
[Federal Register Volume 79, Number 68 (Wednesday, April 9, 2014)]
[Notices]
[Pages 19678-19680]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-07887]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71857; File No. SR-CBOE-2014-033]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Exchange Rule 6.25

April 3, 2014.
    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 April 1, 2014, 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 and II 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 extend a pilot program related to Rule 
6.25 (Nullification and Adjustment of Options Transactions). 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 purpose of this filing is to extend the effectiveness of the 
Exchange's current rule applicable to obvious errors. Interpretation 
and Policy .06 to Rule 6.25, explained in further detail below, is 
currently operating on a pilot program set to expire on April 8, 2014. 
The Exchange proposes to extend the pilot program to February 20, 2015.
    On April 5, 2013, the Commission approved, on a pilot basis, 
amendments to Exchange Rule 6.25 that stated that options executions 
will not be adjusted or nullified if the execution occurs while the 
underlying security is in a limit or straddle state as defined by the 
Plan. Under the terms of this current pilot program, though options 
executions will generally not be adjusted or nullified while the 
underlying security is in a limit or straddle state, such executions 
may be reviewed by the Exchange should the Exchange decide to do so 
under its own motion.
    Pursuant to a comment letter filed in connection with the order 
approving the establishment of the pilot, the Exchange committed to 
submit monthly data regarding the program.\3\ In addition, the Exchange 
agreed to submit an overall analysis of the pilot in conjunction with 
the data submitted under the Plan and any other data as requested by 
the Commission.\4\ The Exchange now notes that each month, the Exchange 
shall provide to the Commission, and the public, a dataset containing 
the data for each straddle and limit state in optionable stocks that 
had at least one trade on the Exchange.\5\ For each trade on the 
Exchange, the Exchange will provide (a) the stock symbol, option 
symbol, time at the start of the straddle or limit state, an indicator 
for whether it is a straddle or limit state, and (b) for

[[Page 19679]]

the trades on the Exchange, the executed volume, time-weighted quoted 
bid-ask spread, time-weighted average quoted depth at the bid, time-
weighted average quoted depth at the offer, high execution price, low 
execution price, number of trades for which a request for review for 
error was received during straddle and limit states, an indicator 
variable for whether those options outlined above have a price change 
exceeding 30% during the underlying stock's limit or straddle state 
compared to the last available option price as reported by OPRA before 
the start of the limit or straddle state (1 if observe 30% and 0 
otherwise), and another indicator variable for whether the option price 
within five minutes of the underlying stock leaving the limit or 
straddle state (or halt if applicable) is 30% away from the price 
before the start of the limit or straddle state.
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    \3\ See letter from Angelo Evangelou, Associate General Counsel, 
Chicago Board Options Exchange, Incorporated, date April 4, 2013.
    \4\ Id.
    \5\ The Exchange also notes that it will be supplying the 
Commission this data retroactively from April 2013-March 2014 as 
soon as practicable. The Exchange will also provide the Commission 
with this data on a monthly basis from March 2014 through the end of 
the pilot.
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    In addition, the Exchange will provide to the Commission, no later 
than September 30, 2014, assessments relating to the impact of the 
operation of the obvious error rules during limit and straddle states 
including: (1) An evaluation of the statistical and economic impact of 
limit and straddle states on liquidity and market quality in the 
options markets, and (2) an assessment of whether the lack of obvious 
error rules in effect during the straddle and limit states are 
problematic. This data will be submitted under separate cover. 
Confidential treatment under the Freedom of Information Act is 
requested regarding the analysis.
    The Exchange is now proposing to extend the pilot period until 
February 20, 2015. The Exchange believes the benefits to market 
participants from this provision should continue on a pilot basis. The 
Exchange continues to believe that adding certainty to the execution of 
orders in limit or straddle states will encourage market participants 
to continue to provide liquidity to the Exchange, and, thus, promote a 
fair and orderly market during these periods. Barring this provision, 
the provisions of Rule 6.25 would likely apply in many instances during 
limit and straddle states. The Exchange believes that continuing the 
pilot will protect against any unanticipated consequences in the 
options markets during a limit or straddle state. Thus, the Exchange 
believes that the protections of current Rule should continue while the 
industry gains further experience operating the Plan.
 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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    In particular, the Exchange further believes that it is necessary 
and appropriate in the interest of promoting fair and orderly markets 
to exclude transactions executed during a limit or straddle state from 
certain aspects of the Exchange Rule 6.25. The Exchange believes the 
application of the current rule will be impracticable given the lack of 
a reliable NBBO in the options market during limit and straddle states, 
and that the resulting actions (i.e., nullified trades or adjusted 
prices) may not be appropriate given market conditions. Extension of 
this pilot would ensure that limit orders that are filled during a 
limit or straddle state would have certainty of execution in a manner 
that promotes just and equitable principles of trade, removes 
impediments to, and perfects the mechanism of a free and open market 
and a national market system. Thus, the Exchange believes that the 
protections of the pilot should continue while the industry gains 
further experience operating the Plan.

 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. Specifically, the Exchange 
believes that, by extending the expiration of the pilot, the proposed 
rule change will allow for further analysis of the pilot and a 
determination of how the pilot shall be structured in the future. In 
doing so, the proposed rule change will also serve to promote 
regulatory clarity and consistency, thereby reducing burdens on the 
marketplace and facilitating investor protection.

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6)(iii) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will allow 
the Exchange to extend the pilot program prior to its expiration on 
April 8, 2014. The Exchange also stated that the proposal will allow 
for the least amount of market disruption as the pilot will continue as 
it currently does maintaining the status quo. For these reasons, the 
Commission believes that the proposed rule change presents no novel 
issues and that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest. Therefore, the 
Commission designates the proposed rule change to be operative upon 
filing.\11\
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    \11\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).

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[[Page 19680]]

    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 shall institute proceedings to 
determine whether the proposed rule should be approved or 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-2014-033 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2014-033. 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, 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-2014-033 and should be 
submitted on or before April 30, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07887 Filed 4-8-14; 8:45 am]
BILLING CODE 8011-01-P


