[Federal Register Volume 75, Number 211 (Tuesday, November 2, 2010)]
[Notices]
[Pages 67417-67419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27588]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63186; File No. SR-CBOE-2010-095]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to Hybrid 3.0 Classes

October 27, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 25, 2010, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I, 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 amend its rules that relate to the 
designation of index options and options on exchange-traded funds 
(``ETFs'') for trading on CBOE's Hybrid Trading System and Hybrid 3.0 
Platform and eligible categories of Market-Maker participants. The text 
of the proposed rule change is available on the Exchange's Web site 
(http://www.cboe.org/Legal,) at the Exchange's Office of the Secretary 
and at the Commission.

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 self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange is proposing to amend its rules that relate to the 
designation of index options and options on ETFs for trading on the 
Hybrid Trading System and Hybrid 3.0 Platform. The ``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 
the series for the trading crowd.
    Currently, the particular trading platform on which such an option 
contract is traded and the eligible categories of Market-Maker 
participants for those options are designated by the Exchange on a 
class-by-class basis pursuant to Rule 8.14, Index Hybrid Trading System 
Classes: Market-Maker Participants. The Exchange is now proposing to 
amend this rule as it relates to classes designated for trading on the 
Hybrid 3.0 Platform. Specifically, the Exchange is proposing to provide 
that, for each Hybrid 3.0 class, the Exchange may determine to 
authorize a group of series of the class for trading on the Hybrid 
Trading System and, if that authorization is granted, the Exchange 
would determine the eligible categories of Market-Maker participants 
for that group of series.\5\ The Exchange would assign a Designated 
Primary Market-Maker (``DPM'') or Lead Market-Maker (``LMM'') to the 
group of series. Alternatively, the Exchange could determine to 
designate the group of series for trading without a DPM or LMM provided 
certain conditions set forth in Rule 8.14(b) are satisfied with respect 
to the group of series.\6\

    \5\ The Exchange would also have the authority to determine 
whether to change the trading platform on which the group of series 
trades and change the eligible categories of Market-Maker 
participants for the group.
    \6\ Specifically, the group of series could be designated to 
trade on the Hybrid Trading System without a DPM or LMM provided the 
following conditions, as applicable, are satisfied: (1) There are at 
least four (4) Market-Makers quoting in the group of series; (2) 
Each Market-Maker with an appointment in the group of series is 
subject to the continuous quoting obligations imposed by CBOE Rule 
8.7(d); and (3) In the event the Exchange activates request-for-
quote (``RFQ'') functionality (which has not been activated for any 
class traded on the Exchange), each Market-Maker would have an 
obligation to respond to that percentage of RFQs as determined by 
the Exchange for the group of series subject to certain requirements 
specified in Rule 8.14(b)3.
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    EXAMPLE (for illustrative purposes only): Currently options on 
the Standard & Poor's 500 Index (symbol SPX) are the only class of 
options traded on the Hybrid 3.0 Platform. Pursuant to the proposed 
rule change, the Exchange could determine to designate all end-of-
week option series in the SPX option class for trading on the Hybrid 
Trading System without a DPM or LMM.\7\ All other series of the SPX 
option class could continue to be designated for trading on the 
Hybrid 3.0 Platform with two rotating LMMs.

    \7\ To the extent that the Exchange would determine to designate 
SPX end-of-week series for trading on the Hybrid Trading System 
without a DPM or LMM, certain conditions set forth in Rule 8.14(b) 
would have to be satisfied, as applicable. Id.
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    When selecting series to trade on the Hybrid Trading Platform, the 
Exchange intends to generally select series with common expirations or 
classifications, e.g., end-of-week series or end-of-month series, short 
term option series, or series that expire on a particular expiration 
date. The Exchange notes that an individual series would only trade on 
one trading platform at a given time, not both. What trading platform 
an individual series trades on is controlled by CBOE in how the series 
is set up in

[[Page 67418]]

CBOEdirect (the trading engine for the Hybrid Trading System and Hybrid 
3.0 Platform). Using the example above, CBOE would change the platform 
designation for SPX end-of-week series in CBOEdirect to the Hybrid 
Trading System and keep the platform designation for all other SPX 
series on the Hybrid 3.0 Platform. In addition, the Exchange plans to 
introduce a new option symbol to denote the series that are trading on 
a different platform. Using the example above, SPX end-of-week series 
might trade under symbol SPXW while all other SPX series would continue 
to trade under symbol SPX.
    The Exchange notes that CBOE has had several trading platform 
changes over the years for entire option classes (e.g., CBOE has moved 
certain other option classes from the Hybrid 3.0 Platform to the Hybrid 
Trading System). The move of a group of series within a class would 
operate similar to the way other option class moves have operated in 
the past. In this regard, the Exchange generally provides CBOE Trading 
Permit Holders at least one trading day's advance notice of trading 
platform changes via regulatory circular. For the initial changeover of 
any SPX series that may be traded on the Hybrid Trading System, 
however, the Exchange plans to give at least one week advance notice so 
that Trading Permit Holders can be made aware that the platform change 
would only be for a select group of series and not the whole class, and 
so that the Exchange can schedule education sessions to explain the 
change to Trading Permit Holders. Once the Exchange has made an initial 
changeover, if we would determine to add (or remove) series from the 
Hybrid Trading Platform we plan to revert back to the general approach 
of providing at least one trading day's advance notice for those 
subsequent changes.
    The following would also apply: Market-Maker appointments would 
continue to apply on a class basis, except DPM, LMM and Electronic DPM 
(``e-DPM'') appointments would apply only to the group of series to 
which the respective DPM, LMM or e-DPM is assigned, if applicable. In 
addition, the Hybrid Trading System trading parameters (e.g., 
applicable matching algorithm parameters under Rule 6.45B, Priority and 
Allocation of Trading in Index Options and Options on ETFs on the CBOE 
Hybrid System; opening rotation parameters under Rule 6.2B, Hybrid 
Opening System (``HOSS''); automatic execution parameters under Rule 
6.13, CBOE Hybrid System's Automatic Execution Feature; Simple Auction 
Liaison parameters under Rule 6.13A, Simple Auction Liaison (SAL),\8\ 
Hybrid Agency Liaison parameters under Rule 6.14A, Hybrid Agency 
Liaison 2 (HAL2),\9\ complex order book (``COB'') and complex order 
request-for-response auction (``COA'') parameters under Rule 6.53C, 
Complex Orders on the Hybrid System, Automated Improvement Mechanism 
parameters under Rule 6.74A, Automated Improvement Mechanism 
(``AIM''),\10\ etc.) would be established by the Exchange on a group 
basis, instead of on a class basis, to the extent the Exchange Rules 
otherwise provide for such parameters to be established on a class 
basis. Thus, using the example above, CBOE would set the trading 
parameters (e.g., parameters for the matching algorithm, HOSS, 
automatic execution, SAL, HAL2, COB, COA, AIM, etc.) for the SPX end-
of-week series group that would trade on the Hybrid Trading System 
platform, and separately set the trading parameter for all other SPX 
series that would remain on the Hybrid 3.0 platform.
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    \8\ SAL is a feature within the Hybrid System that auctions 
marketable orders for price improvement over the National Best Bid 
or Offer (``NBBO'').
    \9\ HAL2 is a feature in the Hybrid System that provides 
automated order handling in designated classes for qualifying 
electronic orders that are not automated executed by the Hybrid 
System.
    \10\ AIM is a feature within the Hybrid System that provides 
Trading Permit Holders with the ability to electronically execute 
agency orders against principal interest or against a solicited 
order provided the agency order is submitted for electronic 
execution into an auction.
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    Finally, the Exchange is proposing to amend the text of Rule 8.14 
to delete paragraph (b)(4), which is outdated and no longer applicable. 
Paragraph (b)(4) contains an outdated provision related to the 
Intermarket Options Linkage Plan, which has been replaced by the Plan 
for the Purpose of Creating and Operating an Intermarket Option 
Linkage.\11\
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    \11\ See, e.g., Securities Exchange Act Release No. 56761 
(November 7, 2007), 72 FR 64094 (November 14, 2007).
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \12\ that an exchange have rules that 
are designed to promote just and equitable principles of trade, and to 
remove impediments to and perfect the mechanism for a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. In particular, the Exchange believes 
the proposed change would provide more flexibility to designate trading 
platform and Market-Maker categories based on a group of series in a 
manner that is consistent with existing CBOE rules that permit such 
designations on a class basis.
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    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.

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

    The Exchange neither solicited nor received comments on the 
proposal.

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

    Because the foregoing rule does not (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, provided that the self-regulatory organization 
has given the Commission written notice of its intent to file the 
proposed rule change at least five business days prior to the date of 
filing of the proposed rule change or such shorter time as designated 
by the Commission, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) 
thereunder.\14\ 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#85f7f0e9e0a8e6eae8e8e0ebf1f6c5f6e0e6abe2eaf3"><span class="__cf_email__" data-cfemail="ddafa8b1b8f0beb2b0b0b8b3a9ae9daeb8bef3bab2ab">[email protected]</span></a>. Please include 
File

[[Page 67419]]

Number SR-CBOE-2010-095 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2010-095. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street, NE., Washington, 
DC 20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of the CBOE. All comments received will 
be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CBOE- 2010-095 and should be submitted 
on or before November 23, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-27588 Filed 11-1-10; 8:45 am]
BILLING CODE 8011-01-P


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