
[Federal Register Volume 82, Number 101 (Friday, May 26, 2017)]
[Notices]
[Pages 24417-24418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10790]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80738; File No. SR-CBOE-2017-029]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving a Proposed Rule Change Relating to the 
Exposure Periods of the Automated Improvement Mechanism and the 
Solicitation Auction Mechanism

May 22, 2017.

I. Introduction

    On March 31, 2017, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend CBOE Rules 6.74A and 
6.74B to reduce the exposure periods of the Exchange's Automated 
Improvement Mechanism (``AIM'') and Solicitation Auction Mechanism 
(``SAM'') from 1 second to a time period designated by the Exchange of 
no less than 100 milliseconds and no more than 1 second. The proposed 
rule change was published for comment in the Federal Register on April 
14, 2017.\3\ The Commission received no comment letters on the proposed 
rule change. This order approves the proposed rule change.
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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. 80421 (April 10, 
2017), 82 FR 18048 (``Notice'').
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II. Description of the Proposed Rule Change

    CBOE's AIM auction allows a Trading Permit Holder (``TPH'') to 
execute electronically an order it represents as agent against 
principal interest or against a solicited order.\4\ CBOE's SAM auction 
allows a TPH to execute electronically an agency order of 500 contracts 
or more against solicited orders.\5\ After an agency order is properly 
designated for AIM or SAM processing, the Exchange will send a Request 
for Responses (``RFR'') to all TPHs who have elected to receive 
RFRs.\6\ Orders entered in the AIM or SAM are currently exposed for a 
period of 1 second, during which time competitive responses to the 
auction may be submitted. The Exchange proposes to revise the RFR 
response periods for AIM and SAM to permit the Exchange to designate a 
specific time within a range of no less than 100 milliseconds and no 
more than 1 second.\7\
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    \4\ See CBOE Rule 6.74A.
    \5\ See CBOE Rule 6.74B.
    \6\ The AIM RFR specifies the side and size of the order, while 
the SAM RFR specifies the price, side, and size of the order. See 
CBOE Rule 6.74A(b)(1)(B) and 6.74B(b)(1)(B).
    \7\ Although the proposed rule change would allow the Exchange 
to select an exposure period from a range of 1 second to 100 
milliseconds, the Exchange stated that it currently plans to 
decrease the time period allowed for responses to 100 milliseconds. 
See Notice, supra note 3, at 18050. The Exchange noted that its 
proposal is consistent with exposure periods permitted in similar 
mechanisms on other options exchanges. See id. at 18049; see also 
Securities Exchange Act Release Nos. 76301 (October 29, 2015), 80 FR 
68347 (November 4, 2015) (SR-BX-2015-032) (establishing an exposure 
period for the Nasdaq BX's options price improvement mechanism 
(``PRISM'') of no less than 100 milliseconds and no more than 1 
second); 77557 (April 7, 2016), 81 FR 21935 (April 13, 2016) (SR-
Phlx-2016-40) (amending the exposure period for the Nasdaq Phlx's 
Price Improvement XL (``PIXL'') to be no less than 100 milliseconds 
and no more than 1 second); and 79733 (January 4, 2017), 82 FR 3055 
(January 10, 2017) (SR-ISE-2016-26) (amending the exposure period 
for the Nasdaq ISE's Price Improvement Mechanism (``PIM'') to be no 
less than 100 milliseconds and no more than 1 second).
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III. Discussion and Commission's 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.\8\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\9\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating 
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, and not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Commission also finds that the proposed rule 
change is consistent with Section 6(b)(8) of the Act,\10\ which 
requires that the rules of an exchange not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that, given the electronic nature of the 
AIM and SAM mechanisms and the ability of TPHs to respond within the 
proposed exposure periods, reducing each of the exposure periods from 1 
second to no less than 100 milliseconds could facilitate the prompt 
execution of orders, while continuing to provide market participants 
with an opportunity to compete to trade with the exposed order by 
submitting responses to the auctions. According to the Exchange, 
numerous TPHs have the capability to and do respond within a 100 
millisecond exposure period or less on the Hybrid Trading System.\11\ 
The Exchange notes that the response timers for its Exchange's Hybrid 
Agency Liaison (``HAL''), Complex Order Auction (``COA''), and Simple 
Auction Liaison (``SAL'') mechanisms are set at 100 milliseconds or 
less and numerous TPHs can and do respond to HAL, SAL, and COA messages 
within these time frames.\12\ The Exchange also notes that the AIM and 
SAM mechanisms operate on the Hybrid Trading System and employ the same 
type of mechanical

[[Page 24418]]

messaging as the HAL, SAL, and COA mechanisms.\13\
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    \11\ See Notice, supra note 3, at 18049 n.4.
    \12\ See id.
    \13\ See id.
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    To substantiate that its members can receive, process, and 
communicate a response back to the Exchange within 100 milliseconds, 
the Exchange states that it surveyed its top 15 AIM and SAM 
responders.\14\ According to the Exchange, each of the 15 TPHs it 
surveyed indicated that they can receive, process, and communicate a 
response back to the Exchange within 100 milliseconds.\15\ In addition, 
the Exchange states that it reviewed all AIM and SAM responses that 
resulted in traded orders in December 2016, and its review indicated 
that approximately 63% of AIM responses and 63% of SAM responses 
resulting in price improving executions at the conclusion of the 
auction occurred within 100 milliseconds of the initial order.\16\ 
Furthermore, with regard to the impact of the proposal on system 
capacity, the Exchange states that it has analyzed its capacity and 
represents that it has the necessary systems capacity to handle the 
potential additional traffic associated with the additional 
transactions that may occur with the implementation of the proposed 
reduction in the AIM and SAM duration to no less than 100 
milliseconds.\17\ The Exchange also represents that its systems will be 
able to sufficiently maintain an audit trail for order and trade 
information with the reduction in the AIM and SAM duration.\18\
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    \14\ See Notice, supra note 3, at 18050.
    \15\ See id.
    \16\ See id. In addition to the 63% of AIM responses and 63% of 
SAM responses that occur within 100 milliseconds of the initial 
order, approximately 20% of AIM responses and 15% of SAM responses 
that resulted in price improving executions at the conclusion of the 
auction occurred in the final 800-1000 milliseconds (i.e., within 
200 milliseconds of the end of the RFR). See id. The Exchange 
believes that the timing of these responses indicates that TPHs have 
configured their trading systems to either respond immediately to an 
AIM or SAM auction, or to wait until the end of an auction period to 
reduce the risk of the market moving. See id.
    \17\ See id.
    \18\ See id.
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    Upon effectiveness of the proposed rule change, and at least six 
weeks prior to implementation of the proposed rule change, the Exchange 
will issue a circular to TPHs, informing them of the implementation 
date of the reduction of the AIM and SAM duration from 1 second to the 
auction time designated by the Exchange to allow TPHs to perform any 
necessary systems changes.\19\ The Exchange also represents that it 
will issue a circular at least four weeks prior to any future changes, 
as permitted by its rules, to the auction response time.\20\
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    \19\ See id.
    \20\ See id.
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    Based on the Exchange's statements, the Commission believes that 
market participants should continue to have opportunities to compete to 
trade with the exposed order by submitting responses to the auctions 
within an exposure period of no less than 100 milliseconds and no more 
than 1 second.\21\ Accordingly, for the reasons discussed above, the 
Commission believes that the Exchange's proposal is consistent with the 
Act.
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    \21\ The Commission notes that the ability to designate such an 
exposure time period is consistent with the rules of other options 
exchanges. See supra note 7. See also NASDAQ Phlx Rule 
1080(n)(ii)(A)(4), NASDAQ BX Options Rules Chapter VI, Section 
9(ii)(A)(3), Nasdaq ISE Rule 716, Supplementary Material .04, and 
Nasdaq ISE Rule 723(c)(1).
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IV. Conclusion

    It is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-CBOE-2017-029) be, and 
hereby is, approved.
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10790 Filed 5-25-17; 8:45 am]
 BILLING CODE 8011-01-P


