
[Federal Register Volume 78, Number 211 (Thursday, October 31, 2013)]
[Notices]
[Pages 65402-65407]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-25828]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70755; File No. SR-CBOE-2013-102]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change To Amend CBOE 
Rule 6.2B To Establish Modified Hybrid Opening System Opening 
Procedures for All Volatility Index Constituent Options

October 25, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 15, 2013, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. 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

    CBOE proposes to amend CBOE Rule 6.2B to establish modified Hybrid 
Opening System (``HOSS'') opening procedures for all option series that 
are used to calculate volatility indexes. 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.

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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On the expiration/final settlement date for volatility index 
options and futures, modified Hybrid Opening System (HOSS) opening 
procedures are used for Hybrid 3.0 options and series that are used to 
calculate the exercise settlement/final settlement value for expiring 
volatility index options and futures contracts.\3\ The exercise 
settlement/final settlement value for volatility index options and 
futures is a

[[Page 65403]]

Special Opening Quotation (``SOQ'') of the respective volatility index 
calculated from the sequence of opening prices, as traded on CBOE, of a 
single strip of constituent options used to calculate the exercise 
settlement value on expiration dates. The opening price for any 
constituent option series in which there is no trade on CBOE is the 
average of that option series' bid price and ask price as determined at 
the opening of trading.
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    \3\ The expiration/final settlement date for volatility index 
options and futures is the same day that the exercise settlement/
final settlement value is calculated for those contracts. See CBOE 
Rule 24.9(a)(5) and CBOE Futures Exchange, LLC (``CFE'') Rule 
1202(b). This date is on the Wednesday that is thirty days prior to 
the third Friday of the calendar month immediately following the 
month in which the applicable volatility index options or futures 
contract expires. If the third Friday of the month subsequent to 
expiration of the applicable volatility index option or futures 
contract is a CBOE holiday, the exercise settlement/final settlement 
value will be calculated on the business day immediately preceding 
that Friday.
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    Standard expiration options (i.e., third Friday expirations) on the 
S&P 500 index are the only Hybrid 3.0 option series for which modified 
HOSS opening procedures are utilized (``SPX option series''). SPX 
option series are used to calculate the CBOE Volatility Index (``VIX'' 
or ``VIX index'').\4\ As a result, the only volatility index products 
whose exercise settlement/final settlement values are currently 
calculated in this manner are VIX options traded on CBOE and VIX 
futures contracts traded on CFE.
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    \4\ Some series of the S&P 500 index option class are Hybrid 
series.
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    CBOE and CFE, however, trade options and futures on other 
volatility indexes \5\ and normal HOSS opening procedures are used on 
all days for the constituent options in those volatility indexes, 
including the expiration/final settlement dates for those volatility 
index contracts. This is because the constituent option series of those 
volatility indexes trade on the Hybrid platform and the modified HOSS 
opening procedures for Hybrid 3.0 classes and series are not applicable 
to those classes and series. The purpose of this filing is to align the 
opening procedures for calculating the exercise settlement/final 
settlement value for all volatility index products as closely as 
possible to the existing and known modified HOSS opening procedures 
used to calculate the VIX exercise/final settlement value.
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    \5\ For example: the CBOE Nasdaq-100 Volatility Index (``VXN''), 
the CBOE Russell 2000 Volatility Index (``RVX''), the CBOE Gold ETF 
Volatility Index (``GVZ'') and the CBOE Crude Oil ETF Volatility 
Index (``OVX''). This list is not exhaustive.
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    In addition to the existing volatility indexes calculated using 
Hybrid option series, the Exchange has created a new volatility index 
that measures a 9-day period of implied volatility: The CBOE Short-Term 
Volatility Index (``VXST'' or ``VXST index'').\6\ The Exchange 
understands that there is an unmet market demand for derivatives that 
expire each week on a short-term volatility index. In order to respond 
to that demand, the Exchange plans to introduce VXST security options 
(to be traded on CBOE) and VXST futures (to be traded on CFE) that 
expire every Wednesday. These new VXST products will trade alongside 
existing VIX options and VIX futures, (which expire on a monthly basis) 
and on one Wednesday each month, the Exchange plans to calculate two 
exercise settlement/final settlement values based on S&P 500 index 
option series to settle expiring VIX and VXST options and futures.
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    \6\ The VIX index measures a 30-day period of expected 
volatility and is calculated using S&P 500 index option series that 
expire in 30 days. The VXST index measures a 9-day period of 
expected volatility and is calculated using S&P 500 index option 
series that expire in 9 days.
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    In terms of product launches, the Exchange anticipates that CFE 
will list VXST futures prior to CBOE listing VXST options. This order 
of product launches is consistent with the past practice of introducing 
volatility index futures prior to volatility index options due to the 
use by many market participants of futures as proxies for forward 
volatility index levels when pricing options.
    The VXST index is calculated using S&P 500 index option series that 
expire on every Friday, including standard SPX option series (i.e., 
third Friday expirations). The non-standard expiration constituent S&P 
500 index option series are: (1) Listed under various Exchange rules; 
(2) may expire on Fridays other than the third Friday of the month; (3) 
Hybrid series and Hybrid 3.0 series; and (4) considered part of the S&P 
500 index option class. The below chart sets forth a hypothetical 
listing schedule identifying the VXST derivative expiration/final 
settlement date, the constituent S&P 500 index option series and 
expiration/final settlement date and the trading platform of the 
constituent option series:

----------------------------------------------------------------------------------------------------------------
                                                             Constituent S&P 500 index
    VXST derivative expiration/final  settlement date      option series and expiration     Type of constituent
                                                                       date                       series
----------------------------------------------------------------------------------------------------------------
Wednesday, August 31, 2016..............................  End-of-Week Expiration *        Hybrid.
                                                           (ticker: SPXW), Expires
                                                           Friday, September 9, 2016.
Wednesday, September 7, 2016............................  Standard Expiration (ticker:    Hybrid 3.0.
                                                           SPX), Expires Friday,
                                                           September 16, 2016.
Wednesday, September 14, 2016...........................  End-of-Week Expiration *        Hybrid.
                                                           (ticker: SPXW), Expires
                                                           Friday, September 23, 2016.
Wednesday, September 21, 2016...........................  Quarterly Index Expiration **   Hybrid 3.0.
                                                           (ticker: SPXQ), Expires on
                                                           Friday, September 30, 2016.
----------------------------------------------------------------------------------------------------------------
* Listed under Rule 24.9(e).
** Listed under Rule 24.9(c).

    As shown above, because some VXST constituent S&P 500 index option 
series are Hybrid series, the modified HOSS opening procedures for 
Hybrid 3.0 series are not applicable to those S&P 500 index option 
series.\7\ This filing proposes to align the opening procedures on 
Wednesdays for all VXST constituent S&P 500 index option series to the 
existing and known modified HOSS opening procedures used to calculate 
the exercise/final settlement value for VIX derivatives.
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    \7\ The Exchange is proposing this change in order to calculate 
a final settlement value for VXST futures contracts. The Exchange 
will submit a filing to the Commission to list VXST options 
separately.
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What are the modified HOSS opening procedures?
    The main feature of the modified HOSS opening procedures utilized 
in Hybrid 3.0 classes and series (i.e., SPX options) on VIX derivative 
expiration/final settlement dates is the strategy order \8\ cut-off 
time for the SPX option series that will be used to calculate the 
exercise settlement/final settlement value for VIX derivatives. Rule 
6.2B.01(c)(iii)(B)(1)-(3) sets forth three characteristics that the 
Exchange considers strategy orders to possess:
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    \8\ Option orders that are related to position in, or a trading 
strategy involving, volatility index options or futures are known as 
``strategy orders,'' under Rule 6.2B.01(c)(iii).
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    (1) The orders are for options series with the expiration month 
that will be used to calculate the settlement price of the applicable 
volatility index option or futures contract;
    (2) The orders are for options series spanning the full range of 
strike prices in the appropriate expiration month for options series 
that will be used to calculate the settlement price of the applicable 
volatility index option or futures contract, though they will not

[[Page 65404]]

necessarily include every available strike price; and
    (3) The orders are for put options with strikes prices less than 
the ``at-the-money'' strike price or for call options with strike 
prices greater than the ``at-the-money'' strike price. The orders may 
also be for put and call options with ``at-the-money'' strike prices.
    Rule 6.2B.01(c)(iii)(B) also gives the Exchange discretion to deem 
other types of orders to fall within the category of ``strategy 
orders'' if the Exchange determines that the applicable facts and 
circumstances warrant. Under current Rule 6.2B.01(c)(iii), all strategy 
orders must be submitted by 8:15 a.m. (Chicago time).\9\ In two limited 
circumstances, strategy orders may be cancelled.\10\
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    \9\ The applicable cut-off time for the entry of strategy orders 
is established by the Exchange on class-by-class. See Rule 
6.2B.01(c)(i)(A) and CBOE Regulatory Circular RG08-43 (Cut-Off Time 
for Submission of Strategy Orders for Participation in SPX Modified 
HOSS Opening Procedure).
    \10\ These circumstances include when the order is not executed 
in the modified HOSS opening procedures and the cancellation or 
change is submitted after the modified HOSS opening procedures are 
concluded or if there is a legitimate error and the procedures for 
cancelling or changing a legitimate error are followed as set forth 
in Rule 6.2B.01(c)(iii)(B).
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    As background, the Exchange notes that market participants that 
actively trade VIX derivatives (e.g., options and futures) often hedge 
their positions with the SPX option series that will be used to 
calculate the VIX exercise settlement/final settlement value. Traders 
holding hedged VIX derivatives positions can be expected to trade out 
of their SPX option series on the relevant VIX expiration/final 
settlement date. Specifically, traders holding short, hedged VIX 
products would liquidate that hedge by selling their SPX option series, 
while traders holding long, hedged VIX products would liquidate their 
hedge by buying SPX option series. In order to seek convergence with 
the VIX exercise settlement/final settlement value, these traders would 
be expected to liquidate their hedges by submitting market orders or 
limit orders in the appropriate SPX option series during the SPX 
opening on the VIX expiration/final settlement date.
    The strategy order cut-off time exists because trades to liquidate 
hedges can contribute to an order imbalance during the SPX opening on 
VIX expiration/final settlement dates. For example, traders liquidating 
hedges may predominately be on one side of the market (e.g., seek to 
buy the particular SPX option series) and those traders' orders may 
create buy or sell order imbalances during the SPX opening on a VIX 
expiration/final settlement date. As a result of having a strategy 
order cut-off time in place, the Exchange has created a window to 
encourage additional participation in the modified HOSS opening 
procedures among market participants who may wish to place off-setting 
orders against imbalances to which strategy orders may have 
contributed.\11\ The Exchange also hopes that during this time period 
market participants will also enter orders that will result in price 
improvement in those SPX options series that are used to calculate the 
VIX exercise settlement/final settlement value.
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    \11\ Any imbalance of contracts to buy over contracts to sell in 
the applicable index option series, or vice versa, as indicated on 
the electronic book, as well as expected opening prices and sizes 
are periodically published in a snapshot form on the CBOE and CFE 
Web sites as soon as practicable up through the opening on 
settlement days when the modified HOSS opening procedures are 
utilized. See CBOE Rule 6.2B.01(vi). They are also periodically 
disseminated on the Hybrid trading system.
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    For the same reasons set forth above, the Exchange now seeks to 
establish a strategy order cut-off time: (1) For all constituent option 
series used to calculate volatility indexes on the expiration/final 
settlement dates for volatility index derivatives; and (2) for all 
constituent SPX option series used to calculate the VXST on every 
Wednesday.
Proposed Modified HOSS Opening Procedures for Hybrid Classes and Series
    The Exchange proposes to adopt new Interpretation and Policy .08 to 
Rule 6.2B to set forth the modified HOSS opening procedures for Hybrid 
classes and series used to calculate volatility indexes.
    First, the Exchange proposes to set forth the applicable days for 
when the modified HOSS opening procedures would apply. (All provisions 
set forth in Rule 6.2B would remain in effect unless superseded or 
modified by proposed Rule 6.2B.08.) For 30-day volatility indexes, the 
modified HOSS opening procedures would be utilized on the days that the 
exercise settlement value and final settlement value is calculated for 
options (as determined under Rule 24.9(a)(5)) or (security) futures 
contracts on volatility indexes measuring a 30-day volatility 
period.\12\ For short-term volatility indexes, the modified HOSS 
opening procedures would be utilized every Wednesday for Hybrid classes 
and series that are used to calculate volatility indexes measuring a 9-
day volatility period. If a Wednesday is an Exchange holiday or if the 
Friday in the business [sic] following a Wednesday is an Exchange 
holiday, then the modified HOSS opening procedures would be utilized on 
a Tuesday.\13\
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    \12\ See supra note 1 [sic].
    \13\ The Exchange is identifying the days that the modified HOSS 
opening procedures would apply in proposed Rule 6.2B.08 because 
those days need to be identified in order to calculate a final 
settlement value for VXST futures. The Exchange expects to amend 
this provision when the Exchange makes a filing with the Commission 
to list VXST options. Specifically, the Exchange plans to establish 
an expiration date and exercise settlement rule for VXST options 
that would be comparable to Rule 24.9(a)(5).
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    Second, the Exchange proposes to provide that on applicable days, 
all orders in Hybrid classes and series used to calculate 30-day and 
short-term volatility indexes (including public customer, broker-
dealer, Exchange Market-Maker, away Market-Maker and Specialist 
orders), other than spread or contingency orders, would be eligible to 
be placed on the electronic book for the purpose of permitting those 
orders to participate in the opening price calculation for the 
applicable option class or series.
    Third, the Exchange proposes to establish criteria for strategy 
orders, a cut-off time to be established by the Exchange on a class-by-
class basis and a prohibition against cancelling strategy orders; with 
the limited exception that would permit strategy order to be cancelled 
if the order is (i) not executed in the modified HOSS opening 
procedures and the cancellation is submitted after the procedures have 
concluded, or (ii) cancelled to correct a legitimate error. These 
proposed provisions are substantially the same as the existing 
provisions set forth in Rule 6.2B.01. The specific provisions proposed 
to be adopted are:
    On the days that the modified HOSS opening procedures would be 
utilized, the following provisions would apply to all volatility index 
option components:
     All option orders for participation in modified HOSS 
opening procedures that are related to positions in, or a trading 
strategy involving, volatility index options or (security) futures, and 
any change to or cancellation of any such order:
    [cir] must be received prior to the applicable strategy order cut-
off time for the affected option series (established by the Exchange on 
a class-by-class basis), provided that the strategy order cut-off time 
will be no earlier than 8:00 a.m. and no later than the opening of 
trading in the option series. All pronouncements regarding changes to 
the applicable strategy order cut-off time would be announced at least 
one day prior to implementation.
    [cir] may not be cancelled or changed after the applicable strategy 
order cut-off

[[Page 65405]]

time established in accordance with paragraph (c)(i) to Rule 6.2B.08, 
unless the order is not executed in the modified HOSS opening 
procedures and the cancellation or change is submitted after the 
modified HOSS opening procedures are concluded (provided that any such 
order may be changed or cancelled after the applicable strategy order 
cut-off time established in accordance with paragraph (c)(i) to Rule 
6.2B.08 and prior to applicable cut-off time established in accordance 
with paragraph (d) to Rule 6.2B.08 in order to correct a legitimate 
error, in which case the Trading Permit Holder submitting the change or 
cancellation would be required to prepare and maintain a memorandum 
setting forth the circumstances that resulted in the change or 
cancellation and shall file a copy of the memorandum with the Exchange 
no later than the next business day in a form and manner prescribed by 
the Exchange).
    In general, the Exchange would consider option orders to be related 
to positions in, or a trading strategy involving, volatility index 
options or (security) futures for purposes of Rule 6.2B.08 if the 
orders possess the following three characteristics:
     The orders are for option series with the expirations that 
will be used to calculate the exercise settlement or final settlement 
value of the applicable volatility index option or (security) futures 
contract.
     The orders are for options series spanning the full range 
of strike prices for the appropriate expiration for options series that 
will be used to calculate the exercise settlement or final settlement 
value of the applicable volatility index option or (security) futures 
contract, but not necessarily every available strike price.
     The orders are for put options with strike prices less 
than the ``at-the-money'' strike price and for call options with strike 
prices greater than the ``at-the-money'' strike price. The orders may 
also be for put and call options with ``at-the-money'' strike prices.
    Whether option orders are related to positions in, or a trading 
strategy involving, volatility index options or (security) futures for 
purposes of this Rule 6.2B.08 would depend upon specific facts and 
circumstances. Order types other than those provided above may also be 
deemed by the Exchange to fall within this category of orders if the 
Exchange determines that to be the case based upon the applicable facts 
and circumstances.
    Fourth, the Exchange proposes to provide that the provisions of 
Rule 6.2B.08 may be suspended by two Floor Officials in the event of 
unusual market conditions.
    Fifth, the Exchange proposes to provide that all other option 
orders for participation in the modified HOSS opening procedures, and 
any change to or cancellation of any such order, would be required to 
be received prior to the applicable cut-off time in order to 
participate at the opening price for the applicable option series. The 
applicable cut-off time for the affected option series would be 
established by the Exchange on a class-by-class basis, provided the 
cut-off time would be no earlier than 8:25 a.m. and no later than the 
opening of trading in the option series. All pronouncements regarding 
changes to the applicable cut-off time would be announced at least one 
day prior to implementation.
    Sixth, the Exchange proposes to provide that any imbalance of 
contracts to buy over contracts to sell in the applicable option 
series, or vice versa, as indicated on the electronic book, would be 
published as soon as practicable up through the opening of trading in 
the affected series on days that the modified HOSS opening procedures 
are utilized.
    The Exchange notes that there are certain provisions set forth in 
Rule 6.2B.01 that the Exchange is not proposing to adopt as parallel 
provision to proposed Rule 6.2B.08. The provisions set forth in Rules 
6.2B.01(a), (b) and (c)(ii) pertain to opening requirements for 
liquidity providers that only apply to Hybrid 3.0 classes and series. 
For Hybrid classes and series, the applicable opening provisions for 
liquidity providers are set forth in Rule 6.2B. The key difference is 
that liquidity providers in Hybrid 3.0 classes and series are required 
to enter opening quotes whereas no such requirement exists for Hybrid 
classes and series.
    In addition, the Exchange is not proposing to adopt a provision 
similar to Rule 6.2B.01(c)(v) which provides that the HOSS system 
automatically generates cancels immediately prior to the opening of the 
applicable index option series for broker-dealer, Exchange Market-
Maker, away Market-Maker, and Specialist orders which remain on the 
electronic book following the modified HOSS opening procedures. This is 
another difference between Hybrid 3.0 classes and series and Hybrid 
classes and series in that a similar automatic cancellation function 
does not occur for Hybrid classes and series because orders from those 
participants would be permitted to rest in the electronic book 
following the modified HOSS opening procedures.
Proposed Non-Substantive Changes to Rule 6.2B.01
    The Exchange is taking this opportunity to make some non-
substantive changes to Rule 6.2B.01. First, the Exchange is proposing 
to delete the sentence that is set forth in from [sic] Rule 6.2B.01(b). 
This provision provides that (on all days), series will not open if 
there is not a quote present in that series that complies with the bid/
ask different [sic] requirements that the Exchange establishes on a 
class-by-class basis. This same requirement is set forth earlier in 
Rule 6.2(e). Therefore, the second sentence to Rule 6.2B.01(b) can be 
deleted.
    Second, the Exchange is proposing to amend Rule 6.2B.01(c)(i). On 
all days, non-customer orders in Hybrid 3.0 classes and series are not 
permitted to rest in the book after the open. Accordingly, non-
customers must submit ``opening rotation orders'' (``OPG'') in order to 
participate in the opening.\14\ If non-customer orders are not 
submitted as OPG orders, those orders will not participate in the 
opening rotation. An OPG order is not technically a contingency but is 
a requirement for non-customers to participate in the opening for 
Hybrid 3.0 classes and series. As a result, the Exchange proposes to 
add the phrase ``non-OPG'' before ``contingency orders'' in Rule 
6.2B.01(c)(i) to make that rule clearer.
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    \14\ See Rule 6.53(l), which defines ``Opening Rotation Order.'' 
After the opening rotation is concluded, unfilled OPG orders are 
cancelled. See also CBOE Regulatory Circular RG07-097 (SPX Trading 
on Hybrid 3.0).
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    Third, the Exchange is proposing amend Rule 6.2B.01 to include the 
correct terminology conventions for options and futures throughout Rule 
6.2B.01. The Exchange notes that options expire on an expiration date 
and settle to an exercise settlement value. Futures settle on a final 
settlement date and settle to a final settlement value. Where 
appropriate, the Exchange is adding the correct terminology throughout 
Rule 6.2B.01.
    Fourth, the Exchange is proposing to change the reference to 
``month'' as used in Rule 6.2B.01(c)(i) and (c)(iii)(B)(2) [sic] to 
``expiration.'' The reference to month is used to designate which 
month's option series will be used to calculate a 30-day volatility 
index. Because options series that expire more often than monthly will 
be used to calculate the VXST, the Exchange is proposing to amend these 
provisions to account for the existence of volatility

[[Page 65406]]

indexes that expire more frequently than on a once per month basis.
    Fifth, the Exchange is proposing to add more specific rule 
citations throughout Rule 6.2B.01. Currently, there are several cross 
references throughout Rule 6.2B.01 to Rule 6.2B and Rule 6.2B.01. In 
order to be more clear (because some of the same numbering conventions 
are used in these provisions and could be confusing), the Exchange is 
proposing to add specific rule references (instead of just 
subparagraphs) throughout Rule 6.2B.01.
    Sixth, the Exchange is proposing to replace the reference to the 
``opening bell'' to [sic] the ``opening of trading in the affected 
series'' in Rule 6.2B.01(vi) [sic]. This change is being proposed to 
make that provision more specific in its description of when imbalances 
will be published.
    Finally, the Exchange is proposing to make a few grammatical 
changes throughout Rule 6.2B.01.
Proposed Changes to Rule 24.9(a)(5)
    The Exchange is proposing to amend Rule 24.9(a)(5), which sets 
forth the method of determining the day that the exercise settlement 
value will be calculated and of determining the expiration date and 
last trading day for volatility index options. Specifically, the 
Exchange is proposing to add the phrase ``Measure a 30-Day Volatility 
Period.'' This change is being proposed to account for the existence of 
two different volatility index products that overlie different implied 
volatility measurement periods. As described in footnote 13, when the 
Exchange makes a filing with the Commission to list VXST options, the 
Exchange plans to establish a proposed similar rule setting forth 
similar information for VXST options.
Surveillance
    The Exchange currently conducts heightened surveillance on the days 
when the modified HOSS opening procedures are utilized. Those same 
heightened surveillance practices will be utilized on every Wednesday 
and the Exchange represents that these surveillance practices shall be 
adequate to monitor trading in all constituent option series used to 
calculate volatility indexes. The Exchange expects to enhance 
surveillance practices in tandem with any resultant trading volume 
growth.
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.\15\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \16\ 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    The primary purpose of the proposed rule change is to establish a 
strategy-order cut-off time for option series on the day those option 
series are used to calculate the exercise settlement/final settlement 
value for volatility index options and futures. Because those option 
series are typically used to hedge VIX derivatives, market participant 
[sic] liquidating their hedges on expiration/final settlement dates may 
contributed to an order imbalance. The proposed rule change will 
protect investors and the public interest because the strategy order 
cut-off time provides a time period prior to the open of trading during 
which market participants may help reduce order imbalances for 
volatility index options. The Exchange notes that a series will not 
open if there is an imbalance. By creating a window of opportunity to 
enter orders that reduce any order imbalances to which strategy orders 
may have contributed, the Exchange is establishing a procedure that is 
designate [sic] to facilitate a more stable opening process.
    In addition, the Exchange hopes that the establishment of a 
strategy cut-off time will result in market participants submitting 
orders that would result in price improvement to the option series used 
to calculate exercise settlement/final settlement values for volatility 
index derivatives.

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 not necessary or appropriate in furtherance of 
the purposes of the Act. Specifically, CBOE believes that the 
establishment of a strategy-order cut-off time results in all market 
participants, that hedge volatility index derivative using constituent 
volatility index options, being treated the same and does not impose 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to 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 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-2013-102 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-2013-102. 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

[[Page 65407]]

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-2013-102 and should be submitted on or before 
November 21, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-25828 Filed 10-30-13; 8:45 am]
BILLING CODE 8011-01-P


