
[Federal Register Volume 80, Number 208 (Wednesday, October 28, 2015)]
[Notices]
[Pages 66102-66104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27343]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76223; File No. SR-CBOE-2015-097]


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

October 22, 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 October 21, 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 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 the 
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 including 
Obvious Errors). 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 .01 to Rule 6.25, explained in further detail below, is 
currently operating on a pilot program set to expire on October 23, 
2015. The Exchange proposes to extend the pilot program so that it 
coincides with the pilot period for the Plan to Address Extraordinary 
Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act 
(``Limit Up-Limit Down Plan'' or ``Plan''), including any extensions to 
the pilot period for the Plan. Currently the Plan Participants have 
proposed the 9th amendment to the Plan which, if approved, would extend 
the pilot period of the Plan to April 22, 2016.\3\
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    \3\ See Securities Exchange Act Release No. 75917 (September 14, 
2015), 80 FR 56515 (September 18, 2015) (File No. 4-631).
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    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.\4\ Under the terms of this current pilot program, though options 
executions will generally not be subject to review as an Obvious Error 
or

[[Page 66103]]

Catastrophic Error 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 sub-
paragraph (c)(3) of Rule 6.25, or a bust or adjust pursuant to 
paragraphs (e) through (j) and Interpretation .05 of Rule 6.25.\5\
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    \4\ Securities Exchange Act Release No. 69328 (April 5, 2013), 
78 FR 21642 (April 11, 2013) (SR-CBOE-2013-030). See also Exchange 
Rule 6.25.01.
    \5\ Id.
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    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.\6\ 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.\7\ Pursuant to a rule filing, approved on April 3, 
2014, each month, the Exchange committed to provide 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.\8\ The Exchange will continue to provide the Commission with 
this data on a monthly basis from October 2015 through the end of the 
pilot. 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 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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    \6\ See letter from Angelo Evangelou, Associate General Counsel, 
Chicago Board Options Exchange, Incorporated, date April 4, 2013.
    \7\ Id.
    \8\ Securities Exchange Act Release No. 71857 (April 3, 2014), 
79 FR 19678 (April 9, 2014) (SR-CBOE-2014-033).
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    In addition, the Exchange will provide to the Commission, and the 
public, 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. The Exchange 
agrees to provide the analysis and data, to the commission, to help 
evaluate the impact of the pilot program no later than five months 
prior to the expiration of the pilot program, including any extensions. 
If the Plan extension is approved, the next data assessment will be 
submitted no later than December 18, 2015.
    The Exchange is now proposing to extend the pilot period so that it 
coincides with the pilot period for the Plan, including any extensions 
to the pilot period for the Plan. The pilot will no longer have a fixed 
expiration date. The Exchange believes the benefits to market 
participants from this provision should continue on a pilot basis to 
coincide with the Plan. 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 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.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \10\ 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) \11\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 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. The Exchange 
now proposes to extend the pilot program so that it coincides with the 
pilot period for the Plan, including any extensions to the pilot period 
for the Plan. 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 duration of the pilot to coincide with 
the pilot period for the Plan, 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.

[[Page 66104]]

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 \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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 Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest, 
as it will allow the obvious error pilot program to continue 
uninterrupted while the industry gains further experience operating 
under the Plan, and avoid any investor confusion that could result from 
a temporary interruption in the pilot program. For this reason, the 
Commission designates the proposed rule change to be operative upon 
filing.\14\
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    \14\ 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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    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-2015-097 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-2015-097. 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 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-2015-097, and should be 
submitted on or before November 18, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-27343 Filed 10-27-15; 8:45 am]
 BILLING CODE 8011-01-P


