Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Tied to Stock Orders, 50036-50041 [2016-17910]
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Federal Register / Vol. 81, No. 146 / Friday, July 29, 2016 / Notices
when the trade is executed.10 Because of
this, Members will not know the
identity of the party to whom they sold
securities or from whom they purchased
securities. Without this information,
Members would not be able to comply
with the Contra-Party Identity
Requirement of Rule 10b–10. To permit
IEX Members to utilize the Exchange
without violating Rule 10b–10 under the
Exchange Act, on behalf of its Members,
is seeking an exemption under Rule
10b–10(f) from the Contra-Party Identity
Requirement of Rule 10b–10 when
Members execute transactions at IEX, as
described in the Application.
IV. Conclusion
Based on the facts and representations
contained in the Application, we find
that it is appropriate and in the public
interest and consistent with the
protection of investors to grant the
Exchange, on behalf of its Members, a
limited exemption from the ContraParty Identity Requirement in Rule 10b–
10(a)(2)(i)(A).
IT IS HEREBY ORDERED, pursuant to
Rule 10b–10(f) of the Exchange Act, that
IEX Members, based on the
representations and facts contained in
the Application, are exempt from the
requirements of Rule 10b–10(a)(2)(i)(A)
of the Exchange Act, to the extent that
Members execute trades for their
customers on the Exchange using the
IEX Trading System. This exemption is
limited to trades that Members execute
on IEX using the post trade anonymity
feature described in the Application.11
The foregoing exemption is subject to
modification or revocation if at any time
the Commission determines that such
action is necessary or appropriate in
furtherance of the purposes of the
Exchange Act.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–18020 Filed 7–28–16; 8:45 am]
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BILLING CODE 8011–01–P
10 Except for the conditions set forth in IEX Rule
11.250(d)(2). See supra note 3.
11 This exemption does not apply: (a) To orders
routed to an away trading center for execution; (b)
under the circumstances described in note 3 supra;
or (c) if the functionality of IEX’s order book were
to be changed to allow a broker-dealer to select or
influence against whom its orders will be executed
as described in the Application on page 5 and note
10.
12 17 CFR 200.30–3(32).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78407; File No. SR–CBOE–
2016–057]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to Tied to Stock
Orders
July 25, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 21,
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 and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The proposed rule change deletes
Rules 6.53(y), 6.77(e) and 15.2A. The
text of the proposed rule change is
provided below.
(additions are underlined; deletions are
[bracketed])
*
*
*
*
*
initiates the order, the Trading Permit
Holder has knowledge that the order is
coupled with an order(s) for the
underlying stock or a security
convertible into the underlying stock
(‘‘convertible security’’). The
representing Trading Permit Holder
must include an indicator on each tied
to stock order upon systemization,
unless:
(i) The order is submitted to the
Exchange as part of a qualified
contingent cross order (as defined in
this Rule 6.53) through an Exchangeapproved device;
(ii) the order is submitted to the
Exchange for electronic processing as a
stock-option order (as defined in Rule
6.53C); or
(iii) all of the component orders are
systematized on a single order ticket.
An order is not ‘‘tied to stock’’ if it is
not coupled with an order(s) for the
underlying stock or convertible security
at the time of receipt or initiation (e.g.,
an option order that is received or
initiated to hedge a previously executed
stock transaction, an option transaction
or position that is hedged with a
subsequently received or initiated stock
order).]
. . . Interpretations and Policies:
.01–.02 No change.
*
*
*
*
*
Rule 6.77. Order Service Firms
(a)–(d) No change.
[(e) Order service firms must submit
reports pursuant to Rule 15.2A with
respect to the stock transactions it
executes on behalf of market-makers
pursuant to this Rule 6.77.]
*
*
*
*
*
Chicago Board Options Exchange,
Incorporated Rules
[Rule 15.2A. Reports of Execution of
Stock Transactions
*
In a manner and form prescribed by
the Exchange, each Trading Permit
Holder must, on the business day
following the order execution date,
report to the Exchange the following
information for the executed stock or
convertible security legs of QCC orders,
stock-option orders and other tied to
stock orders that the Trading Permit
Holder executed on the Exchange that
trading day: (a) Time of execution, (b)
execution quantity, (c) execution price,
(d) venue of execution, and (e) any other
information requested by the Exchange.
A Trading Permit Holder may arrange
for its clearing firm to submit these
reports on its behalf; provided that if the
clearing firm does not report an
executed stock order, the Trading
Permit Holder will be responsible for
reporting the information.
. . . Interpretation and Policies:
*
*
*
*
Rule 6.53. Certain Types of Orders
Defined
One or more of the following order
types may be made available on a classby-class basis. Certain order types may
not be made available for all Exchange
systems. The classes and/or systems for
which the order types shall be available
will be as provided in the Rules, as the
context may indicate, or as otherwise
specified via Regulatory Circular.
(a)–(x) No change.
[(y) Tied to Stock Order. An order is
‘‘tied to stock’’ if, at the time the
Trading Permit Holder representing the
order on the Exchange receives or
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1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
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.01 The Exchange will announce by
Regulatory Circular any determinations,
including the manner and form of the
report, that it makes pursuant to Rule
15.2A.
.02 A Trading Permit Holder (or its
clearing firm) does not need to report
information pursuant to Rule 15.2A
with respect to (a) stock-option orders
(as defined in Rule 6.53C) submitted to
the Exchange for electronic processing
or (b) stock or convertible security
orders entered into an Exchangeapproved device.
.03 A Market-Maker (or its clearing
firm) may include the information
required by Rule 15.2A in the equity
reports submitted to the Exchange
pursuant to Rule 8.9(b).
.04 If a tied to stock order executed
at multiple options exchanges, a
Trading Permit Holder (or its clearing
firm) may report to the Exchange the
information pursuant to Rule 15.2A for
the entire stock or convertible security
component(s) rather than the portion of
the stock or convertible security
component(s) applicable to the portion
of the order that executed at the
Exchange.
.05 In lieu of the time of execution
pursuant to Rule 15.2A(a), the Exchange
may accept the time of the trade report
if that time is generally within 90
seconds of the time of execution.]
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s Web
site (https://www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On August 13, 2014, the Securities
and Exchange Commission (the
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‘‘Commission’’) approved CBOE Rules
6.53(y), 6.77(e) and 15.2A.5 Rule 6.53(y)
defines a tied to stock order 6 and
requires the representing Trading Permit
Holder to include an indicator on each
tied to stock order upon systemization,
subject to certain exceptions. Rule
15.2A requires, in a manner and form
prescribed by the Exchange, each
Trading Permit Holder (‘‘TPH’’), on the
business day following the order
execution date, to report to the
Exchange certain information regarding
the executed stock or convertible
security legs of qualified contingent
cross (‘‘QCC’’) orders,7 stock-option
orders and other tied to stock orders that
the TPH executed on the Exchange that
trading day. Rule 6.77(e) subjects order
service firms 8 to the reporting
requirements set forth in Rule 15.2A
with respect to stock transactions they
5 Securities Exchange Act release No. 34–72839
(August 13, 2014), 79 FR 49123 (August 19, 2014)
(SR–CBOE–2014–040).
6 Rule 6.53(y) provides that an order is ‘‘tied to
stock’’ if, at the time the Trading Permit Holder
representing the order on the Exchange receives the
order (if the order is a customer order) or initiates
the order (if the order is a proprietary order), has
knowledge that the order is coupled with an
order(s) for the underlying stock or a security
convertible into the underlying stock (‘‘convertible
security’’ and, together with underlying stock,
‘‘non-option’’).
7 A QCC order is an order to buy (sell) at least
1,000 standard option contracts or 10,000 minioption contracts that is identified as being part of
a qualified contingent trade coupled with a contraside order to sell (buy) an equal number of
contracts. These orders may only be entered in the
standard increments applicable to simple orders in
the options class under Rule 6.42. For purposes of
this order type, a ‘‘qualified contingent trade’’ is a
transaction consisting of two or more component
orders, executed as agent or principal, where: (a) At
least one component is an NMS stock, as defined
in Rule 600 of Regulation NMS under the Act; (b)
all components are effected with a product or price
contingency that either has been agreed to by all the
respective counterparties or arranged for by a
broker-dealer as principal or agent; (c) the execution
of one component is contingent upon the execution
of all other components at or near the same time;
(d) the specific relationship between the component
orders (e.g., the spread between the prices of the
component orders) is determined by the time the
contingent order is placed; (e) the component
orders bear a derivative relationship to one another,
represent different classes of shares of the same
issuer, or involve the securities of participants in
mergers or with intentions to merge that have been
announced or cancelled; and (f) the transaction is
fully hedged (without regard to any prior existing
position) as a result of other components of the
contingent trade. QCC orders may execute without
exposure provided the execution is not at the same
price as a public customer order resting in the
electronic book and is at or between the national
best bid or offer. A QCC order will be cancelled if
it cannot be executed. See Rule 6.53(u).
8 Order service firms are TPH organizations that
are registered with the Exchange for the purpose of
taking orders for the purchase or sale of stocks or
commodity futures contracts (and options thereon)
from market-makers on the floor of the Exchange
and forwarding such orders for execution. Rule
6.77(a).
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50037
execute on behalf of market-makers on
the floor of the Exchange. The Exchange
stated in rule filing SR–CBOE–2014–040
that it would issue a circular
announcing the implementation date for
these rules within 90 days of the date of
filing, which implementation date
would be within 180 days of the date of
filing.
On January 7, 2015, CBOE submitted
a rule filing to delay the implementation
of these rules based on feedback it
received from TPHs.9 The Exchange
stated in that rule filing that it would
issue a circular announcing the
implementation date for the rules
within 90 days of the date of the rule
filing, which implementation date
would be within 180 days of the date of
filing. In accordance with that filing, the
Exchange issued a regulatory circular on
April 7, 2015, which announced a July
1, 2015 implementation date for the tied
to stock marking and reporting
requirements.10 On May 20, 2015, the
Exchange submitted a rule filing to
further delay implementation of the
reporting requirement set forth in Rule
15.2A 11 for 12 to 18 months in order to
evaluate the format of the reports in
light of its entry into a Regulatory
Services Agreement with the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) 12 to ensure information in
the reports could be incorporated into
surveillances in an efficient and
effective manner. In that filing, CBOE
announced its intention to proceed with
the implementation of the marking
requirements set forth in Rule 6.53(y) on
July 1, 2015. On July 1, 2015, the
Exchange submitted a rule filing to
further delay implementation of the
marking requirement set forth in Rule
6.53(y) with respect to orders submitted
to the Exchange for electronic
processing for six to 18 months (the
filing confirmed implementation of the
marking requirement with respect to
orders submitted to the Exchange for
9 Securities Exchange Act Release No. 34–74067
(January 15, 2015), 80 FR 3267 (January 22, 2015)
(SR–CBOE–2015–004).
10 CBOE Regulatory Circular RG15–056 (April 7,
2015).
11 Pursuant to CBOE Regulatory Circular RG13–
102 (July 19, 2013), CBOE imposed a reporting
requirement with respect to QCC orders prior to the
adoption of Rule 15.2A. As stated in that circular,
as long as the QCC functionality remains active, the
reporting requirement for QCC orders described in
Regulatory Circular RG13–102 would continue to be
in effect until the implementation of Rule 15.2A.
Once implemented, the reporting requirement in
Rule 15.2A would supersede the QCC order
reporting requirement described in that circular.
See also CBOE Regulatory Circular RG15–087 (May
29, 2015).
12 Securities Exchange Act Release No. 34–75029
(May 21, 2015), 80 FR 30506 (May 28, 2015) (SR–
CBOE–2015–051) (notice of filing and immediate
effectiveness of proposed rule change).
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nonelectronic processing).13 In addition
to the evaluation of the proposed report
format, CBOE indicated it intended to
review the number of tied to stock
orders received and evaluate the
number of reports it could expect to
receive with respect to those orders and
the potential impact of the reports on
CBOE surveillances.
Based on this evaluation, the
Exchange does not believe it is
necessary to maintain or fully
implement the marking requirement or
implement the reporting requirement;
therefore, the Exchange proposes to
delete these requirements in their
entirety from its rules.14 Because the
definition of tied to stock orders is only
used in the rules for the marking and
reporting requirements, the proposed
rule change also deletes the definition of
tied to stock orders. While CBOE
continues to believe this type of
information would benefit its crossmarket activity surveillances, based on
our evaluation, CBOE believes the
requirements would apply to only a
small number of orders.15 During the
evaluation period discussed above
(during which the tied to stock marking
requirement was in effect for orders
submitted to the Exchange for
nonelectronic processing), fewer than
0.25% of orders submitted to the
Exchange for nonelectronic processing
included the tied to stock indicator.16 If
13 Securities Exchange Act Release No. 34–75378
(July 7, 2016), 80 FR 40116 (July 13, 2015) (SR–
CBOE–2015–067) (notice of filing and immediate
effectiveness of proposed rule change); see also
CBOE Regulatory Circular RG15–093 (June 19,
2015). CBOE notes that it performed the systems
work necessary for Exchange-approved devices the
Exchange makes available to floor brokers to have
the functionality to allow floor brokers to mark
orders as tied to stock at the time of systemization
of the order.
14 As discussed above, prior to the adoption of
Rule 15.2A, the Exchange required TPHs to submit
reports of stock trades related to QCC transactions.
This QCC stock leg reporting requirement
continued to apply during the delay to
implementation of Rule 15.2A and will continue to
apply after deletion of the tied to stock reporting
requirement from the Rules. See supra note 11.
15 As set forth in Rule 6.53(y), orders coupled
with an order for stock are defined as tied to stock
orders; however, various tied to stock orders are
exempt from the marking requirement, including
QCC orders, stock-option orders submitted for
electronic processing, and orders for which all
components are systematized on a single order
ticket. Similarly, as set forth in Rule 15.2A,
Interpretation and Policy .02, TPHs do not need to
submit reports for stock-option orders submitted to
the Exchange for electronic processing or stock or
convertible security orders entered into an
Exchange-approved device. As a result, only a
subset of tied to stock orders would be subject to
the marking and reporting requirements.
16 Specifically, during the third quarter of 2015,
the fourth quarter of 2015 and the first quarter of
2016, the percentage of orders submitted to the
Exchange for nonelectronic processing that
included the tied to stock indictor was
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the marking and reporting requirements
were fully implemented, the number of
orders to which they would apply
would be limited given the exceptions
that currently exist in the rules and
other changes that CBOE has
implemented. For example, subsequent
to the approval of SR–CBOE–2015–040,
the Exchange amended CBOE Rule 6.53
to require complex orders of twelve (12)
legs or less—one leg of which may be
for an underlying security or security
future, as applicable—to be entered on
a single order ticket at time of
systemization (referred to herein as the
‘‘single order ticket rule change’’).17
These orders are excepted from the tied
to stock marking requirement under
Rule 6.53(y)(iii) (which provides an
exception if all the component orders of
a tied to stock order are systemized on
a single order ticket) and would often
qualify for an exception from the
reporting requirement under Rule 15.2A
(e.g., the exceptions under
Interpretation and Policy .02 which
apply to (1) stock-option orders (as
defined in Rule 6.53C) submitted to the
Exchange for electronic processing or (2)
stock or convertible securities orders
entered onto an Exchange-approved
device). The single order ticket rule
change—as well as provisions in the
rules exempting certain orders from the
tied to stock marking and reporting
requirements—result in a number of
orders qualifying for an exemption from
the tied to stock marking and reporting
requirements. This, in turn, reduces the
number of orders to which the tied to
stock marking and reporting
requirements would apply once
implemented. As a result, at this time,
CBOE believes the benefits to its
surveillances for so few orders are
outweighed by the additional costs to
TPHs to implement the marking
requirement (for orders submitted for
electronic processing) and the reporting
requirement.
CBOE acknowledged in the initial
filing to adopt the tied to stock marking
and reporting requirements relevant
stock information would be captured by
the Consolidated Audit Trail (‘‘CAT’’),
approximately 0.17%, 0.16% and 0.21%,
respectively.
17 See Rule 6.53, Interpretation and Policy 02. In
addition, orders of more than twelve (12) legs (one
leg of which may be for an underlying security or
security future, as applicable) may be split across
multiple order tickets subject to certain
requirements. See Securities Exchange Act Release
Nos. 34–74389 (February 26, 2015), 80 FR 11717
(March 4, 2015) (SR–CBOE–2015–011) and 34–
75026 (May 21, 2015), 80 FR 30514 (May 28, 2015)
(SR–CBOE–2015–048). Mandatory compliance with
this requirement went into effect June 1, 2015. See
CBOE Regulatory Circulars RG15–067 (April 22,
2015) and RG15–092 (June 17, 2015).
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once the relevant CAT provisions have
been approved and implemented.
Specifically, once approved and
implemented, Section 6.3 of the
National Market System Plan Governing
the Consolidated Audit Trail would
require each national securities
exchange to record and report to the
CAT central repository specified
information for each order and
execution, among other things, on its
exchange for eligible securities, which
include stock and listed options.18
Additionally, once approved and
implemented, Section 6.4 of the Plan
would require each national securities
exchange to require its members to
report certain data to the central
repository specified information for
each order and execution for eligible
securities, among other things.19 Under
the Plan, as proposed, the central
repository would be responsible for the
receipt, consolidation and retention of
all information reported to CAT
pursuant to Rule 613 under Regulation
NMS.20 Exchanges would have access to
the central repository, including access
to and use of the CAT data stored in the
central repository, for the purpose of
performing their respective regulatory
and oversight responsibilities pursuant
to federal securities laws, rules and
regulations.21
At the time of that initial tied to stock
filing, the Exchange expected
implementation of CAT would not
occur for several years. However, since
that time, an amended and restated
version of the Plan has been submitted
by the self-regulatory organizations to
the Commission and published by the
Commission for comment and
approval.22 As a result, the Exchange
believes the implementation of CAT
may occur in the near future. The order
and execution information described
above that would be reported to CAT is
the same information that the tied to
stock reporting requirement was
designed to capture from TPHs. Because
the Exchange would have access to this
information from the CAT central
repository once implemented, CBOE no
longer believes the short-term benefits it
may obtain from the tied to stock
marking and reporting requirements
prior to the implementation of CAT
outweigh the costs to be undertaken by
18 See Securities Exchange Act Release No. 34–
77724 (April 27, 2016), 81 FR 30614 (May 17, 2016)
(notice of filing of the National Market System Plan
Governing the Consolidated Audit Trail (the
‘‘Plan’’)), at Section 6.3(d); see also 17 CFR
242.600(b)(46) (definition of NMS security).
19 See id. at Section 6.4(d).
20 See id. at Section 1.1.
21 See id. at Section 6.5(c).
22 See id.
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CBOE and TPHs in connection with
efforts related to CAT’s implementation,
especially in light of the small number
of orders expected to be impacted by the
tied to stock requirements, as discussed
above.23 The Exchange also notes it may
continue to request from TPHs
information regarding stock executions
when necessary to perform cross-market
surveillances in connection with its
regulatory duties.24 The marking and
reporting requirements were intended to
reduce TPHs’ and the Exchange’s
administrative burden of manually
gathering cross-market information to
tie non-option legs to option orders.
Because the Exchange has not yet
implemented the reporting requirement,
since approval of the initial tied to stock
rule filing, the Exchange has continued,
and will continue, to maintain the
ability with this manual process of
requesting information, as necessary or
appropriate. The Exchange has, and
expects to continue to have, sufficient
resources to perform these ad hoc
reviews in connection with its
surveillances, particularly given the
reduced number of orders with a stock
component for which CBOE may need
this information and the
implementation of the single order
ticket rule change.
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2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.25 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 26 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
23 While the Plan does not require orders to be
marked as tied to stock, because the Exchange will
have access to all order and execution information
for stock and options through the central
depository, including timing information, the
Exchange would not need those orders to be
marked. The purpose of the marking requirement
was to notify the Exchange the TPH that submitted
a tied to stock option order on CBOE would
separately be submitting execution information for
a stock trade related to that marked option order.
24 See SR–CBOE–2014–040.
25 15 U.S.C. 78f(b).
26 15 U.S.C. 78f(b)(5).
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investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 27 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, CBOE believes it
efficiently and effectively conducts its
regulatory surveillances of CBOE
trading activity and cross-market trading
activity. While the information that
would be provided to CBOE from the
tied to stock marking and reporting
requirements would enhance these
surveillances, based on an evaluation of
the factors described above, CBOE has
determined these enhancements would
apply to a small number of orders. The
single order ticket rule change—as well
as provisions in the rules exempting
certain orders from the tied to stock
marking and reporting requirements—
result in a number of orders qualifying
for an exemption from the tied to stock
marking and reporting requirements.
This, in turn, further reduces the
number of orders to which the tied to
stock marking and reporting
requirements would apply once
implemented. As a result, CBOE no
longer believes the benefits to its
surveillances for a smaller number of
orders that may be obtained from
implementation of these requirements
outweigh the additional costs to TPHs to
implement the marking requirement for
orders submitted for electronic
processing and the reporting
requirement. As discussed above,
during an evaluation period when the
marking requirement for orders
submitted for nonelectronic processing
was effective, fewer than 0.25% of
orders submitted for nonelectronic
processing included the tied to stock
indicator. Additionally, as discussed
above, CAT will capture this
information, at which time CBOE will
be able to realize these potential
benefits. CBOE may continue to request
from TPHs information regarding stock
executions when necessary so that it can
continue to effectively conduct its
regulatory surveillances of CBOE
trading activity and cross-market
activity.
The proposed rule change has
minimal impact on TPHs. With respect
to orders submitted to the Exchange for
electronic processing, there will be no
change for TPHs, as they are currently
not required, and no longer will be in
the future, to mark tied to stock orders
(or perform the system development
work to comply with this marking
requirement). Additionally, TPHs
PO 00000
27 Id.
Frm 00118
Fmt 4703
Sfmt 4703
50039
currently are not required, and no
longer will be in the future, to submit
reports related to tied to stock orders.28
With respect to orders submitted to the
Exchange for nonelectronic processing,
floor brokers will no longer be required
to mark those orders upon
systemization, which was a small
number of orders as noted above. The
marking and reporting requirements
were intended to reduce TPHs’ and the
Exchange’s administrative burden of
manually gathering cross-market
information to tie non-option legs to
option orders. Because the Exchange has
not yet implemented the reporting
requirement, since approval of the
initial tied to stock rule filing, the
Exchange has continued, and will
continue, to maintain the ability with
this manual process of requesting
information, as necessary or
appropriate. Deletion of these
requirements merely changes the timing
when TPHs may need to submit
information regarding tied to stock
orders (within one business day of
execution of a tied to stock order v. in
response to a regulatory request). The
Exchange has, and expects to continue
to have, sufficient resources to perform
these ad hoc reviews in connection with
its surveillances, particularly given the
reduced number of orders with a stock
component for which CBOE may need
this information and the
implementation of the single order
ticket rule change.
The term tied to stock order is used
only in the rules for the tied to stock
marking and reporting requirements,
which this filing proposes to delete.
Therefore, the Exchange believes
deleting the definition is consistent with
the Act, as continued inclusion of the
definition of a term not used elsewhere
in the rules would otherwise confuse
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. The
proposed rule change deletes rules the
Exchange only partially implemented.
With respect to orders submitted to the
Exchange for electronic processing,
there will be no change for TPHs, as
28 As discussed above, prior to the adoption of
Rule 15.2A, the Exchange required TPHs to submit
reports of stock trades related to QCC transactions.
This QCC stock leg reporting requirement
continued to apply during the delay to
implementation of Rule 15.2A and will continue to
apply after deletion of the tied to stock reporting
requirement from the Rules. See supra note 11.
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they are currently not required, and no
longer will be in the future, to mark tied
to stock orders (or perform the system
development work to comply with this
marking requirement). Additionally,
TPHs currently are not required, and no
longer will be in the future, to submit
reports related to tied to stock orders.29
With respect to orders submitted to the
Exchange for nonelectronic processing,
floor brokers will no longer be required
to mark those orders upon
systemization. The Exchange notes that
floor brokers were not burdened with
any costs upon implementation of that
limited marking requirements, as CBOE
was responsible for that development
work for devices that floor brokers may
use to systematize orders represented in
open outcry. Therefore, deletion of these
rules has no impact on TPHs with
respect to orders submitted for
electronic processing and eliminates a
requirement for floor brokers to include
an indicator on a small number of
orders. As the Exchange never
implement the reporting requirement for
any orders, deletion of that rule will
have no impact on TPHs.
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.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative prior to 30 days from the date
on which it was filed, or such shorter
time as the Commission may designate,
if consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.30
A proposed rule change filed under
Rule 19b–4(f)(6) 31 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
29 Id.
30 In addition, Rule 19b–4(f)(6)(iii) requires the
Exchange to give the Commission written notice of
the Exchange’s intent to file the proposed rule
change, along with a brief description and text of
the proposed rule change, at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
31 17 CFR 240.19b–4(f)(6).
VerDate Sep<11>2014
18:42 Jul 28, 2016
Jkt 238001
19b–4(f)(6)(iii) 32 permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchanges requests a waiver
because of the minimal impact this
proposed rule change will have on
TPHs, the small number of orders to
which the tied to stock marking and
reporting requirements would apply,
and the Exchange’s continued ability to
access to information regarding stock
executions by requesting it from TPHs
when necessary so that it can continue
to effectively conduct its regulatory
surveillances of CBOE trading activity
and cross-market activity. Additionally,
the Exchange notes that in the rule
filings to delay implementation of the
marking requirement set forth in Rule
6.53(y) with respect to orders submitted
to the Exchange for electronic
processing and the reporting
requirement set forth in Rule 15.2A, the
Exchange has stated that it would
implement these requirements by July 1,
2016.
The Commission believes that waiver
of the 30-day operative delay is
consistent with the protection of
investors and the public interest. The
Commission notes that the Exchange
notes that: (1) The number of orders to
which the tied to stock marking and
reporting requirements would apply are
low and (2) even without the marking
and reporting requirements, the
Exchange has, and expects to continue
to have, sufficient resources to perform
ad hoc reviews in connection with its
surveillance. Accordingly, the
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change as operative upon
filing.33
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 34 of the Act to
determine whether the proposed rule
CFR 240.19b–4(f)(6)(iii).
purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
34 15 U.S.C. 78s(b)(2)(B).
PO 00000
32 17
33 For
Frm 00119
Fmt 4703
Sfmt 4703
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2016–057 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–2016–057. 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–
2016–057 and should be submitted on
or before August 19, 2016.
35 17
E:\FR\FM\29JYN1.SGM
CFR 200.30–3(a)(12).
29JYN1
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Federal Register / Vol. 81, No. 146 / Friday, July 29, 2016 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–17910 Filed 7–28–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78405; File No. SR–BX–
2016–04]
Self-Regulatory Organizations;
NASDAQ BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Update Public
Disclosure of Exchange Usage of
Market Data
July 25, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 12,
2016, NASDAQ BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to update
Exchange Rule 4759 and to amend the
public disclosure of the sources of data
that the Exchange utilizes when
performing (1) order handling and
execution; (2) order routing; and (3)
related compliance processes.
The text of the proposed rule change
is below. Proposed new language is
italicized.
*
*
*
*
*
4759. Data Feeds Utilized
The BX System utilizes the below
proprietary and network processor feeds
for the handling, routing, and execution
of orders, as well as for the regulatory
compliance processes related to those
functions. The Secondary Source of data
is, where applicable, utilized only in
emergency market conditions and only
until those emergency conditions are
resolved.
Market center
Primary source
A—NYSE MKT (AMEX) ....................................................
B—NASDAQ OMX BX .....................................................
C—NSX ............................................................................
D—FINRA ADF .................................................................
J—DirectEdge A ...............................................................
K—DirectEdge X ...............................................................
M—CHX ............................................................................
N—NYSE ..........................................................................
P—NYSE Arca ..................................................................
T/Q—NASDAQ .................................................................
V—IEX ..............................................................................
X—NASDAQ OMX PSX ...................................................
Y—BATS Y-Exchange ......................................................
Z—BATS Exchange ..........................................................
NYSE MKT OpenBook Ultra ...........................................
BX ITCH 5.0 ....................................................................
CQS/UQDF .....................................................................
CQS/UQDF .....................................................................
BATS PITCH ...................................................................
BATS PITCH ...................................................................
CHX Book Feed ..............................................................
NYSE OpenBook Ultra ....................................................
NYSE ARCA XDP ...........................................................
ITCH 5.0 ..........................................................................
CQS/UQDF .....................................................................
PSX ITCH 5.0 .................................................................
BATS PITCH ...................................................................
BATS PITCH ...................................................................
*
*
*
*
*
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqbx.cchwallstreet.com/,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
2 17
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to update and
amend the table in Exchange Rule 4759
that sets forth on a market-by-market
basis the specific network processor and
proprietary data feeds that the Exchange
utilizes for the handling, routing, and
execution of orders, and for performing
the regulatory compliance checks
related to each of those functions.
Specifically, the table will be
amended to include Investors’ Exchange
LLC (‘‘IEX’’), which has informed the
UTP Securities Information Processor
(‘‘UTP SIP’’) that it is projecting to
activate its status as an operating
participant for quotation and trading of
Nasdaq-listed securities under the
Unlisted Trading Privileges (‘‘UTP’’)
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Sep<11>2014
18:42 Jul 28, 2016
3 15
4 15
Jkt 238001
PO 00000
Secondary source
Plan on or about August 1, 2016. The
primary source will be CQS/UQDF and
there is no secondary source provided.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,3
in general and with Sections [sic] 6(b)(5)
of the Act,4 in particular in that it is
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.
U.S.C. 78f.
U.S.C. 78f(b)(5).
Frm 00120
Fmt 4703
Sfmt 4703
CQS/UQDF.
CQS/UQDF.
n/a.
n/a.
CQS/UQDF.
CQS/UQDF.
CQS/UQDF.
CQS/UQDF.
CQS/UQDF.
CQS/UQDF.
n/a.
CQS/UQDF.
CQS/UQDF.
CQS/UQDF.
E:\FR\FM\29JYN1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 146 (Friday, July 29, 2016)]
[Notices]
[Pages 50036-50041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17910]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78407; File No. SR-CBOE-2016-057]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Tied to Stock Orders
July 25, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on July 21, 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 and II below, which Items have been prepared by the
Exchange. The Exchange filed the proposal as a ``non-controversial''
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
\3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change deletes Rules 6.53(y), 6.77(e) and 15.2A.
The text of the proposed rule change is provided below.
(additions are underlined; deletions are [bracketed])
* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Rule 6.53. Certain Types of Orders Defined
One or more of the following order types may be made available on a
class-by-class basis. Certain order types may not be made available for
all Exchange systems. The classes and/or systems for which the order
types shall be available will be as provided in the Rules, as the
context may indicate, or as otherwise specified via Regulatory
Circular.
(a)-(x) No change.
[(y) Tied to Stock Order. An order is ``tied to stock'' if, at the
time the Trading Permit Holder representing the order on the Exchange
receives or initiates the order, the Trading Permit Holder has
knowledge that the order is coupled with an order(s) for the underlying
stock or a security convertible into the underlying stock
(``convertible security''). The representing Trading Permit Holder must
include an indicator on each tied to stock order upon systemization,
unless:
(i) The order is submitted to the Exchange as part of a qualified
contingent cross order (as defined in this Rule 6.53) through an
Exchange-approved device;
(ii) the order is submitted to the Exchange for electronic
processing as a stock-option order (as defined in Rule 6.53C); or
(iii) all of the component orders are systematized on a single
order ticket.
An order is not ``tied to stock'' if it is not coupled with an
order(s) for the underlying stock or convertible security at the time
of receipt or initiation (e.g., an option order that is received or
initiated to hedge a previously executed stock transaction, an option
transaction or position that is hedged with a subsequently received or
initiated stock order).]
. . . Interpretations and Policies:
.01-.02 No change.
* * * * *
Rule 6.77. Order Service Firms
(a)-(d) No change.
[(e) Order service firms must submit reports pursuant to Rule 15.2A
with respect to the stock transactions it executes on behalf of market-
makers pursuant to this Rule 6.77.]
* * * * *
[Rule 15.2A. Reports of Execution of Stock Transactions
In a manner and form prescribed by the Exchange, each Trading
Permit Holder must, on the business day following the order execution
date, report to the Exchange the following information for the executed
stock or convertible security legs of QCC orders, stock-option orders
and other tied to stock orders that the Trading Permit Holder executed
on the Exchange that trading day: (a) Time of execution, (b) execution
quantity, (c) execution price, (d) venue of execution, and (e) any
other information requested by the Exchange. A Trading Permit Holder
may arrange for its clearing firm to submit these reports on its
behalf; provided that if the clearing firm does not report an executed
stock order, the Trading Permit Holder will be responsible for
reporting the information.
. . . Interpretation and Policies:
[[Page 50037]]
.01 The Exchange will announce by Regulatory Circular any
determinations, including the manner and form of the report, that it
makes pursuant to Rule 15.2A.
.02 A Trading Permit Holder (or its clearing firm) does not need to
report information pursuant to Rule 15.2A with respect to (a) stock-
option orders (as defined in Rule 6.53C) submitted to the Exchange for
electronic processing or (b) stock or convertible security orders
entered into an Exchange-approved device.
.03 A Market-Maker (or its clearing firm) may include the
information required by Rule 15.2A in the equity reports submitted to
the Exchange pursuant to Rule 8.9(b).
.04 If a tied to stock order executed at multiple options
exchanges, a Trading Permit Holder (or its clearing firm) may report to
the Exchange the information pursuant to Rule 15.2A for the entire
stock or convertible security component(s) rather than the portion of
the stock or convertible security component(s) applicable to the
portion of the order that executed at the Exchange.
.05 In lieu of the time of execution pursuant to Rule 15.2A(a), the
Exchange may accept the time of the trade report if that time is
generally within 90 seconds of the time of execution.]
* * * * *
The text of the proposed rule change is also 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
On August 13, 2014, the Securities and Exchange Commission (the
``Commission'') approved CBOE Rules 6.53(y), 6.77(e) and 15.2A.\5\ Rule
6.53(y) defines a tied to stock order \6\ and requires the representing
Trading Permit Holder to include an indicator on each tied to stock
order upon systemization, subject to certain exceptions. Rule 15.2A
requires, in a manner and form prescribed by the Exchange, each Trading
Permit Holder (``TPH''), on the business day following the order
execution date, to report to the Exchange certain information regarding
the executed stock or convertible security legs of qualified contingent
cross (``QCC'') orders,\7\ stock-option orders and other tied to stock
orders that the TPH executed on the Exchange that trading day. Rule
6.77(e) subjects order service firms \8\ to the reporting requirements
set forth in Rule 15.2A with respect to stock transactions they execute
on behalf of market-makers on the floor of the Exchange. The Exchange
stated in rule filing SR-CBOE-2014-040 that it would issue a circular
announcing the implementation date for these rules within 90 days of
the date of filing, which implementation date would be within 180 days
of the date of filing.
---------------------------------------------------------------------------
\5\ Securities Exchange Act release No. 34-72839 (August 13,
2014), 79 FR 49123 (August 19, 2014) (SR-CBOE-2014-040).
\6\ Rule 6.53(y) provides that an order is ``tied to stock'' if,
at the time the Trading Permit Holder representing the order on the
Exchange receives the order (if the order is a customer order) or
initiates the order (if the order is a proprietary order), has
knowledge that the order is coupled with an order(s) for the
underlying stock or a security convertible into the underlying stock
(``convertible security'' and, together with underlying stock,
``non-option'').
\7\ A QCC order is an order to buy (sell) at least 1,000
standard option contracts or 10,000 mini-option contracts that is
identified as being part of a qualified contingent trade coupled
with a contra-side order to sell (buy) an equal number of contracts.
These orders may only be entered in the standard increments
applicable to simple orders in the options class under Rule 6.42.
For purposes of this order type, a ``qualified contingent trade'' is
a transaction consisting of two or more component orders, executed
as agent or principal, where: (a) At least one component is an NMS
stock, as defined in Rule 600 of Regulation NMS under the Act; (b)
all components are effected with a product or price contingency that
either has been agreed to by all the respective counterparties or
arranged for by a broker-dealer as principal or agent; (c) the
execution of one component is contingent upon the execution of all
other components at or near the same time; (d) the specific
relationship between the component orders (e.g., the spread between
the prices of the component orders) is determined by the time the
contingent order is placed; (e) the component orders bear a
derivative relationship to one another, represent different classes
of shares of the same issuer, or involve the securities of
participants in mergers or with intentions to merge that have been
announced or cancelled; and (f) the transaction is fully hedged
(without regard to any prior existing position) as a result of other
components of the contingent trade. QCC orders may execute without
exposure provided the execution is not at the same price as a public
customer order resting in the electronic book and is at or between
the national best bid or offer. A QCC order will be cancelled if it
cannot be executed. See Rule 6.53(u).
\8\ Order service firms are TPH organizations that are
registered with the Exchange for the purpose of taking orders for
the purchase or sale of stocks or commodity futures contracts (and
options thereon) from market-makers on the floor of the Exchange and
forwarding such orders for execution. Rule 6.77(a).
---------------------------------------------------------------------------
On January 7, 2015, CBOE submitted a rule filing to delay the
implementation of these rules based on feedback it received from
TPHs.\9\ The Exchange stated in that rule filing that it would issue a
circular announcing the implementation date for the rules within 90
days of the date of the rule filing, which implementation date would be
within 180 days of the date of filing. In accordance with that filing,
the Exchange issued a regulatory circular on April 7, 2015, which
announced a July 1, 2015 implementation date for the tied to stock
marking and reporting requirements.\10\ On May 20, 2015, the Exchange
submitted a rule filing to further delay implementation of the
reporting requirement set forth in Rule 15.2A \11\ for 12 to 18 months
in order to evaluate the format of the reports in light of its entry
into a Regulatory Services Agreement with the Financial Industry
Regulatory Authority, Inc. (``FINRA'') \12\ to ensure information in
the reports could be incorporated into surveillances in an efficient
and effective manner. In that filing, CBOE announced its intention to
proceed with the implementation of the marking requirements set forth
in Rule 6.53(y) on July 1, 2015. On July 1, 2015, the Exchange
submitted a rule filing to further delay implementation of the marking
requirement set forth in Rule 6.53(y) with respect to orders submitted
to the Exchange for electronic processing for six to 18 months (the
filing confirmed implementation of the marking requirement with respect
to orders submitted to the Exchange for
[[Page 50038]]
nonelectronic processing).\13\ In addition to the evaluation of the
proposed report format, CBOE indicated it intended to review the number
of tied to stock orders received and evaluate the number of reports it
could expect to receive with respect to those orders and the potential
impact of the reports on CBOE surveillances.
---------------------------------------------------------------------------
\9\ Securities Exchange Act Release No. 34-74067 (January 15,
2015), 80 FR 3267 (January 22, 2015) (SR-CBOE-2015-004).
\10\ CBOE Regulatory Circular RG15-056 (April 7, 2015).
\11\ Pursuant to CBOE Regulatory Circular RG13-102 (July 19,
2013), CBOE imposed a reporting requirement with respect to QCC
orders prior to the adoption of Rule 15.2A. As stated in that
circular, as long as the QCC functionality remains active, the
reporting requirement for QCC orders described in Regulatory
Circular RG13-102 would continue to be in effect until the
implementation of Rule 15.2A. Once implemented, the reporting
requirement in Rule 15.2A would supersede the QCC order reporting
requirement described in that circular. See also CBOE Regulatory
Circular RG15-087 (May 29, 2015).
\12\ Securities Exchange Act Release No. 34-75029 (May 21,
2015), 80 FR 30506 (May 28, 2015) (SR-CBOE-2015-051) (notice of
filing and immediate effectiveness of proposed rule change).
\13\ Securities Exchange Act Release No. 34-75378 (July 7,
2016), 80 FR 40116 (July 13, 2015) (SR-CBOE-2015-067) (notice of
filing and immediate effectiveness of proposed rule change); see
also CBOE Regulatory Circular RG15-093 (June 19, 2015). CBOE notes
that it performed the systems work necessary for Exchange-approved
devices the Exchange makes available to floor brokers to have the
functionality to allow floor brokers to mark orders as tied to stock
at the time of systemization of the order.
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Based on this evaluation, the Exchange does not believe it is
necessary to maintain or fully implement the marking requirement or
implement the reporting requirement; therefore, the Exchange proposes
to delete these requirements in their entirety from its rules.\14\
Because the definition of tied to stock orders is only used in the
rules for the marking and reporting requirements, the proposed rule
change also deletes the definition of tied to stock orders. While CBOE
continues to believe this type of information would benefit its cross-
market activity surveillances, based on our evaluation, CBOE believes
the requirements would apply to only a small number of orders.\15\
During the evaluation period discussed above (during which the tied to
stock marking requirement was in effect for orders submitted to the
Exchange for nonelectronic processing), fewer than 0.25% of orders
submitted to the Exchange for nonelectronic processing included the
tied to stock indicator.\16\ If the marking and reporting requirements
were fully implemented, the number of orders to which they would apply
would be limited given the exceptions that currently exist in the rules
and other changes that CBOE has implemented. For example, subsequent to
the approval of SR-CBOE-2015-040, the Exchange amended CBOE Rule 6.53
to require complex orders of twelve (12) legs or less--one leg of which
may be for an underlying security or security future, as applicable--to
be entered on a single order ticket at time of systemization (referred
to herein as the ``single order ticket rule change'').\17\ These orders
are excepted from the tied to stock marking requirement under Rule
6.53(y)(iii) (which provides an exception if all the component orders
of a tied to stock order are systemized on a single order ticket) and
would often qualify for an exception from the reporting requirement
under Rule 15.2A (e.g., the exceptions under Interpretation and Policy
.02 which apply to (1) stock-option orders (as defined in Rule 6.53C)
submitted to the Exchange for electronic processing or (2) stock or
convertible securities orders entered onto an Exchange-approved
device). The single order ticket rule change--as well as provisions in
the rules exempting certain orders from the tied to stock marking and
reporting requirements--result in a number of orders qualifying for an
exemption from the tied to stock marking and reporting requirements.
This, in turn, reduces the number of orders to which the tied to stock
marking and reporting requirements would apply once implemented. As a
result, at this time, CBOE believes the benefits to its surveillances
for so few orders are outweighed by the additional costs to TPHs to
implement the marking requirement (for orders submitted for electronic
processing) and the reporting requirement.
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\14\ As discussed above, prior to the adoption of Rule 15.2A,
the Exchange required TPHs to submit reports of stock trades related
to QCC transactions. This QCC stock leg reporting requirement
continued to apply during the delay to implementation of Rule 15.2A
and will continue to apply after deletion of the tied to stock
reporting requirement from the Rules. See supra note 11.
\15\ As set forth in Rule 6.53(y), orders coupled with an order
for stock are defined as tied to stock orders; however, various tied
to stock orders are exempt from the marking requirement, including
QCC orders, stock-option orders submitted for electronic processing,
and orders for which all components are systematized on a single
order ticket. Similarly, as set forth in Rule 15.2A, Interpretation
and Policy .02, TPHs do not need to submit reports for stock-option
orders submitted to the Exchange for electronic processing or stock
or convertible security orders entered into an Exchange-approved
device. As a result, only a subset of tied to stock orders would be
subject to the marking and reporting requirements.
\16\ Specifically, during the third quarter of 2015, the fourth
quarter of 2015 and the first quarter of 2016, the percentage of
orders submitted to the Exchange for nonelectronic processing that
included the tied to stock indictor was approximately 0.17%, 0.16%
and 0.21%, respectively.
\17\ See Rule 6.53, Interpretation and Policy 02. In addition,
orders of more than twelve (12) legs (one leg of which may be for an
underlying security or security future, as applicable) may be split
across multiple order tickets subject to certain requirements. See
Securities Exchange Act Release Nos. 34-74389 (February 26, 2015),
80 FR 11717 (March 4, 2015) (SR-CBOE-2015-011) and 34-75026 (May 21,
2015), 80 FR 30514 (May 28, 2015) (SR-CBOE-2015-048). Mandatory
compliance with this requirement went into effect June 1, 2015. See
CBOE Regulatory Circulars RG15-067 (April 22, 2015) and RG15-092
(June 17, 2015).
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CBOE acknowledged in the initial filing to adopt the tied to stock
marking and reporting requirements relevant stock information would be
captured by the Consolidated Audit Trail (``CAT''), once the relevant
CAT provisions have been approved and implemented. Specifically, once
approved and implemented, Section 6.3 of the National Market System
Plan Governing the Consolidated Audit Trail would require each national
securities exchange to record and report to the CAT central repository
specified information for each order and execution, among other things,
on its exchange for eligible securities, which include stock and listed
options.\18\ Additionally, once approved and implemented, Section 6.4
of the Plan would require each national securities exchange to require
its members to report certain data to the central repository specified
information for each order and execution for eligible securities, among
other things.\19\ Under the Plan, as proposed, the central repository
would be responsible for the receipt, consolidation and retention of
all information reported to CAT pursuant to Rule 613 under Regulation
NMS.\20\ Exchanges would have access to the central repository,
including access to and use of the CAT data stored in the central
repository, for the purpose of performing their respective regulatory
and oversight responsibilities pursuant to federal securities laws,
rules and regulations.\21\
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\18\ See Securities Exchange Act Release No. 34-77724 (April 27,
2016), 81 FR 30614 (May 17, 2016) (notice of filing of the National
Market System Plan Governing the Consolidated Audit Trail (the
``Plan'')), at Section 6.3(d); see also 17 CFR 242.600(b)(46)
(definition of NMS security).
\19\ See id. at Section 6.4(d).
\20\ See id. at Section 1.1.
\21\ See id. at Section 6.5(c).
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At the time of that initial tied to stock filing, the Exchange
expected implementation of CAT would not occur for several years.
However, since that time, an amended and restated version of the Plan
has been submitted by the self-regulatory organizations to the
Commission and published by the Commission for comment and
approval.\22\ As a result, the Exchange believes the implementation of
CAT may occur in the near future. The order and execution information
described above that would be reported to CAT is the same information
that the tied to stock reporting requirement was designed to capture
from TPHs. Because the Exchange would have access to this information
from the CAT central repository once implemented, CBOE no longer
believes the short-term benefits it may obtain from the tied to stock
marking and reporting requirements prior to the implementation of CAT
outweigh the costs to be undertaken by
[[Page 50039]]
CBOE and TPHs in connection with efforts related to CAT's
implementation, especially in light of the small number of orders
expected to be impacted by the tied to stock requirements, as discussed
above.\23\ The Exchange also notes it may continue to request from TPHs
information regarding stock executions when necessary to perform cross-
market surveillances in connection with its regulatory duties.\24\ The
marking and reporting requirements were intended to reduce TPHs' and
the Exchange's administrative burden of manually gathering cross-market
information to tie non-option legs to option orders. Because the
Exchange has not yet implemented the reporting requirement, since
approval of the initial tied to stock rule filing, the Exchange has
continued, and will continue, to maintain the ability with this manual
process of requesting information, as necessary or appropriate. The
Exchange has, and expects to continue to have, sufficient resources to
perform these ad hoc reviews in connection with its surveillances,
particularly given the reduced number of orders with a stock component
for which CBOE may need this information and the implementation of the
single order ticket rule change.
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\22\ See id.
\23\ While the Plan does not require orders to be marked as tied
to stock, because the Exchange will have access to all order and
execution information for stock and options through the central
depository, including timing information, the Exchange would not
need those orders to be marked. The purpose of the marking
requirement was to notify the Exchange the TPH that submitted a tied
to stock option order on CBOE would separately be submitting
execution information for a stock trade related to that marked
option order.
\24\ See SR-CBOE-2014-040.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\25\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \26\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \27\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
\27\ Id.
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In particular, CBOE believes it efficiently and effectively
conducts its regulatory surveillances of CBOE trading activity and
cross-market trading activity. While the information that would be
provided to CBOE from the tied to stock marking and reporting
requirements would enhance these surveillances, based on an evaluation
of the factors described above, CBOE has determined these enhancements
would apply to a small number of orders. The single order ticket rule
change--as well as provisions in the rules exempting certain orders
from the tied to stock marking and reporting requirements--result in a
number of orders qualifying for an exemption from the tied to stock
marking and reporting requirements. This, in turn, further reduces the
number of orders to which the tied to stock marking and reporting
requirements would apply once implemented. As a result, CBOE no longer
believes the benefits to its surveillances for a smaller number of
orders that may be obtained from implementation of these requirements
outweigh the additional costs to TPHs to implement the marking
requirement for orders submitted for electronic processing and the
reporting requirement. As discussed above, during an evaluation period
when the marking requirement for orders submitted for nonelectronic
processing was effective, fewer than 0.25% of orders submitted for
nonelectronic processing included the tied to stock indicator.
Additionally, as discussed above, CAT will capture this information, at
which time CBOE will be able to realize these potential benefits. CBOE
may continue to request from TPHs information regarding stock
executions when necessary so that it can continue to effectively
conduct its regulatory surveillances of CBOE trading activity and
cross-market activity.
The proposed rule change has minimal impact on TPHs. With respect
to orders submitted to the Exchange for electronic processing, there
will be no change for TPHs, as they are currently not required, and no
longer will be in the future, to mark tied to stock orders (or perform
the system development work to comply with this marking requirement).
Additionally, TPHs currently are not required, and no longer will be in
the future, to submit reports related to tied to stock orders.\28\ With
respect to orders submitted to the Exchange for nonelectronic
processing, floor brokers will no longer be required to mark those
orders upon systemization, which was a small number of orders as noted
above. The marking and reporting requirements were intended to reduce
TPHs' and the Exchange's administrative burden of manually gathering
cross-market information to tie non-option legs to option orders.
Because the Exchange has not yet implemented the reporting requirement,
since approval of the initial tied to stock rule filing, the Exchange
has continued, and will continue, to maintain the ability with this
manual process of requesting information, as necessary or appropriate.
Deletion of these requirements merely changes the timing when TPHs may
need to submit information regarding tied to stock orders (within one
business day of execution of a tied to stock order v. in response to a
regulatory request). The Exchange has, and expects to continue to have,
sufficient resources to perform these ad hoc reviews in connection with
its surveillances, particularly given the reduced number of orders with
a stock component for which CBOE may need this information and the
implementation of the single order ticket rule change.
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\28\ As discussed above, prior to the adoption of Rule 15.2A,
the Exchange required TPHs to submit reports of stock trades related
to QCC transactions. This QCC stock leg reporting requirement
continued to apply during the delay to implementation of Rule 15.2A
and will continue to apply after deletion of the tied to stock
reporting requirement from the Rules. See supra note 11.
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The term tied to stock order is used only in the rules for the tied
to stock marking and reporting requirements, which this filing proposes
to delete. Therefore, the Exchange believes deleting the definition is
consistent with the Act, as continued inclusion of the definition of a
term not used elsewhere in the rules would otherwise confuse 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. The proposed rule change
deletes rules the Exchange only partially implemented. With respect to
orders submitted to the Exchange for electronic processing, there will
be no change for TPHs, as
[[Page 50040]]
they are currently not required, and no longer will be in the future,
to mark tied to stock orders (or perform the system development work to
comply with this marking requirement). Additionally, TPHs currently are
not required, and no longer will be in the future, to submit reports
related to tied to stock orders.\29\ With respect to orders submitted
to the Exchange for nonelectronic processing, floor brokers will no
longer be required to mark those orders upon systemization. The
Exchange notes that floor brokers were not burdened with any costs upon
implementation of that limited marking requirements, as CBOE was
responsible for that development work for devices that floor brokers
may use to systematize orders represented in open outcry. Therefore,
deletion of these rules has no impact on TPHs with respect to orders
submitted for electronic processing and eliminates a requirement for
floor brokers to include an indicator on a small number of orders. As
the Exchange never implement the reporting requirement for any orders,
deletion of that rule will have no impact on TPHs.
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\29\ Id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\30\
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\30\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to
give the Commission written notice of the Exchange's intent to file
the proposed rule change, along with a brief description and text of
the proposed rule change, at least five business days prior to the
date of filing of the proposed rule change, or such shorter time as
designated by the Commission. The Exchange has satisfied this
requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \31\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \32\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchanges requests a
waiver because of the minimal impact this proposed rule change will
have on TPHs, the small number of orders to which the tied to stock
marking and reporting requirements would apply, and the Exchange's
continued ability to access to information regarding stock executions
by requesting it from TPHs when necessary so that it can continue to
effectively conduct its regulatory surveillances of CBOE trading
activity and cross-market activity. Additionally, the Exchange notes
that in the rule filings to delay implementation of the marking
requirement set forth in Rule 6.53(y) with respect to orders submitted
to the Exchange for electronic processing and the reporting requirement
set forth in Rule 15.2A, the Exchange has stated that it would
implement these requirements by July 1, 2016.
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\31\ 17 CFR 240.19b-4(f)(6).
\32\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiver of the 30-day operative delay
is consistent with the protection of investors and the public interest.
The Commission notes that the Exchange notes that: (1) The number of
orders to which the tied to stock marking and reporting requirements
would apply are low and (2) even without the marking and reporting
requirements, the Exchange has, and expects to continue to have,
sufficient resources to perform ad hoc reviews in connection with its
surveillance. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change as operative
upon filing.\33\
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\33\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \34\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\34\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2016-057 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-2016-057. 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-2016-057 and should be
submitted on or before August 19, 2016.
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\35\ 17 CFR 200.30-3(a)(12).
[[Page 50041]]
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17910 Filed 7-28-16; 8:45 am]
BILLING CODE 8011-01-P
