
[Federal Register Volume 80, Number 102 (Thursday, May 28, 2015)]
[Notices]
[Pages 30514-30517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12832]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75026; File No. SR-CBOE-2015-048]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change To Amend 
Exchange Rules Related to Order Tickets

May 21, 2015.
    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 11, 2015, 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 Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing this 
notice to solicit comments on the

[[Page 30515]]

proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange seeks to amend its rules related to order tickets. The 
text of the proposed rule change is provided below.

(additions are italicized; deletions are [bracketed])
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 6.53. Certain Types of Orders Defined

* * * * *

. . . Interpretations and Policies:

    .01 No change.
    .02 Complex orders of twelve (12) legs or less (one leg of which 
may be for an underlying security or security future, as applicable) 
must be entered on a single order ticket at time of systemization. If 
permitted by the Exchange (which the Exchange will announce by 
Regulatory Circular), complex orders of more than twelve (12) legs (one 
leg of which may be for an underlying security or security future, as 
applicable) may be split across multiple order tickets if the Trading 
Permit Holder representing the complex order [includes twelve (12) legs 
on one of the order tickets] uses the fewest order tickets necessary to 
systematize the order and identifies for the Exchange the order tickets 
that are part of the same complex order (in a form and manner 
prescribed by the Exchange).
* * * * *

Rule 24.20. SPX Combo Orders

* * * * *

. . . Interpretations and Policies:

    .01 An SPX Combo Order for twelve (12) legs or less must be entered 
on a single order ticket at time of systemization. If permitted by the 
Exchange (which the Exchange will announce by Regulatory Circular), an 
SPX Combo Order for more than twelve (12) legs may be represented or 
executed as a single SPX Combo Order in accordance with this Rule 24.20 
if it is split across multiple order tickets and the Trading Permit 
Holder representing the SPX Combo Order [includes twelve (12) legs on 
one of the order tickets] uses the fewest order tickets necessary to 
systematize the order and identifies for the Exchange the order tickets 
that are part of the same SPX Combo Order (in a manner and form 
prescribed by the Exchange).
* * * * *
    The text of the proposed rule change is also 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 the order ticket requirements 
applicable to complex orders in open outcry pursuant to Rule 6.53, as 
well as SPX Combo Orders \5\ pursuant to Rule 24.20.
---------------------------------------------------------------------------

    \5\ An ``SPX Combo Order'' consists of an order to purchase or 
sell one or more SPX option series and the offsetting number of SPX 
combinations defined by the delta, where an ``SPX combination'' is a 
purchase (sale) of an SPX call and sale (purchase) of an SPX put 
having the same expiration date and strike price and a ``delta'' is 
the positive (negative) number of SPX combinations that must be sold 
(bought) to establish a market neutral hedge with one or more SPX 
option series.
---------------------------------------------------------------------------

Background
    On February 26, 2015, rule change filing SR-CBOE-2015-011 was 
approved by the Securities and Exchange Commission (the 
``Commission'').\6\ As amended by SR-CBOE-2015-011, Rule 6.53 requires 
complex orders of twelve (12) legs or less (one leg of which may be for 
an underlying security or security future, as applicable) to be entered 
on a single order ticket at time of systemization. Rule 6.53, as 
amended, also states that if permitted by the Exchange (which the 
Exchange will announce by Regulatory Circular), complex orders of more 
than twelve (12) legs (one leg of which may be for an underlying 
security or security future, as applicable) may be split across 
multiple order tickets, if the Trading Permit Holder (``TPH'') 
representing the complex order includes twelve (12) legs on one of the 
order tickets and identifies for the Exchange the order tickets that 
are part of the same complex order (in a form and manner prescribed by 
the Exchange).
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 34-74389 (February 26, 
2015), 80 FR 11717 (March 4, 2015) (``Order'').
---------------------------------------------------------------------------

    Rule 24.20, as amended, also requires that an SPX Combo Order for 
twelve (12) legs or less be entered on a single order ticket at time of 
systemization. An SPX Combo Order that contains more than twelve (12) 
legs may be represented and executed as a single SPX Combo Order in 
accordance with Rule 24.20 if it is split across multiple order tickets 
and the TPH representing the SPX Combo Order includes twelve (12) legs 
on one of the order tickets and identifies for the Exchange the order 
tickets that are part of the same SPX Combo Order (in a manner and form 
prescribed by the Exchange).
    As noted above, SR-CBOE-2015-011 specifically provided that if an 
open outcry complex order or an SPX Combo Order with more than twelve 
legs is split across multiple order tickets, one of the order tickets 
must contain twelve legs. For example, a thirteen leg order could not 
have seven legs on one ticket and six legs on another ticket; rather, 
one ticket must have twelve legs and the other ticket must have one 
leg. However, prior to the Commission's approval of SR-CBOE-2015-011, 
the Exchange held an informational session for Floor Broker Trading 
Permit Holders regarding the requirement to use a single order ticket 
to enter complex orders and SPX Combo Orders of twelve legs or 
fewer.\7\ At the informational session, Floor Broker TPHs indicated 
that for a 13 leg order in SPX (where the rule requires 12 legs to be 
on 1 order ticket and the 13th leg to be on a

[[Page 30516]]

separate order ticket), the 13th leg would not be able to execute in 
complex order increments (pennies) because CBOE's Hybrid System (the 
``System'') would block the trade.\8\ In effect, the System would treat 
the 13th leg as a simple order that is ineligible to execute in penny 
increments.\9\
---------------------------------------------------------------------------

    \7\ See CBOE Information Circular IC15-012 (February 24, 2015).
    \8\ For certain options, SPX options included, single leg orders 
may not be executed in $0.01 increments, but individual legs of 
complex orders may be executed in $0.01 increments. See Rule 6.42.
    \9\ The Exchange notes that the System would treat any 
standalone leg of a complex order in the same manner.
---------------------------------------------------------------------------

    Additionally, for complex orders with over twelve legs and an equal 
number of put legs versus call legs, Floor Broker TPHs expressed the 
desire to place the put legs on one order ticket and the call legs on a 
separate order ticket. The Floor Broker TPHs indicated that splitting 
an order across multiple order tickets in this manner is a more 
efficient and simpler way to price the entire complex order.
Proposal
    In an effort to address the above concerns and maintain an 
effective audit trail, the Exchange is seeking to amend Rules 6.53.02 
and 24.20.1 by removing the requirement that for orders with over 12 
legs TPHs must include 12 legs on one of the order tickets. As 
proposed, Rule 6.53.02 will provide:
     Complex orders of twelve (12) legs or less (one leg of 
which may be for an underlying security or security future, as 
applicable) must be entered on a single order ticket at time of 
systemization. If permitted by the Exchange (which the Exchange will 
announce by Regulatory Circular), complex orders of more than twelve 
(12) legs (one leg of which may be for an underlying security or 
security future, as applicable) may be split across multiple order 
tickets if the Trading Permit Holder representing the complex order 
uses the fewest order tickets necessary to systematize the order and 
identifies for the Exchange the order tickets that are part of the same 
complex order (in a form and manner prescribed by the Exchange).

Proposed Rule 24.20.01 will similarly provide:

    An SPX Combo Order for twelve (12) legs or less must be entered on 
a single order ticket at time of systemization. If permitted by the 
Exchange (which the Exchange will announce by Regulatory Circular), an 
SPX Combo Order for more than twelve (12) legs may be represented or 
executed as a single SPX Combo Order in accordance with this Rule 24.20 
if it is split across multiple order tickets and the Trading Permit 
Holder representing the SPX Combo Order uses the fewest order tickets 
necessary to systematize the order and identifies for the Exchange the 
order tickets that are part of the same SPX Combo Order (in a manner 
and form prescribed by the Exchange).

As noted in the rule text, the Exchange will announce via Regulatory 
Circular whether an open outcry complex order or SPX Combo Order may 
have more than 12 legs.\10\ In addition, for orders with more than 12 
legs, the Exchange will not prescribe the number of legs that must be 
on each order ticket, except that TPHs must use the fewest number of 
tickets necessary to systematize the order.\11\ This will allow TPHs to 
split orders with more than 12 legs across multiple order tickets in 
any manner they choose, provided they use the fewest number of order 
tickets. For example, a 13 legged order could be split across two order 
tickets with 6 legs on one order ticket and 7 legs on another ticket 
but the order could not be split across three order tickets because the 
fewest number of order tickets required for an order with 13 to 24 legs 
is two.\12\ The only restriction, as provided in the rule text, is that 
for orders greater than 12 legs TPHs must use the fewest number of 
order tickets necessary to systematize the order. Without the proposed 
restriction there would be no limit on the number of order tickets a 
TPH could use to systematize an order, which could burden the manual 
process by which the CBOE Regulatory Division reviews these large 
orders. For example, without the restriction, an order with 13 legs 
could potentially be split across 13 different order tickets, which 
would require the Regulatory Division to manually review 13 different 
order tickets.
---------------------------------------------------------------------------

    \10\ As noted in SR-CBOE-2015-011, current Exchange system 
limitations prevent a multi-part order with more than 12 legs from 
being entered on a single order ticket for representation and 
execution in open outcry as a complex order or SPX Combo Order.
    \11\ The Exchange notes that the requirement to use the fewest 
order tickets necessary to systematize an order is not meant to 
allow the Exchange the flexibility to increase the number of legs 
that must be on a single order ticket; rather, the Exchange will 
submit a rule filing to amend Rules 6.53.02 and 24.20.01 if the 
Exchange seeks to modify the number of legs required to be on a 
single order ticket.
    \12\ The fewest number of order tickets necessary to systematize 
an order is based on the current Exchange system limitation, which 
caps the number of legs that can be on a single order ticket at 12 
legs. Thus, orders with 12-24 legs would be required to be on no 
more than two order tickets, orders with 25-36 legs would be 
required to be on no more than three order tickets, and so forth. As 
previously noted, the Exchange will submit a rule filing to amend 
Rules 6.53.02 and 24.20.01 if the Exchange seeks to modify the 
number of legs required to be on a single order ticket.

    The Exchange will announce the implementation date of the proposed 
rule change, as well as the specific order ticket requirements to be 
set by the Exchange in accordance with this proposed rule, in a 
Regulatory Circular to be published within 90 days of the effective 
date of this filing. The implementation date of this filing will be 
within 180 days of the effective date of this filing.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\13\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ 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

[[Page 30517]]

proposed rule change is consistent with the Section 6(b)(5) \15\ 
requirement that the rules of an exchange not be designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed rule change will 
allow the Exchange to maintain an enhanced audit trail with respect to 
open outcry complex order processing and SPX Combo Orders, which helps 
to protect investors and the public interest because an enhanced audit 
trail promotes transparency and aids in surveillance, as well as, 
provides the Exchange the ability to better enforce compliance by the 
Exchange's TPHs (and persons associated with its TPHs) with the Act, 
the rules and regulations thereunder and the rules of the Exchange, 
thereby protecting investors. Additionally, the Exchange believes 
allowing TPHs to split orders across multiple order tickets as proposed 
would allow TPHs to more quickly and efficiently systematize and 
execute open outcry complex orders and SPX Combo Orders, which helps to 
remove impediments to and perfect the mechanism of a free and open 
market. Finally, the proposal to require TPHs to use the fewest number 
of order tickets to systematize an order will prevent TPHs from 
utilizing five order tickets, for example, when two would suffice, 
which aids in surveillance and provides the Exchange the ability to 
better enforce compliance by TPHs.

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 rule change will impose any burden on intramarket or 
intermarket competition because the order ticket requirements will be 
applicable to all TPHs executing complex orders in open outcry and SPX 
Combo 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 
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \16\ and 
Rule 19b-4(f)(6) \17\ 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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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-2015-048 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-2015-048. 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-2015-048 and should be 
submitted on or before June 12, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12832 Filed 5-27-15; 8:45 am]
 BILLING CODE 8011-01-P


