Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, Relating To Opening and Closing Rotations Under the HOSS System, 90896-90903 [2016-30082]
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90896
Federal Register / Vol. 81, No. 241 / Thursday, December 15, 2016 / Notices
competitive response to analogous
programs offered by other options
exchanges. The Exchange believes this
proposed rule change is necessary to
permit fair competition among the
options exchanges.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (A) Significantly affect
the protection of investors or the public
interest; (B) impose any significant
burden on competition; and (C) by its
terms, 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 8 and paragraph (f)(6) of Rule 19b–
4 thereunder,9 the Exchange has
designated this rule filing as noncontroversial. The Exchange has given
the Commission 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
of the proposed rule change, or such
shorter time as designated by the
Commission.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (1) Necessary or appropriate in
the public interest; (2) for the protection
of investors; or (3) 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.
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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 proposal is
consistent with the Act. Comments may
be submitted by any of the following
methods:
9 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4.
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• 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 No. SR–
BatsBZX–2016–84 on the subject line.
Paper Comments
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any written
comments from members or other
interested parties.
8 15
Electronic 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 No.
SR–BatsBZX–2016–84. 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 such
filing will also 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 No. SR–BatsBZX–
2016–84 and should be submitted on or
before January 5, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–30095 Filed 12–14–16; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79520; File No. SR–CBOE–
2016–071]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 1, Relating To
Opening and Closing Rotations Under
the HOSS System
December 9, 2016.
I. Introduction
On October 7, 2016, Chicago Board
Options Exchange, Incorporated
(‘‘CBOE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend its rules relating to the opening
of series for trading on the Exchange.
The Commission published the
proposed rule change for comment in
the Federal Register on October 27,
2016.3 On November 18, 2016, the
Exchange filed Amendment No. 1 to the
proposed rule change.4 The Commission
received no comments on the proposal.
This order provides notice of filing of
Amendment No. 1 and approves the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
II. Description of the Proposed Rule
Change
CBOE proposes to amend its rules
relating to the opening of series for
trading on the Exchange. Rule 6.2B
describes the process (referred to as
‘‘HOSS’’) that the Exchange’s Hybrid
Trading System (the ‘‘System’’) uses to
open series on the Exchange each
trading day. The Exchange may also use
HOSS for closing series or opening
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 79133
(October 21, 2016), 81 FR 74828 (October 27, 2016)
(‘‘Notice’’).
4 In Amendment No. 1, the Exchange updated a
cross-reference to Rule 6.2B in Rule 6.13. To
promote transparency of its proposed amendment,
when CBOE filed Amendment No. 1 with the
Commission, it also submitted Amendment No. 1 as
a comment letter to the file, which the Commission
posted on its Web site and placed in the public
comment file for SR–CBOE–2016–071 (available at
https://www.sec.gov/comments/sr-cboe-2016-071/
cboe2016071.shtml). The Exchange also posted a
copy of its Amendment No. 1 on its Web site
(https://www.cboe.com/aboutcboe/legal/
submittedsecfilings.aspx), when it filed it with the
Commission.
2 17
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series after a trading halt. The Exchange
is proposing various changes to
reorganize and simplify the rule and to
more accurately reflect current System
functionality.5
According to the Exchange, HOSS
generally processes the opening of each
series in four stages: 6
(1) Pre-Opening Period: During the
pre-opening period, the System accepts
orders and quotes and disseminates
messages that contain information based
on resting orders and quotes in the
book, which may include the expected
opening price (‘‘EOP’’), expected
opening size (‘‘EOS’’), any reason why
a series may not open, and imbalance
information, including the size and side
of an imbalance (collectively, ‘‘expected
opening information’’ or ‘‘EOIs’’).
(2) Initiation of the Opening Rotation:
The System then initiates the opening
rotation procedure and distributes a
‘‘Rotation Notice’’ to market
participants.
(3) Opening Rotation Period: During
the opening rotation period, the System
matches and executes orders and quotes
against each other to establish an
opening Exchange best bid and offer
(‘‘BBO’’) and trade price for each series
while continuing to disseminate EOIs.
(4) Opening of Trading: The System
then opens series for trading, subject to
the satisfaction of certain conditions.
According to CBOE, the proposed rule
change is designed to more clearly
organize Rule 6.2B in this sequential
order and makes the additional specific
changes discussed in more detail below.
Pre-Opening Period
Rule 6.2B(a) currently provides that
the System accepts orders and quotes,
for regular trading hours, for a period of
time before the opening of trading in the
underlying security or, in the case of
index options, prior to 8:30 a.m.,7 and
for extended trading hours, for a period
of time prior to 2:00 a.m.8 The Exchange
proposes to amend Rule 6.2B(a) to
provide that, for each trading session,
the pre-opening period will begin no
later than 15 minutes prior to the
expected initiation of an opening
rotation and no earlier than 2:00 a.m. for
regular trading hours and no earlier than
5 See
Notice, supra note 3, at 74829.
id.
7 All times set forth in Rule 6.2B are central time.
See id. at 74829, n.3.
8 The precise time periods are determined by the
Exchange on a class-by-class basis. See id. at 74829.
In addition, since the System begins the preopening period at the same time for each class
within each type of option (equity, index and
exchange-traded products (‘‘ETPs’’)), the proposed
rule change deletes the provision of the current rule
that says the Exchange will determine the time on
a class-by-class basis. See id.
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4:00 p.m. on the previous day for
extended trading hours.9
Under the proposal, the Exchange
generally will not restrict the size or
origin code of orders that may be
submitted during the pre-opening
period. Therefore, the proposed rule
change amends Rule 6.2B(a)(i) to add
certainty to the rule by deleting the
provision that requires the Exchange to
designate—on a class-by-class basis—
the eligible order size, eligible order
type, and eligible order origin code (i.e.,
public customer orders, non-Market
Maker broker-dealer orders, and Market
Maker broker-dealer orders) which the
System will accept.10 Additionally, the
proposed rule change clarifies that the
System will accept all quotes and all
order types during the pre-opening
period except for immediate-or-cancel,
fill-or-kill, intermarket sweep orders,
and Market-Maker trade prevention
orders.11 The proposed rule change also
adds that if an order entered during the
pre-opening period for regular trading
hours is not eligible for book entry (e.g.,
minimum volume, not held, and
market-if-touched orders), the System
will route the order via CBOE’s order
handling system pursuant to Rule
6.12.12
The proposed rule change amends
Rule 6.2B(a)(ii) in several ways. First, it
defines EOIs and specifies the timing of
their dissemination. EOIs contain
information based on resting orders and
quotes in the Book, including the EOP,
the EOS, any reason why a series may
not open pursuant to paragraph (d) of
Rule 6.2B,13 and any imbalance
information, including the size and side
of the imbalance. EOIs will be
disseminated to all market participants
that have elected to receive them
beginning at a time determined by the
Exchange, which will be no earlier than
three hours prior to the expected
initiation of an opening rotation for a
series. The System will then
disseminate EOI at regular intervals of
9 The Exchange notes that the pre-opening period
currently begins at approximately 6:30 a.m. for
regular trading hours and approximately 4:00 p.m.
on the previous day for extended trading hours. See
id. at 74829, n.4.
10 See Notice, supra note 3, at 74829.
11 See id. at 74829–30 for a discussion of these
order types, which are defined in Rule 6.53.
12 See id. at 74830. The Exchange notes that
orders not eligible for book entry may only be
traded open outcry on the Exchange floor.
According to the Exchange, because only electronic
trading is permitted during extended trading hours,
the System will not accept these orders during the
extended hours trading session and therefore, this
proposed provision is not applicable during that
trading session. See id. at 74830, n.6.
13 Proposed paragraph (d) of Rule 6.2B sets forth
certain Opening Conditions, which are discussed in
greater detail below.
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90897
time, or less frequently if there are no
updates since the previously
disseminated EOI.14
The proposed rule change further
modifies Rule 6.2B(a)(ii) to redefine the
terms EOP and EOS and address when
that information will be disseminated.
Currently, Rule 6.2B(a)(ii) states that the
EOP is the price at which the greatest
number of orders and quotes in the book
are expected to trade and provides that
an EOP will only be calculated if (a)
there are market orders in the book, or
the book is crossed or locked and (b) at
least one quote is present. The proposed
rule change revises this language to state
that the EOP is the price at which any
opening trade is expected to execute
and adds that the EOS is the size of any
expected opening trade. The proposed
rule change further states the System
will only disseminate EOP and EOS
messages: (a) If the width between the
highest quote bid and lowest quote offer
on the Exchange is no wider than the
OEPW range (as defined below), in
classes in which the Hybrid Agency
Liaison (‘‘HAL’’) 15 is not activated for
openings; or (b) if the width between the
highest quote bid and lowest quote offer
on the Exchange or disseminated by
other exchanges is no wider than the
OEPW range, in classes in which HAL
is activated for openings (‘‘HALO’’).16
Opening Rotation Initiation and Notice
Rule 6.2B(b) currently provides that,
unless unusual circumstances exist, at a
randomly selected time within a
number of seconds after the opening
trade and/or the opening quote is
disseminated in the market for the
underlying security 17 (or after 8:30 a.m.
for index options) with respect to
regular trading hours, or after 2:00 a.m.
with respect to extended trading hours,
the System initiates the opening rotation
14 See
Notice, supra note 3, at 74830.
provides automated order handling in
designated Hybrid classes for electronic orders that
are not automatically executed by the System. HAL
exposes these orders at the national best bid or
offer, and Trading Permit Holders may submit
responses to trade with the orders. See Rule 6.14A.
16 See Notice, supra note 3, at 74830, for more
detailed discussion of these changes to the preopening period.
17 The ‘‘market for the underlying security’’ is
currently the primary listing market, the primary
volume market (defined as the market with the most
liquidity in that underlying security for the
previous two calendar months), or the first market
to open the underlying security. Since the Exchange
does not designate the primary volume market as
the market for the underlying security for any class,
the proposed rule change deletes that option. The
proposed rule change also changes the term
‘‘market’’ to ‘‘exchange’’ and clarifies that the
Exchange determines on a class-by-class basis
which market is the market for the underlying
security. See Notice, supra note 3, at 74830, n.10.
15 HAL
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procedure and sends a notice (‘‘Rotation
Notice’’) to market participants.18
The Exchange proposes to amend
Rule 6.2B(b) to provide that the System
will initiate the opening rotation
procedure and send out a Rotation
Notice on a class-by-class basis as
follows:
• For regular trading hours:
Æ With respect to equity and ETP
options, after the opening trade or the
opening quote is disseminated in the
market for the underlying security, or at
8:30 for classes determined by the
Exchange (including over-the-counter
equity classes); or
Æ with respect to index options, at
8:30 a.m., or at the later of 8:30 a.m. and
the time the Exchange receives a
disseminated index value for classes
determined by the Exchange; and
• For extended trading hours, at 2:00
a.m.19
Opening Rotation Period
Rule 6.2B(c) provides that after the
Rotation Notice is sent, the System
enters into a rotation period, during
which the opening price is established
for each series. The proposed rule
change reorganizes paragraph (c) to
more clearly demarcate and further
describe (1) when the opening rotation
period begins, (2) what happens during
the period, (3) the handling of EOIs
during the period, and (4) when the
period ends.20
During the opening rotation period,
the System establishes the opening trade
price and the opening BBO by matching
and executing resting orders and quotes
against each other. The proposed rule
change modifies the definition of the
opening trade price of a series to be the
‘‘market-clearing’’ price, which is the
single price at which the largest number
of contracts in the book can execute,
leaving bids and offers that cannot trade
with each other.21 The proposed rule
change also states that all orders (except
complex orders and, in classes in which
18 See
id. at 74830–31.
id. at 74831 (providing detailed description
of the Exchange’s changes to initiating the opening
rotation).
20 See proposed Rule 6.2B(c). See also Notice,
supra note 3, at 74831.
21 See Notice, supra note 3, at 74831. If there are
multiple prices at which the same number of
contracts would clear, the System will use (a) the
price at or nearest to the midpoint of the opening
BBO, or the widest offer (bid) point of the OEPW
range if the midpoint is higher (lower) than that
price point, in classes in which the Exchange has
not activated HALO; or (b) the price at or nearest
to the midpoint of the range consisting of the higher
of the opening NBB and widest bid point of the
OEPW range, and the lower of the opening NBO
and widest offer point of the OEPW range, in
classes in which the Exchange has activated HALO.
See id.
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the Exchange has not activated HALO,
all-or-none orders and orders with a
stop contingency) and quotes in a series
in the book prior to the opening rotation
period participate in the opening
rotation for a series. The Exchange notes
that Contingency Orders that participate
in the opening rotation may execute
during the opening rotation period only
if their contingencies are triggered.22
The proposed rule change clarifies
that the System will continue to
disseminate EOIs (not just the EOP and
EOS) during the opening rotation
period, which may be disseminated at
more frequent intervals closer to the
opening.23 In addition, the proposed
rule change updates the description of
the length of the opening rotation period
and adds detail to the description of
how the System processes series to open
following the opening rotation period.
Specifically, current subparagraph (c)(ii)
states that the System will process the
series of a class in a random order and
the series will begin opening after a
period following the Rotation Notice,
which period may not exceed sixty
seconds and will be established on a
class-by-class basis by the Exchange.24
Proposed subparagraph (c)(iii) retains
that process, but clarifies that CBOE will
determine the length and number of
these intervals for all classes.25
Opening Quote and Trade Price
In its filing, the Exchange represented
that, pursuant to the Options Price
Reporting Authority (‘‘OPRA’’) Plan,
once a series opens, the System
disseminates all quote and trade price
information to OPRA, including
opening quote and trade price
information.26 Accordingly, the
Exchange proposes to delete text in
current paragraph (d) of Rule 6.2B
stating that the opening price is
determined by series and that CBOE
22 See id. at 74831–32. Further, the Exchange
notes that the proposed rule change moves the rule
provision regarding the priority order of orders and
quotes during this matching process from current
subparagraph (c)(iv) to proposed subparagraph
(c)(i)(C). The System prioritizes orders in the
following order: (1) Market orders, (2) limit orders
and quotes whose prices are better than the opening
price, and (3) resting orders and quotes at the
opening price. The proposed rule change also notes
contingency orders are prioritized as set forth in
Rules 6.45A and 6.45B. See id. at 74832, n.13.
23 See id. at 74832.
24 See id. at 74832.
25 According to the Exchange, currently, the
Exchange has set the period of time that must pass
before the System begins processing series to open
at two seconds, and the Exchange has set the
number of intervals to two and the length of the
intervals to one second. As a result, the opening
rotation period currently lasts two to four seconds.
See Regulatory Circular RG11–072; see also Notice,
supra note 3, at 74832 n.14.
26 See Notice, supra note 3, at 74832.
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disseminates opening quote and trade
information through OPRA because the
Exchange already disseminates such
information pursuant to the OPRA Plan,
and therefore believes that this
provision is unnecessarily repetitive.27
Despite the deletion of that language
from the rule concerning reporting data
through OPRA, the Exchange is not
proposing a substantive change to
reporting this information through
OPRA.
Opening Conditions
Current Rule 6.2B(e) provides that the
System will not open a series if one of
a number of specified conditions is met,
including the absence of a quote that
complies with the bid/ask differential
requirements or if the opening price
would not be within an acceptable range
or would leave a market order
imbalance.28 The proposed rule change
amends these conditions to provide
that, in classes in which the Exchange
has not activated HALO:
(1) If there are no quotes in the series
on the Exchange, the System will not
open the series;
(2) if the width between the
Exchange’s best quote bid and best
quote offer is wider than an acceptable
opening price range (as determined by
the Exchange on a class-by-class and
premium basis) (the ‘‘Opening Exchange
Prescribed Width range’’ or ‘‘OEPW
range’’) 29 and there are orders or quotes
marketable against each other, the
System will not open the series.
However, if the opening quote width is
no wider than the intraday acceptable
price range for the series (‘‘IEPW
range’’) 30 and there are no orders or
quotes marketable against each other,
the System will open the series. If the
opening quote width is wider than the
IEPW range, the System will not open
the series. Additionally, according to
27 See
id. at 74832.
id. at 74832. The final provision of current
paragraph (e) provides the following: If the first or
second condition is present, the senior official in
the Control Room may authorize the opening of the
affected series where necessary to ensure a fair and
orderly market; if the second condition is present,
the System will not open the series but will send
a notification to market participants indicating the
reason; if the third condition is present, a
notification will be sent to market participants
indicating the size and direction of the market order
imbalance. In this case, the System will not open
the series until the condition causing the delay is
satisfied, and the System will repeat this process
until the series is open. The proposed rule change
combines the exceptions in current paragraph (e)
with the applicable opening conditions in current
subparagraphs (e)(i) through (iii) into proposed
paragraph (d)(i). See id. at n.16.
29 Current OEPW settings are set forth in
Regulatory Circular RG 13–025. See Notice, supra
note 3, at 74832, n.18.
30 See Rule 6.13(b)(v).
28 See
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the Exchange, because all quotes
entered by Market-Makers (including
quotes entered during the pre-opening
period and opening rotation period)
must satisfy bid/ask differentials,31 the
Exchange proposes to delete the
reference to bid/ask differential
requirements in this provision;
(3) if the opening trade price would be
outside of the OEPW range, the System
will not open the series. The Exchange
states that the proposed rule change also
deletes the language from the current
provision regarding sending a
notification when this condition is
present because notifications are sent
when a series does not open for any
reason; or
(4) if the opening trade would leave
a market order imbalance, the System
will not open the series. However, if a
sell market order imbalance exists, there
is no bid in the series, and the best offer
is $0.50 or less, the System will open
the series; if there is no bid in the series
and the best offer is greater than $0.50,
the System will not open the series. The
proposed rule change deletes the
language regarding the exception for
series that will open at a minimum
increment.32 The proposed rule change
also deletes the language from the
current provision regarding sending a
notification when this condition is
present, because, as stated above,
notifications go out when a series does
not open for any reason.33
Separately, current Interpretation and
Policy .03 to Rule 6.2B describes
opening conditions that apply to classes
in which the Exchange has activated
HALO.34 Among other things, the
31 See Rule 8.7(d). The Exchange may set different
bid/ask differential requirements for a MarketMaker’s opening quotes than for its intraday quotes
(which it currently does). The proposed rule change
specifies this in Interpretation and Policy .02
regarding Market-Maker quotes, which currently
provides that the Exchange may also set a different
minimum number of contracts for a Market-Maker’s
opening quotes. See Notice, supra note 3, at 74833,
n.20.
32 Pursuant to Rule 6.13(b)(vi), in the situation in
which there is no bid in the series and the best offer
is $0.50 or less, the System considers these market
orders to be limit orders for the minimum
increment applicable to the series and enter these
orders in the book (behind limit orders to sell at the
minimum increment already resting in the book).
Essentially, this creates a situation in which a series
opens at a minimum price increment (i.e. $0.00–
$0.05). In the situation in which there is no bid in
the series and the best offer is greater than $0.50,
if the no-bid series were to open while the best offer
is greater than $0.50, under the rules, a market
order to sell will be handled via the order handling
system pursuant to Rule 6.12 rather than route to
the book. See Notice, supra note 3, at 74833.
33 See Notice, supra note 3, at 74832–33
(describing in greater detail opening conditions set
forth in proposed Rule 6.2B(d)(i)).
34 See id. at 74833–34 (providing a detailed
description of the current opening conditions that
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current conditions take into
consideration whether the opening trade
would be at a price that is not the
national best bid or offer.35 Current
Interpretation and Policy .03(b) further
describes what happens when each of
these conditions is present, including
exposure of marketable orders at the
NBBO under certain conditions. The
proposed rule change would amend the
opening conditions applicable to classes
in which the Exchange has activated
HALO to provide as follows:
(1) If there are no quotes on the
Exchange or disseminated from at least
one away exchange present in the series,
the System will not open the series;
(2) if the width between the best quote
bid and best quote offer, which may
consist of Market-Makers quotes or bids
and offers disseminated from an away
exchange, is wider than the OEPW range
and there are orders or quotes
marketable against each other or that
lock or cross the OEPW range, the
System will not open the series.
However, if the opening quote width is
no wider than the IEPW range and there
are no orders or quotes marketable
against each other or that lock or cross
the OEPW range, the System will open
the series. If the opening quote width is
wider than the IEPW range, the System
will not open the series. If the opening
quote for a series consists solely of bids
and offers disseminated from an away
exchange(s), the System will open the
series by matching orders and quotes to
the extent they can trade and will report
the opening trade, if any, at the opening
trade price. The System will then
exposes any remaining marketable buy
(sell) orders at the widest offer (bid)
point of the OEPW range or NBO (NBB),
whichever is lower (higher).36
(3) if the opening trade price would be
outside the OEPW range or the NBBO,
the System will open the series by
matching orders and quotes to the
extent they can trade and will report the
opening trade, if any, at an opening
trade price not outside either the OEPW
range or NBBO. The System will then
expose any remaining marketable buy
apply to classes in which HALO is activated). The
Exchange proposes to reorganize Rule 6.2B to keep
the description of the applicable opening
conditions for all classes in a single location within
the rules. Therefore, the proposed rule change
moves these opening conditions to proposed
subparagraph (d)(ii) of Rule 6.2B. See id. at 74834,
n.23.
35 See id. at 74833.
36 Additionally, according to the Exchange,
because all quotes entered by Market-Makers
(including quotes entered during the pre-opening
period and opening rotation period) must satisfy
bid/ask differentials, the Exchange proposes to
delete the reference to bid/ask differential
requirements from Rule 6.2B. See id. at 74834, n.24
and accompanying text.
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(sell) orders at the widest offer (bid)
point of the OEPW range or NBO (NBB),
whichever is lower (higher);
(4) if the opening trade would leave
a market order imbalance, the System
will open the series by matching orders
and quotes to the extent they can trade
and will report the opening trade, if any,
at the opening trade price. The System
will then expose any remaining
marketable buy (sell) orders at the
widest offer (bid) point of the OEPW
range or NBO (NBB), whichever is lower
(higher); or
(5) if the opening quote bid (offer) or
the NBB (NBO) crosses the opening
quote offer (bid) or the NBO (NBB) by
more than an amount determined by the
Exchange on a class-by-class and
premium basis, the System will not
open the series.37 If the opening quote
bid (offer) or NBO (NBO) crosses the
opening quote offer (bid) or NBO (NBB)
by no more than the specified amount,
the System will open the series by
matching orders and quotes to the
extent they can trade and will report the
opening trade, if any, at the opening
trade price. The System then exposes
any remaining marketable buy (sell)
orders at the widest offer (bid) point of
the OEPW range or NBO (NBB),
whichever is lower (higher). If the best
away market bid and offer are inverted
by no more than the specified amount,
there is a marketable order on each side
of the series, and the System opens the
series, the System will expose the order
on the side with the larger size and
route for execution the order on the side
with the smaller size to an away
exchange that is at the NBBO.38
In addition, the proposed rule change
makes other changes to current
Interpretation and Policy .03, while
retaining and moving around certain
other provisions.39 Among other things,
for example, because the Exchange no
longer uses an allocation period, it
proposes to delete the provision
regarding the allocation period of the
HAL openings.40 In addition, the
proposed rule change deletes
Interpretation and Policy .03(c)(i)
regarding the priority of orders and
quotes during the open for classes in
which the Exchange has activated HAL
37 Currently, this amount is $0.25 for options with
prices less than $3.00 and $0.50 for options with
prices of $3.00 or more. See id. at 74835, n.26.
38 See id. at 74834–35.
39 The proposed rule change stipulates that any
remaining balances of orders not executed after the
exposure period will enter the book at their limit
prices (to the extent consistent with Rule 6.53) or
route via the order handling system pursuant to
Rule 6.12 in accordance with their routing
instructions. See Notice, supra note 3, at 74835,
n.27.
40 See id. at 74835.
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for openings, as it is the same as the
priority in proposed subparagraph
(c)(i)(C).41
The Exchange also proposes to add
subparagraph (d)(iii), which provides
that if the System does not open a series
pursuant subparagraphs (i) or (ii),
notwithstanding proposed paragraph (c)
(which states the opening rotation
period may not last more than 60
seconds), the opening rotation period
continues (including the dissemination
of EOIs) until the condition causing the
delay is satisfied or the Exchange
otherwise determines it is necessary to
open a series in accordance with
proposed paragraph (e).42
Hybrid 3.0 Classes
The proposed rule change moves Rule
6.2B, Interpretation and Policy .01(a),
which establishes a modified opening
procedure for classes that trade on the
Hybrid 3.0 platform, into the body of the
rule in proposed paragraph (h).
Interpretation and Policy .01 generally
describes the modified opening
procedures for Hybrid 3.0 series that are
used to calculate volatility indexes.43
The Exchange noted in its filing that
current paragraph (a), however, applies
to Hybrid 3.0 classes on all trading days,
not just the days on which the Exchange
uses the modified opening
procedures.44 The proposed rule change
therefore moves this provision to
proposed paragraph (h) within the body
of the rule, rather than the Interpretation
and Policy.
The introduction to proposed
paragraph (h) states that all the
provisions set forth in Rule 6.2B apply
to the opening of Hybrid 3.0 series
except as follows in subparagraphs (i)
and (ii). Proposed paragraph (h)(i)
provides that only the LMM or DPM
with an appointment or allocation,
41 See
id.
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42 Current
Rule 6.2B(h) and proposed Rule 6.2B(g)
provide that the opening procedures described in
the rule may also be used after the close of a trading
session for series that open pursuant to HOSS. The
proposed rule change makes non-substantive
changes to proposed paragraph (g) to more clearly
and simply state the potential applicability of the
opening procedures to a closing rotation for series
that open pursuant to HOSS and to include
additional detail regarding the notification to
Trading Permit Holders regarding the decision to
conduct a closing rotation. The proposed rule
change also amends the name of Rule 6.2B to
indicate that the procedures may also be used for
closing rotations. See id. at 74835, n.28.
43 The only series trading on Hybrid 3.0 are SPX
index options. See, e.g., CBOE FAQs, available at:
https://www.cboe.org/publish/mmfaq/mmfaq.pdf
(‘‘All option classes on CBOE are Hybrid classes,
except SPX, which contains both Hybrid series
(SPX Weeklys under trading symbol SPXW) and
Hybrid 3.0 series (all other SPX series under trading
symbol SPX).’’).
44 See Notice, supra note 3, at 74835–36.
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respectively, to the class or series may
enter quotes prior to the opening of
trading, subject to the obligation set
forth in Rule 8.15 or 8.85, respectively.
Proposed paragraph (h)(ii) states that
during the pre-opening period, the
System will accept all order types
eligible for entry from public customers
(consistent with current paragraph (a) in
Interpretation and Policy .01), but adds
that the System only accepts opening
rotation orders from non-public
customers.45
Modified Opening Procedures on
Volatility Index Settlement Dates
The proposed rule change amends the
modified opening procedures for classes
and series used to calculate volatility
indexes on the exercise and final
settlement dates. Current Interpretation
and Policy .01(b) requires the DPM or
LMM to enter opening quotes in all
series in a Hybrid 3.0 class during a
modified opening procedure. The
proposed rule change deletes this
obligation. As a result, the opening
quoting obligations in Rules 8.15 and
8.85, as applicable, would apply to
LMMs and DPMs, respectively, in
Hybrid 3.0 classes on volatility
settlement days.46
Current Rule 6.2B, Interpretation and
Policy .01(c) describes a modified
opening procedure that applies to series
in Hybrid 3.0 classes that are used to
calculate a volatility index on expiration
and final settlement dates for those
indexes.47 The introductory paragraph
of current paragraph (c) states that to
facilitate the calculation of exercise or
final settlement values for options or
futures contracts on volatility indexes,
the Exchange will utilize a modified
HOSS opening procedure for any
Hybrid 3.0 series with respect to which
a volatility index is calculated. This
modified opening procedure will be
utilized only on the expiration and final
settlement dates of the options or
futures contracts on the applicable
45 See id. at 74836. Pursuant to Rule 7.4(a), public
customer orders are eligible for entry into the
electronic book. While non-public customers may
submit orders in Hybrid classes for entry into the
book, the Exchange may determine on a class-byclass basis that non-public customers may also
submit orders in Hybrid 3.0 classes for entry into
the book; currently, the Exchange has determined
not to permit this. See id. at 74836, n.31.
46 See id. at 74836.
47 Interpretation and Policy .08 has a substantially
similar procedure for series in Hybrid classes that
are used to calculate volatility indexes on
settlement dates. As discussed below, the proposed
rule change deletes Interpretation and Policy .08
and applies Interpretation and Policy .01 to all
classes. All proposed changes to Interpretation and
Policy .01 described in this section of the rule filing
will thus apply to the modified opening procedure
for both Hybrid and Hybrid 3.0 classes. See id. at
74836, n.34.
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volatility index for each expiration. The
Exchange states that the proposed
introductory paragraph to Interpretation
and Policy .01 simplifies these two
sentences, which CBOE believes are
redundant, and states that on the dates
on which the exercise and final
settlement values are calculated for
options 48 or (security) futures contracts
on a volatility index (i.e., expiration and
final settlement dates), the Exchange
will utilize the modified opening
procedure described in that
Interpretation and Policy for all series
used to calculate the exercise/final
settlement value of the volatility index
for expiring options and (security)
futures contracts (i.e., constituent
options).49
Current Interpretation and Policy
.01(c)(i) states that all orders, other than
spread or non-OPG contingency orders,
will be eligible to be placed on the
electronic book for those option contract
expirations whose prices are used to
derive the volatility indexes on which
options and futures are traded, for the
purpose of permitting those orders to
participate in the opening price
calculation for the applicable series.
Since the Exchange permits the same
order types during the modified opening
procedure as it does during the standard
procedure, the proposed rule change
deletes this paragraph.50
Exchange Determinations
Current Rule 6.2B provides in various
places, including paragraphs (b)(ii), (e)
and (f) and Interpretations and Policies
.01 and .08, that Exchange Floor
Officials may determine whether to
modify the opening procedures when
they deem necessary. The Exchange
proposes to delete these references and
combine them into current paragraph (f)
and proposed paragraph (e).
Additionally, the Exchange proposes to
amend proposed paragraph (e) to state
that senior Help Desk personnel make
these determinations.51 The proposed
48 The proposed rule references Rules 24.9(a)(5)
and (6) (which references are also included in
current Rule 6.2B, Interpretation and Policy .08),
which describe the method of determining the day
on which the exercise settlement value will be
calculated for volatility indexes with a 30-day
volatility period and VXST, respectively. See id. at
74836, n.35.
49 See id. at 74836.
50 See Notice, supra note 3, at 74836–37. The
Exchange requires, and will continue to require,
LMMs (or DPMs) in Hybrid 3.0 classes to enter
opening quotes in series that may be used to
calculate the exercise and final settlement values of
options or futures on the volatility index on
expiration and final settlement dates. Additionally,
LMMs and DPMs must enter quotes within a certain
timeframe on all trading days. See id. at 74832.
51 Current paragraph (b)(ii) references the
Exchange Control Room. The Control Room is now
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rule change lists examples of actions
Senior Help Desk personnel may take in
the interests of commencing or
maintaining a fair and orderly market,
in the event of unusual market
conditions, or in the public interest,
including delaying or compelling the
opening of any series in any options
class, modifying timers or settings
described in Rule 6.2B, and not using
the modified opening procedure set
forth in proposed Interpretation and
Policy .01. The proposed rule change
adds that the Exchange will make and
maintain records to document all
determinations to deviate from the
standard manner of the opening
procedure, and periodically review
these determinations.52
In addition, there are various
provisions throughout Rule 6.2B that
allow the Exchange to make certain
determinations on a class-by-class basis.
However, pursuant to Rule 8.14,
Interpretation and Policy .01,53 the
Exchange may authorize groups of series
of a class to trade on different trading
platforms, and thus, the Exchange
would make determinations for each
group rather than the class as a whole.
Proposed Interpretation and Policy .05
provides that, for these groups, the
Exchange may make determinations
pursuant to Rule 6.2B and the
Interpretations and Policies thereunder
on a group-by-group basis that would
otherwise be made on a class-by-class
basis. The proposed rule change also
adds to proposed Interpretation and
Policy .05 that it will announce via
Regulatory Circular with appropriate
advance notice any determinations it
makes under Rule 6.2B, to ensure
Trading Permit Holders are aware of
these determinations and have sufficient
time to make any necessary changes in
response to the determinations.54
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Obsolete and Duplicate Language
The proposed rule change proposes to
delete certain provisions because it
believes the language is obsolete or
duplicative. Those changes include the
following:
• Current Rule 6.2B(b)(ii) describes
how a DPM or LMM, as applicable,
takes part in determining the cause of a
referred to as the Help Desk, so the Exchange
proposes to delete the references to the Control
Room. See id. at 74837, n.37.
52 See id. at 74837.
53 Rule 8.14, Interpretation and Policy .01,
provides that the Exchange may determine to
authorize a group of series of a Hybrid 3.0 class to
trade on the Hybrid system, in which case the
Exchange would establish trading parameters on a
group basis to the extent rules otherwise provide for
such parameters to be established on a class basis.
See id. at 74838, n.39.
54 See id. at 74838.
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delay in the opening of an underlying
security, and that the Exchange may
consider such information when
deciding whether to open a series
despite the delay in the opening of the
underlying. According to CBOE, the
CBOE Help Desk generally is aware of
delayed openings in the underlying
securities and thus this provision is no
longer necessary. Additionally, the
Exchange’s Help Desk would have the
ability to compel the opening of a series
pursuant to proposed Rule 6.2B(f) and
therefore proposes to delete this
provision.55
• The Exchange also proposes to
delete current Interpretation and Policy
.01(c)(v), which states the HOSS system
will automatically generate cancels
immediately prior to the opening of the
applicable index option series for
broker-dealer, Market-Maker, away
market-maker, and specialist (i.e., nonpublic customer) orders that remain on
the book following the modified HOSS
opening procedures. Since the System
will cancel opening rotation orders that
do not execute during the opening
rotation of a series, the Exchange
believes this provision is redundant.
Further, the Exchange proposes to
delete current Interpretation and Policy
.01(c)(vi) regarding publication of an
imbalance of contracts, as this is
covered by proposed Rule 6.2B(d)(iii)
regarding dissemination of expected
opening messages if a series does not
open.
• The proposed rule change deletes
Interpretation and Policy .08. The
modified opening procedures described
in Interpretations and Policies .01 and
.08 are nearly identical for Hybrid and
Hybrid 3.0 classes. Therefore, the
proposed rule change applies
Interpretation and Policy .01 (as
amended by this proposed rule change)
to all classes.56
Non-Substantive Changes
The proposed rule change, as
modified by Amendment No. 1, makes
numerous non-substantive and clerical
changes throughout Rule 6.2B and in
Rules 6.1A(e)(iii)(C), 6.13(b)(v)(B)(V),
6.53(l), 8.15(b)(v), 8.85(a)(xi), and
17.50(g)(14), including adding or
amending headings and defined terms,
updating cross-references, adding
introductory and clarifying language,
using consistent language and
punctuation, and replacing terms such
55 See
id. at 74837.
Notice, supra note 3, at 74838. The
proposed rule change deletes references to VXST,
the CBOE Short-Term Volatility Index, in
Interpretation and Policy .01, as VXST is only one
type of volatility index and is not unique in its
treatment under this rule. See id. at n.38.
56 See
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90901
as ‘‘option series’’ with series.57 The
proposed rule change also amends
current Rule 6.2B(g) and proposed Rule
6.2B(f) to clarify that the procedure
described in Rule 6.2B may be used to
reopen a series, in addition to a class,
after a trading halt to address a potential
situation in which only certain series
are subjected to halt. The proposed rule
change also adds detail regarding notice
of use of this opening procedure
following a trading halt and clarifies
that the procedure would be the same,
though depending on facts and
circumstances, there may be no preopening period or a shorter pre-opening
period. Proposed paragraph (f) further
states the Exchange will announce the
reopening of a class or series after a
trading halt as soon as practicable via
verbal message to the trading floor and
electronic message to Trading Permit
Holders that request to receive such
messages.58
The Exchange also proposes to amend
Interpretation and Policy .04, which
states the Exchange may determine on a
class-by-class basis which electronic
algorithm from Rule 6.45A or 6.45B, as
applicable, applies to the class during
rotations. The proposed rule change
makes the electronic algorithm that
applies to a class intraday the default
algorithm during rotations, but leaves
the Exchange flexibility to apply a
different algorithm to a class during
rotations if it deems necessary or
appropriate.59
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of
Section 6 of the Act,60 and the rules and
regulations thereunder applicable to a
national securities exchange.61 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,62 which
requires, among other things, that a
national securities exchange have rules
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
57 The Exchange notes that all series listed for
trading on the Exchange are for options, therefore
it does not believe that including the word ‘‘option’’
is necessary. See id. at 74838.
58 See id. at 74838. CBOE also notes that the
Exchange may reopen a class after a trading halt as
otherwise set forth in the Rules, including Rules
6.3, 6.3B, and 6.3C. See id. at n.40.
59 See id. at 74838.
60 15 U.S.C. 78f.
61 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
62 15 U.S.C. 78f(b)(5).
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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.
In particular, the proposed rule
change reorganizes and attempts to
clarify the description of the opening
(and sometimes closing) procedures,
deletes text that the Exchange believes
is either obsolete or unnecessary,
removes certain discretion for the
Exchange to make determinations under
the rule on a class-by-class basis where
CBOE no longer needs that discretion,
and is intended to promote greater
consistency across Rule 6.2B. The
Commission notes that these changes
may offer market participants a better
understanding of how the Exchange’s
opening (and sometimes closing)
procedures operate. To the extent the
changes achieve that goal, they may
promote transparency, reduce the
potential for investor confusion, and
assist market participants in deciding
whether to participate in CBOE’s trading
rotations and, if they do participate,
have confidence and certainty as to how
their orders will be processed by the
CBOE System.
The Commission believes that the
proposed rule change is designed to
promote just and equitable principles of
trade by seeking to ensure that series
open in a fair and orderly manner with
sufficient liquidity and opportunities for
execution at prices that are determined
by market forces. In particular, the
Exchange notes that the proposed rule
change is designed to ensure that market
participants are aware of the
circumstances under which the System
may not open a series.63 Further,
although the proposed rule change
deletes the obligation for LMMs in
Hybrid 3.0 classes to enter opening
orders and quotes on volatility
settlement dates, the Exchange has
represented that it does not believe that
this change will impact the balance of
LMM obligations and benefits, as this
obligation has been applied only to a
brief period of time on a limited number
of days.64 In addition, LMMs in Hybrid
3.0 must enter opening quotes in
accordance with the obligation in Rule
8.15, including in series of classes that
may be used to calculate the exercise
and final settlement values of options or
futures on the volatility index on
63 See
64 See
Notice, supra note 3, at 74839.
id.
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settlement dates.65 The Exchange
believes that the standard opening
quoting obligation, in addition to other
general obligations applicable to LMMs,
provides sufficient liquidity in these
series on the volatility settlement
days.66 Thus, CBOE does not believe it
is necessary to impose additional
opening quoting obligations on LMMs
on those days.
Further, the proposed change more
clearly specifies the situations in which
the modified opening procedures
replace the opening procedures on
settlement dates for certain series. The
proposed rule change also sets out the
circumstances when the Exchange may
exercise discretion and strives to narrow
that discretion within certain
established parameters.67 The proposed
rule change further requires the
Exchange to document and periodically
review Exchange decisions made under
the rule, including any deviations from
the standard opening procedures, and
specifies that only senior Exchange
officials can make those determinations
and must do so in limited specified
circumstances with specific regard to
the public interest.68 In this manner,
Exchange determinations made under
the rule should be transparent and made
with due regard to the Exchange’s
obligations under the Act.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with Section 6(b)(5)
of the Act and the rules and regulations
thereunder applicable to a national
securities exchange.
IV. Solicitation of Comments on
Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 to
the proposed rule change is consistent
with the Act. Comments may be
submitted by any of the following
methods:
65 See
id.
id.
67 Exchange determinations, including the
establishment of parameters governing the opening
process, will be set forth in Regulatory Circulars (or
as otherwise specified by the Exchange under the
proposed rule). On account of the critical
importance of this information to investors’
understanding of how the Exchange’s System
operates, CBOE should ensure that such
information is prominently displayed, readily
searchable and retrievable, up-to-date, and
comprehensive.
68 See proposed Rule 6.2B(e). See also Notice,
supra note 3, at 74837.
66 See
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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–2016–071 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–2016–071. 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–
2016–071, and should be submitted on
or before January 5, 2017.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the thirtieth day after the date of
publication of notice of the amended
proposal in the Federal Register. In
Amendment No. 1,69 CBOE updated a
cross-reference to Rule 6.2B in Rule
6.13. This change is consistent with the
proposal as initially filed, and corrects
69 See
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a now-obsolete rule reference. The
change does not introduce material,
new, or novel concepts. Accordingly,
the Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,70 to approve the proposed rule
change, as modified by Amendment No.
1, on an accelerated basis.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,71 that the
proposed rule change (SR–CBOE–2016–
071), as modified by Amendment No. 1,
be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.72
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–30082 Filed 12–14–16; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice: 9818]
Modification of Iran, North Korea, and
Syria Nonproliferation Act Measures
Against a Russian Entity
A decision has been made,
pursuant to the Iran, North Korea, and
Syria Nonproliferation Act, to modify
nonproliferation measures pursuant to
this Act on a Russian foreign person.
DATES: Effective Date: December 15,
2016.
SUMMARY:
rmajette on DSK2TPTVN1PROD with NOTICES
FOR FURTHER INFORMATION CONTACT:
Jeffrey G. McCoy, Office of EuroAtlantic Security Affairs, Bureau of
Arms Control, Verification and
Compliance, Department of State,
Telephone (202) 647–4940.
SUPPLEMENTARY INFORMATION: On
September 2, 2015, the United States
Government published a notice
announcing the imposition of measures
including the following against
Rosoboronexport (ROE) (Russia) and
any successor, sub-unit, or subsidiary
thereof: ‘‘No department or agency of
the United States Government may
procure or enter into any contract for
the procurement of any goods,
technology, or services from
Rosoboronexport (ROE) (Russia) and
any successor, sub-unit, or subsidiary
thereof, except to the extent that the
Secretary of State otherwise may
determine. . . .’’ (See 80 FR 53222,
Public Notice 9251; 80 FR 65844, Public
70 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(2).
72 17 CFR 200.30–3(a)(12).
71 15
VerDate Sep<11>2014
15:19 Dec 14, 2016
Jkt 241001
Notice 9329; and 80 FR 73865, Public
Notice 9358).
On July 5, 2016, the United States
Government published a notice
announcing the imposition of measures
including the following against
Rosoboronexport (ROE) (Russia) and
any successor, sub-unit, or subsidiary
thereof: ‘‘No department or agency of
the United States Government may
procure or enter into any contract for
the procurement of any goods,
technology, or services from
Rosoboronexport (ROE) (Russia) and
any successor, sub-unit, or subsidiary
thereof, except to the extent that the
Secretary of State otherwise may
determine. . . .’’ (See 81 FR 43696,
Public Notice 9624).
The United States Government has
decided to modify the measures
described above against ROE and any
successor, sub-unit, or subsidiary
thereof as follows: The measures
described above shall not apply to
United States Government procurement
of goods, technology, and services for
the purchase, maintenance or
sustainment of the Digital Electro
Optical Sensor OSDCAM4060, to
improve the U.S. ability to monitor and
verify Russia’s Open Skies Treaty
compliance.
Such subcontracts include the
purchase of spare parts, supplies, and
related services.
This modification does not apply to
any other measures imposed pursuant to
the INKSNA and announced in Public
Notice 9251 published on September 2,
2015 (80 FR 53222) or Public Notice
9624 published on July 5, 2016 (81 FR
43696).
Frank Rose,
Assistant Secretary, Bureau of Arms Control,
Verification and Compliance, Department of
State.
[FR Doc. 2016–30158 Filed 12–14–16; 8:45 am]
BILLING CODE 4710–35–P
DEPARTMENT OF TRANSPORTATION
Federal Railroad Administration
[Docket Number FRA–2016–0118]
Petition for Waiver of Compliance
In accordance with part 211 of Title
49 Code of Federal Regulations (CFR),
this document provides the public
notice that by a document dated
November 14, 2016, The Beltway
Railway of Chicago (BRC) has petitioned
the Federal Railroad Administration
(FRA) for a waiver of compliance from
certain provisions of the Federal
railroad safety regulations contained at
PO 00000
Frm 00132
Fmt 4703
Sfmt 4703
90903
49 CFR part 236. FRA assigned the
petition Docket Number FRA–2016–
0118. BRC seeks relief from the
requirements of 49 CFR 236.109 Time
releases, timing relays and timing
devices. BRC requests relief from
§ 236.109 as it applies to variable timers
within the program logic of the
operating software of microprocessorbased equipment.
BRC states that timing devices
contained within microprocessor-based
equipment are typically non-variable
and are within the program logic of the
operating software. BRC notes, however,
that some microprocessor-based
equipment have variable timers. BRC is
requesting relief from the requirement of
checking the actual time interval of
microprocessor-based variable timers.
Such variable timers will use
verification of the CRC/Check Sum/UCN
of the existing location specific
application logic to the previously
tested version. A copy of the petition, as
well as any written communications
concerning the petition, is available for
review online at www.regulations.gov
and in person at the Department of
Transportation’s (DOT) Docket
Operations Facility, 1200 New Jersey
Avenue SE., W12–140, Washington, DC
20590. The Docket Operations Facility
is open from 9 a.m. to 5 p.m., Monday
through Friday, except Federal
Holidays.
Interested parties are invited to
participate in these proceedings by
submitting written views, data, or
comments. FRA does not anticipate
scheduling a public hearing in
connection with these proceedings since
the facts do not appear to warrant a
hearing. If any interested party desires
an opportunity for oral comment, they
should notify FRA, in writing, before
the end of the comment period and
specify the basis for their request.
All communications concerning these
proceedings should identify the
appropriate docket number and may be
submitted by any of the following
methods:
• Web site: https://
www.regulations.gov. Follow the online
instructions for submitting comments.
• Fax: 202–493–2251.
• Mail: Docket Operations Facility,
US Department of Transportation, 1200
New Jersey Avenue SE., W12–140,
Washington, DC 20590.
• Hand Delivery: 1200 New Jersey
Avenue SE., Room W12–140,
Washington, DC 20590, between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal Holidays.
Communications received by January
30, 2017 will be considered by FRA
before final action is taken. Comments
E:\FR\FM\15DEN1.SGM
15DEN1
]]>Agencies
[Federal Register Volume 81, Number 241 (Thursday, December 15, 2016)]
[Notices]
[Pages 90896-90903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30082]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79520; File No. SR-CBOE-2016-071]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, Relating To Opening and Closing Rotations Under the
HOSS System
December 9, 2016.
I. Introduction
On October 7, 2016, Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend its rules relating to
the opening of series for trading on the Exchange. The Commission
published the proposed rule change for comment in the Federal Register
on October 27, 2016.\3\ On November 18, 2016, the Exchange filed
Amendment No. 1 to the proposed rule change.\4\ The Commission received
no comments on the proposal. This order provides notice of filing of
Amendment No. 1 and approves the proposed rule change, as modified by
Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 79133 (October 21,
2016), 81 FR 74828 (October 27, 2016) (``Notice'').
\4\ In Amendment No. 1, the Exchange updated a cross-reference
to Rule 6.2B in Rule 6.13. To promote transparency of its proposed
amendment, when CBOE filed Amendment No. 1 with the Commission, it
also submitted Amendment No. 1 as a comment letter to the file,
which the Commission posted on its Web site and placed in the public
comment file for SR-CBOE-2016-071 (available at https://www.sec.gov/comments/sr-cboe-2016-071/cboe2016071.shtml). The Exchange also
posted a copy of its Amendment No. 1 on its Web site (https://www.cboe.com/aboutcboe/legal/submittedsecfilings.aspx), when it
filed it with the Commission.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
CBOE proposes to amend its rules relating to the opening of series
for trading on the Exchange. Rule 6.2B describes the process (referred
to as ``HOSS'') that the Exchange's Hybrid Trading System (the
``System'') uses to open series on the Exchange each trading day. The
Exchange may also use HOSS for closing series or opening
[[Page 90897]]
series after a trading halt. The Exchange is proposing various changes
to reorganize and simplify the rule and to more accurately reflect
current System functionality.\5\
---------------------------------------------------------------------------
\5\ See Notice, supra note 3, at 74829.
---------------------------------------------------------------------------
According to the Exchange, HOSS generally processes the opening of
each series in four stages: \6\
---------------------------------------------------------------------------
\6\ See id.
---------------------------------------------------------------------------
(1) Pre-Opening Period: During the pre-opening period, the System
accepts orders and quotes and disseminates messages that contain
information based on resting orders and quotes in the book, which may
include the expected opening price (``EOP''), expected opening size
(``EOS''), any reason why a series may not open, and imbalance
information, including the size and side of an imbalance (collectively,
``expected opening information'' or ``EOIs'').
(2) Initiation of the Opening Rotation: The System then initiates
the opening rotation procedure and distributes a ``Rotation Notice'' to
market participants.
(3) Opening Rotation Period: During the opening rotation period,
the System matches and executes orders and quotes against each other to
establish an opening Exchange best bid and offer (``BBO'') and trade
price for each series while continuing to disseminate EOIs.
(4) Opening of Trading: The System then opens series for trading,
subject to the satisfaction of certain conditions.
According to CBOE, the proposed rule change is designed to more
clearly organize Rule 6.2B in this sequential order and makes the
additional specific changes discussed in more detail below.
Pre-Opening Period
Rule 6.2B(a) currently provides that the System accepts orders and
quotes, for regular trading hours, for a period of time before the
opening of trading in the underlying security or, in the case of index
options, prior to 8:30 a.m.,\7\ and for extended trading hours, for a
period of time prior to 2:00 a.m.\8\ The Exchange proposes to amend
Rule 6.2B(a) to provide that, for each trading session, the pre-opening
period will begin no later than 15 minutes prior to the expected
initiation of an opening rotation and no earlier than 2:00 a.m. for
regular trading hours and no earlier than 4:00 p.m. on the previous day
for extended trading hours.\9\
---------------------------------------------------------------------------
\7\ All times set forth in Rule 6.2B are central time. See id.
at 74829, n.3.
\8\ The precise time periods are determined by the Exchange on a
class-by-class basis. See id. at 74829. In addition, since the
System begins the pre-opening period at the same time for each class
within each type of option (equity, index and exchange-traded
products (``ETPs'')), the proposed rule change deletes the provision
of the current rule that says the Exchange will determine the time
on a class-by-class basis. See id.
\9\ The Exchange notes that the pre-opening period currently
begins at approximately 6:30 a.m. for regular trading hours and
approximately 4:00 p.m. on the previous day for extended trading
hours. See id. at 74829, n.4.
---------------------------------------------------------------------------
Under the proposal, the Exchange generally will not restrict the
size or origin code of orders that may be submitted during the pre-
opening period. Therefore, the proposed rule change amends Rule
6.2B(a)(i) to add certainty to the rule by deleting the provision that
requires the Exchange to designate--on a class-by-class basis--the
eligible order size, eligible order type, and eligible order origin
code (i.e., public customer orders, non-Market Maker broker-dealer
orders, and Market Maker broker-dealer orders) which the System will
accept.\10\ Additionally, the proposed rule change clarifies that the
System will accept all quotes and all order types during the pre-
opening period except for immediate-or-cancel, fill-or-kill,
intermarket sweep orders, and Market-Maker trade prevention orders.\11\
The proposed rule change also adds that if an order entered during the
pre-opening period for regular trading hours is not eligible for book
entry (e.g., minimum volume, not held, and market-if-touched orders),
the System will route the order via CBOE's order handling system
pursuant to Rule 6.12.\12\
---------------------------------------------------------------------------
\10\ See Notice, supra note 3, at 74829.
\11\ See id. at 74829-30 for a discussion of these order types,
which are defined in Rule 6.53.
\12\ See id. at 74830. The Exchange notes that orders not
eligible for book entry may only be traded open outcry on the
Exchange floor. According to the Exchange, because only electronic
trading is permitted during extended trading hours, the System will
not accept these orders during the extended hours trading session
and therefore, this proposed provision is not applicable during that
trading session. See id. at 74830, n.6.
---------------------------------------------------------------------------
The proposed rule change amends Rule 6.2B(a)(ii) in several ways.
First, it defines EOIs and specifies the timing of their dissemination.
EOIs contain information based on resting orders and quotes in the
Book, including the EOP, the EOS, any reason why a series may not open
pursuant to paragraph (d) of Rule 6.2B,\13\ and any imbalance
information, including the size and side of the imbalance. EOIs will be
disseminated to all market participants that have elected to receive
them beginning at a time determined by the Exchange, which will be no
earlier than three hours prior to the expected initiation of an opening
rotation for a series. The System will then disseminate EOI at regular
intervals of time, or less frequently if there are no updates since the
previously disseminated EOI.\14\
---------------------------------------------------------------------------
\13\ Proposed paragraph (d) of Rule 6.2B sets forth certain
Opening Conditions, which are discussed in greater detail below.
\14\ See Notice, supra note 3, at 74830.
---------------------------------------------------------------------------
The proposed rule change further modifies Rule 6.2B(a)(ii) to
redefine the terms EOP and EOS and address when that information will
be disseminated. Currently, Rule 6.2B(a)(ii) states that the EOP is the
price at which the greatest number of orders and quotes in the book are
expected to trade and provides that an EOP will only be calculated if
(a) there are market orders in the book, or the book is crossed or
locked and (b) at least one quote is present. The proposed rule change
revises this language to state that the EOP is the price at which any
opening trade is expected to execute and adds that the EOS is the size
of any expected opening trade. The proposed rule change further states
the System will only disseminate EOP and EOS messages: (a) If the width
between the highest quote bid and lowest quote offer on the Exchange is
no wider than the OEPW range (as defined below), in classes in which
the Hybrid Agency Liaison (``HAL'') \15\ is not activated for openings;
or (b) if the width between the highest quote bid and lowest quote
offer on the Exchange or disseminated by other exchanges is no wider
than the OEPW range, in classes in which HAL is activated for openings
(``HALO'').\16\
---------------------------------------------------------------------------
\15\ HAL provides automated order handling in designated Hybrid
classes for electronic orders that are not automatically executed by
the System. HAL exposes these orders at the national best bid or
offer, and Trading Permit Holders may submit responses to trade with
the orders. See Rule 6.14A.
\16\ See Notice, supra note 3, at 74830, for more detailed
discussion of these changes to the pre-opening period.
---------------------------------------------------------------------------
Opening Rotation Initiation and Notice
Rule 6.2B(b) currently provides that, unless unusual circumstances
exist, at a randomly selected time within a number of seconds after the
opening trade and/or the opening quote is disseminated in the market
for the underlying security \17\ (or after 8:30 a.m. for index options)
with respect to regular trading hours, or after 2:00 a.m. with respect
to extended trading hours, the System initiates the opening rotation
[[Page 90898]]
procedure and sends a notice (``Rotation Notice'') to market
participants.\18\
---------------------------------------------------------------------------
\17\ The ``market for the underlying security'' is currently the
primary listing market, the primary volume market (defined as the
market with the most liquidity in that underlying security for the
previous two calendar months), or the first market to open the
underlying security. Since the Exchange does not designate the
primary volume market as the market for the underlying security for
any class, the proposed rule change deletes that option. The
proposed rule change also changes the term ``market'' to
``exchange'' and clarifies that the Exchange determines on a class-
by-class basis which market is the market for the underlying
security. See Notice, supra note 3, at 74830, n.10.
\18\ See id. at 74830-31.
---------------------------------------------------------------------------
The Exchange proposes to amend Rule 6.2B(b) to provide that the
System will initiate the opening rotation procedure and send out a
Rotation Notice on a class-by-class basis as follows:
For regular trading hours:
[cir] With respect to equity and ETP options, after the opening
trade or the opening quote is disseminated in the market for the
underlying security, or at 8:30 for classes determined by the Exchange
(including over-the-counter equity classes); or
[cir] with respect to index options, at 8:30 a.m., or at the later
of 8:30 a.m. and the time the Exchange receives a disseminated index
value for classes determined by the Exchange; and
For extended trading hours, at 2:00 a.m.\19\
---------------------------------------------------------------------------
\19\ See id. at 74831 (providing detailed description of the
Exchange's changes to initiating the opening rotation).
---------------------------------------------------------------------------
Opening Rotation Period
Rule 6.2B(c) provides that after the Rotation Notice is sent, the
System enters into a rotation period, during which the opening price is
established for each series. The proposed rule change reorganizes
paragraph (c) to more clearly demarcate and further describe (1) when
the opening rotation period begins, (2) what happens during the period,
(3) the handling of EOIs during the period, and (4) when the period
ends.\20\
---------------------------------------------------------------------------
\20\ See proposed Rule 6.2B(c). See also Notice, supra note 3,
at 74831.
---------------------------------------------------------------------------
During the opening rotation period, the System establishes the
opening trade price and the opening BBO by matching and executing
resting orders and quotes against each other. The proposed rule change
modifies the definition of the opening trade price of a series to be
the ``market-clearing'' price, which is the single price at which the
largest number of contracts in the book can execute, leaving bids and
offers that cannot trade with each other.\21\ The proposed rule change
also states that all orders (except complex orders and, in classes in
which the Exchange has not activated HALO, all-or-none orders and
orders with a stop contingency) and quotes in a series in the book
prior to the opening rotation period participate in the opening
rotation for a series. The Exchange notes that Contingency Orders that
participate in the opening rotation may execute during the opening
rotation period only if their contingencies are triggered.\22\
---------------------------------------------------------------------------
\21\ See Notice, supra note 3, at 74831. If there are multiple
prices at which the same number of contracts would clear, the System
will use (a) the price at or nearest to the midpoint of the opening
BBO, or the widest offer (bid) point of the OEPW range if the
midpoint is higher (lower) than that price point, in classes in
which the Exchange has not activated HALO; or (b) the price at or
nearest to the midpoint of the range consisting of the higher of the
opening NBB and widest bid point of the OEPW range, and the lower of
the opening NBO and widest offer point of the OEPW range, in classes
in which the Exchange has activated HALO. See id.
\22\ See id. at 74831-32. Further, the Exchange notes that the
proposed rule change moves the rule provision regarding the priority
order of orders and quotes during this matching process from current
subparagraph (c)(iv) to proposed subparagraph (c)(i)(C). The System
prioritizes orders in the following order: (1) Market orders, (2)
limit orders and quotes whose prices are better than the opening
price, and (3) resting orders and quotes at the opening price. The
proposed rule change also notes contingency orders are prioritized
as set forth in Rules 6.45A and 6.45B. See id. at 74832, n.13.
---------------------------------------------------------------------------
The proposed rule change clarifies that the System will continue to
disseminate EOIs (not just the EOP and EOS) during the opening rotation
period, which may be disseminated at more frequent intervals closer to
the opening.\23\ In addition, the proposed rule change updates the
description of the length of the opening rotation period and adds
detail to the description of how the System processes series to open
following the opening rotation period. Specifically, current
subparagraph (c)(ii) states that the System will process the series of
a class in a random order and the series will begin opening after a
period following the Rotation Notice, which period may not exceed sixty
seconds and will be established on a class-by-class basis by the
Exchange.\24\ Proposed subparagraph (c)(iii) retains that process, but
clarifies that CBOE will determine the length and number of these
intervals for all classes.\25\
---------------------------------------------------------------------------
\23\ See id. at 74832.
\24\ See id. at 74832.
\25\ According to the Exchange, currently, the Exchange has set
the period of time that must pass before the System begins
processing series to open at two seconds, and the Exchange has set
the number of intervals to two and the length of the intervals to
one second. As a result, the opening rotation period currently lasts
two to four seconds. See Regulatory Circular RG11-072; see also
Notice, supra note 3, at 74832 n.14.
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Opening Quote and Trade Price
In its filing, the Exchange represented that, pursuant to the
Options Price Reporting Authority (``OPRA'') Plan, once a series opens,
the System disseminates all quote and trade price information to OPRA,
including opening quote and trade price information.\26\ Accordingly,
the Exchange proposes to delete text in current paragraph (d) of Rule
6.2B stating that the opening price is determined by series and that
CBOE disseminates opening quote and trade information through OPRA
because the Exchange already disseminates such information pursuant to
the OPRA Plan, and therefore believes that this provision is
unnecessarily repetitive.\27\ Despite the deletion of that language
from the rule concerning reporting data through OPRA, the Exchange is
not proposing a substantive change to reporting this information
through OPRA.
---------------------------------------------------------------------------
\26\ See Notice, supra note 3, at 74832.
\27\ See id. at 74832.
---------------------------------------------------------------------------
Opening Conditions
Current Rule 6.2B(e) provides that the System will not open a
series if one of a number of specified conditions is met, including the
absence of a quote that complies with the bid/ask differential
requirements or if the opening price would not be within an acceptable
range or would leave a market order imbalance.\28\ The proposed rule
change amends these conditions to provide that, in classes in which the
Exchange has not activated HALO:
---------------------------------------------------------------------------
\28\ See id. at 74832. The final provision of current paragraph
(e) provides the following: If the first or second condition is
present, the senior official in the Control Room may authorize the
opening of the affected series where necessary to ensure a fair and
orderly market; if the second condition is present, the System will
not open the series but will send a notification to market
participants indicating the reason; if the third condition is
present, a notification will be sent to market participants
indicating the size and direction of the market order imbalance. In
this case, the System will not open the series until the condition
causing the delay is satisfied, and the System will repeat this
process until the series is open. The proposed rule change combines
the exceptions in current paragraph (e) with the applicable opening
conditions in current subparagraphs (e)(i) through (iii) into
proposed paragraph (d)(i). See id. at n.16.
---------------------------------------------------------------------------
(1) If there are no quotes in the series on the Exchange, the
System will not open the series;
(2) if the width between the Exchange's best quote bid and best
quote offer is wider than an acceptable opening price range (as
determined by the Exchange on a class-by-class and premium basis) (the
``Opening Exchange Prescribed Width range'' or ``OEPW range'') \29\ and
there are orders or quotes marketable against each other, the System
will not open the series. However, if the opening quote width is no
wider than the intraday acceptable price range for the series (``IEPW
range'') \30\ and there are no orders or quotes marketable against each
other, the System will open the series. If the opening quote width is
wider than the IEPW range, the System will not open the series.
Additionally, according to
[[Page 90899]]
the Exchange, because all quotes entered by Market-Makers (including
quotes entered during the pre-opening period and opening rotation
period) must satisfy bid/ask differentials,\31\ the Exchange proposes
to delete the reference to bid/ask differential requirements in this
provision;
---------------------------------------------------------------------------
\29\ Current OEPW settings are set forth in Regulatory Circular
RG 13-025. See Notice, supra note 3, at 74832, n.18.
\30\ See Rule 6.13(b)(v).
\31\ See Rule 8.7(d). The Exchange may set different bid/ask
differential requirements for a Market-Maker's opening quotes than
for its intraday quotes (which it currently does). The proposed rule
change specifies this in Interpretation and Policy .02 regarding
Market-Maker quotes, which currently provides that the Exchange may
also set a different minimum number of contracts for a Market-
Maker's opening quotes. See Notice, supra note 3, at 74833, n.20.
---------------------------------------------------------------------------
(3) if the opening trade price would be outside of the OEPW range,
the System will not open the series. The Exchange states that the
proposed rule change also deletes the language from the current
provision regarding sending a notification when this condition is
present because notifications are sent when a series does not open for
any reason; or
(4) if the opening trade would leave a market order imbalance, the
System will not open the series. However, if a sell market order
imbalance exists, there is no bid in the series, and the best offer is
$0.50 or less, the System will open the series; if there is no bid in
the series and the best offer is greater than $0.50, the System will
not open the series. The proposed rule change deletes the language
regarding the exception for series that will open at a minimum
increment.\32\ The proposed rule change also deletes the language from
the current provision regarding sending a notification when this
condition is present, because, as stated above, notifications go out
when a series does not open for any reason.\33\
---------------------------------------------------------------------------
\32\ Pursuant to Rule 6.13(b)(vi), in the situation in which
there is no bid in the series and the best offer is $0.50 or less,
the System considers these market orders to be limit orders for the
minimum increment applicable to the series and enter these orders in
the book (behind limit orders to sell at the minimum increment
already resting in the book). Essentially, this creates a situation
in which a series opens at a minimum price increment (i.e. $0.00-
$0.05). In the situation in which there is no bid in the series and
the best offer is greater than $0.50, if the no-bid series were to
open while the best offer is greater than $0.50, under the rules, a
market order to sell will be handled via the order handling system
pursuant to Rule 6.12 rather than route to the book. See Notice,
supra note 3, at 74833.
\33\ See Notice, supra note 3, at 74832-33 (describing in
greater detail opening conditions set forth in proposed Rule
6.2B(d)(i)).
---------------------------------------------------------------------------
Separately, current Interpretation and Policy .03 to Rule 6.2B
describes opening conditions that apply to classes in which the
Exchange has activated HALO.\34\ Among other things, the current
conditions take into consideration whether the opening trade would be
at a price that is not the national best bid or offer.\35\ Current
Interpretation and Policy .03(b) further describes what happens when
each of these conditions is present, including exposure of marketable
orders at the NBBO under certain conditions. The proposed rule change
would amend the opening conditions applicable to classes in which the
Exchange has activated HALO to provide as follows:
---------------------------------------------------------------------------
\34\ See id. at 74833-34 (providing a detailed description of
the current opening conditions that apply to classes in which HALO
is activated). The Exchange proposes to reorganize Rule 6.2B to keep
the description of the applicable opening conditions for all classes
in a single location within the rules. Therefore, the proposed rule
change moves these opening conditions to proposed subparagraph
(d)(ii) of Rule 6.2B. See id. at 74834, n.23.
\35\ See id. at 74833.
---------------------------------------------------------------------------
(1) If there are no quotes on the Exchange or disseminated from at
least one away exchange present in the series, the System will not open
the series;
(2) if the width between the best quote bid and best quote offer,
which may consist of Market-Makers quotes or bids and offers
disseminated from an away exchange, is wider than the OEPW range and
there are orders or quotes marketable against each other or that lock
or cross the OEPW range, the System will not open the series. However,
if the opening quote width is no wider than the IEPW range and there
are no orders or quotes marketable against each other or that lock or
cross the OEPW range, the System will open the series. If the opening
quote width is wider than the IEPW range, the System will not open the
series. If the opening quote for a series consists solely of bids and
offers disseminated from an away exchange(s), the System will open the
series by matching orders and quotes to the extent they can trade and
will report the opening trade, if any, at the opening trade price. The
System will then exposes any remaining marketable buy (sell) orders at
the widest offer (bid) point of the OEPW range or NBO (NBB), whichever
is lower (higher).\36\
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\36\ Additionally, according to the Exchange, because all quotes
entered by Market-Makers (including quotes entered during the pre-
opening period and opening rotation period) must satisfy bid/ask
differentials, the Exchange proposes to delete the reference to bid/
ask differential requirements from Rule 6.2B. See id. at 74834, n.24
and accompanying text.
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(3) if the opening trade price would be outside the OEPW range or
the NBBO, the System will open the series by matching orders and quotes
to the extent they can trade and will report the opening trade, if any,
at an opening trade price not outside either the OEPW range or NBBO.
The System will then expose any remaining marketable buy (sell) orders
at the widest offer (bid) point of the OEPW range or NBO (NBB),
whichever is lower (higher);
(4) if the opening trade would leave a market order imbalance, the
System will open the series by matching orders and quotes to the extent
they can trade and will report the opening trade, if any, at the
opening trade price. The System will then expose any remaining
marketable buy (sell) orders at the widest offer (bid) point of the
OEPW range or NBO (NBB), whichever is lower (higher); or
(5) if the opening quote bid (offer) or the NBB (NBO) crosses the
opening quote offer (bid) or the NBO (NBB) by more than an amount
determined by the Exchange on a class-by-class and premium basis, the
System will not open the series.\37\ If the opening quote bid (offer)
or NBO (NBO) crosses the opening quote offer (bid) or NBO (NBB) by no
more than the specified amount, the System will open the series by
matching orders and quotes to the extent they can trade and will report
the opening trade, if any, at the opening trade price. The System then
exposes any remaining marketable buy (sell) orders at the widest offer
(bid) point of the OEPW range or NBO (NBB), whichever is lower
(higher). If the best away market bid and offer are inverted by no more
than the specified amount, there is a marketable order on each side of
the series, and the System opens the series, the System will expose the
order on the side with the larger size and route for execution the
order on the side with the smaller size to an away exchange that is at
the NBBO.\38\
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\37\ Currently, this amount is $0.25 for options with prices
less than $3.00 and $0.50 for options with prices of $3.00 or more.
See id. at 74835, n.26.
\38\ See id. at 74834-35.
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In addition, the proposed rule change makes other changes to
current Interpretation and Policy .03, while retaining and moving
around certain other provisions.\39\ Among other things, for example,
because the Exchange no longer uses an allocation period, it proposes
to delete the provision regarding the allocation period of the HAL
openings.\40\ In addition, the proposed rule change deletes
Interpretation and Policy .03(c)(i) regarding the priority of orders
and quotes during the open for classes in which the Exchange has
activated HAL
[[Page 90900]]
for openings, as it is the same as the priority in proposed
subparagraph (c)(i)(C).\41\
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\39\ The proposed rule change stipulates that any remaining
balances of orders not executed after the exposure period will enter
the book at their limit prices (to the extent consistent with Rule
6.53) or route via the order handling system pursuant to Rule 6.12
in accordance with their routing instructions. See Notice, supra
note 3, at 74835, n.27.
\40\ See id. at 74835.
\41\ See id.
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The Exchange also proposes to add subparagraph (d)(iii), which
provides that if the System does not open a series pursuant
subparagraphs (i) or (ii), notwithstanding proposed paragraph (c)
(which states the opening rotation period may not last more than 60
seconds), the opening rotation period continues (including the
dissemination of EOIs) until the condition causing the delay is
satisfied or the Exchange otherwise determines it is necessary to open
a series in accordance with proposed paragraph (e).\42\
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\42\ Current Rule 6.2B(h) and proposed Rule 6.2B(g) provide that
the opening procedures described in the rule may also be used after
the close of a trading session for series that open pursuant to
HOSS. The proposed rule change makes non-substantive changes to
proposed paragraph (g) to more clearly and simply state the
potential applicability of the opening procedures to a closing
rotation for series that open pursuant to HOSS and to include
additional detail regarding the notification to Trading Permit
Holders regarding the decision to conduct a closing rotation. The
proposed rule change also amends the name of Rule 6.2B to indicate
that the procedures may also be used for closing rotations. See id.
at 74835, n.28.
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Hybrid 3.0 Classes
The proposed rule change moves Rule 6.2B, Interpretation and Policy
.01(a), which establishes a modified opening procedure for classes that
trade on the Hybrid 3.0 platform, into the body of the rule in proposed
paragraph (h). Interpretation and Policy .01 generally describes the
modified opening procedures for Hybrid 3.0 series that are used to
calculate volatility indexes.\43\ The Exchange noted in its filing that
current paragraph (a), however, applies to Hybrid 3.0 classes on all
trading days, not just the days on which the Exchange uses the modified
opening procedures.\44\ The proposed rule change therefore moves this
provision to proposed paragraph (h) within the body of the rule, rather
than the Interpretation and Policy.
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\43\ The only series trading on Hybrid 3.0 are SPX index
options. See, e.g., CBOE FAQs, available at: https://www.cboe.org/publish/mmfaq/mmfaq.pdf (``All option classes on CBOE are Hybrid
classes, except SPX, which contains both Hybrid series (SPX Weeklys
under trading symbol SPXW) and Hybrid 3.0 series (all other SPX
series under trading symbol SPX).'').
\44\ See Notice, supra note 3, at 74835-36.
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The introduction to proposed paragraph (h) states that all the
provisions set forth in Rule 6.2B apply to the opening of Hybrid 3.0
series except as follows in subparagraphs (i) and (ii). Proposed
paragraph (h)(i) provides that only the LMM or DPM with an appointment
or allocation, respectively, to the class or series may enter quotes
prior to the opening of trading, subject to the obligation set forth in
Rule 8.15 or 8.85, respectively. Proposed paragraph (h)(ii) states that
during the pre-opening period, the System will accept all order types
eligible for entry from public customers (consistent with current
paragraph (a) in Interpretation and Policy .01), but adds that the
System only accepts opening rotation orders from non-public
customers.\45\
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\45\ See id. at 74836. Pursuant to Rule 7.4(a), public customer
orders are eligible for entry into the electronic book. While non-
public customers may submit orders in Hybrid classes for entry into
the book, the Exchange may determine on a class-by-class basis that
non-public customers may also submit orders in Hybrid 3.0 classes
for entry into the book; currently, the Exchange has determined not
to permit this. See id. at 74836, n.31.
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Modified Opening Procedures on Volatility Index Settlement Dates
The proposed rule change amends the modified opening procedures for
classes and series used to calculate volatility indexes on the exercise
and final settlement dates. Current Interpretation and Policy .01(b)
requires the DPM or LMM to enter opening quotes in all series in a
Hybrid 3.0 class during a modified opening procedure. The proposed rule
change deletes this obligation. As a result, the opening quoting
obligations in Rules 8.15 and 8.85, as applicable, would apply to LMMs
and DPMs, respectively, in Hybrid 3.0 classes on volatility settlement
days.\46\
---------------------------------------------------------------------------
\46\ See id. at 74836.
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Current Rule 6.2B, Interpretation and Policy .01(c) describes a
modified opening procedure that applies to series in Hybrid 3.0 classes
that are used to calculate a volatility index on expiration and final
settlement dates for those indexes.\47\ The introductory paragraph of
current paragraph (c) states that to facilitate the calculation of
exercise or final settlement values for options or futures contracts on
volatility indexes, the Exchange will utilize a modified HOSS opening
procedure for any Hybrid 3.0 series with respect to which a volatility
index is calculated. This modified opening procedure will be utilized
only on the expiration and final settlement dates of the options or
futures contracts on the applicable volatility index for each
expiration. The Exchange states that the proposed introductory
paragraph to Interpretation and Policy .01 simplifies these two
sentences, which CBOE believes are redundant, and states that on the
dates on which the exercise and final settlement values are calculated
for options \48\ or (security) futures contracts on a volatility index
(i.e., expiration and final settlement dates), the Exchange will
utilize the modified opening procedure described in that Interpretation
and Policy for all series used to calculate the exercise/final
settlement value of the volatility index for expiring options and
(security) futures contracts (i.e., constituent options).\49\
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\47\ Interpretation and Policy .08 has a substantially similar
procedure for series in Hybrid classes that are used to calculate
volatility indexes on settlement dates. As discussed below, the
proposed rule change deletes Interpretation and Policy .08 and
applies Interpretation and Policy .01 to all classes. All proposed
changes to Interpretation and Policy .01 described in this section
of the rule filing will thus apply to the modified opening procedure
for both Hybrid and Hybrid 3.0 classes. See id. at 74836, n.34.
\48\ The proposed rule references Rules 24.9(a)(5) and (6)
(which references are also included in current Rule 6.2B,
Interpretation and Policy .08), which describe the method of
determining the day on which the exercise settlement value will be
calculated for volatility indexes with a 30-day volatility period
and VXST, respectively. See id. at 74836, n.35.
\49\ See id. at 74836.
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Current Interpretation and Policy .01(c)(i) states that all orders,
other than spread or non-OPG contingency orders, will be eligible to be
placed on the electronic book for those option contract expirations
whose prices are used to derive the volatility indexes on which options
and futures are traded, for the purpose of permitting those orders to
participate in the opening price calculation for the applicable series.
Since the Exchange permits the same order types during the modified
opening procedure as it does during the standard procedure, the
proposed rule change deletes this paragraph.\50\
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\50\ See Notice, supra note 3, at 74836-37. The Exchange
requires, and will continue to require, LMMs (or DPMs) in Hybrid 3.0
classes to enter opening quotes in series that may be used to
calculate the exercise and final settlement values of options or
futures on the volatility index on expiration and final settlement
dates. Additionally, LMMs and DPMs must enter quotes within a
certain timeframe on all trading days. See id. at 74832.
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Exchange Determinations
Current Rule 6.2B provides in various places, including paragraphs
(b)(ii), (e) and (f) and Interpretations and Policies .01 and .08, that
Exchange Floor Officials may determine whether to modify the opening
procedures when they deem necessary. The Exchange proposes to delete
these references and combine them into current paragraph (f) and
proposed paragraph (e). Additionally, the Exchange proposes to amend
proposed paragraph (e) to state that senior Help Desk personnel make
these determinations.\51\ The proposed
[[Page 90901]]
rule change lists examples of actions Senior Help Desk personnel may
take in the interests of commencing or maintaining a fair and orderly
market, in the event of unusual market conditions, or in the public
interest, including delaying or compelling the opening of any series in
any options class, modifying timers or settings described in Rule 6.2B,
and not using the modified opening procedure set forth in proposed
Interpretation and Policy .01. The proposed rule change adds that the
Exchange will make and maintain records to document all determinations
to deviate from the standard manner of the opening procedure, and
periodically review these determinations.\52\
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\51\ Current paragraph (b)(ii) references the Exchange Control
Room. The Control Room is now referred to as the Help Desk, so the
Exchange proposes to delete the references to the Control Room. See
id. at 74837, n.37.
\52\ See id. at 74837.
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In addition, there are various provisions throughout Rule 6.2B that
allow the Exchange to make certain determinations on a class-by-class
basis. However, pursuant to Rule 8.14, Interpretation and Policy
.01,\53\ the Exchange may authorize groups of series of a class to
trade on different trading platforms, and thus, the Exchange would make
determinations for each group rather than the class as a whole.
Proposed Interpretation and Policy .05 provides that, for these groups,
the Exchange may make determinations pursuant to Rule 6.2B and the
Interpretations and Policies thereunder on a group-by-group basis that
would otherwise be made on a class-by-class basis. The proposed rule
change also adds to proposed Interpretation and Policy .05 that it will
announce via Regulatory Circular with appropriate advance notice any
determinations it makes under Rule 6.2B, to ensure Trading Permit
Holders are aware of these determinations and have sufficient time to
make any necessary changes in response to the determinations.\54\
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\53\ Rule 8.14, Interpretation and Policy .01, provides that the
Exchange may determine to authorize a group of series of a Hybrid
3.0 class to trade on the Hybrid system, in which case the Exchange
would establish trading parameters on a group basis to the extent
rules otherwise provide for such parameters to be established on a
class basis. See id. at 74838, n.39.
\54\ See id. at 74838.
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Obsolete and Duplicate Language
The proposed rule change proposes to delete certain provisions
because it believes the language is obsolete or duplicative. Those
changes include the following:
Current Rule 6.2B(b)(ii) describes how a DPM or LMM, as
applicable, takes part in determining the cause of a delay in the
opening of an underlying security, and that the Exchange may consider
such information when deciding whether to open a series despite the
delay in the opening of the underlying. According to CBOE, the CBOE
Help Desk generally is aware of delayed openings in the underlying
securities and thus this provision is no longer necessary.
Additionally, the Exchange's Help Desk would have the ability to compel
the opening of a series pursuant to proposed Rule 6.2B(f) and therefore
proposes to delete this provision.\55\
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\55\ See id. at 74837.
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The Exchange also proposes to delete current
Interpretation and Policy .01(c)(v), which states the HOSS system will
automatically generate cancels immediately prior to the opening of the
applicable index option series for broker-dealer, Market-Maker, away
market-maker, and specialist (i.e., non-public customer) orders that
remain on the book following the modified HOSS opening procedures.
Since the System will cancel opening rotation orders that do not
execute during the opening rotation of a series, the Exchange believes
this provision is redundant. Further, the Exchange proposes to delete
current Interpretation and Policy .01(c)(vi) regarding publication of
an imbalance of contracts, as this is covered by proposed Rule
6.2B(d)(iii) regarding dissemination of expected opening messages if a
series does not open.
The proposed rule change deletes Interpretation and Policy
.08. The modified opening procedures described in Interpretations and
Policies .01 and .08 are nearly identical for Hybrid and Hybrid 3.0
classes. Therefore, the proposed rule change applies Interpretation and
Policy .01 (as amended by this proposed rule change) to all
classes.\56\
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\56\ See Notice, supra note 3, at 74838. The proposed rule
change deletes references to VXST, the CBOE Short-Term Volatility
Index, in Interpretation and Policy .01, as VXST is only one type of
volatility index and is not unique in its treatment under this rule.
See id. at n.38.
---------------------------------------------------------------------------
Non-Substantive Changes
The proposed rule change, as modified by Amendment No. 1, makes
numerous non-substantive and clerical changes throughout Rule 6.2B and
in Rules 6.1A(e)(iii)(C), 6.13(b)(v)(B)(V), 6.53(l), 8.15(b)(v),
8.85(a)(xi), and 17.50(g)(14), including adding or amending headings
and defined terms, updating cross-references, adding introductory and
clarifying language, using consistent language and punctuation, and
replacing terms such as ``option series'' with series.\57\ The proposed
rule change also amends current Rule 6.2B(g) and proposed Rule 6.2B(f)
to clarify that the procedure described in Rule 6.2B may be used to
reopen a series, in addition to a class, after a trading halt to
address a potential situation in which only certain series are
subjected to halt. The proposed rule change also adds detail regarding
notice of use of this opening procedure following a trading halt and
clarifies that the procedure would be the same, though depending on
facts and circumstances, there may be no pre-opening period or a
shorter pre-opening period. Proposed paragraph (f) further states the
Exchange will announce the reopening of a class or series after a
trading halt as soon as practicable via verbal message to the trading
floor and electronic message to Trading Permit Holders that request to
receive such messages.\58\
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\57\ The Exchange notes that all series listed for trading on
the Exchange are for options, therefore it does not believe that
including the word ``option'' is necessary. See id. at 74838.
\58\ See id. at 74838. CBOE also notes that the Exchange may
reopen a class after a trading halt as otherwise set forth in the
Rules, including Rules 6.3, 6.3B, and 6.3C. See id. at n.40.
---------------------------------------------------------------------------
The Exchange also proposes to amend Interpretation and Policy .04,
which states the Exchange may determine on a class-by-class basis which
electronic algorithm from Rule 6.45A or 6.45B, as applicable, applies
to the class during rotations. The proposed rule change makes the
electronic algorithm that applies to a class intraday the default
algorithm during rotations, but leaves the Exchange flexibility to
apply a different algorithm to a class during rotations if it deems
necessary or appropriate.\59\
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\59\ See id. at 74838.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act,\60\
and the rules and regulations thereunder applicable to a national
securities exchange.\61\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\62\
which requires, among other things, that a national securities exchange
have rules designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of
[[Page 90902]]
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.
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\60\ 15 U.S.C. 78f.
\61\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\62\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the proposed rule change reorganizes and attempts to
clarify the description of the opening (and sometimes closing)
procedures, deletes text that the Exchange believes is either obsolete
or unnecessary, removes certain discretion for the Exchange to make
determinations under the rule on a class-by-class basis where CBOE no
longer needs that discretion, and is intended to promote greater
consistency across Rule 6.2B. The Commission notes that these changes
may offer market participants a better understanding of how the
Exchange's opening (and sometimes closing) procedures operate. To the
extent the changes achieve that goal, they may promote transparency,
reduce the potential for investor confusion, and assist market
participants in deciding whether to participate in CBOE's trading
rotations and, if they do participate, have confidence and certainty as
to how their orders will be processed by the CBOE System.
The Commission believes that the proposed rule change is designed
to promote just and equitable principles of trade by seeking to ensure
that series open in a fair and orderly manner with sufficient liquidity
and opportunities for execution at prices that are determined by market
forces. In particular, the Exchange notes that the proposed rule change
is designed to ensure that market participants are aware of the
circumstances under which the System may not open a series.\63\
Further, although the proposed rule change deletes the obligation for
LMMs in Hybrid 3.0 classes to enter opening orders and quotes on
volatility settlement dates, the Exchange has represented that it does
not believe that this change will impact the balance of LMM obligations
and benefits, as this obligation has been applied only to a brief
period of time on a limited number of days.\64\ In addition, LMMs in
Hybrid 3.0 must enter opening quotes in accordance with the obligation
in Rule 8.15, including in series of classes that may be used to
calculate the exercise and final settlement values of options or
futures on the volatility index on settlement dates.\65\ The Exchange
believes that the standard opening quoting obligation, in addition to
other general obligations applicable to LMMs, provides sufficient
liquidity in these series on the volatility settlement days.\66\ Thus,
CBOE does not believe it is necessary to impose additional opening
quoting obligations on LMMs on those days.
---------------------------------------------------------------------------
\63\ See Notice, supra note 3, at 74839.
\64\ See id.
\65\ See id.
\66\ See id.
---------------------------------------------------------------------------
Further, the proposed change more clearly specifies the situations
in which the modified opening procedures replace the opening procedures
on settlement dates for certain series. The proposed rule change also
sets out the circumstances when the Exchange may exercise discretion
and strives to narrow that discretion within certain established
parameters.\67\ The proposed rule change further requires the Exchange
to document and periodically review Exchange decisions made under the
rule, including any deviations from the standard opening procedures,
and specifies that only senior Exchange officials can make those
determinations and must do so in limited specified circumstances with
specific regard to the public interest.\68\ In this manner, Exchange
determinations made under the rule should be transparent and made with
due regard to the Exchange's obligations under the Act.
---------------------------------------------------------------------------
\67\ Exchange determinations, including the establishment of
parameters governing the opening process, will be set forth in
Regulatory Circulars (or as otherwise specified by the Exchange
under the proposed rule). On account of the critical importance of
this information to investors' understanding of how the Exchange's
System operates, CBOE should ensure that such information is
prominently displayed, readily searchable and retrievable, up-to-
date, and comprehensive.
\68\ See proposed Rule 6.2B(e). See also Notice, supra note 3,
at 74837.
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For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) of the Act and the rules and regulations thereunder applicable
to a national securities exchange.
IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
to 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-2016-071 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-2016-071. 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-2016-071, and should be
submitted on or before January 5, 2017.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the amended proposal in the
Federal Register. In Amendment No. 1,\69\ CBOE updated a cross-
reference to Rule 6.2B in Rule 6.13. This change is consistent with the
proposal as initially filed, and corrects
[[Page 90903]]
a now-obsolete rule reference. The change does not introduce material,
new, or novel concepts. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\70\ to approve the proposed
rule change, as modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\69\ See Amendment No. 1, supra note 4.
\70\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\71\ that the proposed rule change (SR-CBOE-2016-071), as modified
by Amendment No. 1, be, and hereby is, approved on an accelerated
basis.
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\71\ 15 U.S.C. 78s(b)(2).
\72\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\72\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-30082 Filed 12-14-16; 8:45 am]
BILLING CODE 8011-01-P
