2308 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 

8 15 U.S.C. 78s(b)(3)(A). 

9 17 CFR 240.19b–4(f)(2). 

10 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 68262 

(November 19, 2012), 77 FR 70517 (November 26, 

2012) (SR–CBOE–2012–108) (‘‘Notice’’). 

4See Notice, 77 FR at 70518. 

5See Notice, 77 FR at 70518 n.4, n.8, and 

accompanying text. 

6See Notice, 77 FR at 70518. For examples of 

some of the circumstances in which the Exchange 

may decide to cancel orders, see Notice, 77 FR at 

70519. 

7See Notice, 77 FR at 70518. Specifically, CBOE 

Rule 6.14C defines ‘‘error positions’’ as ‘‘unmatched 

trade positions that may occur in connection with 

the routing service provided under Rule 6.14B’’. 

For examples of some of the circumstances that 

may lead to error positions, see Notice, 77 FR at 

70520–21. 

8See CBOE Rule 6.6A(a). 

19(b)(3)(A) 8 of the Act and 

subparagraph (f)(2) of Rule 19b–4 9

thereunder, because it establishes a due, 

fee, or other charge imposed by NYSE. 

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 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rulecomments@sec.gov. Please include File 

Number SR–NYSE–2012–78 on the 

subject line. 

Paper Comments 

• 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–NYSE–2012–78. 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–NYSE– 

2012–78 and should be submitted on or 

before January 31, 2013. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2013–00310 Filed 1–9–13; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–68585; File No. SR–CBOE– 

2012–108] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Order Approving a 

Proposed Rule Change To Address the 

Authority To Cancel Orders When a 

Technical or Systems Issue Occurs 

and To Describe the Operation of 

Routing Service Error Accounts 

January 4, 2013. 

I. Introduction 

On November 8, 2012, the Chicago 

Board Options Exchange, Incorporated 

(‘‘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 

(i) address the authority of the Exchange 

to cancel orders (or release routingrelated orders) when a technical or 

systems issue occurs; and (ii) describe 

the operation of an Exchange error 

account(s) and routing broker error 

account(s), which may be used to 

liquidate unmatched executions that 

may occur in the provision of the 

Exchange’s routing service. The 

proposed rule change was published for 

comment in the Federal Register on 

November 26, 2012.3 The Commission 

received no comment letters regarding 

the proposed rule change. This order 

approves the proposed rule change. 

II. Description of the Proposal 

In its proposal, the Exchange states 

that it operates a ‘‘hybrid’’ style system 

of trading that allows automatic 

executions to occur electronically and 

open outcry trades to occur on the floor 

of the Exchange.4 As part of this 

infrastructure, the Exchange states that 

it automatically routes orders to other 

exchanges under certain circumstances. 

These routing services are provided in 

conjunction with one or more routing 

brokers that are not affiliated with the 

Exchange.5 Mechanically, when the 

Exchange receives an order from a 

Trading Permit Holder that is held in 

the Exchange system and determines to 

route an order to another exchange, the 

Exchange provides the routing broker 

with a corresponding order and 

instructions to route the order to 

another exchange. The routing broker 

then sends the corresponding order to 

the other exchange. 

In its proposal, CBOE states that the 

Exchange may encounter situations that 

make it necessary to cancel orders (or 

release routing-related orders),6 and to 

resolve error positions that result from 

errors of the Exchange, routing brokers, 

or another exchange.7

Proposed Rule 6.6A (Order 

Cancellation/Release) 

New CBOE Rule 6.6A provides CBOE 

with general authority to cancel orders 

as it deems to be necessary to maintain 

fair and orderly markets if a technical or 

systems issue occurs at the Exchange, a 

routing broker in connection with the 

routing service provided under CBOE 

Rule 6.14B, or another exchange to 

which an Exchange order has been 

routed. It also provides that a routing 

broker may only cancel orders being 

routed to another exchange based on the 

Exchange’s standing or specific 

instructions or as otherwise provided in 

the Exchange Rules. CBOE will be 

required to provide notice of the 

cancellation to affected Trading Permit 

Holders as soon as practicable.8

Paragraph (b) of the rule provides that 

the Exchange may also determine to 

release orders being held on the 


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Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 2309 

9See Notice, 77 FR at 70519. 

10See Notice, 77 FR at 70520. 

11See Notice, 77 FR at 70520 n.17. This provision 

would not apply if the Exchange incurred a position 

to settle a Trading Permit Holder purchase, as the 

Trading Permit Holder did not yet have a position 

in its account as a result of the purchase at the time 

of the Exchange’s action. See id. 

12Rule 6.14B(b) provides that the Exchange shall 

establish and maintain procedures and internal 

controls reasonably designed to adequately restrict 

the flow of confidential and proprietary information 

between the Exchange and the routing broker, and 

any other entity, including any affiliate of the 

routing broker, and, if the routing broker or any of 

its affiliates engages in any other business activities 

other than providing routing services to the 

Exchange, between the segment of the routing 

broker or affiliate that provides the other business 

activities and the segment of the routing broker that 

provides the routing services. 

13 17 CFR 240.17a–4. 

14This provision is not intended to preclude the 

Exchange from providing the third-party brokerdealer with standing instructions with respect to 

the manner in which it should handle all error 

account transactions. For example, the Exchange 

might instruct the broker-dealer to treat all orders 

as ‘‘not held’’ and to attempt to minimize any 

market impact on the price of the option being 

traded. 

15 17 CFR 240.17a–1. 

16 15 U.S.C. 78f(b). 

17 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). 

18 15 U.S.C. 78f(b)(5). 

Exchange awaiting an away exchange 

execution as it deems to be necessary to 

maintain fair and orderly markets if a 

technical or systems issues occurs at the 

Exchange, a routing broker, or another 

exchange to which an order has been 

routed. Paragraph (c) of the rule 

provides that, for purposes of Rule 6.6A, 

technical or system issues would 

include, without limitation, instances 

where the Exchange has not received 

confirmation of an execution (or 

cancellation) on another exchange from 

a routing broker within a response time 

interval designated by the Exchange, 

which interval may not be less than 

three (3) seconds. 

Proposed Rule 6.14C (Routing Service 

Error Accounts) 

New CBOE Rule 6.14C provides that 

each routing broker shall maintain, in 

the name of the routing broker, one or 

more accounts for the purpose of 

liquidating error positions. In addition 

the Exchange may also maintain, in the 

name of the Exchange, one or more 

Exchange error accounts (‘‘Exchange 

Error Account’’) for the purposes of 

liquidating error positions, subject to 

the procedures prescribed in new CBOE 

Rule 6.14C. 

Paragraph (a) of the rule provides that 

errors to which the rule applies include 

any action or omission by the Exchange, 

a routing broker, or another exchange to 

which an Exchange order has been 

routed, that results in an unmatched 

trade position due to the execution of an 

order that is subject to the away market 

routing service and for which there is no 

corresponding order to pair with the 

execution (each a ‘‘routing error’’); and 

that such routing errors would include, 

without limitation, positions resulting 

from determinations by the Exchange to 

cancel or release an order pursuant to 

CBOE Rule 6.6A. 

Paragraph (b) of the rule provides 

that, generally, each routing broker will 

use its own error account to liquidate 

error positions. In certain 

circumstances, however, the Exchange 

may use an Exchange Error Account. In 

particular, in instances where the 

routing broker is unable to use its own 

error account (e.g., due to a technical, 

systems, or other issue that prevents the 

routing broker from doing so) 9 or where 

the error is due to a technical or systems 

issue at the Exchange, the Exchange 

may (but would not be required to) 

determine it is appropriate to use an 

Exchange Error Account. The Exchange 

states that in making such a 

determination to use an Exchange Error 

Account, the Exchange would consider 

whether it has sufficient time, 

information, and capabilities 

considering the market circumstances to 

determine that an error is due to such 

circumstances and whether the 

Exchange can address the error.10

Pursuant to paragraph (c), the 

Exchange will not be permitted to 

accept any positions in an Exchange 

Error Account from an account of a 

Trading Permit Holder or permit any 

Trading Permit Holder to transfer any 

positions from the Trading Permit 

Holder’s account to an Exchange Error 

Account. In other words, the Exchange 

may not accept from a Trading Permit 

Holder positions that are delivered to 

the Trading Permit Holder through the 

clearance and settlement process, even 

if those positions may have been the 

result of an error.11

To the extent a routing broker uses its 

own account to liquidate error 

positions, paragraph (d) of new CBOE 

Rule 6.14 provides that the routing 

broker shall liquidate the error positions 

as soon as practicable. The routing 

broker could determine to liquidate the 

position itself or have a third-party 

broker-dealer liquidate the position on 

the routing broker’s behalf. Paragraph 

(d) also provides that the routing broker 

shall establish and enforce policies and 

procedures reasonably designed to (i) 

adequately restrict the flow of 

confidential and proprietary 

information associated with the 

liquidation of the error position in 

accordance with Rule 6.14B,12 and (ii) 

prevent the use of information 

associated with other orders subject to 

the routing services when making 

determinations regarding the liquidation 

of error positions. In addition, 

paragraph (d) provides that the routing 

broker shall make and keep records 

associated with the liquidation of such 

routing broker error positions and shall 

maintain such records in accordance 

with Rule 17a–4 under the Act.13

Paragraph (e) of the rule provides that, 

to the extent an Exchange Error Account 

is used to liquidate error positions, the 

Exchange shall liquidate the error 

positions as soon as practicable. In 

liquidating error positions in an 

Exchange Error Account, the Exchange 

shall provide complete time and price 

discretion for the trading to a third-party 

broker-dealer and shall not attempt to 

exercise any influence or control over 

the timing or methods of such trading.14

Such a third-party broker-dealer may 

include a routing broker not affiliated 

with the Exchange. Paragraph (e) also 

provides that the Exchange shall 

establish and enforce policies and 

procedures reasonably designed to 

adequately restrict the flow of 

confidential and proprietary 

information between the Exchange and 

the third-party broker-dealer associated 

with the liquidation of the error 

positions. 

Finally, paragraph (e) provides that 

the Exchange shall make and keep 

records to document all determinations 

to treat positions as error positions 

under the rule (whether or not an 

Exchange Error Account is used to 

liquidate such error positions), as well 

as records associated with the 

liquidation of Exchange Error Account 

error positions through a third-party 

broker-dealer, and shall maintain such 

records in accordance with Rule 17a–1 

under the Act.15

III. Discussion and Commission’s 

Findings 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of 

Section 6(b) of the Act 16 and the rules 

and regulations thereunder applicable to 

a national securities exchange.17 In 

particular, the Commission finds that 

the proposed rule change is consistent 

with Section 6(b)(5) of the Act,18 which 

requires, among other things, that the 

rules of a national securities exchange 

be designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 


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2310 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 

19 15 U.S.C. 78k–1(a)(1)(C). 

20The Commission notes that CBOE states it 

believes that allowing the Exchange to cancel or 

release orders under such circumstances would 

allow the Exchange to maintain fair and orderly 

markets, and that CBOE Rule 6.14C is designed 

ensure full trade certainty for market participants 

and avoid disrupting the clearance and settlement 

process. See Notice, 77 FR at 70521. The 

Commission also notes that CBOE states that a 

decision to cancel or release orders due to a 

technical or systems issue is not equivalent to the 

Exchange declaring self-help against a routing 

destination pursuant to Rule 611 of Regulation 

NMS. See 17 CFR 242.611(b). See also Notice, 77 

FR at 70519 n.9. 

21See CBOE Rule 6.14C. 

22See CBOE Rules 6.14C(d)(i); 6.14C(e)(ii). 

23See CBOE Rule 6.14C(e)(i). 

24See CBOE Rule 6.14C(d)(ii). 

25See CBOE Rule 6.14C(e)(iii). 

26See, e.g., Securities Exchange Act Release Nos. 

67281 (June 27, 2012), 77 FR 39543 (July 3, 2012) 

(SR–NASDAQ–2012–057); 66963 (May 10, 2012), 

77 FR 28919 (May 16, 2012) (SR–NYSEArca–2012– 

22); 67010 (May 17, 2012), 77 FR 30564 (May 23, 

2012) (SR–EDGX–2012–08); and 67011 (May 17, 

2012), 77 FR 30562 (May 23, 2012) (SR–EDGA– 

2012–09). 

27 15 U.S.C. 78s(b)(2). 

28 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Section II Equity Options fees include options 

overlying equities, ETFs, ETNs and indexes which 

are Multiply Listed. 

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; and are not designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

In addition, the Commission believes 

the proposed rule change is consistent 

with Section 11A(a)(1)(C) of the Act 19

in that it seeks to assure economically 

efficient execution of securities 

transactions. 

The Commission recognizes that 

technical or systems issues may occur, 

and believes that CBOE Rule 6.6A, in 

allowing CBOE to cancel or release 

orders affected by technical or systems 

issues, should provide a reasonably 

efficient means for CBOE to handle such 

orders, and appears reasonably designed 

to permit CBOE to maintain fair and 

orderly markets.20

The Commission also believes that 

allowing the Exchange to resolve error 

positions through the use of error 

accounts maintained by its routing 

brokers or the Exchange itself pursuant 

to the procedures set forth in the rule, 

and as described above, is consistent 

with the Act. The Commission notes 

that the rule establishes criteria for 

determining which positions are error 

positions to which the rule applies, and 

the procedures for the handling of such 

positions. In particular, the Commission 

notes that CBOE Rule 6.14C only 

applies to error positions that result 

from the Exchange’s routing service, and 

that such positions shall be liquidated 

by the routing broker or the Exchange, 

as applicable, as soon as practicable.21

In this regard, the Commission believes 

that the new rule appears reasonably 

designed to further just and equitable 

principles of trade and the protection of 

investors and the public interest, and to 

help prevent unfair discrimination, in 

that it should help assure the handling 

of error positions will be based on clear 

and objective criteria, and that the 

resolution of those positions will occur 

promptly through a transparent process. 

The Commission is also concerned 

about the potential for misuse of 

confidential and proprietary 

information. The Commission notes that 

CBOE or a routing broker, as applicable, 

will establish and enforce policies and 

procedures reasonably designed to (1) 

adequately restrict the flow of 

confidential and proprietary 

information associated with the 

liquidation of the error positions, and 

(2) in the case of liquidations by a 

routing broker, prevent the use of 

information associated with other orders 

subject to the routing services when 

making determinations regarding the 

liquidation of error positions.22

Furthermore, to the extent the Exchange 

uses an Exchange Error Account to 

liquidate error positions, the Exchange 

shall provide complete time and price 

discretion for the trading to liquidate 

error positions in an Exchange Error 

Account to a third-party broker-dealer 

and shall not attempt to exercise any 

influence or control over the timing or 

methods of such trading.23 The 

Commission believes that these 

requirements should help mitigate the 

Commission’s concerns. In particular, 

the Commission believes that these 

requirements should help assure that 

none of CBOE, its routing brokers, or 

any third-party broker-dealer is able to 

misuse confidential or proprietary 

information obtained in connection 

with the liquidation of error positions 

for its own benefit. The Commission 

also notes that routing brokers would be 

required to make and keep records 

associated with the liquidation of 

routing broker error positions 24 and 

CBOE would be required to make and 

keep records to document all 

determinations to treat positions as error 

positions under this Rule (whether or 

not an Exchange Error Account is used 

to liquidate such error positions), as 

well as records associated with the 

liquidation of Exchange Error Account 

error positions through a third-party 

broker-dealer.25

Finally, the Commission notes that 

the proposed procedures for canceling 

orders and the handling of error 

positions are consistent with procedures 

the Commission has approved for other 

exchanges.26

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,27 that the 

proposed rule change (SR–CBOE–2012– 

108) be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2013–00308 Filed 1–9–13; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–68582; File No. SR–Phlx– 

2012–146] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Strategy Caps 

January 4, 2013. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1, and Rule 19b–4 thereunder,2

notice is hereby given that on December 

21, 2012, NASDAQ OMX PHLX LLC 

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

The Exchange proposes to amend rule 

text related to fee caps applicable to 

certain strategies on Multiply Listed 

Options in Section II, entitled ‘‘Equity 

Options Fees.’’ 3

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http:// 

nasdaqomxphlx.cchwallstreet.com/, at 

the principal office of the Exchange, and 

at the Commission’s Public Reference 

Room. 


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