Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change, as Modified by Amendment 1, To Amend Its Rules Related to Complex Orders, 53798-53799 [2014-21519]

Download as PDF 53798 Federal Register / Vol. 79, No. 175 / Wednesday, September 10, 2014 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72986; File No. SR–CBOE– 2014–017] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change, as Modified by Amendment 1, To Amend Its Rules Related to Complex Orders September 4, 2014. I. Introduction On February 19, 2014, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend its rules relating to complex orders. On March 3, 2014, the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change, as modified by Amendment No. 1 thereto, was published for comment in the Federal Register on March 10, 2014.3 On April 23, 2014, the Commission extended the time period in which to either approve the proposal, disapprove the proposal, or to institute proceedings to determine whether to approve or disapprove the proposal, to June 6, 2014.4 On June 5, 2014, the Commission instituted proceedings to determine whether to approve or disapprove the proposed rule change.5 The Commission then received two comment letters on proposal.6 This order approves the proposed rule change. II. Description of Proposed Rule Change Under current CBOE Rule 6.53C(d)(ii), a Trading Permit Holder representing a COA-eligible order may request that the Exchange initiate a complex order auction (‘‘COA’’) for the COA-eligible order before such order enters the complex order book (‘‘COB’’).7 In this 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 71648 (March 5, 2014), 79 FR 13359 (‘‘Notice’’). 4 See Securities Exchange Act Release No. 72008, 79 FR 24032 (April 29, 2014). 5 See Securities Exchange Act Release No. 72329, 79 FR 33627 (June 11, 2014). 6 See letter to Kevin M. O’Neill, Deputy Secretary, Commission, from John Kinahan, Interim-CEO, Group One Trading, L.P., dated July, 7, 2014 (‘‘Group One Letter’’); and letter to the Office of the Secretary, Commission, from Martha Redding, Chief Counsel and Assistant Corporate Secretary, NYSE, Inc., dated July 10, 2014 (‘‘NYSE Letter’’). 7 Under current CBOE Rule 6.53C(d)(i)(2), the Exchange may determine on a class-by-class basis which complex orders are eligible for a COA, tkelley on DSK3SPTVN1PROD with NOTICES 2 17 VerDate Mar<15>2010 19:04 Sep 09, 2014 Jkt 232001 proposed rule change, the Exchange proposes to require all complex orders with three or more legs to be subject to a COA prior to entering the COB.8 Specifically, the Exchange proposes to amend Rule 6.53C(d)(ii) to provide that CBOE’s Hybrid Trading System 9 (the ‘‘System’’) will initiate a COA on receipt of: (1) A COA-eligible order with two legs and request from the Trading Permit Holder representing the order that it initiate a COA; or (2) a complex order with three or more legs, regardless of the order’s routing parameters (e.g., a request to route directly to the COB) or handling instructions (except for orders routed for manual handling).10 Thus, as proposed, all complex orders in Hybrid classes with three or more legs would automatically be subject to a COA (other than those routed for manual handling) prior to entering the COB where they can leg into the market.11 The Exchange proposes to amend CBOE Rule 6.53C(d)(ii) to provide that CBOE’s System will reject back to a Trading Permit Holder any complex order with three or more legs that includes a request pursuant to CBOE Rule 6.53C, Interpretation and Policy including by complex order type and origin type. The Exchange notes that currently, in all Hybrid classes, customer, firm and broker-dealer complex orders are eligible for a COA, and all complex order types except for immediate-or-cancel (‘‘IOC’’) orders are eligible for a COA in all Hybrid classes. See Notice, supra note 3, n.8. Additionally, only marketable orders and ‘‘tweeners’’ (limit orders bettering the same side of the derived net market) are eligible for a COA. For Hybrid 3.0 classes (i.e. SPX), all complex order types (including IOC orders) are eligible for a COA, but only customer complex orders are eligible for a COA. See id. (citing CBOE Regulatory Circulars RG06–73, RG08– 38, and RG08–97). 8 The Exchange explains that this proposed change applies to Hybrid classes only, and not Hybrid 3.0 classes. See Notice, supra note 3, n.7. In this regard, the proposed rule change proposes to amend CBOE Rule 6.53C, Interpretation and Policy .10 to indicate that complex orders in Hybrid 3.0 classes, regardless of the number of legs, will initiate a COA in the same manner they currently do. See id. 9 The proposed rule change proposes to amend CBOE Rule 6.53C(d)(ii) to say that the System, rather than the Exchange, will send the RFR message. See id. at n.9. Because the System will automatically send the RFR message when the conditions set forth in CBOE Rule 6.53C(d)(ii) are met, the Exchange believes using the term ‘‘System’’ in the rule text is appropriate. See id. 10 The Exchange explains that if a complex order with three or more legs contains an instruction to route for manual handling, such as to PAR, and through such manual handling routes to the COB, the proposed rule change would provide that such order will initiate a COA prior to entry on the COB, even if the PAR operator requests that the order not initiate a COA. See Notice, supra note 3, n.10. 11 The Exchange states that this automatic initiation of a COA does not apply to stock-option orders. See id. at n.11. PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 .04 12 that the order not initiate a COA.13 The Exchange also proposes to amend CBOE Rule 6.53C(d)(ii), which currently provides that only a Trading Permit Holder representing an order may request that the order initiate a COA, to also provide that PAR operators handling an order may request that a COA-eligible order initiate a COA.14 According to the Exchange, this proposed rule change will address the concern that market makers may reduce the size of their quotations in the leg markets because of the presence of certain complex orders that are designed to circumvent the ‘‘Quote Risk Monitor Mechanism’’ (‘‘QRM’’) settings established by market makers.15 CBOE describes the QRM as a functionality designed to help market makers provide liquidity across most series in their appointed classes without being at risk of executing the full cumulative size of all their quotes before being given adequate opportunity to adjust their quotes.16 The QRM, according to CBOE, generally operates by allowing market makers to set a variety of parameters, which, if triggered, will cause the System to cancel a market maker’s quotes in all series in an appointed class after executing the order that triggered the parameter.17 CBOE states that the System performs the QRM parameter calculations to determine if the QRM has been triggered after each execution against a market maker’s quotes.18 According to the Exchange, when a complex order legs into the regular market (i.e., executes against individual quotes for each of the legs in the regular market), all of the legs of a complex order are considered as a single execution for purposes of the QRM, and 12 CBOE Rule 6.53C, Interpretation and Policy .04 provides that Trading Permit Holders routing complex orders directly to the COB may request that the complex orders initiate a COA on a classby-class basis and Trading Permit Holders with resting complex orders on PAR may request that complex orders initiate a COA on an order-by-order basis. 13 See Notice, supra note 3, at 13362. 14 CBOE believes that permitting orders resting on PAR to initiate a COA is consistent with other CBOE rules. See id. at n. 15 and accompanying text (citing to CBOE Rule 6.53C(d), which, according to the Exchange, states that complex orders may be subject to a COA once on PAR, and CBOE Rule 6.53C, Interpretation and Policy .04(a), which, according to the Exchange, states that Trading Permit Holders with resting complex orders on PAR may request that complex orders initiate a COA). 15 See Notice, supra note 3, at 13363. 16 See id. at 13361. 17 See id. at 13360–61. CBOE states that the System performs the parameter calculations after an execution against a market maker quote occurs in order to assure that all quotations are firm for their full size. See id. at 13361. 18 See id. E:\FR\FM\10SEN1.SGM 10SEN1 53799 Federal Register / Vol. 79, No. 175 / Wednesday, September 10, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES not as a series of individual transactions, because each leg of the complex order is contingent on the other leg.19 Thus, the System performs the QRM parameter calculations after the entire complex order executes against interest in the regular market. In contrast, if the legs of the complex order had been submitted to the regular market separately and without any complex order contingency, the System would perform the QRM parameter calculations after each leg executed against interest in the regular market. According to the Exchange, this differential treatment may result in market makers exceeding their risk parameters by a greater number of contracts when complex orders leg into the regular market.20 The Exchange believes that the potential risk to market makers of complex orders legging into the regular market limits the amount of liquidity that market makers are willing to provide in the regular market.21 In particular, according to the Exchange, market makers may reduce the size of their quotations in the regular market because of the presence of these complex orders that are designed to circumvent QRM and risk the execution of the cumulative size of market makers’ quotations across multiple series without market makers’ being aware of these complex orders or having an opportunity to adjust their quotes.22 Accordingly, the Exchange believes that reducing market maker risk in the regular market by requiring complex orders in Hybrid classes with three or more legs to be subject to a COA— which will allow market makers to react accordingly, including adjusting their quotes to avoid the circumvention of their QRM parameter settings—will benefit investors by encouraging market makers to provide additional liquidity in the regular market and enhance competition in those classes.23 According to the Exchange, this potential benefit to investors far exceeds any ‘‘perceived detriment’’ to requiring certain complex orders to be subject to a COA prior to potential interaction with the leg markets.24 The Exchange notes that complex orders with three or more legs will still have opportunities for execution through a COA, in the COB or in the leg markets if they do not execute at the end of the COA.25 19 See id. id. 21 See Notice, supra note 3, at 13362. 22 See id. 23 See id. 24 See id. 25 See id. 20 See VerDate Mar<15>2010 19:04 Sep 09, 2014 Jkt 232001 In the Notice, the Exchange states that it 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 of this proposed rule change.26 The Exchange also states that the implementation date will be no later than 180 days following the effective date of this proposed rule change.27 V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,33 that the proposed rule change (SR–CBOE–2014– 017) is approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 Kevin M. O’Neill, Deputy Secretary. III. Summary of Comment Letters [FR Doc. 2014–21519 Filed 9–9–14; 8:45 am] As noted above, the Commission received two comments, both expressing support for the proposed rule change.28 One commenter stated that it believes CBOE’s proposal is a reasonable response to the problem of complex orders circumventing market makers QRM parameters.29 The other commenter stated that it believes that the proposal will allow market makers to better rely on the Exchange’s QRM to remove quotes when a market makers risk tolerance is exceed, which, according to the commenter, will allow market makers to provide quotations with large sizes and tight spreads.30 BILLING CODE 8011–01–P IV. Discussion and Commission Findings 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 August 28, 2014, 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. After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.31 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,32 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that participating in a COA will provide complex orders with three or more legs an opportunity for price improvement through the auction mechanism. The Commission also notes that both commenters expressed support for the proposal. 26 See Notice, supra note 3, at 13363. id. 28 See supra note 6. 29 See NYSE Letter, supra note 6, at 2. 30 See Group One Letter, supra note 6, at 2. 31 In approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 32 15 U.S.C. 78f(b)(5). 27 See PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72990; File No. SR–CBOE– 2014–068] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Strike Setting Regimes for SPY and DIA Options September 4, 2014. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Interpretation .08 to Rule 5.5 (Series of Option Contracts Open for Trading) to modify the strike setting regimes for options on The Standard & Poor’s Depository Receipts Trust (‘‘SPY’’) and The DIAMONDS Trust (‘‘DIA’’). The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * Chicago Board Options Exchange, Incorporated Rules * * * 33 15 * U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 34 17 E:\FR\FM\10SEN1.SGM 10SEN1 *

Agencies

[Federal Register Volume 79, Number 175 (Wednesday, September 10, 2014)]
[Notices]
[Pages 53798-53799]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-21519]



[[Page 53798]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72986; File No. SR-CBOE-2014-017]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving a Proposed Rule Change, as Modified by 
Amendment 1, To Amend Its Rules Related to Complex Orders

September 4, 2014.

I. Introduction

    On February 19, 2014, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend its rules relating to 
complex orders. On March 3, 2014, the Exchange filed Amendment No. 1 to 
the proposed rule change. The proposed rule change, as modified by 
Amendment No. 1 thereto, was published for comment in the Federal 
Register on March 10, 2014.\3\ On April 23, 2014, the Commission 
extended the time period in which to either approve the proposal, 
disapprove the proposal, or to institute proceedings to determine 
whether to approve or disapprove the proposal, to June 6, 2014.\4\ On 
June 5, 2014, the Commission instituted proceedings to determine 
whether to approve or disapprove the proposed rule change.\5\ The 
Commission then received two comment letters on proposal.\6\ This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 71648 (March 5, 
2014), 79 FR 13359 (``Notice'').
    \4\ See Securities Exchange Act Release No. 72008, 79 FR 24032 
(April 29, 2014).
    \5\ See Securities Exchange Act Release No. 72329, 79 FR 33627 
(June 11, 2014).
    \6\ See letter to Kevin M. O'Neill, Deputy Secretary, 
Commission, from John Kinahan, Interim-CEO, Group One Trading, L.P., 
dated July, 7, 2014 (``Group One Letter''); and letter to the Office 
of the Secretary, Commission, from Martha Redding, Chief Counsel and 
Assistant Corporate Secretary, NYSE, Inc., dated July 10, 2014 
(``NYSE Letter'').
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II. Description of Proposed Rule Change

    Under current CBOE Rule 6.53C(d)(ii), a Trading Permit Holder 
representing a COA-eligible order may request that the Exchange 
initiate a complex order auction (``COA'') for the COA-eligible order 
before such order enters the complex order book (``COB'').\7\ In this 
proposed rule change, the Exchange proposes to require all complex 
orders with three or more legs to be subject to a COA prior to entering 
the COB.\8\ Specifically, the Exchange proposes to amend Rule 
6.53C(d)(ii) to provide that CBOE's Hybrid Trading System \9\ (the 
``System'') will initiate a COA on receipt of: (1) A COA-eligible order 
with two legs and request from the Trading Permit Holder representing 
the order that it initiate a COA; or (2) a complex order with three or 
more legs, regardless of the order's routing parameters (e.g., a 
request to route directly to the COB) or handling instructions (except 
for orders routed for manual handling).\10\ Thus, as proposed, all 
complex orders in Hybrid classes with three or more legs would 
automatically be subject to a COA (other than those routed for manual 
handling) prior to entering the COB where they can leg into the 
market.\11\
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    \7\ Under current CBOE Rule 6.53C(d)(i)(2), the Exchange may 
determine on a class-by-class basis which complex orders are 
eligible for a COA, including by complex order type and origin type. 
The Exchange notes that currently, in all Hybrid classes, customer, 
firm and broker-dealer complex orders are eligible for a COA, and 
all complex order types except for immediate-or-cancel (``IOC'') 
orders are eligible for a COA in all Hybrid classes. See Notice, 
supra note 3, n.8. Additionally, only marketable orders and 
``tweeners'' (limit orders bettering the same side of the derived 
net market) are eligible for a COA. For Hybrid 3.0 classes (i.e. 
SPX), all complex order types (including IOC orders) are eligible 
for a COA, but only customer complex orders are eligible for a COA. 
See id. (citing CBOE Regulatory Circulars RG06-73, RG08-38, and 
RG08-97).
    \8\ The Exchange explains that this proposed change applies to 
Hybrid classes only, and not Hybrid 3.0 classes. See Notice, supra 
note 3, n.7. In this regard, the proposed rule change proposes to 
amend CBOE Rule 6.53C, Interpretation and Policy .10 to indicate 
that complex orders in Hybrid 3.0 classes, regardless of the number 
of legs, will initiate a COA in the same manner they currently do. 
See id.
    \9\ The proposed rule change proposes to amend CBOE Rule 
6.53C(d)(ii) to say that the System, rather than the Exchange, will 
send the RFR message. See id. at n.9. Because the System will 
automatically send the RFR message when the conditions set forth in 
CBOE Rule 6.53C(d)(ii) are met, the Exchange believes using the term 
``System'' in the rule text is appropriate. See id.
    \10\ The Exchange explains that if a complex order with three or 
more legs contains an instruction to route for manual handling, such 
as to PAR, and through such manual handling routes to the COB, the 
proposed rule change would provide that such order will initiate a 
COA prior to entry on the COB, even if the PAR operator requests 
that the order not initiate a COA. See Notice, supra note 3, n.10.
    \11\ The Exchange states that this automatic initiation of a COA 
does not apply to stock-option orders. See id. at n.11.
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    The Exchange proposes to amend CBOE Rule 6.53C(d)(ii) to provide 
that CBOE's System will reject back to a Trading Permit Holder any 
complex order with three or more legs that includes a request pursuant 
to CBOE Rule 6.53C, Interpretation and Policy .04 \12\ that the order 
not initiate a COA.\13\ The Exchange also proposes to amend CBOE Rule 
6.53C(d)(ii), which currently provides that only a Trading Permit 
Holder representing an order may request that the order initiate a COA, 
to also provide that PAR operators handling an order may request that a 
COA-eligible order initiate a COA.\14\
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    \12\ CBOE Rule 6.53C, Interpretation and Policy .04 provides 
that Trading Permit Holders routing complex orders directly to the 
COB may request that the complex orders initiate a COA on a class-
by-class basis and Trading Permit Holders with resting complex 
orders on PAR may request that complex orders initiate a COA on an 
order-by-order basis.
    \13\ See Notice, supra note 3, at 13362.
    \14\ CBOE believes that permitting orders resting on PAR to 
initiate a COA is consistent with other CBOE rules. See id. at n. 15 
and accompanying text (citing to CBOE Rule 6.53C(d), which, 
according to the Exchange, states that complex orders may be subject 
to a COA once on PAR, and CBOE Rule 6.53C, Interpretation and Policy 
.04(a), which, according to the Exchange, states that Trading Permit 
Holders with resting complex orders on PAR may request that complex 
orders initiate a COA).
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    According to the Exchange, this proposed rule change will address 
the concern that market makers may reduce the size of their quotations 
in the leg markets because of the presence of certain complex orders 
that are designed to circumvent the ``Quote Risk Monitor Mechanism'' 
(``QRM'') settings established by market makers.\15\ CBOE describes the 
QRM as a functionality designed to help market makers provide liquidity 
across most series in their appointed classes without being at risk of 
executing the full cumulative size of all their quotes before being 
given adequate opportunity to adjust their quotes.\16\
---------------------------------------------------------------------------

    \15\ See Notice, supra note 3, at 13363.
    \16\ See id. at 13361.
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    The QRM, according to CBOE, generally operates by allowing market 
makers to set a variety of parameters, which, if triggered, will cause 
the System to cancel a market maker's quotes in all series in an 
appointed class after executing the order that triggered the 
parameter.\17\ CBOE states that the System performs the QRM parameter 
calculations to determine if the QRM has been triggered after each 
execution against a market maker's quotes.\18\ According to the 
Exchange, when a complex order legs into the regular market (i.e., 
executes against individual quotes for each of the legs in the regular 
market), all of the legs of a complex order are considered as a single 
execution for purposes of the QRM, and

[[Page 53799]]

not as a series of individual transactions, because each leg of the 
complex order is contingent on the other leg.\19\ Thus, the System 
performs the QRM parameter calculations after the entire complex order 
executes against interest in the regular market. In contrast, if the 
legs of the complex order had been submitted to the regular market 
separately and without any complex order contingency, the System would 
perform the QRM parameter calculations after each leg executed against 
interest in the regular market. According to the Exchange, this 
differential treatment may result in market makers exceeding their risk 
parameters by a greater number of contracts when complex orders leg 
into the regular market.\20\
---------------------------------------------------------------------------

    \17\ See id. at 13360-61. CBOE states that the System performs 
the parameter calculations after an execution against a market maker 
quote occurs in order to assure that all quotations are firm for 
their full size. See id. at 13361.
    \18\ See id.
    \19\ See id.
    \20\ See id.
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    The Exchange believes that the potential risk to market makers of 
complex orders legging into the regular market limits the amount of 
liquidity that market makers are willing to provide in the regular 
market.\21\ In particular, according to the Exchange, market makers may 
reduce the size of their quotations in the regular market because of 
the presence of these complex orders that are designed to circumvent 
QRM and risk the execution of the cumulative size of market makers' 
quotations across multiple series without market makers' being aware of 
these complex orders or having an opportunity to adjust their 
quotes.\22\ Accordingly, the Exchange believes that reducing market 
maker risk in the regular market by requiring complex orders in Hybrid 
classes with three or more legs to be subject to a COA--which will 
allow market makers to react accordingly, including adjusting their 
quotes to avoid the circumvention of their QRM parameter settings--will 
benefit investors by encouraging market makers to provide additional 
liquidity in the regular market and enhance competition in those 
classes.\23\ According to the Exchange, this potential benefit to 
investors far exceeds any ``perceived detriment'' to requiring certain 
complex orders to be subject to a COA prior to potential interaction 
with the leg markets.\24\ The Exchange notes that complex orders with 
three or more legs will still have opportunities for execution through 
a COA, in the COB or in the leg markets if they do not execute at the 
end of the COA.\25\
---------------------------------------------------------------------------

    \21\ See Notice, supra note 3, at 13362.
    \22\ See id.
    \23\ See id.
    \24\ See id.
    \25\ See id.
---------------------------------------------------------------------------

    In the Notice, the Exchange states that it 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 of this proposed rule change.\26\ The Exchange also states that 
the implementation date will be no later than 180 days following the 
effective date of this proposed rule change.\27\
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    \26\ See Notice, supra note 3, at 13363.
    \27\ See id.
---------------------------------------------------------------------------

III. Summary of Comment Letters

    As noted above, the Commission received two comments, both 
expressing support for the proposed rule change.\28\ One commenter 
stated that it believes CBOE's proposal is a reasonable response to the 
problem of complex orders circumventing market makers QRM 
parameters.\29\ The other commenter stated that it believes that the 
proposal will allow market makers to better rely on the Exchange's QRM 
to remove quotes when a market makers risk tolerance is exceed, which, 
according to the commenter, will allow market makers to provide 
quotations with large sizes and tight spreads.\30\
---------------------------------------------------------------------------

    \28\ See supra note 6.
    \29\ See NYSE Letter, supra note 6, at 2.
    \30\ See Group One Letter, supra note 6, at 2.
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IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\31\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\32\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Commission notes that participating in a COA will 
provide complex orders with three or more legs an opportunity for price 
improvement through the auction mechanism. The Commission also notes 
that both commenters expressed support for the proposal.
---------------------------------------------------------------------------

    \31\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \32\ 15 U.S.C. 78f(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\33\ that the proposed rule change (SR-CBOE-2014-017) is approved.
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    \33\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
---------------------------------------------------------------------------

    \34\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21519 Filed 9-9-14; 8:45 am]
BILLING CODE 8011-01-P