
[Federal Register Volume 80, Number 242 (Thursday, December 17, 2015)]
[Notices]
[Pages 78803-78804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-31682]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76622; File No. SR-CBOE-2015-089]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval of a Proposed Rule Change 
Relating to Complex Orders as Modified by Amendment No. 1

December 11, 2015.

I. Introduction

    On October 13, 2015, 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 (``Act'' or ``Exchange Act'') \1\ and 
Rule 19b-4 thereunder,\2\ a proposed rule change to: (1) amend the rule 
provisions regarding the initiation of a complex order auction 
(``COA''), (2) add rule provisions regarding the impact of certain 
incoming orders and changes in the leg markets on an ongoing COA, and 
(3) update the rule text regarding who can submit complex orders. On 
October 26, 2015, the Exchange submitted Amendment No. 1 to the 
proposed rule change. The proposed rule change, as modified by 
Amendment No. 1, was published for comment in the Federal Register on 
November 2, 2015.\3\ The Commission received no comments on the 
proposal. This order grants approval of the proposed rule change, as 
modified by Amendment No. 1.
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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. 76273 (October 27, 
2015), 80 FR 67457 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend CBOE Rule 6.53C and Interpretation 
and Policy .04 regarding the initiation of a COA. Currently, Trading 
Permit Holders and PAR operators must affirmatively request that their 
incoming two-legged COA-eligible orders be COA'd.\4\ The Exchange 
proposes to amend CBOE Rule 6.53C(d)(ii) to provide that such COA-
eligible orders (including orders submitted for electronic processing 
from PAR) be COA'd by default.\5\ Under the proposed rule, Trading 
Permit Holders would be permitted to request that a COA-eligible order 
with two legs not COA (referred to as a ``do-not-COA'' request) on an 
order-by-order basis.\6\ The Exchange believes that allowing Trading 
Permit Holders to make a ``do-not-COA'' request on an order-by-order 
basis will better allow them to make decisions regarding the handling 
of their orders based on market conditions at the time they submit 
their orders.
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    \4\ See Notice, supra 3, at 67457.
    \5\ Id. The Exchange represents that all Trading Permit Holders 
have requested that all of their COA-eligible orders with two legs 
process through COA upon entry into the System. Id.
    \6\ Id.
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    A PAR operator will not be permitted to override a Trading Permit 
Holder's ``do-not-COA'' order request; such orders, therefore, will 
enter the Complex Order Book (``COB'').\7\ An order with a ``do-not-
COA'' request, however, would still be COA'd after it has rested on the 
COB pursuant to Interpretation and Policy .04.\8\
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    \7\ Id. In light of this proposed change, the Exchange proposes 
to delete the language in Interpretation and Policy .04(a) that 
indicates Trading Permit Holders may request that complex orders be 
COA'd on a class-by-class basis, as it is no longer necessary. Id.
    \8\ Id. at 67458.
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    The Exchange notes that an order with a ``do-not-COA'' request will 
still have execution opportunities.\9\ The Exchange explains that a 
``do-not-COA'' order may execute automatically upon entry into the 
System against the leg markets or complex orders on the COB to the 
extent marketable (in accordance with allocation rules set forth in 
Rule 6.53C).\10\ Further, the Exchange notes that an order on the 
opposite side of, and marketable against, a COA-eligible order may 
trade against the COA-eligible order if the System receives the order 
while a COA is ongoing.\11\
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    \9\ Id.
    \10\ Id.
    \11\ Id.
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    Second, the Exchange proposes to add subparagraphs 
6.53C(d)(viii)(4) and (5) to CBOE Rule 6.53C to describe additional 
circumstances that will cause a COA to end early.\12\ Proposed 
subparagraph (d)(viii)(4) will provide that if an order with a ``do-
not-COA'' request or an order that is not COA-eligible is received 
prior to the expiration of the Response Time Interval for the original 
COA and is on the same side of the market and at a price better than or 
equal to the starting price, then the original COA will end.\13\ 
Proposed subparagraph (d)(viii)(5) will provide that if the leg markets 
were not marketable against a COA-eligible order when the order entered 
the System (and thus prior to the initiation of a COA) but became 
marketable with the COA-eligible order prior to the expiration of the 
Response Time Interval, it will

[[Page 78804]]

cause the COA to end.\14\ The Exchange believes that these provisions 
prevent an order that was entered after the initiation of a COA from 
trading ahead of an order with the same price that may have executed or 
entered the COB if it did not COA. Similarly, the Exchange believes it 
is fair for a COA-eligible order that was entered at a better price 
than an order that was resting in the COB prior to initiation of the 
COA to execute against leg markets that become marketable against the 
COA-eligible order and resting order during the COA, because the 
Trading Permit Holder who entered the COA-eligible order was willing to 
pay a better price than that of the resting order.\15\
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    \12\ Id. The proposed rule change makes corresponding changes to 
the heading and introductory paragraph of subparagraph (d)(viii). 
Id.
    \13\ Id. at 67458-9.
    \14\ Id.
    \15\ Id. at 67460.
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    Third, the Exchange proposes to amend CBOE Rule 6.53C(c)(ii)(3) and 
Interpretation and Policy .06(c) to provide that all Trading Permit 
Holders and PAR Officials may submit orders or quotes to trade against 
orders in the COB, as opposed to market participants,\16\ as the Rule 
currently states.\17\ In addition, the Exchange proposes to amend Rule 
6.53C(c)(ii)(3) to provide that order and quote types (not just quote 
types) not eligible to rest or trade against the COB will be 
automatically cancelled.\18\
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    \16\ Id. at 67459. CBOE Rules 6.45A and 6.45B define market 
participants as Market-Makers, Designated Primary Market-Makers with 
an appointment in the subject class, and floor brokers and PAR 
Officials representing orders in the trading crowd. The Exchange 
explains that Trading Permit Holders and PAR Officials as a group is 
larger than market participants as a group, as the term market 
participants does not include other types of Trading Permit Holders 
(such as electronic proprietary traders or brokers submitting 
electronic orders on behalf of customers from off of the trading 
floor). Id.
    \17\ Id.
    \18\ Id. at 67460. The Exchange notes that first several 
sentences of CBOE Rule 6.53C(c)(ii)(3) reference both orders and 
quotes eligible to rest on the COB. The Exchange intended for Rule 
to provide that both orders and quotes that are not eligible to rest 
on the COB be cancelled. Id.
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    Finally, the Exchange proposes to make technical and other 
nonsubstantive changes, which are described in the Notice.\19\
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    \19\ Id. at 64759.
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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.\20\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\21\ 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.
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    \20\ 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).
    \21\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that it is reasonable for CBOE to require 
that incoming two-legged COA-eligible orders be COA'd by default unless 
a Trading Permit Holder requests, on an order-by-order basis, that such 
orders not COA. The Commission notes that, should a Trading Permit 
Holder not wish its orders to be COA'd, the proposed rule will allow 
the Trading Permit Holder to request that its orders not be COA'd on an 
order-by-order basis. In addition, the Commission notes that the rules 
of another options exchange provide that certain complex orders be 
routed to a complex order auction unless a member designates that such 
orders not initiate a complex order auction on that exchange.\22\
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    \22\ See NASDAQ OMX PHLX LLC (``PHLX'') Rule 1080, Commentary 
.07(a)(viii) and (e) (describing the complex order live auction 
(``COLA'') process and ``do not auction'' orders).
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    The Commission also believes that it is reasonable for the Exchange 
to add new provisions regarding how incoming orders with ``do-not-COA'' 
requests or that are not COA-eligible, as well as how changes in the 
leg markets, may impact ongoing COAs. Such additions enhance the 
description of current COA functionality and the circumstances that may 
cause a COA to end early to help ensure investors understand how ``do-
not-COA'' orders may impact a COA. As noted above, these rules provide 
that if entry of a ``do-not-COA'' order causes a COA to end, any 
executions that occur following the COA will occur in accordance with 
allocation principles in place, subject to an exception that the 
original COA-eligible order will receive time priority.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-CBOE-2015-089), as modified 
by Amendment No. 1, be, and it hereby is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-31682 Filed 12-16-15; 8:45 am]
BILLING CODE 8011-01-P


