Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Complex Orders and Mini-Options, 16895-16898 [2013-06239]
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Federal Register / Vol. 78, No. 53 / Tuesday, March 19, 2013 / Notices
collection is necessary for the proper
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Board; (b) the accuracy of the Board’s
estimate of the burden of the proposed
information collection; (c) ways to
enhance the quality, utility, and clarity
of the information to be collected; (d)
ways to minimize the burden of the
collection of information on
respondents, including the use of
information technology; and (e) whether
small businesses are affected by this
collection.
In this notice, the Board is soliciting
comments concerning the following
information collection:
Title of Collection:
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ICR Reference No.: 200912–0430–001.
OMB Control No.: 0430–0002.
ICR Status: The approval for this
information collection is scheduled to
expire on 3/31/2013.
Description: Section 1512 of the
American Recovery and Reinvestment
Act of 2009, Public Law 111–5, 123 Stat.
115 (2009) (Recovery Act), requires
recipients of Recovery Act funds to
report on the use of those funds. These
reports are submitted to
FederalReporting.gov, and certain
information from these reports is then
posted to the publically available Web
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The FederalReporting.gov Recipient
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Affected Public: Private sector, and
state, local, and tribal governments.
Total Estimated Number of
Respondents: 1,000.
Frequency of Responses: Once.
Total Estimated Annual Burden
Hours: 83.
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.
Dated: March 14, 2013.
Atticus J. Reaser,
General Counsel, Recovery Accountability
and Transparency Board.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2013–06278 Filed 3–18–13; 8:45 am]
1. Purpose
BILLING CODE 6820–GA–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69129; File No. SR–CBOE–
2013–033]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to Complex
Orders and Mini-Options
March 13, 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 March 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 and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend its
rules related to complex orders. The text
of the proposed rule change is also
available on the Exchange’s Web site
(https://www.cboe.org/legal) at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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CBOE recently amended its rules to
allow for the listing of mini-options on
SPDR S&P 500 (‘‘SPY’’), Apple, Inc.
(‘‘AAPL’’), SPDR Gold Trust (‘‘GLD’’),
Google Inc. (‘‘GOOG’’) and Amazon.com
Inc. (‘‘AMZN’’).3 Mini-option trading is
expected to commence in March 2013.
Whereas standard option contracts
represent a deliverable of 100 shares of
an underlying security, mini-options
contracts represent a deliverable of 10
shares. Except for the difference in the
number of deliverable shares, minioptions have the same terms and
contract characteristics as regular-sized
equity and ETF options, including
exercise style. Accordingly, the
Exchange noted in its original minioption filing that Exchange rules that
apply to the trading of standard option
contracts would apply to mini-option
contracts as well.4
Prior to the commencement of trading
mini-options, the Exchange proposes to
amend Rule 6.53C (Complex Orders on
the Hybrid System) and Rule 6.80
(Definitions) to provide that Exchange
rules regarding complex orders shall
apply to mini-options and that
consequently, Trading Permit Holders
may execute complex and stock-option
orders involving mini-options.
Moreover, the Exchange seeks to amend
these rules to provide that all
permissible ratios referenced in the
definitions of stock-option orders
represent the total number of shares of
the underlying stock in the option leg to
the total number of shares of the
underlying stock in the stock leg.
By way of background, CBOE Rule
6.53C governs Complex Orders on the
Hybrid System and CBOE Rule 6.80 lists
definitions applicable to intermarket
linkage. Currently, stock-option orders
are defined in Rule 6.53C(a)(2) and
6.80(4)(ii)(A)–(B) as trades where the
options leg of the trade is coupled with
3 See Securities Exchange Act Release No. 68656
(January 15, 2013), 78 FR 4526 (January 22, 2013)
(Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to List and Trade Option
Contracts Overlying 10 Shares of Certain Securities)
(SR–CBOE–2013–001).
4 Id.
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the purchase or sale of either (1) the
same number of units of the underlying
stock or convertible security, or (2) the
number of units of the underlying stock
or convertible security necessary to
create a ‘‘delta neutral’’ position, but in
no case in a ratio greater than 8 option
contracts per unit of trading of the
underlying stock or convertible security
established for that series by the
Clearing Corporation. Therefore, under
this definition it would be permissible
to execute, for example, a trade where
the options leg consists of one (1)
standard option contract (i.e., 100
shares) and the stock leg consists of 100
shares of the underlying stock.
Additionally, it would be permissible to
execute a trade where the options leg
consists of eight (8) standard option
contracts (i.e., 800 shares) and the stock
leg consists of 100 shares of the
underlying stock.
Next, ‘‘complex order’’ in Rule
6.53C(a)(1) and ‘‘complex trade’’ in Rule
6.80(4)(i) (collectively referred to as
‘‘complex orders’’) 5 is defined as any
order involving the execution of two or
more different options series in the
same underlying security occurring at or
near the same time in a ratio that is
equal to or greater than one-to-three
(.333) and less than or equal to three-toone (3.00).
The Exchange notes that the
abovementioned permissible ratios were
established to ensure that only complex
and stock-option orders that seek to
achieve legitimate investment strategies
are afforded certain benefits.
Particularly, since compliance with
trade-through rules may impede a
market participant’s ability to achieve
the legitimate investment strategies that
complex and stock-option orders
facilitate, an exception from the
prohibition on trade-throughs is
provided for any transaction that was
effected as a portion of a legitimate
complex or stock-option order.
Requiring a meaningful relationship
between the different legs of a complex
or stock-option order prevents market
participants from taking advantage of
these orders to circumvent the
otherwise applicable trade-through rules
(e.g., preventing the execution of a
stock-option order where the option leg
consists of 100 options (i.e., 10,000
shares) and the stock leg consists of only
100 shares).
The Exchange first proposes to amend
the definition of ‘‘stock-option orders’’
in Rule 6.53C(a)(2) and Rule
6.80(4)(ii)(A)–(B). As discussed above,
5 The definitions of ‘‘complex order’’ in Rule
6.53C(a)(1) and ‘‘complex trade’’ in Rule 6.80(4)(i)
are substantially identical.
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the stock-option order definition in both
Rule 6.53C and Rule 6.80 clearly
permits that an option leg may be
coupled with a stock leg representing
the same number of units of the
underlying stock (i.e., one-to-one ratio).
The Exchange seeks to provide that
mini-options may also be coupled with
a stock leg if the stock leg represents the
same number of units of the underlying
stock. For example, pursuant to the
definition, it would be permissible to
execute a trade where leg one consists
of one (1) mini-option contract (i.e., 10
shares) and leg two consists of 10 shares
of the underlying stock.
Next, the Exchange seeks to amend
the stock-option order definition in Rule
6.53C and Rule 6.80 to provide that in
addition to standard options, minioptions may be coupled with a stock leg
consisting of however many units of the
underlying stock is necessary to create
a delta neutral position, provided that
the total number of shares of the
underlying stock in the option leg to the
total number of shares of the underlying
stock in the stock leg does not exceed
an eight-to-one ratio. The Exchange
notes the definition of a stock-option
order in Rule 6.53C and Rule 6.80 was
drafted at a time in which only option
contracts with a deliverable of 100
shares was contemplated. Therefore, the
rules do not address how the eight-toone ratio would be scaled in the event
an option with a non-standard
deliverable becomes available for
trading. The language of the rules needs
to be amended so that it is clear how
Rule 6.53C and 6.80 would apply to
mini-options, as well as standard
options. Accordingly, the proposed
change specifies that the permissible
ratios should be calculated and scaled
based upon the total number of shares
of the underlying stock in the option leg
to the total number of shares of the
underlying stock in the stock leg,
instead of by the total number of option
contracts in the option leg to the total
number of shares of the underlying
stock in the stock leg. An example of a
permitted stock-option order involving
mini-options would be an order in
which leg one consists of eighty (80)
mini-options (i.e., 800 shares) and leg
two consists of 100 shares of the
underlying stock (i.e., eight-to-one
ratio). Similarly, an order where leg one
consists of eight (8) mini-options (i.e. 80
shares) and leg two consists of 10 shares
of the underlying stock would be
permitted.
The proposed rule change provides
that market participants may execute
stock-option orders involving minioptions. The proposed change also
ensures that the principle behind the
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permissible ratios (i.e., to provide a
meaningful relationship between the
legs of complex and stock-option orders)
is maintained for mini-options. Finally,
the Exchange notes that reference to the
Clearing Corporation in Rule 6.53C(a)(2)
and 6.80(4)(ii)(A)–(B) was superfluous
and unnecessary and therefore deleted.
Next the Exchange seeks to make clear
that it interprets its current definition of
a ‘‘complex order’’ in Rule 6.53C(a)(1)
and ‘‘complex trade’’ in Rule 6.80(4)(i)–
(ii) to apply to both standard options
and mini-options. The Exchange seeks
to provide that in accordance to the
provisions of Rule 6.53C and Rule 6.80,
one leg of a complex order may consist
of mini-option contract(s) and the other
leg of the order may consist of standard
option(s), so long as the underlying
security is the same and the transaction
does not violate the permissible ratios
set forth in the rules (i.e., ratio greater
or equal to one-to-three or less or equal
to three-to-one). Moreover, the Exchange
seeks to clarify that these permissible
ratios represent the total number of
shares of the underlying stock in the
mini-option leg to the total number of
shares of the underlying stock in the
standard option leg. An example of a
permissible complex order involving
mini-options and standard options
would be an order in which leg one
consists of thirty (30) mini-options (i.e.,
300 shares) and leg two consists of one
(1) standard option (i.e., 100 shares) in
the same underlying security (i.e., a
ratio equal to 3.0). Another example of
a permissible complex order would be
an order in which leg one consists of ten
(10) mini-options (i.e., 100 shares) and
leg two consists of one (1) standard
option (i.e., 100 shares) in the same
underlying security (i.e., a ratio equal to
one-to-one). The proposed clarification
will reduce potential confusion for
investors when trading of mini-options
becomes effective.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder, including the requirements
of Section 6(b) of the Act.6 In particular,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 7 requirements that the rules of
an exchange be designed to promote just
and equitable principles of trade, to
prevent fraudulent and manipulative
acts, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and to perfect
6 15
7 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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the mechanism for a free and open
market and a national market system,
and, in general, to protect investors and
the public interest.
Specifically, the Exchange believes
that investors and other market
participants would benefit from the
current rule proposal because it would
allow market participants to take
advantage of legitimate investment
strategies and execute complex orders
and stock-option orders in mini-options.
Additionally, the Exchange believes the
proposed rule change will avoid
investor confusion if both standard
options and mini-options on the same
underlying security are permitted to
trade as complex orders and stockoption orders. Also, the proposal to
maintain the permissible ratios that are
applicable to standard options in
proportion for mini-options ensures that
the principle behind the permissible
ratios (i.e., to provide a meaningful
relationship between the legs of
complex and stock-option orders) is
maintained for mini-options, which
promotes just and equitable principles
of trade. The Exchange believes that
describing prior to the commencement
of trading how the permissible ratios in
the complex order and stock-option
order rules will be scaled for minioptions would lessen investor and
marketplace confusion.
Finally, the Exchange believes that
the proposed rule change is designed to
not permit unfair discrimination among
market participants as all market
participants may participate in complex
or stock-option orders involving minioptions.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
This proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
Specifically, since mini-options are
permitted on multiply-listed classes,
other exchanges that have received
approval to trade mini-options will have
the opportunity to similarly amend their
complex order rules to clarify and
accommodate complex orders and
stock-option orders in mini-option
classes. Moreover, because all Trading
Permit Holders may participate in
complex and stock-options orders
involving mini-options, the rule change
does not permit unfair discrimination
and does not impose a burden on
Trading Permit Holders.
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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:
(i) Significantly affect the protection
of investors or the public interest;
(ii) Impose any significant burden on
competition; and
(iii) Become operative for 30 days
from the date on which it was filed, or
such shorter time as the Commission
may designate, it has become effective
pursuant to Section 19(b)(3)(A) 8 of the
Act and Rule 19b–4(f)(6) 9 thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) of the Act 10 normally
does not become operative prior to 30
days after the date of the filing.
However, pursuant to Rule 19b–
4(f)(6)(iii) of the Act,11 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has requested the Commission
to waive the 30-day operative delay so
that the proposal may become operative
immediately upon filing. In January
2013, the Exchange filed a proposed
rule change to amend its rules to list
and trade certain mini-options contracts
on the Exchange, and represented in
that filing that the Exchange’s rules that
apply to the trading of standard options
contracts would apply to mini-options
contracts.12 The Exchange has
represented that it intends to launch
trading in mini-options contracts on
March 18, 2013.13 The Exchange
believes that waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest because such waiver would
minimize confusion among market
participants about how complex orders
and stock-options orders involving
mini-options contracts will trade.14
8 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of the filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
10 17 CFR 240.19b–4(f)(6).
11 17 CFR 240.19b–4(f)(6)(iii).
12 See supra note 3.
13 See SR–CBOE–2013–033, Item 7.
14 See id.
9 17
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The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest. Such
waiver would allow the Exchange to
implement the proposed rule change
prior to its launch of mini-options
contracts trading on March 18, 2013,
thereby mitigating potential investor
confusion as to how complex orders and
stock options orders involving minioptions contracts will trade. For this
reason, the Commission hereby waives
the 30-day operative delay and
designates the proposed rule change to
be operative upon filing with the
Commission.15
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–CBOE–2013–033 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–2013–033. 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
15 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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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 20549–1090 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
offices 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–
2013–033, and should be submitted on
or before April 9, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–06239 Filed 3–18–13; 8:45 am]
BILLING CODE 8011–01–P
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Penny Pilot was established in March 2008
and in October 2009 was expanded and extended
through June 30, 2013. See Securities Exchange Act
Release Nos. 57579 (March 28, 2008), 73 FR 18587
(April 4, 2008) (SR–NASDAQ–2008–026) (notice of
filing and immediate effectiveness establishing
Penny Pilot); 60874 (October 23, 2009), 74 FR 56682
(November 2, 2009) (SR–NASDAQ–2009–091)
(notice of filing and immediate effectiveness
expanding and extending Penny Pilot); 60965
(November 9, 2009), 74 FR 59292 (November 17,
2009) (SR–NASDAQ–2009–097) (notice of filing
and immediate effectiveness adding seventy-five
classes to Penny Pilot); 61455 (February 1, 2010),
75 FR 6239 (February 8, 2010) (SR–NASDAQ–
2010–013) (notice of filing and immediate
effectiveness adding seventy-five classes to Penny
Pilot); 62029 (May 4, 2010), 75 FR 25895 (May 10,
2010) (SR–NASDAQ–2010–053) (notice of filing
and immediate effectiveness adding seventy-five
classes to Penny Pilot); 65969 (December 15, 2011),
76 FR 79268 (December 21, 2011) (SR–NASDAQ–
2011–169) (notice of filing and immediate
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SECURITIES AND EXCHANGE
COMMISSION
Exchange, and at the Commission’s
Public Reference Room.
[Release No. 34–69132; File No. SR–
NASDAQ–2013–041]
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Self-Regulatory Organizations; the
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Penny Pilot and Non-Penny Pilot
Options
March 13, 2013.
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 March 1,
2013, The NASDAQ Stock Market LLC
(‘‘NASDAQ’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III, below, which Items
have been prepared by NASDAQ. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ proposes to modify Chapter
XV, entitled ‘‘Options Pricing,’’ at
Section 2 governing pricing for
NASDAQ members using the NASDAQ
Options Market (‘‘NOM’’), NASDAQ’s
facility for executing and routing
standardized equity and index options.
Specifically, NOM proposes to amend
certain Penny Pilot Options 3 Rebates to
Add Liquidity and certain Non-Penny
Pilot Options 4 Fees for Adding and
Removing Liquidity.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nasdaq.cchwallstreet.
com, at the principal office of the
NASDAQ proposes to modify Chapter
XV, entitled ‘‘Options Pricing,’’ at
Section 2(1) governing the rebates and
fees assessed for option orders entered
into NOM. The Exchange is proposing
to amend the Customer,5 Professional,6
Non-NOM Market Maker 7 and NOM
Market Maker 8 Penny Pilot Options
Rebates to Add Liquidity and the NOM
Market Maker Non-Penny Pilot Options
Fees for Adding and Removing
Liquidity.
The Exchange proposes to reduce the
current Non-NOM Market Maker Rebate
to Add Liquidity in Penny Pilot Options
from $0.25 to $0.10 per contract in order
that a Non-NOM Market Maker would
be paid the same rebates as a Firm 9 and
Broker-Dealer.10 The Exchange also
proposes to amend the Tier 6 Customer
and Professional Rebate to Add
Liquidity in Penny Pilot Options and
add a new Tier 7 rebate. Currently, the
effectiveness extension and replacement of Penny
Pilot); 67325 (June 29, 2012), 77 FR 40127 (July 6,
2012) (SR–NASDAQ–2012–075) (notice of filing
and immediate effectiveness and extension and
replacement of Penny Pilot through December 31,
2012); and 68519 (December 21, 2012), 78 FR 136
(January 2, 2013) (SR–NASDAQ–2012–143) (notice
of filing and immediate effectiveness and extension
and replacement of Penny Pilot through June 30,
2013). See also NOM Rules, Chapter VI, Section 5.
4 Non-Penny Pilot Pricing includes NDX. For
transactions in NDX, a surcharge of $0.10 per
contract is added to the Fee for Adding Liquidity
and the Fee for Removing Liquidity in Non-Penny
Pilot Options, except for a Customer who will not
be assessed a surcharge.
5 The term ‘‘Customer’’ or (‘‘C’’) applies to any
transaction that is identified by a Participant for
clearing in the Customer range at The Options
Clearing Corporation (‘‘OCC’’) which is not for the
account of broker or dealer or for the account of a
‘‘Professional’’ (as that term is defined in Chapter
I, Section 1(a)(48)).
6 The term ‘‘Professional’’ or (‘‘P’’) means any
person or entity that (i) is not a broker or dealer in
securities, and (ii) places more than 390 orders in
listed options per day on average during a calendar
month for its own beneficial account(s) pursuant to
Chapter I, Section 1(a)(48). All Professional orders
shall be appropriately marked by Participants.
7 The term ‘‘Non-NOM Market Maker’’ or (‘‘O’’) is
a registered market maker on another options
exchange that is not a NOM Market Maker. A NonNOM Market Maker must append the proper NonNOM Market Maker designation to orders routed to
NOM.
8 The term ‘‘NOM Market Maker’’ or (‘‘M’’) is a
Participant that has registered as a Market Maker on
NOM pursuant to Chapter VII, Section 2, and must
also remain in good standing pursuant to Chapter
VII, Section 4. In order to receive NOM Market
Maker pricing in all securities, the Participant must
be registered as a NOM Market Maker in at least one
security.
9 The term ‘‘Firm’’ or (‘‘F’’) applies to any
transaction that is identified by a Participant for
clearing in the Firm range at OCC.
10 The term ‘‘Broker-Dealer’’ or (‘‘B’’) applies to
any transaction which is not subject to any of the
other transaction fees applicable within a particular
category.
PO 00000
Frm 00069
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19MRN1
]]>Agencies
[Federal Register Volume 78, Number 53 (Tuesday, March 19, 2013)]
[Notices]
[Pages 16895-16898]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06239]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69129; File No. SR-CBOE-2013-033]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Complex Orders and Mini-Options
March 13, 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 March 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 and II below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend its rules related to complex orders.
The text of the proposed rule change is also available on the
Exchange's Web site (https://www.cboe.org/legal) at the Exchange's
Office of the Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
CBOE recently amended its rules to allow for the listing of mini-
options on SPDR S&P 500 (``SPY''), Apple, Inc. (``AAPL''), SPDR Gold
Trust (``GLD''), Google Inc. (``GOOG'') and Amazon.com Inc.
(``AMZN'').\3\ Mini-option trading is expected to commence in March
2013. Whereas standard option contracts represent a deliverable of 100
shares of an underlying security, mini-options contracts represent a
deliverable of 10 shares. Except for the difference in the number of
deliverable shares, mini-options have the same terms and contract
characteristics as regular-sized equity and ETF options, including
exercise style. Accordingly, the Exchange noted in its original mini-
option filing that Exchange rules that apply to the trading of standard
option contracts would apply to mini-option contracts as well.\4\
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\3\ See Securities Exchange Act Release No. 68656 (January 15,
2013), 78 FR 4526 (January 22, 2013) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change to List and Trade Option
Contracts Overlying 10 Shares of Certain Securities) (SR-CBOE-2013-
001).
\4\ Id.
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Prior to the commencement of trading mini-options, the Exchange
proposes to amend Rule 6.53C (Complex Orders on the Hybrid System) and
Rule 6.80 (Definitions) to provide that Exchange rules regarding
complex orders shall apply to mini-options and that consequently,
Trading Permit Holders may execute complex and stock-option orders
involving mini-options. Moreover, the Exchange seeks to amend these
rules to provide that all permissible ratios referenced in the
definitions of stock-option orders represent the total number of shares
of the underlying stock in the option leg to the total number of shares
of the underlying stock in the stock leg.
By way of background, CBOE Rule 6.53C governs Complex Orders on the
Hybrid System and CBOE Rule 6.80 lists definitions applicable to
intermarket linkage. Currently, stock-option orders are defined in Rule
6.53C(a)(2) and 6.80(4)(ii)(A)-(B) as trades where the options leg of
the trade is coupled with
[[Page 16896]]
the purchase or sale of either (1) the same number of units of the
underlying stock or convertible security, or (2) the number of units of
the underlying stock or convertible security necessary to create a
``delta neutral'' position, but in no case in a ratio greater than 8
option contracts per unit of trading of the underlying stock or
convertible security established for that series by the Clearing
Corporation. Therefore, under this definition it would be permissible
to execute, for example, a trade where the options leg consists of one
(1) standard option contract (i.e., 100 shares) and the stock leg
consists of 100 shares of the underlying stock. Additionally, it would
be permissible to execute a trade where the options leg consists of
eight (8) standard option contracts (i.e., 800 shares) and the stock
leg consists of 100 shares of the underlying stock.
Next, ``complex order'' in Rule 6.53C(a)(1) and ``complex trade''
in Rule 6.80(4)(i) (collectively referred to as ``complex orders'') \5\
is defined as any order involving the execution of two or more
different options series in the same underlying security occurring at
or near the same time in a ratio that is equal to or greater than one-
to-three (.333) and less than or equal to three-to-one (3.00).
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\5\ The definitions of ``complex order'' in Rule 6.53C(a)(1) and
``complex trade'' in Rule 6.80(4)(i) are substantially identical.
---------------------------------------------------------------------------
The Exchange notes that the abovementioned permissible ratios were
established to ensure that only complex and stock-option orders that
seek to achieve legitimate investment strategies are afforded certain
benefits. Particularly, since compliance with trade-through rules may
impede a market participant's ability to achieve the legitimate
investment strategies that complex and stock-option orders facilitate,
an exception from the prohibition on trade-throughs is provided for any
transaction that was effected as a portion of a legitimate complex or
stock-option order. Requiring a meaningful relationship between the
different legs of a complex or stock-option order prevents market
participants from taking advantage of these orders to circumvent the
otherwise applicable trade-through rules (e.g., preventing the
execution of a stock-option order where the option leg consists of 100
options (i.e., 10,000 shares) and the stock leg consists of only 100
shares).
The Exchange first proposes to amend the definition of ``stock-
option orders'' in Rule 6.53C(a)(2) and Rule 6.80(4)(ii)(A)-(B). As
discussed above, the stock-option order definition in both Rule 6.53C
and Rule 6.80 clearly permits that an option leg may be coupled with a
stock leg representing the same number of units of the underlying stock
(i.e., one-to-one ratio). The Exchange seeks to provide that mini-
options may also be coupled with a stock leg if the stock leg
represents the same number of units of the underlying stock. For
example, pursuant to the definition, it would be permissible to execute
a trade where leg one consists of one (1) mini-option contract (i.e.,
10 shares) and leg two consists of 10 shares of the underlying stock.
Next, the Exchange seeks to amend the stock-option order definition
in Rule 6.53C and Rule 6.80 to provide that in addition to standard
options, mini-options may be coupled with a stock leg consisting of
however many units of the underlying stock is necessary to create a
delta neutral position, provided that the total number of shares of the
underlying stock in the option leg to the total number of shares of the
underlying stock in the stock leg does not exceed an eight-to-one
ratio. The Exchange notes the definition of a stock-option order in
Rule 6.53C and Rule 6.80 was drafted at a time in which only option
contracts with a deliverable of 100 shares was contemplated. Therefore,
the rules do not address how the eight-to-one ratio would be scaled in
the event an option with a non-standard deliverable becomes available
for trading. The language of the rules needs to be amended so that it
is clear how Rule 6.53C and 6.80 would apply to mini-options, as well
as standard options. Accordingly, the proposed change specifies that
the permissible ratios should be calculated and scaled based upon the
total number of shares of the underlying stock in the option leg to the
total number of shares of the underlying stock in the stock leg,
instead of by the total number of option contracts in the option leg to
the total number of shares of the underlying stock in the stock leg. An
example of a permitted stock-option order involving mini-options would
be an order in which leg one consists of eighty (80) mini-options
(i.e., 800 shares) and leg two consists of 100 shares of the underlying
stock (i.e., eight-to-one ratio). Similarly, an order where leg one
consists of eight (8) mini-options (i.e. 80 shares) and leg two
consists of 10 shares of the underlying stock would be permitted.
The proposed rule change provides that market participants may
execute stock-option orders involving mini-options. The proposed change
also ensures that the principle behind the permissible ratios (i.e., to
provide a meaningful relationship between the legs of complex and
stock-option orders) is maintained for mini-options. Finally, the
Exchange notes that reference to the Clearing Corporation in Rule
6.53C(a)(2) and 6.80(4)(ii)(A)-(B) was superfluous and unnecessary and
therefore deleted.
Next the Exchange seeks to make clear that it interprets its
current definition of a ``complex order'' in Rule 6.53C(a)(1) and
``complex trade'' in Rule 6.80(4)(i)-(ii) to apply to both standard
options and mini-options. The Exchange seeks to provide that in
accordance to the provisions of Rule 6.53C and Rule 6.80, one leg of a
complex order may consist of mini-option contract(s) and the other leg
of the order may consist of standard option(s), so long as the
underlying security is the same and the transaction does not violate
the permissible ratios set forth in the rules (i.e., ratio greater or
equal to one-to-three or less or equal to three-to-one). Moreover, the
Exchange seeks to clarify that these permissible ratios represent the
total number of shares of the underlying stock in the mini-option leg
to the total number of shares of the underlying stock in the standard
option leg. An example of a permissible complex order involving mini-
options and standard options would be an order in which leg one
consists of thirty (30) mini-options (i.e., 300 shares) and leg two
consists of one (1) standard option (i.e., 100 shares) in the same
underlying security (i.e., a ratio equal to 3.0). Another example of a
permissible complex order would be an order in which leg one consists
of ten (10) mini-options (i.e., 100 shares) and leg two consists of one
(1) standard option (i.e., 100 shares) in the same underlying security
(i.e., a ratio equal to one-to-one). The proposed clarification will
reduce potential confusion for investors when trading of mini-options
becomes effective.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder, including the
requirements of Section 6(b) of the Act.\6\ In particular, the Exchange
believes the proposed rule change is consistent with the Section
6(b)(5) \7\ requirements that the rules of an exchange be designed to
promote just and equitable principles of trade, to prevent fraudulent
and manipulative acts, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and to perfect
[[Page 16897]]
the mechanism for a free and open market and a national market system,
and, in general, to protect investors and the public interest.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Specifically, the Exchange believes that investors and other market
participants would benefit from the current rule proposal because it
would allow market participants to take advantage of legitimate
investment strategies and execute complex orders and stock-option
orders in mini-options. Additionally, the Exchange believes the
proposed rule change will avoid investor confusion if both standard
options and mini-options on the same underlying security are permitted
to trade as complex orders and stock-option orders. Also, the proposal
to maintain the permissible ratios that are applicable to standard
options in proportion for mini-options ensures that the principle
behind the permissible ratios (i.e., to provide a meaningful
relationship between the legs of complex and stock-option orders) is
maintained for mini-options, which promotes just and equitable
principles of trade. The Exchange believes that describing prior to the
commencement of trading how the permissible ratios in the complex order
and stock-option order rules will be scaled for mini-options would
lessen investor and marketplace confusion.
Finally, the Exchange believes that the proposed rule change is
designed to not permit unfair discrimination among market participants
as all market participants may participate in complex or stock-option
orders involving mini-options.
B. Self-Regulatory Organization's Statement on Burden on Competition
This proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act. Specifically, since mini-options are permitted on multiply-
listed classes, other exchanges that have received approval to trade
mini-options will have the opportunity to similarly amend their complex
order rules to clarify and accommodate complex orders and stock-option
orders in mini-option classes. Moreover, because all Trading Permit
Holders may participate in complex and stock-options orders involving
mini-options, the rule change does not permit unfair discrimination and
does not impose a burden on Trading Permit Holders.
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:
(i) Significantly affect the protection of investors or the public
interest;
(ii) Impose any significant burden on competition; and
(iii) Become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) \8\ of the Act and
Rule 19b-4(f)(6) \9\ thereunder.
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of the filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) of the Act \10\
normally does not become operative prior to 30 days after the date of
the filing. However, pursuant to Rule 19b-4(f)(6)(iii) of the Act,\11\
the Commission may designate a shorter time if such action is
consistent with the protection of investors and the public interest.
The Exchange has requested the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. In January 2013, the Exchange filed a proposed rule change to
amend its rules to list and trade certain mini-options contracts on the
Exchange, and represented in that filing that the Exchange's rules that
apply to the trading of standard options contracts would apply to mini-
options contracts.\12\ The Exchange has represented that it intends to
launch trading in mini-options contracts on March 18, 2013.\13\ The
Exchange believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest
because such waiver would minimize confusion among market participants
about how complex orders and stock-options orders involving mini-
options contracts will trade.\14\
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\10\ 17 CFR 240.19b-4(f)(6).
\11\ 17 CFR 240.19b-4(f)(6)(iii).
\12\ See supra note 3.
\13\ See SR-CBOE-2013-033, Item 7.
\14\ See id.
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Such waiver would allow the Exchange to implement the proposed rule
change prior to its launch of mini-options contracts trading on March
18, 2013, thereby mitigating potential investor confusion as to how
complex orders and stock options orders involving mini-options
contracts will trade. For this reason, the Commission hereby waives the
30-day operative delay and designates the proposed rule change to be
operative upon filing with the Commission.\15\
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\15\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2013-033 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-2013-033. 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
[[Page 16898]]
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
20549-1090 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 offices 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-2013-033, and should be
submitted on or before April 9, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06239 Filed 3-18-13; 8:45 am]
BILLING CODE 8011-01-P
