
[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28911-28912]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11625]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69558; File No. SR-CBOE-2013-035]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change Relating to Exchange 
Trading Days and Hours of Business and Trading Halts

May 10, 2013.

I. Introduction

    On March 11, 2013, Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) \1\ of the 
Securities Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to amend Rules 6.1 (Days and 
Hours of Business) and 6.3 (Trading Halts). The proposed rule change 
was published for comment in the Federal Register on March 29, 2013.\4\ 
The Commission received no comment letters on the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 69227 (March 25, 
2013), 78 FR 19348 (``Notice'').
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II. Description of the Proposal

    As further described below, the Exchange proposes to amend various 
CBOE rules that govern the ability of the Exchange to open and/or halt 
the trading of an option. Currently, those rules are tied to whether 
the ``primary market'' for the underlying security opens or halts 
trading. The primary focus of the Exchange's proposal is to allow it to 
be able to open for trading even if the primary market for the 
underlying security is not open for trading as well as to allow it to 
halt trading even if the primary market does not halt (because it is 
not open for trading).
    Changes to Rule 6.1 (Days and Hours of Business). Exchange Rule 6.1 
provides that no Trading Permit Holder (``TPH'') ``shall make any bid, 
offer, or transaction on the Exchange before or after'' business hours. 
The Exchange proposes to delete this language because it states that 
the current language is obsolete. According to the Exchange, the 
provision is obsolete because TPHs now have the ability to submit 
information in the electronic system outside of business hours.\5\
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    \5\ See Notice, supra note 4 at 19348.
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    Exchange Rule 6.1.01 currently provides that the hours during which 
transactions in options on individual stocks may be made ``shall 
correspond to the normal hours for business set forth in the rules of 
the primary exchange listing the stocks underlying CBOE options.'' The 
Exchange proposes to amend Exchange Rule 6.1.01 to provide that 
business hours correspond to the normal hours for business established 
by the exchanges ``currently trading the stocks underlying CBOE 
options.'' \6\ The proposal would thus delink the Exchange's rule from 
the status of the primary market and instead permit the Exchange to 
open or remain open to trade options during normal business hours even 
if the primary market for the underlying security is not open for 
business. The Exchange states that its proposal will allow it to open 
or remain open to trade options during normal business hours if there 
is ample liquidity in the underlying market for the security.\7\
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    \6\ In the Notice, the Exchange represented that the national 
equity exchanges all have the same core business hours (e.g., New 
York Stock Exchange Rule 51(a) and BATS Exchange Rule 1.5(w) 
mentions regular trading hours of 9:30 a.m. through 4:00 p.m. 
(Eastern time)). See id.
    \7\ See id.
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    Changes to Rule 6.3 (Trading Halts). Exchange Rule 6.3 specifies 
when the Exchange will halt trading. Exchange Rule 6.3(a) lists the 
factors that CBOE will consider in making that determination. 
Currently, Exchange Rule 6.3(a)(i) provides that the Exchange should 
consider a halt if ``trading in the underlying security has been halted 
or suspended in the primary market.'' The

[[Page 28912]]

Exchange proposes to amend that provision by removing the reference to 
the primary market and instead provide that the Exchange may consider 
whether trading in the underlying security has been halted or suspended 
in ``one or more of the markets trading such security.'' For example, 
if the primary market is unable to open due to a natural disaster, or 
other circumstance, but other national securities exchanges are trading 
the underlying security and halt or suspend trading in that security, 
then the proposed change would allow CBOE to halt trading in the 
overlying options. The Exchange also proposes to make similar changes 
to Exchange Rule 6.3(a)(iii), which lists factors that CBOE should 
consider when determining whether to halt securities other than 
options.
    Similarly, Exchange Rule 6.3.01 currently allows the Post Director 
or Order Book Official to suspend trading in an option if the 
underlying security is halted or suspended in the primary market. The 
Exchange proposes to expand the authority of the Post Director or Order 
Book Official to halt or suspend trading in an option if the underlying 
security has been halted or suspended in ``one or more of the markets 
trading the underlying security.'' In effect, the proposal would allow 
the Post Director or Order Book Official to halt or suspend trading in 
an option in response to a halt or suspension in a market other than 
the primary market for the underlying security, particularly when the 
primary market is not open for business but the security is being 
traded elsewhere.
    Finally, the Exchange proposes to amend language in Exchange Rule 
6.3.05, which currently allows the Exchange to turn off the Retail 
Automatic Execution System (``RAES'') with respect to a stock-option 
order if credible information has been communicated that trading in the 
underlying stock has been halted or suspended in the primary market for 
that stock-option order. The Exchange proposes to replace the term 
``primary market'' with ``one or more of the markets trading the 
underlying security.'' The proposal would allow the Exchange to turn 
off RAES with respect to a stock-option order if credible information 
has been communicated that one or more of the markets trading the 
underlying security has halted trading in the underlying security.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\9\ which requires, among 
other things, that the rules of a national securities 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 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.
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    \8\ In approving the proposed rule change, the Commission has 
considered the impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the Exchange's proposal to amend the 
aforementioned CBOE rules governing the Exchange's ability to open for 
trading or continue trading an option even if the ``primary market'' 
for the underlying security does not open for trading or otherwise 
closes is consistent with Section 6(b)(5) of the Act.\10\ Similarly, 
the change to allow CBOE to consider whether trading in the underlying 
security has been halted or suspended in ``one or more of the markets 
trading such security'' instead of requiring CBOE to only consider 
trading in the underlying primary market is consistent with Section 
6(b)(5) of the Act.\11\
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    \10\ Id.
    \11\ Id.
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    Under its proposal, CBOE's discretion to open or continue trading 
in options, or halt trading in options, would not be limited by or 
solely rely on the status of the primary market for an underlying 
security. In addition, the proposed changes to Exchange Rule 6.3 would 
grant the Post Director and Order Book Official of the Exchange greater 
discretion regarding whether to halt trading by allowing them to 
consider halts at markets other than the primary market.
    The proposed rule changes would grant discretion to the Exchange to 
trade options when there is sufficient liquidity outside of the primary 
market and to halt the trading of options if exchanges other than the 
primary market are trading the underlying security and halt trading 
rather than limit the Exchange's authority by specific reference to the 
status of the primary market for the underlying securities. The 
Commission believes that allowing CBOE to have such discretion has the 
potential to lessen market disruptions in the event that a primary 
market for an underlying security is unable to open or remain open for 
trading, particularly for an extended period. Thus, the proposal is 
designed to facilitate the trading of options when other cash equity 
markets are open and able to trade or continue trading in the 
underlying securities.
    Accordingly, the Commission finds that the Exchange's proposal is 
consistent with the Act, including Section 6(b)(5) thereof, in that it 
is designed to remove impediments to and perfect the mechanism of a 
free and open market, and in general, protect investors and the public 
interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\12\ that the proposed rule change (SR-CBOE-2013-035) be, and hereby 
is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    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. 2013-11625 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P


