Document ID: SEC-2015-0917-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2015-05-28T04:00Z

[Federal Register Volume 80, Number 102 (Thursday, May 28, 2015)]
[Notices]
[Pages 30506-30508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12833]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75029; File No. SR-CBOE-2015-051]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Delay Implementation of Rule 15.2A

May 21, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 20, 2015, Chicago Board Options Exchange, Incorporated (the 
``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
Exchange. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to delay the implementation of Rule 15.2A. 
There is no proposed change to the rule text.

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 August 13, 2014, the Commission approved CBOE Rules 6.53(y) and 
15.2A.\5\ Rule 6.53(y) defines a tied to stock order \6\ and requires 
the representing Trading Permit Holder to include an indicator on each 
tied to stock order upon systemization, subject to certain exceptions. 
Rule 15.2A requires, in a manner and form prescribed by the Exchange, 
each Trading Permit Holder (``TPH''), on the business day following the 
order execution date, to report to the Exchange certain information 
regarding the executed stock or convertible security legs of qualified 
contingent cross (``QCC'') orders,\7\ stock-option

[[Page 30507]]

orders and other tied to stock orders that the TPH executed on the 
Exchange that trading day. The Exchange stated in rule filing SR-CBOE-
2014-040 that it would issue a circular announcing the implementation 
date for these rules within 90 days of the date of filing, which 
implementation date would be within 180 days of the date of filing.
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    \5\ Securities Exchange Act Release No. 72839 (August 13, 2014), 
79 FR 49123 (August 19, 2014) (SR-CBOE-2014-040) (order approving 
Rules 6.53(y) and 15.2A).
    \6\ Rule 6.53(y) provides that an order is ``tied to stock'' if, 
at the time the Trading Permit Holder representing the order on the 
Exchange receives the order (if the order is a customer order) or 
initiates the order (if the order is a is a proprietary order), has 
knowledge that the order is coupled with an order(s) for the 
underlying stock or a security convertible into the underlying stock 
(``convertible security'' and, together with underlying stock, 
``non-option'').
    \7\ A QCC order is an order to buy (sell) at least 1,000 
standard option contracts or 10,000 mini-option contracts that is 
identified as being part of a qualified contingent trade coupled 
with a contra-side order to sell (buy) an equal number of contracts. 
These orders may only be entered in the standard increments 
applicable to simple orders in the options class under Rule 6.42. 
For purposes of this order type, a ``qualified contingent trade'' is 
a transaction consisting of two or more component orders, executed 
as agent or principal, where: (a) At least one component is an NMS 
stock, as defined in Rule 600 of Regulation NMS under the Act; (b) 
all components are effected with a product or price contingency that 
either has been agreed to by all the respective counterparties or 
arranged for by a broker-dealer as principal or agent; (c) the 
execution of one component is contingent upon the execution of all 
other components at or near the same time; (d) the specific 
relationship between the component orders (e.g., the spread between 
the prices of the component orders) is determined by the time the 
contingent order is placed; (e) the component orders bear a 
derivative relationship to one another, represent different classes 
of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been 
announced or cancelled; and (f) the transaction is fully hedged 
(without regard to any prior existing position) as a result of other 
components of the contingent trade. QCC orders may execute without 
exposure provided the execution is not at the same price as a public 
customer order resting in the electronic book and is at or between 
the national best bid or offer. A QCC order will be cancelled if it 
cannot be executed. See Rule 6.53(u). The Exchange notes that it 
deactivated the QCC functionality effective August 11, 2014 and will 
announce any reactivation of QCC functionality by Regulatory 
Circular. See Regulatory Circular RG14-121.
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    On January 7, 2015, CBOE submitted a rule filing to delay the 
implementation of these rules based on feedback it received from 
TPHs.\8\ The Exchange stated in that rule filing that it would issue a 
circular announcing the implementation date for the rules within 90 
days of the date of the rule filing, which implementation date would be 
within 180 days of the date of filing. In accordance with that filing, 
the Exchange recently issued a regulatory circular on April 7, 2015, 
which announced a July 1, 2015 implementation date for the tied to 
stock marking and reporting requirements.\9\
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    \8\ Securities Exchange Act Release No. 74067 (January 15, 
2015), 80 FR 3267 (January 22, 2015) (SR-CBOE-2015-004) (notice of 
immediate effectiveness of rule filing).
    \9\ CBOE Regulatory Circular RG15-056 (April 7, 2015).
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    While the Exchange believes there has been sufficient training and 
circulars provided to Trading Permit Holders on the marking requirement 
to move forward with implementation of that requirement on July 1, 
2015, the Exchange believes it is appropriate to delay the 
implementation of the reporting requirement. Therefore, the Exchange 
proposes to further delay the implementation date of the tied to stock 
reporting requirement for tied to stock orders.\10\ During this time, 
the Exchange plans to evaluate the information obtained via the marking 
requirement under Rule 6.53(y) in conjunction with information 
available through other sources and further consider the reporting 
requirement format. In that regard, the Exchange notes that CBOE 
recently entered into a Regulatory Services Agreement with the 
Financial Industry Regulatory Authority, Inc. (``FINRA''). As a result, 
CBOE plans to evaluate the format of the reports with FINRA to ensure 
that the information to be provided in the reports can be incorporated 
into surveillances in an efficient and effective manner.\11\ Therefore, 
the Exchange seeks to extend the implementation date of Rule 15.2A 
until the Exchange can conclude whether or not this additional 
information is necessary in order to enhance its ability to effectively 
monitor and conduct surveillance of the CBOE markets with respect to 
orders that are tied to stock whose execution information is not 
electronically captured by the audit trail.\12\
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    \10\ Pursuant to Regulatory Circular RG13-102, CBOE imposed a 
reporting requirement with respect to QCC orders prior to the 
adoption of Rule 15.2A. Once the Exchange implements Rule 15.2A, the 
reporting requirement in that rule will supersede the current QCC 
order reporting requirement described in that circular. As noted 
above, QCC functionality is currently not active. However, if the 
Exchange reactivates the functionality prior to implementation of 
Rule 15.2A, then the reporting requirement for QCC orders described 
in Regulatory Circular RG13-102 will continue to be in effect until 
the implementation of Rule 15.2A.
    \11\ During this delay, CBOE intends to review the number of 
tied to stock orders for which information regarding the stock or 
convertible security leg is not available from CBOE's internal data, 
which will permit CBOE to evaluate the number of reports it can 
expect to receive and the potential impact of the reports on CBOE's 
surveillances.
    \12\ The Exchange notes that Rule 15.2A, Interpretation .03 
provides that a Market-Maker (or its clearing firm) may include the 
information required by Rule 15.2A in the equity reported submitted 
to CBOE pursuant to Rule 8.9(b). Because the proposed rule change is 
delaying the implementation of Rule 15.2A, Market-Makers (or their 
clearing firms) will continue to submit reports pursuant to Rule 
8.9(b) in the same manner they do today.
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    The Exchange expects its evaluation to be completed and to 
implement the reporting requirement within 12 to 18 months of the date 
of this filing. This will provide CBOE with sufficient time to conduct 
this evaluation and TPHs with sufficient time to implement any 
potential changes to the reporting requirement format. The Exchange 
will issue a regulatory circular announcing the new implementation date 
for the reporting requirement as least 90 days prior to that date.
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.\13\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \14\ 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) \15\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
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    In particular, the Exchange believes the delayed implementation of 
Rule 15.2A will provide the Exchange with sufficient time to evaluate 
the information obtained through the marking requirement and the 
related reporting requirement format to ensure that the Exchange 
receives reports from TPHs in a manner that can be incorporated into 
surveillance systems in an efficient and effective manner. This will 
ultimately improve the Exchange's ability to tie executed non-option 
legs to the applicable option legs that were separately submitted for 
execution, which will assist in the Exchange's efforts to prevent 
fraudulent and manipulative acts and practices with respect to tied to 
stock orders.

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 change does not 
impose any burden on competition, as it is simply seeking to delay the 
implementation of the tied to stock reporting requirement.

[[Page 30508]]

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 \16\ and 
Rule 19b-4(f)(6) \17\ 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

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

Electronic Comments

     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-2015-051 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-2015-051. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2015-051 and should be 
submitted on or before June 18, 2015.

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12833 Filed 5-27-15; 8:45 am]
 BILLING CODE 8011-01-P