Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to CBSX Rule 53.2, 44994-44997 [2013-17862]

Download as PDF 44994 Federal Register / Vol. 78, No. 143 / Thursday, July 25, 2013 / Notices buttressed by the Commission rules that provide procedures for data recipients to seek redress of their grievances if he or she believes his or her access to data has been limited. Also, developments in technology make possible another important constraint on market data prices for core data: There is nothing to prevent one or more vendors, broker-dealers or other entities from gathering prices and quotes across all Participants and creating a consolidated data stream that would compete with the Plans’ data streams. The technology to consolidate multiple, disparate data streams is readily available, and other markets have already begun introducing products that compete with core data (such as Nasdaq Basic).25 K. Method and Frequency of Processor Evaluation Not applicable. L. Dispute Resolution Not applicable. II. Rule 601(a) (Solely in Its Application to the Amendments to the CTA Plan) A. Equity Securities for Which Transaction Reports Shall Be Required by the Plan Not applicable. B. Reporting Requirements Not applicable. C. Manner of Collecting, Processing, Sequencing, Making Available and Disseminating Last Sale Information Not applicable. D. Manner of Consolidation Not applicable. E. Standards and Methods Ensuring Promptness, Accuracy and Completeness of Transaction Reports Not applicable. F. Rules and Procedures Addressed to Fraudulent or Manipulative Dissemination Not applicable. G. Terms of Access to Transaction Reports ehiers on DSK2VPTVN1PROD with NOTICES See Item I(A). 25 In a context in which a trading or order-routing decision can be implemented, Regulation NMS Rule 603(c)(1) prevents a broker, dealer or securities information processor from providing a display of market data unless it also provides a consolidated display, such as the consolidated displays made available under the Plans. Yet, despite this rule, the Participants have seen reductions of customer activity at the same time that competing nonconsolidated products have seen increases. VerDate Mar<15>2010 13:49 Jul 24, 2013 Jkt 229001 H. Identification of Marketplace of Execution Not applicable. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed amendments are consistent with the Act. Comments may be submitted by any of the following methods: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–17860 Filed 7–24–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70011; File No. SR–CBOE– 2013–074] 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–CTA/CQ–2013–04 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–CTA/CQ–2013–04. 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 Amendments that are filed with the Commission, and all written communications relating to the Amendments between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the Amendments also will be available for inspection and copying at the principal office of the CTA. 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–CTA/CQ–2013–04 and should be submitted on or before August 15, 2013. PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to CBSX Rule 53.2 July 19, 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 July 19, 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 CBOE Stock Exchange, LLC (‘‘CBSX’’) Rule 53.2, which relates to the prohibition against trading ahead of customer orders. The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * Chicago Board Options Exchange, Incorporated Rules * * * * * Rule 53.2. Prohibition Against Trading Ahead of Customer Orders No change. * * * Interpretations and Policies: .01—No change. .02 No-Knowledge Exception. With respect to NMS stocks, as defined in Rule 600 of SEC Regulation NMS, if a Trading Permit Holder implements and utilizes an effective 26 17 CFR 200.30–3(a)(27). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\25JYN1.SGM 25JYN1 Federal Register / Vol. 78, No. 143 / Thursday, July 25, 2013 / Notices system of internal controls, such as appropriate information barriers, that operate to prevent one trading unit from obtaining knowledge of customer orders held by a separate trading unit, those other trading units trading in a proprietary capacity may continue to trade at prices that would satisfy the customer orders held by the separate trading unit. A Trading Permit Holder that structures its order handling practices in NMS stocks to permit its proprietary and/or market-making desk to trade at prices that would satisfy customer orders held by a separate trading unit must disclose in writing to its customers, at account opening and annually thereafter, a description of the manner in which customer orders are handled by the Trading Permit Holder and the circumstances under which the Trading Permit Holder may trade proprietarily at its proprietary and/or market-making desk at prices that would satisfy the customer order. If a Trading Permit Holder intends to rely on this exception by implementing information barriers, those information barriers should at a minimum (i) [must ]provide for the organizational separation of a Trading Permit Holder’s customer order trading unit and proprietary trading unit; (ii) [must ]ensure that one trading unit does not exert influence over the other trading unit; (iii) [must ]ensure that information relating to each trading unit’s stock positions[,] and trading activities[, and clearing and margin arrangements] is not improperly shared (except with persons in senior management who are involved in exercising general managerial oversight of one or both entities); (iv) [must require each trading unit to maintain separate books and records (and separate financial accounting); (v) must require each trading unit to separately meet all required capital requirements; (vi) must ]ensure the confidentiality of the trading unit’s book as provided by Exchange rules; and (v[ii]) [must ]ensure that any other material, non-public information (e.g. information related to any business transactions between the trading unit and an issuer or any research reports or recommendations issued by the trading unit) is not made improperly available to the other trading unit in any manner that would allow that trading unit to take undue advantage of that information while trading on CBSX. A Trading Permit Holder must submit the proposed information barriers in writing to the Exchange upon request. Trading Permit Holders must maintain records that indicate which orders rely on this exception and submit these records to the Exchange upon request. .03–.07 No change. ehiers on DSK2VPTVN1PROD with NOTICES * * * * * The text of the proposed rule change is also available on the Exchange’s Web site (https://www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. VerDate Mar<15>2010 13:49 Jul 24, 2013 Jkt 229001 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 CBSX Rule 53.2 governs the treatment of customer orders and prohibits a CBSX Trading Permit Holder from proprietarily trading ahead of a customer order. The Securities and Exchange Commission (the ‘‘Commission’’) recently approved a rule filing to, among other things, amend CBSX Rule 53.2.3 The amendments to Rule 53.2 included, among other things, the addition of a number of exceptions to the customer order protection rule. One of the new exceptions is a ‘‘noknowledge’’ exception, which allows a proprietary trading unit of a Trading Permit Holder organization to continue trading in a proprietary capacity and at prices that would satisfy customer orders that were being held by another, separate trading unit at the Trading Permit Holder organization.4 In order to avail itself of the ‘‘no-knowledge’’ exception, a Trading Permit Holder organization must first implement and utilize an effective system of internal controls (such as appropriate information barriers) that operate to prevent the proprietary trading unit from obtaining knowledge of the customer orders that are held at a separate trading unit.5 3 See Securities Exchange Act Release No. 34– 69504 (May 2, 2013), 78 FR 26828 (May 8, 2013) (SR–CBOE–2013–027). Pursuant to that rule filing, the Exchange issued Regulatory Circular RG 13–098 on July 10, 2013, which announced that the amendments to Rule 53.2 would become effective on July 22, 2013. 4 See Rule 53.2, Interpretation and Policy .03. The ‘‘no-knowledge’’ exception is applicable with respect to NMS stocks, as defined in Rule 600 of SEC Regulation NMS. 5 The ‘‘no-knowledge’’ exception also provides that a Trading Permit Holder organization that structures its order handling practices in NMS stocks to permit its proprietary and/or marketmaking desk to trade at prices that would satisfy customer orders held as a separate trading unit PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 44995 If a Trading Permit Holder intends to rely on the ‘‘no-knowledge’’ exception by implementing information barriers, those information barriers must (i) Provide for the organization separation 6 of a Trading Permit Holder’s trading unit that holds customer orders and a proprietary trading unit; (ii) ensure that one trading unit does not exert influence over the other trading unit; (iii) ensure that information relating to each trading unit’s stock positions, trading activities, and clearing and margin arrangements is not improperly shared (except with person in senior management who are involved in exercising general managerial oversight of one or both entities); (iv) require each trading unit to maintain separate books and records (and separate financial accounting); (v) require each trading unit to separately meet all required capital requirements; (vi) ensure the confidentiality of each trading unit’s book as provided by the Exchange rules; and (vii) ensure that any other material non-public information (e.g. information related to any business transactions between a trading unit and an issuer or any research reports or recommendations issued by the trading unit) is not made improperly available to the other trading unit in any manner that would allow that trading unit to take undue advantage of that information while trading on CBSX. A Trading Permit Holder must submit the proposed information barriers in writing to the Exchange upon request. The Exchange proposes to amend the information barrier requirements of the ‘‘no-knowledge’’ exception as follows: • Remove from requirement (iii) the need to ensure that information relating to each trading unit’s clearing and margin arrangements is not improperly shared; • eliminate information barrier requirements (iv) and (v); and • renumber requirements (vi) and (vii) as (iv) and (v). The Exchange believes the remaining information barrier requirements provide for the necessary protections in order for a Trading Permit Holder to avail itself of the ‘‘no-knowledge’’ exception. The Exchange also proposes to amend the ‘‘no-knowledge’’ exception by providing that a Trading Permit Holder must disclose in writing to its customers, at account opening and annually thereafter, a description of the manner in which customer orders are handled by the Trading Permit Holder and the circumstances under which the Trading Permit Holder may trade proprietarily at its market-making desk at prices that would satisfy the customer order. 6 Organizational separation includes physical separation of the trading units. E:\FR\FM\25JYN1.SGM 25JYN1 44996 Federal Register / Vol. 78, No. 143 / Thursday, July 25, 2013 / Notices relying on this exception should have information barriers that, at a minimum, satisfy the specified criteria. This change clarifies that Trading Permit Holders are able to include additional conditions in their information barriers as they deem appropriate. Finally, the Exchange proposes to add a requirement that Trading Permit Holders must maintain records that indicate which orders rely on this ‘‘noknowledge’’ exception and provide these records to the Exchange upon request. This change will ensure that a documented audit trail exists to indicate which orders are subject to this exception and that the Exchange will have access to records in connection with its surveillances associated with customer order protection. The Exchange will implement the proposed changes on July 22, 2013, in conjunction with the previously approved amendments to CBSX Rule 53.2.7 ehiers on DSK2VPTVN1PROD with NOTICES 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.8 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 9 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 10 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes the proposed rule change will protect investors by bringing the information barriers that Trading Permit Holders must maintain to avail themselves of the ‘‘no-knowledge’’ exception more in line with other trading venues while at the same time ensuring sufficient customer 7 See supra note 3. U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). 10 Id. 8 15 VerDate Mar<15>2010 13:49 Jul 24, 2013 Jkt 229001 order protection.11 The Exchange also believes the proposed change to clarify that Trading Permit Holders should at a minimum satisfy the information barrier requirements, as amended, will provide Trading Permit Holders with the flexibility to include other conditions they believe are appropriate to ensure proper barriers are in place.12 In general, the Exchange believes that harmonizing customer order protection rules across self-regulatory organizations and providing Trading Permit Holders with the flexibility to implement their barriers in a manner they deem appropriate will foster cooperation and contribute to perfecting the mechanism of a free and open market and national market system. In addition, the Exchange believes the additional requirement for Trading Permit Holders to maintain records that identify the orders that are associated with the reliance of the no-knowledge exception will further enhance the Exchange’s ability to adequately surveil its Trading Permit Holders for compliance with the customer order protection rule. Overall, the Exchange believes that the customer order protection rule, as amended by the proposed rule change, will continue to maintain the necessary protection and priority of customer orders designed to prevent fraudulent and manipulative acts, without imposing any undue regulatory costs on industry participants. B. Self-Regulatory Organization’s Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. All Trading Permit Holders that rely on information barriers to take advantage of the ‘‘noknowledge’’ exception will have to satisfy the same criteria. The Exchange believes the proposed rule change will reduce the burdens on market participants by eliminating certain requirements in the current rule with which they must comply to avail themselves of the ‘‘no-knowledge’’ exception. The Exchange also believes the proposed rule change will reduce the burdens on market participants that 11 See, e.g., Financial Industry Regulatory Authority (FINRA) Rule 5320, ‘‘Prohibition Against Trading Ahead of Customer Orders; and Chicago Stock Exchange (CHX) Article 9, Rule 17, ‘‘Prohibition Against Trading Ahead of Customer Orders.’’ 12 Since each Trading Permit Holder is somewhat unique in its structure and business model, such flexibility will provide each firm with the ability to tailor their barriers in a way that is consistent with their needs, so long as, at a minimum, they include the requirements as proposed in this filing. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 result from their having to comply with varying rules related to customer order protection, thus reducing the complexity of customer order protection rules, particularly for those firms subject to the rules of multiple trading venues. The Exchange believes the additional requirement to maintain records of orders that rely on the ‘‘no-knowledge’’ exception will not impose additional burdens on Trading Permit Holders, as it is consistent with audit trail and record retention requirements that are already imposed on market participants. Overall, the Exchange believes the proposed rule change further harmonizes customer order protection rules across self-regulatory organizations while sufficiently protecting customer orders, which ultimately benefits market participants and does not impose a burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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) of the Act 13 and subparagraph (f)(6) of Rule 19b–4 thereunder.14 A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing.15 However, Rule 19b– 4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest.16 The Exchange has requested that the Commission waive the 30-day operative delay because the Exchange believes the proposed rule change does not present 13 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 filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 15 17 CFR 240.19b–4(f)(6)(iii). 16 Id. 14 17 E:\FR\FM\25JYN1.SGM 25JYN1 Federal Register / Vol. 78, No. 143 / Thursday, July 25, 2013 / Notices any new, unique or substantive issues. The proposed rule change eliminates some requirements that Trading Permit Holders otherwise would have to satisfy to take advantage of the ‘‘noknowledge’’ exception; however, the Exchange believes that the amended information barrier requirements bring the rule further in line with the customer protection rule requirements of other self-regulatory organizations. In addition, the Exchange believes the information barriers, as amended, will be sufficiently adequate to allow Trading Permit Holders to avail themselves of the ‘‘no-knowledge’’ exception. The Exchange also believes that the additional requirement to maintain records of orders that rely on the ‘‘no-knowledge’’ exception is consistent with requirements already imposed on market participants and thus will not impose any additional burdens on Trading Permit Holders. The Commission believes that the waiver of the 30-day operative delay is consistent with the protection of investors and the public interest because the proposed rule will harmonize the Exchange’s customer order protection rules with the rules of other self-regulatory organizations,17 and that the requirements that the Exchange’s rules impose on Trading Permit Holders will continue to ensure that customer orders are afforded sufficient protection. Therefore, the Commission designates the proposal operative upon filing.18 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. ehiers on DSK2VPTVN1PROD with NOTICES 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–2013–074 on the subject line. SECURITIES AND EXCHANGE COMMISSION Paper Comments [Release No. 34–70009; File No. SR–FINRA– 2013–029] • 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–2013–074. 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 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 CBOE. 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–2013–074, and should be submitted on or before August 15, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–17862 Filed 7–24–13; 8:45 am] BILLING CODE 8011–01–P supra note 11. purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). Jkt 229001 PO 00000 July 19, 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 July 17, 2013, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) 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 FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend: (1) FINRA Rule 6750 and the Trade Reporting and Compliance Engine (‘‘TRACE’’) dissemination protocols regarding the dissemination of transactions in TRACE-Eligible Securities that are effected pursuant to Rule 144A 3 under the Securities Act of 1933 4 (‘‘Rule 144A transactions’’); (2) FINRA Rule 7730 to establish real-time and historic data sets for Rule 144A transaction data; and (3) FINRA Rule 7730 to clarify the definition of Historic TRACE Data, to clarify other provisions therein and incorporate other technical amendments.5 The text of the proposed rule change is available on FINRA’s Web site at https://www.finra.org, at the principal office of FINRA 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, FINRA included statements concerning U.S.C. 78s(b)(1). CFR 240.19b–4. 3 17 CFR 230.144A. 4 15 U.S.C. 77a et seq. (hereinafter ‘‘Securities Act’’). 5 The terms TRACE-Eligible Security and Historic TRACE Data are defined in FINRA Rule 6710(a) and FINRA Rule 7730(f)(4), respectively. 2 17 18 For 13:49 Jul 24, 2013 Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to the Dissemination of Transactions in TRACE-Eligible Securities That Are Effected Pursuant to Securities Act Rule 144A 1 15 17 See VerDate Mar<15>2010 44997 19 17 CFR 200.30–3(a)(12). Frm 00076 Fmt 4703 Sfmt 4703 E:\FR\FM\25JYN1.SGM 25JYN1

Agencies

[Federal Register Volume 78, Number 143 (Thursday, July 25, 2013)]
[Notices]
[Pages 44994-44997]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17862]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70011; File No. SR-CBOE-2013-074]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to CBSX Rule 53.2

July 19, 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 July 19, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend CBOE Stock Exchange, LLC (``CBSX'') 
Rule 53.2, which relates to the prohibition against trading ahead of 
customer orders. The text of the proposed rule change is provided 
below.

(additions are italicized; deletions are [bracketed])
* * * * *

Chicago Board Options Exchange, Incorporated

Rules

* * * * *

Rule 53.2. Prohibition Against Trading Ahead of Customer Orders

    No change.
    * * * Interpretations and Policies:
    .01--No change.
    .02 No-Knowledge Exception. With respect to NMS stocks, as 
defined in Rule 600 of SEC Regulation NMS, if a Trading Permit 
Holder implements and utilizes an effective

[[Page 44995]]

system of internal controls, such as appropriate information 
barriers, that operate to prevent one trading unit from obtaining 
knowledge of customer orders held by a separate trading unit, those 
other trading units trading in a proprietary capacity may continue 
to trade at prices that would satisfy the customer orders held by 
the separate trading unit. A Trading Permit Holder that structures 
its order handling practices in NMS stocks to permit its proprietary 
and/or market-making desk to trade at prices that would satisfy 
customer orders held by a separate trading unit must disclose in 
writing to its customers, at account opening and annually 
thereafter, a description of the manner in which customer orders are 
handled by the Trading Permit Holder and the circumstances under 
which the Trading Permit Holder may trade proprietarily at its 
proprietary and/or market-making desk at prices that would satisfy 
the customer order. If a Trading Permit Holder intends to rely on 
this exception by implementing information barriers, those 
information barriers should at a minimum (i) [must ]provide for the 
organizational separation of a Trading Permit Holder's customer 
order trading unit and proprietary trading unit; (ii) [must ]ensure 
that one trading unit does not exert influence over the other 
trading unit; (iii) [must ]ensure that information relating to each 
trading unit's stock positions[,] and trading activities[, and 
clearing and margin arrangements] is not improperly shared (except 
with persons in senior management who are involved in exercising 
general managerial oversight of one or both entities); (iv) [must 
require each trading unit to maintain separate books and records 
(and separate financial accounting); (v) must require each trading 
unit to separately meet all required capital requirements; (vi) must 
]ensure the confidentiality of the trading unit's book as provided 
by Exchange rules; and (v[ii]) [must ]ensure that any other 
material, non-public information (e.g. information related to any 
business transactions between the trading unit and an issuer or any 
research reports or recommendations issued by the trading unit) is 
not made improperly available to the other trading unit in any 
manner that would allow that trading unit to take undue advantage of 
that information while trading on CBSX. A Trading Permit Holder must 
submit the proposed information barriers in writing to the Exchange 
upon request. Trading Permit Holders must maintain records that 
indicate which orders rely on this exception and submit these 
records to the Exchange upon request.
    .03-.07 No change.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission'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
    CBSX Rule 53.2 governs the treatment of customer orders and 
prohibits a CBSX Trading Permit Holder from proprietarily trading ahead 
of a customer order. The Securities and Exchange Commission (the 
``Commission'') recently approved a rule filing to, among other things, 
amend CBSX Rule 53.2.\3\ The amendments to Rule 53.2 included, among 
other things, the addition of a number of exceptions to the customer 
order protection rule. One of the new exceptions is a ``no-knowledge'' 
exception, which allows a proprietary trading unit of a Trading Permit 
Holder organization to continue trading in a proprietary capacity and 
at prices that would satisfy customer orders that were being held by 
another, separate trading unit at the Trading Permit Holder 
organization.\4\ In order to avail itself of the ``no-knowledge'' 
exception, a Trading Permit Holder organization must first implement 
and utilize an effective system of internal controls (such as 
appropriate information barriers) that operate to prevent the 
proprietary trading unit from obtaining knowledge of the customer 
orders that are held at a separate trading unit.\5\
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    \3\ See Securities Exchange Act Release No. 34-69504 (May 2, 
2013), 78 FR 26828 (May 8, 2013) (SR-CBOE-2013-027). Pursuant to 
that rule filing, the Exchange issued Regulatory Circular RG 13-098 
on July 10, 2013, which announced that the amendments to Rule 53.2 
would become effective on July 22, 2013.
    \4\ See Rule 53.2, Interpretation and Policy .03. The ``no-
knowledge'' exception is applicable with respect to NMS stocks, as 
defined in Rule 600 of SEC Regulation NMS.
    \5\ The ``no-knowledge'' exception also provides that a Trading 
Permit Holder organization that structures its order handling 
practices in NMS stocks to permit its proprietary and/or market-
making desk to trade at prices that would satisfy customer orders 
held as a separate trading unit must disclose in writing to its 
customers, at account opening and annually thereafter, a description 
of the manner in which customer orders are handled by the Trading 
Permit Holder and the circumstances under which the Trading Permit 
Holder may trade proprietarily at its market-making desk at prices 
that would satisfy the customer order.
---------------------------------------------------------------------------

    If a Trading Permit Holder intends to rely on the ``no-knowledge'' 
exception by implementing information barriers, those information 
barriers must (i) Provide for the organization separation \6\ of a 
Trading Permit Holder's trading unit that holds customer orders and a 
proprietary trading unit; (ii) ensure that one trading unit does not 
exert influence over the other trading unit; (iii) ensure that 
information relating to each trading unit's stock positions, trading 
activities, and clearing and margin arrangements is not improperly 
shared (except with person in senior management who are involved in 
exercising general managerial oversight of one or both entities); (iv) 
require each trading unit to maintain separate books and records (and 
separate financial accounting); (v) require each trading unit to 
separately meet all required capital requirements; (vi) ensure the 
confidentiality of each trading unit's book as provided by the Exchange 
rules; and (vii) ensure that any other material non-public information 
(e.g. information related to any business transactions between a 
trading unit and an issuer or any research reports or recommendations 
issued by the trading unit) is not made improperly available to the 
other trading unit in any manner that would allow that trading unit to 
take undue advantage of that information while trading on CBSX. A 
Trading Permit Holder must submit the proposed information barriers in 
writing to the Exchange upon request.
---------------------------------------------------------------------------

    \6\ Organizational separation includes physical separation of 
the trading units.
---------------------------------------------------------------------------

    The Exchange proposes to amend the information barrier requirements 
of the ``no-knowledge'' exception as follows:
     Remove from requirement (iii) the need to ensure that 
information relating to each trading unit's clearing and margin 
arrangements is not improperly shared;
     eliminate information barrier requirements (iv) and (v); 
and
     renumber requirements (vi) and (vii) as (iv) and (v).

The Exchange believes the remaining information barrier requirements 
provide for the necessary protections in order for a Trading Permit 
Holder to avail itself of the ``no-knowledge'' exception.

    The Exchange also proposes to amend the ``no-knowledge'' exception 
by providing that a Trading Permit Holder

[[Page 44996]]

relying on this exception should have information barriers that, at a 
minimum, satisfy the specified criteria. This change clarifies that 
Trading Permit Holders are able to include additional conditions in 
their information barriers as they deem appropriate.
    Finally, the Exchange proposes to add a requirement that Trading 
Permit Holders must maintain records that indicate which orders rely on 
this ``no-knowledge'' exception and provide these records to the 
Exchange upon request. This change will ensure that a documented audit 
trail exists to indicate which orders are subject to this exception and 
that the Exchange will have access to records in connection with its 
surveillances associated with customer order protection.
    The Exchange will implement the proposed changes on July 22, 2013, 
in conjunction with the previously approved amendments to CBSX Rule 
53.2.\7\
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    \7\ See supra note 3.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\8\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \9\ requirements that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \10\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    In particular, the Exchange believes the proposed rule change will 
protect investors by bringing the information barriers that Trading 
Permit Holders must maintain to avail themselves of the ``no-
knowledge'' exception more in line with other trading venues while at 
the same time ensuring sufficient customer order protection.\11\ The 
Exchange also believes the proposed change to clarify that Trading 
Permit Holders should at a minimum satisfy the information barrier 
requirements, as amended, will provide Trading Permit Holders with the 
flexibility to include other conditions they believe are appropriate to 
ensure proper barriers are in place.\12\ In general, the Exchange 
believes that harmonizing customer order protection rules across self-
regulatory organizations and providing Trading Permit Holders with the 
flexibility to implement their barriers in a manner they deem 
appropriate will foster cooperation and contribute to perfecting the 
mechanism of a free and open market and national market system. In 
addition, the Exchange believes the additional requirement for Trading 
Permit Holders to maintain records that identify the orders that are 
associated with the reliance of the no-knowledge exception will further 
enhance the Exchange's ability to adequately surveil its Trading Permit 
Holders for compliance with the customer order protection rule. 
Overall, the Exchange believes that the customer order protection rule, 
as amended by the proposed rule change, will continue to maintain the 
necessary protection and priority of customer orders designed to 
prevent fraudulent and manipulative acts, without imposing any undue 
regulatory costs on industry participants.
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    \11\ See, e.g., Financial Industry Regulatory Authority (FINRA) 
Rule 5320, ``Prohibition Against Trading Ahead of Customer Orders; 
and Chicago Stock Exchange (CHX) Article 9, Rule 17, ``Prohibition 
Against Trading Ahead of Customer Orders.''
    \12\ Since each Trading Permit Holder is somewhat unique in its 
structure and business model, such flexibility will provide each 
firm with the ability to tailor their barriers in a way that is 
consistent with their needs, so long as, at a minimum, they include 
the requirements as proposed in this filing.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. All Trading Permit Holders that 
rely on information barriers to take advantage of the ``no-knowledge'' 
exception will have to satisfy the same criteria. The Exchange believes 
the proposed rule change will reduce the burdens on market participants 
by eliminating certain requirements in the current rule with which they 
must comply to avail themselves of the ``no-knowledge'' exception. The 
Exchange also believes the proposed rule change will reduce the burdens 
on market participants that result from their having to comply with 
varying rules related to customer order protection, thus reducing the 
complexity of customer order protection rules, particularly for those 
firms subject to the rules of multiple trading venues. The Exchange 
believes the additional requirement to maintain records of orders that 
rely on the ``no-knowledge'' exception will not impose additional 
burdens on Trading Permit Holders, as it is consistent with audit trail 
and record retention requirements that are already imposed on market 
participants. Overall, the Exchange believes the proposed rule change 
further harmonizes customer order protection rules across self-
regulatory organizations while sufficiently protecting customer orders, 
which ultimately benefits market participants and does not impose a 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    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) of the Act \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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 filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\15\ However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest.\16\ The Exchange has requested that the Commission 
waive the 30-day operative delay because the Exchange believes the 
proposed rule change does not present

[[Page 44997]]

any new, unique or substantive issues. The proposed rule change 
eliminates some requirements that Trading Permit Holders otherwise 
would have to satisfy to take advantage of the ``no-knowledge'' 
exception; however, the Exchange believes that the amended information 
barrier requirements bring the rule further in line with the customer 
protection rule requirements of other self-regulatory organizations. In 
addition, the Exchange believes the information barriers, as amended, 
will be sufficiently adequate to allow Trading Permit Holders to avail 
themselves of the ``no-knowledge'' exception. The Exchange also 
believes that the additional requirement to maintain records of orders 
that rely on the ``no-knowledge'' exception is consistent with 
requirements already imposed on market participants and thus will not 
impose any additional burdens on Trading Permit Holders.
---------------------------------------------------------------------------

    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ Id.
---------------------------------------------------------------------------

    The Commission believes that the waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because the proposed rule will harmonize the Exchange's 
customer order protection rules with the rules of other self-regulatory 
organizations,\17\ and that the requirements that the Exchange's rules 
impose on Trading Permit Holders will continue to ensure that customer 
orders are afforded sufficient protection. Therefore, the Commission 
designates the proposal operative upon filing.\18\
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    \17\ See supra note 11.
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has 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 the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml ); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2013-074 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-2013-074. 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 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 CBOE. 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-2013-074, and should be submitted on or before 
August 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17862 Filed 7-24-13; 8:45 am]
BILLING CODE 8011-01-P
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