
[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27687-27689]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11680]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64434; File No. SR-CBOE-2011-049]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Proposed Rule Change Related to the Individual 
Trading Pause Pilot and CBSX Market-Maker Quoting Obligations

May 6, 2011.
    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 May 4, 2011, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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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 is proposing to amend CBOE Stock Exchange, LLC's 
(``CBSX'', the CBOE's stock trading facility) rules to include 
additional stocks in the individual stock trading pause pilot and to 
include certain conforming amendments to the CBSX Market-Maker quoting 
obligation provisions. The Exchange is also proposing certain other 
conforming and non-substantive amendments to CBSX's individual stock 
trading pause provisions and CBOE's options trading halt provisions. 
The text of the rule proposal is available on the Exchange's Web site 
(http://www.cboe.org/legal), at the Exchange's Office of the Secretary 
and at the Commission.

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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    With respect to CBSX, the Exchange proposes to amend Rule 6.3C to 
include additional stocks in the pilot by which such rule operates and 
to amend Rules 53.23 and 53.56 to simplify certain aspects of the text 
while also conforming certain percentages thereunder to the proposed 
changes to Rule 6.3C. With respect to both CBSX and CBOE, the Exchange 
proposes to make certain other conforming and non-substantive changes 
to the text of Rules 6.3C and 6.3.06.
    The Commission approved Rule 6.3C on a pilot basis on June 10, 2010 
to provide for trading pauses in individual stocks due to extraordinary 
market volatility (``Trading Pause'') in all stocks included in the S&P 
500 Index (``S&P 500'') (``Trading Pause Pilot'' or ``Pilot'').\3\ The 
Exchange subsequently received approval to add to the Pilot the stocks 
included in the Russell 1000 Index (``Russell 1000'') and a specified 
list of Exchange Traded Products (``ETPs'').\4\
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    \3\ The Commission approved the Trading Pause Pilot for all 
equities exchanges and FINRA. See Securities Exchange Act Release 
Nos. 62252 (June 10, 2010), 75 FR 34186 (June 16, 2010) (File Nos. 
SR-BATS-2010-014; SR-EDGA-2010-01; SR-EDGX-2010-01; SR-BX-2010-037; 
SR-ISE-2010-48; SR-NYSE-2010-39; SR-NYSEAmex-2010-46; SR-NYSEArca-
2010-41; SR-NASDAQ-2010-061; SR-CHX-2010-10; SR-NSX-2010-05; and SR-
CBOE-2010-047) and 62251 (June 10, 2010), 75 FR 34183 (June 16, 
2010) (SR-FINRA-2010-025).
    \4\ The Commission approved the addition to the Trading Pause 
Pilot of the stocks included in the Russell 1000 and ETPs, where 
applicable, for all equities exchanges and FINRA. See Securities 
Exchange Act Release Nos. 62884 (September 10, 2010), 75 FR 56618 
(September 16, 2010) (File Nos. SR-BATS-2010-018; SR-BX-2010-044; 
SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-05; SR-EDGX-2010-05; 
SR-ISE-2010-66; SR-NASDAQ-2010-079; SR-NYSE-2010-49; SR-NYSEAmex-
2010-63; SR-NYSEArca-2010-61; and SR-NSX-2010-08) and 62883 
(September 10, 2010), 75 FR 56608 (September 16, 2010) (SR-FINRA-
2010-033). The Exchange has subsequently extended the operation of 
the Pilot, which was originally set to expire on December 10, 2010, 
through the earlier of August 11, 2011 or the date on which a limit 
up-limit down mechanism to address extraordinary market volatility, 
if adopted, applies to the Circuit Breaker Stocks. See Securities 
Exchange Act Release Nos. 63502 (December 9, 2010), 75 FR 78306 
(December 15, 2010) (SR-CBOE-2010-112) (extension of Pilot through 
April 11, 2011) and 64194 (April 5, 2011), 76 FR 20389 (April 12, 
2011)(SR-CBOE-2011-031)(extension of Pilot through the earlier of 
August 11, 2011 or the date on which a limit up-limit down mechanism 
to address extraordinary market volatility, if adopted, applies to 
the pilot stocks).
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    In consultation with other markets and the staff of the Commission, 
the Exchange proposes to include all NMS stocks within the Pilot that 
are not already included therein, but to apply a wider Threshold Move 
percentage to the newly added stocks. Accordingly, the Exchange 
proposes to amend the text of Rule 6.3C to provide that the Threshold 
Move required to trigger an individual stock trading pause for the 
proposed new stocks, as calculated by the primary listing market, to be 
30% or more for such stocks priced at $1 or higher and 50% or more for 
such stocks priced less than $1.\5\ The Exchange believes that these 
percentages are commensurate

[[Page 27688]]

with the characteristics shared by the proposed new stocks within these 
price ranges and would promote the objectives of the Trading Pause 
Pilot to reduce the negative impacts of unanticipated price movements 
in a security. In particular, the proposed additional stocks are those 
not currently included in the S&P 500 Index, Russell 1000 Index, or 
specified ETPs, and therefore are more likely to be less liquid 
securities or securities with lower trading volumes. Accordingly, the 
Exchange believes that broader Threshold Move percentages would be 
appropriate. Similarly, because leveraged ETPs trade at a ratio against 
the associated index, a broader Threshold Move percentage would also be 
appropriate for leveraged ETPs. With respect to the 30% threshold for 
stocks priced at $1 or higher and the 50% threshold for stocks priced 
less than $1, the rationale for this differentiation is that lower-
priced securities may tend to be more volatile, and price movements of 
lower-priced stocks equate to a higher percentage move than a similar 
price change for a higher-priced stock.
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    \5\ Under the proposed rule change, the price of a stock would 
be based on the closing price on the previous trading day, or, if no 
closing price exists, the last sale reported to the Consolidated 
Tape on the previous trading day.
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    The Exchange proposes to include new subsections 6.3C.03(a), (b) 
and (c) to reflect the distinction between the applicable Threshold 
Move percentages for current Pilot stocks and the proposed new stocks 
to be included within the Pilot.\6\ The Exchange also proposes to make 
certain other conforming and non-substantive changes to the text of 
Rules 6.3C and 6.3.06.\7\ The Exchange is not proposing any other 
substantive changes to the text of Rule 6.3C or the operation of the 
Pilot, and will continue in consultation with the other markets to 
assess whether the parameters for invoking a Trading Pause continue to 
be appropriate and whether the parameters should be modified.
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    \6\ The Exchange is not proposing a change to the Threshold Move 
percentage applicable to stocks currently included within the 
current Pilot. However, the changes proposed herein would require 
that certain rule text pertaining to the Threshold Move for the 
existing Pilot stocks be reorganized within Rule 6.3C.
    \7\ The Exchange is proposing certain other conforming and non-
substantive amendments to Rules 6.3C (pertaining to CBSX) and 6.3.06 
(pertaining to CBOE). Specifically, the Exchange is proposing to 
replace certain references in these rules to ``Circuit Breaker 
Stocks'' and ``eligible underlying stock'' with conforming 
references to ``NMS stocks'' and ``underlying NMS stock.'' The 
Exchange is also proposing to include text in these rules confirming 
that, following an individual stock trading pause, trading will 
generally resume on the primary listing market after a period of 
five minutes, which is consistent with the current Pilot and is 
simply intended to provide more detail in the text explaining the 
existing Pilot's operation.
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    The proposed changes to the Pilot, if approved, would require that 
the text of Rules 53.23.01 and 53.56.01, which pertains to the pricing 
obligations that CBSX Market-Makers are required to adhere to, be 
amended to update the cross-references therein to Rule 6.3C and the 
Threshold Moves thereunder. Specifically, the Exchange proposes to 
remove any text from the two rules addressing NMS stocks that are not 
subject to the Pilot because no such stocks would exist and such text 
would therefore be unnecessary. The Exchange also proposes to simplify 
the two rules by explicitly stating the percentages that are applicable 
thereunder and the times during the trading day when Rule 6.3C is not 
in effect.\8\ The Exchange notes that part of this proposed change 
would be substantive, in that the percentages under the two rules would 
decrease slightly for the proposed new stocks priced at $1 or greater. 
The Exchange believes that this proposed substantive change would not 
have a significant impact on CBSX Market-Maker pricing obligations and 
is reasonable because it would ensure that the designated quoting 
percentages in the rules are within a narrower range than the 
percentages necessary to trigger a Trading Pause.
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    \8\ The Exchange is also proposing a non-substantive amendment 
to Rules 53.23 and 53.56 to correct a typographical error (replacing 
the phrase ``Market-Marker'' with ``Market-Maker'').
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2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Act,\9\ which requires the rules of an exchange to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
and, in general, to protect investors and the public interest. The 
proposed rule change also is designed to support the principles of 
Section 11A(a)(1) \10\ of the Act in that it seeks to assure fair 
competition among brokers and dealers and among exchange markets. The 
Exchange believes that the proposed rule meets these requirements 
because it expands the scope of the Pilot to cover all NMS stocks while 
adjusting the parameters of the rule for different stocks in a manner 
that will promote uniformity across markets concerning decisions to 
pause trading in a stock when there are significant price movements. 
Additionally, the proposed changes would ensure that the designated 
quoting percentages in Rules 53.23 and 53.56 are within a narrower 
range than the percentages necessary to trigger a Trading Pause.
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78k-1(a)(1).
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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 not necessary or appropriate in furtherance of 
the purposes of the Act.

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 
proposal.

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 (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2011-049 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2011-049. This file 
number should be included on the subject line if e-mail 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

[[Page 27689]]

Internet Web site (http://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 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of CBOE. 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 publicly available. All submissions 
should refer to File Number SR-CBOE-2011-049 and should be submitted on 
or before June 2, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11680 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P


