
[Federal Register Volume 78, Number 60 (Thursday, March 28, 2013)]
[Notices]
[Pages 19059-19062]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07222]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69220; File No. SR-CBOE-2013-040]


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 22, 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 22, 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

[[Page 19060]]

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 commenced on March 18, 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\ The Exchange proposes 
to amend Rule 6.53C (Complex Orders on the Hybrid System) and Rule 6.80 
(Definitions) to provide that for the purpose of applying the 
permissible ratios to complex orders comprised of both mini-option 
contracts and standard option contracts, ten (10) mini option contracts 
will represent one (1) standard option contract.
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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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    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.
    Particularly, ``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 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 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 order. Requiring a 
meaningful relationship between the different legs of a complex 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 complex order where one leg consists of 
100 standard options (i.e., 10,000 shares) and another leg consists of 
only 1 standard option (i.e., 100 shares).
    The Exchange acknowledges that in accordance with the provisions of 
Rule 6.53C(a)(1) and Rule 6.80(4)(i), 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 contract(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). The Exchange notes 
the definition of a complex 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 permissible ratios would be scaled in the event an option with a 
non-standard deliverable becomes available for trading. Accordingly, 
the Exchange proposes to amend the definition of ``complex orders'' in 
Rule 6.53C(a)(1) and Rule 6.80(4)(i) to specify that for the purpose of 
applying the aforementioned ratios to complex orders comprised of mini-
option contracts and standard option contracts, ten (10) mini option 
contracts will represent one (1) standard option contract. 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 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 orders) is maintained for mini-options.
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 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 market 
participants benefit from being permitted to execute

[[Page 19061]]

complex orders in mini-options because it allows them to take advantage 
of legitimate investment strategies. Also, 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. The Exchange further believes that 
specifying that for the purpose of applying the permissible ratios to 
complex orders comprised of mini-option contracts and standard option 
contracts, ten (10) mini option contracts will represent one (1) 
standard option contract would lessen investor and marketplace 
confusion. Particularly, the Exchange believes that the absence of such 
an amendment could lead to investor confusion about how complex orders 
involving mini-option contracts trade. Also, maintaining 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 orders) is maintained for mini-options, which 
promotes just and equitable principles of trade.
    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 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 in mini-option 
classes. Moreover, because all Trading Permit Holders may participate 
in complex 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 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.\13\
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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-2013-040, Item 7.
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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 immediately, 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.\14\
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    \14\ 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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    The Exchange represented that it began trading in mini-options 
contracts on March 18, 2013. The Commission notes that this proposed 
rule change was filed on March 22, 2013, and, therefore, pursuant to 
Rule 19b-4(f)(6), waiver of the 30-day operative delay renders this 
proposed rule change effective upon the day that it was filed, March 
22, 2013.
    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-2013-040 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-2013-040. 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

[[Page 19062]]

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 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-2013-040, and should be 
submitted on or before April 18, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07222 Filed 3-27-13; 8:45 am]
BILLING CODE 8011-01-P


