
[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28906-28908]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11676]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69560; File No. SR-CBOE-2013-050]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Complex Order Router Subsidy 
Program

May 10, 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 May 8, 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, II, and III 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 proposes to adopt an additional qualification 
requirement to participate in CBOE's Complex Order Router Subsidy 
Program. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On March 8, 2013, CBOE established the Complex Order Router Subsidy 
Program (the ``CORS Program'' or ``Program'') which allows CBOE to 
enter into subsidy arrangements with any CBOE Trading Permit Holder 
(``TPH'') (each, a ``Participating TPH'') or Non-CBOE TPH broker-dealer 
(each a ``Participating Non-CBOE TPH'') that provide certain order 
routing functionalities to other CBOE TPHs, Non-CBOE TPHs and/or use 
such functionalities themselves.\3\ (The term ``Participant'' as used 
in this filing refers to either a Participating TPH or a Participating 
Non-CBOE TPH). Specifically, CBOE TPHs and non-CBOE TPHs that 
participate in the CORS Program receive a payment from CBOE for every 
executed contract for complex orders routed to CBOE through their 
system. The purpose of this proposed change is to add an additional 
feature that a Participant's order routing functionality must have to 
qualify for the Program.
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    \3\ See Securities Exchange Act Release No. 69203 (March 21, 
2013), 78 FR 18655 (March 27, 2013) (SR-CBOE-2013-032).
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    SR-CBOE-2013-032 includes a description of the features that an 
order routing functionality of a Participant must have, and the 
performance requirements that the order routing functionality must 
satisfy, in order to qualify for the program.\4\ Any CBOE TPH or 
broker-dealer that is not a CBOE TPH is permitted to avail itself of 
this arrangement, provided that its order routing functionality 
incorporates the features required in SR-CBOE-2013-032. In addition to 
the features described in SR-CBOE-2013-032, the Exchange is proposing 
to require a Participant's order routing functionality to provide 
current consolidated market data for complex orders from the U.S. 
options exchanges that offer complex order execution systems in order 
for the Participant to qualify to participate in the Program. A 
Participant shall have forty-five (45) days from the date that an 
exchange launches trading of complex orders to provide that exchange's 
market data for complex orders as part of its

[[Page 28907]]

order routing functionality for any exchange that does not yet exist or 
that does not offer complex order execution systems as of May 6, 2013.
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    \4\ SR-CBOE-2013-032, pp. 5-7. The primary functional 
requirements under the CORS Program are that an order routing 
functionality has to: (i) be capable of interfacing with CBOE's API 
to access current CBOE trade engine functionality and (ii) cause 
CBOE to be the default destination exchange for complex orders, but 
allow any user to manually override CBOE as the default destination 
on an order-by-order basis.
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    Nothing in the proposed subsidy arrangement relieves any CBOE TPH 
or non-CBOE TPH broker-dealer that is using an order routing 
functionality whose provider is participating in the CORS Program 
(``Users'') from complying with its best execution obligations. Just as 
with any customer order and any other routing functionality, both a 
CBOE TPH and a non-CBOE TPH broker dealer have an obligation to 
consider the availability of price improvement at various markets and 
whether routing a customer order through a functionality that 
incorporates the features described above would allow for access to 
such opportunities if readily available. The Exchange recognizes that, 
unlike simple, non-complex orders, there is no NBBO for complex orders 
and an exception from the prohibition on trade-throughs is provided for 
any transaction that is effected as a portion of a complex order.\5\ 
The Exchange believes that the proposed additional requirement to 
provide consolidated market data for complex orders provides an 
additional tool for Users to assess the availability of price 
improvement at other markets and therefore facilitates compliance with 
their best execution obligations. Finally, any User, whether or not a 
CBOE TPH, needs to conduct best execution evaluations on a regular 
basis, at a minimum quarterly, that include its use of any router 
incorporating the features described above.
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    \5\ See CBOE Rule 6.81(b)(7).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (``Act''), in general. Specifically, 
the Exchange believes the proposed rule change is consistent with 
Section 6(b)(4) of the Act,\6\ which requires that Exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its Trading Permit Holders and other persons using 
its facilities. Additionally, 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 
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)(4).
    \7\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change ensures that CBOE TPHs and 
non-CBOE TPH broker dealers that use a Participant's order router 
functionality are provided current consolidated market data for complex 
orders, which lets them assess the availability of price improvement at 
other markets. This information facilitates a User's compliance with 
its best execution obligations, thereby enhancing investor protection 
and promoting just and equitable principles of trade.
    In addition, the Exchange believes that this proposed change is not 
unfairly discriminatory because the proposed additional requirement is 
applicable to every Participating CBOE TPH and Participating Non-CBOE 
TPH. Additionally, every user of a Participant's order routing 
functionality would be receiving the consolidated market data for 
complex orders. Finally, any CBOE TPH or broker-dealer that is not a 
CBOE TPH may participate in the CORS Program, provided that its complex 
order routing functionality incorporates the requirements set forth in 
SR-CBOE-2013-032 and above.

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 that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed change will impose an unnecessary burden on 
intramarket competition because it will apply equally to all 
participating parties. Additionally, the Exchange believes the proposed 
rule change will reduce the burdens on investors who use a 
Participant's order routing functionality that result from having to 
comply with best execution obligations, as they will not themselves 
individually receive market data for complex orders from each exchange 
that offers complex order execution systems. Further, the Exchange does 
not believe that such change will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The Exchange notes that, should the proposed 
changes make CBOE more attractive for trading, market participants 
trading on other exchanges can always elect to provide order routing 
functionality to CBOE for complex orders or use order routing 
functionalities that are a part of the CORS Program for complex orders.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \8\ and paragraph (f) of Rule 19b-4 \9\ 
thereunder. At any time within 60 days of the filing of the 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 will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f).
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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-2013-050 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-2013-050. 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

[[Page 28908]]

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-2013-050, and should be submitted on or before June 
6, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11676 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P


