
[Federal Register Volume 78, Number 29 (Tuesday, February 12, 2013)]
[Notices]
[Pages 9953-9955]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03103]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68844; File No. SR-CBOE-2013-007]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to the Opening of the Complex Order Book

February 6, 2013.
    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 January 28, 2013, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Exchange has designated the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder, which renders it effective upon filing 
with the Commission.\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).
    \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 is proposing to amend its electronic complex order 
rules. The text of the proposed rule change is available on the 
Exchange's Web site (www.cboe.org/Legal), 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 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
    The purpose of this proposed rule change is to include a 
description in Rule 6.53C of the manner in which complex orders are 
currently electronically processed through the Exchange's complex order 
book (``COB'') when the COB opens for trading. Currently the rule does 
not include this level of detail, so the Exchange is proposing to 
include this information within the rule to provide additional clarity 
on the current operation of the COB. The Exchange notes that it is 
simply including additional detail in its rules on the existing process 
when the COB opens in response to Trading Permit Holder inquiries about 
its operation. No changes to the process are being contemplated by this 
rule change filing.
    In particular, the proposed rule change will provide that complex 
orders, including stock-option orders, do not participate in opening 
rotations conducted pursuant to Rule 6.2B for individual option 
series.\5\ When the last of the individual component option series legs 
that make up a complex order strategy has opened (and, in the case of a 
stock-option strategy, when the underlying stock has opened), the COB 
for that strategy will then open for trading. The COB for a given 
complex order strategy will open with no trade,\6\ except as follows:
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    \5\ The Exchange notes that, previously, Rule 6.2B had provided 
that spread orders (a general reference used to refer to complex 
orders) do not participate in the Hybrid Opening System (``HOSS'') 
opening trade for individual component option series legs or in the 
determination of the opening price, expected opening price or 
expected opening size for an individual component options series 
leg. This provision was eliminated from Rule 6.2B in 2010 and, as 
revised, the Exchange could determine whether to designate various 
complex order types as eligible for HOSS on a class-by-class basis 
(just as it would for any other order type). See Securities Exchange 
Act Release No. 63580 (December 20, 2010), 75 FR 81705 (December 28, 
2010) (SR-CBOE-2010-114). To date, the Exchange has not determined 
to include spread orders/complex orders in the Rule 6.2B opening 
process. With this proposed rule change, SR-CBOE-2013-007, the 
Exchange would no longer be permitted to designate complex order 
(including stock-option order) order types as eligible for the Rule 
6.2B opening process. If, in the future, the Exchange would desire 
to designate certain complex order (including stock-option order) 
order types as being eligible to participate in the HOSS opening 
process for simple orders, such a determination would be subject to 
a separate rule change filing.
    \6\ For example, the COB would open with no trade if there are 
no complex orders resting for the strategy or if there are complex 
orders on only one side of the COB at a net price(s) that does not 
touch or cross the derived net market. The ``derived net market'' 
for a stock-option order strategy will be calculated using the 
Exchange's best bid or offer in the individual option series leg(s) 
and the NBBO in the stock leg. The ``derived net market'' for any 
other complex order strategy will be calculated using the Exchange's 
best bid or offer in the individual series legs.
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    First, the COB will open with a trade against the individual 
component option series legs if there are complex orders on only one 
side of the COB that are marketable against the opposite side of the 
derived net market. The resulting execution will occur at the derived 
net market price to the extent marketable. Any remaining balance would 
be processed as it would on an intra-day basis as set forth in Rule 
6.53C (including being subject to the applicable complex order priority 
and price check parameter provisions set forth in Rule 6.53C). This 
provision for ``legging'' against the individual series legs is not 
applicable to stock-option order strategies. (Stock-option orders 
processed through COB generally only trade against other stock-option 
orders. Stock-option orders processed through COB generally do not 
trade against individual component option series legs, except in one 
limited circumstance

[[Page 9954]]

for market orders at the conclusion of a complex order RFQ auction 
(``COA'').\7\)
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    \7\ See Rule 6.53C.06.
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    For example, if the derived net market for a given complex order 
strategy is $1.00-$1.20 for 100 units and the only interest in the COB 
is a complex order to buy the strategy at a net debit price of $1.21 
for 120 units, then 100 units of the complex order would trade at a net 
price of $1.20 against the individual component series legs and the 
remaining 20 units of the complex order would be subject to processing 
under Rule 6.53C (e.g., remain in the COB if not marketable against the 
individual orders and quotes in the electronic book or other complex 
orders in the COB, execute or route for manual processing if marketable 
subject the applicable priority and price check parameters).
    Second, the COB will open with a trade against complex orders if 
there are complex orders on both sides of the COB that are marketable 
against each other and that are priced within the derived net market. 
The resulting execution will occur at a market clearing price that is 
inside the derived net market and that matches complex orders to the 
extent marketable. In determining the priority, the COB gives priority 
to complex orders whose net price is better than the market clearing 
price first, and then to complex orders at the market clearing 
price.\8\ This provision for complex orders to trade against each other 
is applicable to stock-option order strategies.
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    \8\ This ``market clearing price'' process for executing complex 
orders when the COB opens is similar to the process for executing 
simple orders when HOSS opens an individual component options 
series. See Rule 6.2B(c)(iv) (``[t]he opening price of a series is 
the `market-clearing' price that will leave bids and offers which 
cannot trade with each other. In determining the priority of orders 
and quotes to be traded, the System gives priority to market orders 
first, then to limit orders and quotes whose price is better than 
the opening price, and then to resting orders and quotes at the 
opening price.'')
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    For example, assume the derived net market for a given complex 
order strategy is $1.00-$1.20 for 100 units and there is a complex 
order in the COB to sell the strategy at a net credit price of $1.19 
for 20 units, a complex order in the COB to sell the strategy at a net 
credit price of $1.18 for 10 units, and a complex order in COB to buy 
the strategy at a net debit price of $1.19 for 50 units. When the COB 
opens, 30 units of the buy strategy would trade at a net price of $1.19 
against the two sell strategies. The remaining 20 units of the buy 
strategy would be subject to processing under Rule 6.53C (e.g., remain 
in the COB if not marketable against the individual orders and quotes 
in the electronic book or other complex orders in the COB, execute or 
route for manual processing if marketable subject the applicable 
priority and price check parameters).
    As another example, if the derived net market for a given stock-
option order strategy is $5.00-$5.20 for 100 units and there is a 
stock-option order in the COB to sell the strategy at a net credit 
price of $5.19 for 20 units, a stock-option order in the COB to sell 
the strategy at a net credit price of $5.18 for 10 units, and a stock-
option order in COB to buy the strategy at a net debit price of $5.19 
for 50 units, then 30 units of the buy strategy would trade at a net 
price of $5.19 against the two sell strategies. The remaining 20 units 
of the buy strategy would be subject to processing under Rule 6.53C 
(e.g., remain in the COB if not marketable against the derived net 
market (considering the individual orders and quotes in the electronic 
book for the component options series legs and the NBBO in the stock 
leg) or other stock-option orders in the COB, or execute or route for 
manual processing if marketable subject the applicable priority and 
price check parameters).
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\9\ in general and furthers the objectives of Section 6(b)(5) of the 
Act \10\ in particular in that it should promote just and equitable 
principles of trade, serve to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
protect investors and the public interest. In particular, the Exchange 
believes that including detail within the rules should provide 
additional clarity and avoid any confusion on the current operation of 
the COB open. The Exchange also believes that the operation of the COB 
increases opportunities for all types of market participants (e.g., 
public customers, broker-dealers and market-makers) to participate in 
the trading of complex orders. This participation may promote liquidity 
and result in better prices for customers throughout the trading day, 
including when the COB opens.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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. As noted above, the Exchange 
believes that including detail within the rules should provide 
additional clarity and avoid any confusion on the current operation of 
the COB open. The Exchange also believes that the operation of the COB 
increases opportunities for all types of market participants (e.g., 
public customers, broker-dealers and market-makers) to participate in 
the trading of complex orders. This participation may promote liquidity 
and result in better prices for customers throughout the trading day, 
including when the COB opens.

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

    Because the foregoing rule 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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 email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2013-007 on the subject line.

[[Page 9955]]

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-2013-007. 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 (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 
10:00 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-2013-007 and should be 
submitted on or before March 5, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03103 Filed 2-11-13; 8:45 am]
BILLING CODE 8011-01-P


