Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, Relating to Complex Orders, 43254-43258 [2013-17312]
Download as PDF
<![CDATA[
43254
Federal Register / Vol. 78, No. 139 / Friday, July 19, 2013 / Notices
substantially similar relief to that in the
order requested in the application, the
requested order will expire on the
effective date of that rule.
13. The Adviser will provide the
Board, no less frequently than quarterly,
with information about the profitability
of the Adviser on a per Subadvised
Fund basis. The information will reflect
the impact on profitability of the hiring
or termination of any Subadviser during
the applicable quarter.
14. For Subadvised Funds that pay
fees to a Subadviser directly from Fund
assets, any changes to a Subadvisory
Agreement that would result in an
increase in the total management and
advisory fees payable by a Subadvised
Fund will be required to be approved by
the shareholders of the Subadvised
Fund.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release Nos. 33–9418; 34–69988, File No.
265–28]
Dodd-Frank Investor Advisory
Committee
Securities and Exchange
Commission.
ACTION: Notice of Meeting of Securities
and Exchange Commission Dodd-Frank
Investor Advisory Committee.
AGENCY:
The Securities and Exchange
Commission Investor Advisory
Committee, established pursuant to
Section 911 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act of 2010, is providing notice that it
will hold a public meeting on Thursday,
July 25, 2013, in Multi-Purpose Room
LL–006 at the Commission’s
headquarters, 100 F Street NE.,
Washington, DC 20549. The meeting
will begin at 10:00 a.m. (EDT) and end
at 4:00 p.m. and will be open to the
public, except during portions of the
meeting reserved for meetings of the
Committee’s subcommittees. The
meeting will be webcast on the
Commission’s Web site at www.sec.gov.
Persons needing special
accommodations to take part because of
a disability should notify the contact
person listed below. The public is
invited to submit written statements to
the Committee. The agenda for the
meeting includes approval of minutes,
emcdonald on DSK67QTVN1PROD with NOTICES
15:33 Jul 18, 2013
Jkt 229001
Written statements may be
submitted by any of the following
methods:
ADDRESSES:
Electronic Statements
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69987; File No. SR–CBOE–
2013–026]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Amendment No. 2 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment Nos. 1 and 2, Relating to
Complex Orders
July 15, 2013.
■ Use the Commission’s Internet
submission form (https://www.sec.gov/
rules/other.shtml ); or
■ Send an email message to rulescomments@sec.gov. Please include File
No. 265–28 on the subject line; or
■ Send paper statements in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
BILLING CODE 8011–01–P
VerDate Mar<15>2010
Written statements should be
received on or before July 25, 2013.
DATES:
Paper Statements
[FR Doc. 2013–17316 Filed 7–18–13; 8:45 am]
SUMMARY:
Investor as Owner Subcommittee
recommendation regarding data tagging,
Investor as Owner Subcommittee
recommendation regarding the use of
universal proxy ballots, and
subcommittee reports.
All submissions should refer to File No.
265–28. This file number should be
included on the subject line if email is
used. To help us process and review
your statement more efficiently, please
use only one method.
Statements also will be available for
Web site viewing and printing in the
Commission’s Public Reference Room,
100 F Street NE., Room 1580,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. All statements
received will be posted without change;
we do not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
M.
Owen Donley, Chief Counsel, at (202)
551–6322, Office of Investor Education
and Advocacy, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549.
FOR FURTHER INFORMATION CONTACT:
Dated: July 15, 2013.
Elizabeth M. Murphy,
Secretary.
I. Introduction
On March 28, 2013, Chicago Board
Options Exchange, Incorporated (the
‘‘Exchange’’ or ‘‘CBOE’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’), pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ‘‘Act’’) 1 and
Rule 19b-4 thereunder,2 a proposed rule
change to amend its rules governing the
trading of complex orders on the
Exchange to adopt a new order type
called ‘‘leg orders.’’ On April 11, 2013,
the Exchange filed Amendment No. 1 to
the proposal. The proposed rule change,
as modified by Amendment No. 1, was
published for comment in the Federal
Register on April 17, 2013.3 The
Commission received no comment
letters regarding the proposed rule
change, as modified by Amendment No.
1. On June 26, 2013, the Exchange filed
Amendment No. 2 to the proposal.4 The
Commission is publishing this notice to
solicit comments on Amendment No. 2
from interested persons and is
approving the proposed rule change, as
modified by Amendment Nos. 1 and 2,
on an accelerated basis.
II. Description
A. Leg Orders
CBOE proposes to adopt CBOE Rule
6.53C(c)(iv) relating to the generation
and execution of leg orders. A leg order
would be a limit order on the CBOE
electronic book (‘‘EBook’’) that
represents one leg of a non-contingent
complex order resting on the complex
order book (‘‘COB’’) if the ratio of that
leg to the other legs of the complex
order is equal to or can be reduced to
one (e.g., 1:1, 1:2, or 1:3).5 A leg order
[FR Doc. 2013–17303 Filed 7–18–13; 8:45 am]
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 69364
(April 11, 2013), 78 FR 22326.
4 See infra Section II.B for a description of
Amendment No. 2.
5 See proposed CBOE Rule 6.53(x). See also
Notice, 78 FR 22928, n. 4 for an explanation of
conforming ratios as applied to the generation of leg
orders.
BILLING CODE 8011–01–P
PO 00000
Frm 00115
Fmt 4703
2 17
Sfmt 4703
E:\FR\FM\19JYN1.SGM
19JYN1
Federal Register / Vol. 78, No. 139 / Friday, July 19, 2013 / Notices
would be a firm order that may be
included in the Exchange’s displayed
best bid or offer (‘‘Exchange BBO’’) on
the EBook.6 According to CBOE, leg
orders are designed to increase
opportunities for complex orders resting
on the COB to leg into the CBOE
individual options market and execute.7
1. Generation of Leg Orders
CBOE proposes that leg orders may be
automatically generated on behalf of
complex orders so that they are
represented in the individual leg
markets.8 CBOE proposes that a leg
order would be automatically generated
for a leg of a complex order resting on
the top of the COB: (1) If the price of the
complex order is inside the ‘‘derived net
market,’’ which is based on the derived
net price of the best-priced orders or
quotes (other than leg orders) in the
EBook; and (2) at a price at which the
net price execution of the complex order
can be achieved if the other leg(s) of the
complex order executes against the bestpriced orders or quotes (other than leg
orders).9 To determine whether leg
orders may be generated or displayed in
accordance with proposed CBOE Rule
6.53C(c)(iv)(1)(A)–(C), CBOE would
evaluate the COB when a complex order
enters the COB, when the Exchange
BBO changes, and at a regular time
interval to be determined by the
Exchange (which would not exceed one
second).10
CBOE states that the derived net
market and the price of leg orders would
be based on the best-priced non-leg
orders in the other leg series, as those
are the orders against which a complex
order may execute.11 CBOE proposes
that the size of a leg order would be the
lesser of (1) the size of the complex
order, and (2) the maximum size
available in the EBook for the other
leg(s) of the complex order (divided by
the leg ratio, if applicable).12
CBOE proposes that it may, on an
objective basis, limit the number of leg
orders generated.13 According to CBOE,
leg orders may be made available on a
class-by-class basis and may not be
available for all of its systems.14 CBOE
believes that this would help the
6 See
proposed CBOE Rule 6.53(x).
Notice, 78 FR 22928.
8 See proposed CBOE Rule 6.53C(c)(iv)(1).
9 See proposed CBOE Rule 6.53C(c) (iv)(1)(A);
Notice, 78 FR 22928, Example A, for an illustration
of how leg orders would be generated and priced.
10 See proposed CBOE Rule 6.53C(c)(iv)(1).
11 See Notice, 78 FR 22928, n. 6.
12 See proposed CBOE Rule 6.53C(c)(iv)(1)(C);
Notice, 78 FR 22930, Example D for an illustration
of the maximum size limit as applied to the
generation of leg orders.
13 See proposed CBOE Rule 6.53C(c)(iv)(1).
14 See id.
emcdonald on DSK67QTVN1PROD with NOTICES
7 See
VerDate Mar<15>2010
15:33 Jul 18, 2013
Jkt 229001
Exchange manage the number of leg
orders generated to ensure that leg
orders do not negatively impact the
Exchange’s system capacity and
performance.15 CBOE represents that it
would not limit the generation of leg
orders on the basis of the entering
participant or the participant category of
the order (i.e., professional, professional
customer, or public customer).16
Finally, CBOE proposes not to
generate a leg order if the price of the
leg order would lock or cross the
national best bid or offer (‘‘NBBO’’).17
CBOE also proposes to not generate leg
orders for stock-option orders.18
2. Display and Nondisplay of Leg
Orders; Aggregation of Size
CBOE’s proposed rule change
specifies when a leg order would be
displayed and when it would be
nondisplayed. A leg order would only
be displayed on the EBook if the price
of the leg order matches or improves the
Exchange BBO pursuant to proposed
CBOE Rule 6.53C(c)(iv)(1)(B).19 A leg
order would not be displayed on the
Ebook if the price of the leg order does
not match or improve the Exchange
BBO.20 If multiple resting complex
orders in different strategies generate leg
orders for the same price on the same
side of an options series and both leg
orders are eligible for display (i.e., both
leg orders match or improve the
Exchange BBO), then the leg order with
the largest size would be displayed and
the other leg orders would not be
displayed.21 If such leg orders are for
the same size, then the first leg order
generated would be displayed and the
other leg order(s) would not be
displayed.22 If multiple resting complex
orders in the same strategy generate leg
orders for the same price on the same
side of an options series, then the sizes
of the leg orders would be aggregated
and treated as a single order until
execution.23 If such an aggregated order
matched or improved the Exchange
BBO, the aggregated order would be
displayed.24
15 See Notice, 78 FR 22928, n. 5. See also infra
Section II.C.
16 See Notice, 78 FR 22930, n. 15.
17 See proposed CBOE Rule 6.53C(c)(iv)(1)(A).
18 See proposed CBOE Rule 6.53C, Interpretation
and Policy .06.
19 See proposed CBOE Rule 6.53C(c)(iv)(1)(B).
20 See proposed CBOE Rule 6.53C, Interpretation
and Policies .12 and proposed CBOE Rule
6.53C(c)(iv)(1)(B).
21 See proposed CBOE Rule 6.53C(c)(iv)(1)(B);
Notice, 78 FR 22929–22930, n. 10–11, and Example
C for an illustration of this concept.
22 See proposed CBOE Rule 6.53C(c)(iv)(1)(B).
23 See proposed CBOE Rule 6.53C(c)(iv)(1)(C).
24 See Notice, 78 FR 22930, n. 14.
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
43255
CBOE represents that nondisplayed
leg orders, including leg orders that
were displayed but subsequently
become nondisplayed, would remain in
the EBook and would be eligible for
execution under proposed CBOE Rule
6.53C(c)(iv)(2), but would not be visible
in the EBook depth, which, according to
CBOE, contains resting orders and
quotes not at the BBO.25
3. Priority and Execution of Leg Orders;
Cancellation and Removal
CBOE represents that the generation
of a leg order would not affect the
existing priority, or execution
opportunities, currently provided to
market participants in the regular
market in any way.26 In this regard,
CBOE proposes that leg orders
(including nondisplayed leg orders)
would execute only after all other
executable orders and quotes (including
any nondisplayed size) at the same price
are executed in full and that a leg order
may not execute against another leg
order.27 Leg orders at the same price
would execute pursuant to the priority
and execution rules for complex orders
on the COB, except that displayed leg
orders would have execution priority
over nondisplayed leg orders.28
CBOE proposes that when a leg order
executes against an incoming order or
quote, the other leg(s) of the complex
order represented by the leg order
would automatically execute against the
best-priced resting orders or quotes
(other than leg orders) so that the
complex order would be executed in
full or in a permissible ratio).29 Prior to
the execution of the complex order, any
leg orders on the opposite side of the
legs of the executing complex order
would be canceled.30 Upon execution of
the complex order, any leg orders that
represent other legs of the executing
complex order would be canceled.31
According to CBOE, after the complex
order executes, new leg orders may be
generated to ‘‘replace’’ any leg orders
representing other complex orders
resting on the COB that were canceled
as a result of the execution of the
complex order, assuming such resting
complex orders meet the requirements
for the generation of leg orders under
25 See proposed CBOE Rule 6.53C, Interpretation
and Policies .12; Notice, 78 FR 22929, Example B,
for an illustration of the generation of nondisplayed
leg orders.
26 See Notice, 78 FR 22930.
27 See proposed CBOE Rule 6.53C(c)(iv)(2)(A);
Notice, 78 FR 22928, n. 6.
28 See proposed CBOE Rule 6.53C(c)(iv)(2)(A).
29 See proposed CBOE Rule 6.53C(c)(iv)(2)(B).
30 See id.
31 See proposed CBOE Rule 6.53C(c)(iv)(2).
E:\FR\FM\19JYN1.SGM
19JYN1
43256
Federal Register / Vol. 78, No. 139 / Friday, July 19, 2013 / Notices
CBOE Rule 6.53C(c)(iv)(1).32 In such an
instance, CBOE states that the newly
generated leg order(s) would have the
same priority as the leg order(s) it
replaced with respect to any other leg
orders at the same price representing
complex orders in the same strategy
because the priority of the new leg
order(s) (which would be aggregated)
would be based on the priority of the
complex orders they represent (which
would remain unchanged regardless of
cancellations of leg orders).33 If
execution of the complex order is
partial, CBOE would be able to generate
and display leg orders for the remaining
size of the complex order assuming the
conditions of Rule 6.53C(c)(iv)(1) are
satisfied.34
CBOE proposes that a leg order would
also be canceled if: (1) Execution at the
price of the leg order would no longer
achieve the net price of the complex
order when the other leg(s) executes
against the best-priced orders or quotes
(other than leg orders); (2) the complex
order executes in full or in part against
another complex order; or (3) the
complex order from which the leg order
was generated is canceled or modified.35
CBOE proposes that a leg order would
be removed from display in the EBook
if the price of the leg order is no longer
at the Exchange BBO or if a complex
order in a different strategy generates a
larger-sized leg order at the same
price.36 Any leg order that is removed
from display in the EBook would be
nondisplayed, but would still be eligible
for execution.37
4. Leg Orders and CBOE Auctions
CBOE proposes to amend certain
provisions of CBOE Rule 6.53C,
Interpretation and Policies, to provide
for how leg orders would interact with
the various auction functions available
on the Exchange. First, CBOE proposes
to amend CBOE Rule 6.53C,
Interpretation and Policy .04(b) to
provide that if a leg order has been
generated for a complex order resting in
the COB, the complex order would not
be eligible for the automated complex
32 See
Notice, 78 FR 22930, n. 17.
id.
34 See proposed CBOE Rule 6.53C(c)(iv)(2)(B);
Notice 78 FR 22931, Example F, for an illustration
of a partial execution of a complex order through
its leg orders.
35 CBOE may also cancel a leg order that might
trade ahead of a non-leg order against an all-or-none
order. See proposed CBOE Rule 6.53C(c)(iv)(2)(C).
36 See proposed CBOE Rule 6.53C(c)(iv)(3)(A);
Notice 78 FR 22932, Example H for an illustration
of cancellation and removal of leg orders generated
from complex orders in different strategies.
37 See proposed CBOE Rule 6.53C(c)(iv)(3)(A);
Notice 78 FR 22931–22932, Examples G and H, for
illustrations of how leg orders are canceled and
removed.
emcdonald on DSK67QTVN1PROD with NOTICES
33 See
VerDate Mar<15>2010
15:33 Jul 18, 2013
Jkt 229001
order request for responses (‘‘RFR’’)
auction process (‘‘COA’’).38 CBOE
believes that this provision is
appropriate because leg orders would
more effectively create opportunities for
the execution of complex orders resting
in the COB than having those complex
orders participate in a COA after the
complex order has reached the COB.39
Second, CBOE proposes to add CBOE
Rule 6.53C, Interpretation and Policy
.07 to determine whether CBOE would
generate a leg order if a simple order
auction 40 is occurring in a leg series at
the time that a leg order in that series
would otherwise be generated pursuant
to CBOE Rule 6.53C(c)(iv). CBOE
proposes that:
• If the leg order would be on the
same side of the market as the auctioned
order with a price worse than the initial
auction price of the auctioned order,
then the leg order would be generated
and the auction would continue.41
• If the leg order would be on the
same side of the market as the auctioned
order with a price equal to or better than
the initial auction price of the auctioned
order, then no leg order would be
generated and the auction would
continue. A leg order may later be
generated after execution of the
auctioned order.42
• If the leg order would be on the
opposite side of the market as the
auctioned order with a price that locks
or crosses the initial auction price of the
auctioned order, then no leg order
would be generated and the auction
would continue. A leg order may later
be generated after execution of the
auctioned order.43
• If the leg order would be on the
opposite side of the market as the
auctioned order with a price that does
not lock or cross the initial auction price
of the auctioned order, then the leg
order would be generated and the
auction would continue.44
CBOE notes that a leg order would not
participate in an auction if a leg order
would (a) be displayed in an options
series at the time an auction order enters
the system and (b) be at the same price
38 See proposed CBOE Rule 6.53C, Interpretation
and Policy .04.
39 See Notice, 78 FR 22932.
40 CBOE’s simple order auctions include the
Hybrid Agency Liaison (‘‘HAL’’) auction described
in CBOE Rule 6.14A and Automated Improvement
Mechanism (‘‘AIM’’) auction described in CBOE
Rule 6.74A.
41 See proposed CBOE Rule 6.53C, Interpretation
and Policy .07(a).
42 See proposed CBOE Rule 6.53C, Interpretation
and Policy .07(b).
43 See proposed CBOE Rule 6.53C, Interpretation
and Policy .07(c).
44 See proposed CBOE Rule 6.53C, Interpretation
and Policy .07(d).
PO 00000
Frm 00117
Fmt 4703
Sfmt 4703
as the starting price of the auction order
and on the opposite side of the auction
order.45 According to CBOE, the auction
order would instead trade with other
resting interest at that price and/or any
contra order that stopped the auctioned
order, while the leg order could
continue to be displayed during the
auction.46 According to the Exchange,
this result occurs because leg orders
only trade after all other executable
orders and quotes are executed first.47
CBOE believes the proposal would
ensure that leg orders would not interact
with simple order auctions in order to
avoid the system complexities that
would result from combining the
execution of complex orders with the
already complex auction processes.48
The Exchange believes that market
participants would continue to have the
same opportunities for execution and
potential price improvement through
simple order auctions as they would if
there were no leg orders present.49
B. Amendment No. 2 to the Proposed
Rule Change
In Amendment No. 2, the Exchange
proposes to make two changes to
proposed CBOE Rule 6.53C(c)(iv). First,
Amendment No. 2 adds a provision to
proposed CBOE Rule 6.53C(c)(iv) to
provide that leg orders will only be
generated in the minimum increment of
the leg series, and the price of a leg
order will be rounded down (bid) or up
(offer) to the nearest minimum
increment if it would otherwise be
priced in a smaller increment than the
minimum.50 CBOE represents in
Amendment No. 2 that leg orders
rounded pursuant to this provision will
be ranked, displayed, and eligible to
execute with incoming orders at the
rounded price. According to
Amendment No. 2, a leg order rounded
to the nearest increment will function in
the same manner as a non-rounded leg
order at the rounded increment. Second,
Amendment No. 2 eliminates proposed
CBOE Rule 6.53C(c)(iv)(2)(C), which
governed the interaction of leg orders
with all-or-none orders. The Exchange
originally proposed that an all-or-none
order 51 would only execute against a leg
order if it was at least the same size as
the all-or-none order and there were no
non-leg orders at the Exchange BBO.52
45 See
Notice, 78 FR 22933.
id.
47 See id.
48 See Notice, 78 FR 22932.
49 See Notice, 78 FR 22933.
50 See proposed CBOE Rule 6.53C(iv)(1)(A).
51 See CBOE Rule 6.53(i) defining an all-or-none
order as: ‘‘a market or limit order which is to be
executed in its entirety or not at all.’’
52 See proposed CBOE Rule 6.53C(c)(iv)(2)(C).
46 See
E:\FR\FM\19JYN1.SGM
19JYN1
Federal Register / Vol. 78, No. 139 / Friday, July 19, 2013 / Notices
Under proposed CBOE Rule
6.53C(c)(iv)(2)(C), as originally
proposed, if a leg order and a non-leg
order(s) were at the Exchange BBO, then
the all-or-none order would have either
(a) executed against the non-leg order(s)
if it was at least the same size as the allor-none order or (b) the leg order would
have been cancelled and the all-or-none
order would have been handled
pursuant to CBOE’s existing rules
governing all-or-none orders.53 Pursuant
to CBOE Rule 6.53C(c)(iv)(2)(C), no new
leg orders in the applicable options
series would have been generated until
the all-or-none order was executed or
cancelled.54 As amended, proposed
CBOE Rule 6.53(c)(iv)(2)(C) will be
eliminated in its entirety and, as a
result, a marketable all-or-none order
could execute against a leg-order and a
non-leg order displayed at the Exchange
BBO if such orders were together
sufficient to fill the marketable all-ornone order.
C. CBOE Trading System Capacity
CBOE represents that it maintains a
rigorous capacity planning program that
monitors system performance and
projected capacity demands and that, as
a general matter, considers the potential
system capacity impact of all new
initiatives.55 CBOE represents that it has
analyzed the potential impact on system
capacity that may result from the
proposed rule change and has
concluded that the Exchange has
sufficient system capacity to handle the
generation of leg orders without
degrading the performance of its
systems or reducing the number of
complex order instruments it currently
supports.56 The Exchange represented
that it would closely monitor the
generation of leg orders and its effect on
CBOE’s systems, and would carefully
manage and curtail the number of leg
orders being generated, to ensure that
they do not negatively impact system
capacity and performance.57
emcdonald on DSK67QTVN1PROD with NOTICES
III. Discussion
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment Nos. 1 and 2,
is consistent with the requirements of
the Act and the rules and regulations
thereunder applicable to a national
securities exchange.58 In particular, the
53 See id. See generally CBOE Rule 6.44
Interpretations and Policies .01–.03.
54 See proposed CBOE Rule 6.53C(c)(iv)(2)(C).
55 See Notice, 78 FR 22933.
56 See id.
57 See id.
58 In approving this proposal, the Commission has
considered the proposed rule’s impact on
VerDate Mar<15>2010
15:33 Jul 18, 2013
Jkt 229001
Commission finds that the proposed
rule change, as amended, is consistent
with Section 6(b)(5) of the Act,59 which
requires, among other things, that the
rules of a national securities exchange
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, 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.
The Commission believes that leg
orders could facilitate the execution of
complex orders resting on CBOE’s COB
by increasing the opportunities for
eligible complex orders to execute
against interest in the leg market on
CBOE’s EBook, thereby benefitting
investors seeking to execute complex
orders. In addition, the Commission
believes that leg orders could benefit
participants in the leg market by
providing additional liquidity, and
potentially more favorable executions,
for leg market interest. The Commission
notes that it previously approved
proposals by other options exchanges to
implement leg orders.60
Leg orders will be firm orders that
represent one leg of a non-contingent
complex order resting on the COB if the
ratio of that leg to the other legs of the
complex order is equal to or can be
reduced to one.61 The Commission
notes that, on CBOE, leg orders will
only be generated in the minimum
increment of the leg series, and the price
of the leg order will be rounded down
(bid) or up (offer) to the nearest
minimum increment if it would
otherwise be priced in a smaller
increment than the minimum.62 As
noted above, the Exchange represents
that a leg order rounded to the nearest
increment will be ranked, displayed,
and eligible to execute with incoming
orders at the rounded price and that
rounded leg orders will function in the
same manner as non-rounded leg
orders.63 Under CBOE’s proposal, leg
orders will not be generated if the price
of the leg order would lock or cross the
NBBO.64
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
59 15 U.S.C. 78f(b)(5).
60 See Securities Exchange Act Release Nos.
66234 (January 25, 2012), 77 FR 4852 (January 31,
2012) (order approving File No. SR–ISE–2011–82)
and 69419 (April 19, 2013), 78 FR 24449 (April 25,
2013) (order approving File No. SR–BOX–2013–01).
61 See supra Section II.A.
62 See proposed CBOE Rule 6.53C(iv)(1)(A). See
also supra Section II.B.
63 See supra Section II.B.
64 See proposed CBOE Rule 6.53C(c)(iv)(1)(A).
See also supra note 17 and accompanying text.
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
43257
The Commission notes that a leg order
will be executed only after all other
executable orders and quotes (including
any nondisplayed size of any non-leg
orders) at the same price are executed in
full and that a leg order may not execute
against another leg order.65
Accordingly, CBOE represents that the
generation of a leg order would not
affect the existing priority, or execution
opportunities, currently provided to
market participants in the regular
market in any way.66
The Commission notes that the
proposal provides for when a leg order
will be displayed and when it would be
nondisplayed. The Exchange represents
that nondisplayed leg orders will
function in the same manner as
displayed leg orders except that
displayed leg orders will have priority
over nondisplayed leg orders.67
As noted above, CBOE represents that
it will carefully manage and curtail the
number of leg orders being generated so
that they do not negatively impact
system capacity and performance.68
CBOE represents, further, that it will
curtail the number of leg orders on an
objective basis, such as by limiting the
number of leg orders generated in a
particular class, and that it will not limit
the generation of leg orders on the basis
of the entering participant or the
participant category of the order (i.e.,
professional, professional customer, or
public customer).69
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 2 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–2013–026 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
65 See proposed CBOE Rule 6.53C(c)(iv)(2)(A);
Notice, 78 FR 22928, n. 6. See also supra notes 27
and 46 and accompanying text.
66 See Notice, 78 FR 22930. See also infra note
26 and accompanying text.
67 See Notice, 78 FR 22929.
68 See supra Section II.C.
69 See Notice, 78 FR 22930, n. 15.
E:\FR\FM\19JYN1.SGM
19JYN1
43258
Federal Register / Vol. 78, No. 139 / Friday, July 19, 2013 / Notices
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–CBOE–2013–026. 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 20549–1090 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–
2013–026, and should be submitted on
or before August 9, 2013.
emcdonald on DSK67QTVN1PROD with NOTICES
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 2
The Commission finds good cause for
approving the proposed rule change, as
amended by Amendment No. 2, prior to
the 30th day after the date of
publication of notice in the Federal
Register. Amendment No. 2 revises the
proposal, to, among other things,
eliminate proposed CBOE Rule
6.53C(c)(iv)(2)(C) in its entirety because
the provision would be inconsistent
with Section 11A of the Act 70 and Rule
602(a) of Regulation NMS (‘‘Quote
Rule’’).71 For this reason, the
Commission finds good cause for
approving the proposed rule change, as
amended, on an accelerated basis,
pursuant to Section 19(b)(2) of the Act.
70 15
71 17
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,72 that the
proposed rule change (SR–CBOE–2013–
26), as amended, be, and hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.73
Kevin M. O’Neill,
Deputy Secretary.
Joyce A. Barr,
Assistant Secretary for Administration, U.S.
Department of State.
[FR Doc. 2013–17312 Filed 7–18–13; 8:45 am]
STATE–31
BILLING CODE 8011–01–P
15:33 Jul 18, 2013
Jkt 229001
SYSTEM NAME:
Human Resources Records.
DEPARTMENT OF STATE
SECURITY CLASSIFICATION:
Classified and unclassified.
[Public Notice 8384]
Privacy Act; System of Records:
Human Resources Records, State–31
Notice is hereby given that
the Department of State proposes to
amend an existing system of records,
Human Resources Records, State–31,
pursuant to the provisions of the
Privacy Act of 1974, as amended (5
U.S.C. 552a) and Office of Management
and Budget Circular No. A–130,
Appendix I.
DATES: This system of records will be
effective on August 28, 2013, unless we
receive comments that will result in a
contrary determination.
ADDRESSES: Any persons interested in
commenting on the amended system of
records may do so by writing to the
Director; Office of Information Programs
and Services, A/GIS/IPS, Department of
State, SA–2, 515 22nd Street NW.,
Washington, DC 20522–8001.
FOR FURTHER INFORMATION CONTACT:
Director; Office of Information Programs
and Services, A/GIS/IPS, Department of
State, SA–2, 515 22nd Street NW.,
Washington, DC 20522–8001.
SUPPLEMENTARY INFORMATION: The
Department of State proposes that the
current system will retain the name
‘‘Human Resources Records’’
(previously published as 65 FR 69359).
The information collected and
maintained in this system is in keeping
with the Department’s mission to
document all processes associated with
individual employment histories and
career progression; to ensure that all
employees and potential employees
have equal opportunities; and to make
personnel management determinations
about employees throughout their
Federal careers. The proposed system
will include administration updates and
modifications to the following sections:
SUMMARY:
U.S.C. 78k–1.
CFR 242.602(a). See 17 CFR 242.602(a)(1)(i).
VerDate Mar<15>2010
Categories of individuals, Categories of
records, Routine uses, and Safeguards.
The Department’s report was filed
with the Office of Management and
Budget. The amended system
description, ‘‘Human Resources
Records, State–31,’’ will read as set forth
below.
PO 00000
72 15
73 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00119
Fmt 4703
Sfmt 4703
SYSTEM LOCATION:
Department of State, 2201 C Street
NW., Washington, DC 20520; State
Annex 01, 2401 E Street NW.,
Washington, DC 20037; State Annex 03,
2121 Virginia Avenue NW.,
Washington, DC 20037; State Annex 44,
301 4th Street SW., Washington, DC
20547; overseas at U.S. embassies, U.S.
consulates general, and U.S. consulates;
U.S. missions; and the National
Personnel Records Center, 111
Winnebago Street, St. Louis, MO 63118.
CATEGORIES OF INDIVIDUALS COVERED BY THE
SYSTEM:
All applicants for employment with
the Department of State (including
unsuccessful applicants); all current and
former Civil Service (CS) and Foreign
Service (FS) employees of the
Department of State including members
of the Senior Executive Service (SES),
Presidential Appointees, employees
under full-time, part-time, intermittent,
temporary, and limited appointments;
anyone serving in an advisory capacity
(compensated and uncompensated);
other agency employees on detail to the
Department of State; former Foreign
Service Reserve Officers; student
applicants for internships, Presidential
Management Fellows, Foreign Affairs
Fellowship Program Fellows, student
interns and other student summer hires,
Stay-in-School student employees, and
Cooperative Education Program
participants; and prospective alien
spouses and cohabitants of Department
of State employees.
CATEGORIES OF RECORDS IN THE SYSTEM:
Categories of records may include
identifying information, such as, but not
limited to, name, date of birth, home
address, mailing and email addresses,
numeric identifier (such as employee
identification number, SGID, or Social
Security number) and telephone
numbers. Types of files include
E:\FR\FM\19JYN1.SGM
19JYN1
]]>Agencies
[Federal Register Volume 78, Number 139 (Friday, July 19, 2013)]
[Notices]
[Pages 43254-43258]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17312]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69987; File No. SR-CBOE-2013-026]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Amendment No. 2 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2, Relating to Complex Orders
July 15, 2013.
I. Introduction
On March 28, 2013, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend its rules governing the
trading of complex orders on the Exchange to adopt a new order type
called ``leg orders.'' On April 11, 2013, the Exchange filed Amendment
No. 1 to the proposal. The proposed rule change, as modified by
Amendment No. 1, was published for comment in the Federal Register on
April 17, 2013.\3\ The Commission received no comment letters regarding
the proposed rule change, as modified by Amendment No. 1. On June 26,
2013, the Exchange filed Amendment No. 2 to the proposal.\4\ The
Commission is publishing this notice to solicit comments on Amendment
No. 2 from interested persons and is approving the proposed rule
change, as modified by Amendment Nos. 1 and 2, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 69364 (April 11,
2013), 78 FR 22326.
\4\ See infra Section II.B for a description of Amendment No. 2.
---------------------------------------------------------------------------
II. Description
A. Leg Orders
CBOE proposes to adopt CBOE Rule 6.53C(c)(iv) relating to the
generation and execution of leg orders. A leg order would be a limit
order on the CBOE electronic book (``EBook'') that represents one leg
of a non-contingent complex order resting on the complex order book
(``COB'') if the ratio of that leg to the other legs of the complex
order is equal to or can be reduced to one (e.g., 1:1, 1:2, or 1:3).\5\
A leg order
[[Page 43255]]
would be a firm order that may be included in the Exchange's displayed
best bid or offer (``Exchange BBO'') on the EBook.\6\ According to
CBOE, leg orders are designed to increase opportunities for complex
orders resting on the COB to leg into the CBOE individual options
market and execute.\7\
---------------------------------------------------------------------------
\5\ See proposed CBOE Rule 6.53(x). See also Notice, 78 FR
22928, n. 4 for an explanation of conforming ratios as applied to
the generation of leg orders.
\6\ See proposed CBOE Rule 6.53(x).
\7\ See Notice, 78 FR 22928.
---------------------------------------------------------------------------
1. Generation of Leg Orders
CBOE proposes that leg orders may be automatically generated on
behalf of complex orders so that they are represented in the individual
leg markets.\8\ CBOE proposes that a leg order would be automatically
generated for a leg of a complex order resting on the top of the COB:
(1) If the price of the complex order is inside the ``derived net
market,'' which is based on the derived net price of the best-priced
orders or quotes (other than leg orders) in the EBook; and (2) at a
price at which the net price execution of the complex order can be
achieved if the other leg(s) of the complex order executes against the
best-priced orders or quotes (other than leg orders).\9\ To determine
whether leg orders may be generated or displayed in accordance with
proposed CBOE Rule 6.53C(c)(iv)(1)(A)-(C), CBOE would evaluate the COB
when a complex order enters the COB, when the Exchange BBO changes, and
at a regular time interval to be determined by the Exchange (which
would not exceed one second).\10\
---------------------------------------------------------------------------
\8\ See proposed CBOE Rule 6.53C(c)(iv)(1).
\9\ See proposed CBOE Rule 6.53C(c) (iv)(1)(A); Notice, 78 FR
22928, Example A, for an illustration of how leg orders would be
generated and priced.
\10\ See proposed CBOE Rule 6.53C(c)(iv)(1).
---------------------------------------------------------------------------
CBOE states that the derived net market and the price of leg orders
would be based on the best-priced non-leg orders in the other leg
series, as those are the orders against which a complex order may
execute.\11\ CBOE proposes that the size of a leg order would be the
lesser of (1) the size of the complex order, and (2) the maximum size
available in the EBook for the other leg(s) of the complex order
(divided by the leg ratio, if applicable).\12\
---------------------------------------------------------------------------
\11\ See Notice, 78 FR 22928, n. 6.
\12\ See proposed CBOE Rule 6.53C(c)(iv)(1)(C); Notice, 78 FR
22930, Example D for an illustration of the maximum size limit as
applied to the generation of leg orders.
---------------------------------------------------------------------------
CBOE proposes that it may, on an objective basis, limit the number
of leg orders generated.\13\ According to CBOE, leg orders may be made
available on a class-by-class basis and may not be available for all of
its systems.\14\ CBOE believes that this would help the Exchange manage
the number of leg orders generated to ensure that leg orders do not
negatively impact the Exchange's system capacity and performance.\15\
CBOE represents that it would not limit the generation of leg orders on
the basis of the entering participant or the participant category of
the order (i.e., professional, professional customer, or public
customer).\16\
---------------------------------------------------------------------------
\13\ See proposed CBOE Rule 6.53C(c)(iv)(1).
\14\ See id.
\15\ See Notice, 78 FR 22928, n. 5. See also infra Section II.C.
\16\ See Notice, 78 FR 22930, n. 15.
---------------------------------------------------------------------------
Finally, CBOE proposes not to generate a leg order if the price of
the leg order would lock or cross the national best bid or offer
(``NBBO'').\17\ CBOE also proposes to not generate leg orders for
stock-option orders.\18\
---------------------------------------------------------------------------
\17\ See proposed CBOE Rule 6.53C(c)(iv)(1)(A).
\18\ See proposed CBOE Rule 6.53C, Interpretation and Policy
.06.
---------------------------------------------------------------------------
2. Display and Nondisplay of Leg Orders; Aggregation of Size
CBOE's proposed rule change specifies when a leg order would be
displayed and when it would be nondisplayed. A leg order would only be
displayed on the EBook if the price of the leg order matches or
improves the Exchange BBO pursuant to proposed CBOE Rule
6.53C(c)(iv)(1)(B).\19\ A leg order would not be displayed on the Ebook
if the price of the leg order does not match or improve the Exchange
BBO.\20\ If multiple resting complex orders in different strategies
generate leg orders for the same price on the same side of an options
series and both leg orders are eligible for display (i.e., both leg
orders match or improve the Exchange BBO), then the leg order with the
largest size would be displayed and the other leg orders would not be
displayed.\21\ If such leg orders are for the same size, then the first
leg order generated would be displayed and the other leg order(s) would
not be displayed.\22\ If multiple resting complex orders in the same
strategy generate leg orders for the same price on the same side of an
options series, then the sizes of the leg orders would be aggregated
and treated as a single order until execution.\23\ If such an
aggregated order matched or improved the Exchange BBO, the aggregated
order would be displayed.\24\
---------------------------------------------------------------------------
\19\ See proposed CBOE Rule 6.53C(c)(iv)(1)(B).
\20\ See proposed CBOE Rule 6.53C, Interpretation and Policies
.12 and proposed CBOE Rule 6.53C(c)(iv)(1)(B).
\21\ See proposed CBOE Rule 6.53C(c)(iv)(1)(B); Notice, 78 FR
22929-22930, n. 10-11, and Example C for an illustration of this
concept.
\22\ See proposed CBOE Rule 6.53C(c)(iv)(1)(B).
\23\ See proposed CBOE Rule 6.53C(c)(iv)(1)(C).
\24\ See Notice, 78 FR 22930, n. 14.
---------------------------------------------------------------------------
CBOE represents that nondisplayed leg orders, including leg orders
that were displayed but subsequently become nondisplayed, would remain
in the EBook and would be eligible for execution under proposed CBOE
Rule 6.53C(c)(iv)(2), but would not be visible in the EBook depth,
which, according to CBOE, contains resting orders and quotes not at the
BBO.\25\
---------------------------------------------------------------------------
\25\ See proposed CBOE Rule 6.53C, Interpretation and Policies
.12; Notice, 78 FR 22929, Example B, for an illustration of the
generation of nondisplayed leg orders.
---------------------------------------------------------------------------
3. Priority and Execution of Leg Orders; Cancellation and Removal
CBOE represents that the generation of a leg order would not affect
the existing priority, or execution opportunities, currently provided
to market participants in the regular market in any way.\26\ In this
regard, CBOE proposes that leg orders (including nondisplayed leg
orders) would execute only after all other executable orders and quotes
(including any nondisplayed size) at the same price are executed in
full and that a leg order may not execute against another leg
order.\27\ Leg orders at the same price would execute pursuant to the
priority and execution rules for complex orders on the COB, except that
displayed leg orders would have execution priority over nondisplayed
leg orders.\28\
---------------------------------------------------------------------------
\26\ See Notice, 78 FR 22930.
\27\ See proposed CBOE Rule 6.53C(c)(iv)(2)(A); Notice, 78 FR
22928, n. 6.
\28\ See proposed CBOE Rule 6.53C(c)(iv)(2)(A).
---------------------------------------------------------------------------
CBOE proposes that when a leg order executes against an incoming
order or quote, the other leg(s) of the complex order represented by
the leg order would automatically execute against the best-priced
resting orders or quotes (other than leg orders) so that the complex
order would be executed in full or in a permissible ratio).\29\ Prior
to the execution of the complex order, any leg orders on the opposite
side of the legs of the executing complex order would be canceled.\30\
Upon execution of the complex order, any leg orders that represent
other legs of the executing complex order would be canceled.\31\
According to CBOE, after the complex order executes, new leg orders may
be generated to ``replace'' any leg orders representing other complex
orders resting on the COB that were canceled as a result of the
execution of the complex order, assuming such resting complex orders
meet the requirements for the generation of leg orders under
[[Page 43256]]
CBOE Rule 6.53C(c)(iv)(1).\32\ In such an instance, CBOE states that
the newly generated leg order(s) would have the same priority as the
leg order(s) it replaced with respect to any other leg orders at the
same price representing complex orders in the same strategy because the
priority of the new leg order(s) (which would be aggregated) would be
based on the priority of the complex orders they represent (which would
remain unchanged regardless of cancellations of leg orders).\33\ If
execution of the complex order is partial, CBOE would be able to
generate and display leg orders for the remaining size of the complex
order assuming the conditions of Rule 6.53C(c)(iv)(1) are
satisfied.\34\
---------------------------------------------------------------------------
\29\ See proposed CBOE Rule 6.53C(c)(iv)(2)(B).
\30\ See id.
\31\ See proposed CBOE Rule 6.53C(c)(iv)(2).
\32\ See Notice, 78 FR 22930, n. 17.
\33\ See id.
\34\ See proposed CBOE Rule 6.53C(c)(iv)(2)(B); Notice 78 FR
22931, Example F, for an illustration of a partial execution of a
complex order through its leg orders.
---------------------------------------------------------------------------
CBOE proposes that a leg order would also be canceled if: (1)
Execution at the price of the leg order would no longer achieve the net
price of the complex order when the other leg(s) executes against the
best-priced orders or quotes (other than leg orders); (2) the complex
order executes in full or in part against another complex order; or (3)
the complex order from which the leg order was generated is canceled or
modified.\35\ CBOE proposes that a leg order would be removed from
display in the EBook if the price of the leg order is no longer at the
Exchange BBO or if a complex order in a different strategy generates a
larger-sized leg order at the same price.\36\ Any leg order that is
removed from display in the EBook would be nondisplayed, but would
still be eligible for execution.\37\
---------------------------------------------------------------------------
\35\ CBOE may also cancel a leg order that might trade ahead of
a non-leg order against an all-or-none order. See proposed CBOE Rule
6.53C(c)(iv)(2)(C).
\36\ See proposed CBOE Rule 6.53C(c)(iv)(3)(A); Notice 78 FR
22932, Example H for an illustration of cancellation and removal of
leg orders generated from complex orders in different strategies.
\37\ See proposed CBOE Rule 6.53C(c)(iv)(3)(A); Notice 78 FR
22931-22932, Examples G and H, for illustrations of how leg orders
are canceled and removed.
---------------------------------------------------------------------------
4. Leg Orders and CBOE Auctions
CBOE proposes to amend certain provisions of CBOE Rule 6.53C,
Interpretation and Policies, to provide for how leg orders would
interact with the various auction functions available on the Exchange.
First, CBOE proposes to amend CBOE Rule 6.53C, Interpretation and
Policy .04(b) to provide that if a leg order has been generated for a
complex order resting in the COB, the complex order would not be
eligible for the automated complex order request for responses
(``RFR'') auction process (``COA'').\38\ CBOE believes that this
provision is appropriate because leg orders would more effectively
create opportunities for the execution of complex orders resting in the
COB than having those complex orders participate in a COA after the
complex order has reached the COB.\39\
---------------------------------------------------------------------------
\38\ See proposed CBOE Rule 6.53C, Interpretation and Policy
.04.
\39\ See Notice, 78 FR 22932.
---------------------------------------------------------------------------
Second, CBOE proposes to add CBOE Rule 6.53C, Interpretation and
Policy .07 to determine whether CBOE would generate a leg order if a
simple order auction \40\ is occurring in a leg series at the time that
a leg order in that series would otherwise be generated pursuant to
CBOE Rule 6.53C(c)(iv). CBOE proposes that:
---------------------------------------------------------------------------
\40\ CBOE's simple order auctions include the Hybrid Agency
Liaison (``HAL'') auction described in CBOE Rule 6.14A and Automated
Improvement Mechanism (``AIM'') auction described in CBOE Rule
6.74A.
---------------------------------------------------------------------------
If the leg order would be on the same side of the market
as the auctioned order with a price worse than the initial auction
price of the auctioned order, then the leg order would be generated and
the auction would continue.\41\
---------------------------------------------------------------------------
\41\ See proposed CBOE Rule 6.53C, Interpretation and Policy
.07(a).
---------------------------------------------------------------------------
If the leg order would be on the same side of the market
as the auctioned order with a price equal to or better than the initial
auction price of the auctioned order, then no leg order would be
generated and the auction would continue. A leg order may later be
generated after execution of the auctioned order.\42\
---------------------------------------------------------------------------
\42\ See proposed CBOE Rule 6.53C, Interpretation and Policy
.07(b).
---------------------------------------------------------------------------
If the leg order would be on the opposite side of the
market as the auctioned order with a price that locks or crosses the
initial auction price of the auctioned order, then no leg order would
be generated and the auction would continue. A leg order may later be
generated after execution of the auctioned order.\43\
---------------------------------------------------------------------------
\43\ See proposed CBOE Rule 6.53C, Interpretation and Policy
.07(c).
---------------------------------------------------------------------------
If the leg order would be on the opposite side of the
market as the auctioned order with a price that does not lock or cross
the initial auction price of the auctioned order, then the leg order
would be generated and the auction would continue.\44\
---------------------------------------------------------------------------
\44\ See proposed CBOE Rule 6.53C, Interpretation and Policy
.07(d).
---------------------------------------------------------------------------
CBOE notes that a leg order would not participate in an auction if
a leg order would (a) be displayed in an options series at the time an
auction order enters the system and (b) be at the same price as the
starting price of the auction order and on the opposite side of the
auction order.\45\ According to CBOE, the auction order would instead
trade with other resting interest at that price and/or any contra order
that stopped the auctioned order, while the leg order could continue to
be displayed during the auction.\46\ According to the Exchange, this
result occurs because leg orders only trade after all other executable
orders and quotes are executed first.\47\
---------------------------------------------------------------------------
\45\ See Notice, 78 FR 22933.
\46\ See id.
\47\ See id.
---------------------------------------------------------------------------
CBOE believes the proposal would ensure that leg orders would not
interact with simple order auctions in order to avoid the system
complexities that would result from combining the execution of complex
orders with the already complex auction processes.\48\ The Exchange
believes that market participants would continue to have the same
opportunities for execution and potential price improvement through
simple order auctions as they would if there were no leg orders
present.\49\
---------------------------------------------------------------------------
\48\ See Notice, 78 FR 22932.
\49\ See Notice, 78 FR 22933.
---------------------------------------------------------------------------
B. Amendment No. 2 to the Proposed Rule Change
In Amendment No. 2, the Exchange proposes to make two changes to
proposed CBOE Rule 6.53C(c)(iv). First, Amendment No. 2 adds a
provision to proposed CBOE Rule 6.53C(c)(iv) to provide that leg orders
will only be generated in the minimum increment of the leg series, and
the price of a leg order will be rounded down (bid) or up (offer) to
the nearest minimum increment if it would otherwise be priced in a
smaller increment than the minimum.\50\ CBOE represents in Amendment
No. 2 that leg orders rounded pursuant to this provision will be
ranked, displayed, and eligible to execute with incoming orders at the
rounded price. According to Amendment No. 2, a leg order rounded to the
nearest increment will function in the same manner as a non-rounded leg
order at the rounded increment. Second, Amendment No. 2 eliminates
proposed CBOE Rule 6.53C(c)(iv)(2)(C), which governed the interaction
of leg orders with all-or-none orders. The Exchange originally proposed
that an all-or-none order \51\ would only execute against a leg order
if it was at least the same size as the all-or-none order and there
were no non-leg orders at the Exchange BBO.\52\
[[Page 43257]]
Under proposed CBOE Rule 6.53C(c)(iv)(2)(C), as originally proposed, if
a leg order and a non-leg order(s) were at the Exchange BBO, then the
all-or-none order would have either (a) executed against the non-leg
order(s) if it was at least the same size as the all-or-none order or
(b) the leg order would have been cancelled and the all-or-none order
would have been handled pursuant to CBOE's existing rules governing
all-or-none orders.\53\ Pursuant to CBOE Rule 6.53C(c)(iv)(2)(C), no
new leg orders in the applicable options series would have been
generated until the all-or-none order was executed or cancelled.\54\ As
amended, proposed CBOE Rule 6.53(c)(iv)(2)(C) will be eliminated in its
entirety and, as a result, a marketable all-or-none order could execute
against a leg-order and a non-leg order displayed at the Exchange BBO
if such orders were together sufficient to fill the marketable all-or-
none order.
---------------------------------------------------------------------------
\50\ See proposed CBOE Rule 6.53C(iv)(1)(A).
\51\ See CBOE Rule 6.53(i) defining an all-or-none order as: ``a
market or limit order which is to be executed in its entirety or not
at all.''
\52\ See proposed CBOE Rule 6.53C(c)(iv)(2)(C).
\53\ See id. See generally CBOE Rule 6.44 Interpretations and
Policies .01-.03.
\54\ See proposed CBOE Rule 6.53C(c)(iv)(2)(C).
---------------------------------------------------------------------------
C. CBOE Trading System Capacity
CBOE represents that it maintains a rigorous capacity planning
program that monitors system performance and projected capacity demands
and that, as a general matter, considers the potential system capacity
impact of all new initiatives.\55\ CBOE represents that it has analyzed
the potential impact on system capacity that may result from the
proposed rule change and has concluded that the Exchange has sufficient
system capacity to handle the generation of leg orders without
degrading the performance of its systems or reducing the number of
complex order instruments it currently supports.\56\ The Exchange
represented that it would closely monitor the generation of leg orders
and its effect on CBOE's systems, and would carefully manage and
curtail the number of leg orders being generated, to ensure that they
do not negatively impact system capacity and performance.\57\
---------------------------------------------------------------------------
\55\ See Notice, 78 FR 22933.
\56\ See id.
\57\ See id.
---------------------------------------------------------------------------
III. Discussion
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment Nos. 1 and 2, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\58\ In particular, the
Commission finds that the proposed rule change, as amended, is
consistent with Section 6(b)(5) of the Act,\59\ which requires, among
other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, 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.
---------------------------------------------------------------------------
\58\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\59\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission believes that leg orders could facilitate the
execution of complex orders resting on CBOE's COB by increasing the
opportunities for eligible complex orders to execute against interest
in the leg market on CBOE's EBook, thereby benefitting investors
seeking to execute complex orders. In addition, the Commission believes
that leg orders could benefit participants in the leg market by
providing additional liquidity, and potentially more favorable
executions, for leg market interest. The Commission notes that it
previously approved proposals by other options exchanges to implement
leg orders.\60\
---------------------------------------------------------------------------
\60\ See Securities Exchange Act Release Nos. 66234 (January 25,
2012), 77 FR 4852 (January 31, 2012) (order approving File No. SR-
ISE-2011-82) and 69419 (April 19, 2013), 78 FR 24449 (April 25,
2013) (order approving File No. SR-BOX-2013-01).
---------------------------------------------------------------------------
Leg orders will be firm orders that represent one leg of a non-
contingent complex order resting on the COB if the ratio of that leg to
the other legs of the complex order is equal to or can be reduced to
one.\61\ The Commission notes that, on CBOE, leg orders will only be
generated in the minimum increment of the leg series, and the price of
the leg order will be rounded down (bid) or up (offer) to the nearest
minimum increment if it would otherwise be priced in a smaller
increment than the minimum.\62\ As noted above, the Exchange represents
that a leg order rounded to the nearest increment will be ranked,
displayed, and eligible to execute with incoming orders at the rounded
price and that rounded leg orders will function in the same manner as
non-rounded leg orders.\63\ Under CBOE's proposal, leg orders will not
be generated if the price of the leg order would lock or cross the
NBBO.\64\
---------------------------------------------------------------------------
\61\ See supra Section II.A.
\62\ See proposed CBOE Rule 6.53C(iv)(1)(A). See also supra
Section II.B.
\63\ See supra Section II.B.
\64\ See proposed CBOE Rule 6.53C(c)(iv)(1)(A). See also supra
note 17 and accompanying text.
---------------------------------------------------------------------------
The Commission notes that a leg order will be executed only after
all other executable orders and quotes (including any nondisplayed size
of any non-leg orders) at the same price are executed in full and that
a leg order may not execute against another leg order.\65\ Accordingly,
CBOE represents that the generation of a leg order would not affect the
existing priority, or execution opportunities, currently provided to
market participants in the regular market in any way.\66\
---------------------------------------------------------------------------
\65\ See proposed CBOE Rule 6.53C(c)(iv)(2)(A); Notice, 78 FR
22928, n. 6. See also supra notes 27 and 46 and accompanying text.
\66\ See Notice, 78 FR 22930. See also infra note 26 and
accompanying text.
---------------------------------------------------------------------------
The Commission notes that the proposal provides for when a leg
order will be displayed and when it would be nondisplayed. The Exchange
represents that nondisplayed leg orders will function in the same
manner as displayed leg orders except that displayed leg orders will
have priority over nondisplayed leg orders.\67\
---------------------------------------------------------------------------
\67\ See Notice, 78 FR 22929.
---------------------------------------------------------------------------
As noted above, CBOE represents that it will carefully manage and
curtail the number of leg orders being generated so that they do not
negatively impact system capacity and performance.\68\ CBOE represents,
further, that it will curtail the number of leg orders on an objective
basis, such as by limiting the number of leg orders generated in a
particular class, and that it will not limit the generation of leg
orders on the basis of the entering participant or the participant
category of the order (i.e., professional, professional customer, or
public customer).\69\
---------------------------------------------------------------------------
\68\ See supra Section II.C.
\69\ See Notice, 78 FR 22930, n. 15.
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 2
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-2013-026 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission,
[[Page 43258]]
100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2013-026. 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 20549-1090 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-2013-026, and should be submitted on or before August 9, 2013.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 2
The Commission finds good cause for approving the proposed rule
change, as amended by Amendment No. 2, prior to the 30th day after the
date of publication of notice in the Federal Register. Amendment No. 2
revises the proposal, to, among other things, eliminate proposed CBOE
Rule 6.53C(c)(iv)(2)(C) in its entirety because the provision would be
inconsistent with Section 11A of the Act \70\ and Rule 602(a) of
Regulation NMS (``Quote Rule'').\71\ For this reason, the Commission
finds good cause for approving the proposed rule change, as amended, on
an accelerated basis, pursuant to Section 19(b)(2) of the Act.
---------------------------------------------------------------------------
\70\ 15 U.S.C. 78k-1.
\71\ 17 CFR 242.602(a). See 17 CFR 242.602(a)(1)(i).
---------------------------------------------------------------------------
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\72\ that the proposed rule change (SR-CBOE-2013-26), as amended,
be, and hereby is, approved.
---------------------------------------------------------------------------
\72\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\73\
Kevin M. O'Neill,
Deputy Secretary.
---------------------------------------------------------------------------
\73\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
[FR Doc. 2013-17312 Filed 7-18-13; 8:45 am]
BILLING CODE 8011-01-P
