Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Related to Rules Regarding the Responsibility for Ensuring Compliance With Open Outcry Priority and Allocation Requirements and Trade-Through Prohibitions, 91967-91970 [2016-30393]
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Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / Notices
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments were neither
solicited nor received.19
sradovich on DSK3GMQ082PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative 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) 20 of the Act and Rule 19b–
4(f)(6) thereunder.21
A proposed rule change filed under
Rule 19b–4(f)(6) 22 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),23 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has filed the
proposed rule change for immediate
effectiveness and has requested that the
Commission waive the requirement that
the proposed rule change not become
operative for 30 days after the date of
the filing so that it may become
operative immediately.
The Exchange notes that the proposed
rule change implements the provisions
of the Plan, and is designed to assist the
Participants in meeting their regulatory
obligations pursuant to the Plan. The
proposal is intended to address
confidentiality concerns by permitting
the Exchange to delay Web site
publication to provide for passage of
additional time between the market
information reflected in the data and the
public availability of such information.
The proposal also does not alter the
information required to be submitted to
the SEC.
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest
because it will allow the Exchange to
implement proposed changes that are
intended to address confidentiality
concerns. The Commission notes that
19 See
Letter from Mary Lou Von Kaenel,
Managing Director, Financial Information Forum, to
David S. Shillman, Associate Director, Division of
Trading and Markets, Commission, dated August
16, 2016.
20 15 U.S.C. 78s(b)(3)(A).
21 17 CFR 240.19b–4(f)(6).
22 17 CFR 240.19b–4(f)(6).
23 17 CFR 240.19b–4(f)(6)(iii)
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some Pilot data was scheduled to be
published on November 30, 2016.
Therefore, the Commission hereby
waives the 30-day operative delay and
designates the proposed rule change to
be operative as of November 30, 2016.24
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.25 If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
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–BatsBYX–2016–37 and should
be submitted on or before January 9,
2017.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Eduardo A. Aleman,
Assistant Secretary.
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 No. SR–
BatsBYX–2016–37 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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 No.
SR–BatsBYX–2016–37. 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
24 For purposes only of waiving the operative
delay for this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
25 15 U.S.C. 78s(b)(3)(C).
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[FR Doc. 2016–30387 Filed 12–16–16; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–79540; File No. SR–CBOE–
2016–082]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change Related to
Rules Regarding the Responsibility for
Ensuring Compliance With Open
Outcry Priority and Allocation
Requirements and Trade-Through
Prohibitions
December 13, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
1, 2016, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange seeks to amend
Exchange rules regarding
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / Notices
responsibilities for ensuring compliance
with open outcry priority and allocation
requirements and Trade-Through
prohibitions. The text of the proposed
rule change is provided below.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Chicago Board Options Exchange,
Incorporated Rules
*
*
*
*
*
Rule 6.45A.—Priority and Allocation of
Equity Option Trades on the CBOE
Hybrid System
*
*
*
*
*
. . . Interpretations and Policies:
.01–.04 No change.
.05 For an open outcry transaction
between a Floor Broker and MarketMaker it is the responsibility of the
initiator of the transaction to ensure
that the transaction is executed in
accordance with the priority and
allocation provisions set forth in Rule
6.45A(b) and does not cause a TradeThrough (unless otherwise excepted)
under Rule 6.81. For an open outcry
transaction between a Floor Broker and
another Floor Broker or between a
Market-Maker and another MarketMaker, both parties to the transaction
are responsible for ensuring the
transaction is executed in accordance
with the aforementioned Rules.
Rule 6.45B—Priority and Allocation of
Trades in Index Options and Options
on ETFs on the CBOE Hybrid System
sradovich on DSK3GMQ082PROD with NOTICES
*
*
*
*
*
. . . Interpretations and Policies:
.01–.05 No Change.
.06 For an open outcry transaction
between a Floor Broker and MarketMaker it is the responsibility of the
initiator of the transaction to ensure
that the transaction is executed in
accordance with the priority and
allocation provisions set forth in Rule
6.45B(b) and does not cause a TradeThrough (unless otherwise excepted)
under Rule 6.81. For an open outcry
transaction between a Floor Broker and
another Floor Broker or between a
Market-Maker and another MarketMaker, both parties to the transaction
are responsible for ensuring the
transaction is executed in accordance
with the aforementioned Rules.
*
*
*
*
*
Rule 6.73. Responsibilities of Floor
Brokers
*
*
*
*
*
. . . Interpretations and Policies:
.01–.06 No change.
.07 For an open outcry transaction
between a Floor Broker and Market-
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Maker it is the responsibility of the
initiator of the transaction to ensure
that the transaction is executed in
accordance with the priority and
allocation provisions set forth in Rules
6.45A(b) and 6.45B(b) and does not
cause a Trade-Through (unless
otherwise excepted) under Rule 6.81.
For an open outcry transaction between
a Floor Broker and another Floor Broker
or between a Market-Maker and another
Market-Maker, both parties to the
transaction are responsible for ensuring
the transaction is executed in
accordance with the aforementioned
Rules.
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s Web
site (https://www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
The Exchange proposes to amend
CBOE Rules 6.45A, 6.45B, and 6.73 to
identify the party to a transaction that
is responsible for ensuring that a
transaction is executed in accordance
with the priority and allocation
requirements as set forth in Rules
6.45A(b) and 6.45B(b) 3 and does not
cause a ‘‘Trade-Through’’ (unless
otherwise excepted) under Rule 6.81.4
The Exchange does not seek to absolve
TPHs of the responsibility to ensure
transactions are executed in accordance
with the priority and allocation
provisions or the Trade-Through
prohibition provisions. Rather, the
Exchange seeks to specify that the party
or parties responsible for ensuring
transactions are executed in accordance
with the priority and allocation
provisions and Trade-Through
prohibitions is the initiator of the
transaction when a Floor Broker is
trading with a Market-Maker, both
parties when a Floor Broker trades with
a Floor Broker, and both parties when
the transaction is between MarketMakers.5
Currently, if a transaction executed on
the trading floor is executed at a TradeThrough price or was executed in
violation of book priority, the TradeThrough or book priority violations are
enforced against both parties to the
transaction. With respect to transactions
between Floor Brokers and transactions
between Market-Makers, both parties
will continue to be held responsible for
the above violations. With respect to
transactions between a Floor Broker and
a Market-Maker, the Exchange believes
the party that should be held
responsible is the party that initiated the
transaction on the trading floor.
Generally speaking, Floor Brokers are
the parties that initiate transactions on
the trading floor by representing orders
and executing the orders against bids
and offers of other in-crowd market
participants, including Market-Makers.
For example, a typical open outcry
transaction consists of a Floor Broker
representing an order and requesting a
quote from Market-Makers in the trading
crowd. Market-Makers respond to the
representation by indicating they are
willing to buy (bid) the particular
options series at X price and sell (offer)
at Y price, which are based on the
Market-Makers’ theoretical values for
the particular options. If the quoted
market meets the requirements of the
order as specified by the Floor Broker’s
client the Floor Broker executes the
order against the best quoted bid or offer
price(s). The Floor Broker, as initiator,
controls the order and the execution
price of the order; thus, it follows that
3 Rules 6.45A(b) and 6.45B(b) set forth the
Exchange’s rules related to the allocation of orders
represented in open outcry. Specifically, Rules
6.45A(b) and 6.45B(b) provide, among other things,
that where two or more bids (offers) for the same
option contract represent the highest (lowest) price,
public customer orders in the electronic book shall
have first priority.
4 A ‘‘Trade-Through’’ is a transaction in an
options series, either as principal or agent, at a price
that is lower than a Protected Bid or higher than
a Protected Offer. CBOE Rule 6.81 provides that
unless an exception applies, Trading Permit
Holders (‘‘TPHs’’) shall not effect Trade-Throughs.
5 In the case of a Floor Broker initiating a
transaction with multiple counterparties, any Floor
Broker counterparty would be held responsible in
the same manner as a Floor Broker trading with one
other Floor Broker. Similarly, in the case of a
Market-Maker initiation [sic] a transaction with
multiple counterparties, any Market-Maker
counterparty would be held responsible in the same
manner as a Market-maker initiation [sic] a
transaction with one other counterparty.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / Notices
the Floor Broker in this example should
be responsible for ensuring priority and
allocation consistent with the applicable
rules and that Trade-Through
requirements are satisfied.
Floor Brokers are also in a good
position to prevent Trade-Throughs and
book priority violations because Floor
Brokers may utilize the Public
Automatic Routing System (‘‘PAR’’) to
execute orders, which is not available to
Market-Makers. PAR provides all of the
necessary market data to avoid TradeThroughs and book priority violations
(e.g., PAR includes data related to
electronic public customer books, CBOE
best bid and offer (‘‘BBO’’), and national
best bid and offer (‘‘NBBO’’), etc.). In
addition, PAR calculates and displays a
net price for complex orders held by a
Floor Broker. Most importantly,
however, PAR offers alerts that warn
Floor Brokers that a proposed execution
price for a given order may violate
priority or result in a potential TradeThrough. These alerts occur via pop-up
windows within PAR.
When Floor Brokers trade with
Market-Makers the Market-Makers are
not in as good of a position to prevent
Trade-Throughs and book priority
violations. Although Market-Makers
have access to market data via screens
on the trading floor and/or their own
electronic devices, they do not have
access to the specific terms and
conditions of a Floor Broker’s order on
an electronic basis and must evaluate
the CBOE BBO and the NBBO without
the aid of PAR. Instead, a request for
quote for a given order is verbally
communicated by a Floor Broker to the
trading crowd and the verbal
information is taken into consideration
by Market-Makers (and other in-crowd
market participants) when providing a
responsive quote. Furthermore, MarketMakers evaluate a Floor Broker’s request
for a quote against the Market-Maker’s
theoretical values for the given options
series. This process becomes even more
complicated when there are multiple
options series that must be evaluated for
a complex order. Ultimately, the
Exchange believes it is reasonable for a
Market-Maker to rely on a Floor Broker
to ensure that an open outcry
transaction is executed in accordance
with the priority and allocation
provisions and Trade-Through
prohibition provisions when the Floor
Broker is initiating the transaction. If a
Market-Maker initiates a transaction
with a Floor Broker the Market-Maker
will be responsible for ensuring that the
transaction is executed in accordance
with the priority and allocation
provisions and Trade-Through
prohibition provisions.
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20:55 Dec 16, 2016
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The Exchange proposes to add
Interpretation and Policy .05 to Rule
6.45A, .06 to Rule 6.45B, and .07 to Rule
6.73. As previously noted, the proposal
does not amend who is responsible
when an open outcry transaction is
between Floor Brokers or between
Market-Makers. As is the case today, for
open outcry transactions between Floor
Brokers or open outcry transactions
between Market-Makers, both parties are
responsible for ensuring that a
transaction is executed in accordance
with the priority and allocation rules
and the Trade-Through prevention
rules. For these scenarios the proposal
simply sets forth the existing standard,
which, again, calls for both parties being
responsible for ensuring that a
transaction is executed in accordance
with the priority and allocation rules
and the Trade-Through prohibition
rules.
The Exchange notes that this rule
change, consistent with the Options
Intermarket Linkage Plan, is reasonably
designed to prevent Trade-Throughs 6 as
well as book priority violations because
the proposal places the responsibility
for ensuring transactions are executed in
accordance with the rules on the
specific party or parties in a good
position to ensure compliance. The
Exchange also notes that this rule may
help limit the number of priority and
Trade-Through violations because the
proposal identifies a particular party or
parties to each transaction (as opposed
to all parties) as being responsible for
ensuring compliance with the rules.
Furthermore, in all cases the
responsibility will fall on all parties to
the transaction (i.e., when Floor Broker
trades with another Floor Broker or
when a Market-Maker trades with
another Market-Maker) or the initiator of
the transaction.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.7 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 8 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
6 See generally Securities Exchange Act Release
No. 43086 (July 28, 2000), 65 FR 48023 (August 4,
2000) (Order approving Options Intermarket
Linkage Plan).
7 15 U.S.C. 78f(b).
8 15 U.S.C. 78f(b)(5).
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91969
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 9 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that the proposed rule change is
appropriate because the vast majority of
the time Floor Brokers are the initiators
of open outcry transactions on the
trading floor, and they are able to use
PAR to assist them with ensuring that
transactions are executed in accordance
with priority and allocation rules and
Trade-Through prohibition rules, which
makes this proposal reasonably
designed to ensure compliance with
Exchange Rules. As a result, the
Exchange believes this change will
remove potential impediments to a free
and open market and a national market
system. The Exchange also believes this
rule change may help limit the number
of priority and Trade-Through
violations, which generally helps to
protect investors and the public interest,
because the proposal more
appropriately identifies the specific
party or parties responsible for ensuring
compliance with these rules (i.e., the
initiator in the case of Floor Brokers
trading with Market-Makers and both
parties when Market-Makers trade with
Market-Makers and both parties when
Floor Brokers trade with Floor Brokers).
Furthermore, in all cases the
responsibility will fall on all parties to
the transaction (i.e., when Floor Broker
trades with another Floor Broker or
when a Market-Maker trades with
another Market-Maker) or the initiator of
the transaction.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. CBOE does
not believe that the proposed rule
change will impose any burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
proposed change will apply equally to
all market participants that initiate
9 Id.
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Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / Notices
transactions on the floor of the
Exchange. Furthermore, any perceived
burden on Floor Brokers or MarketMakers is misplaced because Floor
Brokers and Market-makers are no
worse off from this proposal as both
parties are currently held responsible
for book priority and trade-through
violations. The Exchange does not
believe that the proposed change will
impose any burden on intermarket
competition because it only applies to
trading on CBOE.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. By order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
sradovich on DSK3GMQ082PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2016–082 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–2016–082. 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
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20:55 Dec 16, 2016
Jkt 241001
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–
2016–082 and should be submitted on
or beforeJanuary 9, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–30393 Filed 12–16–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736.
Extension:
Regulation S–AM, SEC File No. 270–548,
OMB Control No. 3235–0609.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for approval of
extension of the previously approved
collection of information provided for in
Regulation S–AM (17 CFR part 248,
subpart B), under the Fair Credit
10 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00071
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Reporting Act (15 U.S.C. 1681 et seq.)
(‘‘FCRA’’), the Securities Exchange Act
of 1934 (15 U.S.C. 78a et seq.), the
Investment Company Act of 1940 (15
U.S.C. 80a–1 et seq.), and the
Investment Advisers Act of 1940 (15
U.S.C. 80b–1 et seq.).
Regulation S–AM implements the
requirements of Section 624 of the
FCRA (15 U.S.C. 1681s–3) with respect
to investment advisers and transfer
agents registered with the Commission,
as well as brokers, dealers and
investment companies (collectively,
‘‘Covered Persons’’). Section 624 and
Regulation S–AM limit a Covered
Person’s use of certain consumer
financial information received from an
affiliate to solicit a consumer for
marketing purposes, unless the
consumer has been given notice and a
reasonable opportunity and a reasonable
and simple method to opt out of such
solicitations. Regulation S–AM
potentially applies to all of the
approximately 32,061 Covered Persons
registered with the Commission,
although only approximately 17,954 of
them have one or more corporate
affiliates, and the regulation requires
only approximately 3,206 to provide
consumers with an affiliate marketing
notice and an opt-out opportunity.
The Commission staff estimates that
there are approximately 17,954 Covered
Persons having one or more affiliates,
and that they each spend an average of
0.20 hours per year to review affiliate
marketing practices, for, collectively, an
estimated annual time burden of 3,591
hours at an annual internal staff cost of
approximately $1,798,991. The staff also
estimates that approximately 3,206
Covered Persons provide notice and optout opportunities to consumers, and
that they each spend an average of 7.6
hours per year creating notices,
providing notices and opt-out
opportunities, monitoring the opt-out
notice process, making and updating
records of opt-out elections, and
addressing consumer questions and
concerns about opt-out notices, for,
collectively, an estimated annual time
burden of 24,366 hours at an annual
internal staff cost of approximately
$4,489,806. Thus, the staff estimates
that the collection of information
requires a total of approximately 17,954
respondents to incur an estimated
annual time burden of a total of 27,957
hours at a total annual internal cost of
compliance of approximately
$6,288,897.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
E:\FR\FM\19DEN1.SGM
19DEN1
]]>Agencies
[Federal Register Volume 81, Number 243 (Monday, December 19, 2016)]
[Notices]
[Pages 91967-91970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30393]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79540; File No. SR-CBOE-2016-082]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change Related to
Rules Regarding the Responsibility for Ensuring Compliance With Open
Outcry Priority and Allocation Requirements and Trade-Through
Prohibitions
December 13, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 1, 2016, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange seeks to amend Exchange rules regarding
[[Page 91968]]
responsibilities for ensuring compliance with open outcry priority and
allocation requirements and Trade-Through prohibitions. The text of the
proposed rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Rule 6.45A.--Priority and Allocation of Equity Option Trades on the
CBOE Hybrid System
* * * * *
. . . Interpretations and Policies:
.01-.04 No change.
.05 For an open outcry transaction between a Floor Broker and
Market-Maker it is the responsibility of the initiator of the
transaction to ensure that the transaction is executed in accordance
with the priority and allocation provisions set forth in Rule 6.45A(b)
and does not cause a Trade-Through (unless otherwise excepted) under
Rule 6.81. For an open outcry transaction between a Floor Broker and
another Floor Broker or between a Market-Maker and another Market-
Maker, both parties to the transaction are responsible for ensuring the
transaction is executed in accordance with the aforementioned Rules.
Rule 6.45B--Priority and Allocation of Trades in Index Options and
Options on ETFs on the CBOE Hybrid System
* * * * *
. . . Interpretations and Policies:
.01-.05 No Change.
.06 For an open outcry transaction between a Floor Broker and
Market-Maker it is the responsibility of the initiator of the
transaction to ensure that the transaction is executed in accordance
with the priority and allocation provisions set forth in Rule 6.45B(b)
and does not cause a Trade-Through (unless otherwise excepted) under
Rule 6.81. For an open outcry transaction between a Floor Broker and
another Floor Broker or between a Market-Maker and another Market-
Maker, both parties to the transaction are responsible for ensuring the
transaction is executed in accordance with the aforementioned Rules.
* * * * *
Rule 6.73. Responsibilities of Floor Brokers
* * * * *
. . . Interpretations and Policies:
.01-.06 No change.
.07 For an open outcry transaction between a Floor Broker and
Market-Maker it is the responsibility of the initiator of the
transaction to ensure that the transaction is executed in accordance
with the priority and allocation provisions set forth in Rules 6.45A(b)
and 6.45B(b) and does not cause a Trade-Through (unless otherwise
excepted) under Rule 6.81. For an open outcry transaction between a
Floor Broker and another Floor Broker or between a Market-Maker and
another Market-Maker, both parties to the transaction are responsible
for ensuring the transaction is executed in accordance with the
aforementioned Rules.
* * * * *
The text of the proposed rule change is also available on the
Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend CBOE Rules 6.45A, 6.45B, and 6.73 to
identify the party to a transaction that is responsible for ensuring
that a transaction is executed in accordance with the priority and
allocation requirements as set forth in Rules 6.45A(b) and 6.45B(b) \3\
and does not cause a ``Trade-Through'' (unless otherwise excepted)
under Rule 6.81.\4\ The Exchange does not seek to absolve TPHs of the
responsibility to ensure transactions are executed in accordance with
the priority and allocation provisions or the Trade-Through prohibition
provisions. Rather, the Exchange seeks to specify that the party or
parties responsible for ensuring transactions are executed in
accordance with the priority and allocation provisions and Trade-
Through prohibitions is the initiator of the transaction when a Floor
Broker is trading with a Market-Maker, both parties when a Floor Broker
trades with a Floor Broker, and both parties when the transaction is
between Market-Makers.\5\
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\3\ Rules 6.45A(b) and 6.45B(b) set forth the Exchange's rules
related to the allocation of orders represented in open outcry.
Specifically, Rules 6.45A(b) and 6.45B(b) provide, among other
things, that where two or more bids (offers) for the same option
contract represent the highest (lowest) price, public customer
orders in the electronic book shall have first priority.
\4\ A ``Trade-Through'' is a transaction in an options series,
either as principal or agent, at a price that is lower than a
Protected Bid or higher than a Protected Offer. CBOE Rule 6.81
provides that unless an exception applies, Trading Permit Holders
(``TPHs'') shall not effect Trade-Throughs.
\5\ In the case of a Floor Broker initiating a transaction with
multiple counterparties, any Floor Broker counterparty would be held
responsible in the same manner as a Floor Broker trading with one
other Floor Broker. Similarly, in the case of a Market-Maker
initiation [sic] a transaction with multiple counterparties, any
Market-Maker counterparty would be held responsible in the same
manner as a Market-maker initiation [sic] a transaction with one
other counterparty.
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Currently, if a transaction executed on the trading floor is
executed at a Trade-Through price or was executed in violation of book
priority, the Trade-Through or book priority violations are enforced
against both parties to the transaction. With respect to transactions
between Floor Brokers and transactions between Market-Makers, both
parties will continue to be held responsible for the above violations.
With respect to transactions between a Floor Broker and a Market-Maker,
the Exchange believes the party that should be held responsible is the
party that initiated the transaction on the trading floor. Generally
speaking, Floor Brokers are the parties that initiate transactions on
the trading floor by representing orders and executing the orders
against bids and offers of other in-crowd market participants,
including Market-Makers. For example, a typical open outcry transaction
consists of a Floor Broker representing an order and requesting a quote
from Market-Makers in the trading crowd. Market-Makers respond to the
representation by indicating they are willing to buy (bid) the
particular options series at X price and sell (offer) at Y price, which
are based on the Market-Makers' theoretical values for the particular
options. If the quoted market meets the requirements of the order as
specified by the Floor Broker's client the Floor Broker executes the
order against the best quoted bid or offer price(s). The Floor Broker,
as initiator, controls the order and the execution price of the order;
thus, it follows that
[[Page 91969]]
the Floor Broker in this example should be responsible for ensuring
priority and allocation consistent with the applicable rules and that
Trade-Through requirements are satisfied.
Floor Brokers are also in a good position to prevent Trade-Throughs
and book priority violations because Floor Brokers may utilize the
Public Automatic Routing System (``PAR'') to execute orders, which is
not available to Market-Makers. PAR provides all of the necessary
market data to avoid Trade-Throughs and book priority violations (e.g.,
PAR includes data related to electronic public customer books, CBOE
best bid and offer (``BBO''), and national best bid and offer
(``NBBO''), etc.). In addition, PAR calculates and displays a net price
for complex orders held by a Floor Broker. Most importantly, however,
PAR offers alerts that warn Floor Brokers that a proposed execution
price for a given order may violate priority or result in a potential
Trade-Through. These alerts occur via pop-up windows within PAR.
When Floor Brokers trade with Market-Makers the Market-Makers are
not in as good of a position to prevent Trade-Throughs and book
priority violations. Although Market-Makers have access to market data
via screens on the trading floor and/or their own electronic devices,
they do not have access to the specific terms and conditions of a Floor
Broker's order on an electronic basis and must evaluate the CBOE BBO
and the NBBO without the aid of PAR. Instead, a request for quote for a
given order is verbally communicated by a Floor Broker to the trading
crowd and the verbal information is taken into consideration by Market-
Makers (and other in-crowd market participants) when providing a
responsive quote. Furthermore, Market-Makers evaluate a Floor Broker's
request for a quote against the Market-Maker's theoretical values for
the given options series. This process becomes even more complicated
when there are multiple options series that must be evaluated for a
complex order. Ultimately, the Exchange believes it is reasonable for a
Market-Maker to rely on a Floor Broker to ensure that an open outcry
transaction is executed in accordance with the priority and allocation
provisions and Trade-Through prohibition provisions when the Floor
Broker is initiating the transaction. If a Market-Maker initiates a
transaction with a Floor Broker the Market-Maker will be responsible
for ensuring that the transaction is executed in accordance with the
priority and allocation provisions and Trade-Through prohibition
provisions.
The Exchange proposes to add Interpretation and Policy .05 to Rule
6.45A, .06 to Rule 6.45B, and .07 to Rule 6.73. As previously noted,
the proposal does not amend who is responsible when an open outcry
transaction is between Floor Brokers or between Market-Makers. As is
the case today, for open outcry transactions between Floor Brokers or
open outcry transactions between Market-Makers, both parties are
responsible for ensuring that a transaction is executed in accordance
with the priority and allocation rules and the Trade-Through prevention
rules. For these scenarios the proposal simply sets forth the existing
standard, which, again, calls for both parties being responsible for
ensuring that a transaction is executed in accordance with the priority
and allocation rules and the Trade-Through prohibition rules.
The Exchange notes that this rule change, consistent with the
Options Intermarket Linkage Plan, is reasonably designed to prevent
Trade-Throughs \6\ as well as book priority violations because the
proposal places the responsibility for ensuring transactions are
executed in accordance with the rules on the specific party or parties
in a good position to ensure compliance. The Exchange also notes that
this rule may help limit the number of priority and Trade-Through
violations because the proposal identifies a particular party or
parties to each transaction (as opposed to all parties) as being
responsible for ensuring compliance with the rules. Furthermore, in all
cases the responsibility will fall on all parties to the transaction
(i.e., when Floor Broker trades with another Floor Broker or when a
Market-Maker trades with another Market-Maker) or the initiator of the
transaction.
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\6\ See generally Securities Exchange Act Release No. 43086
(July 28, 2000), 65 FR 48023 (August 4, 2000) (Order approving
Options Intermarket Linkage Plan).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\7\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \8\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ Id.
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In particular, the Exchange believes that the proposed rule change
is appropriate because the vast majority of the time Floor Brokers are
the initiators of open outcry transactions on the trading floor, and
they are able to use PAR to assist them with ensuring that transactions
are executed in accordance with priority and allocation rules and
Trade-Through prohibition rules, which makes this proposal reasonably
designed to ensure compliance with Exchange Rules. As a result, the
Exchange believes this change will remove potential impediments to a
free and open market and a national market system. The Exchange also
believes this rule change may help limit the number of priority and
Trade-Through violations, which generally helps to protect investors
and the public interest, because the proposal more appropriately
identifies the specific party or parties responsible for ensuring
compliance with these rules (i.e., the initiator in the case of Floor
Brokers trading with Market-Makers and both parties when Market-Makers
trade with Market-Makers and both parties when Floor Brokers trade with
Floor Brokers). Furthermore, in all cases the responsibility will fall
on all parties to the transaction (i.e., when Floor Broker trades with
another Floor Broker or when a Market-Maker trades with another Market-
Maker) or the initiator of the transaction.
B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. CBOE does not believe that the
proposed rule change will impose any burden on intramarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act because the proposed change will apply equally to all market
participants that initiate
[[Page 91970]]
transactions on the floor of the Exchange. Furthermore, any perceived
burden on Floor Brokers or Market-Makers is misplaced because Floor
Brokers and Market-makers are no worse off from this proposal as both
parties are currently held responsible for book priority and trade-
through violations. The Exchange does not believe that the proposed
change will impose any burden on intermarket competition because it
only applies to trading on CBOE.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2016-082 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-2016-082. 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-2016-082 and should be
submitted on or before January 9, 2017.
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\10\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-30393 Filed 12-16-16; 8:45 am]
BILLING CODE 8011-01-P
