Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to Complex Orders, as Modified by Amendment No. 1, 67457-67461 [2015-27793]
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Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76273; File No. SR–CBOE–
2015–089]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change Relating to
Complex Orders, as Modified by
Amendment No. 1
October 27, 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 October
13, 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
prepared by the Exchange. On October
26, 2015, the Exchange submitted
Amendment No. 1 to the proposed rule
change. 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 6.53C. 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.
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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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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
Rule 6.53C regarding complex orders.
The proposed rule change (1) amends
the rule provisions regarding the
initiation of a complex order auction
(‘‘COA’’), (2) adds rule provisions
regarding the impact of certain
incoming orders and changes in the leg
markets on an ongoing COA, and (3)
updates the rule text regarding who can
submit complex orders. The proposed
rule change also makes technical and
other nonsubstantive changes.
First, the Exchange proposes to
amend Rule 6.53C and Interpretation
and Policy .04 regarding the initiation of
a COA. Currently, CBOE Rule
6.53C(d)(ii) provides that on receipt of
(1) a COA-eligible order 3 with two legs
and request from the Trading Permit
Holder representing the order or the
PAR operator handling the order, as
applicable, that it be COA’d or (2) a
complex order with three or more legs
that (a) meets the class, marketability,
size and complex order type parameters
included in the definition of a COAeligible order or (B) is designated as
immediate-or-cancel and meets the
class, marketability and size parameters
included in the definition of a COAeligible order,4 in both cases regardless
of the order’s routing parameters or
handling instructions (except for orders
routed for manual handling), the
Exchange will send a request for
response (‘‘RFR’’) message to all Trading
Permit Holders who have elected to
receive RFR messages.5 Interpretation
and Policy .04(a) states that, with
respect to the initiation of a COA,
3 A ‘‘COA-eligible order’’ means a complex order
that, as determined by the Exchange on class-byclass basis, is eligible for a COA considering the
order’s marketability (defined as a number of tickets
away from the current market), size, complex order
type and complex order origin types. Currently, in
all Hybrid classes, (a) only complex orders with
origin codes for public and professional customers,
(b) all complex order types except for immediateor-cancel (‘‘IOC’’) orders, and (c) marketable orders
and ‘‘tweener’’ limit orders bettering the same side
of the derived net market are eligible for COA. In
Hybrid 3.0 classes (i.e. SPX), (a) all complex order
types (including IOC orders) and (b) only customer
orders are eligible for COA. See Regulatory
Circulars RG06–73, RG08–38 and RG08–97.
4 This description of the current rule includes
changes to Rule 6.53C proposed in SR–CBOE–
2015–081, which CBOE filed for immediate
effectiveness on October 2, 2015.
5 ‘‘RFR’’ stands for a ‘‘request for responses’’ that
occurs in the COA process. The RFR message will
identify the component series, the size and side of
the market of the COA-eligible order and any
contingencies if applicable.
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67457
Trading Permit Holders routing complex
orders directly to the complex order
book (‘‘COB’’) may request that the
complex orders be COA’d on a class-byclass basis, and Trading Permit Holders
with resting complex orders on PAR
may request that complex orders be
COA’d on an order-by-order basis.
Currently, all Trading Permit Holders
have requested that all of their COAeligible orders with two legs process
through COA upon entry into the
System. Therefore, rather than have
Trading Permit Holders and PAR
operators affirmatively request that their
COA-eligible orders with two legs COA,
the Exchange proposes to amend Rule
6.53C(d)(ii) to provide that incoming
COA-eligible orders with two legs
(including orders submitted for
electronic processing from PAR) will
COA by default.6
The Exchange believes Trading Permit
Holders should still maintain flexibility
to have these two-legged orders not
COA. In order to provide Trading Permit
Holders with this flexibility, the
proposed rule change adds that,
notwithstanding the foregoing, Trading
Permit Holders may request on an orderby-order basis that a COA-eligible order
with two legs not COA (referred to as a
‘‘do-not-COA’’ request). The proposed
rule change adds that if a two-legged
order with a do-not-COA requests rests
on PAR, the PAR operator may not
request that the order COA (in other
words, if the PAR operator submits that
order for electronic processing, the PAR
operator cannot override the Trading
Permit Holder’s do-not-COA order
request, and the order will enter the
COB). Because of this proposed rule
change, the Exchange deletes the
language in Interpretation and Policy
.04(a) that indicates Trading Permit
Holders may request that complex
orders be COA’d on a class-by-class
basis, as it is no longer necessary.7
6 The proposed rule change applies to all COAeligible orders with two legs, including eligible
stock-option orders, in all Hybrid and Hybrid 3.0
classes. The proposed rule change does not change
the allocation or priority provisions of complex
orders, nor does it impact leg order functionality
described in Rule 6.53C(c)(iv), which functionality
the Exchange has the authority to implement (the
Exchange that leg order functionality is currently
not available in any classes). The proposed rule
change also makes a nonsubstantive change to move
language regarding the System sending RFR
messages to the beginning of the provision.
7 The proposed rule change deletes Interpretation
and Policy .04(a) in order to include all information
regarding the initiation of a COA in subparagraph
(d)(ii) in the same place within the rule. As a result,
the proposed rule change deletes the lettering for
paragraph (b), which will be the only remaining
provision in Interpretation and Policy .04. The
proposed rule change makes a corresponding
change in subparagraph (d)(ii) to delete a reference
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While the proposed rule change will not
permit Trading Permit Holders to not
COA orders on a class-by-class basis, the
Exchange believes that it will not
burden Trading Permit Holders because
they have not requested this in the past.
Additionally, allowing Trading Permit
Holders to make a do-not-COA request
on an order-by-order basis will better
allow them to make decisions regarding
the handling of their orders based on
market conditions at the time they
submit their orders.8
While the proposed rule change
provides that Trading Permit Holders
may include a do-not-COA request on
complex orders with two legs, the
proposed rule change indicates that an
order with a do-not-COA request may
still COA after it has rested on the COB
pursuant to Interpretation and Policy
.04.9 The Exchange believes that
Trading Permit Holders that include a
do-not-COA request for an order upon
entry into the System do so to receive
automatic execution with the leg market
or the COB, as applicable, without the
delay of the COA.10 However, if that
does not occur and the order enters the
COB to rest, the Exchange believes it is
appropriate to COA the order after
resting on the COB (if that functionality
has been activated for the class) to try
and obtain an execution even though
the Trading Permit Holder initially did
not want the order to COA, as the COA
will not delay execution at that point.
The Exchange notes that an order
with a do-not-COA request will still
have execution opportunities. For
example, such an order may execute
automatically upon entry into the
System against the leg markets or
complex orders on the COB to the extent
marketable (in accordance with
allocation rules set forth in Rule 6.53C).
Additionally, pursuant to Rule
6.53C(d)(viii)(1), such an order on the
opposite side of and marketable against
a COA-eligible order may trade against
the COA-eligible order if the System
receives the order while a COA is
to making a request pursuant to Interpretation and
Policy .04.
8 For organizational purposes, the proposed rule
change divides paragraph (d)(ii) into two
subparagraphs (A) and (B), which address the
general rule regarding when complex orders will
COA and the treatment of complex orders with donot-COA requests, respectively, and makes
corresponding changes to cross-references in the
rule.
9 Interpretation and Policy .04(b) (which the
proposed rule change amends to become
Interpretation and Policy .04) provides that the
Exchange may determine on a class-by-class basis
to automatically COA nonmarketable orders resting
at the top of the COB if they are within a number
of ticks away from the current derived net market.
10 The current COA response time interval is 100
milliseconds.
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ongoing. A do-not-COA request merely
provides the order with the opportunity
to execute upon entry into the System
rather than after going through an
auction; the order will be subject to the
same priority and allocation rules.11
Second, the proposed rule change
adds subparagraphs Rule
6.53C(d)(viii)(4) and (5) to describe
additional circumstances that will cause
a COA to end early.12 Proposed
subparagraph (viii)(4) describes how an
incoming order with a do-not-COA
request or that is not COA-eligible may
impact an ongoing COA. Rule
6.53C(d)(viii) currently describes the
handling of unrelated complex orders
that are received prior to the expiration
of the COA Response Time Interval.13
11 A complex order that COAs upon entry into the
System or after resting in the COB will not miss any
execution opportunities. Pursuant to current
Interpretation and Policy .04(b), an order that COAs
after resting on the COB will be nonmarketable and
at the top of the COB (and thus is the best-priced
complex order at the time). Rule 6.53C(d)(viii)
(including as amended by this rule filing, as further
discussed below) describes how incoming complex
orders received during a COA impact the COA,
including providing that the COA’d order (which
may be an order that COAs upon entry into the
System or after resting in the COB) will have time
priority over the incoming order, and ultimately
provides that a COA’d order will not lose execution
opportunities to complex orders submitted during
the COA.
12 The proposed rule change makes
corresponding changes to the heading and
introductory paragraph of subparagraph (d)(viii).
13 Rule 6.53C(d)(viii) states that incoming
complex orders that are received prior to the
expiration of the response time interval for a COAeligible order (the ‘‘original COA’’) will impact the
original COA as follows: (a) Incoming complex
orders that are received prior to the expiration of
the response time interval for the original COA that
are on the opposite side of the market and are
marketable against the starting price of the original
COA-eligible order will cause the original COA to
end. The processing of the original COA pursuant
to subparagraphs (d)(iv) through (d)(vi) remains the
same. (The ‘‘starting price’’ means the better of the
original COA-eligible order’s limit price or the best
price, on a net debit or credit basis, that existed in
the EBook or COB at the beginning of the response
time interval.) (b) Incoming COA-eligible orders
that are received prior to the expiration of the
response time interval for the original COA that are
on the same side of the market, at the same price
or worse than the original COA-eligible order and
better than or equal to the starting price will join
the original COA. The processing of the original
COA pursuant to subparagraphs (d)(iv) through
(d)(vi) remains the same with the addition that the
priority of the original COA-eligible order and
incoming COA-eligible order(s) will be according to
time priority. (c) Incoming COA-eligible orders that
are received prior to the expiration of the response
time interval for the original COA that are on the
same side of the market and at a better price than
the original COA-eligible order will join the original
COA, cause the original COA to end, and a new
COA to begin for any remaining balance on the
incoming COA-eligible order. The processing of the
original COA pursuant to subparagraphs (d)(iv)
through (d)(vi) remains the same with the addition
that the priority of the original COA-eligible order
and incoming COA-eligible order will be according
to time priority.
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The proposed rule change states that if
an order with a do-not-COA request or
an order that is not COA-eligible is
received prior to the expiration of the
Response Time Interval for the original
COA and is on the same side of the
market and at a price better than or
equal to the starting price, then the
original COA will end. Similar to the
current provisions regarding incoming
unrelated COA-eligible orders on the
same side of the COA-eligible order (and
at a price better than or equal to the
starting price), the processing of the
original COA pursuant to subparagraphs
(d)(iv) through (d)(vi) remains the
same 14 with the addition that the
priority of the original COA-eligible
order and the order with the do-notCOA request or the order that is not
COA-eligible, as applicable, will be
according to time priority. In other
words, the COA-eligible order would
trade before the order with the do-notCOA request or order that is not COAeligible, regardless of the price of each
order.15 The purpose of this proposed
provision (as it is for the current
provisions related to unrelated complex
orders) is to prevent the order with the
do-not-COA request or the order that is
not COA-eligible,16 as applicable, from
executing prior to the original COAeligible order, which, if it did not COA,
may have executed or entered the COB
14 Rule 6.53C(d)(iv) through (d)(vi) provides that
at the expiration of the response time interval, the
COA-eligible order will trade with orders and
quotes in the following order: (a) Individual orders
and quotes residing in the book (with allocation
consistent with the ultimate matching algorithm
(‘‘UMA’’) described in Rule 6.45A or 6.45B, as
applicable), (b) public customer complex orders
resting in the COB before, or that are received
during, the response time interval and public
customer RFR responses (with allocation according
to time priority), (c) nonpublic customer orders
resting in the COB before the response time interval
(with allocation consistent with UMA described in
Rule 6.45A or 6.45B, as applicable), and (d)
nonpublic customer orders resting in the COB that
are received during the response time interval and
nonpublic customer responses (with allocation
consistent with the ultimate matching algorithm
described in Rule 6.45A or 6.45B, as applicable,
capped at the response size). If a COA-eligible order
cannot be filled in whole or in a permissible ratio,
the order (or any remaining balance) will route to
the COB or back to PAR, as applicable. Thus, the
unrelated order with a do-not-COA request or the
order that is not COA-eligible will have execution
opportunities against the leg markets, complex
orders in the COB and COA responses, with priority
after the original COA-eligible order.
15 This time priority is the same provided to COAeligible orders over incoming orders in
subparagraphs (d)(viii)(2) and (3).
16 Current paragraph (d)(viii) currently addresses
the impact of incoming COA-eligible orders on the
same side of the original COA-eligible order. The
proposed rule change adds detail regarding the
impact of orders that are not COA-eligible and
orders with a do-not-COA request. The Exchange
believes this provides a more complete description
in its rules regarding the impact of unrelated
complex orders received during a COA.
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(because it would have entered the COB
first, it potentially would have priority
over the incoming order to the extent
the algorithm applicable to the class
considered time as a factor for
allocation).
For example, assume that a COAeligible order to buy with a net limit
price of $1.20 is received when the book
or COB price (and thus the starting
price) is a net price bid of $1.10. The
System will initiate a COA at a net price
of $1.10. An incoming order with a donot-COA request to buy at a net price of
$1.10 or higher causes the original COA
to end. To the extent possible, the
original COA-eligible order will be filled
first, and then the order with the do-notCOA request will be filled (subject to
the COA allocation provisions describe
above).17 Any remaining balance on the
original COA-eligible order or the
incoming order with the do-not-COA
request will route to COB or back to
PAR. The Exchange believes this result
to be appropriate, even if the incoming
order with the do-not-COA request had
a higher buy price than the COA-eligible
order (e.g. $1.21), because if the COAeligible order had not initiated a COA
and was marketable at the time it was
entered (for example, if the offer in the
book was $1.15), it could have executed
against the book before the order was
entered. Providing the COA-eligible
order with time priority is intended to
ensure it does not miss an execution
opportunity it would have otherwise
received if it had not initiated a COA.
Proposed subparagraph (viii)(5)
provides that if the leg markets were not
marketable against a COA-eligible order
when the order entered the System (and
thus prior to the initiation of a COA) but
became marketable with the COAeligible order prior to the expiration of
the Response Time Interval, it will
cause the COA to end.18 The processing
of the original COA pursuant to
subparagraphs (d)(iv) through (d)(vi)
remains the same.
For example, assume that the derived
net leg market is $1.00 to $1.05. A COAeligible order to buy at a net price of
$1.02 is entered and initiates a COA.
During the COA (prior to the end of the
Response Time Interval), the derived net
leg market offer changes to $1.01.
Because this is marketable against the
COA-eligible order, this change in the
derived net leg markets will cause the
COA to end. Assuming the derived net
leg market offer price of $1.01 is the best
17 See
id.
is similar to the result described in
subparagraph (viii)(1), which provides that an
incoming complex order on the opposite side of the
market as and marketable against the COA-eligible
order will cause the COA to end.
18 This
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net price at the end of the COA,19 the
COA-eligible order will execute against
the leg markets at that net price, and any
remainder will then trade against
complex orders in the COB and auction
responses. If a complex order to buy was
resting on the COB (for example, at a net
price of $1.01) at the initiation of the
COA (for example, a do-not-COA order
or an order that is not COA-eligible),20
that order and the COA-eligible order
would be allocated against the leg
markets in the same manner as any
other two complex orders pursuant to
Rule 6.53C(c)(ii) regarding COB
executions, which is by price and then
pursuant to the rules of trading priority
otherwise applicable to incoming orders
in the individual component legs. The
COA-eligible order would always have
priority over the resting order, as it
would always have a higher (if a buy
order) or lower (if a sell order) net price
than the resting order.
In the example above, if a complex
order to buy at a net price of $1.01 was
resting in the COB at the time the COAeligible order to buy at a net price of
$1.02 entered the System and initiated
the COA, and the same change in the
derived net leg markets occurs,
assuming the derived net leg market
offer price of $1.01 is the best net price
at the end of the COA, the COA-eligible
order will trade against the derived net
leg offer at $1.01 first, because it was
entered at (and thus willing to pay) a
better net price than the resting complex
order (to the extent there was
insufficient size in the leg markets to fill
the COA-eligible order, the remainder
would then execute against complex
orders in the COB and auction
responses). If there is sufficient size left
in the leg markets to trade against the
resting complex order, then the resting
order will also trade (in full or in a
permissible ratio).
Third, the proposed rule change
amends Rule 6.53C(c)(ii)(3) and
Interpretation and Policy .06(c) to
provide that all Trading Permit Holders
and PAR Officials may submit orders or
quotes to trade against orders in the
COB. Currently, the rule provides that
19 The leg market offer would be the best price at
the end of the COA if no auction response, order
resting in the COB, or order that entered the System
during the COA had a better price.
20 As previously indicated, only orders that are
marketable or that improve the price on the same
side of the market initiate a COA. See supra note
1. Thus, for there to be a situation where a complex
order was already resting on the COB at the
initiation of a COA, the order resting on the COB
would be at a worse price than the COA-eligible
order that initiated the COA. If there is a complex
order resting on the COB when that is on the same
side and at the same or better price than an
incoming complex order, then the incoming order
will not COA and will also enter on the COB.
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67459
market participants 21 may submit these
orders or quotes. While the rules allow
the Exchange to determine which order
origin types (i.e., public customer,
Market-Makers, broker-dealers) are
eligible for entry into the COB,22 orders
of the eligible origin types submitted by
any Trading Permit Holders (as
applicable) or PAR Officials may enter
the COB.23 The proposed rule change
updates the rule text to match current
System functionality.
Finally, the proposed rule change
makes technical and other
nonsubstantive changes. Currently,
Interpretation and Policy .09 provides
that the Exchange may determine on a
class-by-class basis which electronic
matching algorithm from Rule 6.45A or
6.45B, as applicable, will apply to COB
executions in lieu of the algorithm
specified in Rule 6.53C(c)(ii)(2) and (3).
The proposed rule change moves that
language from Interpretation and Policy
.09 to both of those paragraphs.24 The
Exchange believes it is simpler and
more convenient to have the
information regarding how COB
executions may allocate in one place
within the rules. The proposed rule
change also amends subparagraph
(c)(ii)(3) to provide that, like
subparagraph (c)(ii)(2), the allocation of
complex orders submitted to trade
against orders or quotes in the COB that
trade against those orders or quotes
(which is the trade activity to which
that paragraph applies) will default to
the rules of trading priority otherwise
applicable to incoming electronic orders
in the individual leg components.
Interpretation and Policy .09 currently
provides the Exchange with the
authority to set this as the allocation
method for subparagraph (c)(ii)(3). The
proposed change merely indicates that,
like the allocation of COB to COB trades
as set forth in subparagraph (c)(ii)(2),
the allocation method will be the same
as the legs unless the Exchange provides
otherwise.
21 Rules 6.45A and 6.45B define market
participants as Market-Makers, Designated Primary
Market-Makers with an appointment in the subject
class, and floor brokers and PAR Officials
representing orders in the trading crowd. Trading
Permit Holders and PAR Officials as a group is
larger than market participants as a group, as the
term market participants does not include other
types of Trading Permit Holders (such as electronic
proprietary traders or brokers submitting electronic
orders on behalf of customers from off of the trading
floor).
22 See Rule 6.53C(c)(ii).
23 The Exchange notes that only Market-Makers
may submit quotes. See Rule 8.7.
24 The proposed rule change also makes a
corresponding change to Interpretation and Policy
.06(c), which relates to executions of stock-options
orders (types of complex orders) in the COB.
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In addition, the proposed rule change
amends Rule 6.53C(c)(ii)(3) to provide
that order and quote types (not just
quote types) not eligible to rest or trade
against the COB will be automatically
cancelled. The first several sentences in
that subparagraph reference orders and
quotes eligible to rest on the COB. The
Exchange intended for both non-eligible
orders and quotes to be cancelled; this
proposed change merely makes the
language in this paragraph consistent
throughout. Additional nonsubstantive
changes to Rule 6.53C are discussed
above.
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.25 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 26 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) 27 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the proposed rule
change removes impediments to a free
and open market and protects investors
by providing Trading Permit Holders
with more flexibility regarding when
complex orders will not COA. The
proposed rule change removes the
affirmative obligation currently imposed
on Trading Permit Holders to request
that their COA-eligible orders with two
legs COA on a class-by-class basis, as
Trading Permit Holders currently
request that all of their COA-eligible
orders COA upon entry into the System.
Therefore, the proposed rule change to
have COA as the default setting for
COA-eligible orders will have no impact
on COA-eligible orders submitted to the
Exchange. The proposed rule change
will allow Trading Permit Holders to
28 See NASDAQ OMX PHLX LLC (‘‘PHLX’’) Rule
1080, Commentary .07(a)(viii) and (e) (describing
the complex order live auction (‘‘COLA’’) process
and ‘‘do not auction’’ orders).
25 15
U.S.C. 78f(b).
26 15 U.S.C. 78f(b)(5).
27 Id.
VerDate Sep<11>2014
18:55 Oct 30, 2015
evaluate then-current market conditions
and determine if they do not want to
COA orders with two legs based on
those conditions and instead want those
orders to route to the COB for potential
immediate execution. These orders with
do-not COA requests will continue to
have execution opportunities and be
subject to the same priority and
allocation rules. In addition, the
proposed rule change promotes just and
equitable principles of trade and
promotes competition because another
options exchange has a substantially
similar rule, as further described below,
which similarly allows members to
designate that orders not initiate a
complex order auction on that
exchange.28
The current rules describe how COAeligible orders received while a COA is
ongoing would impact the COA. The
proposed rule change also adds detail
regarding how incoming orders with donot-COA requests or that are not COAeligible, as well as how changes in the
leg markets, may impact ongoing COAs,
which protects investors by enhancing
the description in CBOE Rules of
current COA functionality and
circumstances that may cause a COA to
end early. Because the proposed rule
change adds a provision regarding noCOA orders to the CBOE Rules, the
Exchange believes it is appropriate to
add the provision regarding how noCOA orders would impact a COA to the
CBOE Rules as well to ensure investors
understand how these orders may
impact a COA. The Exchange believes
the proposed rule change promotes just
and equitable principles of trade
because, if these orders cause a COA to
end, any executions that occur
following the COA occur in accordance
with allocation principles in place,
subject to an exception that the original
COA-eligible order receive time priority.
This exception prevents an order that
was entered after the initiation of a COA
from trading ahead of an order with the
same price that may have executed or
entered the COB if it did not COA.
Similarly, the Exchange believe it is fair
for a COA-eligible order that was
entered at a better price than an order
that was resting in the COB prior to
initiation of the COA to execute against
leg markets that become marketable
against the COA-eligible order and
resting order during the COA, because
the Trading Permit Holder who entered
the COA-eligible order was willing to
pay a better price than that of the resting
Jkt 238001
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
order. Incoming orders that do not COA
and leg market changes impact a COA
in a substantially similar manner as
incoming COA-eligible orders; the
proposed rule change just applies to
different order types not covered by the
current Rules. This proposed change
does not substantively change the COA
or allocation process.
The proposed rule change to update
the term market participants to Trading
Permit Holders and PAR Officials and to
reorganize certain provisions eliminates
potential confusion regarding the
processing of complex orders. This
additional information further perfects
the mechanism of a free and open
market and a national market system
and protects investors. Additionally,
updating the term market participants to
Trading Permit Holders and PAR
Officials further benefits investors
because it more accurately describes
who may enter complex orders into the
System. The Exchange notes that the
Trading Permit Holders and PAR
Officials includes all participants
included in the current market
participant definition (as well as
additional participants).
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change, including the
ability to designate orders to not COA,
is available to all Trading Permit
Holders. The Exchange believes the
proposed rule change provides Trading
Permit Holders with more flexibility
with respect to the submission of their
complex orders. The proposed rule
change also eliminates the affirmative
obligation imposed on Trading Permit
Holders to request that COA-eligible
orders COA, which they all do for all
classes. While Trading Permit Holders
may need to undertake system work to
allow them to include a do-not-COA
request on orders, use of this
designation is voluntary. CBOE believes
this flexibility may promote competition
by encouraging submission of complex
orders to the Exchange. To the extent
that proposed rule change makes CBOE
a more attractive marketplace to market
participants on other exchanges, such
market participants may elect to send
orders to CBOE to take advantage of the
additional functionality. Additionally,
other exchanges may determine to
provide similar functionality and
further enhance competition. The
Exchange also notes that other options
exchanges have substantially similar
E:\FR\FM\02NON1.SGM
02NON1
Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices
provisions as the proposed rule change,
as described above.
The proposed rule change to add
detail to the rules regarding the impact
of changes in the leg markets on a COA
describes current functionality and is
merely intended to enhance the
description of this functionality in the
Rules, and thus has no impact on
competition. The nonsubstantive and
technical changes have no impact on
competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. By order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be 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:
asabaliauskas on DSK5VPTVN1PROD with NOTICES
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–2015–089 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–2015–089. 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
VerDate Sep<11>2014
18:55 Oct 30, 2015
Jkt 238001
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–
2015–089 and should be submitted on
or before November 23, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–27793 Filed 10–30–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76281; File No. SR–C2–
2015–026]
Self-Regulatory Organizations; C2
Exchange, Incorporated; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Certificate of Incorporation and Bylaws
of Its Parent Company
October 27, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that, on October
23, 2015, C2 Options Exchange,
Incorporated (the ‘‘Exchange’’ or ‘‘C2’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
67461
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 the
certificate of incorporation and bylaws
of its parent Company, CBOE Holdings,
Inc. (‘‘CBOE Holdings’’). 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
CBOE Holdings is proposing to make
certain amendments to its Certificate
and Bylaws.
Proposed Amendments to the Certificate
CBOE Holdings proposes to make
various amendments to its Certificate.
First, CBOE Holdings proposes to
eliminate references that are applicable
only in connection with the CBOE
demutualization and CBOE Holdings
initial public offering (‘‘IPO’’) in 2010.
Currently, the Certificate provides for
the designation, preferences and rights
related to Class A–1 and Class A–2
common stock that had been authorized
by the Board and CBOE Holdings’
stockholders prior to the IPO. No shares
of Class A–1 or Class A–2 common
stock are currently outstanding, nor
would CBOE Holdings be able to issue
such shares at any time in the future as
the current Certificate limits their use to
the conversion of Class A and Class B
common stock, which was issued in
connection with the IPO and has been
retired. Accordingly, CBOE Holdings
proposes to delete obsolete provisions
E:\FR\FM\02NON1.SGM
02NON1
]]>Agencies
[Federal Register Volume 80, Number 211 (Monday, November 2, 2015)]
[Notices]
[Pages 67457-67461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27793]
[[Page 67457]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76273; File No. SR-CBOE-2015-089]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change Relating to
Complex Orders, as Modified by Amendment No. 1
October 27, 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 October 13, 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 prepared by the
Exchange. On October 26, 2015, the Exchange submitted Amendment No. 1
to the proposed rule change. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 6.53C. 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 Rule 6.53C regarding complex orders.
The proposed rule change (1) amends the rule provisions regarding the
initiation of a complex order auction (``COA''), (2) adds rule
provisions regarding the impact of certain incoming orders and changes
in the leg markets on an ongoing COA, and (3) updates the rule text
regarding who can submit complex orders. The proposed rule change also
makes technical and other nonsubstantive changes.
First, the Exchange proposes to amend Rule 6.53C and Interpretation
and Policy .04 regarding the initiation of a COA. Currently, CBOE Rule
6.53C(d)(ii) provides that on receipt of (1) a COA-eligible order \3\
with two legs and request from the Trading Permit Holder representing
the order or the PAR operator handling the order, as applicable, that
it be COA'd or (2) a complex order with three or more legs that (a)
meets the class, marketability, size and complex order type parameters
included in the definition of a COA-eligible order or (B) is designated
as immediate-or-cancel and meets the class, marketability and size
parameters included in the definition of a COA-eligible order,\4\ in
both cases regardless of the order's routing parameters or handling
instructions (except for orders routed for manual handling), the
Exchange will send a request for response (``RFR'') message to all
Trading Permit Holders who have elected to receive RFR messages.\5\
Interpretation and Policy .04(a) states that, with respect to the
initiation of a COA, Trading Permit Holders routing complex orders
directly to the complex order book (``COB'') may request that the
complex orders be COA'd on a class-by-class basis, and Trading Permit
Holders with resting complex orders on PAR may request that complex
orders be COA'd on an order-by-order basis. Currently, all Trading
Permit Holders have requested that all of their COA-eligible orders
with two legs process through COA upon entry into the System.
Therefore, rather than have Trading Permit Holders and PAR operators
affirmatively request that their COA-eligible orders with two legs COA,
the Exchange proposes to amend Rule 6.53C(d)(ii) to provide that
incoming COA-eligible orders with two legs (including orders submitted
for electronic processing from PAR) will COA by default.\6\
---------------------------------------------------------------------------
\3\ A ``COA-eligible order'' means a complex order that, as
determined by the Exchange on class-by-class basis, is eligible for
a COA considering the order's marketability (defined as a number of
tickets away from the current market), size, complex order type and
complex order origin types. Currently, in all Hybrid classes, (a)
only complex orders with origin codes for public and professional
customers, (b) all complex order types except for immediate-or-
cancel (``IOC'') orders, and (c) marketable orders and ``tweener''
limit orders bettering the same side of the derived net market are
eligible for COA. In Hybrid 3.0 classes (i.e. SPX), (a) all complex
order types (including IOC orders) and (b) only customer orders are
eligible for COA. See Regulatory Circulars RG06-73, RG08-38 and
RG08-97.
\4\ This description of the current rule includes changes to
Rule 6.53C proposed in SR-CBOE-2015-081, which CBOE filed for
immediate effectiveness on October 2, 2015.
\5\ ``RFR'' stands for a ``request for responses'' that occurs
in the COA process. The RFR message will identify the component
series, the size and side of the market of the COA-eligible order
and any contingencies if applicable.
\6\ The proposed rule change applies to all COA-eligible orders
with two legs, including eligible stock-option orders, in all Hybrid
and Hybrid 3.0 classes. The proposed rule change does not change the
allocation or priority provisions of complex orders, nor does it
impact leg order functionality described in Rule 6.53C(c)(iv), which
functionality the Exchange has the authority to implement (the
Exchange that leg order functionality is currently not available in
any classes). The proposed rule change also makes a nonsubstantive
change to move language regarding the System sending RFR messages to
the beginning of the provision.
---------------------------------------------------------------------------
The Exchange believes Trading Permit Holders should still maintain
flexibility to have these two-legged orders not COA. In order to
provide Trading Permit Holders with this flexibility, the proposed rule
change adds that, notwithstanding the foregoing, Trading Permit Holders
may request on an order-by-order basis that a COA-eligible order with
two legs not COA (referred to as a ``do-not-COA'' request). The
proposed rule change adds that if a two-legged order with a do-not-COA
requests rests on PAR, the PAR operator may not request that the order
COA (in other words, if the PAR operator submits that order for
electronic processing, the PAR operator cannot override the Trading
Permit Holder's do-not-COA order request, and the order will enter the
COB). Because of this proposed rule change, the Exchange deletes the
language in Interpretation and Policy .04(a) that indicates Trading
Permit Holders may request that complex orders be COA'd on a class-by-
class basis, as it is no longer necessary.\7\
[[Page 67458]]
While the proposed rule change will not permit Trading Permit Holders
to not COA orders on a class-by-class basis, the Exchange believes that
it will not burden Trading Permit Holders because they have not
requested this in the past. Additionally, allowing Trading Permit
Holders to make a do-not-COA request on an order-by-order basis will
better allow them to make decisions regarding the handling of their
orders based on market conditions at the time they submit their
orders.\8\
---------------------------------------------------------------------------
\7\ The proposed rule change deletes Interpretation and Policy
.04(a) in order to include all information regarding the initiation
of a COA in subparagraph (d)(ii) in the same place within the rule.
As a result, the proposed rule change deletes the lettering for
paragraph (b), which will be the only remaining provision in
Interpretation and Policy .04. The proposed rule change makes a
corresponding change in subparagraph (d)(ii) to delete a reference
to making a request pursuant to Interpretation and Policy .04.
\8\ For organizational purposes, the proposed rule change
divides paragraph (d)(ii) into two subparagraphs (A) and (B), which
address the general rule regarding when complex orders will COA and
the treatment of complex orders with do-not-COA requests,
respectively, and makes corresponding changes to cross-references in
the rule.
---------------------------------------------------------------------------
While the proposed rule change provides that Trading Permit Holders
may include a do-not-COA request on complex orders with two legs, the
proposed rule change indicates that an order with a do-not-COA request
may still COA after it has rested on the COB pursuant to Interpretation
and Policy .04.\9\ The Exchange believes that Trading Permit Holders
that include a do-not-COA request for an order upon entry into the
System do so to receive automatic execution with the leg market or the
COB, as applicable, without the delay of the COA.\10\ However, if that
does not occur and the order enters the COB to rest, the Exchange
believes it is appropriate to COA the order after resting on the COB
(if that functionality has been activated for the class) to try and
obtain an execution even though the Trading Permit Holder initially did
not want the order to COA, as the COA will not delay execution at that
point.
---------------------------------------------------------------------------
\9\ Interpretation and Policy .04(b) (which the proposed rule
change amends to become Interpretation and Policy .04) provides that
the Exchange may determine on a class-by-class basis to
automatically COA nonmarketable orders resting at the top of the COB
if they are within a number of ticks away from the current derived
net market.
\10\ The current COA response time interval is 100 milliseconds.
---------------------------------------------------------------------------
The Exchange notes that an order with a do-not-COA request will
still have execution opportunities. For example, such an order may
execute automatically upon entry into the System against the leg
markets or complex orders on the COB to the extent marketable (in
accordance with allocation rules set forth in Rule 6.53C).
Additionally, pursuant to Rule 6.53C(d)(viii)(1), such an order on the
opposite side of and marketable against a COA-eligible order may trade
against the COA-eligible order if the System receives the order while a
COA is ongoing. A do-not-COA request merely provides the order with the
opportunity to execute upon entry into the System rather than after
going through an auction; the order will be subject to the same
priority and allocation rules.\11\
---------------------------------------------------------------------------
\11\ A complex order that COAs upon entry into the System or
after resting in the COB will not miss any execution opportunities.
Pursuant to current Interpretation and Policy .04(b), an order that
COAs after resting on the COB will be nonmarketable and at the top
of the COB (and thus is the best-priced complex order at the time).
Rule 6.53C(d)(viii) (including as amended by this rule filing, as
further discussed below) describes how incoming complex orders
received during a COA impact the COA, including providing that the
COA'd order (which may be an order that COAs upon entry into the
System or after resting in the COB) will have time priority over the
incoming order, and ultimately provides that a COA'd order will not
lose execution opportunities to complex orders submitted during the
COA.
---------------------------------------------------------------------------
Second, the proposed rule change adds subparagraphs Rule
6.53C(d)(viii)(4) and (5) to describe additional circumstances that
will cause a COA to end early.\12\ Proposed subparagraph (viii)(4)
describes how an incoming order with a do-not-COA request or that is
not COA-eligible may impact an ongoing COA. Rule 6.53C(d)(viii)
currently describes the handling of unrelated complex orders that are
received prior to the expiration of the COA Response Time Interval.\13\
The proposed rule change states that if an order with a do-not-COA
request or an order that is not COA-eligible is received prior to the
expiration of the Response Time Interval for the original COA and is on
the same side of the market and at a price better than or equal to the
starting price, then the original COA will end. Similar to the current
provisions regarding incoming unrelated COA-eligible orders on the same
side of the COA-eligible order (and at a price better than or equal to
the starting price), the processing of the original COA pursuant to
subparagraphs (d)(iv) through (d)(vi) remains the same \14\ with the
addition that the priority of the original COA-eligible order and the
order with the do-not-COA request or the order that is not COA-
eligible, as applicable, will be according to time priority. In other
words, the COA-eligible order would trade before the order with the do-
not-COA request or order that is not COA-eligible, regardless of the
price of each order.\15\ The purpose of this proposed provision (as it
is for the current provisions related to unrelated complex orders) is
to prevent the order with the do-not-COA request or the order that is
not COA-eligible,\16\ as applicable, from executing prior to the
original COA-eligible order, which, if it did not COA, may have
executed or entered the COB
[[Page 67459]]
(because it would have entered the COB first, it potentially would have
priority over the incoming order to the extent the algorithm applicable
to the class considered time as a factor for allocation).
---------------------------------------------------------------------------
\12\ The proposed rule change makes corresponding changes to the
heading and introductory paragraph of subparagraph (d)(viii).
\13\ Rule 6.53C(d)(viii) states that incoming complex orders
that are received prior to the expiration of the response time
interval for a COA-eligible order (the ``original COA'') will impact
the original COA as follows: (a) Incoming complex orders that are
received prior to the expiration of the response time interval for
the original COA that are on the opposite side of the market and are
marketable against the starting price of the original COA-eligible
order will cause the original COA to end. The processing of the
original COA pursuant to subparagraphs (d)(iv) through (d)(vi)
remains the same. (The ``starting price'' means the better of the
original COA-eligible order's limit price or the best price, on a
net debit or credit basis, that existed in the EBook or COB at the
beginning of the response time interval.) (b) Incoming COA-eligible
orders that are received prior to the expiration of the response
time interval for the original COA that are on the same side of the
market, at the same price or worse than the original COA-eligible
order and better than or equal to the starting price will join the
original COA. The processing of the original COA pursuant to
subparagraphs (d)(iv) through (d)(vi) remains the same with the
addition that the priority of the original COA-eligible order and
incoming COA-eligible order(s) will be according to time priority.
(c) Incoming COA-eligible orders that are received prior to the
expiration of the response time interval for the original COA that
are on the same side of the market and at a better price than the
original COA-eligible order will join the original COA, cause the
original COA to end, and a new COA to begin for any remaining
balance on the incoming COA-eligible order. The processing of the
original COA pursuant to subparagraphs (d)(iv) through (d)(vi)
remains the same with the addition that the priority of the original
COA-eligible order and incoming COA-eligible order will be according
to time priority.
\14\ Rule 6.53C(d)(iv) through (d)(vi) provides that at the
expiration of the response time interval, the COA-eligible order
will trade with orders and quotes in the following order: (a)
Individual orders and quotes residing in the book (with allocation
consistent with the ultimate matching algorithm (``UMA'') described
in Rule 6.45A or 6.45B, as applicable), (b) public customer complex
orders resting in the COB before, or that are received during, the
response time interval and public customer RFR responses (with
allocation according to time priority), (c) nonpublic customer
orders resting in the COB before the response time interval (with
allocation consistent with UMA described in Rule 6.45A or 6.45B, as
applicable), and (d) nonpublic customer orders resting in the COB
that are received during the response time interval and nonpublic
customer responses (with allocation consistent with the ultimate
matching algorithm described in Rule 6.45A or 6.45B, as applicable,
capped at the response size). If a COA-eligible order cannot be
filled in whole or in a permissible ratio, the order (or any
remaining balance) will route to the COB or back to PAR, as
applicable. Thus, the unrelated order with a do-not-COA request or
the order that is not COA-eligible will have execution opportunities
against the leg markets, complex orders in the COB and COA
responses, with priority after the original COA-eligible order.
\15\ This time priority is the same provided to COA-eligible
orders over incoming orders in subparagraphs (d)(viii)(2) and (3).
\16\ Current paragraph (d)(viii) currently addresses the impact
of incoming COA-eligible orders on the same side of the original
COA-eligible order. The proposed rule change adds detail regarding
the impact of orders that are not COA-eligible and orders with a do-
not-COA request. The Exchange believes this provides a more complete
description in its rules regarding the impact of unrelated complex
orders received during a COA.
---------------------------------------------------------------------------
For example, assume that a COA-eligible order to buy with a net
limit price of $1.20 is received when the book or COB price (and thus
the starting price) is a net price bid of $1.10. The System will
initiate a COA at a net price of $1.10. An incoming order with a do-
not-COA request to buy at a net price of $1.10 or higher causes the
original COA to end. To the extent possible, the original COA-eligible
order will be filled first, and then the order with the do-not-COA
request will be filled (subject to the COA allocation provisions
describe above).\17\ Any remaining balance on the original COA-eligible
order or the incoming order with the do-not-COA request will route to
COB or back to PAR. The Exchange believes this result to be
appropriate, even if the incoming order with the do-not-COA request had
a higher buy price than the COA-eligible order (e.g. $1.21), because if
the COA-eligible order had not initiated a COA and was marketable at
the time it was entered (for example, if the offer in the book was
$1.15), it could have executed against the book before the order was
entered. Providing the COA-eligible order with time priority is
intended to ensure it does not miss an execution opportunity it would
have otherwise received if it had not initiated a COA.
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\17\ See id.
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Proposed subparagraph (viii)(5) provides that if the leg markets
were not marketable against a COA-eligible order when the order entered
the System (and thus prior to the initiation of a COA) but became
marketable with the COA-eligible order prior to the expiration of the
Response Time Interval, it will cause the COA to end.\18\ The
processing of the original COA pursuant to subparagraphs (d)(iv)
through (d)(vi) remains the same.
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\18\ This is similar to the result described in subparagraph
(viii)(1), which provides that an incoming complex order on the
opposite side of the market as and marketable against the COA-
eligible order will cause the COA to end.
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For example, assume that the derived net leg market is $1.00 to
$1.05. A COA-eligible order to buy at a net price of $1.02 is entered
and initiates a COA. During the COA (prior to the end of the Response
Time Interval), the derived net leg market offer changes to $1.01.
Because this is marketable against the COA-eligible order, this change
in the derived net leg markets will cause the COA to end. Assuming the
derived net leg market offer price of $1.01 is the best net price at
the end of the COA,\19\ the COA-eligible order will execute against the
leg markets at that net price, and any remainder will then trade
against complex orders in the COB and auction responses. If a complex
order to buy was resting on the COB (for example, at a net price of
$1.01) at the initiation of the COA (for example, a do-not-COA order or
an order that is not COA-eligible),\20\ that order and the COA-eligible
order would be allocated against the leg markets in the same manner as
any other two complex orders pursuant to Rule 6.53C(c)(ii) regarding
COB executions, which is by price and then pursuant to the rules of
trading priority otherwise applicable to incoming orders in the
individual component legs. The COA-eligible order would always have
priority over the resting order, as it would always have a higher (if a
buy order) or lower (if a sell order) net price than the resting order.
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\19\ The leg market offer would be the best price at the end of
the COA if no auction response, order resting in the COB, or order
that entered the System during the COA had a better price.
\20\ As previously indicated, only orders that are marketable or
that improve the price on the same side of the market initiate a
COA. See supra note 1. Thus, for there to be a situation where a
complex order was already resting on the COB at the initiation of a
COA, the order resting on the COB would be at a worse price than the
COA-eligible order that initiated the COA. If there is a complex
order resting on the COB when that is on the same side and at the
same or better price than an incoming complex order, then the
incoming order will not COA and will also enter on the COB.
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In the example above, if a complex order to buy at a net price of
$1.01 was resting in the COB at the time the COA-eligible order to buy
at a net price of $1.02 entered the System and initiated the COA, and
the same change in the derived net leg markets occurs, assuming the
derived net leg market offer price of $1.01 is the best net price at
the end of the COA, the COA-eligible order will trade against the
derived net leg offer at $1.01 first, because it was entered at (and
thus willing to pay) a better net price than the resting complex order
(to the extent there was insufficient size in the leg markets to fill
the COA-eligible order, the remainder would then execute against
complex orders in the COB and auction responses). If there is
sufficient size left in the leg markets to trade against the resting
complex order, then the resting order will also trade (in full or in a
permissible ratio).
Third, the proposed rule change amends Rule 6.53C(c)(ii)(3) and
Interpretation and Policy .06(c) to provide that all Trading Permit
Holders and PAR Officials may submit orders or quotes to trade against
orders in the COB. Currently, the rule provides that market
participants \21\ may submit these orders or quotes. While the rules
allow the Exchange to determine which order origin types (i.e., public
customer, Market-Makers, broker-dealers) are eligible for entry into
the COB,\22\ orders of the eligible origin types submitted by any
Trading Permit Holders (as applicable) or PAR Officials may enter the
COB.\23\ The proposed rule change updates the rule text to match
current System functionality.
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\21\ Rules 6.45A and 6.45B define market participants as Market-
Makers, Designated Primary Market-Makers with an appointment in the
subject class, and floor brokers and PAR Officials representing
orders in the trading crowd. Trading Permit Holders and PAR
Officials as a group is larger than market participants as a group,
as the term market participants does not include other types of
Trading Permit Holders (such as electronic proprietary traders or
brokers submitting electronic orders on behalf of customers from off
of the trading floor).
\22\ See Rule 6.53C(c)(ii).
\23\ The Exchange notes that only Market-Makers may submit
quotes. See Rule 8.7.
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Finally, the proposed rule change makes technical and other
nonsubstantive changes. Currently, Interpretation and Policy .09
provides that the Exchange may determine on a class-by-class basis
which electronic matching algorithm from Rule 6.45A or 6.45B, as
applicable, will apply to COB executions in lieu of the algorithm
specified in Rule 6.53C(c)(ii)(2) and (3). The proposed rule change
moves that language from Interpretation and Policy .09 to both of those
paragraphs.\24\ The Exchange believes it is simpler and more convenient
to have the information regarding how COB executions may allocate in
one place within the rules. The proposed rule change also amends
subparagraph (c)(ii)(3) to provide that, like subparagraph (c)(ii)(2),
the allocation of complex orders submitted to trade against orders or
quotes in the COB that trade against those orders or quotes (which is
the trade activity to which that paragraph applies) will default to the
rules of trading priority otherwise applicable to incoming electronic
orders in the individual leg components. Interpretation and Policy .09
currently provides the Exchange with the authority to set this as the
allocation method for subparagraph (c)(ii)(3). The proposed change
merely indicates that, like the allocation of COB to COB trades as set
forth in subparagraph (c)(ii)(2), the allocation method will be the
same as the legs unless the Exchange provides otherwise.
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\24\ The proposed rule change also makes a corresponding change
to Interpretation and Policy .06(c), which relates to executions of
stock-options orders (types of complex orders) in the COB.
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[[Page 67460]]
In addition, the proposed rule change amends Rule 6.53C(c)(ii)(3)
to provide that order and quote types (not just quote types) not
eligible to rest or trade against the COB will be automatically
cancelled. The first several sentences in that subparagraph reference
orders and quotes eligible to rest on the COB. The Exchange intended
for both non-eligible orders and quotes to be cancelled; this proposed
change merely makes the language in this paragraph consistent
throughout. Additional nonsubstantive changes to Rule 6.53C are
discussed above.
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.\25\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \26\ 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) \27\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
\27\ Id.
---------------------------------------------------------------------------
In particular, the proposed rule change removes impediments to a
free and open market and protects investors by providing Trading Permit
Holders with more flexibility regarding when complex orders will not
COA. The proposed rule change removes the affirmative obligation
currently imposed on Trading Permit Holders to request that their COA-
eligible orders with two legs COA on a class-by-class basis, as Trading
Permit Holders currently request that all of their COA-eligible orders
COA upon entry into the System. Therefore, the proposed rule change to
have COA as the default setting for COA-eligible orders will have no
impact on COA-eligible orders submitted to the Exchange. The proposed
rule change will allow Trading Permit Holders to evaluate then-current
market conditions and determine if they do not want to COA orders with
two legs based on those conditions and instead want those orders to
route to the COB for potential immediate execution. These orders with
do-not COA requests will continue to have execution opportunities and
be subject to the same priority and allocation rules. In addition, the
proposed rule change promotes just and equitable principles of trade
and promotes competition because another options exchange has a
substantially similar rule, as further described below, which similarly
allows members to designate that orders not initiate a complex order
auction on that exchange.\28\
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\28\ See NASDAQ OMX PHLX LLC (``PHLX'') Rule 1080, Commentary
.07(a)(viii) and (e) (describing the complex order live auction
(``COLA'') process and ``do not auction'' orders).
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The current rules describe how COA-eligible orders received while a
COA is ongoing would impact the COA. The proposed rule change also adds
detail regarding how incoming orders with do-not-COA requests or that
are not COA-eligible, as well as how changes in the leg markets, may
impact ongoing COAs, which protects investors by enhancing the
description in CBOE Rules of current COA functionality and
circumstances that may cause a COA to end early. Because the proposed
rule change adds a provision regarding no-COA orders to the CBOE Rules,
the Exchange believes it is appropriate to add the provision regarding
how no-COA orders would impact a COA to the CBOE Rules as well to
ensure investors understand how these orders may impact a COA. The
Exchange believes the proposed rule change promotes just and equitable
principles of trade because, if these orders cause a COA to end, any
executions that occur following the COA occur in accordance with
allocation principles in place, subject to an exception that the
original COA-eligible order receive time priority. This exception
prevents an order that was entered after the initiation of a COA from
trading ahead of an order with the same price that may have executed or
entered the COB if it did not COA. Similarly, the Exchange believe it
is fair for a COA-eligible order that was entered at a better price
than an order that was resting in the COB prior to initiation of the
COA to execute against leg markets that become marketable against the
COA-eligible order and resting order during the COA, because the
Trading Permit Holder who entered the COA-eligible order was willing to
pay a better price than that of the resting order. Incoming orders that
do not COA and leg market changes impact a COA in a substantially
similar manner as incoming COA-eligible orders; the proposed rule
change just applies to different order types not covered by the current
Rules. This proposed change does not substantively change the COA or
allocation process.
The proposed rule change to update the term market participants to
Trading Permit Holders and PAR Officials and to reorganize certain
provisions eliminates potential confusion regarding the processing of
complex orders. This additional information further perfects the
mechanism of a free and open market and a national market system and
protects investors. Additionally, updating the term market participants
to Trading Permit Holders and PAR Officials further benefits investors
because it more accurately describes who may enter complex orders into
the System. The Exchange notes that the Trading Permit Holders and PAR
Officials includes all participants included in the current market
participant definition (as well as additional participants).
B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change,
including the ability to designate orders to not COA, is available to
all Trading Permit Holders. The Exchange believes the proposed rule
change provides Trading Permit Holders with more flexibility with
respect to the submission of their complex orders. The proposed rule
change also eliminates the affirmative obligation imposed on Trading
Permit Holders to request that COA-eligible orders COA, which they all
do for all classes. While Trading Permit Holders may need to undertake
system work to allow them to include a do-not-COA request on orders,
use of this designation is voluntary. CBOE believes this flexibility
may promote competition by encouraging submission of complex orders to
the Exchange. To the extent that proposed rule change makes CBOE a more
attractive marketplace to market participants on other exchanges, such
market participants may elect to send orders to CBOE to take advantage
of the additional functionality. Additionally, other exchanges may
determine to provide similar functionality and further enhance
competition. The Exchange also notes that other options exchanges have
substantially similar
[[Page 67461]]
provisions as the proposed rule change, as described above.
The proposed rule change to add detail to the rules regarding the
impact of changes in the leg markets on a COA describes current
functionality and is merely intended to enhance the description of this
functionality in the Rules, and thus has no impact on competition. The
nonsubstantive and technical changes have no impact on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2015-089 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-2015-089. 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-2015-089 and should be
submitted on or before November 23, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-27793 Filed 10-30-15; 8:45 am]
BILLING CODE 8011-01-P
