64858 Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 

12 15 U.S.C. 78s(b)(3)(A)(ii). 

13 17 CFR 240.19b–4(f)(2). 14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

in which market participants can 

readily direct their order flow to 

competing venues. In such an 

environment, the Exchange must 

continually review, and consider 

adjusting, its fees to remain competitive 

with other exchanges. For the reasons 

described above, the Exchange believes 

that the proposed fee changes reflect 

this competitive environment. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act 12 and 

subparagraph (f)(2) of Rule 19b–4 

thereunder,13 because it establishes a 

due, fee, or other charge imposed by 

ISE. 

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. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

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 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an Email to rule-comments@

sec.gov. Please include File No. SR–ISE– 

2014–48 on the subject line. 

Paper Comments 

• 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–ISE–2014–48. 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 such 

filing also will be available for 

inspection and copying at the principal 

office of the ISE. 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–ISE– 

2014–48 and should be submitted by 

November 21, 2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–25881 Filed 10–30–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73435; File No. SR–CBOE– 

2014–071] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change Relating to the Complex 

Order Book 

October 27, 2014. 

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 

15, 2014, 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 

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 Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

rules related to the complex order book 

(‘‘COB’’). The text of the proposed rule 

change is provided below. 

(additions are italicized; deletions are 

[bracketed]) 

* * * * * 

Chicago Board Options Exchange, 

Incorporated Rules 

* * * * * 

Rule 6.53C. Complex Orders on the 

Hybrid System 

(a)–(d) No change. 

. . . Interpretations and Policies: 

.01–.10 No change. 

.11 Execution of Complex Orders on 

the COB Open: 

(a) Complex orders, including stockoption orders, do not participate in 

opening rotations for individual 

component option series legs conducted 

pursuant to Rule 6.2B. When the last of 

the individual component option series 

legs that make up a complex order 

strategy has opened (and, in the case of 

a stock-option order, the underlying 

stock has opened), the COB for that 

strategy will open. The COB will open 

with no trade, except as follows: 

([a]i) The COB will open with a trade 

against the individual component 

option series legs if there are complex 

orders on only one side of the COB that 

are marketable against the opposite side 

of the derived net market. The resulting 

execution will occur at the derived net 

market price to the extent marketable 

pursuant to the rules of trading priority 

otherwise applicable to incoming 

electronic orders in the individual 

component legs. To the extent there is 

any remaining balance, the complex 

orders will trade pursuant to 

subparagraph (ii) below or, if unable to 

trade, be processed as they would on an 

intra-day basis under Rule 6.53C. [(]This 

subparagraph ([a]i) is not applicable to 


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3The ‘‘derived net market’’ is calculated based on 

the Exchange’s best bid or offer (‘‘BBO’’) in the 

individual series legs. For stock-option orders, the 

derived net market is calculated based on the BBO 

in the individual option series leg(s) and the 

national best bid or offer (‘‘NBBO’’) in the stock leg. 

See Rule 6.53C, Interpretation and Policy .11(c) 

(which this rule filing proposes to change to 

paragraph (b)). 

4Pursuant to Rule 6.53C, complex orders may 

either enter the COB or process through a complex 

order auction (COA). 

5 Id. 

6The proposed rule change reorganizes 

Interpretation and Policy .11. This proposed 

language appears in proposed paragraph (a)(ii) 

(current paragraph (b)), which is the paragraph 

related to trades of complex orders on the COB at 

the open. 

7The electronic allocation algorithms include 

price-time, pro-rata, and the ultimate matching 

algorithm base priorities and a combination of 

various optional priority overlays pertaining to 

public customer priority, Market-Maker 

participation entitlements, small order preference 

and market turn. See Rules 6.45A (related to equity 

options) and 6.45B (related to index and exchangetraded fund (ETF) options). 

8The proposed rule change also adds to current 

paragraph (a) (proposed paragraph (a)(i)) that 

executions of complex orders against the individual 

legs will be pursuant to the rules of trading priority 

otherwise applicable to incoming electronic orders 

in the individual component legs. The current rule 

is silent on what electronic allocation algorithm 

applies to executions of complex orders on the COB 

against the individual legs. The Exchange believes 

the proposed rule text merely eliminates any 

potential confusion regarding how complex orders 

will be allocated in accordance with proposed 

paragraph (a)(i). 

9See Rule 6.2B, Interpretation and Policy .04. 

10Rule 6.53C(c)(ii) states that complex orders 

submitted to the COB may trade as follows: (a) A 

complex order in the COB will automatically 

execute against individual quotes and orders on the 

book; (b) complex orders in the COB that are 

marketable against each other will automatically 

execute, and the allocation of such executions will 

be pursuant to the rules of trading priority 

otherwise applicable to incoming electronic orders 

in the individual component legs; and (c) market 

Continued 

stock-option orders because stockoption orders do not trade against the 

individual component option series legs 

when the COB opens.[)] 

([b]ii) The COB will open (or continue 

to open with another trade if a trade 

occurred pursuant to subparagraph (i) 

above) with a trade against complex 

orders if there are complex orders in the 

COB (including any remaining balance 

of an order that enters the COB after a 

partial trade with the legs pursuant to 

subparagraph (i)) that are marketable 

against each other and priced within the 

derived net market. The resulting 

execution will occur at a market 

clearing price that is inside the derived 

net market and that matches complex 

orders to the extent marketable pursuant 

to the electronic allocation algorithm 

from Rule 6.45A or 6.45B, as applicable, 

as determined by the Exchange on a 

class-by-class basis[. In determining the 

priority,] with the addition that the COB 

gives priority to complex orders whose 

net price is better than the market 

clearing price first, and then to complex 

orders at the market clearing price. To 

the extent there is any remaining 

balance, the complex orders will be 

processed as they would on an intra-day 

basis under Rule 6.53C. [(]This 

subparagraph ([b]ii) is applicable to 

stock-option orders.[)] 

([c]b) The ‘‘derived net market’’ for a 

stock-option order strategy will be 

calculated using the Exchange’s best bid 

or offer in the individual option series 

leg(s) and the NBBO in the stock leg. 

The ‘‘derived net market’’ for any other 

complex order strategy will be 

calculated using the Exchange’s best bid 

or offer in the individual option series 

legs. 

(c) The Exchange may also use the 

process described in paragraph (a) of 

this Interpretation and Policy .11 when 

the COB reopens a strategy after a time 

period during which trading of that 

strategy was unavailable. 

.12 No change. 

* * * * * 

The text of the proposed rule change 

is also 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 proposes to amend its 

rules related to its COB. Rule 6.53C, 

Interpretation and Policy .11 describes 

how complex orders execute when the 

COB opens. Complex orders do not 

participate in the opening rotation for 

the individual leg series (which occurs 

pursuant to Rule 6.2B). Rather, the COB 

for a complex order strategy will open 

when the last of the individual legs 

series that make up the strategy has 

opened (and, in the case of a stockoption order, when the underlying stock 

has opened). Under the current rules, 

the COB will open with no trade, except 

as follows: 

• The COB will open with a trade 

against the individual component 

option series legs if there are complex 

orders on only one side of the COB that 

are marketable against the opposite side 

of the derived net market.3 The resulting 

execution will occur at the derived net 

market price to the extent marketable. 

To the extent there is any remaining 

balance, the complex orders will be 

processed as they would on an intra-day 

basis under Rule 6.53C.4 This does not 

apply to stock-option orders, which 

cannot trade against the individual leg 

series when the COB opens. 

• The COB will open with a trade 

against complex orders if there are 

complex orders in the COB that are 

marketable against each other and 

priced within the derived net market. 

The resulting execution will occur at a 

market clearing price that is inside the 

derived net market and that matches 

complex orders to the extent 

marketable. In determining the priority, 

the COB gives priority to complex 

orders whose net price is better than the 

market clearing price first, and then to 

complex orders at the market clearing 

price. To the extent there is any 

remaining balance, the complex orders 

will be processed as they would on an 

intra-day basis under Rule 6.53C.5 This 

applies to stock-option orders. 

The proposed rule change adds to 

current paragraph (b) of Interpretation 

and Policy .11 6 that the Exchange may 

determine, on a class-by-class basis, 

which electronic allocation algorithm 7

will apply to complex order trades on 

the COB open pursuant to current 

paragraph (b) (proposed paragraph 

(a)(ii)).8 The Exchange may determine 

on a class-by-class basis which 

electronic allocation algorithm from 

Rule 6.45A or 6.45B, as applicable, will 

apply to executions to opening 

rotations.9 This opening allocation 

algorithm may be different than the 

intraday allocation algorithm. The 

proposed rule change provides the 

Exchange with the same flexibility with 

respect to executions of complex orders 

on the COB open. While Rule 6.53C, 

Interpretation and Policy .09 provides 

the Exchange with the flexibility to 

determine on a class-by-class basis 

which electronic allocation algorithm 

from Rule 6.45A or 6.45B, as applicable, 

will apply to COB executions (in lieu of 

the algorithm specified in Rule 

6.53C(c)(ii)(2) and (3) 10), Interpretation 


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participants may submit orders or quotes to trade 

against orders in the COB, and the allocation of 

such executions will be pursuant to Rule 6.45A(c) 

or 6.45B(c), as applicable (which describes the 

interaction of a market participant’s quotes and 

orders with orders in the electronic book). 11Currently, complex orders that execute against 

complex orders in the COB on the open (proposed 

subparagraph (a)(ii)) allocate pursuant to price-time 

priority. 

12See Rule 6.53C, Interpretation and Policy .01 

(which states that the Exchange will announce to 

Trading Permit Holders via Regulatory Circular all 

pronouncements regarding determinations by the 

Exchange pursuant to Rule 6.53C and the 

Interpretations and Policies thereunder). 

13The Exchange represents that complex orders 

continue to have opportunities to trade against the 

leg markets, both at the open pursuant to proposed 

paragraph (a)(i) and intraday pursuant to Rule 

6.53C(c) (execution of orders in the COB) and (d) 

(execution of orders through COA). Additionally, 

this filing does not change the complex order 

priority principles (including public customer 

priority) set forth in Rules 6.45A, 6.45B and 6.53C. 

14Additionally, because Rules 6.2B, 

Interpretation and Policy .04, 6.45A, 6.45B and 

6.53C, Interpretation and Policy .09 provide the 

Exchange with flexibility to determine allocation 

algorithms on a class-by-class basis, the Exchange 

believes it is appropriate to provide the same classby-class flexibility to trading at the COB open. 

15See Rule 6.2B regarding the opening of series 

at a market-clearing price and Rule 6.53C, 

Interpretation and Policy .11(b) regarding the 

opening of the COB at a market-clearing price. 

16See Rule 6.2B(g). 

17See Rule 6.53C, Interpretation and Policy .08. 

For example, pursuant to paragraph (a)(3), if the 

BBO or derived net market is not within an 

acceptable price range, the System holds marketable 

limit orders and does not allow trading of complex 

orders for that strategy until the market is no longer 

outside the applicable price range. 

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

19 15 U.S.C. 78f(b)(5). 

and Policy .11 does not state that the 

applicable allocation algorithm for 

complex order executions on the COB 

open may be different than the intraday 

allocation algorithm for the COB. The 

proposed rule change adds this detail to 

the rules and allows the Exchange to 

determine on a class-by-class basis 

which electronic allocation algorithm 

will apply to complex order trades on 

the COB open, which may be different 

than the allocation algorithm applicable 

to intraday complex order trades on the 

COB.11 The Exchange will announce 

any allocation algorithm determinations 

via Regulatory Circular.12

The Exchange is not proposing to 

adopt any new allocation algorithms or 

priority rules nor is it proposing to 

modify the COB opening process.13

Rather, it is adding detail to the 

Exchange rule regarding the COB 

opening process and providing the 

Exchange with flexibility to choose an 

algorithm from among the existing 

algorithms that will apply to complex 

order trades on the COB open, rather 

than simply defaulting to the algorithm 

in effect for intraday trading on the COB 

in that class. The Exchange believes this 

flexibility is consistent with its other 

rules regarding the determination of 

allocation algorithms and will further 

promote fair and orderly openings of 

strategies on the COB.14

The proposed rule change also adds 

detail to proposed paragraph (a)(ii) 

regarding which trades on the COB are 

deemed to be part of the opening of the 

COB (and thus subject to the allocation 

algorithm in place for the COB open). 

To the extent a complex order partially 

trades with the leg series on the COB 

open, and the remaining balance enters 

the COB (pursuant to Rule 6.53C) as set 

forth in proposed subparagraph (a)(i), if 

that remaining balance is marketable 

against another complex order on the 

COB at the open, those orders will 

execute as set forth in proposed 

subparagraph (a)(ii). Thus, any 

execution of that remaining balance on 

the COB is considered an execution at 

the COB open, as the open is intended 

to cause any marketable complex orders 

to trade, and thus subject to proposed 

subparagraph (a)(ii) (current paragraph 

(b)). The proposed rule change makes a 

corresponding change to proposed 

paragraph (a)(i) to provide that any 

remaining balance may trade pursuant 

to proposed paragraph (a)(ii) (if unable 

to trade, it will be processed as it would 

on an intra-day basis). The proposed 

rule change also makes a corresponding 

change to proposed paragraph (a)(ii) to 

provide that the COB will open, or 

continue to open, with a trade of 

complex orders on the COB, as the COB 

opening may already have been initiated 

by a trade pursuant to paragraph (a)(i). 

For example, suppose Complex Order 

X is an order to buy 20 Series A and 20 

Series B for a net price of $2.40 and on 

the COB at the open. If the market for 

Series A is $1.00–$1.20 and the market 

for Series B is $1.00–$1.20 (for a net 

price of $2.00–$2.40), with the offer to 

sell at $2.40 for 10 contracts, then when 

the COB opens, 10 contracts of Complex 

Order X will trade against the 10 

contracts in the leg markets. The 

remaining balance of 10 of Complex 

Order X then enters the COB pursuant 

to Rule 6.53C(c). If Complex Order Y to 

sell 10 Series A and 10 Series B at $2.40 

is on the COB at the open, then the 

remaining balance of Complex Order X 

will trade against Complex Order Y. 

This trade of Complex Order X against 

Complex Order Y is part of the COB 

open. If there were multiple complex 

orders at the same price, they would 

allocate in accordance with the 

algorithm in place for the COB open. 

The Exchange believes that the rule 

text is currently unclear as to whether 

any remaining balance from proposed 

subparagraph (a)(i) enters the COB and 

is marketable against the COB would 

trade in accordance with COB open or 

COB intraday rules. Currently, if the 

remaining balance is marketable against 

other complex orders in the COB, the 

System will execute the remaining 

balance against orders in the COB as 

part of the COB open (and thus in 

accordance with the opening matching 

algorithm). Generally, the ‘‘opening’’ 

includes all trades that would ‘‘clear’’ 

the market.15 The proposed rule change 

is consistent with this idea and adds 

this detail to proposed subparagraph 

(a)(ii) to codify the intent of the current 

rule. 

In addition, the proposed rule change 

adds paragraph (c) to Interpretation and 

Policy .11, which states that the 

Exchange may use the process described 

in paragraph (a) when the COB reopens 

a strategy after a time period during 

which trading of that strategy was 

unavailable pursuant to the rules. The 

Exchange may use the opening rotation 

process to reopen a class after a trading 

halt.16 The proposed rule change 

provides the Exchange with the same 

flexibility with respect to reopening the 

COB. Trading of strategies may be 

unavailable on the COB, for example, if 

there is a trading halt in the underlying 

security or if trading on the COB is ‘‘on 

hold’’ because the derived net market is 

outside of price check parameters set by 

the Exchange to prevent extreme 

executions.17 The Exchange uses the 

opening rotation process to reopen after 

a trading halt to provide for an orderly 

reopening, and the Exchange would 

similarly like to provide for a fair and 

orderly reopening of the COB after any 

period during which COB trading was 

unavailable. 

The proposed rule change also makes 

nonsubstantive, technical changes to 

Interpretation and Policy .11, including 

adding and modifying subparagraph 

lettering and numbering, indenting 

subparagraphs, and deleting 

unnecessary parentheticals. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the Act 

and the rules and regulations 

thereunder applicable to the Exchange 

and, in particular, the requirements of 

Section 6(b) of the Act.18 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 19 requirements that the rules of 

an 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 


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20 Id. 

21See Rule 6.2B(g) (use of opening procedures 

after a trading halt) and Interpretation and Policy 

.04 (determination of allocation algorithm on a 

class-by-class basis during opening rotations, which 

may be different than allocation algorithm for 

intraday trading). 

22See Rule 6.53C, Interpretation and Policy .09. 

23 15 U.S.C. 78s(b)(3)(A). 

24 17 CFR 240.19b–4(f)(6). 

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. 

Additionally, the Exchange believes the 

proposed rule change is consistent with 

the Section 6(b)(5) 20 requirement that 

the rules of an exchange not be designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

In particular, the proposed rule 

change adds detail to its rules regarding 

the opening of trading on its COB, 

which benefits investors. The Exchange 

believes the flexibility provided by the 

proposed rule change is consistent with 

its other rules. The Exchange already 

has flexibility to apply a different 

allocation algorithm at the open of 

trading of simple orders and to use its 

opening procedure after a trading halt 

for simple orders.21 It also already has 

the flexibility to apply a different 

allocation algorithm to complex order 

executions on the COB.22 The Exchange 

is merely extending this flexibility to 

the opening and reopening of trading of 

complex orders on the COB. The 

Exchange notes that the level of trading 

activity is often different at the open 

than during the trading day. To ensure 

a fair and orderly opening in light of 

this trading activity, rules often allow 

the Exchange to apply them in a 

different manner to the opening of 

trading (such as different bid-ask 

differential requirements, different price 

reasonability checks and different 

allocation algorithms). The Exchange 

believes extending similar flexibility to 

the opening of complex order trading on 

the Exchange will allow it to similarly 

ensure a fair and orderly COB open, 

which protects investors and promotes 

just and equitable principles of trade. 

The proposed rule change that 

specifies that the remaining balance of 

a complex order that partially trades 

with the individual leg series may be 

executed as part of the COB open 

provision, and that the COB open may 

include both trades of complex orders 

with the legs and with other complex 

orders, further benefits investors and 

promotes an open market by adding 

detail to the rules regarding how the 

System treats this remaining balance. 

Openings generally include a series of 

trades in order to execute all orders that 

are marketable upon the open, and the 

Exchange believes the proposed rule 

change is consistent with that idea. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CBOE does not believe that the 

proposed rule change will impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

proposed rule change applies to all 

complex order trading on the COB when 

it opens or reopens. In addition, the 

proposed rule change applies only to 

the COB opening process on the 

Exchange. Its purpose is to include the 

COB opening procedure that is currently 

in place on the Exchange, which 

procedure is designed to open complex 

order strategies on the Exchange in a fair 

and orderly manner. The proposed rule 

change does not help CBOE market 

participants to the detriment of market 

participants on other exchanges. 

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 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 23 and Rule 19b–4(f)(6) 24

thereunder. 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 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CBOE–2014–071 on the subject line. 

Paper Comments 

• 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–2014–071. 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 such 

filing also will be available for 

inspection and copying at the principal 

offices 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– 

2014–071, and should be submitted on 

or before November 21, 2014. 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
64862 Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 

25 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Rule 1080(c)(ii)(A)(1) defines ‘‘Order Entry 

Firm’’ as a member organization of the Exchange 

that is able to route orders to AUTOM. (AUTOM is 

the Exchange’s electronic quoting and trading 

system, which has been denoted in Exchange rules 

as XL II, XL and AUTOM.) 

4Section (c), Solicited Orders, of Exchange Rule 

1064, Crossing, Facilitation and Solicited Orders, 

governs execution of solicited orders by open 

outcry, on the Exchange trading floor, and is 

unaffected by proposed Rule 1081. Additionally, 

many aspects of the functionality of the proposed 

solicitation mechanism are similar to those 

provided for in Rule 1080(n), PIXL, and certain of 

the rules proposed herein consequently track the 

existing PIXL rules. The Exchange adopted PIXL in 

October 2010 as a price-improvement mechanism 

that is a component of the Exchange’s fully 

automated options trading system, Phlx XL, now 

known as XL II. Like the solicitation mechanism, 

PIXL is a mechanism whereby an initiating member 

submits a two-sided (buy and sell) order into an 

auction process soliciting price improvement. See 

Securities Exchange Act Release Nos. 63027 

(October 1, 2010), 75 FR 62160 (October 7, 2010) 

(order approving SR–Phlx–2010–108, for purposes 

of this proposed rule change, the ‘‘PIXL Filing’’) 

and 69845 (June 25, 2013), 78 FR 39429 (July 1, 

2013) (SR–Phlx–2013–46 and, for purposes of this 

proposed rule change, the ‘‘Complex PIXL Filing’’) 

(Order Granting Approval To Proposed Rule 

Change, as Modified by Amendment No. 1, 

Regarding Complex Order PIXL). 

5Rule 1080(b)(i)(A) provides in part that ‘‘[f]or 

purposes of Exchange options trading, an agency 

order is any order entered on behalf of a public 

customer, and does not include any order entered 

for the account of a broker-dealer, or any account 

in which a broker-dealer or an associated person of 

a broker-dealer has any direct or indirect interest.’’ 

However, that provision did not contemplate, and 

is not applicable to, the capitalized and defined 

term ‘‘Agency Order’’ as used in proposed Rule 

1081. 

6To be clear, participants must ensure that their 

records adequately demonstrate the solicitation of 

an order that is entered into the mechanism for 

execution against an Agency Order as a Solicited 

Order prior to entry of such order into this 

mechanism. 

7Exchange Rule 1066(c)(4) defines an ‘‘all-ornone’’ order as a market or limit order which is to 

be executed in its entirety or not at all. 

8A given Solicitation Auction may be for options 

contracts exclusively or for mini options contracts 

exclusively, but cannot be used for a combination 

of both options contracts and mini options contracts 

together. 

9Similar electronic functionality is offered today 

by competing exchanges. See Chicago Board 

Options Exchange (‘‘CBOE’’) Rule 6.74B, 

Solicitation Auction Mechanism (the ‘‘CBOE 

Mechanism’’), and International Securities 

Exchange (‘‘ISE’’) Rule 716(e), Solicited Order 

Mechanism (the ‘‘ISE Mechanism’’). 

10A Complex Order is any order involving the 

simultaneous purchase and/or sale of two or more 

different options series in the same underlying 

security, priced at a net debit or credit based on the 

relative prices of the individual components, for the 

same account, for the purpose of executing a 

particular investment strategy. A Complex Order 

may also be a stock-option order, which is an order 

to buy or sell a stated number of units of an 

underlying stock or exchange-traded fund (‘‘ETF’’) 

coupled with the purchase or sale of options 

contract(s). Complex Orders on Phlx are discussed 

in Commentary .08 to Rule 1080. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–25877 Filed 10–30–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73441; File No. SR–Phlx– 

2014–66] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing of Proposed Rule Change To 

Adopt New Exchange Rule 1081, 

Solicitation Mechanism, To Introduce a 

New Electronic Solicitation Mechanism 

October 27, 2014. 

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 October 

14, 2014, 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 and 

II, 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 Substance of 

the Proposed Rule Change 

The Exchange proposes to adopt new 

Exchange Rule 1081, Solicitation 

Mechanism, to introduce a new 

electronic solicitation mechanism 

pursuant to which a member can 

electronically submit all-or-none orders 

of 500 contracts or more (or, in the case 

of mini options, 5000 contracts or more) 

the member represents as agent against 

contra orders the member solicited. The 

Exchange is also proposing a 

corresponding amendment to the 

definition of ‘‘professional’’ in Rule 

1000(b)(14) and a clarification to Rule 

1080, Phlx XL and Phlx XL II. 

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. 

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 purpose of the proposal is to 

introduce an electronic solicitation 

mechanism. Currently, under Phlx Rule 

1080(c)(ii)(C)(2), Order Entry Firms 3

must expose orders they represent as 

agent for at least one second before such 

orders may be automatically executed, 

in whole or in part, against orders 

solicited from members and nonmember broker-dealers to transact with 

such orders.4 The proposed rule change 

would provide an alternative, enabling 

a member to electronically execute 

orders it represents on behalf of a public 

customer, broker-dealer, or any other 

entity (an ‘‘Agency Order’’) 5 against 

solicited limit orders of a public 

customer, broker-dealer, or any other 

entity (a ‘‘Solicited Order’’) through a 

solicitation mechanism designed for this 

purpose.6

The new mechanism is a process by 

which a member (the ‘‘Initiating 

Member’’) can electronically submit allor-none orders 7 of 500 contracts or 

more (or, in the case of mini options,8

5000 contracts or more) that it 

represents as agent against contra orders 

that it has solicited, and initiate an 

auction (the ‘‘Solicitation Auction’’).9

As explained below, at the end of the 

Solicitation Auction, allocation will 

occur with all contracts of the Agency 

Order trading at an improved price 

against non-solicited contra-side interest 

or at the stop price, defined below, 

against the Solicited Order. The 

solicitation mechanism would 

accommodate both simple orders and 

Complex Orders.10 Prior to the first time 

a member enters an Agency Order into 

the solicitation mechanism on behalf of 

a customer, the member would be 

required to deliver to the customer a 

written notification informing the 

customer that its Agency Orders may be 

executed using the Phlx’s solicitation 

mechanism. Such written notification 

would be required to disclose the terms 


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