
[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62887-62889]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24630]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70618; File No. SR-CBOE-2013-093]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change To Amend Rule 
6.42

October 7, 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 September 27, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.42. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Rule 6.42--Minimum Increments 
for Bids and The Exchange proposes to amend its Rule 6.42--Minimum 
Increments for Bids and Offers--regarding minimum increments of bids 
and offers for complex orders. Currently, Rule 6.42(4) states that bids 
and offers on complex orders may be expressed in any increment 
regardless of the minimum increments otherwise appropriate to the 
individual legs of the order. This language allows for complex order 
bids and offers to be expressed in any increment whatsoever. The 
Exchange believes that setting a minimum increment for bids and offers 
on complex orders of $0.01 will ensure that there is a lowest minimum 
increment for bids and offers that makes it simple to monitor and 
participate for all market participants (for example, many of the web-
based services that public customers use to enter options orders do not 
permit the entry of orders in sub-penny increments, while other types 
of market participants may not face that limitation). Further, this 
$0.01 minimum increment will put the electronic and manual entry of 
complex orders on even footing (as the Exchange's Complex Order Book 
(``COB'') and Complex Order Auction

[[Page 62888]]

(``COA'') (both being electronic complex order execution systems) are 
not configured to permit quoting in sub-penny increments.\3\) Further, 
setting a minimum increment for bids and offers at $0.01 ensures that 
price improvement occurs at a meaningful increment. Without this 
minimum, it would be possible for a market participant to jump ahead of 
another market participant's quoted price by a de minimis amount, and 
the knowledge that this could occur could discourage competitive 
quoting.
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    \3\ See CBOE Rules 6.53C(c)(ii) and 6.53C(d)(iii)(1).
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    As such, in order to limit the potential to express orders in any 
increment, the Exchange hereby proposes to state that bids and offers 
on complex orders, as defined in Interpretation and Policy .01 below, 
may be expressed in any net price increment (that may not be less than 
$0.01) that may be determined by the Exchange on a class-by-class basis 
and announced to the Trading Permit Holders (``TPHs'') via Regulatory 
Circular, regardless of the minimum increments otherwise appropriate to 
the individual legs of the order.
    The Exchange proposes adding the parenthetical language which 
allows the Exchange to set minimum increments for bids and offers on 
complex orders on a class-by-class basis and announce such minimum 
increments to TPHs via Regulatory Circular in order to ensure 
uniformity of minimum bid and offer increments within a class (as the 
Exchange may already do for bids and offers on complex orders in 
options on the S&P 500 Index (``SPX''), p.m.-settled S&P 500 Index 
(``SPXPM'') or on the S&P 100 Index (``OEX'' and ``XEO'')). The 
proposed parenthetical language would allow the Exchange to set and 
vary minimum increments for bids and offers on complex orders for 
different classes in response to different market conditions in those 
classes and in order to encourage more trading in such classes.\4\ This 
language will also ensure that TPHs are notified of such minimum 
increments via Regulatory Circular. For example, the Exchange could 
release a Regulatory Circular stating that the minimum increments for 
complex order bids and offers within a certain class would be $0.01, or 
$0.05.
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    \4\ The Exchange would not make changes to minimum increments 
for bids and offers on complex orders on an intra-day basis.
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    This proposed change will ensure that there is a lowest minimum 
increment for bids and offers on complex orders that makes it simple to 
monitor and participate for all market participants and places market 
participants entering orders manually and electronically on an equal 
footing. This is simpler and more restrictive than the current rule, 
which permits the expression of bids and offers on complex orders in 
any increment (though only complex orders entered manually can be in 
sub-penny increments), which would allow more sophisticated market 
participants entering orders electronically [sic] \5\ to express bids 
and offers in complex orders in infinitesimally small amounts.
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    \5\ The Commission notes that the word ``electronically'' here 
is a typographical error. In an email from CBOE to Commission staff 
on October 2, 2013, CBOE made clear that it meant ``manually'' where 
it presently says ``electronically.'' Accordingly, the sentence 
should read: ``This is simpler and more restrictive than the current 
rule, which permits the expression of bids and offers on complex 
orders in any increment (though only complex orders entered manually 
can be in sub-penny increments), which would allow more 
sophisticated market participants entering orders manually to 
express bids and offers in complex orders in infinitesimally small 
amounts.'' (emphasis added).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\6\ Specifically, 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 prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
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. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The Exchange believes that 
setting a minimum increment for bids and offers on complex orders of 
$0.01 will ensure that there is a lowest minimum increment for bids and 
offers in complex orders that makes it simple to monitor and 
participate for all market participants, thereby removing impediments 
to and perfecting the mechanism of a free and open market. Some market 
participants, such as public customers, may not have sophisticated 
enough order entry systems to quote in sub-penny increments, and this 
would ensure that they are placed on the same competitive footing as 
those that can do so. Further, the proposed change would place market 
participants bidding and offering electronically and manually on the 
same competitive footing, as well, since COB and COA both are not 
configured to permit quoting in sub-penny increments.\9\ Moreover, 
setting a minimum increment for bids and offers at $0.01 ensures that 
price improvement occurs at a meaningful increment. Without this 
minimum, it would be possible for a market participant to jump ahead of 
another market participant's quoted price by a de minimis amount, and 
the knowledge that this could occur could discourage competitive 
quoting (which would be an impediment to a free and open market). The 
proposed minimum increment would apply to all CBOE market participants.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
    \9\ See CBOE Rules 6.53C(c)(ii) and 6.53C(d)(iii)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    BOE 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 believes that the 
proposed change will not impose an unnecessary burden on intramarket 
competition because it applies to minimum increments for bids and 
offers on complex orders from all market participants. The Exchange 
believes that the proposed change will not impose an unnecessary burden 
on intermarket competition because it applies only to CBOE. To the 
extent that setting the lowest possible minimum increment for bids and 
offers in complex orders at $0.01 (and the other changes proposed 
herein) may be attractive to market participants at other options 
exchange, such market participants are always welcome to become CBOE 
market participants.

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

    Within 45 days of the date of publication of this notice in the 
Federal

[[Page 62889]]

Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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-2013-093 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-2013-093. 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 20549-1090, 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-2013-093, and should be submitted on or before November 12, 2013.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24630 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P


