
[Federal Register Volume 78, Number 230 (Friday, November 29, 2013)]
[Notices]
[Pages 71688-71689]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28573]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70930; File No. SR-CBOE-2013-093]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving a Proposed Rule Change To Amend CBOE Rule 
6.42

November 22, 2013.

I. Introduction

    On September 27, 2013, the Chicago Board Options Exchange, 
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities 
and Exchange Commission (the ``Commission''), pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (the ``Act'') \1\ and 
Rule 19b-4 thereunder,\2\ a proposed rule change to amend CBOE Rule 
6.42, ``Minimum Increments for Bids and Offers,'' to establish a 
minimum quoting increment for complex orders. The proposed rule change 
was published for comment in the Federal Register on October 22, 
2013.\3\ The Commission received no comment letters regarding the 
proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 70618 (October 7, 
2013), 78 FR 62887 (``Notice'').
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II. Description of the Proposal

    Currently, CBOE Rule 6.42(4) provides 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.\4\ CBOE

[[Page 71689]]

states that this language allows bids and offers for complex orders to 
be expressed in any increment whatsoever.\5\ To establish a minimum 
quoting increment for complex orders, CBOE proposes to revise CBOE Rule 
6.42(4) to state that bids and offers for complex orders may be 
expressed in any net price increment that may not be less than $0.01, 
which CBOE may determine on a class-by-class basis and announce to 
Trading Permit Holders (``TPHs'') via Regulatory Circular.\6\ CBOE 
would notify TPHs of the minimum quoting increments for complex orders 
via Regulatory Circular.\7\ CBOE would not change the minimum quoting 
increments for complex orders on an intra-day basis.\8\
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    \4\ For the purposes of CBOE Rule 6.42, a complex order is a 
spread, straddle, combination, or ratio order as defined in CBOE 
Rule 6.53, a stock-option order as defined in CBOE Rule 1.1(ii), a 
security future-option order as defined in Rule 1.1(zz), or any 
other complex order as defined in CBOE Rule 6.53C. See CBOE Rule 
6.42, Interpretation and Policy .01.
    \5\ See Notice 78 FR at 62887.
    \6\ CBOE states that the rule would allow the Exchange to 
establish uniform complex order quoting increments within a class, 
and to set and vary the minimum complex order quoting increments for 
different classes in response to different market conditions in 
those classes and to encourage more trading in those classes. CBOE 
notes that its rules currently allow it to establish minimum quoting 
increments for complex orders in options on the S&P 500 Index 
(``SPX''), the p.m.-settled S&P 500 Index (``SPXPM''), and on the 
S&P 100 Index (``OEX'' and ``XEO''). See Notice 78 FR at 62888 and 
CBOE Rule 6.42(4).
    \7\ See Notice 78 FR at 62888.
    \8\ See id. at note 4.
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    According to CBOE, many web-based services that public customers 
use to enter options orders do not permit the entry of orders in sub-
penny increments, a limitation that other market participants may not 
face.\9\ CBOE believes that the proposal will establish a minimum 
complex order quoting increment that all market participants will be 
able to monitor and in which all market participants will be able to 
enter orders.\10\ In addition, because CBOE's electronic complex order 
execution systems, the Complex Order Book (``COB'') and Complex Order 
Auction (``COA''), are not configured to permit quoting in sub-penny 
increments, the $0.01 minimum increment would place electronic and 
manually entered complex orders on an even footing.\11\ CBOE also 
believes that establishing a minimum quoting increment of $0.01 will 
assure that price improvement occurs at a meaningful increment, and 
will prevent market participants from jumping ahead of an existing 
quote by providing a de minimus amount of price improvement.\12\
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    \9\ See Notice 78 FR at 62887.
    \10\ See id.
    \11\ See Notice 78 FR at 62887-62888. See also CBOE Rules 
6.53C(c)(ii) and 6.53C(d)(iii)(1) (providing for quoting increments 
of no less than $0.01 in the COB and Requests for Responses 
(``RFRs'') in increments of no less than $0.01 in the COA). CBOE 
notes that the $0.01 minimum increment would prevent sophisticated 
market participants from manually entering complex order quotations 
in sub-penny amounts. See Notice 78 FR at 62888, note 5.
    \12\ See Notice 78 FR at 62888.
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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 the rules and 
regulations thereunder applicable to a national securities 
exchange.\13\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\14\ 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 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. As discussed above, CBOE Rule 6.42(4) currently allows 
bids and offers for complex orders to be expressed in any increment, 
which potentially could permit bids and offers for complex orders to be 
expressed in increments smaller than $0.01. In contrast, complex orders 
entered in the COB and RFR Responses to a COA auction may not be 
entered in increments smaller than $0.01.\15\ Thus, under CBOE's 
current rules, complex orders that are entered manually potentially 
could be entered in increments smaller than $0.01, while complex order 
trading interest entered electronically in the COB and the COA may not 
be entered in increments smaller than $0.01. By establishing a $0.01 
minimum quoting increment for complex orders, the proposal is designed 
to protect investors by establishing a consistent minimum quoting 
increment for complex orders that are entered manually and complex 
orders that are entered electronically through the COB and COA.
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    \13\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ See CBOE Rules 6.53C(c)(ii) and (d)(iii)(1).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-CBOE-2013-093) is approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    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. 2013-28573 Filed 11-27-13; 8:45 am]
BILLING CODE 8011-01-P


