Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Complex Order Price Protections, 18320-18323 [2017-07751]
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Federal Register / Vol. 82, No. 73 / Tuesday, April 18, 2017 / Notices
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:
• 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–
NYSEArca–2017–38 on the subject line.
Paper Comments
sradovich on DSK3GMQ082PROD with NOTICES
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2017–38. 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 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–
NYSEArca–2017–38, and should be
submitted on or before May 9, 2017.
16:55 Apr 17, 2017
[FR Doc. 2017–07752 Filed 4–17–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
VerDate Sep<11>2014
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Eduardo A. Aleman,
Assistant Secretary.
Jkt 241001
[Release No. 34–80439; File No. SR–CBOE–
2017–031]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to Complex
Order Price Protections
April 12, 2017.
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 April 5,
2017, Chicago Board Options Exchange,
Incorporated (the ‘‘Exchange’’ or
‘‘CBOE’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal pursuant to Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
current price protections related to
complex orders. The text of the
proposed rule change is provided below
(additions are italicized; deletions are
[bracketed]).
*
*
*
*
*
Chicago Board Options Exchange,
Incorporated Rules
*
*
*
*
*
Rule 6.53C. Complex Orders on the
Hybrid System
(a)–(d) No change.
. . . Interpretations and Policies:
.01–.07 No change.
.08 Price Check Parameters: On a
class-by-class basis, the Exchange may
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
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determine (and announce to the Trading
Permit Holders via Regulatory Circular)
which of the following price check
parameters will apply to eligible
complex orders. Paragraph (b) will not
be applicable to stock-option orders.
For purposes of this Interpretation
and Policy .08:
Vertical Spread. A ‘‘vertical’’ spread
is a two-legged complex order with one
leg to buy a number of calls (puts) and
one leg to sell the same number of calls
(puts) with the same expiration date but
different exercise prices.
Butterfly Spread. A ‘‘butterfly’’ spread
is a three-legged complex order with
two legs to buy (sell) the same number
of calls (puts) and one leg to sell (buy)
twice as many calls (puts), all with the
same expiration date but different
exercise prices, and the exercise price of
the middle leg is between the exercise
prices of the other legs. If the exercise
price of the middle leg is halfway
between the exercise prices of the other
legs, it is a ‘‘true’’ butterfly; otherwise,
it is a ‘‘skewed’’ butterfly.
Box Spread. A ‘‘box’’ spread is a fourlegged complex order with one leg to
buy calls and one leg to sell puts with
one strike price, and one leg to sell calls
and one leg to buy puts with another
strike price, all of which have the same
expiration date and are for the same
number of contracts.
To the extent a price check parameter
is applicable, the Exchange will not
automatically execute an eligible
complex order that is:
(a)–(b) No change.
(c) Debit/Credit Price Reasonability
Checks:
(1)–(5) No change.
(6) This check does not apply to
multi-class spreads or to orders routed
from a PAR workstation or order
management terminal.
(d) No change.
(e) Acceptable Percentage Range
Parameter:
(i) An incoming complex order
(including a stock-option order) after the
series for all legs of the complex order
are open for trading that is marketable
and would execute immediately upon
submission to the COB or following a
COA if the execution would be at a
price outside an acceptable percentage
range. The ‘‘acceptable percentage
range’’ is the national spread market (or
Exchange spread market if the NBBO in
any leg is locked, crossed or unavailable
and for pairs of orders submitted to AIM
or SAM) that existed when the System
received the order or at the start of the
COA, as applicable, plus/minus:
(A) the amount equal to a percentage
(which may not be less than %) of the
national spread market (the ‘‘percentage
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amount’’) if that amount is not less than
a minimum amount or greater than a
maximum amount (the Exchange will
determine the percentage and minimum
and maximum amounts on a class-byclass basis and announce them to
Trading Permit Holders by Regulatory
Circular);
(B) the minimum amount, if the
percentage amount is less than the
minimum amount; or
(C) the maximum amount, if the
percentage amount is greater than the
maximum amount.
(ii) The System cancels an order (or
any remaining size after partial
execution of the order) that would
execute or rest in the COB at a price
outside the acceptable price range.
(iii) If the System rejects either order
in a pair of orders submitted to AIM or
SAM pursuant to this parameter, then
the System also cancels the paired
order. Notwithstanding the foregoing,
with respect to an AIM Retained
(‘‘A:AIR’’) order as defined in
Interpretation and Policy .09 to Rule
6.74A, if the System rejects the Agency
Order pursuant to this check, then the
System also rejects the contra-side
order; however, if the System rejects the
contra-side order pursuant to this check,
the System still accepts the Agency
Order if it satisfies the check. [To the
extent a contra-side order or response is
marketable against the Agency Order,
the execution price will be capped at
the opposite side of the acceptable price
range.]
(iv) This parameter applies to auction
responses in the same manner as it does
orders.
(f)–(g) No change.
.09–.12 No change.
*
*
*
*
*
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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
debit/credit price reasonability check
and acceptable percentage range
parameter for complex orders.
Debit/Credit Price Reasonability Check
In general, pursuant to the debit/
credit price reasonability check in Rule
6.53C, Interpretation and Policy .08(c),
the System rejects a limit complex order
for a debit strategy with a net credit
price, a limit complex order for a credit
strategy with a net debit price, or a
market order for a credit strategy that
would be executed at a net debit price.5
Currently, the check applies to orders
routed from a PAR workstation or order
management terminal (‘‘OMT’’). The
proposed change amends Rule 6.53C,
Interpretation and Policy .08(c)(6) to
provide the check will not apply to
orders routed from a PAR workstation or
OMT. These orders are subject to
manual handling, so the PAR or OMT
operator will have evaluated the price of
an order based on then-existing market
conditions prior to submitting the order
for electronic execution, and thus there
is minimal risk of execution at an
erroneous price. Other price protections
similarly do not apply to these orders.6
Acceptable Percentage Range Parameter
In general, pursuant to the acceptable
percentage range parameter in Rule
6.53C, Interpretation and Policy .08(e),
the System cancels an incoming order
that is marketable and would execute
immediately upon submission to the
complex order book (‘‘COB’’) or
following a COA if the execution would
be at a price outside an acceptable
percentage range, which is the national
spread market that existed when the
System received the order or at the start
of COA, as applicable, plus/minus:
• The amount equal to a percentage
(which may not be less than 3%) of the
national spread market (the ‘‘percentage
amount’’) if that amount is not less than
a minimum amount or greater than a
maximum amount (the Exchange will
determine the percentage and minimum
and maximum amounts and announce
them to Trading Permit Holders by
Regulatory Circular);
• the minimum amount, if the
percentage amount is less than the
minimum amount; or
5 See Rule 6.53C, Interpretation and Policy .08(c).
The System determines whether an order is a debit
or credit strategy as set forth in that Rule.
6 See, e.g., Rule 6.12(a)(3) and (4).
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• the maximum amount, if the
percentage amount is greater than the
maximum amount.
First, the proposed rule change
amends Rule 6.53C, Interpretation and
Policy .08(e)(i)(A) to provide the
Exchange may determine the percentage
and the minimum and maximum
amounts on a class-by-class basis.
Currently, the rule states the percentage
and minimum and maximum amounts
will be the same for all classes. Because
of class differences such as the
minimum increment and option prices,
the Exchange believes it may be
appropriate to set different amounts so
the outside of the range is not too close
or too far away from the market price for
a class and ensure the range creates an
effective check for all classes. Therefore,
the proposed rule change adds this
flexibility to the Rule. Other price
protections have similar flexibility.7
Second, the proposed rule change
adds Rule 6.53C, Interpretation and
Policy .08(e)(iv) to provide this
parameter will apply to auction
responses in the same manner as it does
orders. The current parameter does not
apply to auction responses. As noted in
a recent rule filing enhancing this
parameter, even if the parameter does
not apply to auction responses, this
protection will prevent an order from
executing outside the acceptable price
range (including against an auction
response), and thus responses will not
execute against an order outside the
acceptable price range.8 However,
cancelling an auction response prior to
the end of an auction that would
execute outside the acceptable price
range may give the submitting Trading
Permit Holder an opportunity to submit
a new response within the acceptable
price range prior to the end of the
auction, and thus increase execution
opportunities. Therefore, the proposed
rule change applies this parameter to
auction response. An auction response
at a price outside the acceptable price
range will not execute regardless of
whether this parameter applies to the
auction response; applying the
parameter to auction responses merely
changes the timing of when the
response is cancelled.9 Other price
7 Id.
8 See Securities Exchange Act Release No. 34–
80181 (March 8, 2017), 82 FR 13678, note 26
(March 14, 2017) (SR–CBOE–2017–016).
9 Paragraph (e)(iii) currently states to the extent a
contra-side order or response is marketable against
the Agency Order, the execution price will be
capped at the opposite side of the acceptable price
range. The proposed rule change deletes this rule
language, as it is redundant. The price protection
will, as proposed, cancel orders and responses (or
remaining size after partial execution) that would
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protections similarly apply to auction
responses.10
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2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.11 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 12 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) 13 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
the proposed rule change to not apply
the debit/credit price reasonability
check to orders routed from a PAR
workstation or OMT would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, as those
orders were subject to manual handling
by a PAR or OMT operator who will
have evaluated the price of an order
based on then-existing market condition
[sic] prior to submitted [sic] it for
electronic execution, thus minimizing
risk of an erroneous execution and
reducing the need for application of the
additional reasonability check. Other
price protections similarly do not apply
to these orders.14
The proposed rule change to provide
the Exchange with flexibility to
determine settings for the acceptable
percentage range parameter on a classby-class manner will permit the
Exchange to ensure the range is not too
close or too far away from the market
execute outside the acceptable price range. There
[sic] is effectively the same as capping an execute
[sic] price no wider than the acceptable price range,
as no order or response will be able to execute at
a price outside the range.
10 See, e.g., Rule 6.53C, Interpretation and Policy
.08(c)(4).
11 15 U.S.C. 78f(b).
12 15 U.S.C. 78f(b)(5).
13 Id.
14 See, e.g., Rule 6.12(a)(3) and (4).
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price for a class based on factors such
as minimum increment and premium,
and thus ensure the range creates an
effective check for all classes. This will
protect investors from potentially
erroneous executions while removing
impediments to and perfecting the
mechanism of a free and open market
and a national market system by
ensuring orders are not inadvertently
cancelled due to a range that is too
narrow. Other price protections have
similar flexibility.15
The proposed rule change to apply
the acceptable percentage range
parameter to auction responses merely
changes the time at which responses
outside the acceptable price range is
cancelled. However, application of the
acceptable percentage range parameter
to auction responses may permit the
submitting Trading Permit Holder to
enter a new auction response at a price
within the range prior to the end of the
auction, which improves execution
opportunities and thus protects
investors. Other price protections
similarly apply to auction responses.16
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change will apply to all
complex orders submitted to CBOE in
the same manner. The enhancements to
the price protection mechanisms
applicable to all incoming orders will
help further prevent potentially
erroneous executions, which benefits all
market participants. Additionally, the
proposed rule change is substantially
similar to other price protections.17 The
proposed rule change will not impose
any burden on intermarket competition,
as it applies only to CBOE price
protection mechanisms that prevent
erroneous executions 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.
15 Id.
16 See, e.g., Rule 6.53C, Interpretation and Policy
.08(c)(4).
17 See, e.g., Rules 6.12(a)(3) and (4) and Rule
6.53C, Interpretation and Policy .08(c)(4).
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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) of the Act 18 and Rule 19b–
4(f)(6) thereunder.19
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2017–031 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–2017–031. 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/
18 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the 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.
19 17
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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–
2017–031 and should be submitted on
or before May 9, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–07751 Filed 4–17–17; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–80437; File No. SR–
NASDAQ–2017–035]
sradovich on DSK3GMQ082PROD with NOTICES
April 12, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 31,
2017, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘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
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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The Exchange proposes to amend the
Exchange’s transaction fees at Rule
7014(f) to amend the Designated
Liquidity Provider (‘‘DLP’’) Program
(‘‘Program’’).
While these amendments are effective
upon filing, the Exchange has
designated the proposed amendments to
be operative on April 3, 2017.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaq.cchwallstreet.com, at
the principal office of the Exchange, 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.
1. Purpose
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Exchange’s Transaction Fees at Rule
7014(f) To Amend the Designated
Liquidity Provider Program
1 15
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
20 17
solicit comments on the proposed rule
change from interested persons.
The purpose of the proposed rule
change is to amend the DLP Program in
Rule 7014(f) to eliminate the rebates that
are paid pursuant to the New Product
Support Incentives (‘‘NPSI’’). With the
elimination of the NPSI, the Exchange
also proposes to amend one of the
‘‘Basic Rebates’’ to increase that rebate
from $0.0047 per executed share to
$0.0070 per executed share. Nasdaq also
proposes to amend the manner in which
the average daily volume (‘‘ADV’’) of an
exchange-traded product (‘‘ETP’’) is
calculated for purposes of determining a
DLP’s eligibility for the Basic Rebate.
The DLP Program is designed to
provide incentives to market makers to
make markets in certain ETPs. To
achieve this goal, Nasdaq provides
credits to a DLP when executing a
Qualified Security. As set forth in the
Rule, a DLP is a registered Nasdaq
market maker for a Qualified Security
that has committed to maintain
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18323
minimum performance standards.3 A
Qualified Security is defined as an
exchange-traded product listed on
Nasdaq pursuant to Nasdaq Rules 5705
(Exchange Traded Funds: Portfolio
Depository Receipts and Index Fund
Shares), 5710 (Securities Linked to the
Performance of Indexes and
Commodities, Including Currencies),
5720 (Trust Issued Receipts), 5735
(Managed Fund Shares), or 5745
(NextShares), and it must have at least
one DLP.
Currently, a DLP may be eligible for
three different kinds of rebates under
the Program. First, a DLP will qualify for
a ‘‘Basic Rebate’’ for adding shares of
displayed liquidity in the ETP if the
DLP is at the National Best Bid and
Offer (‘‘NBBO’’) at least 20% of the time
on average in any given month in a
particular assigned ETP. The Basic
Rebates vary based on the ETP’s ADV in
a given month. Specifically, a DLP will
receive: (i) A rebate of $0.0047 per
executed share of displayed liquidity in
an ETP that has less than 500,000 ADV
during the month; (ii) a rebate of
$0.0042 per executed share of displayed
liquidity in an ETP that has between
500,000 and 5 million ADV during the
month; and (iii) a rebate of $0.0036 per
executed share of displayed liquidity in
an ETP that has greater than 5 million
ADV during the month. The Basic
Rebate will be paid in lieu of other
rebates or fees provided under Rules
7018 and 7014.
The second rebate is the NPSI rebate.
Like the Basic Rebate, the NPSI rebate
will be paid in lieu of other rebates or
fees provided under Rules 7018 and
7014, including the Basic Rebate. A DLP
will qualify for the NPSI rebate for
adding shares of displayed liquidity in
the ETP if the DLP is at the NBBO at
least 20% of the time in the assigned
ETP in any given month. The ETP itself
must have a three month ADV of less
than 500,000, and the ETP must be less
than 36 months old. Assuming the ETP
meets the NPSI volume criteria, a rebate
of $0.0070 per executed share of
displayed liquidity will be paid to DLPs
that are assigned to ETPs that are 0–12
months from the ETP’s product
inception date; a rebate of $0.0065 per
executed share of displayed liquidity for
ETPs that are 12 to 24 months from the
3 The Rule also provides that a DLP shall be
selected by Nasdaq based on factors including, but
not limited to, experience with making markets in
exchange-traded products, adequacy of capital,
willingness to promote Nasdaq as a marketplace,
issuer preference, operational capacity, support
personnel, and history of adherence to Nasdaq rules
and securities laws. Nasdaq may limit the number
of DLPs in a security, or modify a previously
established limit, upon prior written notice to
members. See Rule 7014(f)(2).
E:\FR\FM\18APN1.SGM
18APN1
]]>Agencies
[Federal Register Volume 82, Number 73 (Tuesday, April 18, 2017)]
[Notices]
[Pages 18320-18323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07751]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80439; File No. SR-CBOE-2017-031]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Complex Order Price Protections
April 12, 2017.
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 April 5, 2017, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the
Exchange. The Exchange filed the proposal pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend current price protections related to
complex orders. The text of the proposed rule change is provided below
(additions are italicized; deletions are [bracketed]).
* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Rule 6.53C. Complex Orders on the Hybrid System
(a)-(d) No change.
. . . Interpretations and Policies:
.01-.07 No change.
.08 Price Check Parameters: On a class-by-class basis, the Exchange
may determine (and announce to the Trading Permit Holders via
Regulatory Circular) which of the following price check parameters will
apply to eligible complex orders. Paragraph (b) will not be applicable
to stock-option orders.
For purposes of this Interpretation and Policy .08:
Vertical Spread. A ``vertical'' spread is a two-legged complex
order with one leg to buy a number of calls (puts) and one leg to sell
the same number of calls (puts) with the same expiration date but
different exercise prices.
Butterfly Spread. A ``butterfly'' spread is a three-legged complex
order with two legs to buy (sell) the same number of calls (puts) and
one leg to sell (buy) twice as many calls (puts), all with the same
expiration date but different exercise prices, and the exercise price
of the middle leg is between the exercise prices of the other legs. If
the exercise price of the middle leg is halfway between the exercise
prices of the other legs, it is a ``true'' butterfly; otherwise, it is
a ``skewed'' butterfly.
Box Spread. A ``box'' spread is a four-legged complex order with
one leg to buy calls and one leg to sell puts with one strike price,
and one leg to sell calls and one leg to buy puts with another strike
price, all of which have the same expiration date and are for the same
number of contracts.
To the extent a price check parameter is applicable, the Exchange
will not automatically execute an eligible complex order that is:
(a)-(b) No change.
(c) Debit/Credit Price Reasonability Checks:
(1)-(5) No change.
(6) This check does not apply to multi-class spreads or to orders
routed from a PAR workstation or order management terminal.
(d) No change.
(e) Acceptable Percentage Range Parameter:
(i) An incoming complex order (including a stock-option order)
after the series for all legs of the complex order are open for trading
that is marketable and would execute immediately upon submission to the
COB or following a COA if the execution would be at a price outside an
acceptable percentage range. The ``acceptable percentage range'' is the
national spread market (or Exchange spread market if the NBBO in any
leg is locked, crossed or unavailable and for pairs of orders submitted
to AIM or SAM) that existed when the System received the order or at
the start of the COA, as applicable, plus/minus:
(A) the amount equal to a percentage (which may not be less than %)
of the national spread market (the ``percentage
[[Page 18321]]
amount'') if that amount is not less than a minimum amount or greater
than a maximum amount (the Exchange will determine the percentage and
minimum and maximum amounts on a class-by-class basis and announce them
to Trading Permit Holders by Regulatory Circular);
(B) the minimum amount, if the percentage amount is less than the
minimum amount; or
(C) the maximum amount, if the percentage amount is greater than
the maximum amount.
(ii) The System cancels an order (or any remaining size after
partial execution of the order) that would execute or rest in the COB
at a price outside the acceptable price range.
(iii) If the System rejects either order in a pair of orders
submitted to AIM or SAM pursuant to this parameter, then the System
also cancels the paired order. Notwithstanding the foregoing, with
respect to an AIM Retained (``A:AIR'') order as defined in
Interpretation and Policy .09 to Rule 6.74A, if the System rejects the
Agency Order pursuant to this check, then the System also rejects the
contra-side order; however, if the System rejects the contra-side order
pursuant to this check, the System still accepts the Agency Order if it
satisfies the check. [To the extent a contra-side order or response is
marketable against the Agency Order, the execution price will be capped
at the opposite side of the acceptable price range.]
(iv) This parameter applies to auction responses in the same manner
as it does orders.
(f)-(g) No change.
.09-.12 No change.
* * * * *
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 its debit/credit price reasonability
check and acceptable percentage range parameter for complex orders.
Debit/Credit Price Reasonability Check
In general, pursuant to the debit/credit price reasonability check
in Rule 6.53C, Interpretation and Policy .08(c), the System rejects a
limit complex order for a debit strategy with a net credit price, a
limit complex order for a credit strategy with a net debit price, or a
market order for a credit strategy that would be executed at a net
debit price.\5\ Currently, the check applies to orders routed from a
PAR workstation or order management terminal (``OMT''). The proposed
change amends Rule 6.53C, Interpretation and Policy .08(c)(6) to
provide the check will not apply to orders routed from a PAR
workstation or OMT. These orders are subject to manual handling, so the
PAR or OMT operator will have evaluated the price of an order based on
then-existing market conditions prior to submitting the order for
electronic execution, and thus there is minimal risk of execution at an
erroneous price. Other price protections similarly do not apply to
these orders.\6\
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\5\ See Rule 6.53C, Interpretation and Policy .08(c). The System
determines whether an order is a debit or credit strategy as set
forth in that Rule.
\6\ See, e.g., Rule 6.12(a)(3) and (4).
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Acceptable Percentage Range Parameter
In general, pursuant to the acceptable percentage range parameter
in Rule 6.53C, Interpretation and Policy .08(e), the System cancels an
incoming order that is marketable and would execute immediately upon
submission to the complex order book (``COB'') or following a COA if
the execution would be at a price outside an acceptable percentage
range, which is the national spread market that existed when the System
received the order or at the start of COA, as applicable, plus/minus:
The amount equal to a percentage (which may not be less
than 3%) of the national spread market (the ``percentage amount'') if
that amount is not less than a minimum amount or greater than a maximum
amount (the Exchange will determine the percentage and minimum and
maximum amounts and announce them to Trading Permit Holders by
Regulatory Circular);
the minimum amount, if the percentage amount is less than
the minimum amount; or
the maximum amount, if the percentage amount is greater
than the maximum amount.
First, the proposed rule change amends Rule 6.53C, Interpretation
and Policy .08(e)(i)(A) to provide the Exchange may determine the
percentage and the minimum and maximum amounts on a class-by-class
basis. Currently, the rule states the percentage and minimum and
maximum amounts will be the same for all classes. Because of class
differences such as the minimum increment and option prices, the
Exchange believes it may be appropriate to set different amounts so the
outside of the range is not too close or too far away from the market
price for a class and ensure the range creates an effective check for
all classes. Therefore, the proposed rule change adds this flexibility
to the Rule. Other price protections have similar flexibility.\7\
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\7\ Id.
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Second, the proposed rule change adds Rule 6.53C, Interpretation
and Policy .08(e)(iv) to provide this parameter will apply to auction
responses in the same manner as it does orders. The current parameter
does not apply to auction responses. As noted in a recent rule filing
enhancing this parameter, even if the parameter does not apply to
auction responses, this protection will prevent an order from executing
outside the acceptable price range (including against an auction
response), and thus responses will not execute against an order outside
the acceptable price range.\8\ However, cancelling an auction response
prior to the end of an auction that would execute outside the
acceptable price range may give the submitting Trading Permit Holder an
opportunity to submit a new response within the acceptable price range
prior to the end of the auction, and thus increase execution
opportunities. Therefore, the proposed rule change applies this
parameter to auction response. An auction response at a price outside
the acceptable price range will not execute regardless of whether this
parameter applies to the auction response; applying the parameter to
auction responses merely changes the timing of when the response is
cancelled.\9\ Other price
[[Page 18322]]
protections similarly apply to auction responses.\10\
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\8\ See Securities Exchange Act Release No. 34-80181 (March 8,
2017), 82 FR 13678, note 26 (March 14, 2017) (SR-CBOE-2017-016).
\9\ Paragraph (e)(iii) currently states to the extent a contra-
side order or response is marketable against the Agency Order, the
execution price will be capped at the opposite side of the
acceptable price range. The proposed rule change deletes this rule
language, as it is redundant. The price protection will, as
proposed, cancel orders and responses (or remaining size after
partial execution) that would execute outside the acceptable price
range. There [sic] is effectively the same as capping an execute
[sic] price no wider than the acceptable price range, as no order or
response will be able to execute at a price outside the range.
\10\ See, e.g., Rule 6.53C, Interpretation and Policy .08(c)(4).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\11\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \12\ 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) \13\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change to
not apply the debit/credit price reasonability check to orders routed
from a PAR workstation or OMT would remove impediments to and perfect
the mechanism of a free and open market and a national market system,
as those orders were subject to manual handling by a PAR or OMT
operator who will have evaluated the price of an order based on then-
existing market condition [sic] prior to submitted [sic] it for
electronic execution, thus minimizing risk of an erroneous execution
and reducing the need for application of the additional reasonability
check. Other price protections similarly do not apply to these
orders.\14\
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\14\ See, e.g., Rule 6.12(a)(3) and (4).
---------------------------------------------------------------------------
The proposed rule change to provide the Exchange with flexibility
to determine settings for the acceptable percentage range parameter on
a class-by-class manner will permit the Exchange to ensure the range is
not too close or too far away from the market price for a class based
on factors such as minimum increment and premium, and thus ensure the
range creates an effective check for all classes. This will protect
investors from potentially erroneous executions while removing
impediments to and perfecting the mechanism of a free and open market
and a national market system by ensuring orders are not inadvertently
cancelled due to a range that is too narrow. Other price protections
have similar flexibility.\15\
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\15\ Id.
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The proposed rule change to apply the acceptable percentage range
parameter to auction responses merely changes the time at which
responses outside the acceptable price range is cancelled. However,
application of the acceptable percentage range parameter to auction
responses may permit the submitting Trading Permit Holder to enter a
new auction response at a price within the range prior to the end of
the auction, which improves execution opportunities and thus protects
investors. Other price protections similarly apply to auction
responses.\16\
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\16\ See, e.g., Rule 6.53C, Interpretation and Policy .08(c)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change will
apply to all complex orders submitted to CBOE in the same manner. The
enhancements to the price protection mechanisms applicable to all
incoming orders will help further prevent potentially erroneous
executions, which benefits all market participants. Additionally, the
proposed rule change is substantially similar to other price
protections.\17\ The proposed rule change will not impose any burden on
intermarket competition, as it applies only to CBOE price protection
mechanisms that prevent erroneous executions on CBOE.
---------------------------------------------------------------------------
\17\ See, e.g., Rules 6.12(a)(3) and (4) and Rule 6.53C,
Interpretation and Policy .08(c)(4).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the 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) of the Act \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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 change should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2017-031 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-2017-031. 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/
[[Page 18323]]
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-2017-031 and should be submitted on or before May 9, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07751 Filed 4-17-17; 8:45 am]
BILLING CODE 8011-01-P
