Document ID: SEC-2014-1872-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-11-06T05:00Z

[Federal Register Volume 79, Number 215 (Thursday, November 6, 2014)]
[Notices]
[Pages 66014-66016]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-26342]

[[Page 66014]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73479; File No. SR-CBOE-2014-083]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Delay the Implementation Date of the 
Requirement To Apply an Indicator to SPX Combo Orders Upon 
Systematization

October 31, 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 31, 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 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to delay the implementation date of the 
requirement to apply an indicator to SPX Combo Orders upon 
systematization. There is no proposed change to the rule language.
    The text of the proposed rule change is available on the Exchange's 
Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 
at the Exchange's Office of the Secretary, and at the Commission's 
Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    On May 19, 2014, the Exchange submitted a rule change filing (SR-
CBOE-2014-046), which became effective on that date, to amend Rule 
24.20, ``SPX Combo Orders''. Rule 24.20, as amended, states: ``For an 
order to be eligible for the trading procedures contained in this Rule, 
a Trading Permit Holder must apply an indicator to the SPX Combo Order 
upon systematization as provided in Rule 6.24.'' \3\ Pursuant to the 
rule change filing, the Exchange issued a Regulatory Circular requiring 
Trading Permit Holders (``TPHs'') to begin applying the combo indicator 
upon systematization on November 1, 2014.\4\ Once the Exchange 
implements the combo indicator requirement, TPHs will be required to 
apply the combo indicator upon systematization. Orders that include the 
combo indicator but do not meet the requirements of an SPX Combo Order 
(i.e., orders must be at least three legs and include an SPX 
combination \5\) will be rejected. Additionally, the Public Automatic 
Routing System (``PAR'') will no longer allow an order to be endorsed 
as an SPX Combo Order and reported to OPRA as such.\6\
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    \3\ Securities Exchange Act Release No. 34-72271 (May 29, 2014), 
79 FR 32342 (June 4, 2014) (SR-CBOE-2014-046).
    \4\ CBOE Regulatory Circular RG14-125--Implementation of SPX 
Combo Order Indicator (August 15, 2014).
    \5\ SR-CBOE-2014-046 defines an SPX combination as a purchase 
(sale) of an SPX call and sale (purchase) of an SPX put having the 
same expiration date and strike price.
    \6\ Currently, brokers must apply an SPX Combo Order designation 
for the purposes of price reporting. This is accomplished by 
endorsing a trade via PAR; however the system changes that allow a 
combo indicator to be applied upon systematization will remove the 
capability to endorse an order as an SPX Combo Order on PAR.
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    On August 19, 2014, the Exchange submitted a separate rule change 
filing (SR-CBOE-2014-015) to amend, among other things, Rule 24.20 to 
include Interpretation and Policy .01.\7\ Proposed Interpretation and 
Policy .01, which has not yet been approved by the Commission, would 
require that any complex order, including an SPX Combo Order, for 
twelve (12) legs or less be entered on a single order ticket at time of 
systemization. In addition, a complex order, including an SPX Combo 
Order, that contains more than twelve (12) legs may be represented and 
executed as a single order, and for an SPX Combo Order in accordance 
with Rule 24.20 if it is split across multiple order tickets and the 
TPH representing the order identifies for the Exchange the order 
tickets that are part of the same order (in a manner and form 
prescribed by the Exchange).
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    \7\ Securities Exchange Act Release No. 34-72975 (September 2, 
2014), 79 FR 53230 (September 8, 2014) (SR-CBOE-2014-015).
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    Pursuant to SR-CBOE-2014-046, a third-party vendor updated the 
Exchange provided Floor Broker Workstation (``FBW) to support the combo 
indicator. Pursuant to SR-CBOE-2014-015, the Exchange, through a third-
party vendor, is in the process of developing an enhanced version of 
FBW to support the entry of complex orders with up to twelve legs. The 
third-party vendor has indicated that it will not complete development 
prior to the current November 1st implementation date established in 
the combo indicator circular.\8\
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    \8\ RG14-125, supra note 4.
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    The Exchange believes that if the combo indicator requirement is 
implemented on November 1st, brokers utilizing FBW to execute SPX Combo 
Orders with more than four legs will be negatively impacted. For 
example, if a broker wanted to execute an SPX Combo Order with five 
legs, the current FBW requires the 5-leg order to be split into two 
orders (e.g., an order with two legs and an order with three legs). 
Each order would be required to have the combo indicator upon 
systematization; have at least three legs, and have an SPX combination. 
Therefore, CBOE would reject the order with two legs.\9\ Additionally, 
a 6-leg SPX Combo Order that was split into separate orders with three 
legs would also be rejected if one of the 3-leg orders did not have an 
SPX combination. Therefore, the Exchange is proposing to delay 
implementation of SR-CBOE-2014-046 in order to allow the third-party 
vendor more time to complete development of the enhanced version of 
FBW, which will support the entry of complex orders with up to twelve 
legs pursuant to SR-CBOE-2014-015.
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    \9\ If the broker failed to apply the combo indicator to the 2-
leg order upon systematization, the CBOE system would view the order 
as a non-combo order and would not include a combo identifier for 
reporting purposes.
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    Although the Exchange believes that users of FBW will be negatively 
impacted if the 12-leg order ticket is not available prior to the combo 
indicator requirement, the Exchange intends to implement the combo 
indicator requirement after this delay, regardless of the third-party 
vendor's ability to deliver the enhanced version of FBW. If the 
enhanced version of FBW is not available by the next implementation

[[Page 66015]]

date, the Exchange believes it can mitigate the negative impact to FBW 
users by issuing another Regulatory Circular in advance of the future 
implementation date that provides FBW users with sufficient time to 
find and test an alternative system to input SPX Combo Orders with more 
than four legs.\10\ The Exchange believes that requiring the combo 
indicator on November 1, 2014, as is currently contemplated, does not 
give FBW users sufficient time to find and test an alternative system. 
The Exchange will announce the implementation date of the proposed rule 
change, as well as the Exchange's intent to not delay implementation 
any further, in a Regulatory Circular to be published no later than 60 
days following the effective date of this filing. The implementation 
date will be no later than 120 days following the effective date of 
this filing.
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    \10\ The Exchange notes that it will ensure TPHs have access to 
at least one Exchange provided technology (e.g., PULSe) prior to 
implementation of SR-CBOE-2014-46 and SR-CBOE-2014-015 that will 
enable TPHs to enter SPX Combo Orders with up to twelve legs and 
apply the SPX Combo indicator.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\11\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \12\ 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 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) \13\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
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    In particular, the Exchange believes that if the combo indicator 
requirement is implemented on November 1, 2014, brokers utilizing FBW 
to execute SPX Combo Orders with more than four legs will be negatively 
impacted. The Exchange believes delaying implementation of the combo 
indicator requirement will allow the third-party vendor the necessary 
time to develop an enhanced version of FBW to allow orders to be 
entered with greater than four legs. Furthermore, the Exchange believes 
that delaying implementation promotes fair and orderly markets and 
serves market participants because it will allow trading of SPX Combo 
Orders to continue uninterrupted. The enhanced version of FBW will also 
promote fair and orderly markets and serve market participants because 
it will provide an enhanced audit trail for the Exchange. Finally, if 
the third-party vendor is unable to develop the enhanced version of FBW 
prior to the next implementation date for the combo indicator, the 
Exchange will issue a Regulatory Circular that the Exchange believes 
will provide FBW users with sufficient time to find and test an 
alternative system to input SPX Combo Orders with more than four legs.

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.

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 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 \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    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.
    Under Rule 19b-4(f)(6) of the Act,\16\ the proposal does not become 
operative for 30 days after the date of its filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest. The Exchange has requested that 
the Commission waive the five-day pre-filing requirement and the 30-day 
operative delay period after which a proposed rule change under Rule 
19b-4(f)(6) becomes operative. The Exchange states that waiver of the 
five-day pre-filing requirement and the 30-day operative delay period 
is appropriate because the implementation date for the combo indicator 
is currently November 1, 2014. The Exchange also states the proposed 
rule change does not present any new, unique or substantive issues that 
make the 30-day operative delay necessary. The Exchange notes that if 
the combo indicator requirement is implemented on November 1, 2014, 
brokers utilizing FBW to execute SPX Combo Orders with more than four 
legs will be negatively impacted. Based on the foregoing, the 
Commission has determined to waive the five-day pre-filing requirement 
and the 30-day operative date so that the proposal may take effect upon 
filing.\17\
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    \16\ Id.
    \17\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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:

[[Page 66016]]

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-2014-083 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 Number SR-CBOE-2014-083. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2014-083 and should be 
submitted on or before November 28, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26342 Filed 11-5-14; 8:45 am]
BILLING CODE 8011-01-P