Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Automated Improvement Mechanism Order Allocation, 26601-26605 [2015-11058]
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Federal Register / Vol. 80, No. 89 / Friday, May 8, 2015 / Notices
will apply to all data recipients that
choose to subscribe to the NYSE BBO
and NYSE Trades feed.
The Non-Display Declaration Late Fee
is also consistent with similar pricing
adopted in 2013 by the Consolidated
Tape Association (‘‘CTA’’).10 The CTA
imposes a monthly fee of $2,500 for
each of Network A and Network B for
firms that fail to comply with their
reporting obligations in a timely
manner.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange 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. An
exchange’s ability to price its
proprietary market data feed products is
constrained by actual competition for
the sale of proprietary market data
products, the joint product nature of
exchange platforms, and the existence of
alternatives to the Exchange’s
proprietary data. In addition to being
able to choose which proprietary data
products (if any) to use and how to use
them, a user can avoid the late fees that
are the subject of this filing entirely by
simply complying with the requisite
deadlines.
In setting the proposed fees, the
Exchange considered the
competitiveness of the market for
proprietary data and all of the
implications of that competition. The
Exchange believes that it has considered
all relevant factors and has not
considered irrelevant factors in order to
establish fair, reasonable, and not
unreasonably discriminatory fees and an
equitable allocation of fees among all
users. The existence of fierce
competition to sell proprietary data
products and for order flow, as well as
numerous alternatives to the Exchange’s
products, including proprietary data
from other sources, ensures that the
Exchange cannot set unreasonable fees,
or fees that are unreasonably
discriminatory, when vendors and
subscribers can elect these alternatives
or choose not to purchase a specific
proprietary data product if the attendant
fees are not justified by the returns that
any particular vendor or data recipient
would achieve through the purchase
(the returns on use being a particularly
important aspect of non-display uses of
proprietary data).
10 See Securities Exchange Act Release No. 70010
(July 19, 2013), 78 FR 44984 (July 25, 2013)(SR–
CTA/CQ–2013–04).
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 11 of the Act and
subparagraph (f)(2) of Rule 19b–4 12
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 13 of the Act 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–
NYSE–2015–22 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2015–22. 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/
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
13 15 U.S.C. 78s(b)(2)(B).
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 will also be available for Web site
viewing and printing at the NYSE’s
principal office and on its Internet Web
site at www.nyse.com. 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–NYSE–
2015–22 and should be submitted on or
before May 29, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Brent J. Fields,
Secretary.
[FR Doc. 2015–11055 Filed 5–7–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74864; File No. SR–CBOE–
2015–043]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to Automated
Improvement Mechanism Order
Allocation
May 4, 2015.
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 April 23,
2015, 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, II, and
III below, which Items have been
11 15
14 17
12 17
1 15
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 80, No. 89 / Friday, May 8, 2015 / Notices
prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 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
Rule 6.74A relating to its Automated
Improvement Mechanism (‘‘AIM’’). 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 Exchange proposes to amend its
AIM auction Rule 6.74A to provide that
in instances where an Initiating Trading
Permit Holder electronically submits an
order that it represents as agent
(‘‘Agency Order’’) into an AIM Auction
(‘‘Auction’’), which the Initiating
Trading Permit Holder is willing to
automatically match (‘‘auto-match’’) as
principal, the price and size of all
Auction responses up to an optional
designated limit price and, at the final
Auction price level, there is only one
competing Market-Maker or Trading
Permit Holder acting as agent for an
order resting at the top of the
Exchange’s book opposite the Agency
Order, the Initiating Trading Permit
Holder may be allocated up to fifty
percent (50%) of the size of the order.
The Exchange also proposes to add
language in Rule 6.74A to more fully
describe the manner in which any
remaining contracts will be allocated at
the conclusion of an Auction and make
other non-substantive changes to Rule
6.74A to update terminology in the Rule
and make fix minor typographical errors
in the text. This is a competitive filing
that is substantially and materially
based on the price improvement auction
rules of BOX Options Exchange, LLC
(‘‘BOX’’),5 Nasdaq PHLX MKT
(‘‘PHLX’’),6 and NYSE MKT LLC
(‘‘NYSE MKT’’).7
Pursuant to Rule 6.74A(b)(3), upon
conclusion of an Auction, an Initiating
Trading Permit Holder will retain
certain priority and trade allocation
privileges for both Agency Orders that
the Initiation Trading Permit Holder
seeks to cross at a single price (‘‘singleprice submissions’’) and Agency Orders
that the Initiating Trading Permit Holder
is willing to automatically match as
principal the price and size of all
Auction responses (‘‘auto-match
submissions’’). Under current Rule
6.74A(b)(3)(F), if the best competing
Auction response price equals the
Initiating Trading Permit Holder’s
single-price submission, the Initiating
Trading Permit Holder’s single-price
submission shall be allocated the greater
of one contract or a certain percentage
of the order, which percentage will be
determined by the Exchange and may
not be larger than 40%. However, if only
one Market-Maker matches the Initiating
Trading Permit Holder’s single price
submission then the Initiating Trading
Permit Holder may be allocated up to
50% of the order.
Similarly, current Rule 6.74A(b)(3)(G)
provides that if the Initiating Trading
Permit Holder selected the auto-match
option of the Auction, the Initiating
Trading Permit Holder shall be allocated
its full size at each price point until a
price point is reached where the balance
of the order can be fully executed. At
such price point, the Initiating Trading
Permit Holder shall be allocated the
greater of one contract or a certain
percentage of the remainder of the
order, which percentage will be
determined by the Exchange and may
not be larger than 40%. Notably, unlike
the single-price submission rules in
Rule 6.74A(b)(3)(F), current Rule
6.74A(b)(3)(G) provides that an
Initiating Trading Permit Holder would
only receive an allocation of up to 40%
for orders that are matched at the final
price level by only one competing
5 See
BOX Rule 7150(h).
PHLX Rule 1080(n).
7 See NYSE MKT Rule 9.71.1NY(c).
3 15
U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
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6 See
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Market-Maker with an appointment in
the relevant option class or Trading
Permit Holder acting as agent for an
order resting at the top of the
Exchange’s book opposite the Agency
Order when the auto-match option is
selected for the Agency Order. The
Exchange believes this result to be
inconsistent within the Rules and
believes that Initiating Trading Permit
Holders that price orders more
aggressively using the auto-match
option and that the Rules should
provide that such Initiating Trading
Permit Holders receive allocations at
least equal to those that select a singleprice submission option for an Auction.
The Exchange proposes to amend
Rule 6.74A(b)(3)(G) to provide that if
only one competing Market-Maker with
an appointment in the relevant option
class or Trading Permit Holder acting as
agent for an order resting at the top of
the Exchange’s book opposite the
Agency Order is present at the final
Auction price, then the Initiating
Trading Permit Holder may be allocated
up to 50% of the remainder of the
Agency Order at the final Auction price
level. As discussed above, current Rule
6.74A(b)(3)(G) provides that an
Initiating Trading Permit Holder will
receive an allocation of up to 40% for
orders that are matched at the final price
level by only one competing MarketMaker with an allocation in the relevant
option class or Trading Permit Holder
acting as agent for an order resting at the
top of the Exchange’s book opposite the
Agency Order when the auto-match
option is selected by the Initiating
Trading Permit Holder for the Auction.
The Exchange believes this result to be
inconsistent within the Rules and
believes that Initiating Trading Permit
Holders that price orders more
aggressively using the auto-match
option should receive allocations at
least equal to those that select a singleprice submission option. The Exchange
also believes proposed rule change will
more closely align the language in Rule
6.74A(b)(3)(G) with the language in Rule
6.74A(b)(3)(F) and will thus, provide
additional internal consistency within
the Rules by harmonizing order
allocations of single-price submissions
and auto-match Auction orders in
instances where there is only one
competing order at the final Auction
price level. Furthermore, the proposed
rule change will bring the Exchange’s
AIM rules in line with the Rules of other
competitor exchanges with which the
Exchange competes for order flow.
The Exchange notes that the proposed
rule change would not affect the priority
of public customer orders under Rule
6.74A(b)(3)(B). Public customer orders
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in the book would continue to have
priority even in cases in which a public
customer order is resting in the book at
the final Auction price. For example,
suppose that the national best bid
(‘‘NBB’’) for a particular option is $1.00
and the national best offer (‘‘NBO’’) for
the option is $1.20 and that the NBB is
an order to buy 10 contracts at CBOE.
The minimum increment in the option
series is $0.01. An Initiating Trading
Permit Holder at CBOE submits an automatch Agency Order to sell 100 options
contracts in the series. The Auction
begins and, during the auction, one
competing Market-Maker submits an
Auction response to buy 50 contracts at
$1.00. The Auction then concludes. In
this case, the public customer order
resting in the book would have priority
and be allocated 10 contracts with the
remaining 90 contracts being allocated
50/50 to the responding Market-Maker
and the Initiating Trading Permit
Holder, 45 contracts each.
Similarly, a public customer order
resting in the book at a final Auction
price level worse than the best Auction
response will also retain priority in the
book. Accordingly, assume again that
the national best bid (‘‘NBB’’) for a
particular option is $1.00 and the
national best offer (‘‘NBO’’) for the
option is $1.20 and that the NBB is an
order to buy 10 contracts at CBOE. The
minimum increment in the option series
is $0.01. An Initiating Trading Permit
Holder at CBOE submits an auto-match
Agency Order to sell 100 options
contracts in the series. The Auction
begins and during the Auction, one
competing Market-Maker (‘‘MM1’’)
submits an Auction response to buy 20
contracts at $1.02, a second MarketMaker (‘‘MM2’’) submits an Action
response to buy 20 contracts at $1.01,
and a third Market-Maker (‘‘MM3’’)
submits an Auction response to buy 20
contracts at $1.00. The Auction then
concludes. In this case, MM1 and the
Initiating Trading Permit Holder would
each be allocated 20 contracts at $1.02
and MM2 and the Initiating Trading
Permit Holder would each be allocated
20 contracts at $1.01 since the Initiating
Trading Permit Holder is willing to
match the price and size at each
improved price level. The remaining 20
contracts would be allocated 10 to the
public customer order resting in the
book at $1.00 because the public
customer would retain priority at that
price level with the remaining 10
contracts being allocated 50/50 to MM3
and the Initiating Trading Permit
Holder, 5 contracts each.8
8 The Exchange notes that an unrelated public
customer market or marketable limit orders on the
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The Exchange believes that increasing
the Initiating Trading Permit Holder’s
allocation priority for auto-match
submissions that only have one
competing order at the final price level
fairly distributes the order when there
are only two counterparties to the
Auction involved, and that doing so is
reasonable because of the value that
Initiating Trading Permit Holders
provide to the market. Initiating Trading
Permit Holders selecting the auto-match
option for Agency Orders guarantee an
execution at the NBBO or at a better
price, and are subject to a greater market
risk than single-price submissions while
the order is exposed to other AIM
participants. As such, the Exchange
believes that the value added from
Initiating Trading Permit Holders
guaranteeing execution of Agency
Orders at a price equal to or better than
the NBBO in combination with the
additional market risk of initiating automatch submissions warrants an
allocation priority of at least the same
percentage as Trading Permit Holders
who submit single-price orders into
AIM. The Exchange also believes that
the proposed rule change, like other
price improvement allocation programs
currently offered by competitor
exchanges, will benefit investors by
attracting more order flow as well as
increasing the frequency that Trading
Permit Holders initiate Auctions, which
may result in greater opportunities for
customer order price improvement.
Moreover, as discussed above, the
proposed rule change is consistent with
the rules of other exchanges.9
The Exchange also proposes to add
text to Rules 6.74A(b)(3)(F) and (G) to
describe the manner in which remaining
contracts would be allocated at the
conclusion of an Auction under the
scenarios therein. Specifically, the
Exchange proposes to amend paragraphs
(F) and (G) to provide that (subject to
public customer priority), after the
opposite side of the market from the Agency Order
that are received during an Auction will end the
Auction and trade against the Agency Order at the
midpoint of the best RFR response and the NBBO
on the other side of the market from the RFR
responses. See Rule 6.74A(b)(3)(D). For example,
assume that the NBBO is $1.00–$1.20. An Initiating
Trading Permit Holder submits a matched Agency
Order to sell 100 options contracts at in the series
at $1.10. The Auction begins and during the
Auction, one competing Market-Maker submits an
Auction response to buy 100 contracts at $1.15.
Assume that after the first response is received, an
unrelated public customer order to buy 100
contracts at $1.20 is received. This would conclude
the auction early after which the public customer
order would trade 100 contracts with the Agency
Order at $1.17 (i.e. the midpoint between the best
RFR response ($1.15) and the NBBO on the other
side of the market from the RFR responses ($1.20)).
9 See, e.g., BOX Rule 7150(h); NYSE MKT Rule
9.71.1NY(c)(5)(B).
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Initiating Trading Permit Holder has
received an allocation of up to 40% of
the Agency Order (or 50% of the Agency
Order if there is only one other RFR
response), contracts shall be allocated
among remaining quotes, orders, and
auction responses (i.e. interests other
than the Initiating Trading Permit
Holder) at the final auction price in
accordance with the matching algorithm
in effect for the subject class. If all RFR
Responses are filled (i.e. no other
interests remain), any remaining
contracts will be allocated to the
Initiating Trading Permit Holder at the
single-price submission price for singleprice submissions or, for auto-match
submissions, to the Initiating Trading
Permit Holder at the auction start price
as specified under Rule 6.74A(b)(1)(a).
The Exchange believes that this
additional language would add clarity
in the Rules with respect to how
remaining odd-lots will be allocated at
the conclusion of an Auction.10
For example, suppose that the NBBO
for a particular option is $1.00–$1.20.
The minimum increment for the series
is $0.01 and the matching algorithm in
effect for the option class is pro rata. An
Initiating Trading Permit Holder
submits a matched Agency Order to sell
5 contracts at $1.10. The Auction begins
and, during the auction, one competing
Market-Maker (‘‘MM1’’) submits an
Auction response to buy 5 contracts at
$1.10, followed by another MarketMaker (‘‘MM2’’) submitting an Auction
response to buy 5 contracts at $1.10.
The Auction concludes. In this case,
under proposed Rule 6.74A(b)(3)(F), the
Initiating Trading Permit Holder would
receive an allocation up to 40%, or, in
this case, 2 contracts at $1.10. MM1 and
MM2 would then receive 1 contract
each at $1.10 according to the pro rata
allocation algorithm in place for the
class with MM1, as the first responder,
receiving the final 1 contract at the final
auction price of $1.10.11
Similarly, suppose that the NBBO for
a particular option is $1.00–$1.20. The
minimum increment for the series is
$0.01 and the matching algorithm in
effect for the option class is pro rata. An
Initiating Trading Permit Holder
10 The Exchange notes that such remaining
contracts are currently allocated to the Initiating
Trading Permit Holder in excess of the up to 40%
(50% if there is only one other Market-Marker or
Trading Permit Holder representing an Agency
Order) of the order that the Initiating Trading
Permit Holder may receive under the Exchange’s
existing Rules pursuant to the provision that the
Initiating Trading Permit Holder will be allocated
the greater of one contract or up to 40% (50% if
there is only one other Market-Marker or Trading
Permit Holder representing an Agency Order) at the
final Auction price.
11 See Rules 6.45A(a)(ii) and 6.45B(a)(i).
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submits a matched Agency Order to sell
5 contracts at $1.10. The Auction begins
and, during the auction, one competing
Market-Maker (‘‘MM1’’) submits an
Auction response to buy 1 contract at
$1.10, followed by another MarketMaker (‘‘MM2’’) submitting an Auction
response to buy 1 contract at $1.10. The
Auction concludes. In this case, under
proposed Rule 6.74A(b)(3)(F), the
Initiating Trading Permit Holder would
receive an allocation up to 40%, or, in
this case, 2 contracts at $1.10. MM1 and
MM2 would then receive 1 contract
each at $1.10 according to the pro rata
allocation algorithm in place for the
class. With no other RFR responder
interest for the Auction, however,
proposed Rule 6.74A(b)(3)(F) will
simply make clear that if all RFR
Responses are filled (i.e. no other
interests remain), any remaining
contracts will be allocated to the
Initiating Trading Permit Holder at the
single-price submission price. In this
case, the final 1 contract would be
allocated to the Initiating Trading
Permit Holder at $1.10.
Remaining odd-lots for auto-match
submissions would be similarly
allocated under proposed Rule
6.74A(b)(3)(G), except that if all RFR
Responses are filled (i.e. no other
interests remain), any remaining
contracts will be allocated to the
Initiating Trading Permit Holder at the
auction start price as specified under
Rule 6.74A(b)(1)(A). Accordingly,
suppose that the NBBO for a particular
option is $1.00–$1.20. The minimum
increment for the series is $0.01 and the
matching algorithm in effect for the
option class is pro rata. An Initiating
Trading Permit Holder submits an automatched Agency Order to sell 5
contracts. In this case, because the
Auction is for fewer than 50 contracts,
the Auction would begin at one price
increment better than the NBBO, or
$1.19.12 Assume that the Auction begins
and, during the auction, one competing
Market-Maker (‘‘MM1’’) submits an
Auction response to buy 1 contracts at
$1.18, followed by another MarketMaker (‘‘MM2’’) submitting an Auction
response to buy 1 contract at $1.17. The
Auction concludes. In this case, MM2
and the Initiating Trading Permit Holder
would each receive 1 contract at $1.17
and MM1 and the Initiating Trading
Permit Holder would each receive 1
contract at $1.18. Because all RFR
Responses would then be filled (i.e. no
other interests remain), any remaining
contracts will be allocated to the
Initiating Trading Permit Holder at the
Auction start price or, in this case, 1
contract at $1.19.
The Exchange notes that these
proposed amendments are based on,
and consistent with, the rules of other
competitor exchanges.13 The Exchange
believes that the value added from
Initiating Trading Permit Holders
guaranteeing execution of Agency
Orders at a price equal to or better than
the NBBO warrants (to the extent that
the Initiating Trading Permit Holder is
on the final Auction price), an Auction
allocation priority of at least the same
percentage of the order as any
competing Auction responses. The
Exchange also believes that the
proposed rule change, like other price
improvement allocation programs
currently offered by competitor
exchanges, will benefit investors by
attracting more order flow as well as
increasing the frequency that Trading
Permit Holders initiate Auctions, which
may result in greater opportunities for
customer order price improvement.
Additionally, the Exchange is
proposing to add additional clarifying
language to Rule 6.74A and correct
minor typographical errors in the Rule.
Specifically, the Exchange is seeking to
amend Rule 6.74A(b)(1)(E) to replace
the word ‘‘Members’’ with ‘‘Trading
Permit Holders.’’ The Exchange no
longer has ‘‘members,’’ but rather
Trading Permit Holders. Since its
demutualization, the Exchange has
attempted (and continues to seek to)
replace the word ‘‘members’’ with
Trading Permit Holders throughout the
Rules for consistency purposes.
The Exchange also proposes to amend
Rule 6.74A(b)(3)(F) to make clear the
parties that may be entitled to receive a
50% portion of the remainder of the
Agency Order at the final price level of
an Auction. Current Rule 6.74A(b)(3)(F)
provides that if the best Auction
response price equals the Initiating
Trading Permit Holder’s single-price
submission and only one Market-Maker
matches the Initiating Trading Permit
Holder’s single price submission, then
the Initiating Trading Permit Holder
may be allocated up to 50% of the order.
The Exchange proposes to add the word
‘‘competing’’ before ‘‘Market-Maker’’ in
the second sentence of Rule
6.74A(b)(3)(F) and add the language
‘‘with an appointment in the relevant
option class or Trading Permit Holder
acting as agent for an order resting at the
top of the Exchange’s book opposite the
Agency Order’’ after ‘‘Market-Maker’’ to
make clear that both Market-Makers
with an appointment in the relevant
e.g., NYSE MKT Rule 9.71.1NY(c)(5);
PHLX Rule 1080(n)(ii)(E).
Rule 6.74A(b)(1)(A).
VerDate Sep<11>2014
16:38 May 07, 2015
Jkt 235001
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.14 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 15 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) 16 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 protects
investors and is in the public interest
because it fairly distributes the
allocation of the AIM order between the
Initiating Trading Permit Holder and the
Trading Permit Holder who responded
when those Trading Permit Holders are
the only two counterparties to the
Auction and/or the number of contracts
remaining at the final Auction price
cannot be evenly distributed at the end
of an Auction. The Exchange believes
14 15
13 See,
12 See
option class and Trading Permit Holders
acting as agent for an order resting at the
top of the Exchange’s book opposite the
Agency Order may respond to Auctions
and thus, may be present at the final
Auction price. The Exchange notes that
the proposed language is consistent
with the current Rule and would also be
consistent with the proposed changes to
the auto-match rules in Rule
6.74A(b)(3)(G). The Exchange believes
that these changes are non-controversial
as they simply clarify the Exchange’s
already existing AIM rules. The
Exchange strives for transparency in its
Rules and believes these nonsubstantive changes will provide greater
clarity for market participants. Finally,
the Exchange proposes to add the word
‘‘of’’ to Rule 6.74A(b)(3)(G) to fix a
minor typographical error in the rule
text.
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
15 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
16 Id.
E:\FR\FM\08MYN1.SGM
08MYN1
Federal Register / Vol. 80, No. 89 / Friday, May 8, 2015 / Notices
asabaliauskas on DSK5VPTVN1PROD with NOTICES
that the proposed rule changes, like
other price improvement programs
currently offered by competing
exchanges, will benefit investors by
attracting more order flow as well as
increasing the frequency that Trading
Permit Holders submit orders to
Auction, which may result in greater
opportunity for price improvement for
customers. Moreover, the proposed rule
change is consistent with the Rules of
other exchanges. With respect to the
proposed clarifying additions and
typographical corrections to Rule 6.74A,
the Exchange believes that the proposed
changes will benefit market participants
by adding additional transparency and
clarity to the Rules.
allocation priority as single-price
submissions. The Exchange believes this
proposed rule change is necessary to
permit fair competition among the
options exchanges and to establish more
uniform price improvement auction
rules on the various exchanges.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange 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 changes are meant to more
fairly distribute the order allocation
when there are only two counterparties
to an Auction auto-match order. The
Exchange does not believe that this
change will discourage any market
participants from entering into the AIM,
as the auto-match option of the AIM is
more aggressive in terms of risk and
therefore, increasing the allocation to up
to 50% of the remainder for the
Initiating Trading Permit Holder when
there is only one competing order at the
final price level is a more fair and
reasonable allocation mechanism and
would likely only increase the number
of Trading Permit Holders that select the
auto-match option to initiate Auctions.
Furthermore, the Exchange notes that
the proposed rule change is a
competitive response to similar
provisions in the price improvement
auction rules of BOX, PHLX and NYSE
MKT.17 The Exchange believes this
proposed rule change is necessary to
permit fair competition among the
options exchanges and to establish more
uniform price improvement auction
rules on the various exchanges. The
Exchange is also seeking the proposed
rule change to align the allocation
priorities for AIM single-price and automatch submissions for Initiating
Trading Permit Holders when there is
only one competing order at the final
price level within its rules. As
mentioned earlier, auto-match
submissions carry more risk than singleprice submissions and as a result,
should be given at least the same
Because the foregoing proposed rule
change does not:
A. Significantly affect the protection
of investors or the public interest;
B. impose any significant burden on
competition; and
C. 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 18 and Rule 19b–4(f)(6) 19
thereunder. 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.
17 See BOX Rule 7150; NYSE MKT Rule 971.1NY;
PHLX Rule 1080.
VerDate Sep<11>2014
16:38 May 07, 2015
Jkt 235001
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 written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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–2015–043 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
18 15
19 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
Frm 00084
Fmt 4703
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2015–043. 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–
2015–043 and should be submitted on
or before May 29, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Brent J. Fields,
Secretary.
[FR Doc. 2015–11058 Filed 5–7–15; 8:45 am]
BILLING CODE 8011–01–P
SOCIAL SECURITY ADMINISTRATION
[Docket No: SSA–2015–0028]
Agency Information Collection
Activities: Proposed Request
The Social Security Administration
(SSA) publishes a list of information
collection packages requiring clearance
by the Office of Management and
Budget (OMB) in compliance with
Public Law 104–13, the Paperwork
Reduction Act of 1995, effective October
1, 1995. This notice includes one new
information collection.
20 17
Sfmt 4703
26605
E:\FR\FM\08MYN1.SGM
CFR 200.30–3(a)(12).
08MYN1
]]>Agencies
[Federal Register Volume 80, Number 89 (Friday, May 8, 2015)]
[Notices]
[Pages 26601-26605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11058]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74864; File No. SR-CBOE-2015-043]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Automated Improvement Mechanism Order
Allocation
May 4, 2015.
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 April 23, 2015, 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, II, and III below, which Items have been
[[Page 26602]]
prepared by the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 6.74A relating to its Automated
Improvement Mechanism (``AIM''). 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 Exchange proposes to amend its AIM auction Rule 6.74A to
provide that in instances where an Initiating Trading Permit Holder
electronically submits an order that it represents as agent (``Agency
Order'') into an AIM Auction (``Auction''), which the Initiating
Trading Permit Holder is willing to automatically match (``auto-
match'') as principal, the price and size of all Auction responses up
to an optional designated limit price and, at the final Auction price
level, there is only one competing Market-Maker or Trading Permit
Holder acting as agent for an order resting at the top of the
Exchange's book opposite the Agency Order, the Initiating Trading
Permit Holder may be allocated up to fifty percent (50%) of the size of
the order. The Exchange also proposes to add language in Rule 6.74A to
more fully describe the manner in which any remaining contracts will be
allocated at the conclusion of an Auction and make other non-
substantive changes to Rule 6.74A to update terminology in the Rule and
make fix minor typographical errors in the text. This is a competitive
filing that is substantially and materially based on the price
improvement auction rules of BOX Options Exchange, LLC (``BOX''),\5\
Nasdaq PHLX MKT (``PHLX''),\6\ and NYSE MKT LLC (``NYSE MKT'').\7\
---------------------------------------------------------------------------
\5\ See BOX Rule 7150(h).
\6\ See PHLX Rule 1080(n).
\7\ See NYSE MKT Rule 9.71.1NY(c).
---------------------------------------------------------------------------
Pursuant to Rule 6.74A(b)(3), upon conclusion of an Auction, an
Initiating Trading Permit Holder will retain certain priority and trade
allocation privileges for both Agency Orders that the Initiation
Trading Permit Holder seeks to cross at a single price (``single-price
submissions'') and Agency Orders that the Initiating Trading Permit
Holder is willing to automatically match as principal the price and
size of all Auction responses (``auto-match submissions''). Under
current Rule 6.74A(b)(3)(F), if the best competing Auction response
price equals the Initiating Trading Permit Holder's single-price
submission, the Initiating Trading Permit Holder's single-price
submission shall be allocated the greater of one contract or a certain
percentage of the order, which percentage will be determined by the
Exchange and may not be larger than 40%. However, if only one Market-
Maker matches the Initiating Trading Permit Holder's single price
submission then the Initiating Trading Permit Holder may be allocated
up to 50% of the order.
Similarly, current Rule 6.74A(b)(3)(G) provides that if the
Initiating Trading Permit Holder selected the auto-match option of the
Auction, the Initiating Trading Permit Holder shall be allocated its
full size at each price point until a price point is reached where the
balance of the order can be fully executed. At such price point, the
Initiating Trading Permit Holder shall be allocated the greater of one
contract or a certain percentage of the remainder of the order, which
percentage will be determined by the Exchange and may not be larger
than 40%. Notably, unlike the single-price submission rules in Rule
6.74A(b)(3)(F), current Rule 6.74A(b)(3)(G) provides that an Initiating
Trading Permit Holder would only receive an allocation of up to 40% for
orders that are matched at the final price level by only one competing
Market-Maker with an appointment in the relevant option class or
Trading Permit Holder acting as agent for an order resting at the top
of the Exchange's book opposite the Agency Order when the auto-match
option is selected for the Agency Order. The Exchange believes this
result to be inconsistent within the Rules and believes that Initiating
Trading Permit Holders that price orders more aggressively using the
auto-match option and that the Rules should provide that such
Initiating Trading Permit Holders receive allocations at least equal to
those that select a single-price submission option for an Auction.
The Exchange proposes to amend Rule 6.74A(b)(3)(G) to provide that
if only one competing Market-Maker with an appointment in the relevant
option class or Trading Permit Holder acting as agent for an order
resting at the top of the Exchange's book opposite the Agency Order is
present at the final Auction price, then the Initiating Trading Permit
Holder may be allocated up to 50% of the remainder of the Agency Order
at the final Auction price level. As discussed above, current Rule
6.74A(b)(3)(G) provides that an Initiating Trading Permit Holder will
receive an allocation of up to 40% for orders that are matched at the
final price level by only one competing Market-Maker with an allocation
in the relevant option class or Trading Permit Holder acting as agent
for an order resting at the top of the Exchange's book opposite the
Agency Order when the auto-match option is selected by the Initiating
Trading Permit Holder for the Auction. The Exchange believes this
result to be inconsistent within the Rules and believes that Initiating
Trading Permit Holders that price orders more aggressively using the
auto-match option should receive allocations at least equal to those
that select a single-price submission option. The Exchange also
believes proposed rule change will more closely align the language in
Rule 6.74A(b)(3)(G) with the language in Rule 6.74A(b)(3)(F) and will
thus, provide additional internal consistency within the Rules by
harmonizing order allocations of single-price submissions and auto-
match Auction orders in instances where there is only one competing
order at the final Auction price level. Furthermore, the proposed rule
change will bring the Exchange's AIM rules in line with the Rules of
other competitor exchanges with which the Exchange competes for order
flow.
The Exchange notes that the proposed rule change would not affect
the priority of public customer orders under Rule 6.74A(b)(3)(B).
Public customer orders
[[Page 26603]]
in the book would continue to have priority even in cases in which a
public customer order is resting in the book at the final Auction
price. For example, suppose that the national best bid (``NBB'') for a
particular option is $1.00 and the national best offer (``NBO'') for
the option is $1.20 and that the NBB is an order to buy 10 contracts at
CBOE. The minimum increment in the option series is $0.01. An
Initiating Trading Permit Holder at CBOE submits an auto-match Agency
Order to sell 100 options contracts in the series. The Auction begins
and, during the auction, one competing Market-Maker submits an Auction
response to buy 50 contracts at $1.00. The Auction then concludes. In
this case, the public customer order resting in the book would have
priority and be allocated 10 contracts with the remaining 90 contracts
being allocated 50/50 to the responding Market-Maker and the Initiating
Trading Permit Holder, 45 contracts each.
Similarly, a public customer order resting in the book at a final
Auction price level worse than the best Auction response will also
retain priority in the book. Accordingly, assume again that the
national best bid (``NBB'') for a particular option is $1.00 and the
national best offer (``NBO'') for the option is $1.20 and that the NBB
is an order to buy 10 contracts at CBOE. The minimum increment in the
option series is $0.01. An Initiating Trading Permit Holder at CBOE
submits an auto-match Agency Order to sell 100 options contracts in the
series. The Auction begins and during the Auction, one competing
Market-Maker (``MM1'') submits an Auction response to buy 20 contracts
at $1.02, a second Market-Maker (``MM2'') submits an Action response to
buy 20 contracts at $1.01, and a third Market-Maker (``MM3'') submits
an Auction response to buy 20 contracts at $1.00. The Auction then
concludes. In this case, MM1 and the Initiating Trading Permit Holder
would each be allocated 20 contracts at $1.02 and MM2 and the
Initiating Trading Permit Holder would each be allocated 20 contracts
at $1.01 since the Initiating Trading Permit Holder is willing to match
the price and size at each improved price level. The remaining 20
contracts would be allocated 10 to the public customer order resting in
the book at $1.00 because the public customer would retain priority at
that price level with the remaining 10 contracts being allocated 50/50
to MM3 and the Initiating Trading Permit Holder, 5 contracts each.\8\
---------------------------------------------------------------------------
\8\ The Exchange notes that an unrelated public customer market
or marketable limit orders on the opposite side of the market from
the Agency Order that are received during an Auction will end the
Auction and trade against the Agency Order at the midpoint of the
best RFR response and the NBBO on the other side of the market from
the RFR responses. See Rule 6.74A(b)(3)(D). For example, assume that
the NBBO is $1.00-$1.20. An Initiating Trading Permit Holder submits
a matched Agency Order to sell 100 options contracts at in the
series at $1.10. The Auction begins and during the Auction, one
competing Market-Maker submits an Auction response to buy 100
contracts at $1.15. Assume that after the first response is
received, an unrelated public customer order to buy 100 contracts at
$1.20 is received. This would conclude the auction early after which
the public customer order would trade 100 contracts with the Agency
Order at $1.17 (i.e. the midpoint between the best RFR response
($1.15) and the NBBO on the other side of the market from the RFR
responses ($1.20)).
---------------------------------------------------------------------------
The Exchange believes that increasing the Initiating Trading Permit
Holder's allocation priority for auto-match submissions that only have
one competing order at the final price level fairly distributes the
order when there are only two counterparties to the Auction involved,
and that doing so is reasonable because of the value that Initiating
Trading Permit Holders provide to the market. Initiating Trading Permit
Holders selecting the auto-match option for Agency Orders guarantee an
execution at the NBBO or at a better price, and are subject to a
greater market risk than single-price submissions while the order is
exposed to other AIM participants. As such, the Exchange believes that
the value added from Initiating Trading Permit Holders guaranteeing
execution of Agency Orders at a price equal to or better than the NBBO
in combination with the additional market risk of initiating auto-match
submissions warrants an allocation priority of at least the same
percentage as Trading Permit Holders who submit single-price orders
into AIM. The Exchange also believes that the proposed rule change,
like other price improvement allocation programs currently offered by
competitor exchanges, will benefit investors by attracting more order
flow as well as increasing the frequency that Trading Permit Holders
initiate Auctions, which may result in greater opportunities for
customer order price improvement. Moreover, as discussed above, the
proposed rule change is consistent with the rules of other
exchanges.\9\
---------------------------------------------------------------------------
\9\ See, e.g., BOX Rule 7150(h); NYSE MKT Rule
9.71.1NY(c)(5)(B).
---------------------------------------------------------------------------
The Exchange also proposes to add text to Rules 6.74A(b)(3)(F) and
(G) to describe the manner in which remaining contracts would be
allocated at the conclusion of an Auction under the scenarios therein.
Specifically, the Exchange proposes to amend paragraphs (F) and (G) to
provide that (subject to public customer priority), after the
Initiating Trading Permit Holder has received an allocation of up to
40% of the Agency Order (or 50% of the Agency Order if there is only
one other RFR response), contracts shall be allocated among remaining
quotes, orders, and auction responses (i.e. interests other than the
Initiating Trading Permit Holder) at the final auction price in
accordance with the matching algorithm in effect for the subject class.
If all RFR Responses are filled (i.e. no other interests remain), any
remaining contracts will be allocated to the Initiating Trading Permit
Holder at the single-price submission price for single-price
submissions or, for auto-match submissions, to the Initiating Trading
Permit Holder at the auction start price as specified under Rule
6.74A(b)(1)(a). The Exchange believes that this additional language
would add clarity in the Rules with respect to how remaining odd-lots
will be allocated at the conclusion of an Auction.\10\
---------------------------------------------------------------------------
\10\ The Exchange notes that such remaining contracts are
currently allocated to the Initiating Trading Permit Holder in
excess of the up to 40% (50% if there is only one other Market-
Marker or Trading Permit Holder representing an Agency Order) of the
order that the Initiating Trading Permit Holder may receive under
the Exchange's existing Rules pursuant to the provision that the
Initiating Trading Permit Holder will be allocated the greater of
one contract or up to 40% (50% if there is only one other Market-
Marker or Trading Permit Holder representing an Agency Order) at the
final Auction price.
---------------------------------------------------------------------------
For example, suppose that the NBBO for a particular option is
$1.00-$1.20. The minimum increment for the series is $0.01 and the
matching algorithm in effect for the option class is pro rata. An
Initiating Trading Permit Holder submits a matched Agency Order to sell
5 contracts at $1.10. The Auction begins and, during the auction, one
competing Market-Maker (``MM1'') submits an Auction response to buy 5
contracts at $1.10, followed by another Market-Maker (``MM2'')
submitting an Auction response to buy 5 contracts at $1.10. The Auction
concludes. In this case, under proposed Rule 6.74A(b)(3)(F), the
Initiating Trading Permit Holder would receive an allocation up to 40%,
or, in this case, 2 contracts at $1.10. MM1 and MM2 would then receive
1 contract each at $1.10 according to the pro rata allocation algorithm
in place for the class with MM1, as the first responder, receiving the
final 1 contract at the final auction price of $1.10.\11\
---------------------------------------------------------------------------
\11\ See Rules 6.45A(a)(ii) and 6.45B(a)(i).
---------------------------------------------------------------------------
Similarly, suppose that the NBBO for a particular option is $1.00-
$1.20. The minimum increment for the series is $0.01 and the matching
algorithm in effect for the option class is pro rata. An Initiating
Trading Permit Holder
[[Page 26604]]
submits a matched Agency Order to sell 5 contracts at $1.10. The
Auction begins and, during the auction, one competing Market-Maker
(``MM1'') submits an Auction response to buy 1 contract at $1.10,
followed by another Market-Maker (``MM2'') submitting an Auction
response to buy 1 contract at $1.10. The Auction concludes. In this
case, under proposed Rule 6.74A(b)(3)(F), the Initiating Trading Permit
Holder would receive an allocation up to 40%, or, in this case, 2
contracts at $1.10. MM1 and MM2 would then receive 1 contract each at
$1.10 according to the pro rata allocation algorithm in place for the
class. With no other RFR responder interest for the Auction, however,
proposed Rule 6.74A(b)(3)(F) will simply make clear that if all RFR
Responses are filled (i.e. no other interests remain), any remaining
contracts will be allocated to the Initiating Trading Permit Holder at
the single-price submission price. In this case, the final 1 contract
would be allocated to the Initiating Trading Permit Holder at $1.10.
Remaining odd-lots for auto-match submissions would be similarly
allocated under proposed Rule 6.74A(b)(3)(G), except that if all RFR
Responses are filled (i.e. no other interests remain), any remaining
contracts will be allocated to the Initiating Trading Permit Holder at
the auction start price as specified under Rule 6.74A(b)(1)(A).
Accordingly, suppose that the NBBO for a particular option is $1.00-
$1.20. The minimum increment for the series is $0.01 and the matching
algorithm in effect for the option class is pro rata. An Initiating
Trading Permit Holder submits an auto-matched Agency Order to sell 5
contracts. In this case, because the Auction is for fewer than 50
contracts, the Auction would begin at one price increment better than
the NBBO, or $1.19.\12\ Assume that the Auction begins and, during the
auction, one competing Market-Maker (``MM1'') submits an Auction
response to buy 1 contracts at $1.18, followed by another Market-Maker
(``MM2'') submitting an Auction response to buy 1 contract at $1.17.
The Auction concludes. In this case, MM2 and the Initiating Trading
Permit Holder would each receive 1 contract at $1.17 and MM1 and the
Initiating Trading Permit Holder would each receive 1 contract at
$1.18. Because all RFR Responses would then be filled (i.e. no other
interests remain), any remaining contracts will be allocated to the
Initiating Trading Permit Holder at the Auction start price or, in this
case, 1 contract at $1.19.
---------------------------------------------------------------------------
\12\ See Rule 6.74A(b)(1)(A).
---------------------------------------------------------------------------
The Exchange notes that these proposed amendments are based on, and
consistent with, the rules of other competitor exchanges.\13\ The
Exchange believes that the value added from Initiating Trading Permit
Holders guaranteeing execution of Agency Orders at a price equal to or
better than the NBBO warrants (to the extent that the Initiating
Trading Permit Holder is on the final Auction price), an Auction
allocation priority of at least the same percentage of the order as any
competing Auction responses. The Exchange also believes that the
proposed rule change, like other price improvement allocation programs
currently offered by competitor exchanges, will benefit investors by
attracting more order flow as well as increasing the frequency that
Trading Permit Holders initiate Auctions, which may result in greater
opportunities for customer order price improvement.
---------------------------------------------------------------------------
\13\ See, e.g., NYSE MKT Rule 9.71.1NY(c)(5); PHLX Rule
1080(n)(ii)(E).
---------------------------------------------------------------------------
Additionally, the Exchange is proposing to add additional
clarifying language to Rule 6.74A and correct minor typographical
errors in the Rule. Specifically, the Exchange is seeking to amend Rule
6.74A(b)(1)(E) to replace the word ``Members'' with ``Trading Permit
Holders.'' The Exchange no longer has ``members,'' but rather Trading
Permit Holders. Since its demutualization, the Exchange has attempted
(and continues to seek to) replace the word ``members'' with Trading
Permit Holders throughout the Rules for consistency purposes.
The Exchange also proposes to amend Rule 6.74A(b)(3)(F) to make
clear the parties that may be entitled to receive a 50% portion of the
remainder of the Agency Order at the final price level of an Auction.
Current Rule 6.74A(b)(3)(F) provides that if the best Auction response
price equals the Initiating Trading Permit Holder's single-price
submission and only one Market-Maker matches the Initiating Trading
Permit Holder's single price submission, then the Initiating Trading
Permit Holder may be allocated up to 50% of the order. The Exchange
proposes to add the word ``competing'' before ``Market-Maker'' in the
second sentence of Rule 6.74A(b)(3)(F) and add the language ``with an
appointment in the relevant option class or Trading Permit Holder
acting as agent for an order resting at the top of the Exchange's book
opposite the Agency Order'' after ``Market-Maker'' to make clear that
both Market-Makers with an appointment in the relevant option class and
Trading Permit Holders acting as agent for an order resting at the top
of the Exchange's book opposite the Agency Order may respond to
Auctions and thus, may be present at the final Auction price. The
Exchange notes that the proposed language is consistent with the
current Rule and would also be consistent with the proposed changes to
the auto-match rules in Rule 6.74A(b)(3)(G). The Exchange believes that
these changes are non-controversial as they simply clarify the
Exchange's already existing AIM rules. The Exchange strives for
transparency in its Rules and believes these non-substantive changes
will provide greater clarity for market participants. Finally, the
Exchange proposes to add the word ``of'' to Rule 6.74A(b)(3)(G) to fix
a minor typographical error in the rule text.
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.\14\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \15\ 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) \16\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
\16\ Id.
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In particular, the Exchange believes the proposed rule change
protects investors and is in the public interest because it fairly
distributes the allocation of the AIM order between the Initiating
Trading Permit Holder and the Trading Permit Holder who responded when
those Trading Permit Holders are the only two counterparties to the
Auction and/or the number of contracts remaining at the final Auction
price cannot be evenly distributed at the end of an Auction. The
Exchange believes
[[Page 26605]]
that the proposed rule changes, like other price improvement programs
currently offered by competing exchanges, will benefit investors by
attracting more order flow as well as increasing the frequency that
Trading Permit Holders submit orders to Auction, which may result in
greater opportunity for price improvement for customers. Moreover, the
proposed rule change is consistent with the Rules of other exchanges.
With respect to the proposed clarifying additions and typographical
corrections to Rule 6.74A, the Exchange believes that the proposed
changes will benefit market participants by adding additional
transparency and clarity to the Rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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 changes are
meant to more fairly distribute the order allocation when there are
only two counterparties to an Auction auto-match order. The Exchange
does not believe that this change will discourage any market
participants from entering into the AIM, as the auto-match option of
the AIM is more aggressive in terms of risk and therefore, increasing
the allocation to up to 50% of the remainder for the Initiating Trading
Permit Holder when there is only one competing order at the final price
level is a more fair and reasonable allocation mechanism and would
likely only increase the number of Trading Permit Holders that select
the auto-match option to initiate Auctions.
Furthermore, the Exchange notes that the proposed rule change is a
competitive response to similar provisions in the price improvement
auction rules of BOX, PHLX and NYSE MKT.\17\ The Exchange believes this
proposed rule change is necessary to permit fair competition among the
options exchanges and to establish more uniform price improvement
auction rules on the various exchanges. The Exchange is also seeking
the proposed rule change to align the allocation priorities for AIM
single-price and auto-match submissions for Initiating Trading Permit
Holders when there is only one competing order at the final price level
within its rules. As mentioned earlier, auto-match submissions carry
more risk than single-price submissions and as a result, should be
given at least the same allocation priority as single-price
submissions. The Exchange believes this proposed rule change is
necessary to permit fair competition among the options exchanges and to
establish more uniform price improvement auction rules on the various
exchanges.
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\17\ See BOX Rule 7150; NYSE MKT Rule 971.1NY; PHLX Rule 1080.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received written 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:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. 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 \18\ and
Rule 19b-4(f)(6) \19\ thereunder. 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.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6).
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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-2015-043 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-2015-043. 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-2015-043 and should be
submitted on or before May 29, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-11058 Filed 5-7-15; 8:45 am]
BILLING CODE 8011-01-P
