
[Federal Register Volume 78, Number 53 (Tuesday, March 19, 2013)]
[Notices]
[Pages 16895-16898]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06239]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69129; File No. SR-CBOE-2013-033]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Complex Orders and Mini-Options

March 13, 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 March 7, 2013, 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 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its rules related to complex orders. 
The text of the proposed rule change is also available on the 
Exchange's Web site (http://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 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
    CBOE recently amended its rules to allow for the listing of mini-
options on SPDR S&P 500 (``SPY''), Apple, Inc. (``AAPL''), SPDR Gold 
Trust (``GLD''), Google Inc. (``GOOG'') and Amazon.com Inc. 
(``AMZN'').\3\ Mini-option trading is expected to commence in March 
2013. Whereas standard option contracts represent a deliverable of 100 
shares of an underlying security, mini-options contracts represent a 
deliverable of 10 shares. Except for the difference in the number of 
deliverable shares, mini-options have the same terms and contract 
characteristics as regular-sized equity and ETF options, including 
exercise style. Accordingly, the Exchange noted in its original mini-
option filing that Exchange rules that apply to the trading of standard 
option contracts would apply to mini-option contracts as well.\4\
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    \3\ See Securities Exchange Act Release No. 68656 (January 15, 
2013), 78 FR 4526 (January 22, 2013) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change to List and Trade Option 
Contracts Overlying 10 Shares of Certain Securities) (SR-CBOE-2013-
001).
    \4\ Id.
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    Prior to the commencement of trading mini-options, the Exchange 
proposes to amend Rule 6.53C (Complex Orders on the Hybrid System) and 
Rule 6.80 (Definitions) to provide that Exchange rules regarding 
complex orders shall apply to mini-options and that consequently, 
Trading Permit Holders may execute complex and stock-option orders 
involving mini-options. Moreover, the Exchange seeks to amend these 
rules to provide that all permissible ratios referenced in the 
definitions of stock-option orders represent the total number of shares 
of the underlying stock in the option leg to the total number of shares 
of the underlying stock in the stock leg.
    By way of background, CBOE Rule 6.53C governs Complex Orders on the 
Hybrid System and CBOE Rule 6.80 lists definitions applicable to 
intermarket linkage. Currently, stock-option orders are defined in Rule 
6.53C(a)(2) and 6.80(4)(ii)(A)-(B) as trades where the options leg of 
the trade is coupled with

[[Page 16896]]

the purchase or sale of either (1) the same number of units of the 
underlying stock or convertible security, or (2) the number of units of 
the underlying stock or convertible security necessary to create a 
``delta neutral'' position, but in no case in a ratio greater than 8 
option contracts per unit of trading of the underlying stock or 
convertible security established for that series by the Clearing 
Corporation. Therefore, under this definition it would be permissible 
to execute, for example, a trade where the options leg consists of one 
(1) standard option contract (i.e., 100 shares) and the stock leg 
consists of 100 shares of the underlying stock. Additionally, it would 
be permissible to execute a trade where the options leg consists of 
eight (8) standard option contracts (i.e., 800 shares) and the stock 
leg consists of 100 shares of the underlying stock.
    Next, ``complex order'' in Rule 6.53C(a)(1) and ``complex trade'' 
in Rule 6.80(4)(i) (collectively referred to as ``complex orders'') \5\ 
is defined as any order involving the execution of two or more 
different options series in the same underlying security occurring at 
or near the same time in a ratio that is equal to or greater than one-
to-three (.333) and less than or equal to three-to-one (3.00).
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    \5\ The definitions of ``complex order'' in Rule 6.53C(a)(1) and 
``complex trade'' in Rule 6.80(4)(i) are substantially identical.
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    The Exchange notes that the abovementioned permissible ratios were 
established to ensure that only complex and stock-option orders that 
seek to achieve legitimate investment strategies are afforded certain 
benefits. Particularly, since compliance with trade-through rules may 
impede a market participant's ability to achieve the legitimate 
investment strategies that complex and stock-option orders facilitate, 
an exception from the prohibition on trade-throughs is provided for any 
transaction that was effected as a portion of a legitimate complex or 
stock-option order. Requiring a meaningful relationship between the 
different legs of a complex or stock-option order prevents market 
participants from taking advantage of these orders to circumvent the 
otherwise applicable trade-through rules (e.g., preventing the 
execution of a stock-option order where the option leg consists of 100 
options (i.e., 10,000 shares) and the stock leg consists of only 100 
shares).
    The Exchange first proposes to amend the definition of ``stock-
option orders'' in Rule 6.53C(a)(2) and Rule 6.80(4)(ii)(A)-(B). As 
discussed above, the stock-option order definition in both Rule 6.53C 
and Rule 6.80 clearly permits that an option leg may be coupled with a 
stock leg representing the same number of units of the underlying stock 
(i.e., one-to-one ratio). The Exchange seeks to provide that mini-
options may also be coupled with a stock leg if the stock leg 
represents the same number of units of the underlying stock. For 
example, pursuant to the definition, it would be permissible to execute 
a trade where leg one consists of one (1) mini-option contract (i.e., 
10 shares) and leg two consists of 10 shares of the underlying stock.
    Next, the Exchange seeks to amend the stock-option order definition 
in Rule 6.53C and Rule 6.80 to provide that in addition to standard 
options, mini-options may be coupled with a stock leg consisting of 
however many units of the underlying stock is necessary to create a 
delta neutral position, provided that the total number of shares of the 
underlying stock in the option leg to the total number of shares of the 
underlying stock in the stock leg does not exceed an eight-to-one 
ratio. The Exchange notes the definition of a stock-option order in 
Rule 6.53C and Rule 6.80 was drafted at a time in which only option 
contracts with a deliverable of 100 shares was contemplated. Therefore, 
the rules do not address how the eight-to-one ratio would be scaled in 
the event an option with a non-standard deliverable becomes available 
for trading. The language of the rules needs to be amended so that it 
is clear how Rule 6.53C and 6.80 would apply to mini-options, as well 
as standard options. Accordingly, the proposed change specifies that 
the permissible ratios should be calculated and scaled based upon the 
total number of shares of the underlying stock in the option leg to the 
total number of shares of the underlying stock in the stock leg, 
instead of by the total number of option contracts in the option leg to 
the total number of shares of the underlying stock in the stock leg. An 
example of a permitted stock-option order involving mini-options would 
be an order in which leg one consists of eighty (80) mini-options 
(i.e., 800 shares) and leg two consists of 100 shares of the underlying 
stock (i.e., eight-to-one ratio). Similarly, an order where leg one 
consists of eight (8) mini-options (i.e. 80 shares) and leg two 
consists of 10 shares of the underlying stock would be permitted.
    The proposed rule change provides that market participants may 
execute stock-option orders involving mini-options. The proposed change 
also ensures that the principle behind the permissible ratios (i.e., to 
provide a meaningful relationship between the legs of complex and 
stock-option orders) is maintained for mini-options. Finally, the 
Exchange notes that reference to the Clearing Corporation in Rule 
6.53C(a)(2) and 6.80(4)(ii)(A)-(B) was superfluous and unnecessary and 
therefore deleted.
    Next the Exchange seeks to make clear that it interprets its 
current definition of a ``complex order'' in Rule 6.53C(a)(1) and 
``complex trade'' in Rule 6.80(4)(i)-(ii) to apply to both standard 
options and mini-options. The Exchange seeks to provide that in 
accordance to the provisions of Rule 6.53C and Rule 6.80, one leg of a 
complex order may consist of mini-option contract(s) and the other leg 
of the order may consist of standard option(s), so long as the 
underlying security is the same and the transaction does not violate 
the permissible ratios set forth in the rules (i.e., ratio greater or 
equal to one-to-three or less or equal to three-to-one). Moreover, the 
Exchange seeks to clarify that these permissible ratios represent the 
total number of shares of the underlying stock in the mini-option leg 
to the total number of shares of the underlying stock in the standard 
option leg. An example of a permissible complex order involving mini-
options and standard options would be an order in which leg one 
consists of thirty (30) mini-options (i.e., 300 shares) and leg two 
consists of one (1) standard option (i.e., 100 shares) in the same 
underlying security (i.e., a ratio equal to 3.0). Another example of a 
permissible complex order would be an order in which leg one consists 
of ten (10) mini-options (i.e., 100 shares) and leg two consists of one 
(1) standard option (i.e., 100 shares) in the same underlying security 
(i.e., a ratio equal to one-to-one). The proposed clarification will 
reduce potential confusion for investors when trading of mini-options 
becomes effective.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\6\ In particular, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \7\ requirements that the rules of an exchange be designed to 
promote just and equitable principles of trade, to prevent fraudulent 
and manipulative acts, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and to perfect

[[Page 16897]]

the mechanism for a free and open market and a national market system, 
and, in general, to protect investors and the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that investors and other market 
participants would benefit from the current rule proposal because it 
would allow market participants to take advantage of legitimate 
investment strategies and execute complex orders and stock-option 
orders in mini-options. Additionally, the Exchange believes the 
proposed rule change will avoid investor confusion if both standard 
options and mini-options on the same underlying security are permitted 
to trade as complex orders and stock-option orders. Also, the proposal 
to maintain the permissible ratios that are applicable to standard 
options in proportion for mini-options ensures that the principle 
behind the permissible ratios (i.e., to provide a meaningful 
relationship between the legs of complex and stock-option orders) is 
maintained for mini-options, which promotes just and equitable 
principles of trade. The Exchange believes that describing prior to the 
commencement of trading how the permissible ratios in the complex order 
and stock-option order rules will be scaled for mini-options would 
lessen investor and marketplace confusion.
    Finally, the Exchange believes that the proposed rule change is 
designed to not permit unfair discrimination among market participants 
as all market participants may participate in complex or stock-option 
orders involving mini-options.

B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. Specifically, since mini-options are permitted on multiply-
listed classes, other exchanges that have received approval to trade 
mini-options will have the opportunity to similarly amend their complex 
order rules to clarify and accommodate complex orders and stock-option 
orders in mini-option classes. Moreover, because all Trading Permit 
Holders may participate in complex and stock-options orders involving 
mini-options, the rule change does not permit unfair discrimination and 
does not impose a burden on Trading Permit Holders.

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) \8\ of the Act and 
Rule 19b-4(f)(6) \9\ thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of the filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) of the Act \10\ 
normally does not become operative prior to 30 days after the date of 
the filing. However, pursuant to Rule 19b-4(f)(6)(iii) of the Act,\11\ 
the Commission may designate a shorter time if such action is 
consistent with the protection of investors and the public interest. 
The Exchange has requested the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. In January 2013, the Exchange filed a proposed rule change to 
amend its rules to list and trade certain mini-options contracts on the 
Exchange, and represented in that filing that the Exchange's rules that 
apply to the trading of standard options contracts would apply to mini-
options contracts.\12\ The Exchange has represented that it intends to 
launch trading in mini-options contracts on March 18, 2013.\13\ The 
Exchange believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because such waiver would minimize confusion among market participants 
about how complex orders and stock-options orders involving mini-
options contracts will trade.\14\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ See supra note 3.
    \13\ See SR-CBOE-2013-033, Item 7.
    \14\ See id.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Such waiver would allow the Exchange to implement the proposed rule 
change prior to its launch of mini-options contracts trading on March 
18, 2013, thereby mitigating potential investor confusion as to how 
complex orders and stock options orders involving mini-options 
contracts will trade. For this reason, the Commission hereby waives the 
30-day operative delay and designates the proposed rule change to be 
operative upon filing with the Commission.\15\
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    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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. 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2013-033 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-2013-033. 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

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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 
20549-1090 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 offices 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-2013-033, and should be 
submitted on or before April 9, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06239 Filed 3-18-13; 8:45 am]
BILLING CODE 8011-01-P


