2304 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 

22See C2 Rules 6.37(d)(i); 6.37(e)(ii). 

23See C2 Rule 6.37(e)(i). 

24See C2 Rule 6.37(d)(ii). 

25See C2 Rule 6.37(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. 

3Securities Exchange Act Release No. 68265 

(November 19, 2012), 77 FR 70511 (November 26, 

2012) (SR–CBOE–2012–109) (‘‘Notice’’). 

4See Notice, 77 FR at 70511. 

5See Notice, 77 FR at 70511–12 n.4, n.8, and 

accompanying text. 

6See Notice, 77 FR at 70512. For examples of 

some of the circumstances in which the Exchange 

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

70512–13. 

7See Notice, 77 FR at 70512. Specifically, CBOE 

Rule 52.10A defines ‘‘error positions’’ as 

‘‘unmatched trade positions that may occur in 

connection with the routing service provided under 

Rule 52.10’’. 

For examples of some of the circumstances that 

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

70514. 

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 

C2 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 C2, 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 C2 

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–C2–2012– 

038) 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. 2013–00306 Filed 1–9–13; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–68584; File No. SR–CBOE– 

2012–109] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Order Approving a 

Proposed Rule Change Related to 

CBSX 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 16, 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 CBOE Stock 

Exchange, LLC (‘‘CBSX’’, CBOE’s stock 

execution facility) to cancel orders (or 

release routing-related orders) when a 

technical or systems issue occurs; and 

(ii) describe the operation of a CBSX 

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 

CBSX’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 CBSX operates a system of trading 

that allows automatic executions to 

occur electronically.4 As part of this 

infrastructure, the Exchange states that 

CBSX 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 CBSX.5 Mechanically, 

when CBSX receives an order from a 

Trading Permit Holder that is held in 

the CBSX system and determines to 

route an order to another exchange, 

CBSX provides the routing broker with 

a corresponding order and instructions 

to route the order to another trading 

center. The routing broker then sends 

the corresponding order to the other 

trading center. 

In its proposal, CBOE states that 

CBSX 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 52.3A (Order 

Cancellation/Release) 

New CBOE Rule 52.3A provides 

CBSX 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 

CBSX, a routing broker in connection 

with the routing service provided under 

CBOE Rule 52.10, or another trading 

center to which a CBSX order has been 

routed. It also provides that a routing 

broker may only cancel orders being 

routed to another trading center based 

on the CBSX’s standing or specific 

instructions or as otherwise provided in 

the Exchange Rules. CBSX will be 

required to provide notice of the 


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8See CBOE Rule 52.3A(a). 

9See Notice, 77 FR at 70513. 

10See id. 

11See Notice, 77 FR at 70513 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 52.10.01(c) provides that CBSX shall 

establish and maintain procedures and internal 

controls reasonably designed to adequately restrict 

the flow of confidential and proprietary information 

between CBSX and the routing broker (referred to 

in the rule as the ‘‘Technology Provider’’), and, to 

the extent the routing broker reasonably receives 

confidential and proprietary information, that 

adequately restrict the use of such information by 

the routing broker to legitimate business purposes 

necessary for the licensing of routing technology. 

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). 

cancellation to affected Trading Permit 

Holders as soon as practicable.8

Paragraph (b) of the rule provides that 

CBSX may also determine to release 

orders being held on CBSX awaiting 

another trading center execution as it 

deems to be necessary to maintain fair 

and orderly markets if a technical or 

systems issues occurs at CBSX, a routing 

broker, or another trading center to 

which an order has been routed. 

Paragraph (c) of the rule provides that, 

for purposes of Rule 52.10A, technical 

or system issues would include, without 

limitation, instances where CBSX 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. In 

conjunction with this proposed rule 

change, CBOE also proposed to amend 

CBOE Rule 52.7 which provides, in part, 

that an Intermarket Sweep Order 

(‘‘ISO’’) shall be generated if an order 

that is entered on CBSX would lock or 

cross a protected quotation in an away 

market, to provide that if CBSX does not 

receive any response at all to an 

outbound ISO, at the expiration of the 

response time internal, CBSX will 

release the corresponding order that had 

been suspended on the CBSX Book 

pending the response to the ISO in 

accordance with Rule 52.3A. 

Proposed Rule 52.10A (Routing Service 

Error Accounts) 

New CBOE Rule 52.10A 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 

CBSX may also maintain, in the name 

of CBSX, one or more CBSX error 

accounts (‘‘CBSX Error Account’’) for 

the purposes of liquidating error 

positions, subject to the procedures 

prescribed in new CBOE Rule 52.10A. 

Paragraph (a) of the rule provides that 

errors to which the rule applies include 

any action or omission by CBSX, a 

routing broker, or another trading center 

to which a CBSX 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 CBSX to cancel 

or release an order pursuant to CBOE 

Rule 52.3A. 

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, CBSX may use 

a CBSX 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 

CBSX, CBSX may (but would not be 

required to) determine it is appropriate 

to use a CBSX Error Account. The 

Exchange states that in making such a 

determination to use a CBSX Error 

Account, the CBSX 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), CBSX will 

not be permitted to accept any positions 

in a CBSX 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 a CBSX Error 

Account. In other words, CBSX 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 52.10A 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 52.10,12 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 a CBSX Error Account is 

used to liquidate error positions, CBSX 

shall liquidate the error positions as 

soon as practicable. In liquidating error 

positions in a CBSX Error Account, 

CBSX 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 CBSX. 

Paragraph (e) also provides that CBSX 

shall establish and enforce policies and 

procedures reasonably designed to 

adequately restrict the flow of 

confidential and proprietary 

information between CBSX and the 

third-party broker-dealer associated 

with the liquidation of the error 

positions. 

Finally, paragraph (e) provides that 

CBSX shall make and keep records to 

document all determinations to treat 

positions as error positions under the 

rule (whether or not a CBSX Error 

Account is used to liquidate such error 

positions), as well as records associated 

with the liquidation of CBSX Error 

Account error positions through a thirdparty 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 


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2306 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 

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). 

19 15 U.S.C. 78k–1(a)(1)(C). 

20The Commission notes that CBSX states it 

believes that allowing it to cancel or release orders 

under such circumstances would allow CBSX to 

maintain fair and orderly markets, and that CBOE 

Rule 52.10A is designed to ensure full trade 

certainty for market participants, and avoid 

disrupting the clearance and settlement process. 

See Notice, 77 FR at 70514. 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 CBSX 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 70512 n.9. 

21See CBOE Rule 52.10A. 

22See CBOE Rules 52.10A(d)(i); 52.10A(e)(ii). 

23See CBOE Rule 52.10A(e)(i). 

24See CBOE Rule 52.10A(d)(ii). 

25See CBOE Rule 52.10A(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. 

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 

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 52.3A, in 

allowing CBSX to cancel or release 

orders affected by technical or systems 

issues, should provide a reasonably 

efficient means for CBSX to handle such 

orders, and appears reasonably designed 

to permit CBSX to maintain fair and 

orderly markets.20

The Commission also believes that 

allowing CBSX to resolve error positions 

through the use of error accounts 

maintained by its routing brokers or 

CBSX 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 52.10A only 

applies to error positions that result 

from the Exchanges 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 

CBSX 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 CBSX uses a 

CBSX Error Account to liquidate error 

positions, the Exchange shall provide 

complete time and price discretion for 

the trading to liquidate error positions 

in a CBSX 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 CBSX, 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 a CBSX Error Account is used to 

liquidate such error positions), as well 

as records associated with the 

liquidation of CBSX Error Account error 

positions through a third-party brokerdealer.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– 

109) 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. 2013–00307 Filed 1–9–13; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–68579; File No. SR–NYSE– 

2012–78] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Eliminating 

Certain Credits Within the New York 

Stock Exchange LLC Price List 

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, New York Stock Exchange 

LLC (the ‘‘Exchange’’ or ‘‘NYSE’’) filed 

with the Securities and Exchange 

Commission (‘‘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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