 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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change provides the same
relief to a group of similarly situated
market participants—PMMs. While
other types of Market-Makers will still
be required to continuously quote in
LEAPS, the Exchange believes this is
not unfairly discriminatory, as its Rules
already impose different obligations on
each type of Market-Maker based on the
purposes and functions of, and benefits
received by, that type of Market-Maker
(e.g. Market-Makers are already not
required to continuously quote in
LEAPS, while LMMs, DPMs, and eDPMs are, and will continue to be).
CBOE believes that the proposed rule
change will in fact relieve any burden
on, or otherwise promote, competition.
The Exchange believes the proposed
rule change is procompetitive because it
would enable the Exchange to provide
its PMMs with rules that are similar to
those of another options exchange
applicable to equivalent market
participants at that exchange. The
Exchange believes this will promote
trading activity on the Exchange to the
benefit of the Exchange, its Trading
Permit Holders, and market
participants.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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 19 and Rule 19b–4(f)(6) 20
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.
19 15
18 See
supra note 7.
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
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5547
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–2013–008 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–2013–008. 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 such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE–
2013–008 and should be submitted on
or before February 15, 2013.
E:\FR\FM\25JAN1.SGM
25JAN1
5548
Federal Register / Vol. 78, No. 17 / Friday, January 25, 2013 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–01485 Filed 1–24–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68702; File No. SR–CBOE–
2013–002]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fees
Schedule
January 18, 2013.
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 January 7,
2013, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
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 its
Fees Schedule. 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.
The Exchange proposes to make a
number of amendments to its Fees
Schedule. First, the Exchange proposes
to amend the fees applicable to orders
for a joint back office (‘‘JBO’’) account
to be cleared into the Firm range at the
Options Clearing Corporation (‘‘JBO
Orders’’). Until November 1, such orders
were marked with the ‘‘F’’ origin code
and were included within the category
of Clearing Trading Permit Holder
Proprietary orders (and assessed fees as
if they were Clearing Trading Permit
Holder Proprietary orders). As of
November 1, the Exchange assigned a
new origin code (‘‘J’’) to JBO Orders,3
but continued to assess the same fees for
JBO Orders as if they were Clearing
Trading Permit Holder Proprietary
orders.4
The Exchange now proposes to
increase the fees for JBO Orders to the
same amounts as are assessed to
Professional and Voluntary Professional
orders (except for SPX trades).5 This
would involve increasing the following
fees for JBO Orders (fee amounts are
per-contract):
Product
Execution type
Equity, ETF, ETN, HOLDRs and Index Options 6 ........
Equity, ETF, ETN, HOLDRs and Index Options 7 ........
Proprietary Index Options 10 .........................................
SPX Range Options (SRO) ..........................................
Credit Default Options and Credit Default Basket Options.
Manual (Penny and Non-Penny Classes) ....................
Electronic (Penny and Non-Penny Classes) 8 ..............
All ..................................................................................
All ..................................................................................
All ..................................................................................
The Exchange proposes assessing JBO
Orders these increased fee amounts
because JBOs do not have the
obligations (such as membership with
the Options Clearing Corporation),
significant regulatory burdens, or
financial obligations, that Clearing
Trading Permit Holders must take on.
Further, unlike Clearing Trading Permit
Holders, JBOs do not need to be
Exchange Trading Permit Holders.
Instead, JBOs are able to effect
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See CBOE Regulatory Circulars RG12–118
(August 27, 2012) and RG12–136 (October 5, 2012).
4 See Securities Exchange Act Release No. 68163
(November 6, 2012), 77 FR 67701 (November 13,
2012) (SR–CBOE–2012–098).
5 SPX is traded on the Exchange’s Hybrid 3.0
system, which does not recognize Professional and
Voluntary Professional orders. As such,
Professional and Voluntary Professional orders in
mstockstill on DSK4VPTVN1PROD with
1 15
VerDate Mar<15>2010
18:39 Jan 24, 2013
Jkt 229001
Previous fee
$0.20
90.20
0.25
0.50
0.20
New fee
$0.25
0.30
0.40
0.80
0.85
transactions on the Exchange through a
Clearing Trading Permit Holder. As
such, JBOs operate more like
Professional customers, in that they do
not possess these obligations and are
merely trading for themselves.
The acts of assigning JBO Orders their
own origin code and assessing them
different fee amounts from Clearing
Trading Permit Holder Proprietary
orders (and thereby listing JBO Orders
separately from Clearing Trading Permit
Holder Proprietary orders) necessitate a
number of other changes to the Fees
Schedule. First, footnote 11 of the Fees
Schedule states that the Clearing
Trading Permit Holder Fee Cap in all
products except SPX, SRO, VIX or other
volatility indexes, OEX or XEO (the
‘‘Fee Cap’’) and CBOE Proprietary
Products Sliding Scale for Clearing
Trading Permit Holder Proprietary
Orders (the ‘‘Sliding Scale’’) applies to
Clearing Trading Permit Holder
SPX are assessed the same fees as Customer SPX
orders. The Exchange instead proposes to assess the
same fees for JBO Orders in SPX that the Exchange
proposes to assess for JBO Orders in other
proprietary index options.
6 Excluding SPX, SPXW, SRO, OEX, XEO, VIX
and VOLATILITY INDEXES.
7 Excluding SPX, SPXW, SRO, OEX, XEO, VIX
and VOLATILITY INDEXES.
8 Including CFLEX AIM executions (‘‘AIM’’
stands for the Exchange’s Automated Improvement
Mechanism).
9 This proposed rule change filing also proposes
to increase the fee for Clearing Trading Permit
Holder Proprietary electronic executions (including
CFLEX AIM executions) in equity, ETF, ETN,
HOLDRs and index options (excluding SPX, SPXW,
SRO, OEX, XEO, VIX and VOLATILITY INDEXES)
from $0.20 to $0.25 per contract. As such, the fee
for JBO Orders for such executions would only be
$0.05 more per contract than for similar Clearing
Trading Permit Holder Proprietary executions.
10 SPX, SPXW, SRO, OEX, XEO, VIX and
VOLATILITY INDEXES.
PO 00000
Frm 00142
Fmt 4703
Sfmt 4703
E:\FR\FM\25JAN1.SGM
25JAN1
]]>Agencies
[Federal Register Volume 78, Number 17 (Friday, January 25, 2013)]
[Notices]
[Pages 5544-5548]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01485]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68691; File No. SR-CBOE-2013-008]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Its Rules Relating to Preferred Market-
Makers' Continuous Quoting Obligation
January 18, 2013.
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 January 11, 2013, 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.
---------------------------------------------------------------------------
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 Preferred
Market-Makers' (``PMMs'') continuous quoting obligations. The text of
the proposed rule change is provided below.\3\
---------------------------------------------------------------------------
\3\ The Exchange recently proposed to, among other things, (a)
reduce to 90% the percentage of time for which a PMM is required to
provide electronic quotes in an appointed option class on a given
trading day and (b) to increase to the lesser of 99% or 100% minus
one call-put pair the percentage of series in each class in which a
PMM must provide continuous electronic quotes in classes in which it
receives PMM orders, which proposed rule change was immediately
effective upon filing. Securities Exchange Act Release No. 34-67410
(July 11, 2012), 77 FR 42040 (July 17, 2012) (SR-CBOE-2012-064); see
also Securities Exchange Act Release No. 34-67644 (August 13, 2012),
77 FR 49846 (August 17, 2012) (SR-CBOE-2012-077) (immediately
effective rule change to delay the implementation date of the
proposed rule change in rule filing SR-CBOE-2012-064 and to indicate
that the Exchange will announce the new implementation date by
Regulatory Circular); and Securities Exchange Act Release No. 34-
68218 (November 13, 2012), 77 FR 69667 (November 20, 2012) (SR-CBOE-
2012-106) (immediately effective rule change to further delay the
implementation date of the proposed rule change in rule filing SR-
CBOE-2012-064 and to indicate that the Exchange will announce the
new implement date by Regulatory Circular). The rule text in this
filing includes the effective (but not implemented) changes to the
rule text made by rule filing SR-CBOE-2012-064. The Exchange expects
to implement the effective rule changes to quoting obligations in
filing SR-CBOE-2012-064 in conjunction with the implementation of
the proposed rule change in this filing.
---------------------------------------------------------------------------
(additions are italicized; deletions are [bracketed])
* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Rule 8.13. Preferred Market-Maker Program
(a) Generally. The Exchange may allow, on a class-by-class basis,
for the receipt of marketable orders, through the Exchange's Order
Routing System when the Exchange's disseminated quote is the NBBO, that
carry a designation from the Trading Permit Holder transmitting the
order that specifies a Market-Maker in that class as the ``Preferred
Market-Maker'' for that order. A qualifying recipient of a
[[Page 5545]]
Preferred Market-Maker order shall be afforded a participation
entitlement as set forth in subparagraph (c) below.
(b) Eligibility. No change.
(c) Entitlement Rate. No change.
(d) Quoting Obligations: The Preferred Market-Maker must comply
with the quoting obligations applicable to its Market-Maker type under
Exchange rules and must provide continuous electronic quotes (as
defined in Rule 1.1(ccc)) in at least the lesser of 99% of the non-
adjusted option series that have a time to expiration of less than nine
months or 100% of the non-adjusted option series that have a time to
expiration of less than nine months minus one call-put pair of each
class for which it receives Preferred Market-Maker orders, with the
term ``call-put pair'' referring to one call and one put that cover the
same underlying instrument and have the same expiration date and
exercise price.
* * * Interpretations and Policies:
.01 No change.
.02 Rule 8.13(d) does not require a Preferred Market-Maker to
provide continuous electronic quotes in series that have a time to
expiration of nine months or more in the classes for which it receives
Preferred Market-Maker orders. However, a Preferred Market-Maker may
still receive a participation entitlement in such series if it elects
to quote in such series and otherwise satisfies the requirements set
forth in Rule 8.13(b).
* * * * *
The text of the proposed rule change is also 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
Rule 8.13(d) currently 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
PMM orders.\4\ Rule 1.1(ccc) currently provides that a PMM will be
deemed to have provided ``continuous electronic quotes'' if the PMM
provides electronic two-sided quotes for 99% of the time.\5\
---------------------------------------------------------------------------
\4\ See supra note 3 for a discussion regarding the
implementation of a change to increase PMMs' continuous quoting
obligations to require continuous electronic quotes in the lesser of
99% of the non-adjusted option series or 100% of the non-adjusted
option series minus one put-class pair of each appointed class.
\5\ See Rule 1.1(ccc), which provides that a Hybrid Market-Maker
will be deemed to have provided ``continuous electronic quotes'' if
the Hybrid Market-Maker provides electronic two-sided quotes for 99%
of the time that the Hybrid Market-Maker is required to provide
electronic quotes in an appointed option class on a given trading
day. As discussed above, rule filing SR-CBOE-2012-064 reduced this
percentage of time from 99% to 90% (which change is effective but
not yet operative, and the Exchange expects to implement in
conjunction with this proposed rule change). See supra note 3. The
Rule also provides that if a technical failure or limitation of a
system of the Exchange prevents the Hybrid Market-Maker from
maintaining, or prevents the Hybrid Market-Maker from communicating
to the Exchange, timely and accurate electronic quotes in a class,
the duration of the failure will not be considered in determining
whether the Hybrid Market-Maker has satisfied the 99% (and soon to
be 90%) 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 exclude series that have a time to
expiration of nine months or more (i.e., Long-Term Equity Options
Series, or ``LEAPS'') from PMMs' continuous quoting obligation. As a
result, PMMs' continuous quoting obligation will not apply to options
series with a time to expiration of nine months or more.\6\ Exchange
Rule 8.7(d)(ii)(B) currently excludes series that have a time to
expiration of nine months or more from the quoting obligations of
Market-Makers.
---------------------------------------------------------------------------
\6\ As set forth in Rule 8.13(d), PMMs also have no quoting
obligations in adjusted option series, which are option series for
which, as a result of a corporate action by the issuer of the
underlying security, one option contract in the series represents
the delivery of other than 100 shares of underlying stock or Units.
---------------------------------------------------------------------------
The Exchange is proposing this rule change for competitive reasons.
NASDAQ OMX PHLX LLC (``PHLX'') excludes, among other series, option
series with a time to expiration of nine months or more from the
quoting obligations of its streaming quote traders (``SQTs), remote
SQTs (``RSQTs''), directed SQTs (``DSQTs'') and directed RSQTs
(``DRSQTs''), the PHLX market participants generally equivalent to
Market-Makers (SQTs and RSQTs) and PMMs (DSQTs and DRSQTs).\7\ The
Exchange believes this proposal changes the continuous quoting
obligation of PMMs so that PMMs are required to quote in substantially
similar types of series as equivalent market participants at another
options exchange and is therefore essential for competitive
purposes.\8\ CBOE believes it is disadvantageous to PMMs if they are
subject to stricter quoting requirements with respect to their
continuous quoting obligations than equivalent market participants at a
competing options exchange.
---------------------------------------------------------------------------
\7\ See PHLX Rule 1014(b)(ii)(D)(4). Additionally, while not
specified in its rules, International Securities Exchange (``ISE'')
Regulatory Information Circular 2009-248 similarly excludes these
option series from the quoting obligations of competitive market-
makers, including competitive market-makers that receive preferenced
orders, the ISE market participants generally equivalent to PMMs.
The Exchange notes that other exchanges exclude these long-term
options from the quoting obligations of market participants that are
equivalent to Lead Market-Makers (``LMMs'') or Designated Primary
Market-Makers (``DPMs''), but not PMMs. See, e.g., NYSE MKT Options
Rule 925.1NY, Commentary .01; and NYSE Arca Options Rule 6.37B,
Commentary .01.
\8\ As noted below, PMMs will still be required to quote in
quarterly options series, which DSQTs and DRSQTs are not.
---------------------------------------------------------------------------
The Exchange also notes that this proposed rule change is
consistent with the approach in current Rule 5.8, which states that
strike price interval, bid/ask differential and continuity rules will
not apply to equity LEAPS until the time to expiration is less than
nine months.\9\
---------------------------------------------------------------------------
\9\ Similarly, Rule 24.9(b)(1)(A) states that strike price
interval, bid/ask differential and continuity rules will not apply
to index LEAPS until the time to expiration is less than twelve
months.
---------------------------------------------------------------------------
The Exchange believes the proposed rule change will continue to
ensure that PMMs create a fair and orderly market in classes in which
they receive PMM orders, as it does not absolve PMMs from providing
continuous electronic quotes in a significant percentage of series of
each class for a substantial portion of the trading day. PMMs must
engage in activities that constitute a course of dealings reasonably
calculated to contribute to the maintenance of a fair and orderly
market, including (1) Competing with other Market-Makers to improve
markets in all series of options classes comprising their appointments,
(2) making markets that, absent changed market conditions, will be
honored in accordance with firm quote rules, and (3) updating market
quotations in
[[Page 5546]]
response to changed market conditions in their appointed options
classes and to assure that any market quote it causes to be
disseminated is accurate.\10\
---------------------------------------------------------------------------
\10\ See Rule 8.7(a) and (b).
---------------------------------------------------------------------------
The relief proposed in this filing is mitigated by a PMM's other
obligations. The proposed rule change would not excuse a PMM 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.\11\ The proposed rule change would also not excuse a PMM
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.\12\ Further, the proposed rule change would
not excuse a PMM from its obligation to submit a single quote or
maintain continuous quotes in one or more series of a class to which
the PMM 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.\13\
---------------------------------------------------------------------------
\11\ 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).
\12\ See Rule 8.7(d)(iv).
\13\ Id.
---------------------------------------------------------------------------
The proposed rule change also adds Interpretation and Policy .02 to
Rule 8.13 to clarify that while Rule 8.13(d) does not require a PMM to
provide continuous electronic quotes in LEAPS in the classes for which
it receives Preferred Market-Maker orders, a PMM may still receive a
participation entitlement in a LEAPS series if it elects to quote in
that series and otherwise satisfies the requirements set forth in Rule
8.13(b). If a PMM elects to quote in a LEAPS series in one of its
preferred classes, in order to receive the participation entitlement in
that series, the PMM must still be quoting at the best bid or offer on
the Exchange and satisfying its other obligations set forth in Rule
8.13(b). PMMs already receive participation entitlements in series they
are not required to quote. As discussed above, a PMM is currently
required to provide continuous electronic quotes in at least 90% of the
non-adjusted option series of each class for which it receives PMM
orders.\14\ If the PMM elects to quote in 100% of the non-adjusted
series in the class, it will receive a participation entitlement in all
of those series when quoting at the best price, including the 10% of
the series in which it is not required to quote. Thus, under the
proposed rule change, the market would continue to function as it does
now. The Exchange believes this benefit is appropriate, as it
incentivizes PMMs to quote in as many series as possible in the classes
in which it receives PMM orders, even LEAPS, which Rule 8.13 does not
require them to continuously quote.
---------------------------------------------------------------------------
\14\ As discussed above, this obligation will change upon
implementation of a recent rule change. See supra note 3.
---------------------------------------------------------------------------
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 proposed rule change without fear of losing
liquidity. This is especially true given that the quoting obligations
of LMMs, DPMs, and electronic DPMs (``e-DPMs'') in Hybrid option
classes set forth in Rules 8.15A, 8.85, and 8.93, respectively, will
still apply to LEAPS, so the Exchange may still have a disseminated
continuous two-sided market in LEAPS. Further, the Exchange believes
that the current quoting obligation in LEAPS is a minor part of PMMs'
overall obligations, so the burden of continuous quoting in these
series by PMMs while DPMs and LMMs are also required to continuously
quote in those series is counter to efforts to mitigate the number of
quotes collected and disseminated. The Exchange also believes that
market-making activity may increase as a result of adopting a provision
that is already in place at another options exchange. Additionally, the
Exchange believes that the proposed rule change to clarify that PMMs
may still receive participation entitlements in LEAPS in the classes
for which they received PMM orders in which they are quoting, even
though Rule 8.13(d) does not require the PMMs to continuously quote in
LEAPS, will incent PMMs to quote in LEAPS, which may increase liquidity
in those classes.
The Exchange will announce the implementation date of the proposed
rule change in a Regulatory Circular to be published no later than 90
days following the effective date. The implementation date will be no
later than 150 days following the effective date.
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 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
facilitation 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) \17\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change
promotes just and equitable principles of trade because it reduces
burdens and unnecessary restrictiveness on PMMs. The quoting
obligations of LMMs, DPMs, and e-DPMS will still apply to LEAPS, which
the Exchange believes eliminates the risk of a material decrease in
liquidity of LEAPS. The Exchange still imposes many obligations on PMMs
to maintain a fair and orderly market in their appointed classes,
including obligations to provide continuous electronic quotes for a
significant part of the trading day in a substantial number of series
of each appointed class. Further, the elimination of PMMs' continuous
quoting obligations in LEAPS is a minor change and should not impact
the quality of CBOE's market. Consequently, continuous quotes in these
series by PMMs, in addition to DPMs and LMMs, increases quote traffic
and burdens systems without a corresponding benefit. Thus, by not
requiring PMMs to continuously quote in LEAPS, the Exchange's proposed
rule change would further the Exchange's goal of measured quote
mitigation. Additionally, PMMs 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.
[[Page 5547]]
Accordingly, the proposal supports the quality of CBOE's markets by
helping to ensure that PMMs will continue to be obligated to quote in
series when necessary. The Exchange believes these changes are
reasonable and are offset by PMMs' continued responsibilities to
provide significant liquidity to the market to the benefit of market
participants. In addition, the proposed rule change removes impediments
to and allows for a free and open market, while protecting investors,
by promoting additional transparency regarding PMMs' obligations and
benefits in the Exchange Rules. In addition, the Exchange believes that
the proposed rule change is designed to not permit unfair
discrimination, as the proposed rule change provides the proposed
relief for all PMMs.
The proposed rule change to clarify that PMMs may still receive
participation entitlements in LEAPS in the classes for which they
received PMM orders in which they are quoting, even though Rule 8.13(d)
does not require the PMMs to continuously quote in LEAPS, further
supports the quality of the Exchange's trading markets because it
encourages PMMs to quote in LEAPS, which ultimately benefits all
investors. This benefit is offset by the PMMs' continued quoting
obligations and the fact that they must still satisfy all of their
other obligations in order to receive the entitlement in these ``non-
required'' series. The Exchange also believes that this proposed change
is consistent with its current practice, pursuant to which PMMs receive
participation entitlements in additional series in which they elect to
quote above the minimum percentage of series in which they are required
to continuously quote under Rule 8.13.
The proposed rule change is also consistent with the rules of
another options exchange.\18\ The proposed rule change requires its
PMMs to provide continuous quotes in the same types of series as
equivalent market participants at a competing options exchange, which
the Exchange believes could increase market-making activity on the
Exchange.
---------------------------------------------------------------------------
\18\ See supra note 7.
---------------------------------------------------------------------------
For the foregoing reasons, the Exchange believes that the balance
between the benefits provided to and the obligations imposed upon PMMs
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 that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change
provides the same relief to a group of similarly situated market
participants--PMMs. While other types of Market-Makers will still be
required to continuously quote in LEAPS, the Exchange believes this is
not unfairly discriminatory, as its Rules already impose different
obligations on each type of Market-Maker based on the purposes and
functions of, and benefits received by, that type of Market-Maker (e.g.
Market-Makers are already not required to continuously quote in LEAPS,
while LMMs, DPMs, and e-DPMs are, and will continue to be).
CBOE believes that the proposed rule change will in fact relieve
any burden on, or otherwise promote, competition. The Exchange believes
the proposed rule change is procompetitive because it would enable the
Exchange to provide its PMMs with rules that are similar to those of
another options exchange applicable to equivalent market participants
at that exchange. The Exchange believes this will promote trading
activity on the Exchange to the benefit of the Exchange, its Trading
Permit Holders, and market participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 \19\ and
Rule 19b-4(f)(6) \20\ 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.
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2013-008 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-2013-008. 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 such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2013-008 and should be
submitted on or before February 15, 2013.
[[Page 5548]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01485 Filed 1-24-13; 8:45 am]
BILLING CODE 8011-01-P
