Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Market-Maker Quoting Obligations, 46282-46285 [2014-18650]
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Federal Register / Vol. 79, No. 152 / Thursday, August 7, 2014 / Notices
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[Release No. 34–72742; File No. SR–CBOE–
2014–059]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating To Amend
Market-Maker Quoting Obligations
August 1, 2014.
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 22,
2014, Chicago Board Options Exchange,
Incorporated (the ‘‘Exchange’’ or
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 79, No. 152 / Thursday, August 7, 2014 / Notices
‘‘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 Substance of
the Proposed Rule Change
The Exchange proposes to amend its
rules regarding Market-Maker quoting
obligations. The text of the proposed
rule change is available on the
Exchange’s Web site (https://
www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend Rules 1.1(ccc), 8.7,
8.13, 8.15A, and 8.85: (i) To provide that
compliance with continuous quoting
obligations apply to Market-Makers’
appointed classes collectively and (ii) to
provide that the Exchange will
determine Market-Makers’ compliance
with continuous quoting obligations on
a monthly basis. These changes do not
substantially change Market-Makers’
quoting obligations and make CBOE’s
Market-Maker obligations more
consistent with market-maker
obligations at other options exchanges.
The proposed rule change only changes
how and when the Exchange determines
a Market-Maker’s compliance with
continuous quoting obligations.
Collective Application
Rule 1.1(ccc) currently provides that a
Market-Maker who is obligated to
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provide continuous electronic quotes on
the Exchange’s Hybrid Trading System
will be deemed to have provided
continuous electronic quotes if the
Market-Maker provides electronic twosided quotes for 90% of the time that
the Market-Maker is required to provide
electronic quotes in an appointed option
class on a given trading day.3 Rules 8.7,
8.13, 8.15A, and 8.85 impose the
following continuous electronic quoting
obligations on Market-Makers, Preferred
Market-Makers (‘‘PMMs’’), Lead MarketMakers (‘‘LMMs’’), and Designated
Primary Market-Makers (‘‘DPMs’’),
respectively (collectively, ‘‘MarketMakers’’ unless the context otherwise
requires): 4
• Rule 8.7(d)(ii)(B) requires MarketMakers to provide continuous electronic
quotes when quoting in a particular
class on a given trading day in 60% of
the non-adjusted option series of the
Market-Maker’s appointed class that
have a time to expiration of less than
nine months; 5
• Rule 8.13(d) requires PMMs to
provide continuous electronic quotes
when the Exchange is open for trading
in at least the lesser of 99% of the nonadjusted option series that have a time
to expiration of less than nine months
or 100% of the non-adjusted option
series that have a time to expiration of
less than nine months minus one callput pair 6 of each class for which it
receives Preferred Market-Maker orders;
• Rule 8.15A(b)(i) requires LMMs to
provide continuous electronic quotes
when the Exchange is open for trading
in at least the lesser of 99% of the nonadjusted option series or 100% of the
non-adjusted option series minus one
3 Rule 1.1(ccc) also provides that if a technical
failure or limitation of a system of the Exchange
prevents a Market-Maker from maintaining or
communicating to the Exchange timely and
accurate electronic quotes in a class, the duration
of such failure will not be considered in
determining whether the Market-Maker has
satisfied the 90% quoting standard with respect to
that class. The Exchange may consider other
exceptions to this continuous electronic quote
obligation based on demonstrated legal or
regulatory requirements or other mitigating
circumstances.
4 Rule 8.15 imposes obligations on LMMs in
Hybrid 3.0 classes. The Exchange intends to
propose similar changes to those obligations in a
separate rule filing that will update those
obligations, including codify Hybrid 3.0 LMMs’
continuous quoting obligations.
5 This obligation applies in classes to which a
Market-Maker is appointed and transacts more than
20% of its contract volume electronically. The
proposed rule change makes nonsubstantive,
technical changes to the introductory language and
headings in Rule 8.7(d) that are consistent with the
existing rule text in that paragraph.
6 A ‘‘call-put’’ pair refers to one call and one put
that cover the same underlying instrument and have
the same expiration date and exercise price.
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call-put pair within their assigned
classes; and
• Rule 8.85(a)(i) requires DPMs to
provide continuous electronic quotes
when the Exchange is open for trading
in at least the lesser of 99% of the nonadjusted option series or 100% of the
non-adjusted option series minus one
call-put pair in each of their allocated
classes.
These continuous electronic quoting
obligations do not apply to intra-day
add-on series on the day during which
such series are added for trading.
CBOE proposes to amend Rules
1.1(ccc),7 8.7(d)(ii)(B), 8.13(d),
8.15A(b)(i), and 8.85(a)(i) to provide that
the continuous electronic quoting
obligation for Market-Makers will be
applied collectively across all classes in
which the Market-Maker has
appointments (as discussed above, with
respect to each Market-Maker type as
the Market-Maker is approved to act),
rather than on a class-by-class basis.8
7 The proposed rule change indicates that the
quoting obligation applies collectively with respect
to each Market-Maker type as the Hybrid MarketMaker is approved to act. As this rule filing
demonstrates, the Exchange has several types of
Market-Makers, each of which has separate quoting
obligations. Thus, the collective application of the
continuous quoting obligation applies to classes for
each Market-Maker type (i.e. classes for which the
Market-Maker has the same quoting obligation). For
example, if a Market-Maker is a Trading Permit
Holder organization with appointments in ten
classes, with 100 series in each, for a total of 1,000
series (with an obligation to quote in 60% of the
series in those classes 90% of the time it is quoting
in those classes) and acts as a DPM in three classes,
with 100 series in each, for a total of 300 series
(with an obligation to quote the lesser of 99% of the
series or 100% of the series minus one call-put pair
in those classes 90% of the time), for purposes of
compliance with the continuous quoting obligation,
the Trading Permit Holder must quote in 600 series
(or 60% of the series) in the ten Market-Maker
classes collectively for 90% of the time it is quoting
in those classes and 297 series (or 99% of the series)
in the three DPM classes collectively for 90% of the
trading day. While other exchanges do not
explicitly state this in their rules, the Exchange
believes this is consistent with the application of
those exchanges’ rules, as it would not be possible
to apply the collective standard across classes for
which a Market-Maker has different quoting
obligations.
8 With respect to Rule 8.7(d)(ii)(B), the proposed
rule change indicates that it applies collectively to
all appointed classes for which it must maintain
continuous electronic quotes (i.e. those classes in
which the Market-Maker transacts more than 20%
of its contract volume electronically). The proposed
rule change makes a corresponding change to Rule
8.7(d)(iii), including adding an example to
demonstrate the collective application of the
continuous electronic quoting obligation for
Market-Makers. The proposed rule change makes
corresponding changes to Rule 8.13(d) to delete rule
text that a PMM must quote the specified
percentage of series in each class it receives PMM
orders, to Rule 8.15A(b)(ii) [sic] to delete rule text
that an LMM must quote the specified percentage
of series within its assigned classes, and to Rule
8.85(a)(i) to delete rule text that a DPM must quote
the specified percentage of series in each class
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Federal Register / Vol. 79, No. 152 / Thursday, August 7, 2014 / Notices
The Exchange believes that applying the
continuous electronic quoting
requirements for Market-Makers
collectively across all classes is a fair
and efficient way for the Exchange and
market participants to evaluate
compliance with the continuous
electronic quoting obligation. Applying
the continuous electronic quoting
requirements collectively across all
classes rather than on a class-by-class
basis is beneficial to Market-Makers by
providing some flexibility to choose
which series in their appointed classes
they will continuously electronically
quote—increasing the continuous
electronic quoting in the series of one
class while allowing for a decrease in
the continuous electronic quoting in the
series of another class. This flexibility,
however, does not diminish the MarketMaker’s obligation to continuously
electronically quote in a significant
percentage of series for a significant part
of the trading day. This flexibility is
especially important for classes that
have relatively few series and may
prevent a Market-Maker from reaching
the continuous electronic quoting
obligation when failing to quote 90% of
the trading day in more than one series
in an appointed class. The Exchange
believes that the proposed rule change
will not diminish, and may in fact
increase, market-making activity on the
Exchange, by applying continuous
electronic quoting obligations in a
reasonable manner, which is already in
place on other options exchanges.9
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Monthly Compliance
The continuous electronic quoting
obligations described above apply on a
daily basis. CBOE proposes to amend
Rules 1.1(ccc), 8.7(d)(iii), 8.13(d),
8.15A(b)(i), and 8.85(a)(i) to provide that
the Exchange will determine
compliance by Market-Makers with
continuous electronic quoting
obligations on a monthly basis.10
allocated to it. This language is no longer applicable
given the proposed collectively application of the
continuous quoting obligation.
9 See, e.g., Box Options Exchange, LLC (‘‘BOX’’)
Rule 8050(e); International Securities Exchange,
LLC (‘‘ISE’’) Rule 804, Supplementary Material .01;
Miami International Securities Exchange, LLC
(‘‘MIAX’’) Rule 604(e); NYSE Arca, Inc. (‘‘NYSE
Arca’’) Options Rules 6.37B(b) and (c) and 6.88(iv);
and NYSE MKT LLC (‘‘NYSE MKT’’) Options Rules
925.1NY(b) and (c) and 964.1NY(iv).
10 The Exchange will continue to provide to
Market-Makers daily reports to enable them to
monitor their compliance with their quoting
obligations. On the basis of these daily reports, the
Exchange will continue to monitor Market-Maker
compliance on a daily basis and inform MarketMakers if they are failing to satisfy their quoting
obligations. Additionally, on the basis of this daily
monitoring activity, the Exchange can determine
whether Market-Makers violated any other
Exchange rules, such as Rule 4.1 regarding just and
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Determining compliance with these
quoting obligations does not relieve
Market-Makers from meeting these
quoting obligations on a daily basis, nor
does it prohibit the Exchange from
taking disciplinary action against
Market-Makers for failing to meet any of
these requirements each trading day.
Similar to the proposed rule change to
apply continuous electronic quoting
obligations to all classes collectively,
the Exchange believes that reviewing
compliance on a monthly basis is a fair
and more efficient way for the Exchange
and market participants to evaluate
compliance with these quoting
obligations. Reviewing compliance on a
monthly basis allows the Exchange to
review a Market-Maker’s daily
compliance in the aggregate and
determine the appropriate disciplinary
action for single or multiple compliance
failures during a one-month period.
CBOE believes that the proposed rule
change will not diminish, and in fact
may increase, market-making on the
Exchange by establishing quoting
compliance standards that are
reasonable and, with respect to
continuous electronic quoting
obligations, already in place on other
options exchanges.11 CBOE also
believes that determining compliance by
Market-Makers with all of these quoting
obligations on a monthly basis will
facilitate CBOE’s determination of
appropriate penalties or other remedial
measures for violation(s) of these
obligations.
The Exchange will announce the
implementation date of the proposed
rule change in a Regulatory Circular to
be published no later than 90 days
following the effective date. The
implementation date will be no later
than 180 days following the effective
date. Because the proposed change
provides for a monthly compliance
standard, the Exchange believes it is
appropriate for implementation of the
proposed rule change to occur on the
first trading day of a month.
Additionally, the implementation date
will provide sufficient time for the
Exchange to make any necessary
changes to its surveillances with respect
to continuous quoting obligations and
for Market-Makers to make any system
changes in connection with the
proposed collective standard.
equitable principles of trade. This daily monitoring
will allow the Exchange to investigate unusual
activity and to take appropriate regulatory action.
11 See, e.g., ISE Rule 804(e), Supplementary
Material .01; MIAX Rule 604(e); and NASDAQ
OMX PHLX LLC (‘‘PHLX’’) Rule 1014(b)(ii)(D)(1)
and (2).
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2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.12 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 13 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) 14 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The proposed rule change removes
impediments to and perfects the
mechanisms of a free and open market
and a national market system because it
is consistent with standards currently in
place on other options exchanges. With
respect to the application of continuous
electronic quoting obligations
collectively, the Exchange believes that
providing Market-Makers with
flexibility to satisfy their continuous
electronic quoting obligations
collectively across their appointed
classes will not diminish MarketMakers’ obligations to provide
continuous electronic quotes in a
significant percentage of series for a
significant part of the trading day. With
respect to the monthly compliance
standard, the Exchange believes that the
proposed rule change will enhance
compliance efforts by Market-Makers
and the Exchange. The Exchange
believes that determining compliance
with continuous electronic quoting
obligations on a monthly basis will
prevent fraudulent and manipulative
acts and practices and to promote just
and equitable principles of trade,
because it will increase regulatory
efficiency to the benefit of both the
Exchange and market participants. The
Exchange believes that the proposed
rule change will not diminish, and in
fact may increase, market-making
12 15
13 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
14 Id.
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emcdonald on DSK67QTVN1PROD with NOTICES
activity and liquidity on the Exchange
by establishing a quoting compliance
standard that is reasonable and is
already in place on other options
exchanges.
CBOE continues to believe that the
balance between the obligations
imposed on and benefits provided to
Market-Makers under the rules is
appropriate. The proposed rule change
does not diminish any of the obligations
imposed on Market-Makers. Rather, it
merely changes how the continuous
electronic quoting obligation is applied
and when the Exchange determines
compliance with continuous electronic
quoting obligations. The Exchange notes
that Market-Makers are subject to many
obligations under the rules, including
the obligation to satisfy bid/ask
differential requirements, to meet
minimum quote size requirements, and
to contribute to the maintenance of a
fair and orderly market in their
appointed classes, which the Exchange
believes will ensure continued liquidity
on the Exchange. CBOE believes that its
proposed rule change is consistent with
the Act in that providing flexibility does
not detract from the overall marketmaking obligations of Market-Makers.
The proposed rule change better
supports a Market-Maker’s continuous
obligation to engage in dealings for its
own account. Accordingly, any benefits
of the proposed rule change to provide
flexibility to Market-Makers are offset by
the continued responsibilities to
provide significant liquidity to the
market to the benefit of all market
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. The
proposed rule change applies to all
Market-Makers. All Market-Makers may
benefit from the flexibility provided by
the proposed rule change, which benefit
is offset by the continued
responsibilities to provide significant
liquidity to the market to the benefit of
all market participants. The proposed
rule change to the compliance standard
does not change the obligations imposed
on Market-Makers; it merely changes the
time at which the Exchange will
determine compliance with these
obligations. The proposed rule change is
substantially similar to rules in place at
other options exchanges, which the
Exchange believes may enhance, rather
than burden, competition among the
options exchanges. CBOE is better able
to compete for liquidity providers when
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its Market-Maker obligations are
consistent with those of other options
exchanges, which may increase
competition and liquidity on CBOE.
Market participants on other exchanges
are welcome to trade at CBOE if they
determine that this proposed rule
change has made CBOE more attractive
or favorable to them.
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
The Exchange has filed the proposed
rule change pursuant to paragraph (A) of
section 19(b)(3) of the Exchange Act 15
and Rule 19b–4(f)(6) thereunder.16
Because the 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 after the date of
the filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
Section 19(b)(3)(A) of the Act 17 and
Rule 19b–4(f)(6)(iii) thereunder.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 necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
15 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change along with a brief
description and the text of 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 pre-filing requirement.
17 15 U.S.C. 78s(b)(3)(A).
18 17 CFR 240.19b–4(f)(6)(iii).
16 17
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46285
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–2014–059 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2014–059. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE–
2014–059 and should be submitted on
or before August 28, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014–18650 Filed 8–6–14; 8:45 am]
BILLING CODE 8011–01–P
19 17
E:\FR\FM\07AUN1.SGM
CFR 200.30–3(a)(12).
07AUN1
]]>Agencies
[Federal Register Volume 79, Number 152 (Thursday, August 7, 2014)]
[Notices]
[Pages 46282-46285]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18650]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72742; File No. SR-CBOE-2014-059]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating To Amend Market-Maker Quoting Obligations
August 1, 2014.
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 22, 2014, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or
[[Page 46283]]
``CBOE'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its rules regarding Market-Maker
quoting obligations. The text of the proposed rule change is available
on the Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission'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
The purpose of the proposed rule change is to amend Rules 1.1(ccc),
8.7, 8.13, 8.15A, and 8.85: (i) To provide that compliance with
continuous quoting obligations apply to Market-Makers' appointed
classes collectively and (ii) to provide that the Exchange will
determine Market-Makers' compliance with continuous quoting obligations
on a monthly basis. These changes do not substantially change Market-
Makers' quoting obligations and make CBOE's Market-Maker obligations
more consistent with market-maker obligations at other options
exchanges. The proposed rule change only changes how and when the
Exchange determines a Market-Maker's compliance with continuous quoting
obligations.
Collective Application
Rule 1.1(ccc) currently provides that a Market-Maker who is
obligated to provide continuous electronic quotes on the Exchange's
Hybrid Trading System will be deemed to have provided continuous
electronic quotes if the Market-Maker provides electronic two-sided
quotes for 90% of the time that the Market-Maker is required to provide
electronic quotes in an appointed option class on a given trading
day.\3\ Rules 8.7, 8.13, 8.15A, and 8.85 impose the following
continuous electronic quoting obligations on Market-Makers, Preferred
Market-Makers (``PMMs''), Lead Market-Makers (``LMMs''), and Designated
Primary Market-Makers (``DPMs''), respectively (collectively, ``Market-
Makers'' unless the context otherwise requires): \4\
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\3\ Rule 1.1(ccc) also provides that if a technical failure or
limitation of a system of the Exchange prevents a Market-Maker from
maintaining or communicating to the Exchange timely and accurate
electronic quotes in a class, the duration of such failure will not
be considered in determining whether the Market-Maker has satisfied
the 90% quoting standard with respect to that class. The Exchange
may consider other exceptions to this continuous electronic quote
obligation based on demonstrated legal or regulatory requirements or
other mitigating circumstances.
\4\ Rule 8.15 imposes obligations on LMMs in Hybrid 3.0 classes.
The Exchange intends to propose similar changes to those obligations
in a separate rule filing that will update those obligations,
including codify Hybrid 3.0 LMMs' continuous quoting obligations.
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Rule 8.7(d)(ii)(B) requires Market-Makers to provide
continuous electronic quotes when quoting in a particular class on a
given trading day in 60% of the non-adjusted option series of the
Market-Maker's appointed class that have a time to expiration of less
than nine months; \5\
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\5\ This obligation applies in classes to which a Market-Maker
is appointed and transacts more than 20% of its contract volume
electronically. The proposed rule change makes nonsubstantive,
technical changes to the introductory language and headings in Rule
8.7(d) that are consistent with the existing rule text in that
paragraph.
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Rule 8.13(d) requires PMMs to provide continuous
electronic quotes when the Exchange is open for trading in at least the
lesser of 99% of the non-adjusted option series that have a time to
expiration of less than nine months or 100% of the non-adjusted option
series that have a time to expiration of less than nine months minus
one call-put pair \6\ of each class for which it receives Preferred
Market-Maker orders;
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\6\ A ``call-put'' pair refers to one call and one put that
cover the same underlying instrument and have the same expiration
date and exercise price.
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Rule 8.15A(b)(i) requires LMMs to provide continuous
electronic quotes when the Exchange is open for trading in at least the
lesser of 99% of the non-adjusted option series or 100% of the non-
adjusted option series minus one call-put pair within their assigned
classes; and
Rule 8.85(a)(i) requires DPMs to provide continuous
electronic quotes when the Exchange is open for trading in at least the
lesser of 99% of the non-adjusted option series or 100% of the non-
adjusted option series minus one call-put pair in each of their
allocated classes.
These continuous electronic quoting obligations do not apply to intra-
day add-on series on the day during which such series are added for
trading.
CBOE proposes to amend Rules 1.1(ccc),\7\ 8.7(d)(ii)(B), 8.13(d),
8.15A(b)(i), and 8.85(a)(i) to provide that the continuous electronic
quoting obligation for Market-Makers will be applied collectively
across all classes in which the Market-Maker has appointments (as
discussed above, with respect to each Market-Maker type as the Market-
Maker is approved to act), rather than on a class-by-class basis.\8\
[[Page 46284]]
The Exchange believes that applying the continuous electronic quoting
requirements for Market-Makers collectively across all classes is a
fair and efficient way for the Exchange and market participants to
evaluate compliance with the continuous electronic quoting obligation.
Applying the continuous electronic quoting requirements collectively
across all classes rather than on a class-by-class basis is beneficial
to Market-Makers by providing some flexibility to choose which series
in their appointed classes they will continuously electronically
quote--increasing the continuous electronic quoting in the series of
one class while allowing for a decrease in the continuous electronic
quoting in the series of another class. This flexibility, however, does
not diminish the Market-Maker's obligation to continuously
electronically quote in a significant percentage of series for a
significant part of the trading day. This flexibility is especially
important for classes that have relatively few series and may prevent a
Market-Maker from reaching the continuous electronic quoting obligation
when failing to quote 90% of the trading day in more than one series in
an appointed class. The Exchange believes that the proposed rule change
will not diminish, and may in fact increase, market-making activity on
the Exchange, by applying continuous electronic quoting obligations in
a reasonable manner, which is already in place on other options
exchanges.\9\
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\7\ The proposed rule change indicates that the quoting
obligation applies collectively with respect to each Market-Maker
type as the Hybrid Market-Maker is approved to act. As this rule
filing demonstrates, the Exchange has several types of Market-
Makers, each of which has separate quoting obligations. Thus, the
collective application of the continuous quoting obligation applies
to classes for each Market-Maker type (i.e. classes for which the
Market-Maker has the same quoting obligation). For example, if a
Market-Maker is a Trading Permit Holder organization with
appointments in ten classes, with 100 series in each, for a total of
1,000 series (with an obligation to quote in 60% of the series in
those classes 90% of the time it is quoting in those classes) and
acts as a DPM in three classes, with 100 series in each, for a total
of 300 series (with an obligation to quote the lesser of 99% of the
series or 100% of the series minus one call-put pair in those
classes 90% of the time), for purposes of compliance with the
continuous quoting obligation, the Trading Permit Holder must quote
in 600 series (or 60% of the series) in the ten Market-Maker classes
collectively for 90% of the time it is quoting in those classes and
297 series (or 99% of the series) in the three DPM classes
collectively for 90% of the trading day. While other exchanges do
not explicitly state this in their rules, the Exchange believes this
is consistent with the application of those exchanges' rules, as it
would not be possible to apply the collective standard across
classes for which a Market-Maker has different quoting obligations.
\8\ With respect to Rule 8.7(d)(ii)(B), the proposed rule change
indicates that it applies collectively to all appointed classes for
which it must maintain continuous electronic quotes (i.e. those
classes in which the Market-Maker transacts more than 20% of its
contract volume electronically). The proposed rule change makes a
corresponding change to Rule 8.7(d)(iii), including adding an
example to demonstrate the collective application of the continuous
electronic quoting obligation for Market-Makers. The proposed rule
change makes corresponding changes to Rule 8.13(d) to delete rule
text that a PMM must quote the specified percentage of series in
each class it receives PMM orders, to Rule 8.15A(b)(ii) [sic] to
delete rule text that an LMM must quote the specified percentage of
series within its assigned classes, and to Rule 8.85(a)(i) to delete
rule text that a DPM must quote the specified percentage of series
in each class allocated to it. This language is no longer applicable
given the proposed collectively application of the continuous
quoting obligation.
\9\ See, e.g., Box Options Exchange, LLC (``BOX'') Rule 8050(e);
International Securities Exchange, LLC (``ISE'') Rule 804,
Supplementary Material .01; Miami International Securities Exchange,
LLC (``MIAX'') Rule 604(e); NYSE Arca, Inc. (``NYSE Arca'') Options
Rules 6.37B(b) and (c) and 6.88(iv); and NYSE MKT LLC (``NYSE MKT'')
Options Rules 925.1NY(b) and (c) and 964.1NY(iv).
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Monthly Compliance
The continuous electronic quoting obligations described above apply
on a daily basis. CBOE proposes to amend Rules 1.1(ccc), 8.7(d)(iii),
8.13(d), 8.15A(b)(i), and 8.85(a)(i) to provide that the Exchange will
determine compliance by Market-Makers with continuous electronic
quoting obligations on a monthly basis.\10\ Determining compliance with
these quoting obligations does not relieve Market-Makers from meeting
these quoting obligations on a daily basis, nor does it prohibit the
Exchange from taking disciplinary action against Market-Makers for
failing to meet any of these requirements each trading day.
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\10\ The Exchange will continue to provide to Market-Makers
daily reports to enable them to monitor their compliance with their
quoting obligations. On the basis of these daily reports, the
Exchange will continue to monitor Market-Maker compliance on a daily
basis and inform Market-Makers if they are failing to satisfy their
quoting obligations. Additionally, on the basis of this daily
monitoring activity, the Exchange can determine whether Market-
Makers violated any other Exchange rules, such as Rule 4.1 regarding
just and equitable principles of trade. This daily monitoring will
allow the Exchange to investigate unusual activity and to take
appropriate regulatory action.
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Similar to the proposed rule change to apply continuous electronic
quoting obligations to all classes collectively, the Exchange believes
that reviewing compliance on a monthly basis is a fair and more
efficient way for the Exchange and market participants to evaluate
compliance with these quoting obligations. Reviewing compliance on a
monthly basis allows the Exchange to review a Market-Maker's daily
compliance in the aggregate and determine the appropriate disciplinary
action for single or multiple compliance failures during a one-month
period. CBOE believes that the proposed rule change will not diminish,
and in fact may increase, market-making on the Exchange by establishing
quoting compliance standards that are reasonable and, with respect to
continuous electronic quoting obligations, already in place on other
options exchanges.\11\ CBOE also believes that determining compliance
by Market-Makers with all of these quoting obligations on a monthly
basis will facilitate CBOE's determination of appropriate penalties or
other remedial measures for violation(s) of these obligations.
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\11\ See, e.g., ISE Rule 804(e), Supplementary Material .01;
MIAX Rule 604(e); and NASDAQ OMX PHLX LLC (``PHLX'') Rule
1014(b)(ii)(D)(1) and (2).
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The Exchange will announce the implementation date of the proposed
rule change in a Regulatory Circular to be published no later than 90
days following the effective date. The implementation date will be no
later than 180 days following the effective date. Because the proposed
change provides for a monthly compliance standard, the Exchange
believes it is appropriate for implementation of the proposed rule
change to occur on the first trading day of a month. Additionally, the
implementation date will provide sufficient time for the Exchange to
make any necessary changes to its surveillances with respect to
continuous quoting obligations and for Market-Makers to make any system
changes in connection with the proposed collective standard.
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.\12\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \13\ 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) \14\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
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The proposed rule change removes impediments to and perfects the
mechanisms of a free and open market and a national market system
because it is consistent with standards currently in place on other
options exchanges. With respect to the application of continuous
electronic quoting obligations collectively, the Exchange believes that
providing Market-Makers with flexibility to satisfy their continuous
electronic quoting obligations collectively across their appointed
classes will not diminish Market-Makers' obligations to provide
continuous electronic quotes in a significant percentage of series for
a significant part of the trading day. With respect to the monthly
compliance standard, the Exchange believes that the proposed rule
change will enhance compliance efforts by Market-Makers and the
Exchange. The Exchange believes that determining compliance with
continuous electronic quoting obligations on a monthly basis will
prevent fraudulent and manipulative acts and practices and to promote
just and equitable principles of trade, because it will increase
regulatory efficiency to the benefit of both the Exchange and market
participants. The Exchange believes that the proposed rule change will
not diminish, and in fact may increase, market-making
[[Page 46285]]
activity and liquidity on the Exchange by establishing a quoting
compliance standard that is reasonable and is already in place on other
options exchanges.
CBOE continues to believe that the balance between the obligations
imposed on and benefits provided to Market-Makers under the rules is
appropriate. The proposed rule change does not diminish any of the
obligations imposed on Market-Makers. Rather, it merely changes how the
continuous electronic quoting obligation is applied and when the
Exchange determines compliance with continuous electronic quoting
obligations. The Exchange notes that Market-Makers are subject to many
obligations under the rules, including the obligation to satisfy bid/
ask differential requirements, to meet minimum quote size requirements,
and to contribute to the maintenance of a fair and orderly market in
their appointed classes, which the Exchange believes will ensure
continued liquidity on the Exchange. CBOE believes that its proposed
rule change is consistent with the Act in that providing flexibility
does not detract from the overall market-making obligations of Market-
Makers. The proposed rule change better supports a Market-Maker's
continuous obligation to engage in dealings for its own account.
Accordingly, any benefits of the proposed rule change to provide
flexibility to Market-Makers are offset by the continued
responsibilities to provide significant liquidity to the market to the
benefit of all market 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. The proposed rule change
applies to all Market-Makers. All Market-Makers may benefit from the
flexibility provided by the proposed rule change, which benefit is
offset by the continued responsibilities to provide significant
liquidity to the market to the benefit of all market participants. The
proposed rule change to the compliance standard does not change the
obligations imposed on Market-Makers; it merely changes the time at
which the Exchange will determine compliance with these obligations.
The proposed rule change is substantially similar to rules in place at
other options exchanges, which the Exchange believes may enhance,
rather than burden, competition among the options exchanges. CBOE is
better able to compete for liquidity providers when its Market-Maker
obligations are consistent with those of other options exchanges, which
may increase competition and liquidity on CBOE. Market participants on
other exchanges are welcome to trade at CBOE if they determine that
this proposed rule change has made CBOE more attractive or favorable to
them.
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
The Exchange has filed the proposed rule change pursuant to
paragraph (A) of section 19(b)(3) of the Exchange Act \15\ and Rule
19b-4(f)(6) thereunder.\16\ Because the 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 after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A) of the Act
\17\ and Rule 19b-4(f)(6)(iii) thereunder.\18\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change along with a
brief description and the text of 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 pre-filing requirement.
\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2014-059 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2014-059. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2014-059 and should be
submitted on or before August 28, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-18650 Filed 8-6-14; 8:45 am]
BILLING CODE 8011-01-P
