
[Federal Register Volume 81, Number 38 (Friday, February 26, 2016)]
[Notices]
[Pages 9910-9919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04109]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77200; File No. SR-CBOE-2016-009]


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

February 22, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\

[[Page 9911]]

notice is hereby given that on February 8, 2016, 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 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 (i) reorganize, simplify and make 
consistent certain text relating to Lead Market-Maker (``LMM'') and 
Designated Primary Market-Market (``DPM'') obligations generally, (ii) 
amend its rules related to LMMs, (iii) delete outdated references in 
its rules to Supplemental Market-Makers (``SMMs'') and other obsolete 
language and (iv) make other corresponding and clarifying changes.
    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 Exchange proposes to (i) reorganize, simplify and make 
consistent certain text relating to LMM and DPM obligations generally, 
(ii) amend its Rules related to LMMs, (iii) delete outdated references 
in its Rules to SMMs and other obsolete language and (iv) make other 
corresponding and clarifying changes.
    First, the Exchange is proposing to amend Rules 8.15 (pertaining to 
LMMs in Hybrid 3.0 classes), 8.15A (pertaining to LMMs in Hybrid 
classes) \3\ and 8.85 (pertaining to DPMs) to revise the descriptions 
of certain obligations of LMMs and DPMs (e.g., obligations related to 
quote accuracy, bid/ask differentials, minimum size and trading 
rotations, competitive markets and promotion of the Exchange, and 
material operational or financial change notifications) to be more 
consistent with each other (and the descriptions of these obligations 
contained in other rules).\4\ The Exchange proposes these changes 
merely to make the language regarding these obligations more consistent 
throughout the Rules and delete outdated and duplicative language.
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    \3\ ``Hybrid Trading System'' refers to the Exchange's trading 
platform that allows Market-Makers to submit electronic quotes in 
their appointed classes. ``Hybrid 3.0 Platform'' is an electronic 
trading platform on the Hybrid Trading System that allows one or 
more quoters to submit electronic quotes that represent the 
aggregate Market-Maker quoting interest in a series for the trading 
crowd. Classes authorized by the Exchange for trading on the Hybrid 
Trading System are referred to as ``Hybrid classes.'' Classes 
authorized by the Exchange for trading on the Hybrid 3.0 Platform 
are referred to as ``Hybrid 3.0 classes.'' References to ``Hybrid,'' 
``Hybrid System,'' or ``Hybrid Trading System'' include all 
platforms unless otherwise provided by rule. See Rule 1.1(aaa).
    \4\ The proposed language is also consistent with e-DPM 
obligations as set forth in former Rule 8.93. The Exchange 
eliminated the e-DPM program. See Securities Exchange Act Release 
No. 34-71227 (January 2, 2014), 79 FR 1398 (January 8, 2014) (SR-
CBOE-2013-110). While the Exchange eliminated the e-DPM program for 
the reasons set forth in that rule filing, LMMs and DPMs continue to 
perform similar functions as e-DPMs use to perform, and the Exchange 
believes it is appropriate to mirror the language describing the LMM 
and DPM obligations to the language describing the previous e-DPM 
obligations, which previously had been approved by the Securities 
and Exchange Commission (the ``Commission''), because LMMs and DPM 
receive substantially similar benefits and are subject to 
substantially similar obligations as e-DPMs received and were 
subjected.
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    The following table shows certain obligations to which LMMs and 
DPMs are already subject (either pursuant to Rules 8.15, 8.15A and 8.85 
or other Rules),\5\ the location in the Rules of these obligations, and 
the corresponding proposed provision, when applicable:
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    \5\ The Exchange notes that rules that apply to all Market-
Makers, such as Rules 8.7 regarding Market-Maker obligations and 
8.51 regarding firm quotes, apply to LMMs and DPMs, unless a 
provision specific to a LMM or DPM conflicts with a provision in one 
of these common Market-Maker rules. For example, LMMs and DPMs are 
subject to different continuous quoting obligations pursuant to 
Rules 8.15A and 8.87, respectively, than the continuous quoting 
obligation set forth in Rule 8.7.

[[Page 9912]]



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                                                           Proposed
   Current provisions in Rules                           provisions in
    8.15, 8.15A and 8.85 (as      Current provisions    rules 8.15 and
           applicable)              in other rules         8.85 (as
                                                          applicable)
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Rules 8.15(a)(4) and              Rules 8.1, 8.2,     Rule 8.15(b)--each
 8.15A(a)(D)--CBOE will review     8.3, and 8.7--      LMM must fulfill
 and evaluate the conduct of       definition of       all of the
 LMMs, including but not limited   Market-Maker,       obligations of a
 to compliance with Rules 8.1,     registration of     Market-Maker
 8.2, 8.3, and 8.7.                Market-Makers       under the Rules
Rule 8.85(a)--each DPM must        appointment of      (conforms to
 fulfill all of the obligations    Market-Makers,      current Rule
 of a Market-Maker under the       and obligations     8.85(a)).
 Rules.                            of all Market-
                                   Makers (including
                                   LMMs and DPMs),
                                   respectively.
Rules 8.15A(b)(ii) and            Rule 8.7(b)(iii)--  Rules 8.15(b)(ii)
 8.85(a)(ii)--LMMs and DPMs,       Market-Makers       and 8.85(a)(ii)--
 respectively, must assure that    must assure that    LMMs and DPMs,
 their displayed quotations are    any market quotes   respectively,
 honored for at least the number   they cause to be    must assure that
 of contracts prescribed           disseminated are    their market
 pursuant to Rule 8.51.            accurate.           quotations are
                                  Rule 8.51--each      accurate.\7\
                                   Market-Maker must
                                   sell (buy) at
                                   least the
                                   established
                                   number of
                                   contracts at the
                                   offer (bid) that
                                   is displayed when
                                   a Market-Maker
                                   receives a buy
                                   (sell) order. \6\.
Rule 8.15A(b)(i) and (v) \8\--    Rules 8.7(b)(iv)    Rule 8.15(b)(iii)--
 LMMs must quote within Exchange-  and (d)(iv)--       LMMs must comply
 prescribed bid/ask                Market-Makers       with the bid/ask
 differentials.                    must comply with    differential
Rule 8.85(a)(iii)--DPMs must       the bid/ask         requirements
 comply with the bid/ask           differential        determined by the
 differential requirements         requirements        Exchange
 determined by the Exchange.       determined by the   (conforms to
                                   Exchange. \9\       current Rule
                                                       8.85(a)(iii)).\10
                                                       \
Rules 8.15A(b)(ii) and            Rule 8.7(d)(ii)(B)  Rules 8.15A(b)(iv)
 8.85(a)(ii)--LMMs and DPMs,       and (iv)--Market-   and 8.85(a)(vii)--
 respectively, must assure that    Makers must quote   LMMs and DPMs,
 their displayed quotations are    for the minimum     respectively,
 honored for at least the number   number of           must assure that
 of contracts prescribed           contracts           their market
 pursuant to Rule 8.51 (which      determined by the   quotations comply
 permits CBOE to prescribe a       Exchange. \11\      with the minimum
 minimum quote size).                                  size requirements
                                                       prescribed by the
                                                       Exchange, which
                                                       minimum must be
                                                       at least one
                                                       contract.\12\
Rule 8.15 (introductory           Rule 6.2B(c) and    Rules 8.15A(b)(v)
 paragraph and paragraphs (b)(1)   Interpretation      and 8.85(a)(xi)--
 and (2))--LMMs in Hybrid 3.0      and Policy          LMMs and DPMs,
 classes must participate in       .01(a)--LMMs must   respectively,
 opening and other rotations       participate in      must enter
 described in Rule 6.2B,           trading rotations.  opening quotes
 accommodate a relatively active                       within one minute
 opening and facilitate any                            of the initiation
 imbalances.                                           of an opening
Rules 8.15A(b)(iv) and                                 rotation in any
 8.85(a)(xi)--LMMs and DPMs,                           series that is
 respectively, must ensure that                        not open due to
 a trading rotation is initiated                       the lack of a
 promptly following the opening                        quote (see Rule
 of the underlying security (or                        6.2B(e)(i) or
 promptly after 8:30 a.m. in an                        Interpretation
 index class) in accordance with                       and Policy
 Rule 6.2B in 100% of the series                       .03(a)(i)), and
 of each allocated class by                            participate in
 entering opening quotes as                            other rotations
 necessary.                                            described in Rule
                                                       6.2B or 24.13, as
                                                       applicable.\13\
Rule 8.85(c)(ii)--DPMs must make  Rule 8.7(b)(i)--    Rule 8.15(b)(vi)--
 competitive markets on the        Market-Makers       LMMs and DPMs
 Exchange and otherwise promote    must compete with   must make
 the Exchange in a manner that     other Market-       competitive
 is likely to enhance the          Makers to improve   markets on the
 ability of the Exchange to        markets.            Exchange and
 compete successfully for order                        otherwise promote
 flow in the classes they trade.                       the Exchange in a
                                                       manner that is
                                                       likely to enhance
                                                       the ability of
                                                       the Exchange to
                                                       compete
                                                       successfully for
                                                       order flow in the
                                                       classes they
                                                       trade (conforms
                                                       to Rule
                                                       8.85(c)(ii)).\14\
Rules 8.15(b)(4) and              Rule 8.85(c)(vi)--  Rule 8.15(b)(vii)--
 8.15A(b)(iii)--LMMs must          a DPM must          an LMM must
 perform obligations for a         continue to act     continue to act
 period of one expiration month    as a DPM and to     as an LMM and
 commencing on the first day       fulfill all of      fulfill the
 following an expiration, and      the DPM's           obligations of an
 failure to perform such           obligations as a    LMM until the
 obligations for such time may     DPM until the       Exchange relieves
 result in suspension of up to     Exchange relieves   it of its
 three months from trading in      the DPM of its      approval to act
 all series of the class.          approval and        as an LMM or of
                                   obligations to      its appointment
                                   act as a DPM or     and obligations
                                   the Exchange        to act as an LMM
                                   terminates the      in a particular
                                   DPM's approval to   class (conforms
                                   act as a DPM.       to Rule
                                                       8.85(c)(vi)).\15\
Rule 8.85(c)(iii)--DPMs must      Rules 3.7(a) and    Rule
 promptly inform the Exchange of   15.5--requires      8.15(b)(viii)--LM
 any material change in the        Trading Permit      Ms must
 financial or operational          Holders to submit   immediately
 condition of the DPM.             documentation       notify the
                                   regarding their     Exchange of any
                                   organization,       material
                                   financial           operational or
                                   structure and       financial changes
                                   ownership,          to the LMM
                                   including           organization as
                                   updates, and        well as obtain
                                   other financial     the Exchange's
                                   information, to     approval prior to
                                   the Exchange.       effecting changes
                                  Rule 8.3(a)(i)--     to the ownership,
                                   permits the         capital
                                   Exchange to         structure, voting
                                   consider the        authority,
                                   financial           distribution of
                                   resources           profits/losses,
                                   available to a      or controls of
                                   Market-Maker.       the LMM
                                                       organization.\16\
Rules 8.15A(b)(vi) and            None..............  Delete.\17\
 8.85(a)(xii)--LMMs and DPMs,
 respectively, must act as agent
 for or use their accounts for,
 respectively, orders routed to
 other exchanges that are
 participants in the Intermarket
 Options Linkage Plan (the ``Old
 Linkage Plan'').
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    \6\ The Exchange proposes to exclude the references to Rule 8.51 
in proposed Rules 8.15 and 8.85, as Rule 8.51 describes the firm 
quote obligation and applies to LMMs and DPMs.
    \7\ This revised language is consistent with the language in 
former Rule 8.93(ii). While this provision is not included in 
current Rule 8.15, LMMs in Hybrid 3.0 classes are currently subject 
to this obligation pursuant to Rule 8.7(b)(iii) and will be subject 
to it pursuant to proposed Rule 8.15(b)(ii).
    \8\ The Exchange proposes to delete current Rule 8.15A(b)(v) 
because the obligation to quote within the bid/ask different and 
minimum size requirements is not limited to open outcry quotes. 
These obligations are included in proposed Rule 8.15(b)(iii) and 
(iv). Additionally, Rule 8.7(d) requires all Market-Makers, 
including LMMs, to respond to open outcry requests for quotes by 
floor brokers, making this provision redundant. DPMs are similarly 
subject to this requirement (as all Market-Makers are); however, 
Rule 8.85 does not list this as a specific obligation for DPMs.
    \9\ Rule 6.2B(iii) allows the Exchange to set different bid/ask 
differential requirements for opening quotations.
    \10\ This revised language is consistent with the language in 
former Rule 8.93(iii). While this provision is not included in 
current Rule 8.15, LMMs in Hybrid 3.0 classes are currently subject 
to this obligation pursuant to 8.7(b)(iv) and (d)(iv) and will 
continue to be subject to it pursuant to proposed Rule 8.15(b)(iii). 
The proposed rule change also deletes in current Rule 8.15A(b)(i) a 
reference that an LMM's continuous electronic quotes must comply 
with the bid/ask differential requirements determined by the 
Exchange on a class-by-class basis, as this is redundant of the 
obligation in current Rules 8.15(b)(1) and 8.15A(b)(v) and proposed 
Rule 8.15(b)(iii). Additionally, the proposed rule change deletes 
language in Rule 8.85(a)(iii) that says this obligation relates to 
option contracts. As all securities that trade on CBOE are options, 
this language is unnecessary.
    \11\ Rule 6.2B(c) and Interpretation and Policy .02 allows the 
Exchange to set a different minimum number of contracts for opening 
quotations.
    \12\ This revised language is consistent with the language in 
former Rule 8.93(iv). While this provision is not included in 
current Rule 8.15, LMMs in Hybrid 3.0 classes are currently subject 
to this obligation pursuant to 8.7(d)(ii)(B) and (iv) and will be 
subject to it pursuant to proposed Rule 8.15(b)(iv).
    \13\ Current Rule 8.15 already explicitly subjects LMMs in 
Hybrid 3.0 classes to this obligation. Rule 6.2B(g) and (h) provides 
that the rotation process described in Rule 6.2B may be used to 
reopen a class after a trading halt and for a closing rotation. Rule 
24.13 also sets forth trading rotations that may be used for index 
options. Thus, LMMs' and DPMs' may be required to participate in 
those trading rotations as well to the extent required by those 
rules.
    \14\ This revised language is consistent with the language in 
former Rule 8.93(vi). CBOE does not believe the proposed rule change 
imposes a new obligation on LMMs, as Rule 8.7 requires Market-Makers 
to be competitive; rather, it enhances the description of this 
obligation.
    \15\ This provision is consistent with former Rule 8.93(v) (with 
respect to e-DPMs). This provision is also consistent with the 
Exchange's ability to appoint LMMs and remove LMMs if, for example, 
they do not fulfill their LMM duties under current Rules 8.15 and 
8.15A (as described in the previous row of the table). The Exchange 
believes the proposed language is more appropriate, as it requires 
LMMs to satisfy their obligations during their entire term (which 
may be more than one month), and excludes the language about a 
possible suspension for not performing their obligations, as Chapter 
XVII of the Rules describes the process for possible suspensions for 
rule violations.
    \16\ This revised language is consistent with the language in 
former Rule 8.93(viii). The Exchange does not propose to add 
language to Rule 8.85 regarding the need for approval prior to 
effecting certain organizational changes with respect to DPMs 
because Rule 8.89 has a similar requirement that covers some of 
these organizational changes for DPMs. Additionally, other rules 
applicable to DPMs impose additional financial requirements (Rule 
8.86) and allow the Exchange to review a DPM's operation at any time 
(Rule 8.88).
    \17\ This language is outdated, as it relates to the now 
obsolete Old Linkage Plan, which has been replaced by the Plan for 
the Purpose of Creating and Operating an Intermarket Option Linkage. 
See, e.g., Securities Exchange Act Release No. 56761 (November 7, 
2007), 72 FR 64094 (November 14, 2007).

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[[Page 9913]]

As this table demonstrates, LMMs and DPMs generally are already subject 
to the obligations in the proposed provisions--any additional 
obligations imposed by the proposed rule change on LMMs and DPMs are de 
minimis and will not be burdensome. LMMs in Hybrid and Hybrid 3.0 
classes and DPMs (and formerly e-DPMs), while being different market 
participants within CBOE's market, generally serve in the same role in 
their appointed classes, which is a provider of additional liquidity 
pursuant to quoting obligations that are higher than other Market-
Makers) (in exchange for receiving a participation entitlement). LMMs 
and DPMs have substantially similar functions and obligations 
(including the same continuous quoting obligations, along with the same 
participation entitlement percentages), and the Exchange believes 
having consistent language with respect to these obligations will 
simplify its rules and reflect the similar roles served by LMMs and 
DPMs.\18\
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    \18\ Currently, the primary difference between LMMs and DPMs 
relates to their appointment terms. An LMM receives an appointment 
for a limited term (e.g., one month), while a DPM serves in that 
role until it resigns or the Exchange removes it from that role 
pursuant to Rule 8.90.
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    The Exchange believes the proposed obligation in the fifth row of 
the table is only a slight modification of the current opening quoting 
obligations of LMMs and DPMs. The current rules require LMMs and DPMs 
to enter opening quotes only as necessary to ensure the opening of 100% 
of series in a class. The Exchange modifies the opening quote 
requirement to have a specific time (one minute) by when opening quotes 
must be entered rather than the nonspecific term ``promptly.'' \19\ The 
Exchange believes this gives clearer guidance to LMMs and DPMs 
regarding the opening quote obligation, which further promotes 
compliance by LMMs and DPMs with this obligation. Nearly all series 
open for trading within this timeframe on a daily basis, and thus the 
Exchange believes this timeframe is appropriate and will not be unduly 
burdensome on LMMs and DPMs while still ensuring a prompt opening. The 
proposed rule change also modifies the language to provide that the 
timing of the opening quoting obligation begins after the initiation of 
an opening rotation. Trading rotations are not initiated by opening 
quotes. Therefore, the proposed change is consistent with system 
functionality related to openings, as described in Rule 6.2B.\20\ In 
addition, the Exchange clarifies that LMMs and DPMs must enter opening 
quotes when a series does not open due to a lack of quote pursuant (see 
Rule 6.2B(e)(i) or Interpretation and Policy .03(a)(i), as applicable). 
There are several conditions that may be present that prevent a series 
from opening as set forth in Rule 6.2B(e) and Interpretation and Policy 
.03(a); however, LMMs and DPMs can help ``ensure an opening'' as 
required by the current rule only by entering quotes. The Exchange 
believes the proposed rule language more accurately states the current 
obligation, as LMMs and DPMs cannot otherwise help ensure an opening if 
the other conditions are present.\21\ The Exchange notes that in the 
event a series does not open, Rule 8.7(d)(iv) requires Market-Makers 
(including LMMs and DPMs) to submit quotes or maintain continuous 
quotes in a series in their appointed classes if called upon by a 
designated Exchange official if the official deems it necessary in the 
interest of maintaining a fair and orderly market.
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    \19\ The proposed rule change makes a corresponding change to 
Rule 17.50(g)(14), which includes the opening quoting obligation in 
the minor rule violation plan.
    \20\ The proposed rule change also adds that in option classes 
in which both an On-Floor LMM and an Off-Floor DPM or Off-Floor LMM 
have been appointed, this obligation would be that of the Off-Floor 
DPM or Off-Floor LMM and not the On-Floor LMM (see discussion below 
for a description of the Off-Floor DPM and Off-/On-Floor LMM 
programs).
    \21\ The Exchange notes that the proposed rule change makes 
corresponding changes to the language describing the opening quoting 
standard for LMMs during extended trading hours in Rule 6.1A(e) and 
the Fees Schedule; however, it makes no substantive changes to that 
opening quoting standard, which requires LMMs enter opening quotes 
(in no more than a significant percentage of series for 90% of the 
trading days during extended trading hours in a month) by 2:05 a.m. 
(which is five minutes after the initiation of the opening rotation) 
to be eligible for the monthly payment pursuant to Rule 6.1A(e)(iii) 
and the CBOE Fees Schedule. See Rule 6.1A(e)(iii) and the Fees 
Schedule. The opening quoting standard for LMMs during extended 
trading hours is not a regulatory obligation as it is for LMMs 
during regular trading hours; rather, an LMM's satisfaction of the 
opening quoting standard (and heightened continuous quoting 
standard) during ETH qualifies the LMM for the monthly payment. The 
opening quoting standard for LMMs during extended trading hours 
currently and as proposed provides LMMs with a longer timeframe 
(five minutes) to enter opening quotes than the regular trading 
hours requirement, and requires quotes in a significant percentage 
of series rather than all series as is required in regular trading 
hours. The Exchange continues to believe that a different opening 
standard during extended trading hours is reasonable given fewer 
market participants and less liquidity during those hours than 
during regular trading hours. See Rule 6.1A(e) and Securities 
Exchange Act Release No. 34-73704 (November 28, 2014), 79 FR 72044 
(December 4, 2014) (SR-CBOE-2014-062) for additional information 
regarding rules related to LMMs during extended trading hours.
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    Second, the Exchange proposes to amend current Rules 8.15 and 8.15A 
as follows:

[[Page 9914]]

     
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    \22\ The proposed rule change also modifies the factor that may 
be considered by the Exchange regarding experience in trading index 
options or options on exchange-traded funds to experience in trading 
options. While the Exchange currently has appointed LMMs only in 
index option classes, the rules do not restrict LMMs to classes of 
those types of options. If the Exchange determined to appoint an LMM 
in an equity option class, it would want to consider experience in 
trading equity options rather than index options. This proposed 
change permits that consideration.
    \23\ The proposed rule change adds a similar provision to 
proposed Rule 8.15(c)(iii) to provide that an LMM in a Hybrid 3.0 
class must serve during such times as may be requested by the 
Exchange as a backup LMM and assume autoquoting responsibilities in 
the event the Exchange determined that the LMM originally appointed 
to run the autoquote is unable to do so. Because of the unique 
nature of the autoquote functionality on the Hybrid 3.0 system (as 
described in proposed Rule 8.15(c)(ii)), the Exchange believes it is 
important to explicitly state that any temporary LMM must be ready 
to assume that responsibility to ensure sufficient liquidity in the 
class in the event the original LMM is unable to autoquote (such as 
if it is experiencing a systems issue).
    \24\ The proposed rule change deletes a related cross-reference 
to individual LMMs in Rule 3.2 and current Rule 8.15(b)(3), which 
requires LMMs to assist LMMs in other zones to facilitate excessive 
imbalances.
    \25\ See proposed Rule 8.15(a)(iv). This Exchange review and 
evaluation of LMMs individual of other LMMs is similar to the review 
and evaluation of DPMs pursuant to Rule 8.88 (and e-DPMs pursuant to 
former Rule 8.94).

----------------------------------------------------------------------------------------------------------------
                                        Current corresponding
 Current provisions in Rules 8.15 and    provisions in other     Proposed provisions in    Purpose of proposed
                8.15A                           rules                  Rule 8.15                 changes
----------------------------------------------------------------------------------------------------------------
Rules 8.15(a) and 8.15A(a)(i)--LMMs    Rule 8.3(a)(i)-          Rule 8.15(a)(i)--LMMs    CBOE believes
 will be appointed on the first day     authority of the         will be appointed for    additional flexibility
 following an expiration.               Exchange to make         a term of no less than   regarding the timing
                                        Market-Maker             the time until the end   of the appointment of
                                        appointments when, in    of the then-current      LMMs is important so
                                        the Exchange's           expiration cycle.        that it can appoint
                                        judgment, the interest                            LMMs at any time if
                                        of a fair and orderly                             necessary in order to
                                        market are best served                            ensure liquidity and
                                        by such action.                                   in the interest of a
                                                                                          fair and orderly
                                                                                          market (similar to
                                                                                          appointments of Market-
                                                                                          Makers). For example,
                                                                                          if CBOE lists a new
                                                                                          product during an
                                                                                          expiration cycle (but
                                                                                          not the first day
                                                                                          following the end of
                                                                                          an expiration cycle),
                                                                                          the proposed rule
                                                                                          change clarifies that
                                                                                          the Exchange has
                                                                                          authority to appoint
                                                                                          an LMM on that first
                                                                                          trading days. CBOE
                                                                                          believes it is
                                                                                          important to ensure
                                                                                          sufficient liquidity
                                                                                          in a class through the
                                                                                          end of an expiration
                                                                                          cycle.\22\
Rules 8.15(a)(3) and 8.15A(a)(i)(C)--  Rule 8.3(a)(i)--         Rule 8.15(a)(iii)--if    CBOE believes it is
 if one or more LMMs are removed or     authority of the         the Exchange removes     appropriate to have
 if for any reason an LMM is no         Exchange to make         one or more LMMs or if   the authority to
 longer eligible for or resigns his     Market-Maker             for any reason an LMM    appoint more than one
 appointment or fails to perform his    appointments when, in    is no longer eligible    interim LMM to be
 duties, the Exchange may appoint an    the Exchange's           for or resigns the       consistent with the
 interim LMM to complete the monthly    judgment, the interest   LMM's appointment or     initial part of the
 obligations of the former LMM.         of a fair and orderly    fails to perform the     provision that
                                        market are best served   LMM's duties, the        references the removal
                                        by such action.          Exchange may appoint     of one or more LMMs
                                                                 one or more interim      and to give CBOE the
                                                                 LMMs for the remainder   flexibility to appoint
                                                                 of the term or shorter   multiple interim LMMs
                                                                 time period designated   if necessary to
                                                                 by the Exchange.\23\     maintain sufficient
                                                                                          liquidity and a fair
                                                                                          and orderly market.
                                                                                          Additionally, CBOE
                                                                                          believes it is
                                                                                          appropriate to have
                                                                                          the authority to
                                                                                          appoint interim LMMs
                                                                                          for less than the
                                                                                          remainder of a term
                                                                                          if, for example, an
                                                                                          LMM is only
                                                                                          temporarily unable to
                                                                                          fulfill its duties
                                                                                          (for example, it
                                                                                          experiences a systems
                                                                                          issue beyond its
                                                                                          control) but expects
                                                                                          to be able to do so
                                                                                          during its appointment
                                                                                          term.
Rules 8.15 and 8.15A--references to    None...................  None...................  There are currently
 individual LMMs.                                                                         only LMM
                                                                                          organizations, and
                                                                                          CBOE no longer intends
                                                                                          to appoint individual
                                                                                          LMMs, making these
                                                                                          references no longer
                                                                                          necessary.\24\
Rules 8.15 and 8.15A--references to    None...................  None...................  CBOE reviews and
 CBOE having the ability to hold all                                                      evaluates the conduct
 LMMs responsible for the performance                                                     of each LMM
 of each LMM appointed to the same                                                        organization
 class or zone and a related                                                              individually and does
 provision in Rule 8.15(b)(3), which                                                      not intend to hold an
 requires LMMs in Hybrid 3.0 classes                                                      LMM responsible for
 to assist LMMs in other zones to                                                         the performance of
 facilitate excessive imbalances.                                                         another LMM appointed
                                                                                          to the same class or
                                                                                          group (as discussed
                                                                                          below, CBOE may
                                                                                          arrange the series of
                                                                                          a class into
                                                                                          ``groups'' rather than
                                                                                          ``zones'').\25\
----------------------------------------------------------------------------------------------------------------

    The Exchange believes the proposed changes to current Rules 8.15 
and 8.15A described in this table are not significant. The proposed 
changes in the first two rows of the table are consistent with the 
Exchange's current authority in

[[Page 9915]]

other Rules. The proposed changes in the last two rows are merely 
deleting obsolete language.
    Third, the Exchange is proposing to amend Rules related to LMMs in 
Hybrid 3.0 classes as follows:
     The proposed rule change codifies the continuous quoting 
obligations of LMMs in Hybrid 3.0 classes. Current Rule 8.15A(b)(i) 
requires an LMM in a Hybrid class to provide continuous electronic 
quotes in at least the lesser of 99% of the non-adjusted option series 
or 100% of the non-adjusted option series minus one call-put pair, with 
the term ``call-put pair'' referring to one call and one put that cover 
the same underlying instrument and have the same expiration date and 
exercise price. This obligation does not apply to intra-day add-on 
series on the day during which such series are added for trading. This 
obligation applies to an LMM's appointed classes collectively,\26\ and 
the Exchange will determine compliance with an LMM's continuous 
electronic quoting obligation on a monthly basis (however, determining 
compliance with this obligation on a monthly basis does not relieve an 
LMM from meeting this obligation on a daily basis, nor does it prohibit 
the Exchange from taking disciplinary action against an LMM for failing 
to meet these obligations each trading day). Current Rule 8.15A, 
Interpretation and Policy .02 provides that when the underlying 
security for a class is in a limit up-limit down state, LMMs shall have 
no quoting obligations in the class. Proposed Rule 8.15(b)(i) will 
apply this continuous quoting obligation (and Interpretation and Policy 
.02 will apply the limit up-limit down exception) to LMMs in Hybrid 3.0 
classes.
---------------------------------------------------------------------------

    \26\ The proposed rule change amends this provision to apply to 
classes on each trading platform. Because the nature of quoting and 
trading on the Hybrid Trading System is significantly different, the 
Exchange believes it is appropriate to consider separately the 
collective quoting requirement for each platform.
---------------------------------------------------------------------------

    The current continuous electronic quoting obligation applicable to 
LMMs in Hybrid 3.0 classes is to provide continuous electronic quotes 
in at least 90% of the series of each appointed class for 99% of the 
time; however, this obligation had not been codified in the Rules. 
While the proposed rule change modifies the current quoting obligations 
of LMMs in Hybrid 3.0 classes, it is identical to the obligations 
imposed on LMMs in Hybrid classes and DPMs.\27\ LMMs will continue to 
be required to respond to requests for quotes from the Exchange 
pursuant to Rule 8.7(d)(iv). As discussed above, the Exchange believes 
it is appropriate for LMMs in all classes (and DPMs) to be subject to 
the same quoting obligations given the similarity of their functions. 
The Exchange also believes it will be simpler for LMMs and the 
Exchange's surveillances of continuous electronic quoting obligations 
if LMMs were all subject to the same obligations. The Exchange believes 
LMMs will continue to be required to provide quotes in a substantial 
number of series for a large part of the trading day under this revised 
quoting obligation, and thus believes there will continue to be 
sufficient liquidity in Hybrid 3.0 classes;
---------------------------------------------------------------------------

    \27\ See Rules 8.15A(b)(i) and 8.85(a)(i); see also Securities 
Exchange Act Release No. 34-67410 (July 11, 2012), 77 FR 42040 (July 
17, 2012) (SR-CBOE-2012-064) (proposed rule change to, among other 
things, amend intraday quoting obligations of LMMs in Hybrid classes 
from previous obligation to provide continuous electronic quotes in 
90% of the series of a class 99% of the time, which is the current 
obligation of LMMs in Hybrid 3.0 classes) for a description of why 
this quoting obligation for LMMs in Hybrid 3.0 classes will result 
in the same ``minimum total quoting minutes'' as LMMs for Hybrid 
classes. The proposed rule change makes the same change to 
continuous quoting obligations for LMMs in Hybrid 3.0 classes as was 
made in that previous filing to continuous quoting obligations for 
LMMs in Hybrid classes and DPMs. In a Hybrid class or Hybrid 3.0 
class in which both an On-Floor LMM and an Off-Floor DPM or Off-
Floor LMM has been appointed, the On-Floor LMM shall not be 
obligated to comply with the continuous quoting obligation 
applicable to LMMs (see later discussion for a description of the 
Off-Floor DPM and Off-/On-Floor LMM programs). In such 
circumstances, such an On-Floor LMM in a Hybrid class shall instead 
be obligated to comply with the continuous quoting obligations 
applicable to Market-Makers in Hybrid classes in accordance with 
Rule 8.7(d). By contrast, such an On-Floor LMM in a Hybrid 3.0 class 
shall not be subject to continuous quoting obligations given the 
nature of the aggregated quoting interest on the Hybrid 3.0 
Platform.
---------------------------------------------------------------------------

     Delete references in Interpretation and Policy .02(c) to 
an Off-Floor LMM/affiliated Market-Maker pilot. The pilot has expired 
so it is no longer necessary to include this provision in the rule 
text;
     replace references to LMMs being assigned to a ``zone'' 
within a Hybrid 3.0 class with a reference indicating that the Exchange 
may arrange the series of a class into ``groups'' and may appoint LMMs 
to those groups rather than to an individual option class. Zones 
functioned in a similar manner to groups, as either classes or groups 
of series of classes were assigned to zones. The ``zone'' language is 
outdated, and the ``group'' language is more consistent with provisions 
in other Exchange rules; \28\ and
---------------------------------------------------------------------------

    \28\ See, e.g., Rule 8.14, Interpretation and Policy .01, 
pursuant to which the Exchange may determine (a) to authorize a 
group of series of a Hybrid 3.0 class for trading on the Hybrid 
system and determine eligible categories of Market-Makers for that 
group of series and (b) whether to change the trading platform on 
which the group of series trades and change the eligible categories 
of Market-Makers for the group. That rule also allows the Exchange 
to appoint Market-Makers (including LMMs and DPMs) to a group of 
series and apply trading parameters on a group basis to the extent 
the rules otherwise provide that those parameters apply to a class. 
Rule 8.14 applies to index classes only; the proposed rule change 
amends current Rules 8.15 and 8.15A and proposed Rule 8.15 to merely 
extend the authority to have LMM group appointments for all classes.
---------------------------------------------------------------------------

     delete SMMs from the Rules. The primary purpose of SMMs 
was to assist LMMs on the trading floor with certain trading rotations 
(as described in current Rule 8.15(c)). There are currently no SMMs, 
there have been no SMMs for at least 15 years, and the Exchange no 
longer intends to appoint SMMs. The rules permit, but do not require, 
the Exchange to appoint SMMs. In the past, LMMs conducted opening 
rotations on the trading floor, and the Exchange believed having the 
ability to appoint SMMs to assist LMMs during particularly busy or 
unusual openings would help the Exchange maintain a fair and orderly 
opening. However, the System is currently used to conduct (and has been 
for quite some time) opening rotations; LMMs primarily role with 
respect to opening rotations is to enter opening quotes. Thus, the 
purpose for having SMMs no longer exists. The proposed rule change 
makes corresponding changes to Rules 3.2, 6.2A, 6.8, 8.7, 8.15 and 
24.13 to delete all references to SMMs.
    Fourth, the Exchange proposes to revise the description of the Off-
Floor DPM and Off-/On-Floor LMM programs described in current Rules 
8.15, 8.15A, 8.83 and 8.85 as follows:
     Amend Rule 8.83(g) to provide that, in a Hybrid 3.0 class 
in which an Off-Floor DPM has been appointed in accordance with Rule 
8.83, notwithstanding current Rules 8.15(a) and 8.15A(a) (which provide 
that the Exchange may appoint an LMM in a class for which a DPM has not 
been appointed), the Exchange in its discretion may also appoint an On-
Floor LMM, which shall be eligible to receive a participation 
entitlement under current Rule 8.15B with respect to orders represented 
in open outcry (the provisions in current Rule 8.15A related to the on-
floor LMM program will apply to Hybrid 3.0 classes pursuant to proposed 
Rule 8.15). The Exchange may currently appoint an On-Floor LMM in a 
class allocated to an Off-Floor DPM for Hybrid classes.\29\ This 
proposed change simply provides the Exchange with the same flexibility 
for Hybrid 3.0 classes;
---------------------------------------------------------------------------

    \29\ See Rule 8.83(g).
---------------------------------------------------------------------------

     provide in proposed Rule 8.15, Interpretation and Policy 
.01(c) that in any class in which an Off-Floor LMM has been appointed 
in accordance with

[[Page 9916]]

Rule 8.15, the Exchange in its discretion may also appoint an On-Floor 
LMM, which shall be eligible to receive a participation entitlement 
under current Rule 8.15B with respect to orders represented in open 
outcry. This proposed change to allow for an On-Floor LMM in a class 
allocated to an Off-Floor LMM is consistent with the aforementioned 
program for Off-Floor DPMs/On-Floor LMMs and simply extends the same 
flexibility to Hybrid and Hybrid 3.0 classes that have Off-Floor LMMs 
(rather than Off-Floor DPMs); \30\
---------------------------------------------------------------------------

    \30\ The Exchange believes that, given the substantially similar 
functions of LMMs and DPMs, that it is appropriate to have the On-
Floor LMM program available for classes that have Off-Floor LMMs 
just as it is available for classes that have Off-Floor DPMs. The 
proposed rule change relocates the provisions related to the 
Exchange's ability to appoint an On-Floor LMM in a class in which an 
Off-Floor DPM has been appointed and that state that an On-Floor LMM 
will receive the participation entitlement in open outcry in classes 
in which an Off-Floor DPM has been appointed from current Rule 
8.15A(a) to proposed Rule 8.15, Interpretation and Policy .01(c) in 
order to keep all provisions related to the On-Floor LMM program in 
a single place within proposed Rule 8.15.
---------------------------------------------------------------------------

     provide in proposed Rule 8.15(b)(i) that in all classes in 
which both an On-Floor LMM and an Off-Floor LMM have been appointed, 
the On-Floor LMM shall not be obligated to comply with the continuous 
quote requirements for an LMM. This change is consistent with the 
existing provisions for On-Floor LMMs in classes which both an On-Floor 
LMM and Off-Floor DPM have been appointed and merely extends it to 
classes in which there is an Off-Floor LMM (which corresponds to the 
changes discussed above that would permit an On-Floor LMM to be 
appointed in a class where an Off-Floor LMM has been appointed); and
     provide in proposed Rule 8.15, Interpretation and Policy 
.01(c) and Rule 8.83(g) to make it clear that, if the Exchange in its 
discretion determines to reallocate a class in which an Off-Floor DPM 
or Off-Floor LMM has been appointed, the On-Floor LMM appointment will 
automatically terminate. (An On-Floor LMM appointment can also 
terminate or expire as otherwise provided in the Rules.) \31\ Pursuant 
to the Off-Floor/On-Floor program, the Exchange may appoint an On-Floor 
LMM in a class in which there is an Off-Floor DPM or LMM. It is within 
the Exchange's discretion to determine which types of Market-Makers may 
be appointed to each class, as set forth in Rule 8.14. If the Exchange 
reallocates a class, part of that reallocation may involve appointment 
of a different type of Market-Maker. For example, the Exchange may 
appoint to the reallocated class a DPM that operates both On-Floor and 
Off-Floor rather than Off-Floor only. In that case, the Exchange would 
generally not also have an On-Floor LMM appointed to that class under 
this program. To the extent an On-Floor LMM's appointment terminates 
pursuant to this proposed provision, it would have the opportunity to 
request appointment to the reallocated class in a Market-Maker 
capacity.
---------------------------------------------------------------------------

    \31\ See, e.g., Rules 8.3(a)(i) and 8.15(a). The Exchange notes 
that a Trading Permit Holder, including a Market-Maker, that is 
aggrieved by Exchange action may request that an Appeal Committee 
review any action taken against it under the CBOE Rules. See Chapter 
XIX.
---------------------------------------------------------------------------

    Fifth, the Exchange proposes to combine current Rules 8.15 
(pertaining to LMMs in Hybrid 3.0 classes), 8.15A (pertaining to LMMs 
in Hybrid classes) and 8.15B (pertaining to LMM participation 
entitlements) into a single proposed Rule 8.15. LMMs in Hybrid and 
Hybrid 3.0 classes generally have, or will have upon effectiveness of 
the proposed changes described above, the same obligations and receive 
the same participation entitlement. Proposed Rule 8.15 explicitly 
identifies the couple of additional obligations that apply to LMMs in 
Hybrid 3.0 classes only; all other provisions apply to LMMs in all 
classes. The Exchange believes having a single rule applicable to LMMs 
will reduce duplication within and simplify the rules applicable to 
LMMs. The following table identifies provisions in current Rules 8.15 
and 8.15B and their proposed location in proposed Rule 8.15. The 
proposed rule change makes no substantive changes to current Rule 8.15B 
(some nonsubstantive changes are identified in the table). Proposed 
substantive and nonsubstantive changes to provisions in current Rule 
8.15 are discussed above (the proposed provision in Rule 8.15 
identified below includes these changes).

----------------------------------------------------------------------------------------------------------------
Current provisions in Rules 8.15 and 8.15B (as
                  applicable)                     Proposed provision in Rule 8.15  (amended as described above)
----------------------------------------------------------------------------------------------------------------
Rule 8.15 (intro)--The Exchange may appoint in  Rule 8.15(a).
 an option class for which a DPM has not been
 appointed one or more Market-Makers in good
 standing as LMMs.
Rule 8.15 (intro)--LMMs in Hybrid 3.0 classes   Rule 8.15(c)(i).
 must participate in the modified opening
 rotation in Rule 6.2B, Interpretation and
 Policy .01.
Rule 8.15 (intro)--LMMs in Hybrid 3.0 classes   Rule 8.15(c)(v).
 must participate in other rotations using the
 Hybrid Opening System described in Rule 6.2B.
Rule 8.15 (intro)--LMMs must determine a        Rule 8.15(c)(ii).
 formula for generating automatically updated
 market quotations during the trading day.
Rule 8.15(a)--LMMs shall be appointed on the    Rule 8.15(a).
 first day following an expiration for a
 period of one month and may be assigned to a
 zone with one or more LMMs. The Exchange
 shall select the series to be included in a
 zone.
Rule 8.15(a)(1)-(4)...........................  Rule 8.15(a)(i)-(iv).
Rule 8.15(b)(1)...............................  Rule 8.15(b)(v).
Rule 8.15(b)(2)...............................  Rule 8.15(c)(iv).
Rule 8.15(b)(3)...............................  Deleted as described above.
Rule 8.15(b)(4)...............................  Rule 8.15(b)(vii).
Rule 8.15(c)..................................  Deleted as described above.
Rule 8.15(d)..................................  Rule 8.15(c)(ii).
Rule 8.15, Interpretation and Policy .01......  Rule 8.15, Interpretation and Policy .03.
Rule 8.15, Interpretation and Policy .02        Rule 8.15, Interpretation and Policy .01.
 (intro), (a) and (b).
Rule 8.15, Interpretation and Policy .02(c)...  Deleted as described above.
Rule 8.15B(a)-(c).............................  Rule 8.15(d).
Rule 8.15B, Interpretation and Policy .01.....  Rule 8.15(b)(i) and Interpretation and Policy .04.

[[Page 9917]]

 
Rule 8.15B, Interpretation and Policy .02.....  Rule 8.15, Interpretation and Policy .02.
----------------------------------------------------------------------------------------------------------------

The proposed rule change deletes references in current Rule 8.15A to 
Hybrid classes, as proposed Rule 8.15 will apply to all classes (both 
Hybrid and Hybrid 3.0).
    Sixth, the Exchange proposes to delete references to the 
nonapplicability of strike intervals, bid/ask differential and 
continuity rules to LEAPS contained in Rules 5.8(a) \32\ and 24.9(b) 
(which rules contain provisions related to equity LEAPS and index 
LEAPS, respectively). Other existing rules specifically address strike 
price intervals, bid/ask differentials and quote continuity, including 
(i) Rules 5.5, Interpretation and Policy .01 and 24.9, Interpretation 
and Policy .01, which describe strike price intervals for equity 
options and index options, respectively;\33\ and (ii) Rules 8.7(d), 
8.13(d), 8.15(b) (as amended by this rule filing), and 8.83, which 
describe continuous quoting and bid/ask differential requirements for 
the various types of Market-Makers.\34\
---------------------------------------------------------------------------

    \32\ The Exchange also proposes to correct a cross-reference to 
Rule 5.6 (which was combined with Rule 5.5 pursuant to rule filing 
SR-CBOE-1997-023) that is contained in Rule 5.8.
    \33\ Some of these rules have provisions describing how LEAPS 
are sometimes subject to different strike price interval 
requirements than other options, which implies that the strike price 
interval requirements without such LEAPS-specific provisions apply 
to LEAPS in the same manner as they do to all other option types. 
See, e.g., Rules 5.5, Interpretation and Policy .01 (a)(1) ($2.50 
strike price intervals are not permitted between $1 and $50 for non-
LEAPS and LEAPS) and (a)(2)(v) and (3) (allowable strike price 
intervals for LEAPS for stocks in the $1 Strike Price Interval 
Program); and 24.9, Interpretation and Policy .01 (f)(iii) (minimum 
strike price intervals for LEAPS on BXM is $5), (g)(iii) (minimum 
strike price intervals for LEAPS on CBOE S&P 500 Three-Month 
Realized Volatility options is $1), and (h)(iv) minimum strike price 
interval for LEAPS on S&P 500 Dividend Index options is $1).
    \34\ Two of these rules explicitly exclude LEAPS from the 
continuous quoting obligations of certain Market-Makers. Rule 8.7(d) 
requires that Market-Makers provide continuous electronic quotes 
when quoting in a particular class on a given trading day in 60% of 
the series of the Market-Maker's appointed class that have a time to 
expiration of less than nine months. Rule 8.13(d) requires that PMMs 
provide continuous electronic quotes in at least the lesser of 99% 
of the non-adjusted option series that have a time to expiration of 
less than nine months or 100% of the non-adjusted option series that 
have a time to expiration of less than nine months minus one call-
put pair of each class for which it receives PMM orders. The other 
Rules referenced contain no such exclusion, implying that the 
Exchange intended for the continuous obligations of LMMs and DPMs to 
apply to LEAPS. See discussion above regarding proposed inclusion of 
additional descriptions of the bid/ask differential and continuous 
quoting requirements in proposed Rule 8.15 regarding obligations of 
LMMs.
---------------------------------------------------------------------------

    The provisions in these Rules were adopted after the language that 
the Exchange proposes to delete in Rules 5.8(a) and 24.9(b)(1)(A). 
Thus, the Exchange views these latter-adopted Rules regarding strike 
price interval, bid/ask differential and quote continuity requirements 
referenced above as superseding the language proposed to be deleted. 
This view is supported by the specific applicability (or 
nonapplicability) of certain of these requirements to LEAPS. The 
language proposed to be deleted is outdated (it was adopted prior to 
the implementation of the Hybrid Trading System) and duplicative, and 
thus no longer necessary. The Exchange also believes the different 
timing included in this language (nine months for equity LEAPS versus 
12 months for index LEAPS) is no longer necessary and is confusing for 
investors. The deletion of this language has no impact on the strike 
price interval, bid/ask differential or quote continuity requirements 
currently imposed by the Exchange, which will continue to be imposed in 
a manner consistent with the other existing rules discussed above. The 
Exchange believes that the deletion of these provisions in 5.8(a) and 
24.9(b)(1)(A) will provide additional clarity and eliminate any 
confusion on the applicability of the strike price interval, bid/ask 
differential and quote continuity requirements that may otherwise 
result by including duplicative rules on these topics.
    Finally, the Exchange is proposing nonsubstantive, technical 
changes to Rules 1.1(fff) and (ggg), 3.2, 6.1A, 6.2A, 6.45A, 6.45B, 
6.74, 8.7, 8.13, 8.14, 8.15, 8.15A, 8.83, 8.85, 17.50, 22.14, 24.9, and 
29.17, including amendments to correct typographical errors, update 
headings, update cross-references to Rules 8.15, 8.15A and 8.15B, make 
the rule text more plain English, and make the rule text more 
consistently organized, numbered and worded.
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.\35\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \36\ 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) \37\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
    \37\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposed rule changes 
to amend Rules 8.15, 8.15A and 8.85 to revise descriptions of 
obligations of LMMs in Hybrid 3.0 classes, LMMs in Hybrid classes, and 
DPMs, respectively, as well as combining the LMM obligations into a 
single rule for all classes, will benefit investors by providing more 
clarity and uniformity to the Rules related to market participants with 
substantially similar functions and obligations in a manner that is 
generally consistent with other Rules. Additionally, the Exchange 
believes that by including the descriptions of applicable obligations 
within each rule (which currently apply pursuant to other Rules) will 
promote compliance by LMMs and DPMs.
    As demonstrated above, any additional obligations imposed on LMMs 
by the proposed rule change are de minimis and will not be burdensome, 
as the obligations as revised generally currently apply to LMMs 
pursuant to Rules 8.15 and 8.15A or other Rules. With respect to LMMs 
in Hybrid 3.0 classes, they are currently subject to continuous quoting 
obligations, which had previously not been codified in the rules. While 
the proposed rule change amends these obligations, the proposed 
obligations are identical to the continuous quoting obligations of LMMs 
in Hybrid classes and DPMs, as well as

[[Page 9918]]

former e-DPMs, who serve substantially similar functions within CBOE's 
market. The Exchange believes that subjecting LMMs in Hybrid 3.0 
classes to the same continuous quoting obligations as LMMs in Hybrid 
classes (and DPMs) will promote compliance by LMMs and simplify 
surveillance processes for the Exchange when determining compliance 
with these obligations. Additionally, current rules applicable to LMMs 
in Hybrid classes and DPMs provide an appropriate balance between the 
benefits for and burdens imposed on them, and the Exchange believes the 
proposed rule change provides the same appropriate balance to Hybrid 
3.0 LMMs, who serve substantially similar functions as Hybrid LMMs and 
DPMs. Thus, any additional obligations imposed on LMMs in Hybrid 3.0 
classes are de minimis and will not be burdensome. Because the proposed 
rule change does not materially change the benefits or obligations of 
LMMs, the Exchange believes the rules continue to provide an 
appropriate balance between LMM benefits and obligations (as they do 
for Hybrid LMMs and DPMs) and thus promote just and equitable 
principles of trade.
    The proposed rule change slightly modifies the opening quoting 
obligations of LMMs and DPMs to include a specific time by which 
opening quotes must be entered. The proposed timeframe is consistent 
with the amount of time in which the vast majority of series listed on 
the Exchange open. The Exchange notes this is the same timeframe 
included in rules of another options exchange regarding opening quoting 
obligations of similarly situated market participants.\38\ The Exchange 
believes this proposed change is not material and will not result in 
reduced liquidity while still ensuring a prompt opening. The Exchange 
notes that LMMs and DPMs only need to enter quotes in series that do 
not open due to a lack of quote (both today and under the proposed 
rule); if all series in an appointed class open within the proposed 
timeframe, the proposed rule change will not increase or decrease any 
obligation of LMMs and DPMs. The Exchange believes having a specified 
time by which LMMs and DPMs must enter opening quotes, rather than the 
nonspecific term ``prompt,'' simplifies this obligation and promotes 
compliance with these obligations by LMMs and DPMs. The Exchange may 
request all Market-Makers to submit quotes in the interests of a fair 
and orderly market. Thus, the Exchange believes there is no significant 
risk that more series will not open as a result of this proposed rule 
change or that there will be a material impact on liquidity.
---------------------------------------------------------------------------

    \38\ See, e.g., MIAX Options Exchange (``MIAX'') Rule 603(c).
---------------------------------------------------------------------------

    The proposed rule change does not change the majority of 
obligations currently imposed on LMMs. As discussed above, through 
other existing rules, LMMs are already subject to the majority of the 
obligations as revised. With respect to LMMs in Hybrid 3.0 classes, 
they are currently subject to continuous quoting obligations which had 
previously not been codified in the rules. While the proposed rule 
change amends these obligations, the proposed obligations are identical 
to the continuous quoting obligations of LMMs in Hybrid classes and 
DPMs, who serve substantially similar functions). The Exchange believes 
that subjecting LMMs in Hybrid 3.0 classes to the same continuous 
quoting obligations as LMMs in Hybrid classes (and DPMs) will promote 
compliance by LMMs and simplify surveillance processes for the Exchange 
when determining compliance with these obligations. Additionally, 
current rules applicable to LMMs in Hybrid classes and DPMs provide an 
appropriate balance between the benefits for and burdens imposed on 
them, and the Exchange believes the proposed rule change provides the 
same appropriate balance to Hybrid 3.0 LMMs, who serve substantially 
similar functions as Hybrid LMMs and DPMs. Thus, any additional 
obligations imposed on LMMs are de minimis and will not be burdensome. 
Because the proposed rule change does not materially change the 
benefits or obligations of LMMs, the Exchange believes the rules 
continue to provide an appropriate balance between LMM benefits and 
obligations (as they do for Hybrid LMMs and DPMs) and thus promote just 
and equitable principles of trade.
    Further, the Exchange believes the proposed revisions to the 
descriptions of the Off-Floor DPM and Off-/On-Floor LMM programs will 
make it easier to read and understand this program, including when Off-
Floor DPMs and Off/On-Floor LMMs may be appointed by the Exchange and 
how obligations and benefits are applied when appointments pursuant to 
the Program have been made. This clarity will benefit investors and 
promote compliance with the program. The Exchange believes making this 
program available to classes in which there is an Off-Floor LMM and 
Hybrid 3.0 classes, in addition to classes in which there is an Off-
Floor DPM and Hybrid classes only, is reasonable given the similar 
roles of LMMs and DPMs and may result in additional liquidity in those 
classes.
    The Exchange also believes that the proposed changes to eliminate 
obsolete provisions, including those related to individual LMMs, SMMs, 
an expired pilot program, the Old Linkage Plan, and strike price 
interval, bid/ask differential and quote continuity requirements, will 
protect investors by simplifying the rules and eliminating potential 
confusion that may result from inclusion of duplicative and outdated 
rules. With respect to strike price interval, bid/ask differential and 
quote continuity requirements, as discussed above, other existing rules 
address those requirements and supersede the language regarding these 
topics included (and proposed to be deleted) in Rules 5.8 and 24.9, 
thus rendering this language outdated and unnecessary. The Exchange 
will continue to impose these requirements in the manner it does today, 
consistent with the provisions in the other existing rules, and thus 
the proposed rule change has no impact on how the Exchange imposes 
these requirements.
    The Exchange believes that the nonsubstantive, technical changes 
proposed throughout the Rules will simplify and provide more clarity 
and consistent organization in the Rules, which will benefit investors.

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 changes to 
the descriptions of obligations of LMMs and DPMs also have no impact on 
competition, because LMMs and DPMs, as discussed above, generally are 
already subject to these obligations through existing rules. The 
proposed rule changes are intended to make the rules regarding LMM and 
DPM obligations more consistent with each other given the substantially 
similar functions of LMMs and DPMs and reduce duplication within the 
Rules. With respect to the proposed changes to certain obligations of 
LMMs and DPMs, the Exchange notes that these changes are not material 
and will not be burdensome. While the proposed rule change slightly 
modifies the opening quoting obligations of LMMs and DPMs, the Exchange 
believes the modified obligation still requires LMMs and DPMs to 
promptly enter quotes to ensure an opening, and they must continue to 
submit quotes in response to a request from the Exchange. Therefore, 
the Exchange believes there is no

[[Page 9919]]

significant risk that more series will not open as a result of this 
proposed rule change. Additionally, while the proposed rule change 
modifies the continuous quoting obligations of LMMs in Hybrid 3.0 
classes, the proposed obligation is the same as that of LMMs in Hybrid 
classes and DPMs, who have substantially functions and obligations as 
LMMs in Hybrid 3.0 classes, and LMMs in Hybrid 3.0 classes will 
continue to be required to provide quotes in a substantial number of 
series for a large part of the trading day under the revised quoting 
obligation. The Exchange believes the rules, as amended, continue to 
provide an appropriate balance of benefits for and obligations on LMMs 
and DPMs, and result in significant liquidity on CBOE. See the 
discussion above for additional details regarding the balance of LMM 
and DPM obligations and benefits.
    The proposed rule change regarding the Off-Floor DPM and On-Floor/
Off-Floor LMM program merely enhances the description of this program 
for investors but has no impact on how the Exchange implements the 
program. The Exchange believes the proposed revisions to the 
descriptions of the Off-Floor DPM and Off-/On-Floor LMM programs will 
make it easier to read and understand this program, including when Off-
Floor DPMs and Off/On-Floor LMMs may be appointed by the Exchange and 
how obligations and benefits are applied when appointments pursuant to 
the Program have been made. This clarity will benefit investors and 
promote compliance with the program. Additionally, making this program 
available to classes in which there is an Off-Floor LMM and Hybrid 3.0 
classes, in addition to classes in which there is an Off-Floor DPM and 
Hybrid classes only, may result in additional liquidity in those 
classes.
    The nonsubstantive, technical changes and deletion of obsolete rule 
provisions have no impact on competition and are intended only to 
simplify, make consistent and eliminate potential confusion within the 
rules.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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-2016-009 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-2016-009. 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-2016-009 and should be 
submitted on or before March 18, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04109 Filed 2-25-16; 8:45 am]
 BILLING CODE 8011-01-P


