[Federal Register Volume 75, Number 216 (Tuesday, November 9, 2010)]
[Notices]
[Pages 68842-68844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-28244]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63235; File No. SR-CBOE-2010-099]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to Short Sell Order Handling

November 3, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 26, 2010, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Exchange has designated the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend CBOE Stock Exchange, LLC's 
(``CBSX,'' the CBOE's stock trading facility) rules to describe the 
manner in which the CBSX System \5\ will handle short sell orders in 
relation to Rule 201 of Regulation SHO,\6\ and CBOE's rules to include 
order marking requirements for stock-option orders. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.cboe.org/Legal ), at the Exchange's Office of the Secretary and at 
the Commission.
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    \5\ The ``CBSX System'' means the electronic system which 
performs the functions set out in the CBSX rules including 
controlling, monitoring, and recording trading by CBSX Traders 
through CBSX Workstations and trading between CBSX Traders. See Rule 
50.1(a). A ``CBSX Trader'' means an individual who or organization 
which has the right to trade on CBSX. See Rules 50.1(f) and 50.3. A 
``CBSX Workstation'' means a computer connected to CBSX for the 
purposes of trading pursuant to the CBSX rules. See Rule 50.1(d).
    \6\ 17 CFR 242.201. See Securities Exchange Act Release No. 
61595 (February 26, 2010), 75 FR 11232 (March 10, 2010). In 
connection with the adoption of Rule 201, Rule 200(g) of Regulation 
SHO, 17 CFR 242.200(g), was amended to include a ``short exempt'' 
marking requirement. The amendments to Rule 201 and Rule 200(g) have 
a compliance date of November 10, 2010.
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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 those 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 parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule 201 of Regulation SHO under the Act \7\ sets forth a short 
sale-related circuit breaker that, if triggered, will impose a 
restriction on the prices at which NMS stocks \8\ may be sold short. In 
anticipation of the upcoming November 10, 2010 compliance date for Rule 
201,\9\ the Exchange is proposing to amend CBSX's rules to describe the 
manner in which the CBSX System will handle short sell orders when a 
circuit breaker is triggered under Rule 201 of Regulation SHO.
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    \7\ Id.
    \8\ 17 CFR 242.201(a)(1).
    \9\ See supra note 6.
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    In particular, the Exchange is proposing to adopt Interpretation 
and Policy .02 to its Rule 51.8, Types of Orders Handled, to provide 
that orders in equity securities that are submitted to the CBSX System 
must be marked ``long,'' ``short,'' or ``short exempt'' in compliance 
with Regulation SHO.\10\ The Interpretation and Policy will also 
provide that, if a short sale-related circuit breaker is triggered 
under Regulation SHO, orders marked ``short'' will be handled by the 
CBSX System as follows: First, short sell orders that are resting in 
the CBSX Book \11\ at the time a circuit breaker is triggered will be 
permitted to continue resting and/or execute. The Exchange believes 
this handling of resting short sell orders is consistent with Rule 201 
because resting orders by definition are priced above the National Best 
Bid.\12\ Second, short sell orders that are received by the CBSX System 
after the time a circuit breaker is triggered that are priced above the 
National Best Bid will be permitted to rest and/or execute. The 
Exchange believes this handling of incoming short sell orders is 
consistent with Rule 201 because the orders are priced above the 
National Best Bid.\13\ Third, short sell orders that are received by 
the CBSX System after the time a circuit breaker is triggered that are 
priced at or below

[[Page 68843]]

the National Best Bid will be rejected/cancelled by the CBSX System. 
The Exchange believes this handling of incoming short sell orders is 
consistent with Rule 201 because the orders are not priced above the 
National Best Bid.\14\
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    \10\ 17 CFR 242.200(g).
    \11\ The ``CBSX Book'' means all unexecuted orders currently 
held by the CBSX System. See Rule 50.1(c). The Exchange notes that 
additional size cannot be added to an order resting in the CBSX 
Book. The Exchange also notes that it currently does not make 
available any resting order types that are to be completely un-
displayed in the CBSX Book. To the extent the Exchange may determine 
to make available such an un-displayed resting order type, it would 
be subject to a rule filing submitted pursuant to Section 19(b) of 
the Act, 15 U.S.C. 78s(b).
    \12\ 17 CFR 242.201(b)(1).
    \13\ Id.
    \14\ Id.
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    The Exchange notes that, under these procedures, a reserve sell 
order \15\ that is marked ``short'' will be handled the same as any 
other sell order marked ``short.'' Thus, an incoming reserve sell order 
that is received by the CBSX System after the time a circuit breaker is 
triggered that is marked ``short'' and that is priced at or below the 
National Best Bid will be rejected/cancelled by the CBSX System. An 
incoming reserve sell order that is received by the CBSX System after 
the time a circuit breaker is triggered that is marked ``short'' and 
that is priced above the National Best Bid will be permitted to rest 
and/or execute. The Exchange also notes that the entire size of a 
reserve sell order that is marked ``short'' and resting in the CBSX 
Book--both the displayed portion and the reserve portion at the same 
price that is not displayed--will be permitted to rest and/or execute. 
This handling will apply to reserve orders resting in the CBSX Book at 
the time a circuit breaker is triggered or to incoming reserve orders 
that rest in the CBSX Book after a circuit breaker is triggered. The 
Exchange believes this handling of reserve orders marked ``short'' is 
consistent with Rule 201 because resting reserve orders that are marked 
``short'' by definition are priced above the National Best Bid at the 
time of initial display.\16\
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    \15\ A ``reserve order'' is a limit order with a portion of the 
size that is to be displayed and with a reserve portion of the size 
at the same price that is not to be displayed, but is to be used to 
refresh the displayed size when the displayed size is executed in 
full. See Rule 51.8(o).
    \16\ 17 CFR 242.201(b)(1)(iii)(A).
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    Sell orders marked ``short exempt'' will be permitted to rest and/
or execute without regard to when the order is received or whether the 
order is priced above, at or below the National Best Bid. This handling 
of sell orders marked ``short exempt'' would be applied by the CBSX 
System at all times--without regard to whether a circuit breaker is 
triggered. The Exchange believes this handling by CBSX of sell orders 
marked ``short exempt'' is consistent with Rule 201, which permits the 
execution or display of a short sell order in an NMS stock marked 
``short exempt'' without regard to whether the order is at a price that 
is less than or equal to the current National Best Bid.\17\
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    \17\ See Rule 201(b)(1)(iii)(B) of Regulation SHO, 17 CFR 
242.201(b)(1)(iii)(B). The Exchange notes that a broker or dealer 
may mark a sell order ``short exempt'' only if the provisions of 
Rule 242.201(c) or (d) are met. See Rule 200(g)(2) of Regulation 
SHO, 17 CFR 242.200(g)(2).
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    The Exchange is also proposing to amend Interpretation and Policy 
.06 to its Rule 6.53C, Complex Orders on the Hybrid System, to include 
an order marking requirement for stock-option orders. In particular, 
the Exchange is proposing to provide that, if the stock leg of a stock-
option order submitted to CBOE's electronic complex order book 
(referred to in the rules as ``COB'') \18\ or electronic complex order 
request for response auction (referred to in the rules as ``COA'') \19\ 
is a sell order, then the stock leg must be marked ``long, ``short,'' 
or ``short exempt'' in compliance with Regulation SHO.\20\
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    \18\ See Rule 6.53C(c).
    \19\ See Rule 6.53C(d).
    \20\ 17 CFR 242.200(g).
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    Finally, the Exchange is proposing to make non-substantive 
technical updates to its Rule 53.5, ``Long'' and ``Short'' Sales. In 
particular, the Exchange is proposing to change the title of the rule 
to ```Long,' `Short' and `Short Exempt' Sales'' and to delete an 
outdated reference to SEC Rule 10a-1 (which no longer exists and has 
been superseded by Regulation SHO).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\21\ in general, and, in particular, furthers 
the objectives of Section 6(b)(5) of the Act,\22\ which requires that 
an exchange have rules that are designed to promote just and equitable 
principles of trade and, in general, to protect investors and the 
public interest. In particular, the Exchange believes the proposed 
change will provide clarity on the short sell order handling procedures 
that the CBSX System will apply when a short sale-related circuit 
breaker is triggered under Rule 201 of Regulation SHO in a manner that 
the Exchange believes is consistent with Regulation SHO.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposal.

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

    Because the foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \23\ and Rule 19b-
4(f)(6) thereunder.\24\
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(6). In addition, CBOE has given the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date on which the 
Exchange filed the proposed rule change.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\25\ 
However, Rule 19b-4(f)(6) \26\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay to allow updating of its 
rules before the November 10, 2010 compliance date of the amendments to 
Rule 200(g) and 201 of Regulation SHO \27\ and thereby provide clarity 
on the short sell order handling procedures that the CBSX System will 
apply when a short sale-related circuit breaker is triggered under Rule 
201 of Regulation SHO. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because the waiver will provide clarity to market 
participants that trade on CBSX System on the handling of certain 
orders in light of the amendments to Regulation SHO.\28\ The Commission 
also believes that the proposed rule change does not raise any new or 
novel issues. Accordingly, the Commission designates the proposed rule 
change

[[Page 68844]]

operative upon filing with the Commission.\29\
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    \25\ 17 CFR 240.19b-4(f)(6)(iii).
    \26\ Id.
    \27\ 17 CFR 242.200(g); 17 CFR 242.201.
    \28\ Id.
    \29\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml ); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#354740595018565a5858505b4146754650561b525a43"><span class="__cf_email__" data-cfemail="f88a8d949dd59b9795959d968c8bb88b9d9bd69f978e">[email protected]</span></a>. Please include 
File Number SR-CBOE-2010-099 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2010-099. This file 
number should be included on the subject line if e-mail 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the CBOE. 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-2010-099 and should be 
submitted on or before November 30, 2010 in the Federal Register.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-28244 Filed 11-8-10; 8:45 am]
BILLING CODE 8011-01-P


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