72044 Federal Register / Vol. 79, No. 233 / Thursday, December 4, 2014 / Notices 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 73017 

(September 8, 2014), 79 FR 54758 (September 12, 

2014) (‘‘Notice’’). 

4CBOE filed Amendment No. 1 to the proposed 

rule change to (i) amend the requirements for 

foreign Trading Permit Holders to ensure, in part, 

that foreign Trading Permit Holders will be able to 

provide the Exchange with information, including 

their books and records; (ii) clarify why VIX index 

values will not be calculated and disseminated 

during Extended Trading Hours; (iii) clarify that 

CBOE will make available the number of Trading 

Permits during Extended Trading Hours to comply 

with Section 6(c)(4) of the Act; (iv) represent that 

the Exchange will establish procedures to ensure 

that Trading Permit Holders only utilize clearing 

brokers that are authorized by OCC for clearing 

during Extended Trading Hours; (v) represent that 

CBOE’s systems are designed to prohibit 

unauthorized access; and (vi) correct an internal 

cross-reference in proposed CBOE Rule 

6.1A(e)(iii)(B). See Amendment No. 1 to File No. 

SR–CBOE–2014–062, dated October 24, 2014 

(‘‘Amendment No. 1’’). To promote transparency of 

its proposed amendment, when CBOE filed 

Amendment No. 1 with the Commission, it also 

submitted Amendment No. 1 as a comment letter 

to the file, which the Commission posted on its 

Web site and placed in the public comment file for 

SR–CBOE–2014–062. The Exchange also posted a 

copy of its Amendment No. 1 on its Web site at 

http://www.cboe.com/publish/RuleFilingsSEC/SRCBOE-2014-062.a1.pdf when it filed the 

amendment with the Commission. 

5CBOE filed Amendment No. 2 to the proposed 

rule change to delete proposed rule text in Exhibit 

5 and delete related parts in the purpose and 

statutory basis sections of its Form 19b–4 

submission, as well as Exhibit 1 and Item 8 in the 

Form 19b–4 (each as amended by Amendment No. 

1), all of which related to the removal of proposed 

requirements that would have applied to foreign 

Trading Permit Holders. See Amendment No. 2 to 

File No. SR–CBOE–2014–062, dated November 21, 

2014 (‘‘Amendment No. 2’’). To promote 

transparency of its proposed amendment, when 

CBOE filed Amendment No. 2 with the 

Commission, it also submitted Amendment No. 2 as 

a comment letter to the file, which the Commission 

posted on its Web site and placed in the public 

comment file for SR–CBOE–2014–062. The 

Exchange also posted a copy of its Amendment No. 

2 on its Web site at http://www.cboe.com/publish/ 

RuleFilingsSEC/SR-CBOE-2014-062.a2.pdf when it 

filed the amendment with the Commission. 

6See infra notes 4 and 5 (noting that when CBOE 

submitted each Amendment to its proposal, it also 

submitted them as a comment letter to the file to 

promote the broad dissemination of its 

Amendments). 

7A full description of the proposed rule change 

can be found in the Notice. See Notice, supra note 

3. 

8See CBOE Rule 24.6. All times in this order refer 

to Chicago time. 

9See Notice, supra note 3 at 54758. 

10See id. 

11Bandwidth packets will be sold separately for 

Regular Trading Hours and Extended Trading 

Hours. See id. at 54766. Also, while the same 

telecommunications lines may be used for both 

Regular and Extended Trading Hours, those lines 

will be connected to a separate application server 

at the Exchange to trade during Extended Trading 

Hours. See id. at note 45. 

12See id. at 54758. 

13See id. at 54759. 

14See id. at 54763. 

15See proposed CBOE Rule 6.1A(a). 

16According to the Exchange, SPX currently 

trades on the Hybrid 3.0 trading platform during 

Regular Trading Hours (except that the weekly SPX 

series trade on the Hybrid trading platform during 

Regular Trading Hours). Pursuant to proposed Rule 

6.1A(b), SPX will trade on the Hybrid trading 

platform (and not the Hybrid 3.0 trading platform) 

during Extended Trading Hours and thus will trade 

pursuant to rules applicable to the Hybrid trading 

platform (rather than the Hybrid 3.0 trading 

platform) during Extended Trading Hours. See 

Notice, supra note 3 at note 18. 

17See id. at 54759. 

18See id. at note 13. 

19See id. at 54760. This requirement will apply 

to any non-U.S. based person seeking access to the 

Extended Trading Hours session. Persons that are 

not Trading Permit Holders, such as employees of 

affiliates of Trading Permit Holders located outside 

of the United States, will not have direct access to 

the Exchange, and thus their orders and quotes 

must be submitted to the Exchange through a 

Trading Permit Holder, subject to applicable laws, 

rules, and regulations. See id. at note 59. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73704; File No. SR–CBOE– 

2014–062] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing of 

Amendment Nos. 1 and 2 and Order 

Granting Accelerated Approval of a 

Proposed Rule Change, as Modified by 

Amendment Nos. 1 and 2, To Adopt 

Extended Trading Hours for SPX and 

VIX 

November 28, 2014. 

I. Introduction 

On August 26, 2014, Chicago Board 

Options Exchange, Incorporated (the 

‘‘Exchange’’ or ‘‘CBOE’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) a proposed rule 

change pursuant to Section 19(b)(1) of 

the Securities Exchange Act of 1934 (the 

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

establish a separate early morning 

trading session specifically for options 

on the S&P 500 Index (‘‘SPX’’) and 

CBOE Volatility Index (‘‘VIX’’). The 

proposed rule change was published for 

comment in the Federal Register on 

September 12, 2014.3 On October 24, 

2014, CBOE filed Amendment No. 1 to 

the proposed rule change and also 

granted the Commission an extension of 

time to consider its proposal to 

November 3, 2014.4 On October 31, 

2014, CBOE granted the Commission an 

additional extension of time until 

November 24, 2014. On November 21, 

2014, CBOE filed Amendment No. 2 to 

the proposed rule change and also 

granted the Commission a further 

extension of time to consider its 

proposal to December 3, 2014.5 The 

Commission received no substantive 

comments on the proposal.6 The 

Commission is publishing this notice to 

solicit comments on Amendment Nos. 1 

and 2 from interested persons and is 

approving the proposed rule change, as 

modified by Amendment Nos. 1 and 2, 

on an accelerated basis. 

II. Description of the Proposed Rule 

Change, as Modified by Amendment 

Nos. 1 and 2 7

Currently, transactions in index 

options may be effected on the 

Exchange generally between 8:30 a.m. 

and 3:15 p.m.,8 Monday through Friday 

(‘‘Regular Trading Hours’’). CBOE has 

proposed to adopt rules that will allow 

it to conduct a separate, fully-electronic 

trading session from 2:00 a.m. to 8:15 

a.m. Monday through Friday (‘‘Extended 

Trading Hours’’) for SPX and VIX, two 

index options that are exclusively-listed 

on CBOE. According to the Exchange, it 

is proposing Extended Trading Hours to 

meet demand from investors who want 

to trade these two products outside of 

Regular Trading Hours.9

Under the proposal, Extended Trading 

Hours will be a separate trading session 

from Regular Trading Hours and there 

will be no carryover from one trading 

session to the other and no interaction 

between Extended Trading Hours and 

Regular Trading Hours.10 Extended 

Trading Hours will operate using 

separate Exchange servers 11 and 

hardware from those used during 

Regular Trading Hours.12 Accordingly, 

the electronic order book used during 

Regular Trading Hours will not be 

connected to the electronic order book 

used during Extended Trading Hours, 

and orders and quotes will not interact 

between the two sessions.13 Rather, all 

orders will be cancelled at the end of 

each Extended Trading Hours session.14

During Extended Trading Hours, all 

Exchange rules will apply, except as set 

forth in proposed CBOE Rule 6.1A 

(Extended Trading Hours), and except 

for CBOE rules that by their terms are 

inapplicable during Extended Trading 

Hours.15 For example, since all trading 

during Extended Trading Hours will be 

electronic on the Hybrid Trading 

System,16 all CBOE rules relating to 

open outcry trading and the Hybrid 3.0 

System will be inapplicable to Extended 

Trading Hours.17 However, CBOE rules 

relating to business conduct, doing 

business with the public, due diligence, 

and best execution will apply during 

Extended Trading Hours.18

Access. As is true during Regular 

Trading Hours, only authorized Trading 

Permit Holders, their nominees, and 

their associated persons will be able to 

access CBOE’s electronic trading 

system.19 However, trading privileges 

will be separate and distinct for 

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Federal Register / Vol. 79, No. 233 / Thursday, December 4, 2014 / Notices 72045 

20See proposed CBOE Rule 6.1A(d). The 

Exchange represents that it will make available a 

sufficient number of Trading Permits during 

Extended Trading Hours to comply with Section 

6(c)(4) of the Act. See Amendment No. 1, supra 

note 4. The Exchange intends to set the initial limit 

of Extended Trading Hours Trading Permits at 900 

Market Maker Trading Permits and 150 Electronic 

Access Trading Permits (the same total number as 

available during Regular Trading Hours). See id. 

21See Notice, supra note 3 at 54765. 

22See Amendment No. 1, supra note 4. 

23See proposed CBOE Rule 6.1A(e). For Extended 

Trading Hours, the appointment cost for VIX will 

be 0.5 and for SPX it also will be 0.5. Each Extended 

Trading Hours Trading Permit will have an 

appointment credit of 1.0 (the same as a Regular 

Trading Hours Trading Permit), so at the launch of 

Extended Trading Hours, a Market Maker will only 

need to hold one Extended Trading Hours Trading 

Permit if it wants to quote in both SPX and VIX 

during Extended Trading Hours. See Notice, supra 

note 3 at 54760. See also proposed CBOE Rule 

6.1A(e)(i). 

24See proposed CBOE Rule 6.1A(e)(ii). 

25See id. 

26See proposed CBOE Rule 8.18. 

27See proposed CBOE Rule 6.1A(e)(iii)(A). 

28See proposed CBOE Rule 6.1A(e)(iii)(B). 

29See, e.g., CBOE Rules 6.45B and 8.15B 

(concerning participation entitlements). 

30CBOE’s adoption of any such rebate will be 

subject to the rule filing process of Section 19 of 

the Act. CBOE is not proposing any rebate in this 

current proposal. 

31See proposed CBOE Rule 6.1A(e)(iii)(C). 

Because the heightened quoting standard for LMMs 

in the Extended Hours Trading session is applicable 

only to a fee rebate and not a participation 

entitlement, the monthly measuring period is 

separate and distinct from the heightened quoting 

standard in the Regular Trading Hours session, 

which is measured on a daily basis. See Notice, 

supra note 3 at 54762. 

32See Notice, supra note 3 at 54763. See also 

proposed CBOE Rule 6.1A(f). 

33See Notice, supra note 3 at 54765. The 

Exchange also intends to activate the complex order 

auction and the automated improvement 

mechanism (‘‘AIM’’) auction during Extended 

Trading Hours. These auctions will operate in the 

same manner as they do during Regular Trading 

Hours, except with respect to AIM, the requirement 

that three Market Makers must be quoting to initiate 

an AIM auction will not apply during Extended 

Trading Hours. See id. at note 43. 

34See Notice, supra note 3 at 54765. According 

to the Exchange, the Options Clearing Corporation 

has stated that it will be able to clear and settle all 

transactions and handle exercises of options during 

Extended Trading Hours. See id. at note 48. In 

addition, the Exchange has represented that it will 

work with OCC to establish procedures in 

connection with on-boarding Trading Permit 

Holders to ensure that Extended Trading Hours 

Trading Permit Holders only utilize clearing brokers 

that are properly authorized by OCC for operating 

during Extended Trading Hours. See Amendment 

No. 1, supra note 4. 

35See Notice, supra note 3 at 54765. The operator 

of OPRA has informed CBOE that it intends to add 

a modifier to the disseminated information during 

Extended Trading Hours. See id. at note 57. The 

Exchange also will disseminate Extended Trading 

Hours data through its proprietary data feed in the 

same format and manner that it distributes data 

during Regular Trading Hours. See id. at 54765. 

Any fees to be charged by CBOE for the Extended 

Trading Hours proprietary data feed will be subject 

to a separate fee change filing. See id. at note 49. 

36See proposed CBOE Rule 24.7(d). Further, 

clearly erroneous trade breaks during Extended 

Trading Hours will be processed in the same 

manner as Regular Trading Hours, except that 

during Extended Trading Hours, only two Exchange 

Officials that are members of the Exchange’s staff 

Continued 

Extended Trading Hours. In other 

words, a broker-dealer that is not 

currently a CBOE member, as well as a 

current CBOE Trading Permit Holder 

(for Regular Trading Hours) will both 

need to obtain a separate Extended 

Trading Hours Trading Permit if they 

want to trade during CBOE’s new 

Extended Trading Hours session.20 The 

separate nature of access for the two 

trading sessions means that Trading 

Permit Holders will need to use separate 

log-ins for Extended versus Regular 

Trading Hours.21 In this respect, CBOE’s 

systems will be designed to prevent 

unauthorized access by persons not 

eligible to trade on CBOE during the 

Extended Trading Hours session.22

Market Makers. CBOE’s proposal 

contemplates participation from Market 

Makers in the Extended Trading Hours 

session. To be eligible, Market Makers 

will need to obtain a separate Extended 

Trading Hours Trading Permit and also 

will need to request a separate 

appointment during Extended Trading 

Hours.23 During Extended Trading 

Hours, Market Makers will be required 

to maintain continuous electronic 

quotes in 60% of the non-adjusted 

options series of the Market Maker’s 

appointed classes that expire in less 

than nine months for 90% of the time 

when the Market Maker is quoting in a 

class.24 In addition, the Exchange’s 

proposal gives it the authority to 

determine to have no bid/ask 

differential requirement in the Extended 

Trading Hours session.25 Further, 

Market Makers generally will be able to 

use the same Exchange functionality 

during Extended Trading Hours that is 

available to them during Regular 

Trading Hours. For example, Market 

Makers may elect to use a quote risk 

monitor (‘‘QRM’’) mechanism during 

Extended Trading Hours. Although, a 

Market Maker that elects to use QRM for 

both Regular Trading Hours and 

Extended Trading Hours will need to 

establish parameters separately for each 

trading session (even though a Market 

Maker may elect to use the same 

parameters for both trading sessions or 

use QRM for one trading session and not 

the other).26

LMMs. The Exchange also may 

approve one or more Market Makers to 

act as Lead Market Makers (‘‘LMMs’’) in 

each class during Extended Trading 

Hours.27 Unlike Regular Trading Hours, 

however, LMMs will only be required to 

comply with the continuous quoting 

obligations and other obligations 

applicable to regular Market Makers in 

their assigned classes.28 Consequently, 

LMMs will not be entitled to receive a 

participation entitlement in the 

Extended Hours Session.29 However, if 

an LMM meets specific performance 

criteria during a month, it will be 

eligible to receive a specified monetary 

incentive from CBOE. Specifically, if an 

LMM: (1) Provides continuous 

electronic quotes in at least the lesser of 

99% of the non-adjusted series or 100% 

of the non-adjusted series minus one 

call-put pair in an Extended Trading 

Hours allocated class (excluding intraday add-on series on the day during 

which such series are added for trading) 

during Extended Trading Hours in a 

given month and (2) ensures an opening 

of the same percentage of series by 2:05 

a.m. for at least 90% of the trading days 

during Extended Trading Hours in a 

given month, the LMM will be eligible 

to receive a rebate for that month in an 

amount set forth in the Exchange Fees 

Schedule.30 For purposes of this 

heightened continuous quoting 

standard, an LMM will be deemed to 

have provided continuous electronic 

quotes during Extended Trading Hours 

if the LMM provides electronic twosided quotes for 90% of the time in 

Extended Trading Hours in a given 

month.31

Trading. During Extended Trading 

Hours, the Exchange proposes to limit 

the available order types that may be 

entered into the system. Specifically, in 

recognition of the expected reduced 

liquidity, higher volatility, and wider 

spreads during Extended Trading Hours, 

the Exchange will not allow market 

orders, market-on-close orders, stop 

orders, and good-til-cancelled orders.32

Otherwise, order processing during 

Extended Trading Hours will operate in 

the same manner as it does for Regular 

Trading Hours and there will be no 

change to ranking, display, or allocation 

algorithms rules.33 Moreover, there will 

be no change between Regular and 

Extended Trading Hours in regards to 

the processes for clearing, settlement, 

exercise, and expiration.34 In addition, 

the Exchange will report the best bid 

and offer and executed trades to the 

Options Price Reporting Authority 

(‘‘OPRA’’) during Extended Trading 

Hours in the same manner that it reports 

that information to OPRA during 

Regular Trading Hours.35

The Exchange also may halt trading 

during Extended Trading Hours in the 

interests of a fair and orderly market 

largely in the same manner that it can 

during Regular Trading Hours.36 For 

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72046 Federal Register / Vol. 79, No. 233 / Thursday, December 4, 2014 / Notices 

will be necessary to make such a determination. See 

Notice, supra note 3 at 54765. 

37See Notice, supra note 3 at 54766; and 

proposed CBOE Rule 24.7(d). Also, under the 

proposed rule change, CBOE will not have to 

consider during Extended Trading Hours existing 

factors that are not applicable to the Extended 

session, such as (i) the extent to which trading is 

not occurring in the stocks or options underlying 

the index; (ii) the current calculation of the index 

derived from the current market prices of the stocks 

is not available; (iii) the ‘‘current index level’’ for 

a volatility index is not available or the cash (spot) 

value for a volatility index is not available; and (iv) 

the extent to which the rotation has been completed 

or other factors regarding the status of the rotation, 

in determining whether to halt trading during 

Extended Trading Hours. See Notice, supra note 3 

at note 53; and proposed CBOE Rule 24.7(d). 

38See proposed CBOE Rule 24.7, Interpretation 

and Policies .01. Currently, CBOE’s rule allows it 

to consider the activation of price limits on futures 

exchanges when determining whether to halt 

trading in an index options. The proposed change 

will allow CBOE to consider any halt in futures 

trading, including halts called in situations other 

than in response to the activation of a price limit. 

See Notice, supra note 3 at 54765. 

39See Notice, supra note 3 at 54765 and 54767. 

40CBOE is the index calculator for the VIX. 

According to CBOE, the accuracy of the calculation 

for VIX indicative (or spot) values depends upon 

the quality of bid and offer quotes for constituent 

SPX option series. CBOE is unsure whether the SPX 

option quotes displayed during Extended Trading 

Hours will be sufficient to calculate accurate and 

meaningful VIX indicative quote values during 

Extended Hours. Accordingly, CBOE has 

determined to not calculate VIX spot values during 

Extended Trading Hours. See Amendment No. 1, 

supra note 4. However, as the Exchange and market 

participants gain experience with the Extended 

Trading Hours session and if activity and market 

maker participation increases, the Commission 

expects CBOE to reevaluate this decision and 

consider disseminating a VIX index value if and 

when quoting activity becomes sufficient to allow 

CBOE to calculate accurate and meaningful VIX 

index values during the Extended Trading Hours 

session. 

41See proposed CBOE Rule 6.1A(j). 

42See Notice, supra note 3 at 54764. 

43 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

44 15 U.S.C. 78f(b)(5). 

45See e.g., Securities Exchange Act Release Nos. 

29237 (May 24, 1991), 56 FR 24853 (May 31, 1991) 

(SR–NYSE–90–52 and SR–NYSE–90–53) (approving 

an off-hours trading facility on a pilot basis); 42004 

(October 13, 1999), 64 FR 56548 (October 20, 1999) 

(SR–CHX–99–16) (approving extended trading 

hours on a pilot basis); and 56985 (December 18, 

2007), 72 FR 73388 (December 27, 2007) (SR– 

NASDAQ–2007–098) (approving the trading of 

certain securities outside of regular market hours). 

46The Commission notes that in order to be a 

Trading Permit Holder, an individual or 

organization must be, in part, registered as a broker 

or dealer pursuant to Section 15 of the Act or be 

associated with a Trading Permit Holder 

organization that is registered as a broker or dealer 

pursuant to Section 15 of the Act. See CBOE Rules 

3.2 and 3.3. 

47See Amendment No. 1, supra note 4. 

example, if there was a marketwide 

trading halt at the end of the prior 

trading day, CBOE could consider that 

as an ‘‘unusual condition’’ in 

determining whether to halt trading 

during the following day’s Extended 

Trading Hours session.37 Separately, 

CBOE proposed to amend its trade halt 

rule to provide that it also may consider 

whether trading in related futures has 

been halted as a factor in determining 

whether to halt trading in an option.38

Surveillance and Disclosures. The 

Exchange has represented that it will 

perform all necessary surveillance 

coverage and will have appropriately 

trained and qualified regulatory and 

operations staff in place during 

Extended Trading Hours to satisfy its 

regulatory obligations and administer 

the Extended Trading Hours session in 

real time.39 In addition, because of the 

differences in the nature of the market 

and trading between Regular and 

Extended Trading Hours, CBOE will 

require Trading Permit Holders to 

disclose to customers that trading 

during Extended Trading Hours may 

involve material risks, including, in 

part, the possibility of lower liquidity, 

higher volatility, and lack of an updated 

underlying index or portfolio value,40

prior to accepting an order from a 

customer for execution during Extended 

Trading Hours.41 The Exchange also 

will distribute a Regulatory Circular 

detailing, among other things, some of 

the risks of trading during Extended 

Trading Hours.42

III. Discussion and Commission 

Findings 

After careful consideration, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

Nos. 1 and 2, is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.43 In 

particular, the Commission finds that 

the proposed rule change, as amended, 

is consistent with Section 6(b)(5) of the 

Act,44 which requires, among other 

things, 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 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. While no other options 

exchange is currently open for trading 

outside of Regular Trading Hours, the 

Commission notes that it has previously 

approved extended trading hours in the 

cash equities markets.45

The proposed rule change, as 

modified by Amendment Nos. 1 and 2, 

will allow investors additional trading 

opportunities to trade in two CBOE 

exclusively-listed products outside of 

CBOE’s current Regular Trading Hours. 

The hours of CBOE’s proposed 

Extended Trading Hours roughly 

coincide with the regular trading hours 

in Europe, and therefore CBOE’s 

proposal may be of particular interest to 

traders located in non-U.S. jurisdictions. 

At the same time, CBOE has proposed 

certain limitations and protections on 

access and trading during Extended 

Trading Hours that are designed to 

promote just and equitable principles of 

trade and foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities. 

For example, as discussed above, only 

authorized Trading Permit Holders, 

their nominees, and their associated 

persons will be able to access the CBOE 

trading system during Extended Trading 

Hours, and CBOE’s system is designed 

to allow CBOE to restrict unauthorized 

access to its systems in Extended 

Trading Hours.46 Specifically, CBOE is 

requiring a new class of trading permits 

for Extended Trading Hours with their 

own unique log-in ID, and only persons 

in possession of those credentials will 

have access to CBOE’s systems to trade 

during Extended Trading Hours. 

Moreover, consistent with fostering 

cooperation and coordination with 

persons engaged in clearing and settling 

transactions in securities, CBOE has 

represented that it will work with OCC 

to establish procedures in connection 

with on-boarding Extended Trading 

Hours permit holders to ensure that 

Trading Permit Holders only utilize 

clearing brokers that have been properly 

authorized by OCC for operating during 

Extended Trading Hours.47 This process 

is designed to help assure the orderly 

functioning of the clearing process in 

Extended Trading Hours by avoiding 

any risk associated with a CBOE permit 

holder trading through a clearing broker 

during Extended Trading Hours if such 

clearing broker does not, in OCC’s 

opinion, meet OCC’s standards for 

clearing outside of regular trading 

hours. 

In addition, as discussed above, all of 

CBOE’s rules, with certain exceptions, 

will continue to apply during Extended 

Trading Hours. These rules, among 

other things, prohibit Trading Permit 

Holders from engaging in acts or 

practices inconsistent with just and 

equitable principles of trade, making 

any willful or material 

misrepresentation or omission in any 

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48See Chapter IV (Business Conduct) of CBOE’s 

rules. 49See CBOE Rules 53.2 (Prohibition Against 

Trading Ahead of Customer Orders) and 53.8 (Best 

Execution and Interpositioning). The Commission 

notes that CBOE Rule 53.2, Interpretations and 

Policies .07, specifically provides that Trading 

Permit Holders may limit the life of a customer 

order to the period of normal market hours. 

However, if the customer and Trading Permit 

Holder agree to the processing of the customer’s 

order outside normal market hours, the protections 

of the rule will apply to that customer’s order for 

the entirety of the agreed upon executable time. 

50See Notice, supra note 3 at 54765 and 54767. 51See id. 52See proposed CBOE Rule 6.1A(j). 

53See id. 

54See Notice, supra note 3 at 54758. 

55See id. at 54765. 

56As noted above, Market Makers will not have 

to satisfy the open outcry quoting obligations since 

all trading during Extended Trading Hours will be 

electronic. See proposed CBOE Rule 6.1A(e)(ii). 

57The Commission notes that the Exchange will 

need to submit a proposed rule change pursuant to 

Section 19(b) of the Act if and when it seeks to add 

such a rebate for LMMs to the Exchange’s fee 

schedule. 

application, report, or other 

communication to the Exchange or the 

OCC, and from effecting or inducing the 

purchase, sale, or exercise of any 

security for the purpose of manipulating 

the price or activity of the security,48 as 

well as impose best execution 

requirements and prohibit trading ahead 

of customer orders.49 In addition, the 

Exchange has represented that it will 

revise its surveillance procedures to 

incorporate transactions that occur and 

orders and quotations that are submitted 

during Extended Trading Hours and 

perform all necessary surveillance 

coverage during Extended Trading 

Hours.50 Importantly, CBOE has 

represented that it will have a sufficient 

number of appropriately qualified staff 

on-site and otherwise available as 

necessary during Extended Trading 

Hours to provide support and handle 

any operations and regulatory issues 

that may arise.51 CBOE’s represented 

commitment to adequately staff its 

operations during Extended Trading 

Hours is important to assure the 

integrity of CBOE’s operations during 

those early morning hours and 

necessary to assure that CBOE is able to 

carry out and enforce its rules during 

this session, including rules relating to 

trading halts and obvious error trades, 

as well as thoroughly monitor trading 

and the operations of its trading 

systems. Accordingly, the Commission 

believes that CBOE has designed its 

Extended Trading Hours session to 

promote just and equitable principles of 

trade and prevent fraudulent and 

manipulative acts and practices to the 

same extent that its Regular Trading 

Hours session has been so designed. 

The Commission also believes that 

CBOE’s disclosure requirement that 

obligates members to make certain 

written disclosures to customers 

regarding material trading risks that may 

exist during Extended Trading Hours is 

consistent with the protection of 

investors.52 Specifically, Trading Permit 

Holders will be required to make certain 

disclosures to customers regarding the 

risk of lower liquidity, higher volatility, 

and wider spreads during Extended 

Trading Hours as compared to Regular 

Trading Hours.53 The Commission 

believes that such disclosures should 

help ensure that customers are 

reasonably informed about the specific 

risks associated with trading in the noncore market before they decide to 

submit their first order in the Extended 

Trading Hours session. Further, these 

requirements are designed to mitigate, 

to the extent possible, the likelihood of 

investor confusion regarding the 

significant differences between the 

character of the market typical of 

Regular and Extended Trading Hours 

sessions. 

The Commission further believes that 

CBOE’s proposal to use a fully 

electronic trading platform during 

Extended Trading Hours that shares 

most of the functionality of its Hybrid 

System is reasonable. As discussed 

above, CBOE will use separate servers 

and hardware for the Extended Trading 

Hours session and the two sessions will 

not be linked or otherwise interact with 

each other. Nevertheless, according to 

the Exchange, orders will be processed 

in the same manner during Extended 

Trading Hours as Regular Trading Hours 

and there will be no changes to the 

ranking, display, or allocation algorithm 

rules.54 CBOE also explained that there 

will be no changes to the processes for 

clearing, settlement, exercise, and 

expiration.55 The Commission believes 

that maintaining separate infrastructure 

for the two separate trading systems is 

designed to protect the resiliency of the 

Regular Trading Hours session. Further, 

utilizing the existing trading and 

clearing process for the Extended 

Trading Hours session that CBOE uses 

for its electronic trading during Regular 

Trading Hours should facilitate the 

ability of CBOE members to trade in the 

new session on terms and with 

functionality that is familiar to them. 

However, there will be some 

differences during Extended Trading 

Hours, such as returning certain kickedout orders to a Trading Permit Holder in 

lieu of routing such order to PAR, and 

limiting the types of orders available for 

electronic processing to avoid the use of 

market orders or any order that could 

convert into a market order. The 

Commission believes these differences 

reflect that the character of trading 

during Extended Trading Hours will 

likely differ from typical trading during 

Regular Trading Hours, including the 

likelihood of reduced liquidity, higher 

volatility, and wider spreads during 

Extended Trading Hours. 

Furthermore, CBOE has proposed to 

provide for Market Makers during 

Extended Trading Hours. Any Market 

Maker that elects to have an 

appointment during Extended Trading 

Hours will be subject to the same 

general quoting obligations as are 

applicable during Regular Trading 

Hours, though CBOE may determine not 

to impose bid/ask differential 

requirements during Extended Trading 

Hours.56

CBOE also has provided for Lead 

Market Makers, though the Commission 

notes that LMMs will not be entitled to 

a participation entitlement in Extended 

Trading Hours. However, LMMs that 

satisfy a heightened quoting standard 

during a month will be eligible to 

receive a rebate from CBOE for that 

month.57 The Commission believes that 

CBOE’s proposed LMM incentive 

program during Extended Trading 

Hours is designed to encourage twosided liquidity during Extended Trading 

Hours and, to the extent it is successful, 

may contribute to the maintenance of 

fair and orderly markets during 

Extended Trading Hours. To the extent 

that CBOE is successful in encouraging 

active participation of Market Makers 

and LMMs during Extended Trading 

Hours, then CBOE may be able to help 

address some of the risks inherent in a 

non-core hours trading session, 

including the risks of reduced liquidity, 

higher volatility, and wider markets. 

Therefore, the proposal’s provision for 

Market Makers and LMMs during the 

Extended Trading Hours session is 

consistent with the protection of 

investors and the public interest as well 

as the promotion of fair and orderly 

markets. 

The Commission also believes that 

CBOE’s proposed changes to its trading 

halt rule are consistent with the Act and 

designed to promote fair and orderly 

markets. The Commission notes that the 

Exchange will consider halting trading 

during Extended Trading Hours in the 

interests of a fair and orderly market in 

the same manner that it could halt 

trading during Regular Trading Hours. 

CBOE’s proposed amendment to the 

trading halt rule to allow it to consider 

a halt in trading in related futures 

contracts is a reasonable additional 

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72048 Federal Register / Vol. 79, No. 233 / Thursday, December 4, 2014 / Notices 

58See proposed CBOE Rule 24.7, Interpretations 

and Policies .01. 

59 15 U.S.C. 78k–1(a)(1)(C). 

60See Notice, supra note 3 at 54765. See also 

supra note 35 (noting that OPRA intends to add a 

modifier to Extended Trading Hours quotes and 

trades). 61See Amendment No. 1, supra note 4. 

62See id. 

63See id. 

64See id. 

65 15 U.S.C. 78s(b). 

66 15 U.S.C. 78s(b)(2). 

factor and consistent with the existing 

factors under the rule that allows CBOE 

to consider the activation of price limits 

in the futures markets.58

In addition, the Commission finds 

that the proposed rule change, as 

amended, is consistent with Section 

11A(a)(1)(C) of the Act.59 Congress 

found in those provisions that it is in 

the public interest and appropriate for 

the protection of investors and the 

maintenance of fair and orderly markets 

to assure the availability to brokers, 

dealers, and investors of information 

with respect to quotations for and 

transactions in securities, and to assure 

the practicability of brokers executing 

investors’ orders in the best market. The 

proposed rule change is designed to 

accomplish these objectives by ensuring 

that the Exchange will report its best bid 

and offer and executed trades to OPRA 

during Extended Trading Hours in the 

same manner that they are reported 

during Regular Trading Hours,60 thereby 

providing public transparency of 

activity in the Extended Trading Hours 

market. 

IV. Solicitation of Comments on 

Amendment Nos. 1 and 2 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether Amendment Nos. 1 

and 2 are 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– 

CBOE–2014–062 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File No. 

SR–CBOE–2014–062. 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 will also 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 No. SR–CBOE– 

2014–062 and should be submitted on 

or before December 26, 2014. 

V. Accelerated Approval of Proposed 

Rule Change as Modified by 

Amendment Nos. 1 and 2 

The Commission finds good cause to 

approve the proposed rule change, as 

modified by Amendment Nos. 1 and 2, 

prior to the thirtieth day after the date 

of publication of notice of Amendment 

Nos. 1 and 2 in the Federal Register. 

The Commission notes that, in addition 

to filing Amendment Nos. 1 and 2 with 

the Commission, CBOE also submitted 

Amendment No. 1 and 2 as comments 

to the file, which the Commission 

promptly posted on its Web site on 

October 27, 2014 and November 21, 

2014, respectively, in order to promote 

public availability and accessibility of 

the Amendments. The Commission 

notes that it did not receive any 

comments on CBOE’s initial proposal or 

on either Amendment Nos. 1 or 2 prior 

to the date of this order. 

In Amendment No. 1, the Exchange 

made several discrete changes to its 

proposal to provide additional clarity 

and further legal support for why its 

proposal is consistent with the Act. In 

particular, CBOE represented that it will 

establish procedures with OCC to 

ensure that Trading Permit Holders only 

utilize clearing brokers that have been 

authorized by OCC to clear during 

Extended Trading Hours.61 Further, 

CBOE clarified that it will be able to 

prohibit an unauthorized user from 

accessing the trading system during 

Extended Trading Hours.62 CBOE also 

represented that it will comply with the 

provisions of Section 6(c)(4) of the Act 

in making Trading Permits available 

during Extended Trading Hours by 

authorizing a total of 1,050 total permits 

for the Extended Trading Hours 

session.63 Finally, CBOE provided 

additional support to justify its decision 

to not disseminate VIX values during 

Extended Trading Hours.64 As the index 

calculator for VIX, CBOE explained that 

it does not currently know whether SPX 

options quotes (on which the VIX index 

is calculated) displayed in Extended 

Trading Hours will be sufficient to 

calculate an accurate and meaningful 

VIX indicative value in the same 

manner as what typically occurs during 

Regular Trading Hours. CBOE further 

pledged to reconsider the issue in the 

future and reassess whether trading in 

the Extended Trading Hours session 

rises to a sufficient level that is capable 

of supporting the calculation of accurate 

and meaningful VIX indicative values. 

The Commission believes that these 

proposed changes in Amendment No. 1 

are reasonable and clarify the 

application and operation of CBOE’s 

original proposal in a manner that is 

materially consistent with the scope of 

what CBOE originally proposed and 

what the Commission noticed for public 

comment in the Federal Register. 

In addition, in Amendment No. 1, 

CBOE revised its proposed rules 

regarding foreign Trading Permit 

Holders and access from foreign 

jurisdictions. However, in Amendment 

No. 2 CBOE withdrew those proposed 

rule changes. The Commission believes 

that those proposed changes were 

incidental to the Exchange’s core 

proposal to adopt an Extended Trading 

Hours session for SPX and VIX, and that 

their deletion from the proposal does 

not raise any concerns with the 

remainder of the proposal. If, in the 

future, CBOE decides to revisit its rules 

applicable to foreign Trading Permit 

Holders, it would need to submit a 

proposed rule change filing pursuant to 

Section 19(b) of the Act.65

Accordingly, the Commission finds 

good cause, pursuant to Section 19(b)(2) 

of the Act, to approve the proposed rule 

change, as modified by Amendment 

Nos. 1 and 2, on an accelerated basis. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,66 that the 

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Federal Register / Vol. 79, No. 233 / Thursday, December 4, 2014 / Notices 72049 

67 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 73410 

(October, 23, 2014), 79 FR 64447 (SR–BX–2014– 

048) (‘‘Notice’’). 

4 17 CFR 242.612 (‘‘Sub-Penny Rule’’). 

5See Letter from Jeffrey Davis, Deputy General 

Counsel, NASDAQ OMX BX, Inc., to Brent J. Fields, 

Secretary, Commission, dated October 10, 2014 

(‘‘Request for Sub-Penny Rule Exemption’’). The 

Request for Sub-Penny Rule Exemption was 

submitted contemporaneously with the Exchange’s 

original filing for this proposed rule change, which 

was filed on October 10, 2014. Because that filing 

did not comply with the rules of the Commission 

relating to the required form of a filing on Form 

19b-4, it was rejected. 

6See Letter from Jeffrey Davis, Deputy General 

Counsel, NASDAQ OMX BX, Inc., to Stephen 

Luparello, Director, Division of Trading and 

Markets, Commission, dated October 10, 2014. This 

letter was submitted contemporaneously with the 

Exchange’s original filing for this proposed rule 

change, which was filed on October 10, 2014. As 

noted above, that filing was rejected because it did 

not comply with the rules of the Commission 

relating to the required form of a filing on Form 

19b–4. 

7The Exchange notes that certain orders 

submitted to the Program designated as eligible to 

interact with liquidity outside of the Program— 

Type 2 Retail Orders, discussed below—could 

execute at prices below $1.00 if they do in fact 

execute against liquidity outside of the Program. 

8An RMO would be a Member (or a division 

thereof) that has been approved by the Exchange to 

submit Retail Orders. See Proposed BX Rule 4780. 

A ‘‘Member’’ is any registered broker or dealer that 

has been admitted to membership in the Exchange. 

See BX Rule 0120(i). 

9The terms Protected Bid and Protected Offer are 

defined in Rule 600(b)(57) of Regulation NMS. 17 

CFR 242.600(b)(57). The Exchange represents that, 

generally, the Protected Bid and Protected Offer, 

and the national best bid (‘‘NBB’’) and national best 

offer (‘‘NBO,’’ together with the NBB, the ‘‘NBBO’’), 

will be the same. However, it further represents that 

a market center is not required to route to the NBB 

or NBO if that market center is subject to an 

exception under Regulation NMS Rule 611(b)(1) or 

if such NBB or NBO is otherwise not available for 

an automatic execution. In such case, the Exchange 

states that the Protected NBBO would be the bestpriced protected bid or offer to which a market 

center must route interest pursuant to Rule 611 of 

Regulation NMS. 

10As explained further below, the Exchange has 

proposed two types of Retail Orders, one of which 

could execute against other contra-side interest if it 

was not completely filled by contra-side RPI 

Interest or other price-improving liquidity. All 

Retail Orders would first execute against available 

contra-side RPI Orders or other price-improving 

liquidity. Any remaining portion of the Retail Order 

would then either cancel, be executed as an 

immediate-or-cancel order, or be routed to another 

market for execution, depending on the type of 

Retail Order. The Exchange notes that other price 

improving liquidity may include, but is not limited 

to: Booked non-displayed orders with a limit price 

that is more aggressive than the then-current NBBO; 

midpoint-pegged orders (which are by definition 

non-displayed and priced more aggressively than 

the NBBO); non-displayed orders pegged to the 

NBBO with an aggressive offset, as defined in 

Proposed BX Rule 4780(a)(4) as Other Price 

Improving Contra-Side Interest. Orders that do not 

constitute other price improving liquidity include, 

but are not limited to: Orders with a time-in-force 

instruction of IOC; displayed orders; limit orders 

priced less aggressively than the NBBO. 

11 In order to qualify as a ‘‘Retail Order,’’ a 

‘‘riskless principal’’ order must satisfy the criteria 

set forth in FINRA Rule 5320.03. RMOs that submit 

riskless principal orders as Retail Orders must 

maintain supervisory systems to reconstruct such 

orders in a time-sequenced manner, and the RMOs 

must submit reports contemporaneous with the 

execution of the facilitated orders that identify such 

trades as riskless principal. 

proposed rule change, as modified by 

Amendment Nos. 1 and 2, (SR–CBOE– 

2014–062), be, and it hereby is, 

approved on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.67

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–28475 Filed 12–3–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73702; File No. SR–BX– 

2014–048] 

Self-Regulatory Organizations; 

NASDAQ OMX BX, Inc.; Order Granting 

Approval to Proposed Rule Change To 

Establish the Retail Price Improvement 

Program on a Pilot Basis Expiring 

Twelve Months From the Date of 

Implementation 

November 28, 2014. 

I. Introduction 

On October 17, 2014, The NASDAQ 

OMX BX Stock Market LLC (the 

‘‘Exchange’’ or ‘‘BX’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

establish a Retail Price Improvement 

(‘‘RPI’’) Program (the ‘‘Program’’) on a 

pilot basis for a period of 12 months 

from the date of implementation, if 

approved. The proposed rule change 

was published for comment in the 

Federal Register on October 29, 2014.3

The Commission did not receive any 

comments on the proposed rule change. 

In connection with the proposal, the 

Exchange requested exemptive relief 

from Rule 612 of Regulation NMS,4

which, among other things, prohibits a 

national securities exchange from 

accepting or ranking orders priced 

greater than $1.00 per share in an 

increment smaller than $0.01.5 On 

October 10, 2014, the Exchange 

submitted a letter requesting that the 

staff of the Division of Trading and 

Markets not recommend any 

enforcement action under Rule 602 of 

Regulation NMS based on the 

Exchange’s and its Members’ 

participation in the Program.6

This order approves the proposed rule 

change and grants the exemption from 

the Sub-Penny Rule sought by the 

Exchange in relation to the proposed 

rule change. 

II. Description of the Proposal 

The Exchange is proposing a 12- 

month pilot program to attract 

additional retail order flow to the 

Exchange, while also providing the 

potential for price improvement to retail 

order flow. The Program would be 

limited to trades occurring at prices 

equal to or greater than $1.00 per share.7

All Regulation NMS securities traded on 

the Exchange would be eligible for 

inclusion in the Program. 

Under the Program, a new class of 

market participants called Retail 

Member Organizations (‘‘RMOs’’) 8

would be eligible to submit certain retail 

order flow (‘‘Retail Orders’’) to the 

Exchange. All Exchange Members 

would be permitted to provide potential 

price improvement for Retail Orders in 

the form of designated non-displayed 

interest, called a Retail Price 

Improvement Order (‘‘RPI Order’’ or 

‘‘RPI interest’’), that is priced more 

aggressively than the Protected National 

Best Bid or Offer (‘‘Protected NBBO’’) 9

by at least $0.001 per share. When RPI 

interest priced at least $0.001 per share 

better than the Protected Bid or 

Protected Offer for a particular security 

is available in the Exchange’s system 

(the ‘‘System’’), the Exchange would 

disseminate an identifier, known as the 

Retail Liquidity Identifier, indicating 

that such interest exists. A Retail Order 

would interact, to the extent possible, 

with available contra-side RPI Orders 

and other price improving liquidity.10

Types of Orders and Identifier 

A Retail Order would be an agency or 

riskless principal 11 order that originates 

from a natural person and is submitted 

to the Exchange by an RMO, provided 

that no change is made to the terms of 

the order with respect to price (except 

in the case of a market order being 

changed to a marketable limit order) or 

side of market and provided that the 

order does not originate from a trading 

algorithm or any other computerized 

methodology. A Retail Order is an 

Immediate or Cancel Order. As 

discussed in greater detail below, Retail 

Orders may be designated as Type 1 or 

Type 2. Retail Orders, regardless of 

Type, may be entered in sizes that are 

odd lots, rounds lots, or mixed lots. 

An RPI Order would be non-displayed 

liquidity on the Exchange that is priced 

better than the Protected NBBO by at 

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