Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to LMMs and DPMs, 9910-9919 [2016-04109]
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Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices
Trader registration qualification
examination for Securities Traders
respectively and (2) replace the
Proprietary Trader Principal registration
category with the registration category
of Securities Trader Principal and
require Securities Trader Principals to
take the Series 57 qualification
examination in addition to the Series 24
qualification examination.3
Currently, .08 of Supplementary
Material to Rule 313, Registration
Requirements, inadvertently uses the
term ‘‘Permit Holder’’ rather than
‘‘Member,’’ which is the correct term
used throughout the ISE Rulebook
describe a member of the Exchange. ISE
now proposes to amend .08 to
Supplementary Material to Rule 313 to
reflect ISE’s longstanding use of the
term ‘‘Member’’ to describe members of
the Exchange.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 4 in general, and furthers the
objectives of Section 6(b)(5) 5 in
particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Exchange believes it
is appropriate to make the proposed
replacement of ‘‘Permit Holder’’ with
‘‘Member’’ so that the correct term is
used in its rules. Additionally, replacing
the inadvertent use of the term ‘‘Permit
Holder’’ with ‘‘Member’’ will create
consistency and eliminate confusion in
its rules.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
3 See Securities Exchange Act Release No. 76835
(January 5, 2016), 81 FR 1245 (January 11, 2016),
SR–ISE–2015–44.
4 15 U.S.C. 78f(b).
5 15 U.S.C. 78f(b)(5).
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The Exchange has neither solicited
nor received written comments on this
proposed rule change. The Exchange
has not received any written comments
from members or other interested
parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not significantly affect the
protection of investors or the public
interest, does not impose any significant
burden on competition, and, by its
terms, does not 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 6 and Rule 19b–
4(f)(6) thereunder.7 The Exchange
provided the Commission with written
notice of its intent to file the proposed
rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of filing the proposed
rule change, or such shorter time as
designated by the Commission, as
required by Rule 19b–4(f)(6).
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
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
This proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the
Exchange Act because ISE is correcting
its rule text to replace the inadvertent
use of the term ‘‘Permit Holder’’ with
‘‘Member’’ because ‘‘Member’’ is the
correct term used throughout the ISE
Rulebook to describe a member of the
Exchange.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
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–
ISE–2016–05 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–ISE–2016–05. 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. Copies of such filing
also will be available for inspection and
copying at the principal office of the
ISE. 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–ISE–2016–05 and should be
submitted by March 18, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–04108 Filed 2–25–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77200; File No. SR–CBOE–
2016–009]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change Relating to
LMMs and DPMs
February 22, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
6 15
U.S.C. 78s(b)(3)(A).
7 17 CFR 240.19b–4(f)(6).
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Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices
notice is hereby given that on February
8, 2016, 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. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to (i)
reorganize, simplify and make
consistent certain text relating to Lead
Market-Maker (‘‘LMM’’) and Designated
Primary Market-Market (‘‘DPM’’)
obligations generally, (ii) amend its
rules related to LMMs, (iii) delete
outdated references in its rules to
Supplemental Market-Makers (‘‘SMMs’’)
and other obsolete language and (iv)
make other corresponding and clarifying
changes.
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.
1. Purpose
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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
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
The Exchange proposes to (i)
reorganize, simplify and make
consistent certain text relating to LMM
and DPM obligations generally, (ii)
amend its Rules related to LMMs, (iii)
delete outdated references in its Rules to
SMMs and other obsolete language and
(iv) make other corresponding and
clarifying changes.
First, the Exchange is proposing to
amend Rules 8.15 (pertaining to LMMs
in Hybrid 3.0 classes), 8.15A (pertaining
to LMMs in Hybrid classes) 3 and 8.85
(pertaining to DPMs) to revise the
descriptions of certain obligations of
LMMs and DPMs (e.g., obligations
3 ‘‘Hybrid Trading System’’ refers to the
Exchange’s trading platform that allows MarketMakers to submit electronic quotes in their
appointed classes. ‘‘Hybrid 3.0 Platform’’ is an
electronic trading platform on the Hybrid Trading
System that allows one or more quoters to submit
electronic quotes that represent the aggregate
Market-Maker quoting interest in a series for the
trading crowd. Classes authorized by the Exchange
for trading on the Hybrid Trading System are
referred to as ‘‘Hybrid classes.’’ Classes authorized
by the Exchange for trading on the Hybrid 3.0
Platform are referred to as ‘‘Hybrid 3.0 classes.’’
References to ‘‘Hybrid,’’ ‘‘Hybrid System,’’ or
‘‘Hybrid Trading System’’ include all platforms
unless otherwise provided by rule. See Rule
1.1(aaa).
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related to quote accuracy, bid/ask
differentials, minimum size and trading
rotations, competitive markets and
promotion of the Exchange, and
material operational or financial change
notifications) to be more consistent with
each other (and the descriptions of these
obligations contained in other rules).4
The Exchange proposes these changes
merely to make the language regarding
these obligations more consistent
throughout the Rules and delete
outdated and duplicative language.
The following table shows certain
obligations to which LMMs and DPMs
are already subject (either pursuant to
Rules 8.15, 8.15A and 8.85 or other
Rules),5 the location in the Rules of
these obligations, and the corresponding
proposed provision, when applicable:
4 The proposed language is also consistent with
e-DPM obligations as set forth in former Rule 8.93.
The Exchange eliminated the e-DPM program. See
Securities Exchange Act Release No. 34–71227
(January 2, 2014), 79 FR 1398 (January 8, 2014) (SR–
CBOE–2013–110). While the Exchange eliminated
the e-DPM program for the reasons set forth in that
rule filing, LMMs and DPMs continue to perform
similar functions as e-DPMs use to perform, and the
Exchange believes it is appropriate to mirror the
language describing the LMM and DPM obligations
to the language describing the previous e-DPM
obligations, which previously had been approved
by the Securities and Exchange Commission (the
‘‘Commission’’), because LMMs and DPM receive
substantially similar benefits and are subject to
substantially similar obligations as e-DPMs received
and were subjected.
5 The Exchange notes that rules that apply to all
Market-Makers, such as Rules 8.7 regarding MarketMaker obligations and 8.51 regarding firm quotes,
apply to LMMs and DPMs, unless a provision
specific to a LMM or DPM conflicts with a
provision in one of these common Market-Maker
rules. For example, LMMs and DPMs are subject to
different continuous quoting obligations pursuant
to Rules 8.15A and 8.87, respectively, than the
continuous quoting obligation set forth in Rule 8.7.
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Current provisions in Rules 8.15, 8.15A and
8.85
(as applicable)
Rules 8.15(a)(4) and 8.15A(a)(D)—CBOE will
review and evaluate the conduct of LMMs,
including but not limited to compliance with
Rules 8.1, 8.2, 8.3, and 8.7.
Rule 8.85(a)—each DPM must fulfill all of the
obligations of a Market-Maker under the
Rules.
Rules 8.15A(b)(ii) and 8.85(a)(ii)—LMMs and
DPMs, respectively, must assure that their
displayed quotations are honored for at least
the number of contracts prescribed pursuant
to Rule 8.51.
Rule 8.15A(b)(i) and (v) 8—LMMs must quote
within Exchange-prescribed bid/ask differentials.
Rule 8.85(a)(iii)—DPMs must comply with the
bid/ask differential requirements determined
by the Exchange.
Rules 8.15A(b)(ii) and 8.85(a)(ii)—LMMs and
DPMs, respectively, must assure that their
displayed quotations are honored for at least
the number of contracts prescribed pursuant
to Rule 8.51 (which permits CBOE to prescribe a minimum quote size).
Rule 8.15 (introductory paragraph and paragraphs (b)(1) and (2))—LMMs in Hybrid 3.0
classes must participate in opening and
other rotations described in Rule 6.2B, accommodate a relatively active opening and
facilitate any imbalances.
Rules 8.15A(b)(iv) and 8.85(a)(xi)—LMMs and
DPMs, respectively, must ensure that a trading rotation is initiated promptly following the
opening of the underlying security (or
promptly after 8:30 a.m. in an index class) in
accordance with Rule 6.2B in 100% of the
series of each allocated class by entering
opening quotes as necessary.
Rule 8.85(c)(ii)—DPMs must make competitive
markets on the Exchange and otherwise promote the Exchange in a manner that is likely
to enhance the ability of the Exchange to
compete successfully for order flow in the
classes they trade.
Rules 8.15(b)(4) and 8.15A(b)(iii)—LMMs must
perform obligations for a period of one expiration month commencing on the first day
following an expiration, and failure to perform
such obligations for such time may result in
suspension of up to three months from trading in all series of the class.
Rule 8.85(c)(iii)—DPMs must promptly inform
the Exchange of any material change in the
financial or operational condition of the DPM.
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Rules 8.15A(b)(vi) and 8.85(a)(xii)—LMMs and
DPMs, respectively, must act as agent for or
use their accounts for, respectively, orders
routed to other exchanges that are participants in the Intermarket Options Linkage
Plan (the ‘‘Old Linkage Plan’’).
6 The
Exchange proposes to exclude the
references to Rule 8.51 in proposed Rules 8.15 and
8.85, as Rule 8.51 describes the firm quote
obligation and applies to LMMs and DPMs.
7 This revised language is consistent with the
language in former Rule 8.93(ii). While this
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Current provisions in other rules
Proposed provisions in rules 8.15 and 8.85
(as applicable)
Rules 8.1, 8.2, 8.3, and 8.7—definition of Market-Maker, registration of Market-Makers
appointment of Market-Makers, and obligations of all Market-Makers (including LMMs
and DPMs), respectively.
Rule 8.15(b)—each LMM must fulfill all of the
obligations of a Market-Maker under the
Rules (conforms to current Rule 8.85(a)).
Rule 8.7(b)(iii)—Market-Makers must assure
that any market quotes they cause to be
disseminated are accurate.
Rule 8.51—each Market-Maker must sell
(buy) at least the established number of
contracts at the offer (bid) that is displayed
when a Market-Maker receives a buy (sell)
order. 6
Rules 8.7(b)(iv) and (d)(iv)—Market-Makers
must comply with the bid/ask differential requirements determined by the Exchange. 9
Rules 8.15(b)(ii) and 8.85(a)(ii)—LMMs and
DPMs, respectively, must assure that their
market quotations are accurate.7
Rule 8.7(d)(ii)(B) and (iv)—Market-Makers
must quote for the minimum number of contracts determined by the Exchange. 11
Rules 8.15A(b)(iv) and 8.85(a)(vii)—LMMs
and DPMs, respectively, must assure that
their market quotations comply with the minimum size requirements prescribed by the
Exchange, which minimum must be at least
one contract.12
Rules 8.15A(b)(v) and 8.85(a)(xi)—LMMs and
DPMs, respectively, must enter opening
quotes within one minute of the initiation of
an opening rotation in any series that is not
open due to the lack of a quote (see Rule
6.2B(e)(i) or Interpretation and Policy
.03(a)(i)), and participate in other rotations
described in Rule 6.2B or 24.13, as applicable.13
Rule 6.2B(c) and Interpretation and Policy
.01(a)—LMMs must participate in trading rotations.
Rule 8.7(b)(i)—Market-Makers must compete
with other Market-Makers to improve markets.
Rule 8.85(c)(vi)—a DPM must continue to act
as a DPM and to fulfill all of the DPM’s obligations as a DPM until the Exchange relieves the DPM of its approval and obligations to act as a DPM or the Exchange terminates the DPM’s approval to act as a
DPM.
Rules 3.7(a) and 15.5—requires Trading Permit Holders to submit documentation regarding their organization, financial structure
and ownership, including updates, and other
financial information, to the Exchange.
Rule 8.3(a)(i)—permits the Exchange to consider the financial resources available to a
Market-Maker.
None .................................................................
provision is not included in current Rule 8.15,
LMMs in Hybrid 3.0 classes are currently subject to
this obligation pursuant to Rule 8.7(b)(iii) and will
be subject to it pursuant to proposed Rule
8.15(b)(ii).
8 The Exchange proposes to delete current Rule
8.15A(b)(v) because the obligation to quote within
the bid/ask different and minimum size
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Rule 8.15(b)(iii)—LMMs must comply with the
bid/ask differential requirements determined
by the Exchange (conforms to current Rule
8.85(a)(iii)).10
Rule 8.15(b)(vi)—LMMs and DPMs must
make competitive markets on the Exchange
and otherwise promote the Exchange in a
manner that is likely to enhance the ability
of the Exchange to compete successfully for
order flow in the classes they trade (conforms to Rule 8.85(c)(ii)).14
Rule 8.15(b)(vii)—an LMM must continue to
act as an LMM and fulfill the obligations of
an LMM until the Exchange relieves it of its
approval to act as an LMM or of its appointment and obligations to act as an LMM in a
particular
class
(conforms
to
Rule
8.85(c)(vi)).15
Rule 8.15(b)(viii)—LMMs must immediately
notify the Exchange of any material operational or financial changes to the LMM organization as well as obtain the Exchange’s
approval prior to effecting changes to the
ownership, capital structure, voting authority, distribution of profits/losses, or controls
of the LMM organization.16
Delete.17
requirements is not limited to open outcry quotes.
These obligations are included in proposed Rule
8.15(b)(iii) and (iv). Additionally, Rule 8.7(d)
requires all Market-Makers, including LMMs, to
respond to open outcry requests for quotes by floor
brokers, making this provision redundant. DPMs are
similarly subject to this requirement (as all Market-
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As this table demonstrates, LMMs and
DPMs generally are already subject to
Makers are); however, Rule 8.85 does not list this
as a specific obligation for DPMs.
9 Rule 6.2B(iii) allows the Exchange to set
different bid/ask differential requirements for
opening quotations.
10 This revised language is consistent with the
language in former Rule 8.93(iii). While this
provision is not included in current Rule 8.15,
LMMs in Hybrid 3.0 classes are currently subject to
this obligation pursuant to 8.7(b)(iv) and (d)(iv) and
will continue to be subject to it pursuant to
proposed Rule 8.15(b)(iii). The proposed rule
change also deletes in current Rule 8.15A(b)(i) a
reference that an LMM’s continuous electronic
quotes must comply with the bid/ask differential
requirements determined by the Exchange on a
class-by-class basis, as this is redundant of the
obligation in current Rules 8.15(b)(1) and
8.15A(b)(v) and proposed Rule 8.15(b)(iii).
Additionally, the proposed rule change deletes
language in Rule 8.85(a)(iii) that says this obligation
relates to option contracts. As all securities that
trade on CBOE are options, this language is
unnecessary.
11 Rule 6.2B(c) and Interpretation and Policy .02
allows the Exchange to set a different minimum
number of contracts for opening quotations.
12 This revised language is consistent with the
language in former Rule 8.93(iv). While this
provision is not included in current Rule 8.15,
LMMs in Hybrid 3.0 classes are currently subject to
this obligation pursuant to 8.7(d)(ii)(B) and (iv) and
will be subject to it pursuant to proposed Rule
8.15(b)(iv).
13 Current Rule 8.15 already explicitly subjects
LMMs in Hybrid 3.0 classes to this obligation. Rule
6.2B(g) and (h) provides that the rotation process
described in Rule 6.2B may be used to reopen a
class after a trading halt and for a closing rotation.
Rule 24.13 also sets forth trading rotations that may
be used for index options. Thus, LMMs’ and DPMs’
may be required to participate in those trading
rotations as well to the extent required by those
rules.
14 This revised language is consistent with the
language in former Rule 8.93(vi). CBOE does not
believe the proposed rule change imposes a new
obligation on LMMs, as Rule 8.7 requires MarketMakers to be competitive; rather, it enhances the
description of this obligation.
15 This provision is consistent with former Rule
8.93(v) (with respect to e-DPMs). This provision is
also consistent with the Exchange’s ability to
appoint LMMs and remove LMMs if, for example,
they do not fulfill their LMM duties under current
Rules 8.15 and 8.15A (as described in the previous
row of the table). The Exchange believes the
proposed language is more appropriate, as it
requires LMMs to satisfy their obligations during
their entire term (which may be more than one
month), and excludes the language about a possible
suspension for not performing their obligations, as
Chapter XVII of the Rules describes the process for
possible suspensions for rule violations.
16 This revised language is consistent with the
language in former Rule 8.93(viii). The Exchange
does not propose to add language to Rule 8.85
regarding the need for approval prior to effecting
certain organizational changes with respect to
DPMs because Rule 8.89 has a similar requirement
that covers some of these organizational changes for
DPMs. Additionally, other rules applicable to DPMs
impose additional financial requirements (Rule
8.86) and allow the Exchange to review a DPM’s
operation at any time (Rule 8.88).
17 This language is outdated, as it relates to the
now obsolete Old Linkage Plan, which has been
replaced by the Plan for the Purpose of Creating and
Operating an Intermarket Option Linkage. See, e.g.,
Securities Exchange Act Release No. 56761
(November 7, 2007), 72 FR 64094 (November 14,
2007).
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the obligations in the proposed
provisions—any additional obligations
imposed by the proposed rule change on
LMMs and DPMs are de minimis and
will not be burdensome. LMMs in
Hybrid and Hybrid 3.0 classes and
DPMs (and formerly e-DPMs), while
being different market participants
within CBOE’s market, generally serve
in the same role in their appointed
classes, which is a provider of
additional liquidity pursuant to quoting
obligations that are higher than other
Market-Makers) (in exchange for
receiving a participation entitlement).
LMMs and DPMs have substantially
similar functions and obligations
(including the same continuous quoting
obligations, along with the same
participation entitlement percentages),
and the Exchange believes having
consistent language with respect to
these obligations will simplify its rules
and reflect the similar roles served by
LMMs and DPMs.18
The Exchange believes the proposed
obligation in the fifth row of the table
is only a slight modification of the
current opening quoting obligations of
LMMs and DPMs. The current rules
require LMMs and DPMs to enter
opening quotes only as necessary to
ensure the opening of 100% of series in
a class. The Exchange modifies the
opening quote requirement to have a
specific time (one minute) by when
opening quotes must be entered rather
than the nonspecific term
‘‘promptly.’’ 19 The Exchange believes
this gives clearer guidance to LMMs and
DPMs regarding the opening quote
obligation, which further promotes
compliance by LMMs and DPMs with
this obligation. Nearly all series open for
trading within this timeframe on a daily
basis, and thus the Exchange believes
this timeframe is appropriate and will
not be unduly burdensome on LMMs
and DPMs while still ensuring a prompt
opening. The proposed rule change also
modifies the language to provide that
the timing of the opening quoting
obligation begins after the initiation of
an opening rotation. Trading rotations
are not initiated by opening quotes.
Therefore, the proposed change is
consistent with system functionality
related to openings, as described in Rule
18 Currently, the primary difference between
LMMs and DPMs relates to their appointment
terms. An LMM receives an appointment for a
limited term (e.g., one month), while a DPM serves
in that role until it resigns or the Exchange removes
it from that role pursuant to Rule 8.90.
19 The proposed rule change makes a
corresponding change to Rule 17.50(g)(14), which
includes the opening quoting obligation in the
minor rule violation plan.
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6.2B.20 In addition, the Exchange
clarifies that LMMs and DPMs must
enter opening quotes when a series does
not open due to a lack of quote pursuant
(see Rule 6.2B(e)(i) or Interpretation and
Policy .03(a)(i), as applicable). There are
several conditions that may be present
that prevent a series from opening as set
forth in Rule 6.2B(e) and Interpretation
and Policy .03(a); however, LMMs and
DPMs can help ‘‘ensure an opening’’ as
required by the current rule only by
entering quotes. The Exchange believes
the proposed rule language more
accurately states the current obligation,
as LMMs and DPMs cannot otherwise
help ensure an opening if the other
conditions are present.21 The Exchange
notes that in the event a series does not
open, Rule 8.7(d)(iv) requires MarketMakers (including LMMs and DPMs) to
submit quotes or maintain continuous
quotes in a series in their appointed
classes if called upon by a designated
Exchange official if the official deems it
necessary in the interest of maintaining
a fair and orderly market.
Second, the Exchange proposes to
amend current Rules 8.15 and 8.15A as
follows:
20 The proposed rule change also adds that in
option classes in which both an On-Floor LMM and
an Off-Floor DPM or Off-Floor LMM have been
appointed, this obligation would be that of the OffFloor DPM or Off-Floor LMM and not the On-Floor
LMM (see discussion below for a description of the
Off-Floor DPM and Off-/On-Floor LMM programs).
21 The Exchange notes that the proposed rule
change makes corresponding changes to the
language describing the opening quoting standard
for LMMs during extended trading hours in Rule
6.1A(e) and the Fees Schedule; however, it makes
no substantive changes to that opening quoting
standard, which requires LMMs enter opening
quotes (in no more than a significant percentage of
series for 90% of the trading days during extended
trading hours in a month) by 2:05 a.m. (which is
five minutes after the initiation of the opening
rotation) to be eligible for the monthly payment
pursuant to Rule 6.1A(e)(iii) and the CBOE Fees
Schedule. See Rule 6.1A(e)(iii) and the Fees
Schedule. The opening quoting standard for LMMs
during extended trading hours is not a regulatory
obligation as it is for LMMs during regular trading
hours; rather, an LMM’s satisfaction of the opening
quoting standard (and heightened continuous
quoting standard) during ETH qualifies the LMM
for the monthly payment. The opening quoting
standard for LMMs during extended trading hours
currently and as proposed provides LMMs with a
longer timeframe (five minutes) to enter opening
quotes than the regular trading hours requirement,
and requires quotes in a significant percentage of
series rather than all series as is required in regular
trading hours. The Exchange continues to believe
that a different opening standard during extended
trading hours is reasonable given fewer market
participants and less liquidity during those hours
than during regular trading hours. See Rule 6.1A(e)
and Securities Exchange Act Release No. 34–73704
(November 28, 2014), 79 FR 72044 (December 4,
2014) (SR–CBOE–2014–062) for additional
information regarding rules related to LMMs during
extended trading hours.
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Current provisions in Rules 8.15
and 8.15A
Current corresponding provisions
in other rules
Rules 8.15(a) and 8.15A(a)(i)—
LMMs will be appointed on the
first day following an expiration.
Rule 8.3(a)(i)–authority of the Exchange to make Market-Maker
appointments when, in the Exchange’s judgment, the interest
of a fair and orderly market are
best served by such action.
Rules
8.15(a)(3)
and
8.15A(a)(i)(C)—if one or more
LMMs are removed or if for any
reason an LMM is no longer eligible for or resigns his appointment or fails to perform his duties, the Exchange may appoint
an interim LMM to complete the
monthly obligations of the former
LMM.
Rule 8.3(a)(i)—authority of the
Exchange to make MarketMaker appointments when, in
the Exchange’s judgment, the
interest of a fair and orderly
market are best served by such
action.
Rules 8.15 and 8.15A—references
to individual LMMs.
None .............................................
Rules 8.15 and 8.15A—references
to CBOE having the ability to
hold all LMMs responsible for
the performance of each LMM
appointed to the same class or
zone and a related provision in
Rule 8.15(b)(3), which requires
LMMs in Hybrid 3.0 classes to
assist LMMs in other zones to
facilitate excessive imbalances.
None .............................................
Proposed provisions in Rule 8.15
Purpose of proposed changes
Rule 8.15(a)(i)—LMMs will be ap- CBOE believes additional flexipointed for a term of no less
bility regarding the timing of the
than the time until the end of
appointment of LMMs is importhe then-current expiration cycle.
tant so that it can appoint
LMMs at any time if necessary
in order to ensure liquidity and
in the interest of a fair and orderly market (similar to appointments of Market-Makers). For
example, if CBOE lists a new
product during an expiration
cycle (but not the first day following the end of an expiration
cycle), the proposed rule
change clarifies that the Exchange has authority to appoint
an LMM on that first trading
days. CBOE believes it is important to ensure sufficient liquidity in a class through the
end of an expiration cycle.22
Rule 8.15(a)(iii)—if the Exchange CBOE believes it is appropriate to
have the authority to appoint
removes one or more LMMs or
more than one interim LMM to
if for any reason an LMM is no
be consistent with the initial
longer eligible for or resigns the
part of the provision that refLMM’s appointment or fails to
erences the removal of one or
perform the LMM’s duties, the
more LMMs and to give CBOE
Exchange may appoint one or
the flexibility to appoint multiple
more interim LMMs for the reinterim LMMs if necessary to
mainder of the term or shorter
maintain sufficient liquidity and
time period designated by the
a fair and orderly market. AddiExchange.23
tionally, CBOE believes it is appropriate to have the authority
to appoint interim LMMs for less
than the remainder of a term if,
for example, an LMM is only
temporarily unable to fulfill its
duties (for example, it experiences a systems issue beyond
its control) but expects to be
able to do so during its appointment term.
None ............................................. There are currently only LMM organizations, and CBOE no
longer intends to appoint individual LMMs, making these references no longer necessary.24
None ............................................. CBOE reviews and evaluates the
conduct of each LMM organization individually and does not
intend to hold an LMM responsible for the performance of another LMM appointed to the
same class or group (as discussed below, CBOE may arrange the series of a class into
‘‘groups’’
rather
than
‘‘zones’’).25
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The Exchange believes the proposed
changes to current Rules 8.15 and 8.15A
described in this table are not
significant. The proposed changes in the
first two rows of the table are consistent
with the Exchange’s current authority in
22 The proposed rule change also modifies the
factor that may be considered by the Exchange
regarding experience in trading index options or
options on exchange-traded funds to experience in
trading options. While the Exchange currently has
appointed LMMs only in index option classes, the
rules do not restrict LMMs to classes of those types
of options. If the Exchange determined to appoint
an LMM in an equity option class, it would want
to consider experience in trading equity options
rather than index options. This proposed change
permits that consideration.
23 The proposed rule change adds a similar
provision to proposed Rule 8.15(c)(iii) to provide
that an LMM in a Hybrid 3.0 class must serve
during such times as may be requested by the
Exchange as a backup LMM and assume
autoquoting responsibilities in the event the
Exchange determined that the LMM originally
appointed to run the autoquote is unable to do so.
Because of the unique nature of the autoquote
functionality on the Hybrid 3.0 system (as described
in proposed Rule 8.15(c)(ii)), the Exchange believes
it is important to explicitly state that any temporary
LMM must be ready to assume that responsibility
to ensure sufficient liquidity in the class in the
event the original LMM is unable to autoquote
(such as if it is experiencing a systems issue).
24 The proposed rule change deletes a related
cross-reference to individual LMMs in Rule 3.2 and
current Rule 8.15(b)(3), which requires LMMs to
assist LMMs in other zones to facilitate excessive
imbalances.
25 See proposed Rule 8.15(a)(iv). This Exchange
review and evaluation of LMMs individual of other
LMMs is similar to the review and evaluation of
DPMs pursuant to Rule 8.88 (and e-DPMs pursuant
to former Rule 8.94).
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other Rules. The proposed changes in
the last two rows are merely deleting
obsolete language.
Third, the Exchange is proposing to
amend Rules related to LMMs in Hybrid
3.0 classes as follows:
• The proposed rule change codifies
the continuous quoting obligations of
LMMs in Hybrid 3.0 classes. Current
Rule 8.15A(b)(i) requires an LMM in a
Hybrid class to provide continuous
electronic quotes in at least the lesser of
99% of the non-adjusted option series or
100% of the non-adjusted option series
minus one call-put pair, with the term
‘‘call-put pair’’ referring to one call and
one put that cover the same underlying
instrument and have the same
expiration date and exercise price. This
obligation does not apply to intra-day
add-on series on the day during which
such series are added for trading. This
obligation applies to an LMM’s
appointed classes collectively,26 and the
Exchange will determine compliance
with an LMM’s continuous electronic
quoting obligation on a monthly basis
(however, determining compliance with
this obligation on a monthly basis does
not relieve an LMM from meeting this
obligation on a daily basis, nor does it
prohibit the Exchange from taking
disciplinary action against an LMM for
failing to meet these obligations each
trading day). Current Rule 8.15A,
Interpretation and Policy .02 provides
that when the underlying security for a
class is in a limit up-limit down state,
LMMs shall have no quoting obligations
in the class. Proposed Rule 8.15(b)(i)
will apply this continuous quoting
obligation (and Interpretation and
Policy .02 will apply the limit up-limit
down exception) to LMMs in Hybrid 3.0
classes.
The current continuous electronic
quoting obligation applicable to LMMs
in Hybrid 3.0 classes is to provide
continuous electronic quotes in at least
90% of the series of each appointed
class for 99% of the time; however, this
obligation had not been codified in the
Rules. While the proposed rule change
modifies the current quoting obligations
of LMMs in Hybrid 3.0 classes, it is
identical to the obligations imposed on
LMMs in Hybrid classes and DPMs.27
26 The proposed rule change amends this
provision to apply to classes on each trading
platform. Because the nature of quoting and trading
on the Hybrid Trading System is significantly
different, the Exchange believes it is appropriate to
consider separately the collective quoting
requirement for each platform.
27 See Rules 8.15A(b)(i) and 8.85(a)(i); see also
Securities Exchange Act Release No. 34–67410 (July
11, 2012), 77 FR 42040 (July 17, 2012) (SR–CBOE–
2012–064) (proposed rule change to, among other
things, amend intraday quoting obligations of
LMMs in Hybrid classes from previous obligation
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LMMs will continue to be required to
respond to requests for quotes from the
Exchange pursuant to Rule 8.7(d)(iv). As
discussed above, the Exchange believes
it is appropriate for LMMs in all classes
(and DPMs) to be subject to the same
quoting obligations given the similarity
of their functions. The Exchange also
believes it will be simpler for LMMs and
the Exchange’s surveillances of
continuous electronic quoting
obligations if LMMs were all subject to
the same obligations. The Exchange
believes LMMs will continue to be
required to provide quotes in a
substantial number of series for a large
part of the trading day under this
revised quoting obligation, and thus
believes there will continue to be
sufficient liquidity in Hybrid 3.0
classes;
• Delete references in Interpretation
and Policy .02(c) to an Off-Floor LMM/
affiliated Market-Maker pilot. The pilot
has expired so it is no longer necessary
to include this provision in the rule text;
• replace references to LMMs being
assigned to a ‘‘zone’’ within a Hybrid
3.0 class with a reference indicating that
the Exchange may arrange the series of
a class into ‘‘groups’’ and may appoint
LMMs to those groups rather than to an
individual option class. Zones
functioned in a similar manner to
groups, as either classes or groups of
series of classes were assigned to zones.
The ‘‘zone’’ language is outdated, and
the ‘‘group’’ language is more consistent
with provisions in other Exchange
rules; 28 and
to provide continuous electronic quotes in 90% of
the series of a class 99% of the time, which is the
current obligation of LMMs in Hybrid 3.0 classes)
for a description of why this quoting obligation for
LMMs in Hybrid 3.0 classes will result in the same
‘‘minimum total quoting minutes’’ as LMMs for
Hybrid classes. The proposed rule change makes
the same change to continuous quoting obligations
for LMMs in Hybrid 3.0 classes as was made in that
previous filing to continuous quoting obligations for
LMMs in Hybrid classes and DPMs. In a Hybrid
class or Hybrid 3.0 class in which both an On-Floor
LMM and an Off-Floor DPM or Off-Floor LMM has
been appointed, the On-Floor LMM shall not be
obligated to comply with the continuous quoting
obligation applicable to LMMs (see later discussion
for a description of the Off-Floor DPM and Off-/OnFloor LMM programs). In such circumstances, such
an On-Floor LMM in a Hybrid class shall instead
be obligated to comply with the continuous quoting
obligations applicable to Market-Makers in Hybrid
classes in accordance with Rule 8.7(d). By contrast,
such an On-Floor LMM in a Hybrid 3.0 class shall
not be subject to continuous quoting obligations
given the nature of the aggregated quoting interest
on the Hybrid 3.0 Platform.
28 See, e.g., Rule 8.14, Interpretation and Policy
.01, pursuant to which the Exchange may determine
(a) to authorize a group of series of a Hybrid 3.0
class for trading on the Hybrid system and
determine eligible categories of Market-Makers for
that group of series and (b) whether to change the
trading platform on which the group of series trades
and change the eligible categories of Market-Makers
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9915
• delete SMMs from the Rules. The
primary purpose of SMMs was to assist
LMMs on the trading floor with certain
trading rotations (as described in
current Rule 8.15(c)). There are
currently no SMMs, there have been no
SMMs for at least 15 years, and the
Exchange no longer intends to appoint
SMMs. The rules permit, but do not
require, the Exchange to appoint SMMs.
In the past, LMMs conducted opening
rotations on the trading floor, and the
Exchange believed having the ability to
appoint SMMs to assist LMMs during
particularly busy or unusual openings
would help the Exchange maintain a fair
and orderly opening. However, the
System is currently used to conduct
(and has been for quite some time)
opening rotations; LMMs primarily role
with respect to opening rotations is to
enter opening quotes. Thus, the purpose
for having SMMs no longer exists. The
proposed rule change makes
corresponding changes to Rules 3.2,
6.2A, 6.8, 8.7, 8.15 and 24.13 to delete
all references to SMMs.
Fourth, the Exchange proposes to
revise the description of the Off-Floor
DPM and Off-/On-Floor LMM programs
described in current Rules 8.15, 8.15A,
8.83 and 8.85 as follows:
• Amend Rule 8.83(g) to provide that,
in a Hybrid 3.0 class in which an OffFloor DPM has been appointed in
accordance with Rule 8.83,
notwithstanding current Rules 8.15(a)
and 8.15A(a) (which provide that the
Exchange may appoint an LMM in a
class for which a DPM has not been
appointed), the Exchange in its
discretion may also appoint an On-Floor
LMM, which shall be eligible to receive
a participation entitlement under
current Rule 8.15B with respect to
orders represented in open outcry (the
provisions in current Rule 8.15A related
to the on-floor LMM program will apply
to Hybrid 3.0 classes pursuant to
proposed Rule 8.15). The Exchange may
currently appoint an On-Floor LMM in
a class allocated to an Off-Floor DPM for
Hybrid classes.29 This proposed change
simply provides the Exchange with the
same flexibility for Hybrid 3.0 classes;
• provide in proposed Rule 8.15,
Interpretation and Policy .01(c) that in
any class in which an Off-Floor LMM
has been appointed in accordance with
for the group. That rule also allows the Exchange
to appoint Market-Makers (including LMMs and
DPMs) to a group of series and apply trading
parameters on a group basis to the extent the rules
otherwise provide that those parameters apply to a
class. Rule 8.14 applies to index classes only; the
proposed rule change amends current Rules 8.15
and 8.15A and proposed Rule 8.15 to merely extend
the authority to have LMM group appointments for
all classes.
29 See Rule 8.83(g).
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Rule 8.15, the Exchange in its discretion
may also appoint an On-Floor LMM,
which shall be eligible to receive a
participation entitlement under current
Rule 8.15B with respect to orders
represented in open outcry. This
proposed change to allow for an OnFloor LMM in a class allocated to an
Off-Floor LMM is consistent with the
aforementioned program for Off-Floor
DPMs/On-Floor LMMs and simply
extends the same flexibility to Hybrid
and Hybrid 3.0 classes that have OffFloor LMMs (rather than Off-Floor
DPMs); 30
• provide in proposed Rule 8.15(b)(i)
that in all classes in which both an OnFloor LMM and an Off-Floor LMM have
been appointed, the On-Floor LMM
shall not be obligated to comply with
the continuous quote requirements for
an LMM. This change is consistent with
the existing provisions for On-Floor
LMMs in classes which both an OnFloor LMM and Off-Floor DPM have
been appointed and merely extends it to
classes in which there is an Off-Floor
LMM (which corresponds to the
changes discussed above that would
permit an On-Floor LMM to be
appointed in a class where an Off-Floor
LMM has been appointed); and
• provide in proposed Rule 8.15,
Interpretation and Policy .01(c) and
Rule 8.83(g) to make it clear that, if the
Exchange in its discretion determines to
reallocate a class in which an Off-Floor
DPM or Off-Floor LMM has been
appointed, the On-Floor LMM
appointment will automatically
terminate. (An On-Floor LMM
appointment can also terminate or
expire as otherwise provided in the
Rules.) 31 Pursuant to the Off-Floor/OnFloor program, the Exchange may
appoint an On-Floor LMM in a class in
which there is an Off-Floor DPM or
LMM. It is within the Exchange’s
discretion to determine which types of
Market-Makers may be appointed to
each class, as set forth in Rule 8.14. If
the Exchange reallocates a class, part of
that reallocation may involve
appointment of a different type of
Market-Maker. For example, the
Exchange may appoint to the reallocated
class a DPM that operates both On-Floor
and Off-Floor rather than Off-Floor only.
In that case, the Exchange would
generally not also have an On-Floor
LMM appointed to that class under this
program. To the extent an On-Floor
LMM’s appointment terminates
pursuant to this proposed provision, it
would have the opportunity to request
appointment to the reallocated class in
a Market-Maker capacity.
Fifth, the Exchange proposes to
combine current Rules 8.15 (pertaining
to LMMs in Hybrid 3.0 classes), 8.15A
(pertaining to LMMs in Hybrid classes)
and 8.15B (pertaining to LMM
participation entitlements) into a single
proposed Rule 8.15. LMMs in Hybrid
and Hybrid 3.0 classes generally have,
or will have upon effectiveness of the
proposed changes described above, the
same obligations and receive the same
participation entitlement. Proposed
Rule 8.15 explicitly identifies the
couple of additional obligations that
apply to LMMs in Hybrid 3.0 classes
only; all other provisions apply to
LMMs in all classes. The Exchange
believes having a single rule applicable
to LMMs will reduce duplication within
and simplify the rules applicable to
LMMs. The following table identifies
provisions in current Rules 8.15 and
8.15B and their proposed location in
proposed Rule 8.15. The proposed rule
change makes no substantive changes to
current Rule 8.15B (some
nonsubstantive changes are identified in
the table). Proposed substantive and
nonsubstantive changes to provisions in
current Rule 8.15 are discussed above
(the proposed provision in Rule 8.15
identified below includes these
changes).
Proposed provision in Rule 8.15
(amended as described above)
Current provisions in Rules 8.15 and 8.15B (as applicable)
Rule 8.15 (intro)—The Exchange may appoint in an option class for which a DPM has not been appointed one or more Market-Makers in good standing as LMMs.
Rule 8.15 (intro)—LMMs in Hybrid 3.0 classes must participate in the modified opening rotation in Rule
6.2B, Interpretation and Policy .01.
Rule 8.15 (intro)—LMMs in Hybrid 3.0 classes must participate in other rotations using the Hybrid
Opening System described in Rule 6.2B.
Rule 8.15 (intro)—LMMs must determine a formula for generating automatically updated market
quotations during the trading day.
Rule 8.15(a)—LMMs shall be appointed on the first day following an expiration for a period of one
month and may be assigned to a zone with one or more LMMs. The Exchange shall select the series
to be included in a zone.
Rule 8.15(a)(1)–(4) .......................................................................................................................................
Rule 8.15(b)(1) ..............................................................................................................................................
Rule 8.15(b)(2) ..............................................................................................................................................
Rule 8.15(b)(3) ..............................................................................................................................................
Rule 8.15(b)(4) ..............................................................................................................................................
Rule 8.15(c) ..................................................................................................................................................
Rule 8.15(d) ..................................................................................................................................................
Rule 8.15, Interpretation and Policy .01 .......................................................................................................
Rule 8.15, Interpretation and Policy .02 (intro), (a) and (b) .........................................................................
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Rule 8.15, Interpretation and Policy .02(c) ...................................................................................................
Rule 8.15B(a)–(c) .........................................................................................................................................
Rule 8.15B, Interpretation and Policy .01 ....................................................................................................
30 The Exchange believes that, given the
substantially similar functions of LMMs and DPMs,
that it is appropriate to have the On-Floor LMM
program available for classes that have Off-Floor
LMMs just as it is available for classes that have OffFloor DPMs. The proposed rule change relocates the
provisions related to the Exchange’s ability to
appoint an On-Floor LMM in a class in which an
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Off-Floor DPM has been appointed and that state
that an On-Floor LMM will receive the participation
entitlement in open outcry in classes in which an
Off-Floor DPM has been appointed from current
Rule 8.15A(a) to proposed Rule 8.15, Interpretation
and Policy .01(c) in order to keep all provisions
related to the On-Floor LMM program in a single
place within proposed Rule 8.15.
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Rule 8.15(a).
Rule 8.15(c)(i).
Rule 8.15(c)(v).
Rule 8.15(c)(ii).
Rule 8.15(a).
Rule 8.15(a)(i)–(iv).
Rule 8.15(b)(v).
Rule 8.15(c)(iv).
Deleted as described above.
Rule 8.15(b)(vii).
Deleted as described above.
Rule 8.15(c)(ii).
Rule 8.15, Interpretation and Policy
.03.
Rule 8.15, Interpretation and Policy
.01.
Deleted as described above.
Rule 8.15(d).
Rule 8.15(b)(i) and Interpretation and
Policy .04.
31 See, e.g., Rules 8.3(a)(i) and 8.15(a). The
Exchange notes that a Trading Permit Holder,
including a Market-Maker, that is aggrieved by
Exchange action may request that an Appeal
Committee review any action taken against it under
the CBOE Rules. See Chapter XIX.
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9917
Current provisions in Rules 8.15 and 8.15B (as applicable)
Proposed provision in Rule 8.15
(amended as described above)
Rule 8.15B, Interpretation and Policy .02 ....................................................................................................
Rule 8.15, Interpretation and Policy
.02.
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The proposed rule change deletes
references in current Rule 8.15A to
Hybrid classes, as proposed Rule 8.15
will apply to all classes (both Hybrid
and Hybrid 3.0).
Sixth, the Exchange proposes to
delete references to the nonapplicability
of strike intervals, bid/ask differential
and continuity rules to LEAPS
contained in Rules 5.8(a) 32 and 24.9(b)
(which rules contain provisions related
to equity LEAPS and index LEAPS,
respectively). Other existing rules
specifically address strike price
intervals, bid/ask differentials and quote
continuity, including (i) Rules 5.5,
Interpretation and Policy .01 and 24.9,
Interpretation and Policy .01, which
describe strike price intervals for equity
options and index options,
respectively;33 and (ii) Rules 8.7(d),
8.13(d), 8.15(b) (as amended by this rule
filing), and 8.83, which describe
continuous quoting and bid/ask
differential requirements for the various
types of Market-Makers.34
32 The Exchange also proposes to correct a crossreference to Rule 5.6 (which was combined with
Rule 5.5 pursuant to rule filing SR–CBOE–1997–
023) that is contained in Rule 5.8.
33 Some of these rules have provisions describing
how LEAPS are sometimes subject to different
strike price interval requirements than other
options, which implies that the strike price interval
requirements without such LEAPS-specific
provisions apply to LEAPS in the same manner as
they do to all other option types. See, e.g., Rules
5.5, Interpretation and Policy .01 (a)(1) ($2.50 strike
price intervals are not permitted between $1 and
$50 for non-LEAPS and LEAPS) and (a)(2)(v) and
(3) (allowable strike price intervals for LEAPS for
stocks in the $1 Strike Price Interval Program); and
24.9, Interpretation and Policy .01 (f)(iii) (minimum
strike price intervals for LEAPS on BXM is $5),
(g)(iii) (minimum strike price intervals for LEAPS
on CBOE S&P 500 Three-Month Realized Volatility
options is $1), and (h)(iv) minimum strike price
interval for LEAPS on S&P 500 Dividend Index
options is $1).
34 Two of these rules explicitly exclude LEAPS
from the continuous quoting obligations of certain
Market-Makers. Rule 8.7(d) requires that MarketMakers provide continuous electronic quotes when
quoting in a particular class on a given trading day
in 60% of the series of the Market-Maker’s
appointed class that have a time to expiration of
less than nine months. Rule 8.13(d) requires that
PMMs provide continuous electronic quotes in at
least the lesser of 99% of the non-adjusted option
series that have a time to expiration of less than
nine months or 100% of the non-adjusted option
series that have a time to expiration of less than
nine months minus one call-put pair of each class
for which it receives PMM orders. The other Rules
referenced contain no such exclusion, implying that
the Exchange intended for the continuous
obligations of LMMs and DPMs to apply to LEAPS.
See discussion above regarding proposed inclusion
of additional descriptions of the bid/ask differential
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The provisions in these Rules were
adopted after the language that the
Exchange proposes to delete in Rules
5.8(a) and 24.9(b)(1)(A). Thus, the
Exchange views these latter-adopted
Rules regarding strike price interval,
bid/ask differential and quote continuity
requirements referenced above as
superseding the language proposed to be
deleted. This view is supported by the
specific applicability (or
nonapplicability) of certain of these
requirements to LEAPS. The language
proposed to be deleted is outdated (it
was adopted prior to the
implementation of the Hybrid Trading
System) and duplicative, and thus no
longer necessary. The Exchange also
believes the different timing included in
this language (nine months for equity
LEAPS versus 12 months for index
LEAPS) is no longer necessary and is
confusing for investors. The deletion of
this language has no impact on the
strike price interval, bid/ask differential
or quote continuity requirements
currently imposed by the Exchange,
which will continue to be imposed in a
manner consistent with the other
existing rules discussed above. The
Exchange believes that the deletion of
these provisions in 5.8(a) and
24.9(b)(1)(A) will provide additional
clarity and eliminate any confusion on
the applicability of the strike price
interval, bid/ask differential and quote
continuity requirements that may
otherwise result by including
duplicative rules on these topics.
Finally, the Exchange is proposing
nonsubstantive, technical changes to
Rules 1.1(fff) and (ggg), 3.2, 6.1A, 6.2A,
6.45A, 6.45B, 6.74, 8.7, 8.13, 8.14, 8.15,
8.15A, 8.83, 8.85, 17.50, 22.14, 24.9, and
29.17, including amendments to correct
typographical errors, update headings,
update cross-references to Rules 8.15,
8.15A and 8.15B, make the rule text
more plain English, and make the rule
text more consistently organized,
numbered and worded.
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.35 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 36 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) 37 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
that the proposed rule changes to amend
Rules 8.15, 8.15A and 8.85 to revise
descriptions of obligations of LMMs in
Hybrid 3.0 classes, LMMs in Hybrid
classes, and DPMs, respectively, as well
as combining the LMM obligations into
a single rule for all classes, will benefit
investors by providing more clarity and
uniformity to the Rules related to
market participants with substantially
similar functions and obligations in a
manner that is generally consistent with
other Rules. Additionally, the Exchange
believes that by including the
descriptions of applicable obligations
within each rule (which currently apply
pursuant to other Rules) will promote
compliance by LMMs and DPMs.
As demonstrated above, any
additional obligations imposed on
LMMs by the proposed rule change are
de minimis and will not be burdensome,
as the obligations as revised generally
currently apply to LMMs pursuant to
Rules 8.15 and 8.15A or other Rules.
With respect to LMMs in Hybrid 3.0
classes, they are currently subject to
continuous quoting obligations, which
had previously not been codified in the
rules. While the proposed rule change
amends these obligations, the proposed
obligations are identical to the
continuous quoting obligations of LMMs
in Hybrid classes and DPMs, as well as
35 15
and continuous quoting requirements in proposed
Rule 8.15 regarding obligations of LMMs.
PO 00000
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36 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
37 Id.
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former e-DPMs, who serve substantially
similar functions within CBOE’s market.
The Exchange believes that subjecting
LMMs in Hybrid 3.0 classes to the same
continuous quoting obligations as
LMMs in Hybrid classes (and DPMs)
will promote compliance by LMMs and
simplify surveillance processes for the
Exchange when determining
compliance with these obligations.
Additionally, current rules applicable to
LMMs in Hybrid classes and DPMs
provide an appropriate balance between
the benefits for and burdens imposed on
them, and the Exchange believes the
proposed rule change provides the same
appropriate balance to Hybrid 3.0
LMMs, who serve substantially similar
functions as Hybrid LMMs and DPMs.
Thus, any additional obligations
imposed on LMMs in Hybrid 3.0 classes
are de minimis and will not be
burdensome. Because the proposed rule
change does not materially change the
benefits or obligations of LMMs, the
Exchange believes the rules continue to
provide an appropriate balance between
LMM benefits and obligations (as they
do for Hybrid LMMs and DPMs) and
thus promote just and equitable
principles of trade.
The proposed rule change slightly
modifies the opening quoting
obligations of LMMs and DPMs to
include a specific time by which
opening quotes must be entered. The
proposed timeframe is consistent with
the amount of time in which the vast
majority of series listed on the Exchange
open. The Exchange notes this is the
same timeframe included in rules of
another options exchange regarding
opening quoting obligations of similarly
situated market participants.38 The
Exchange believes this proposed change
is not material and will not result in
reduced liquidity while still ensuring a
prompt opening. The Exchange notes
that LMMs and DPMs only need to enter
quotes in series that do not open due to
a lack of quote (both today and under
the proposed rule); if all series in an
appointed class open within the
proposed timeframe, the proposed rule
change will not increase or decrease any
obligation of LMMs and DPMs. The
Exchange believes having a specified
time by which LMMs and DPMs must
enter opening quotes, rather than the
nonspecific term ‘‘prompt,’’ simplifies
this obligation and promotes
compliance with these obligations by
LMMs and DPMs. The Exchange may
request all Market-Makers to submit
quotes in the interests of a fair and
orderly market. Thus, the Exchange
38 See, e.g., MIAX Options Exchange (‘‘MIAX’’)
Rule 603(c).
VerDate Sep<11>2014
20:41 Feb 25, 2016
Jkt 238001
believes there is no significant risk that
more series will not open as a result of
this proposed rule change or that there
will be a material impact on liquidity.
The proposed rule change does not
change the majority of obligations
currently imposed on LMMs. As
discussed above, through other existing
rules, LMMs are already subject to the
majority of the obligations as revised.
With respect to LMMs in Hybrid 3.0
classes, they are currently subject to
continuous quoting obligations which
had previously not been codified in the
rules. While the proposed rule change
amends these obligations, the proposed
obligations are identical to the
continuous quoting obligations of LMMs
in Hybrid classes and DPMs, who serve
substantially similar functions). The
Exchange believes that subjecting LMMs
in Hybrid 3.0 classes to the same
continuous quoting obligations as
LMMs in Hybrid classes (and DPMs)
will promote compliance by LMMs and
simplify surveillance processes for the
Exchange when determining
compliance with these obligations.
Additionally, current rules applicable to
LMMs in Hybrid classes and DPMs
provide an appropriate balance between
the benefits for and burdens imposed on
them, and the Exchange believes the
proposed rule change provides the same
appropriate balance to Hybrid 3.0
LMMs, who serve substantially similar
functions as Hybrid LMMs and DPMs.
Thus, any additional obligations
imposed on LMMs are de minimis and
will not be burdensome. Because the
proposed rule change does not
materially change the benefits or
obligations of LMMs, the Exchange
believes the rules continue to provide
an appropriate balance between LMM
benefits and obligations (as they do for
Hybrid LMMs and DPMs) and thus
promote just and equitable principles of
trade.
Further, the Exchange believes the
proposed revisions to the descriptions
of the Off-Floor DPM and Off-/On-Floor
LMM programs will make it easier to
read and understand this program,
including when Off-Floor DPMs and
Off/On-Floor LMMs may be appointed
by the Exchange and how obligations
and benefits are applied when
appointments pursuant to the Program
have been made. This clarity will
benefit investors and promote
compliance with the program. The
Exchange believes making this program
available to classes in which there is an
Off-Floor LMM and Hybrid 3.0 classes,
in addition to classes in which there is
an Off-Floor DPM and Hybrid classes
only, is reasonable given the similar
roles of LMMs and DPMs and may
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
result in additional liquidity in those
classes.
The Exchange also believes that the
proposed changes to eliminate obsolete
provisions, including those related to
individual LMMs, SMMs, an expired
pilot program, the Old Linkage Plan,
and strike price interval, bid/ask
differential and quote continuity
requirements, will protect investors by
simplifying the rules and eliminating
potential confusion that may result from
inclusion of duplicative and outdated
rules. With respect to strike price
interval, bid/ask differential and quote
continuity requirements, as discussed
above, other existing rules address those
requirements and supersede the
language regarding these topics
included (and proposed to be deleted)
in Rules 5.8 and 24.9, thus rendering
this language outdated and unnecessary.
The Exchange will continue to impose
these requirements in the manner it
does today, consistent with the
provisions in the other existing rules,
and thus the proposed rule change has
no impact on how the Exchange
imposes these requirements.
The Exchange believes that the
nonsubstantive, technical changes
proposed throughout the Rules will
simplify and provide more clarity and
consistent organization in the Rules,
which will benefit investors.
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. Specifically,
the changes to the descriptions of
obligations of LMMs and DPMs also
have no impact on competition, because
LMMs and DPMs, as discussed above,
generally are already subject to these
obligations through existing rules. The
proposed rule changes are intended to
make the rules regarding LMM and DPM
obligations more consistent with each
other given the substantially similar
functions of LMMs and DPMs and
reduce duplication within the Rules.
With respect to the proposed changes to
certain obligations of LMMs and DPMs,
the Exchange notes that these changes
are not material and will not be
burdensome. While the proposed rule
change slightly modifies the opening
quoting obligations of LMMs and DPMs,
the Exchange believes the modified
obligation still requires LMMs and
DPMs to promptly enter quotes to
ensure an opening, and they must
continue to submit quotes in response to
a request from the Exchange. Therefore,
the Exchange believes there is no
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mstockstill on DSK4VPTVN1PROD with NOTICES
significant risk that more series will not
open as a result of this proposed rule
change. Additionally, while the
proposed rule change modifies the
continuous quoting obligations of LMMs
in Hybrid 3.0 classes, the proposed
obligation is the same as that of LMMs
in Hybrid classes and DPMs, who have
substantially functions and obligations
as LMMs in Hybrid 3.0 classes, and
LMMs in Hybrid 3.0 classes will
continue to be required to provide
quotes in a substantial number of series
for a large part of the trading day under
the revised quoting obligation. The
Exchange believes the rules, as
amended, continue to provide an
appropriate balance of benefits for and
obligations on LMMs and DPMs, and
result in significant liquidity on CBOE.
See the discussion above for additional
details regarding the balance of LMM
and DPM obligations and benefits.
The proposed rule change regarding
the Off-Floor DPM and On-Floor/OffFloor LMM program merely enhances
the description of this program for
investors but has no impact on how the
Exchange implements the program. The
Exchange believes the proposed
revisions to the descriptions of the OffFloor DPM and Off-/On-Floor LMM
programs will make it easier to read and
understand this program, including
when Off-Floor DPMs and Off/On-Floor
LMMs may be appointed by the
Exchange and how obligations and
benefits are applied when appointments
pursuant to the Program have been
made. This clarity will benefit investors
and promote compliance with the
program. Additionally, making this
program available to classes in which
there is an Off-Floor LMM and Hybrid
3.0 classes, in addition to classes in
which there is an Off-Floor DPM and
Hybrid classes only, may result in
additional liquidity in those classes.
The nonsubstantive, technical
changes and deletion of obsolete rule
provisions have no impact on
competition and are intended only to
simplify, make consistent and eliminate
potential confusion within the rules.
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
VerDate Sep<11>2014
20:41 Feb 25, 2016
Jkt 238001
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–2016–009 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–2016–009. 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
PO 00000
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Fmt 4703
Sfmt 4703
9919
available publicly. All submissions
should refer to File Number SR–CBOE–
2016–009 and should be submitted on
or before March 18, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–04109 Filed 2–25–16; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #14635 and #14636]
Alaska Disaster #AK–00035
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a Notice of the
Presidential declaration of a major
disaster for Public Assistance Only for
the State of Alaska (FEMA–4257–DR),
dated 02/17/2016.
Incident: Severe Storm.
Incident Period: 12/12/2015 through
12/15/2015.
Effective Date: 02/17/2016.
Physical Loan Application Deadline
Date: 04/18/2016.
Economic Injury (EIDL) Loan
Application Deadline Date: 11/17/2016.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
President’s major disaster declaration on
02/17/2016, Private Non-Profit
organizations that provide essential
services of governmental nature may file
disaster loan applications at the address
listed above or other locally announced
locations.
The following areas have been
determined to be adversely affected by
the disaster:
Primary Counties: Pribilof Islands
Regional Education Attendance Area.
The Interest Rates are:
SUMMARY:
Percent
For Physical Damage:
Non-Profit Organizations With
Credit Available Elsewhere ...
39 17
E:\FR\FM\26FEN1.SGM
CFR 200.30–3(a)(12).
26FEN1
2.625
]]>Agencies
[Federal Register Volume 81, Number 38 (Friday, February 26, 2016)]
[Notices]
[Pages 9910-9919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04109]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77200; File No. SR-CBOE-2016-009]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change Relating to
LMMs and DPMs
February 22, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\
[[Page 9911]]
notice is hereby given that on February 8, 2016, 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. 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 (i) reorganize, simplify and make
consistent certain text relating to Lead Market-Maker (``LMM'') and
Designated Primary Market-Market (``DPM'') obligations generally, (ii)
amend its rules related to LMMs, (iii) delete outdated references in
its rules to Supplemental Market-Makers (``SMMs'') and other obsolete
language and (iv) make other corresponding and clarifying changes.
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 (i) reorganize, simplify and make
consistent certain text relating to LMM and DPM obligations generally,
(ii) amend its Rules related to LMMs, (iii) delete outdated references
in its Rules to SMMs and other obsolete language and (iv) make other
corresponding and clarifying changes.
First, the Exchange is proposing to amend Rules 8.15 (pertaining to
LMMs in Hybrid 3.0 classes), 8.15A (pertaining to LMMs in Hybrid
classes) \3\ and 8.85 (pertaining to DPMs) to revise the descriptions
of certain obligations of LMMs and DPMs (e.g., obligations related to
quote accuracy, bid/ask differentials, minimum size and trading
rotations, competitive markets and promotion of the Exchange, and
material operational or financial change notifications) to be more
consistent with each other (and the descriptions of these obligations
contained in other rules).\4\ The Exchange proposes these changes
merely to make the language regarding these obligations more consistent
throughout the Rules and delete outdated and duplicative language.
---------------------------------------------------------------------------
\3\ ``Hybrid Trading System'' refers to the Exchange's trading
platform that allows Market-Makers to submit electronic quotes in
their appointed classes. ``Hybrid 3.0 Platform'' is an electronic
trading platform on the Hybrid Trading System that allows one or
more quoters to submit electronic quotes that represent the
aggregate Market-Maker quoting interest in a series for the trading
crowd. Classes authorized by the Exchange for trading on the Hybrid
Trading System are referred to as ``Hybrid classes.'' Classes
authorized by the Exchange for trading on the Hybrid 3.0 Platform
are referred to as ``Hybrid 3.0 classes.'' References to ``Hybrid,''
``Hybrid System,'' or ``Hybrid Trading System'' include all
platforms unless otherwise provided by rule. See Rule 1.1(aaa).
\4\ The proposed language is also consistent with e-DPM
obligations as set forth in former Rule 8.93. The Exchange
eliminated the e-DPM program. See Securities Exchange Act Release
No. 34-71227 (January 2, 2014), 79 FR 1398 (January 8, 2014) (SR-
CBOE-2013-110). While the Exchange eliminated the e-DPM program for
the reasons set forth in that rule filing, LMMs and DPMs continue to
perform similar functions as e-DPMs use to perform, and the Exchange
believes it is appropriate to mirror the language describing the LMM
and DPM obligations to the language describing the previous e-DPM
obligations, which previously had been approved by the Securities
and Exchange Commission (the ``Commission''), because LMMs and DPM
receive substantially similar benefits and are subject to
substantially similar obligations as e-DPMs received and were
subjected.
---------------------------------------------------------------------------
The following table shows certain obligations to which LMMs and
DPMs are already subject (either pursuant to Rules 8.15, 8.15A and 8.85
or other Rules),\5\ the location in the Rules of these obligations, and
the corresponding proposed provision, when applicable:
---------------------------------------------------------------------------
\5\ The Exchange notes that rules that apply to all Market-
Makers, such as Rules 8.7 regarding Market-Maker obligations and
8.51 regarding firm quotes, apply to LMMs and DPMs, unless a
provision specific to a LMM or DPM conflicts with a provision in one
of these common Market-Maker rules. For example, LMMs and DPMs are
subject to different continuous quoting obligations pursuant to
Rules 8.15A and 8.87, respectively, than the continuous quoting
obligation set forth in Rule 8.7.
[[Page 9912]]
------------------------------------------------------------------------
Proposed
Current provisions in Rules provisions in
8.15, 8.15A and 8.85 (as Current provisions rules 8.15 and
applicable) in other rules 8.85 (as
applicable)
------------------------------------------------------------------------
Rules 8.15(a)(4) and Rules 8.1, 8.2, Rule 8.15(b)--each
8.15A(a)(D)--CBOE will review 8.3, and 8.7-- LMM must fulfill
and evaluate the conduct of definition of all of the
LMMs, including but not limited Market-Maker, obligations of a
to compliance with Rules 8.1, registration of Market-Maker
8.2, 8.3, and 8.7. Market-Makers under the Rules
Rule 8.85(a)--each DPM must appointment of (conforms to
fulfill all of the obligations Market-Makers, current Rule
of a Market-Maker under the and obligations 8.85(a)).
Rules. of all Market-
Makers (including
LMMs and DPMs),
respectively.
Rules 8.15A(b)(ii) and Rule 8.7(b)(iii)-- Rules 8.15(b)(ii)
8.85(a)(ii)--LMMs and DPMs, Market-Makers and 8.85(a)(ii)--
respectively, must assure that must assure that LMMs and DPMs,
their displayed quotations are any market quotes respectively,
honored for at least the number they cause to be must assure that
of contracts prescribed disseminated are their market
pursuant to Rule 8.51. accurate. quotations are
Rule 8.51--each accurate.\7\
Market-Maker must
sell (buy) at
least the
established
number of
contracts at the
offer (bid) that
is displayed when
a Market-Maker
receives a buy
(sell) order. \6\.
Rule 8.15A(b)(i) and (v) \8\-- Rules 8.7(b)(iv) Rule 8.15(b)(iii)--
LMMs must quote within Exchange- and (d)(iv)-- LMMs must comply
prescribed bid/ask Market-Makers with the bid/ask
differentials. must comply with differential
Rule 8.85(a)(iii)--DPMs must the bid/ask requirements
comply with the bid/ask differential determined by the
differential requirements requirements Exchange
determined by the Exchange. determined by the (conforms to
Exchange. \9\ current Rule
8.85(a)(iii)).\10
\
Rules 8.15A(b)(ii) and Rule 8.7(d)(ii)(B) Rules 8.15A(b)(iv)
8.85(a)(ii)--LMMs and DPMs, and (iv)--Market- and 8.85(a)(vii)--
respectively, must assure that Makers must quote LMMs and DPMs,
their displayed quotations are for the minimum respectively,
honored for at least the number number of must assure that
of contracts prescribed contracts their market
pursuant to Rule 8.51 (which determined by the quotations comply
permits CBOE to prescribe a Exchange. \11\ with the minimum
minimum quote size). size requirements
prescribed by the
Exchange, which
minimum must be
at least one
contract.\12\
Rule 8.15 (introductory Rule 6.2B(c) and Rules 8.15A(b)(v)
paragraph and paragraphs (b)(1) Interpretation and 8.85(a)(xi)--
and (2))--LMMs in Hybrid 3.0 and Policy LMMs and DPMs,
classes must participate in .01(a)--LMMs must respectively,
opening and other rotations participate in must enter
described in Rule 6.2B, trading rotations. opening quotes
accommodate a relatively active within one minute
opening and facilitate any of the initiation
imbalances. of an opening
Rules 8.15A(b)(iv) and rotation in any
8.85(a)(xi)--LMMs and DPMs, series that is
respectively, must ensure that not open due to
a trading rotation is initiated the lack of a
promptly following the opening quote (see Rule
of the underlying security (or 6.2B(e)(i) or
promptly after 8:30 a.m. in an Interpretation
index class) in accordance with and Policy
Rule 6.2B in 100% of the series .03(a)(i)), and
of each allocated class by participate in
entering opening quotes as other rotations
necessary. described in Rule
6.2B or 24.13, as
applicable.\13\
Rule 8.85(c)(ii)--DPMs must make Rule 8.7(b)(i)-- Rule 8.15(b)(vi)--
competitive markets on the Market-Makers LMMs and DPMs
Exchange and otherwise promote must compete with must make
the Exchange in a manner that other Market- competitive
is likely to enhance the Makers to improve markets on the
ability of the Exchange to markets. Exchange and
compete successfully for order otherwise promote
flow in the classes they trade. the Exchange in a
manner that is
likely to enhance
the ability of
the Exchange to
compete
successfully for
order flow in the
classes they
trade (conforms
to Rule
8.85(c)(ii)).\14\
Rules 8.15(b)(4) and Rule 8.85(c)(vi)-- Rule 8.15(b)(vii)--
8.15A(b)(iii)--LMMs must a DPM must an LMM must
perform obligations for a continue to act continue to act
period of one expiration month as a DPM and to as an LMM and
commencing on the first day fulfill all of fulfill the
following an expiration, and the DPM's obligations of an
failure to perform such obligations as a LMM until the
obligations for such time may DPM until the Exchange relieves
result in suspension of up to Exchange relieves it of its
three months from trading in the DPM of its approval to act
all series of the class. approval and as an LMM or of
obligations to its appointment
act as a DPM or and obligations
the Exchange to act as an LMM
terminates the in a particular
DPM's approval to class (conforms
act as a DPM. to Rule
8.85(c)(vi)).\15\
Rule 8.85(c)(iii)--DPMs must Rules 3.7(a) and Rule
promptly inform the Exchange of 15.5--requires 8.15(b)(viii)--LM
any material change in the Trading Permit Ms must
financial or operational Holders to submit immediately
condition of the DPM. documentation notify the
regarding their Exchange of any
organization, material
financial operational or
structure and financial changes
ownership, to the LMM
including organization as
updates, and well as obtain
other financial the Exchange's
information, to approval prior to
the Exchange. effecting changes
Rule 8.3(a)(i)-- to the ownership,
permits the capital
Exchange to structure, voting
consider the authority,
financial distribution of
resources profits/losses,
available to a or controls of
Market-Maker. the LMM
organization.\16\
Rules 8.15A(b)(vi) and None.............. Delete.\17\
8.85(a)(xii)--LMMs and DPMs,
respectively, must act as agent
for or use their accounts for,
respectively, orders routed to
other exchanges that are
participants in the Intermarket
Options Linkage Plan (the ``Old
Linkage Plan'').
------------------------------------------------------------------------
---------------------------------------------------------------------------
\6\ The Exchange proposes to exclude the references to Rule 8.51
in proposed Rules 8.15 and 8.85, as Rule 8.51 describes the firm
quote obligation and applies to LMMs and DPMs.
\7\ This revised language is consistent with the language in
former Rule 8.93(ii). While this provision is not included in
current Rule 8.15, LMMs in Hybrid 3.0 classes are currently subject
to this obligation pursuant to Rule 8.7(b)(iii) and will be subject
to it pursuant to proposed Rule 8.15(b)(ii).
\8\ The Exchange proposes to delete current Rule 8.15A(b)(v)
because the obligation to quote within the bid/ask different and
minimum size requirements is not limited to open outcry quotes.
These obligations are included in proposed Rule 8.15(b)(iii) and
(iv). Additionally, Rule 8.7(d) requires all Market-Makers,
including LMMs, to respond to open outcry requests for quotes by
floor brokers, making this provision redundant. DPMs are similarly
subject to this requirement (as all Market-Makers are); however,
Rule 8.85 does not list this as a specific obligation for DPMs.
\9\ Rule 6.2B(iii) allows the Exchange to set different bid/ask
differential requirements for opening quotations.
\10\ This revised language is consistent with the language in
former Rule 8.93(iii). While this provision is not included in
current Rule 8.15, LMMs in Hybrid 3.0 classes are currently subject
to this obligation pursuant to 8.7(b)(iv) and (d)(iv) and will
continue to be subject to it pursuant to proposed Rule 8.15(b)(iii).
The proposed rule change also deletes in current Rule 8.15A(b)(i) a
reference that an LMM's continuous electronic quotes must comply
with the bid/ask differential requirements determined by the
Exchange on a class-by-class basis, as this is redundant of the
obligation in current Rules 8.15(b)(1) and 8.15A(b)(v) and proposed
Rule 8.15(b)(iii). Additionally, the proposed rule change deletes
language in Rule 8.85(a)(iii) that says this obligation relates to
option contracts. As all securities that trade on CBOE are options,
this language is unnecessary.
\11\ Rule 6.2B(c) and Interpretation and Policy .02 allows the
Exchange to set a different minimum number of contracts for opening
quotations.
\12\ This revised language is consistent with the language in
former Rule 8.93(iv). While this provision is not included in
current Rule 8.15, LMMs in Hybrid 3.0 classes are currently subject
to this obligation pursuant to 8.7(d)(ii)(B) and (iv) and will be
subject to it pursuant to proposed Rule 8.15(b)(iv).
\13\ Current Rule 8.15 already explicitly subjects LMMs in
Hybrid 3.0 classes to this obligation. Rule 6.2B(g) and (h) provides
that the rotation process described in Rule 6.2B may be used to
reopen a class after a trading halt and for a closing rotation. Rule
24.13 also sets forth trading rotations that may be used for index
options. Thus, LMMs' and DPMs' may be required to participate in
those trading rotations as well to the extent required by those
rules.
\14\ This revised language is consistent with the language in
former Rule 8.93(vi). CBOE does not believe the proposed rule change
imposes a new obligation on LMMs, as Rule 8.7 requires Market-Makers
to be competitive; rather, it enhances the description of this
obligation.
\15\ This provision is consistent with former Rule 8.93(v) (with
respect to e-DPMs). This provision is also consistent with the
Exchange's ability to appoint LMMs and remove LMMs if, for example,
they do not fulfill their LMM duties under current Rules 8.15 and
8.15A (as described in the previous row of the table). The Exchange
believes the proposed language is more appropriate, as it requires
LMMs to satisfy their obligations during their entire term (which
may be more than one month), and excludes the language about a
possible suspension for not performing their obligations, as Chapter
XVII of the Rules describes the process for possible suspensions for
rule violations.
\16\ This revised language is consistent with the language in
former Rule 8.93(viii). The Exchange does not propose to add
language to Rule 8.85 regarding the need for approval prior to
effecting certain organizational changes with respect to DPMs
because Rule 8.89 has a similar requirement that covers some of
these organizational changes for DPMs. Additionally, other rules
applicable to DPMs impose additional financial requirements (Rule
8.86) and allow the Exchange to review a DPM's operation at any time
(Rule 8.88).
\17\ This language is outdated, as it relates to the now
obsolete Old Linkage Plan, which has been replaced by the Plan for
the Purpose of Creating and Operating an Intermarket Option Linkage.
See, e.g., Securities Exchange Act Release No. 56761 (November 7,
2007), 72 FR 64094 (November 14, 2007).
---------------------------------------------------------------------------
[[Page 9913]]
As this table demonstrates, LMMs and DPMs generally are already subject
to the obligations in the proposed provisions--any additional
obligations imposed by the proposed rule change on LMMs and DPMs are de
minimis and will not be burdensome. LMMs in Hybrid and Hybrid 3.0
classes and DPMs (and formerly e-DPMs), while being different market
participants within CBOE's market, generally serve in the same role in
their appointed classes, which is a provider of additional liquidity
pursuant to quoting obligations that are higher than other Market-
Makers) (in exchange for receiving a participation entitlement). LMMs
and DPMs have substantially similar functions and obligations
(including the same continuous quoting obligations, along with the same
participation entitlement percentages), and the Exchange believes
having consistent language with respect to these obligations will
simplify its rules and reflect the similar roles served by LMMs and
DPMs.\18\
---------------------------------------------------------------------------
\18\ Currently, the primary difference between LMMs and DPMs
relates to their appointment terms. An LMM receives an appointment
for a limited term (e.g., one month), while a DPM serves in that
role until it resigns or the Exchange removes it from that role
pursuant to Rule 8.90.
---------------------------------------------------------------------------
The Exchange believes the proposed obligation in the fifth row of
the table is only a slight modification of the current opening quoting
obligations of LMMs and DPMs. The current rules require LMMs and DPMs
to enter opening quotes only as necessary to ensure the opening of 100%
of series in a class. The Exchange modifies the opening quote
requirement to have a specific time (one minute) by when opening quotes
must be entered rather than the nonspecific term ``promptly.'' \19\ The
Exchange believes this gives clearer guidance to LMMs and DPMs
regarding the opening quote obligation, which further promotes
compliance by LMMs and DPMs with this obligation. Nearly all series
open for trading within this timeframe on a daily basis, and thus the
Exchange believes this timeframe is appropriate and will not be unduly
burdensome on LMMs and DPMs while still ensuring a prompt opening. The
proposed rule change also modifies the language to provide that the
timing of the opening quoting obligation begins after the initiation of
an opening rotation. Trading rotations are not initiated by opening
quotes. Therefore, the proposed change is consistent with system
functionality related to openings, as described in Rule 6.2B.\20\ In
addition, the Exchange clarifies that LMMs and DPMs must enter opening
quotes when a series does not open due to a lack of quote pursuant (see
Rule 6.2B(e)(i) or Interpretation and Policy .03(a)(i), as applicable).
There are several conditions that may be present that prevent a series
from opening as set forth in Rule 6.2B(e) and Interpretation and Policy
.03(a); however, LMMs and DPMs can help ``ensure an opening'' as
required by the current rule only by entering quotes. The Exchange
believes the proposed rule language more accurately states the current
obligation, as LMMs and DPMs cannot otherwise help ensure an opening if
the other conditions are present.\21\ The Exchange notes that in the
event a series does not open, Rule 8.7(d)(iv) requires Market-Makers
(including LMMs and DPMs) to submit quotes or maintain continuous
quotes in a series in their appointed classes if called upon by a
designated Exchange official if the official deems it necessary in the
interest of maintaining a fair and orderly market.
---------------------------------------------------------------------------
\19\ The proposed rule change makes a corresponding change to
Rule 17.50(g)(14), which includes the opening quoting obligation in
the minor rule violation plan.
\20\ The proposed rule change also adds that in option classes
in which both an On-Floor LMM and an Off-Floor DPM or Off-Floor LMM
have been appointed, this obligation would be that of the Off-Floor
DPM or Off-Floor LMM and not the On-Floor LMM (see discussion below
for a description of the Off-Floor DPM and Off-/On-Floor LMM
programs).
\21\ The Exchange notes that the proposed rule change makes
corresponding changes to the language describing the opening quoting
standard for LMMs during extended trading hours in Rule 6.1A(e) and
the Fees Schedule; however, it makes no substantive changes to that
opening quoting standard, which requires LMMs enter opening quotes
(in no more than a significant percentage of series for 90% of the
trading days during extended trading hours in a month) by 2:05 a.m.
(which is five minutes after the initiation of the opening rotation)
to be eligible for the monthly payment pursuant to Rule 6.1A(e)(iii)
and the CBOE Fees Schedule. See Rule 6.1A(e)(iii) and the Fees
Schedule. The opening quoting standard for LMMs during extended
trading hours is not a regulatory obligation as it is for LMMs
during regular trading hours; rather, an LMM's satisfaction of the
opening quoting standard (and heightened continuous quoting
standard) during ETH qualifies the LMM for the monthly payment. The
opening quoting standard for LMMs during extended trading hours
currently and as proposed provides LMMs with a longer timeframe
(five minutes) to enter opening quotes than the regular trading
hours requirement, and requires quotes in a significant percentage
of series rather than all series as is required in regular trading
hours. The Exchange continues to believe that a different opening
standard during extended trading hours is reasonable given fewer
market participants and less liquidity during those hours than
during regular trading hours. See Rule 6.1A(e) and Securities
Exchange Act Release No. 34-73704 (November 28, 2014), 79 FR 72044
(December 4, 2014) (SR-CBOE-2014-062) for additional information
regarding rules related to LMMs during extended trading hours.
---------------------------------------------------------------------------
Second, the Exchange proposes to amend current Rules 8.15 and 8.15A
as follows:
[[Page 9914]]
---------------------------------------------------------------------------
\22\ The proposed rule change also modifies the factor that may
be considered by the Exchange regarding experience in trading index
options or options on exchange-traded funds to experience in trading
options. While the Exchange currently has appointed LMMs only in
index option classes, the rules do not restrict LMMs to classes of
those types of options. If the Exchange determined to appoint an LMM
in an equity option class, it would want to consider experience in
trading equity options rather than index options. This proposed
change permits that consideration.
\23\ The proposed rule change adds a similar provision to
proposed Rule 8.15(c)(iii) to provide that an LMM in a Hybrid 3.0
class must serve during such times as may be requested by the
Exchange as a backup LMM and assume autoquoting responsibilities in
the event the Exchange determined that the LMM originally appointed
to run the autoquote is unable to do so. Because of the unique
nature of the autoquote functionality on the Hybrid 3.0 system (as
described in proposed Rule 8.15(c)(ii)), the Exchange believes it is
important to explicitly state that any temporary LMM must be ready
to assume that responsibility to ensure sufficient liquidity in the
class in the event the original LMM is unable to autoquote (such as
if it is experiencing a systems issue).
\24\ The proposed rule change deletes a related cross-reference
to individual LMMs in Rule 3.2 and current Rule 8.15(b)(3), which
requires LMMs to assist LMMs in other zones to facilitate excessive
imbalances.
\25\ See proposed Rule 8.15(a)(iv). This Exchange review and
evaluation of LMMs individual of other LMMs is similar to the review
and evaluation of DPMs pursuant to Rule 8.88 (and e-DPMs pursuant to
former Rule 8.94).
----------------------------------------------------------------------------------------------------------------
Current corresponding
Current provisions in Rules 8.15 and provisions in other Proposed provisions in Purpose of proposed
8.15A rules Rule 8.15 changes
----------------------------------------------------------------------------------------------------------------
Rules 8.15(a) and 8.15A(a)(i)--LMMs Rule 8.3(a)(i)- Rule 8.15(a)(i)--LMMs CBOE believes
will be appointed on the first day authority of the will be appointed for additional flexibility
following an expiration. Exchange to make a term of no less than regarding the timing
Market-Maker the time until the end of the appointment of
appointments when, in of the then-current LMMs is important so
the Exchange's expiration cycle. that it can appoint
judgment, the interest LMMs at any time if
of a fair and orderly necessary in order to
market are best served ensure liquidity and
by such action. in the interest of a
fair and orderly
market (similar to
appointments of Market-
Makers). For example,
if CBOE lists a new
product during an
expiration cycle (but
not the first day
following the end of
an expiration cycle),
the proposed rule
change clarifies that
the Exchange has
authority to appoint
an LMM on that first
trading days. CBOE
believes it is
important to ensure
sufficient liquidity
in a class through the
end of an expiration
cycle.\22\
Rules 8.15(a)(3) and 8.15A(a)(i)(C)-- Rule 8.3(a)(i)-- Rule 8.15(a)(iii)--if CBOE believes it is
if one or more LMMs are removed or authority of the the Exchange removes appropriate to have
if for any reason an LMM is no Exchange to make one or more LMMs or if the authority to
longer eligible for or resigns his Market-Maker for any reason an LMM appoint more than one
appointment or fails to perform his appointments when, in is no longer eligible interim LMM to be
duties, the Exchange may appoint an the Exchange's for or resigns the consistent with the
interim LMM to complete the monthly judgment, the interest LMM's appointment or initial part of the
obligations of the former LMM. of a fair and orderly fails to perform the provision that
market are best served LMM's duties, the references the removal
by such action. Exchange may appoint of one or more LMMs
one or more interim and to give CBOE the
LMMs for the remainder flexibility to appoint
of the term or shorter multiple interim LMMs
time period designated if necessary to
by the Exchange.\23\ maintain sufficient
liquidity and a fair
and orderly market.
Additionally, CBOE
believes it is
appropriate to have
the authority to
appoint interim LMMs
for less than the
remainder of a term
if, for example, an
LMM is only
temporarily unable to
fulfill its duties
(for example, it
experiences a systems
issue beyond its
control) but expects
to be able to do so
during its appointment
term.
Rules 8.15 and 8.15A--references to None................... None................... There are currently
individual LMMs. only LMM
organizations, and
CBOE no longer intends
to appoint individual
LMMs, making these
references no longer
necessary.\24\
Rules 8.15 and 8.15A--references to None................... None................... CBOE reviews and
CBOE having the ability to hold all evaluates the conduct
LMMs responsible for the performance of each LMM
of each LMM appointed to the same organization
class or zone and a related individually and does
provision in Rule 8.15(b)(3), which not intend to hold an
requires LMMs in Hybrid 3.0 classes LMM responsible for
to assist LMMs in other zones to the performance of
facilitate excessive imbalances. another LMM appointed
to the same class or
group (as discussed
below, CBOE may
arrange the series of
a class into
``groups'' rather than
``zones'').\25\
----------------------------------------------------------------------------------------------------------------
The Exchange believes the proposed changes to current Rules 8.15
and 8.15A described in this table are not significant. The proposed
changes in the first two rows of the table are consistent with the
Exchange's current authority in
[[Page 9915]]
other Rules. The proposed changes in the last two rows are merely
deleting obsolete language.
Third, the Exchange is proposing to amend Rules related to LMMs in
Hybrid 3.0 classes as follows:
The proposed rule change codifies the continuous quoting
obligations of LMMs in Hybrid 3.0 classes. Current Rule 8.15A(b)(i)
requires an LMM in a Hybrid class to provide continuous electronic
quotes in at least the lesser of 99% of the non-adjusted option series
or 100% of the non-adjusted option series minus one call-put pair, with
the term ``call-put pair'' referring to one call and one put that cover
the same underlying instrument and have the same expiration date and
exercise price. This obligation does not apply to intra-day add-on
series on the day during which such series are added for trading. This
obligation applies to an LMM's appointed classes collectively,\26\ and
the Exchange will determine compliance with an LMM's continuous
electronic quoting obligation on a monthly basis (however, determining
compliance with this obligation on a monthly basis does not relieve an
LMM from meeting this obligation on a daily basis, nor does it prohibit
the Exchange from taking disciplinary action against an LMM for failing
to meet these obligations each trading day). Current Rule 8.15A,
Interpretation and Policy .02 provides that when the underlying
security for a class is in a limit up-limit down state, LMMs shall have
no quoting obligations in the class. Proposed Rule 8.15(b)(i) will
apply this continuous quoting obligation (and Interpretation and Policy
.02 will apply the limit up-limit down exception) to LMMs in Hybrid 3.0
classes.
---------------------------------------------------------------------------
\26\ The proposed rule change amends this provision to apply to
classes on each trading platform. Because the nature of quoting and
trading on the Hybrid Trading System is significantly different, the
Exchange believes it is appropriate to consider separately the
collective quoting requirement for each platform.
---------------------------------------------------------------------------
The current continuous electronic quoting obligation applicable to
LMMs in Hybrid 3.0 classes is to provide continuous electronic quotes
in at least 90% of the series of each appointed class for 99% of the
time; however, this obligation had not been codified in the Rules.
While the proposed rule change modifies the current quoting obligations
of LMMs in Hybrid 3.0 classes, it is identical to the obligations
imposed on LMMs in Hybrid classes and DPMs.\27\ LMMs will continue to
be required to respond to requests for quotes from the Exchange
pursuant to Rule 8.7(d)(iv). As discussed above, the Exchange believes
it is appropriate for LMMs in all classes (and DPMs) to be subject to
the same quoting obligations given the similarity of their functions.
The Exchange also believes it will be simpler for LMMs and the
Exchange's surveillances of continuous electronic quoting obligations
if LMMs were all subject to the same obligations. The Exchange believes
LMMs will continue to be required to provide quotes in a substantial
number of series for a large part of the trading day under this revised
quoting obligation, and thus believes there will continue to be
sufficient liquidity in Hybrid 3.0 classes;
---------------------------------------------------------------------------
\27\ See Rules 8.15A(b)(i) and 8.85(a)(i); see also Securities
Exchange Act Release No. 34-67410 (July 11, 2012), 77 FR 42040 (July
17, 2012) (SR-CBOE-2012-064) (proposed rule change to, among other
things, amend intraday quoting obligations of LMMs in Hybrid classes
from previous obligation to provide continuous electronic quotes in
90% of the series of a class 99% of the time, which is the current
obligation of LMMs in Hybrid 3.0 classes) for a description of why
this quoting obligation for LMMs in Hybrid 3.0 classes will result
in the same ``minimum total quoting minutes'' as LMMs for Hybrid
classes. The proposed rule change makes the same change to
continuous quoting obligations for LMMs in Hybrid 3.0 classes as was
made in that previous filing to continuous quoting obligations for
LMMs in Hybrid classes and DPMs. In a Hybrid class or Hybrid 3.0
class in which both an On-Floor LMM and an Off-Floor DPM or Off-
Floor LMM has been appointed, the On-Floor LMM shall not be
obligated to comply with the continuous quoting obligation
applicable to LMMs (see later discussion for a description of the
Off-Floor DPM and Off-/On-Floor LMM programs). In such
circumstances, such an On-Floor LMM in a Hybrid class shall instead
be obligated to comply with the continuous quoting obligations
applicable to Market-Makers in Hybrid classes in accordance with
Rule 8.7(d). By contrast, such an On-Floor LMM in a Hybrid 3.0 class
shall not be subject to continuous quoting obligations given the
nature of the aggregated quoting interest on the Hybrid 3.0
Platform.
---------------------------------------------------------------------------
Delete references in Interpretation and Policy .02(c) to
an Off-Floor LMM/affiliated Market-Maker pilot. The pilot has expired
so it is no longer necessary to include this provision in the rule
text;
replace references to LMMs being assigned to a ``zone''
within a Hybrid 3.0 class with a reference indicating that the Exchange
may arrange the series of a class into ``groups'' and may appoint LMMs
to those groups rather than to an individual option class. Zones
functioned in a similar manner to groups, as either classes or groups
of series of classes were assigned to zones. The ``zone'' language is
outdated, and the ``group'' language is more consistent with provisions
in other Exchange rules; \28\ and
---------------------------------------------------------------------------
\28\ See, e.g., Rule 8.14, Interpretation and Policy .01,
pursuant to which the Exchange may determine (a) to authorize a
group of series of a Hybrid 3.0 class for trading on the Hybrid
system and determine eligible categories of Market-Makers for that
group of series and (b) whether to change the trading platform on
which the group of series trades and change the eligible categories
of Market-Makers for the group. That rule also allows the Exchange
to appoint Market-Makers (including LMMs and DPMs) to a group of
series and apply trading parameters on a group basis to the extent
the rules otherwise provide that those parameters apply to a class.
Rule 8.14 applies to index classes only; the proposed rule change
amends current Rules 8.15 and 8.15A and proposed Rule 8.15 to merely
extend the authority to have LMM group appointments for all classes.
---------------------------------------------------------------------------
delete SMMs from the Rules. The primary purpose of SMMs
was to assist LMMs on the trading floor with certain trading rotations
(as described in current Rule 8.15(c)). There are currently no SMMs,
there have been no SMMs for at least 15 years, and the Exchange no
longer intends to appoint SMMs. The rules permit, but do not require,
the Exchange to appoint SMMs. In the past, LMMs conducted opening
rotations on the trading floor, and the Exchange believed having the
ability to appoint SMMs to assist LMMs during particularly busy or
unusual openings would help the Exchange maintain a fair and orderly
opening. However, the System is currently used to conduct (and has been
for quite some time) opening rotations; LMMs primarily role with
respect to opening rotations is to enter opening quotes. Thus, the
purpose for having SMMs no longer exists. The proposed rule change
makes corresponding changes to Rules 3.2, 6.2A, 6.8, 8.7, 8.15 and
24.13 to delete all references to SMMs.
Fourth, the Exchange proposes to revise the description of the Off-
Floor DPM and Off-/On-Floor LMM programs described in current Rules
8.15, 8.15A, 8.83 and 8.85 as follows:
Amend Rule 8.83(g) to provide that, in a Hybrid 3.0 class
in which an Off-Floor DPM has been appointed in accordance with Rule
8.83, notwithstanding current Rules 8.15(a) and 8.15A(a) (which provide
that the Exchange may appoint an LMM in a class for which a DPM has not
been appointed), the Exchange in its discretion may also appoint an On-
Floor LMM, which shall be eligible to receive a participation
entitlement under current Rule 8.15B with respect to orders represented
in open outcry (the provisions in current Rule 8.15A related to the on-
floor LMM program will apply to Hybrid 3.0 classes pursuant to proposed
Rule 8.15). The Exchange may currently appoint an On-Floor LMM in a
class allocated to an Off-Floor DPM for Hybrid classes.\29\ This
proposed change simply provides the Exchange with the same flexibility
for Hybrid 3.0 classes;
---------------------------------------------------------------------------
\29\ See Rule 8.83(g).
---------------------------------------------------------------------------
provide in proposed Rule 8.15, Interpretation and Policy
.01(c) that in any class in which an Off-Floor LMM has been appointed
in accordance with
[[Page 9916]]
Rule 8.15, the Exchange in its discretion may also appoint an On-Floor
LMM, which shall be eligible to receive a participation entitlement
under current Rule 8.15B with respect to orders represented in open
outcry. This proposed change to allow for an On-Floor LMM in a class
allocated to an Off-Floor LMM is consistent with the aforementioned
program for Off-Floor DPMs/On-Floor LMMs and simply extends the same
flexibility to Hybrid and Hybrid 3.0 classes that have Off-Floor LMMs
(rather than Off-Floor DPMs); \30\
---------------------------------------------------------------------------
\30\ The Exchange believes that, given the substantially similar
functions of LMMs and DPMs, that it is appropriate to have the On-
Floor LMM program available for classes that have Off-Floor LMMs
just as it is available for classes that have Off-Floor DPMs. The
proposed rule change relocates the provisions related to the
Exchange's ability to appoint an On-Floor LMM in a class in which an
Off-Floor DPM has been appointed and that state that an On-Floor LMM
will receive the participation entitlement in open outcry in classes
in which an Off-Floor DPM has been appointed from current Rule
8.15A(a) to proposed Rule 8.15, Interpretation and Policy .01(c) in
order to keep all provisions related to the On-Floor LMM program in
a single place within proposed Rule 8.15.
---------------------------------------------------------------------------
provide in proposed Rule 8.15(b)(i) that in all classes in
which both an On-Floor LMM and an Off-Floor LMM have been appointed,
the On-Floor LMM shall not be obligated to comply with the continuous
quote requirements for an LMM. This change is consistent with the
existing provisions for On-Floor LMMs in classes which both an On-Floor
LMM and Off-Floor DPM have been appointed and merely extends it to
classes in which there is an Off-Floor LMM (which corresponds to the
changes discussed above that would permit an On-Floor LMM to be
appointed in a class where an Off-Floor LMM has been appointed); and
provide in proposed Rule 8.15, Interpretation and Policy
.01(c) and Rule 8.83(g) to make it clear that, if the Exchange in its
discretion determines to reallocate a class in which an Off-Floor DPM
or Off-Floor LMM has been appointed, the On-Floor LMM appointment will
automatically terminate. (An On-Floor LMM appointment can also
terminate or expire as otherwise provided in the Rules.) \31\ Pursuant
to the Off-Floor/On-Floor program, the Exchange may appoint an On-Floor
LMM in a class in which there is an Off-Floor DPM or LMM. It is within
the Exchange's discretion to determine which types of Market-Makers may
be appointed to each class, as set forth in Rule 8.14. If the Exchange
reallocates a class, part of that reallocation may involve appointment
of a different type of Market-Maker. For example, the Exchange may
appoint to the reallocated class a DPM that operates both On-Floor and
Off-Floor rather than Off-Floor only. In that case, the Exchange would
generally not also have an On-Floor LMM appointed to that class under
this program. To the extent an On-Floor LMM's appointment terminates
pursuant to this proposed provision, it would have the opportunity to
request appointment to the reallocated class in a Market-Maker
capacity.
---------------------------------------------------------------------------
\31\ See, e.g., Rules 8.3(a)(i) and 8.15(a). The Exchange notes
that a Trading Permit Holder, including a Market-Maker, that is
aggrieved by Exchange action may request that an Appeal Committee
review any action taken against it under the CBOE Rules. See Chapter
XIX.
---------------------------------------------------------------------------
Fifth, the Exchange proposes to combine current Rules 8.15
(pertaining to LMMs in Hybrid 3.0 classes), 8.15A (pertaining to LMMs
in Hybrid classes) and 8.15B (pertaining to LMM participation
entitlements) into a single proposed Rule 8.15. LMMs in Hybrid and
Hybrid 3.0 classes generally have, or will have upon effectiveness of
the proposed changes described above, the same obligations and receive
the same participation entitlement. Proposed Rule 8.15 explicitly
identifies the couple of additional obligations that apply to LMMs in
Hybrid 3.0 classes only; all other provisions apply to LMMs in all
classes. The Exchange believes having a single rule applicable to LMMs
will reduce duplication within and simplify the rules applicable to
LMMs. The following table identifies provisions in current Rules 8.15
and 8.15B and their proposed location in proposed Rule 8.15. The
proposed rule change makes no substantive changes to current Rule 8.15B
(some nonsubstantive changes are identified in the table). Proposed
substantive and nonsubstantive changes to provisions in current Rule
8.15 are discussed above (the proposed provision in Rule 8.15
identified below includes these changes).
----------------------------------------------------------------------------------------------------------------
Current provisions in Rules 8.15 and 8.15B (as
applicable) Proposed provision in Rule 8.15 (amended as described above)
----------------------------------------------------------------------------------------------------------------
Rule 8.15 (intro)--The Exchange may appoint in Rule 8.15(a).
an option class for which a DPM has not been
appointed one or more Market-Makers in good
standing as LMMs.
Rule 8.15 (intro)--LMMs in Hybrid 3.0 classes Rule 8.15(c)(i).
must participate in the modified opening
rotation in Rule 6.2B, Interpretation and
Policy .01.
Rule 8.15 (intro)--LMMs in Hybrid 3.0 classes Rule 8.15(c)(v).
must participate in other rotations using the
Hybrid Opening System described in Rule 6.2B.
Rule 8.15 (intro)--LMMs must determine a Rule 8.15(c)(ii).
formula for generating automatically updated
market quotations during the trading day.
Rule 8.15(a)--LMMs shall be appointed on the Rule 8.15(a).
first day following an expiration for a
period of one month and may be assigned to a
zone with one or more LMMs. The Exchange
shall select the series to be included in a
zone.
Rule 8.15(a)(1)-(4)........................... Rule 8.15(a)(i)-(iv).
Rule 8.15(b)(1)............................... Rule 8.15(b)(v).
Rule 8.15(b)(2)............................... Rule 8.15(c)(iv).
Rule 8.15(b)(3)............................... Deleted as described above.
Rule 8.15(b)(4)............................... Rule 8.15(b)(vii).
Rule 8.15(c).................................. Deleted as described above.
Rule 8.15(d).................................. Rule 8.15(c)(ii).
Rule 8.15, Interpretation and Policy .01...... Rule 8.15, Interpretation and Policy .03.
Rule 8.15, Interpretation and Policy .02 Rule 8.15, Interpretation and Policy .01.
(intro), (a) and (b).
Rule 8.15, Interpretation and Policy .02(c)... Deleted as described above.
Rule 8.15B(a)-(c)............................. Rule 8.15(d).
Rule 8.15B, Interpretation and Policy .01..... Rule 8.15(b)(i) and Interpretation and Policy .04.
[[Page 9917]]
Rule 8.15B, Interpretation and Policy .02..... Rule 8.15, Interpretation and Policy .02.
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The proposed rule change deletes references in current Rule 8.15A to
Hybrid classes, as proposed Rule 8.15 will apply to all classes (both
Hybrid and Hybrid 3.0).
Sixth, the Exchange proposes to delete references to the
nonapplicability of strike intervals, bid/ask differential and
continuity rules to LEAPS contained in Rules 5.8(a) \32\ and 24.9(b)
(which rules contain provisions related to equity LEAPS and index
LEAPS, respectively). Other existing rules specifically address strike
price intervals, bid/ask differentials and quote continuity, including
(i) Rules 5.5, Interpretation and Policy .01 and 24.9, Interpretation
and Policy .01, which describe strike price intervals for equity
options and index options, respectively;\33\ and (ii) Rules 8.7(d),
8.13(d), 8.15(b) (as amended by this rule filing), and 8.83, which
describe continuous quoting and bid/ask differential requirements for
the various types of Market-Makers.\34\
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\32\ The Exchange also proposes to correct a cross-reference to
Rule 5.6 (which was combined with Rule 5.5 pursuant to rule filing
SR-CBOE-1997-023) that is contained in Rule 5.8.
\33\ Some of these rules have provisions describing how LEAPS
are sometimes subject to different strike price interval
requirements than other options, which implies that the strike price
interval requirements without such LEAPS-specific provisions apply
to LEAPS in the same manner as they do to all other option types.
See, e.g., Rules 5.5, Interpretation and Policy .01 (a)(1) ($2.50
strike price intervals are not permitted between $1 and $50 for non-
LEAPS and LEAPS) and (a)(2)(v) and (3) (allowable strike price
intervals for LEAPS for stocks in the $1 Strike Price Interval
Program); and 24.9, Interpretation and Policy .01 (f)(iii) (minimum
strike price intervals for LEAPS on BXM is $5), (g)(iii) (minimum
strike price intervals for LEAPS on CBOE S&P 500 Three-Month
Realized Volatility options is $1), and (h)(iv) minimum strike price
interval for LEAPS on S&P 500 Dividend Index options is $1).
\34\ Two of these rules explicitly exclude LEAPS from the
continuous quoting obligations of certain Market-Makers. Rule 8.7(d)
requires that Market-Makers provide continuous electronic quotes
when quoting in a particular class on a given trading day in 60% of
the series of the Market-Maker's appointed class that have a time to
expiration of less than nine months. Rule 8.13(d) requires that PMMs
provide continuous electronic quotes in at least the lesser of 99%
of the non-adjusted option series that have a time to expiration of
less than nine months or 100% of the non-adjusted option series that
have a time to expiration of less than nine months minus one call-
put pair of each class for which it receives PMM orders. The other
Rules referenced contain no such exclusion, implying that the
Exchange intended for the continuous obligations of LMMs and DPMs to
apply to LEAPS. See discussion above regarding proposed inclusion of
additional descriptions of the bid/ask differential and continuous
quoting requirements in proposed Rule 8.15 regarding obligations of
LMMs.
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The provisions in these Rules were adopted after the language that
the Exchange proposes to delete in Rules 5.8(a) and 24.9(b)(1)(A).
Thus, the Exchange views these latter-adopted Rules regarding strike
price interval, bid/ask differential and quote continuity requirements
referenced above as superseding the language proposed to be deleted.
This view is supported by the specific applicability (or
nonapplicability) of certain of these requirements to LEAPS. The
language proposed to be deleted is outdated (it was adopted prior to
the implementation of the Hybrid Trading System) and duplicative, and
thus no longer necessary. The Exchange also believes the different
timing included in this language (nine months for equity LEAPS versus
12 months for index LEAPS) is no longer necessary and is confusing for
investors. The deletion of this language has no impact on the strike
price interval, bid/ask differential or quote continuity requirements
currently imposed by the Exchange, which will continue to be imposed in
a manner consistent with the other existing rules discussed above. The
Exchange believes that the deletion of these provisions in 5.8(a) and
24.9(b)(1)(A) will provide additional clarity and eliminate any
confusion on the applicability of the strike price interval, bid/ask
differential and quote continuity requirements that may otherwise
result by including duplicative rules on these topics.
Finally, the Exchange is proposing nonsubstantive, technical
changes to Rules 1.1(fff) and (ggg), 3.2, 6.1A, 6.2A, 6.45A, 6.45B,
6.74, 8.7, 8.13, 8.14, 8.15, 8.15A, 8.83, 8.85, 17.50, 22.14, 24.9, and
29.17, including amendments to correct typographical errors, update
headings, update cross-references to Rules 8.15, 8.15A and 8.15B, make
the rule text more plain English, and make the rule text more
consistently organized, numbered and worded.
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.\35\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \36\ 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) \37\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\35\ 15 U.S.C. 78f(b).
\36\ 15 U.S.C. 78f(b)(5).
\37\ Id.
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In particular, the Exchange believes that the proposed rule changes
to amend Rules 8.15, 8.15A and 8.85 to revise descriptions of
obligations of LMMs in Hybrid 3.0 classes, LMMs in Hybrid classes, and
DPMs, respectively, as well as combining the LMM obligations into a
single rule for all classes, will benefit investors by providing more
clarity and uniformity to the Rules related to market participants with
substantially similar functions and obligations in a manner that is
generally consistent with other Rules. Additionally, the Exchange
believes that by including the descriptions of applicable obligations
within each rule (which currently apply pursuant to other Rules) will
promote compliance by LMMs and DPMs.
As demonstrated above, any additional obligations imposed on LMMs
by the proposed rule change are de minimis and will not be burdensome,
as the obligations as revised generally currently apply to LMMs
pursuant to Rules 8.15 and 8.15A or other Rules. With respect to LMMs
in Hybrid 3.0 classes, they are currently subject to continuous quoting
obligations, which had previously not been codified in the rules. While
the proposed rule change amends these obligations, the proposed
obligations are identical to the continuous quoting obligations of LMMs
in Hybrid classes and DPMs, as well as
[[Page 9918]]
former e-DPMs, who serve substantially similar functions within CBOE's
market. The Exchange believes that subjecting LMMs in Hybrid 3.0
classes to the same continuous quoting obligations as LMMs in Hybrid
classes (and DPMs) will promote compliance by LMMs and simplify
surveillance processes for the Exchange when determining compliance
with these obligations. Additionally, current rules applicable to LMMs
in Hybrid classes and DPMs provide an appropriate balance between the
benefits for and burdens imposed on them, and the Exchange believes the
proposed rule change provides the same appropriate balance to Hybrid
3.0 LMMs, who serve substantially similar functions as Hybrid LMMs and
DPMs. Thus, any additional obligations imposed on LMMs in Hybrid 3.0
classes are de minimis and will not be burdensome. Because the proposed
rule change does not materially change the benefits or obligations of
LMMs, the Exchange believes the rules continue to provide an
appropriate balance between LMM benefits and obligations (as they do
for Hybrid LMMs and DPMs) and thus promote just and equitable
principles of trade.
The proposed rule change slightly modifies the opening quoting
obligations of LMMs and DPMs to include a specific time by which
opening quotes must be entered. The proposed timeframe is consistent
with the amount of time in which the vast majority of series listed on
the Exchange open. The Exchange notes this is the same timeframe
included in rules of another options exchange regarding opening quoting
obligations of similarly situated market participants.\38\ The Exchange
believes this proposed change is not material and will not result in
reduced liquidity while still ensuring a prompt opening. The Exchange
notes that LMMs and DPMs only need to enter quotes in series that do
not open due to a lack of quote (both today and under the proposed
rule); if all series in an appointed class open within the proposed
timeframe, the proposed rule change will not increase or decrease any
obligation of LMMs and DPMs. The Exchange believes having a specified
time by which LMMs and DPMs must enter opening quotes, rather than the
nonspecific term ``prompt,'' simplifies this obligation and promotes
compliance with these obligations by LMMs and DPMs. The Exchange may
request all Market-Makers to submit quotes in the interests of a fair
and orderly market. Thus, the Exchange believes there is no significant
risk that more series will not open as a result of this proposed rule
change or that there will be a material impact on liquidity.
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\38\ See, e.g., MIAX Options Exchange (``MIAX'') Rule 603(c).
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The proposed rule change does not change the majority of
obligations currently imposed on LMMs. As discussed above, through
other existing rules, LMMs are already subject to the majority of the
obligations as revised. With respect to LMMs in Hybrid 3.0 classes,
they are currently subject to continuous quoting obligations which had
previously not been codified in the rules. While the proposed rule
change amends these obligations, the proposed obligations are identical
to the continuous quoting obligations of LMMs in Hybrid classes and
DPMs, who serve substantially similar functions). The Exchange believes
that subjecting LMMs in Hybrid 3.0 classes to the same continuous
quoting obligations as LMMs in Hybrid classes (and DPMs) will promote
compliance by LMMs and simplify surveillance processes for the Exchange
when determining compliance with these obligations. Additionally,
current rules applicable to LMMs in Hybrid classes and DPMs provide an
appropriate balance between the benefits for and burdens imposed on
them, and the Exchange believes the proposed rule change provides the
same appropriate balance to Hybrid 3.0 LMMs, who serve substantially
similar functions as Hybrid LMMs and DPMs. Thus, any additional
obligations imposed on LMMs are de minimis and will not be burdensome.
Because the proposed rule change does not materially change the
benefits or obligations of LMMs, the Exchange believes the rules
continue to provide an appropriate balance between LMM benefits and
obligations (as they do for Hybrid LMMs and DPMs) and thus promote just
and equitable principles of trade.
Further, the Exchange believes the proposed revisions to the
descriptions of the Off-Floor DPM and Off-/On-Floor LMM programs will
make it easier to read and understand this program, including when Off-
Floor DPMs and Off/On-Floor LMMs may be appointed by the Exchange and
how obligations and benefits are applied when appointments pursuant to
the Program have been made. This clarity will benefit investors and
promote compliance with the program. The Exchange believes making this
program available to classes in which there is an Off-Floor LMM and
Hybrid 3.0 classes, in addition to classes in which there is an Off-
Floor DPM and Hybrid classes only, is reasonable given the similar
roles of LMMs and DPMs and may result in additional liquidity in those
classes.
The Exchange also believes that the proposed changes to eliminate
obsolete provisions, including those related to individual LMMs, SMMs,
an expired pilot program, the Old Linkage Plan, and strike price
interval, bid/ask differential and quote continuity requirements, will
protect investors by simplifying the rules and eliminating potential
confusion that may result from inclusion of duplicative and outdated
rules. With respect to strike price interval, bid/ask differential and
quote continuity requirements, as discussed above, other existing rules
address those requirements and supersede the language regarding these
topics included (and proposed to be deleted) in Rules 5.8 and 24.9,
thus rendering this language outdated and unnecessary. The Exchange
will continue to impose these requirements in the manner it does today,
consistent with the provisions in the other existing rules, and thus
the proposed rule change has no impact on how the Exchange imposes
these requirements.
The Exchange believes that the nonsubstantive, technical changes
proposed throughout the Rules will simplify and provide more clarity
and consistent organization in the Rules, which will benefit investors.
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. Specifically, the changes to
the descriptions of obligations of LMMs and DPMs also have no impact on
competition, because LMMs and DPMs, as discussed above, generally are
already subject to these obligations through existing rules. The
proposed rule changes are intended to make the rules regarding LMM and
DPM obligations more consistent with each other given the substantially
similar functions of LMMs and DPMs and reduce duplication within the
Rules. With respect to the proposed changes to certain obligations of
LMMs and DPMs, the Exchange notes that these changes are not material
and will not be burdensome. While the proposed rule change slightly
modifies the opening quoting obligations of LMMs and DPMs, the Exchange
believes the modified obligation still requires LMMs and DPMs to
promptly enter quotes to ensure an opening, and they must continue to
submit quotes in response to a request from the Exchange. Therefore,
the Exchange believes there is no
[[Page 9919]]
significant risk that more series will not open as a result of this
proposed rule change. Additionally, while the proposed rule change
modifies the continuous quoting obligations of LMMs in Hybrid 3.0
classes, the proposed obligation is the same as that of LMMs in Hybrid
classes and DPMs, who have substantially functions and obligations as
LMMs in Hybrid 3.0 classes, and LMMs in Hybrid 3.0 classes will
continue to be required to provide quotes in a substantial number of
series for a large part of the trading day under the revised quoting
obligation. The Exchange believes the rules, as amended, continue to
provide an appropriate balance of benefits for and obligations on LMMs
and DPMs, and result in significant liquidity on CBOE. See the
discussion above for additional details regarding the balance of LMM
and DPM obligations and benefits.
The proposed rule change regarding the Off-Floor DPM and On-Floor/
Off-Floor LMM program merely enhances the description of this program
for investors but has no impact on how the Exchange implements the
program. The Exchange believes the proposed revisions to the
descriptions of the Off-Floor DPM and Off-/On-Floor LMM programs will
make it easier to read and understand this program, including when Off-
Floor DPMs and Off/On-Floor LMMs may be appointed by the Exchange and
how obligations and benefits are applied when appointments pursuant to
the Program have been made. This clarity will benefit investors and
promote compliance with the program. Additionally, making this program
available to classes in which there is an Off-Floor LMM and Hybrid 3.0
classes, in addition to classes in which there is an Off-Floor DPM and
Hybrid classes only, may result in additional liquidity in those
classes.
The nonsubstantive, technical changes and deletion of obsolete rule
provisions have no impact on competition and are intended only to
simplify, make consistent and eliminate potential confusion within the
rules.
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-2016-009 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-2016-009. 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-2016-009 and should be
submitted on or before March 18, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04109 Filed 2-25-16; 8:45 am]
BILLING CODE 8011-01-P
