[Federal Register Volume 80, Number 39 (Friday, February 27, 2015)]
[Notices]
[Pages 10738-10743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-04067]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74351; File No. SR-CBOE-2015-021]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Chicago Board Options Exchange, 
Incorporated's Order Handling System and Order Management Terminal

February 23, 2015.
    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 February 19, 2015, 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 Exchange filed 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 adopt a rule that further describes 
its existing order handling system (also referred to below as ``OHS'') 
and order management terminal (also referred to below as ``OMT'') 
operations, and to make corresponding amendments to its opening, 
automatic execution and complex order processing rules. 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 is proposing to adopt new Rule 6.12 to further 
describe its existing OHS and OMT operations, and to make corresponding 
amendments to its opening, automatic execution and complex order 
processing rules (Rules 6.2B, 6.13, and 6.53C, respectively). The 
Exchange notes that these OHS and OMT operations are currently in use 
and referenced in the Exchange Rules. The purpose of this rule change 
is simply to codify further details of the existing operations within 
the Exchange Rules.
Background
    The CBOE Hybrid System \5\ is a trading platform that allows 
automatic executions to occur electronically and open outcry trades to 
occur on the floor of the Exchange. To operate in this ``hybrid'' 
environment, the Exchange has made available to Trading Permit Holders 
(``TPHs'') a dynamic order handling system, also referred herein as 
OHS, that has the capability to route orders to the Hybrid System for 
automatic execution and book entry, to PAR workstations located in the 
trading crowds for open outcry and other manual handling by TPHs and 
Exchange PAR Officials, and/or to other order management terminals 
generally located in booths on the trading floor for manual handling. 
Where an order is routed for processing by the Exchange order handling 
system depends on various parameters configured by the Exchange and the 
order entry firm itself. Thus, the OHS provides TPHs with some 
flexibility to determine how to process their orders in the CBOE Hybrid 
System.
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    \5\ The CBOE ``Hybrid System'' or ``Hybrid Trading System'' 
refers to the Exchange's trading platform that allows Market-Makers 
to submit electronic quotes in their appointed classes. The ``Hybrid 
3.0 Platform'' is an electronic trading platform on the Hybrid 
Trading System that allows one or more quoters to submit electronic 
quotes which 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 shall be referred 
to as Hybrid classes. Classes authorized by the Exchange for trading 
on the Hybrid 3.0 Platform shall be referred to as Hybrid 3.0 
classes. References to ``Hybrid,'' ``Hybrid System,'' or ``Hybrid 
Trading System'' in the Exchange's Rules shall include all platforms 
unless otherwise provided by rule. See, e.g., Rule 1.1(aaa).
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    The Exchange believes these routing parameters assist with the 
maintenance of a fair and orderly market and help to mitigate potential 
risks associated with orders executing at potentially erroneous prices 
or inconsistent with a particular investment strategy by routing 
certain orders to a PAR workstation or a booth order management 
terminal for manual handling based on parameters determined by the 
Exchange under Rule 6.2B, 6.13 or 6.53C, by routing certain orders to 
an order management terminal based on parameters prescribed by the 
Exchange, by routing certain orders to an order management terminal or 
a PAR workstation or for electronic process, based on parameters 
prescribed by the order entry firm itself, and by routing certain 
orders to an order management terminal in the event of certain Exchange 
system disruptions or malfunctions. The order handling system also 
permits orders to be routed from a PAR workstation to an order 
management terminal (and vice versa) and from a PAR workstation or an 
order management terminal to the Hybrid System for automatic execution 
or book entry. The Exchange also views the order handling system as an 
important tool to assist order entry firms in their ability to 
efficiently manage, process and execute orders in a ``hybrid'' trading 
environment. The Exchange believes this, again, promotes fair and 
orderly markets, as well as assists the Exchange in its ability to 
effectively attract order flow and liquidity to its market, and 
ultimately benefits all CBOE TPHs and all investors.
    Regarding booth routing parameters in particular, an order may 
route to an order management terminal generally located in a booth 
depending on various circumstances. One such set of circumstances 
pertains to automatic execution/book ``kick-outs.'' In that regard, the 
electronic processes under Rules 6.2B (pertaining to opening 
transactions), 6.13 (pertaining to simple orders) and 6.53C (pertaining 
to complex orders), provide that an order that is not eligible for 
automatic

[[Page 10739]]

execution or book entry due to certain Exchange-defined parameters may 
route to PAR or, at the order entry firm's discretion, to the order 
entry firm's booth.\6\ In the event an order is not eligible to route 
to PAR, the order would be cancelled.\7\ Once routed to a PAR 
workstation or a booth, an order can be manually addressed (e.g., an 
individual might determine to resubmit the order to the Hybrid System 
for automatic execution, route the order from a booth to a PAR 
workstation, represent the order in open outcry, cancel the order, 
etc.). Thus, as part of establishing their connectivity for routing 
orders to the Exchange, order entry firms designate PAR workstations 
and/or booth order management terminals as the destination for their 
automatic execution/book kick-outs.
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    \6\ For example, under Rule 6.13(b)(v), a marketable order may 
not be eligible for automatic execution because the execution would 
follow an initial partial execution on the Exchange and would be at 
a subsequent execution price that is not within an acceptable tick 
distance from the initial execution (the ``acceptable tick 
distance'' is determined by the Exchange on a series-by-series and 
premium basis and may not be less than 2 minimum increment ticks). 
Under this ``drill through'' provision, for example, if the 
acceptable tick distance in a series quoted in $0.01 increments is 
set at 3 ($0.03), then a marketable buy order that received an 
initial partial execution at $1.20 would not automatically execute 
at a subsequent price of $1.25 (which is $0.02 beyond the acceptable 
tick distance). In such a circumstance, the execution of the order 
would be suspended and any remaining portion would be exposed for 
price improvement pursuant to the HAL process in Rule 6.14A, Hybrid 
Agency Liaison, using the acceptable tick distance as the exposure 
price. If a quantity remains at the conclusion of the HAL process, 
the remaining quantity will route to PAR or, at the order entry 
firm's discretion, to the order entry firm's booth, so that the 
order can be manually addressed. (In the event an order is not 
eligible to route to PAR, the order will be cancelled).
    \7\ For example, assume an order entry firm has chosen to route 
its orders that are not eligible for automatic execution to a PAR 
workstation (and the order entry firm has also not specified that 
its orders can route to a booth order management terminal if PAR is 
unavailable). With this configuration, if an order is routed by that 
firm to the CBOE Hybrid System but the order is not eligible for 
automatic execution or book entry (e.g., because an incoming order 
is marketable and would execute at a price outside an acceptable 
price range under Rule 6.13(b)(v)), then: (i) The order would route 
to a PAR workstation so the order can be manually addressed, or (ii) 
if it is not eligible to route to PAR (e.g., because the particular 
order type is not eligible for PAR and the order entry firm has not 
specified that its orders can route to a booth if PAR is 
unavailable), then the remaining balance of the order will be 
cancelled.
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    Apart from the foregoing processes for automatic execution/book 
kick-outs, orders may be routed through the order handling system to an 
order management terminal under various other circumstances. For 
instance, orders may route to an order management terminal from a PAR 
workstation. In addition, certain orders may route directly from an 
order entry firm to an order management terminal for manual handling 
based on certain limit order price parameter settings established by 
the Exchange \8\ or based on certain other parameters established by 
the order entry firm itself.\9\ Orders may also route to a booth order 
management terminal in the event of certain system disruptions or 
malfunctions (e.g., if the Exchange's experiences a system outage that 
prevents orders from routing to a particular PAR workstation, the order 
will route to the firm's next available alternate destination listed in 
the order handling system, which is usually defined as an order 
management

[[Page 10740]]

terminal).\10\ Thus, as part of establishing their connectivity for 
routing orders to the Exchange, order entry firms designate booth order 
management terminals as a destination for routes from PAR, direct 
routes from an order entry firm due to Exchange settings and/or 
optional order entry firm settings, and routes due to Exchange system 
disruption or malfunction.
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    \8\ Currently the Exchange has determined for all classes where 
the limit order price parameters are activated, except those noted 
below, that the limit order price parameters would be applied for 
the series within each class such that the Exchange would not accept 
the following simple limit orders for execution: (i) If the market 
quote is less than or equal to $3, limit orders to buy priced more 
than $0.50 above the offer and limit orders to sell priced more than 
$0.50 below the bid; (ii) if the market quote is greater than $3 and 
less than or equal to $10, limit orders to buy priced more than 
$1.00 above the offer and limit orders to sell priced more than 
$1.00 below the bid; (iii) if the market quote is greater than $10 
and less than or equal to $30, limit orders to buy priced more than 
$1.50 above the offer and limit orders to sell priced more than 
$1.50 below the bid; (iv) if the market quote is greater than $30 
and less than or equal to $50, limit orders to buy priced more than 
$2.00 above the offer and limit orders to sell priced more than 
$2.00 below the bid; or (v) if the market quote is equal to or 
greater than $50, limit orders to buy priced more than $3.00 above 
the offer and limit order to sell priced more than $3.00 below the 
bid. For the same classes, the Exchange has determined that limit 
orders received before a series is opened (including before a series 
is opened following a halt) will be checked against the previous 
trading day's closing price using the same parameters noted above. 
Exchange Market Maker and away Market Maker orders received pre-open 
are excluded from this pre-opening aspect of the limit order price 
parameters. The foregoing limit order price parameters, which are 
referred to as the ``Price Check Level A'' or ``Level A'' settings, 
are in effect in all classes except option classes AAPL, DJX, NDX, 
OEX, RUT, SPX (which includes symbols SPX, SPXW and SPXQ), SPXpm, 
SPY andSPY7. There is no limit order price parameter currently 
activated for option class AAPL. (According to the Exchange, volume 
for options class AAPL is higher and trading is more volatile, while 
the price of the underlying stock is higher (e.g., Apple Inc. closed 
at $94.72 on July 22, 2014). The Exchange believes that application 
of the limit order price parameter in these circumstances may serve 
as more of a hindrance to the orderly processing orders (e.g., 
application of the parameter may result in an inordinate number of 
orders being excepted from automated process and instead routing for 
manual handling) and, as a result, has determined to not apply the 
parameter to option class AAPL for the time being.) However, the 
Exchange may evaluate whether to apply the parameter to the option 
class and any determination to do so would be announced via 
Regulatory Circular.
    For the remaining seven classes, the limit order price parameter 
levels for the premium ranges noted above are $1.00, $2.00, $3.00, 
$4.00 and $6.00, respectively. These limit order price parameters 
are referred to as the ``Price Check Level B'' or ``Level B'' 
settings. The Exchange has determined to apply the settings to 
immediate-or-cancel orders in option classes SPX (which includes 
symbols SPX, SPXW and SPXQ), SPXpm and SRO. For all other classes 
where the limit order price parameter is activated, it is not 
applied to immediate-or-cancel orders. For complex limit orders, the 
limit order price parameters are the same as the parameters for 
simple orders, but the complex order parameter levels are based on 
the derived net market (as opposed to an individual bid or offer).
    See CBOE Regulatory Circular RG13-145, which is available at 
http://www.cboe.com/publish/RegCir/RG13-145.pdf.
    The senior official in the Help Desk or two Floor Officials 
might also widen or inactivate one or more of these price check 
parameters for simple and/or complex orders on an intra-day basis in 
the interest of a fair and orderly market. For example, if an 
underlying stock is high priced or volatile and is experiencing 
significant price movement and the existing parameters would result 
in an inordinate number of limit orders not being accepted, the 
senior official in the Help Desk may determine to widen the 
parameters on an intra-day basis in the overlying or related options 
series. As another example, if the overall market is experiencing 
significant volatility, the senior official in the Help Desk or two 
Floor Officials may determine to widen the parameters for a group of 
series or classes. In that regard, the Exchange has determined that 
on any trading day where the front-month E-mini S&P 500 Futures 
(symbol ES/1) are trading more than 20 points above or below the 
previous day's closing values by 8:00 a.m. (all times noted are 
Central Time), the Exchange will widen the Price Check Level A 
settings to the Price Check Level B settings for the trading day for 
all classes where the limit order price check is activated at the 
Level A setting (referred to herein as the ``Standing Intraday 
Relief Condition''). See CBOE Regulatory Circular RG13-145. The next 
trading day, the parameter levels for those classes would revert 
back to the normal Level A setting, unless the E-mini S&P 500 Future 
is more than 20 points above or below the previous day's closing 
values by 8:00 a.m.
    Example of Standing Intraday Relief Condition: If on Monday the 
E-mini S&P 500 Futures close at 1700 and by 8:00 a.m. on Tuesday the 
E-mini S&P 500 Future is trading at 1730 (30 points above the prior 
day's close of 1700), then the Exchange would adjust the limit order 
price parameter settings from Level A to Level B in all classes 
where Level A is the normal setting). If the E-mini S&P 500 Futures 
close on Tuesday at 1725 and by 8:00 a.m. on Wednesday are trading 
at 1720 (only 5 points below the prior day's close of 1725), then 
the limit order price parameter settings would revert back to the 
Level A settings that were in place on Monday. However, if by 8:00 
a.m. on Wednesday the E-mini S&P 500 Futures are trading at 1700 (25 
points below the prior day's close of 1725), then the limit order 
price parameter settings would remain at the Level B settings that 
were in place on Tuesday.)
    The Exchange notes that these examples are non-exhaustive and 
for illustrative purposes only. (For example, see also CBOE 
Regulatory Circular RG14-019, which is available at http://www.cboe.com/publish/RegCir/RG14-019.pdf and which sets forth limit 
order price parameters settings for certain option classes on 
volatility index product settlement days.) The Exchange also notes 
that it may determine for the parameters to differ among classes and 
between pre-open and intra-day.
    \9\ For example, a firm might establish routing parameters so 
that all its orders, or a subset of orders that exceed certain size, 
price or other parameters, submitted to the Exchange order handling 
system route directly to a booth OMT (while other orders might route 
directly to a PAR workstation or for electronic processing).
    \10\ The Exchange notes that CBOE also utilizes the OMT 
technology as a back-up in the event of a system failure, 
malfunction or other issue where an order does not route to an OMT. 
In these circumstances where an order(s) fails to route to an OMT, 
the order would route to an Exchange Help Desk OMT. Once on the 
Exchange Help Desk terminal, orders with an immediate-or-cancel 
(``IOC'') contingency are manually cancelled and all other orders 
are manually routed by the Help Desk to the respective firm's OMT. 
To be clear, the use of the Help Desk terminal is a back-up, safety 
feature that is designed to assist the Exchange in maintaining an 
orderly market. The back-up terminal is used by the Exchange for all 
order entry firms' and Trading Permit Holders' orders.
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    When it comes to selecting an order management terminal, some order 
entry firms elect to route orders to terminals located in their own 
booths on the floor, others elect to route orders to terminals located 
in another TPH's booth, and still others a combination of the 
foregoing. For example, a firm that only trades remotely and does not 
maintain a physical presence on the Exchange trading floor may elect to 
route its orders to one or more TPHs' booth order management terminals, 
or a firm might elect to have all equity option orders route to its own 
booth order management terminal and all index option trades route to 
another TPH's booth order management terminal because the firm does not 
wish to maintain a physical presence on the floor for index trades. A 
firm may also elect to route orders to another TPH's booth order 
management terminal because the firm may have a large number of orders 
to address or is experiencing system issues and has designated the 
other TPH's booth as a back-up.
Proposal
    While there are various references to the Exchange's order routing 
system and order management terminal functions throughout the Exchange 
Rules (see, e.g., Rules 6.2B, 6.8B, 6.13, 6.53C), the Exchange believes 
it would be useful to have a more detailed description of the 
functionality within the rule text. Therefore, the Exchange is 
proposing to adopt new Rule 6.12 and amend existing Rules 6.2B, 6.13 
and 6.53C to include additional information about the foregoing OHS and 
OMT functionality. These changes are intended to more fully describe 
the existing operation of the routing parameters and conditions 
necessary for an order entry firm to elect to route orders to an order 
management terminal.
    Proposed Rule 6.12 will include an introductory paragraph 
indicating that the rule describes the process for routing orders 
through the Exchange's OHS, which is available for classes designated 
for trading on the CBOE Hybrid System. The introduction will also 
indicate that the OHS is a feature within the Hybrid System to route 
orders for automatic execution, book entry, open outcry, or further 
handling by a broker, agent, or PAR Official, in a manner consistent 
with Exchange Rules and Section 6(b) of the Act.\11\
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    \11\ 15 U.S.C. 78f(b).
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    Paragraph (a) of proposed Rule 6.12 includes a general description 
of the OHS's existing parameters for routing orders to OMTs. The 
proposed text provides that orders may route through the OHS to an OMT 
designated by an order entry firm in any of the circumstances described 
below. (The particular routing designations may be established based on 
various parameters established by the Exchange or order entry firm, as 
applicable.)
    <bullet> AutoEx and Book Kick-Outs: Under Rules 6.3B, 6.13 and 
6.53C, orders or the remaining balance of orders initially routed from 
an order entry firm for electronic processing that are not eligible for 
automatic execution or book entry will by default route to a PAR 
workstation designated by the order entry firm. If an order entry firm 
has not designated a PAR workstation or if a PAR workstation is 
unavailable, the remaining balance will route to an OMT designated by 
the firm. If it is not eligible to route, the remaining balance of the 
order will be returned to the order entry firm.
    <bullet> OMT/PAR Workstation Routing: Orders may be routed back and 
forth between an OMT and a PAR workstation by TPHs. Orders may also be 
routed from a PAR workstation to an order management terminal by a PAR 
Official based on instructions from the TPH or if the PAR Official is 
unable to book or execute the order from, or maintain the order on, the 
PAR workstation.
    <bullet> Limit Order Price Parameter for Simple Orders: Limit 
orders will route directly from an order entry firm to an OMT 
designated by the order entry firm when initially routed to the 
Exchange if: (i) Prior to the opening (including before a series is 
opened following a halt),\12\ the order is to buy at more than an 
acceptable tick distance above the Exchange's previous day's close or 
the order is to sell at more than an acceptable tick distance below the 
Exchange's previous day's close (not applicable to Exchange Market-
Makers or away Market-Makers),\13\ or (ii) once a series has opened, 
the order is to buy at more than an acceptable tick distance above the 
disseminated Exchange offer or the order is to sell at more than an 
acceptable tick distances below the disseminated Exchange bid. For 
purposes of this provision, an acceptable tick distance or ``ATD'' will 
be determined by the Exchange on a series by series and premium basis 
and announced to TPHs via Regulatory Circular, and shall be no less 
than 5 minimum increment ticks. The Exchange may also determine on a 
class by class basis and announce via Regulatory Circular whether to 
apply the parameters in (i) and/or (ii) above to immediate-or-cancel 
orders.\14\ In addition, the senior official on the Exchange Help Desk 
\15\ or two Floor Officials may widen or inactivate one or more of the 
applicable ATD parameter settings on an intra-day basis in the interest 
of a fair and orderly market.\16\

[[Page 10741]]

If a limit order is routed to an OMT because the ATD has not been met, 
the order can be manually addressed (e.g., an individual might 
determine to route the order to the Hybrid System for automatic 
execution or book entry (and the limit order price parameter would not 
be applied for such routing), route the order from a booth to a PAR 
workstation, represent the order in open outcry, cancel the order, 
etc.).\17\
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    \12\ This includes halts that may occur at any time after the 
opening of trading on a particular trading day. The Exchange notes 
that this is the manner in which the limit order price parameter 
functionality currently operates. The Exchange believes that this 
functionality provides an additional safeguard to consider the 
reasonableness of limit order pricing prior to a reopening following 
a trading halt.
    \13\ This parameter for limit orders received prior to the 
opening (including before a series is opened following a halt) is 
not applicable to limit orders of Exchange Market-Makers and away 
Market-Makers. The Exchange believes that Market-Makers actively 
evaluate the pre-opening market and utilize their own risk 
management parameters when entering, maintaining and cancelling 
orders prior to the opening, minimizing the likelihood of a Market-
Maker order resulting from an error from being entered and 
continuing to rest prior to the opening of trading. In that regard, 
while the Exchange believes that the application of its limit order 
price parameters serve to promote a fair and orderly market, the 
parameters are not a substitute for a broker-dealer's compliance 
with Rule 15c3-5 under the Act, 17 CFR 240.15c3-5 (commonly referred 
to as the ``Market Access Rule'').
    \14\ See note 8, supra, for current parameter settings.
    \15\ The Help Desk is sometimes referred to elsewhere within the 
Exchange Rules as the ``Control Room'' and these two terms are used 
interchangeably. For consistency, the Exchange is proposing to 
change a reference in Rule 6.13 from the ``Control Room'' to the 
``Exchange Help Desk.''
    \16\ Under proposed Rule 6.12.01, (i) notification of such 
intra-day relief will be announced as soon as reasonably practical 
via verbal message to the trading floor, OMT message to TPH 
organizations on the trading floor, and electronic message to TPHs 
that request to receive such messages; (ii) such intra-day relief 
will not extend beyond the trade day on which it is granted, unless 
a determination to extend such relief is announced to TPHs via 
Regulatory Circular; and (iii) the Exchange will make and keep 
records to document all determinations to grant intra-day relief 
under this Rule, and shall maintain those records in accordance with 
Rule 17a-1 under the Exchange Act. The Exchange notes that 
conditions when the Standing Intraday Relief will be instituted and 
the particular form of relief have been announced via Regulatory 
Circular. See note 8, supra. The announcement of the pre-established 
conditions and relief is intended to serve the circular notification 
requirement and, as such, a separate circular would not be issued if 
this relief is instituted over multiple days. However, if the 
Exchange would determine to modify the conditions for Standing 
Intraday Relief, then the Exchange would announce those changes by 
issuing another Regulatory Circular.
    The Exchange also notes that the OMT messaging is now used in 
place of former printer messaging. Therefore, for consistency, the 
Exchange is proposing to update a reference in Rule 6.13 from 
``printer message'' to ``OMT message.'' The Exchange also notes that 
the verbal messages to the trading crowds are announced over a 
speaker system which can be heard in the particular trading crowd as 
well as the trading floor. Therefore, for consistency, the Exchange 
is proposing to update a reference in Rule 6.13 from ``trading 
crowd'' to ``trading floor.''
    \17\ The limit order price parameter will take precedence over 
another routing parameter to the extent that both are applicable to 
an incoming limit order.
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    <bullet> Limit Order Price Parameter for Complex Orders: Under this 
parameter, which is comparable to the parameter applicable to simple 
orders described above, incoming limit priced complex orders will route 
directly from an order entry firm to an OMT designated by the order 
entry firm if: (i) Prior to the opening (including before a series is 
opened following a halt), the order is priced at a net debit that is 
more than an acceptable tick distance above the derived net market 
using the Exchange's previous day's close in the individual series legs 
comprising the complex order or priced at a net credit that is more 
than an acceptable tick distance below the derived net market using the 
Exchange's previous day's close in the individual series legs 
comprising the complex order (such ATD will be as determined by the 
Exchange on a class by class and net premium basis and announced via 
Regulatory Circular); \18\ or (ii) once a series has opened, the order 
is priced at a net debit that is more than an acceptable tick distance 
above the opposite side derived net market using the Exchange's best 
bid or offer in the individual series legs comprising the complex order 
or priced at a net credit that is more than an acceptable tick distance 
below the opposite side derived net market using the Exchange's best 
bid or offer in the individual series legs comprising the complex order 
(such ATD will be as determined by the Exchange on a class by class and 
net premium basis and announced via Regulatory Circular). The Exchange 
may determine on a class by class basis and announce via Regulatory 
Circular whether to apply the parameters in (i) and/or (ii) above to 
immediate-or-cancel complex orders (similar to the discussion above for 
simple orders). The Exchange also notes that the limit order price 
parameter is not applicable to stock-option orders.\19\ Similar to 
simple orders, the ATD for the limit order price parameter will be no 
less than 5 minimum net price increment ticks (where the ``minimum net 
price increment'' is the minimum increment for net priced bids and 
offers for the given complex order strategy). For example, if the 
minimum net price increment for complex orders in a given series in a 
class is $0.01, then the ATD would be no less than $0.05 (5 X $0.01). 
If the minimum net price increment is $0.05, then the ATD would be no 
less than $0.25 (5 X $0.05). Also similar to simple orders, the senior 
official on the Exchange Help Desk or two Floor Officials may widen or 
inactivate one or more of the applicable ATD parameter settings for 
complex orders on an intra-day basis in the interest of a fair and 
orderly market.\20\
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    \18\ Similar to simple orders, this parameter for limit priced 
complex orders received prior to the opening is not applicable to 
limit orders of Exchange Market-Makers and away Market-Makers. See, 
e.g., note 13, supra.
    \19\ Stock-options orders are excluded from the calculation 
because the individual component stock leg is not traded on the 
Exchange and, as a result, calculation of a derived net market by 
the Exchange's automated system would be a more complicated 
function. If in the future the Exchange would decide to enhance the 
limit order price parameter functionality to address stock-option 
orders, the Exchange would file a rule change to address stock-
option orders.
    \20\ See also notes 8 and 16, supra. In addition, the limit 
order price parameter takes precedence over other complex order 
routing parameters to the extent that others are applicable to an 
incoming limit order. Once routed to an OMT, an order can be 
manually addressed (e.g., an individual might determine to resubmit 
the order to the Hybrid System for automatic execution or book entry 
(and the limit order price parameter would not be applied to such 
routing), route the order from a booth to a PAR workstation, 
represent the order in open outcry, cancel the order, etc.)
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    <bullet> Direct Routing: Orders may route directly from an order 
entry firm to an OMT (or to a PAR workstation or to the Hybrid System 
for electronic processing) based on parameters prescribed by the order 
entry firm itself.\21\
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    \21\ See note 9, supra.
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    <bullet> System Disruptions or Malfunctions: Orders will route to 
an OMT designated by the order entry firm or TPH, or a terminal 
designated and maintained by the Exchange as a back-up to order entry 
firms' and TPHs' designated order management terminals, in the event of 
certain system disruptions or malfunctions that affect the ability of 
orders to reach or be processed at their intended destination. For 
example, if an order cannot route to a PAR workstation due to a 
malfunction of the PAR workstation, the order will route to an OMT 
either automatically or by Exchange personnel, as necessary.\22\
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    \22\ See pages 30-32, supra, and surrounding discussion.
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    Paragraph (b) of proposed Rule 6.12 would provide that each order 
entry firm must designate an OMT(s) for receiving routed orders and 
would reflect the Exchange's current practice that permits an order 
entry firm to elect to have its orders routed to a booth OMT operated 
by the order entry firm itself and/or a booth OMT operated by another 
TPH.
    In conjunction with the foregoing, various corresponding changes to 
Rules 6.2B, 6.13 and 6.53C are being proposed. In particular, existing 
references in the rule text to routing orders to ``. . . PAR or, at the 
order entry firm's discretion, to the order entry firm's booth [and, 
if] an order is not eligible to route to PAR, then the remaining 
balance will be cancelled'' (or substantially similar wording) will be 
replaced with references to routing orders ``. . . via the order 
handling system pursuant to Rule 6.12'' (or substantially similar 
wording).) [sic] Given the above-described proposal to further describe 
the routing process in proposed Rule 6.12 and to include cross-
references to proposed Rule 6.12 within Rules 6.2B, 6.13 and 6.53C, the 
Exchange does not believe it is necessary to continue to include the 
routing process descriptions within Rules 6.2B, 6.13 and 6.53C.
    The Exchange is proposing various miscellaneous changes to the 
existing text of Rule 6.13. In particular, the Exchange is proposing to 
include a title for each type of price check parameter within the 
existing rule text (i.e., the existing market width and drill through 
price parameters). The addition of these titles is non-substantive and 
is intended for ease of reference only. In addition, the existing text 
in Rule 6.13(b)(v)(A) provides that the ``acceptable price range'' or 
``APR'' for the national best

[[Page 10742]]

bid and national best offer width price check parameter (for market 
orders and/or marketable limit orders) shall be determined by the 
Exchange on a class by class basis, and also indicates elsewhere in the 
existing rule text that the parameters for each class are applied on a 
series by series basis. The Exchange is proposing to replace this class 
by class reference in Rule 6.13(b)(v)(A) with series by series for 
consistency. The existing rule text also provides that, as soon as 
reasonably practicable, the senior official in the Help Desk or two 
Floor Officials may grant intra-day relief by widening the APR and ATD 
parameter settings for one or more option series and that notification 
of intraday relief will be announced via verbal message to the trading 
crowd, printer message to TPH organizations on the trading floor, and 
electronic message to TPHs that request to receive such messages. The 
Exchange is proposing to amend this provision to replace references 
from ``trading crowd'' to ``trading floor'' and from ``printer 
message'' to ``OMT message.'' \23\ The Exchange is also proposing to 
make clear that the relief can be granted intra-day by widening or 
inactivating the applicable APR and/or ATD setting in the interest of a 
fair and orderly market. The Exchange believes including the reference 
to inactivating the applicable settings is not substantive because an 
applicable APR or ATD parameter could be widened to such a level that 
it would be in effect inactive. Similar to proposed Rule 6.12.01, the 
Exchange is also proposing to provide within the text of Rule 
6.13(b)(v) that the intra-day relief granted in the interest of a fair 
and orderly market by the senior official in the Help Desk or two Floor 
Officials will not extend beyond the trade day on which it is granted, 
unless a determination to extend such relief is announced to TPHs via 
Regulatory Circular. The Exchange is also proposing to provide within 
the rule text that the Exchange will make and keep records to document 
all determinations to grant intra-day relief under Rule 6.13(b)(v), and 
shall maintain those records in accordance with Rule 17a-1 under the 
Act.\24\ The rule text will also provide that the Exchange will 
periodically review determinations to grant intra-day relief for 
consistency with the interest of a fair and orderly market. The 
Exchange is also proposing to make clear that, for purposes of the 
drill through price parameters, if an order has already been subject to 
the HAL process or if the order is not eligible for HAL, then the 
remaining quantity of the order will route via the OHS pursuant to 
proposed Rule 6.12.
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    \23\ See note 16, supra.
    \24\ 17 CFR 240.17a-1. The Exchange notes that determinations to 
grant intra-day relief under Rule 6.13(b)(v) will be made in 
compliance with the provisions of the Act and the rules thereunder, 
including, but not limited to, the requirements in Section 6(b)(5) 
of the Act, 15 U.S.C. 78f(b), that the rules of a national 
securities exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    Finally, the Exchange is proposing a miscellaneous change to Rule 
6.53C.08 (pertaining to complex order price check parameters) to 
specifically identify the price check parameters that are not 
applicable to stock-option orders in the introductory text to this 
provision. The particular parameters to which stock-option orders may 
be subjected are already identified within the rule text. This proposed 
change is simply to include a list of those parameters which are not 
applicable to stock-option orders in the introductory paragraph for 
ease of reference.\25\
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    \25\ Specifically, paragraphs (b) (credit-to-debit parameters), 
(c) (same expiration strategy parameters), and (e) (percentage 
distance parameters) of Rule 6.53C.08 are not applicable to stock-
option orders.
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 2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\26\ in general and furthers the objectives of Section 6(b)(5) of the 
Act \27\ in particular in that it should promote just and equitable 
principles of trade, serve to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
protect investors and the public interest, and it is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange views these routing parameters as important tools that 
assist order entry firms in their ability to efficiently manage, 
process and execute orders in a ``hybrid'' trading environment. In 
addition, the Exchange believes these routing parameters assist with 
the maintenance of fair and orderly markets and help to mitigate 
potential risks associated with orders executing at potentially 
erroneous prices or inconsistent with a particular investment strategy 
by routing certain orders to PAR or an OMT for manual handling based on 
parameters determined by the Exchange under Rule 6.2B, 6.13 or 6.53C, 
by routing certain orders directly from an order entry firm to an order 
management terminal based on parameters prescribed by the Exchange (and 
announced via regulatory circular) or to an order management terminal 
or PAR workstation or for electronic processing based on parameters 
prescribed by the order entry firm itself, and by routing certain 
orders to an OMT in the event of certain Exchange system disruptions or 
malfunctions. The OHS also permits orders to be routed from a PAR to an 
OMT (and vice versa) and from either PAR or an OMT to the Hybrid System 
for automatic execution or book entry. In addition, the Exchange 
believes that the routing parameters generally are not unfairly 
discriminatory because they are made available to all order entry firms 
on an equal basis. Further, as discussed above, they are intended to 
assist order entry firms in their ability to efficiently manage, 
process and execute orders in a ``hybrid'' trading environment, which 
promotes fair and orderly markets, as well as assists the Exchange in 
its ability to effectively attract order flow and liquidity to its 
market, and ultimately benefits all CBOE TPHs and all investors.
    Furthermore, the Exchange believes the proposed rule change 
furthers the objective of Section 6(b)(5) of the Act in that it permits 
the Exchange to address the entry of simple and complex limit orders 
that are priced significantly away from the market that may likely have 
resulted from human or operational error. By being able to quickly and 
efficiently address orders that likely resulted from such error, the 
proposed use of the limit order price parameter checks would promote a 
fair and orderly market. Additionally, by having the flexibility to 
determine the series or classes where the limit order price parameter 
checks would be applied (or not applied) and the levels at which the 
ATD settings would be applied, and to grant relief on an intra-day 
basis, the Exchange is able to effectively structure and efficiently 
react to particular option characteristics and market conditions--
including (without limitation) price, volatility, and significant price 
movements--which contributes to its ability to maintain a fair and 
orderly market. Accordingly, the Exchange believes that this proposal 
is designed to promote just and equity principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open 
market.\28\
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    \28\ The Exchange notes that limit order price parameters are in 
effect in all classes except options on Apple Inc. (AAPL). There is 
no limit order price parameter currently activated for option class 
AAPL. See CBOE Regulatory Circular RG13-145, which is available at 
http://www.cboe.com/publish/RegCir/RG13-145.pdf. According to the 
Exchange, volume for options class AAPL is higher and trading is 
more volatile, while the price of the underlying stock is higher 
(e.g., Apple Inc. closed at $128.715 on February 18, 2015). The 
Exchange believes that application of the limit order price 
parameters in these circumstances may serve as more of a hindrance 
to the orderly processing orders (e.g., application of the 
parameters may result in an inordinate number of orders being 
excepted from automated process and instead routing for manual 
handling) and, as a result, has determined to not apply the 
parameter to option class AAPL for the time being. The Exchange 
believes that because of these factors different treatment of the 
AAPL class is warranted. However, the Exchange may evaluate whether 
to apply the parameters to the option class and any determination to 
do so would be announced via Regulatory Circular.

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[[Page 10743]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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. The Exchange believes that 
the proposed rule change will promote competition in that the routing 
parameters assist with the maintenance of a fair and orderly market and 
help to mitigate potential risks associated with orders executing at 
potentially erroneous prices or inconsistent with a particular 
investment strategy by routing certain orders based on various 
parameters prescribed by the Exchange or the order entry firm itself. 
The Exchange also views these routing parameters as important tools to 
assist order entry firms in their ability to efficiently manage, 
process and execute orders in a ``hybrid'' trading environment. The 
Exchange believes this, again, promotes fair and orderly markets, as 
well as assists the Exchange in its ability to effectively attract 
order flow and liquidity to its market, and ultimately benefits all 
CBOE TPHs and all investors. Thus, the Exchange does not believe the 
proposal creates any significant impact on competition.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \29\ and 
Rule 19b-4(f)(6) \30\ thereunder.
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    \29\ 15 U.S.C. 78s(b)(3)(A).
    \30\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the 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. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1c6e697079317f7371717972686f5c6f797f327b736a"><span class="__cf_email__" data-cfemail="0b797e676e26686466666e657f784b786e68256c647d">[email protected]</span></a>. Please include 
File Number SR-CBOE-2015-021 on the subject line.

Paper Comments

    <bullet> 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-2015-021. 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-2015-021 and should be 
submitted on or before March 20, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-04067 Filed 2-26-15; 8:45 am]
BILLING CODE 8011-01-P


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