Document ID: SEC-2010-0001-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify CBSX Rule 51.8 To Add Pegged Cross Orders, To Add an Interpretation Regarding Pricing of Cross Orders, and To Add Greater Flexibility to Intermarket Sweep Orders
Posted Date: 2010-01-04T05:00Z

[Federal Register Volume 75, Number 1 (Monday, January 4, 2010)]
[Notices]
[Pages 175-176]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-31164]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61241; File No. SR-CBOE-2009-100]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Modify CBSX Rule 51.8 To Add Pegged Cross Orders, To Add 
an Interpretation Regarding Pricing of Cross Orders, and To Add Greater 
Flexibility to Intermarket Sweep Orders

December 24, 2009.
    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 December 23, 2009, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II 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 modify CBSX Rule 51.8 to add a new order-
type, to add an interpretation regarding CBSX pricing of cross orders, 
and to add greater flexibility to the CBSX intermarket sweep order 
process. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.cboe.org/Legal), on the Commission's 
Web site (http://www.sec.gov), at the Exchange's principal office, 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 CBOE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of those statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

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

1. Purpose
    The filing proposes to make three changes to CBSX Rule 51.8. First, 
the proposal would allow users the ability to have any unexecuted 
balance of an intermarket sweep order (ISO) be booked and displayed. 
Currently, any unexecuted balance is cancelled. Thus, if the NBBO is 
20-20.04 (500 x 100) and CBSX represents the best offer, an ISO (that 
is not labeled as immediate or cancel) to buy 200 shares would get 
filled on 100 shares at 20.04 and the balance would book as a 20.04 bid 
for 100 shares.
    Second, the filing proposes to adopt a ``Pegged Cross Order''. This 
order type would allow users to send both sides of a cross with an 
execution price that is pegged to the national best offer or national 
best bid. In fast moving markets this gives users greater certainty in 
executing crosses while ensuring that such executions honor Protected 
Quotations. Pegged Cross orders are entered with a penny or subpenny 
amount higher (lower) than the national best bid (offer). By way of 
example, if the NBBO is 20-20.04 and a 7000 share Pegged Cross order 
priced at the bid plus .01 is received, CBSX will execute the 7000 
share cross at 20.01.
    If, however, a Pegged Cross is priced in a way that would cause a 
trade-through of a Protected Quotation, then the system will re-price 
the cross to a permissible trade price (i.e. the nearest price to the 
originally requested price that would not cause a trade-through and 
that would not conflict with the priority provisions of CBSX Rule 
52.11.\5\ For example, if the NBBO is 20-20.04 and a 7000 share Pegged 
Cross order priced at the bid plus .05 is received while the CBSX offer 
is 20.04 for 100 shares, CBSX will execute the 7000 share cross at 
20.04. If the cross were only for 2000 shares, CBSX would effect the 
cross at 20.03 because it could not establish priority at 20.04 
pursuant to Rule 52.11.
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    \5\ CBSX Rule 52.11 provides that a cross can only establish 
priority at the disseminated CBSX bid/offer if it (i) is for at 
least 5000 shares, (ii) is for a principal amount of at least 
$100,000, and (iii) is greater in size than any single public 
customer order at the proposed cross price.
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    In addition, if a Pegged Cross is received when the national best 
offer is crossed with the national best bid, the system will cancel the 
order. If a Pegged Cross is received when the national best bid is 
locked with the national best offer, the system will attempt to execute 
the cross at the lock price provided such execution would not conflict 
with the priority provisions of Rule 52.11.
    The last change proposed in this filing is to adopt language 
substantially similar to a provision contained in Chicago Stock 
Exchange Article XX, Rule 4.a.(7)(b) which allows for cross 
transactions to be priced in subpennies. The proposed provision, which 
would be contained in an interpretation to CBSX Rule 51.8 would allow 
crosses to be priced in increments as small as 0.0001 provided the 
execution is more than $0.01 better than the prevailing BBO unless the 
cross would already be allowed priority at the BBO pursuant to Rule 
52.11.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \6\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \7\ in particular in that, by offering users 
an enhanced price improvement features and greater control over order 
routing, it is designed to promote just and equitable principles of 
trade, serve to remove impediments to and perfect the mechanism of a 
free and open market and a national market system. Further, the filing 
is consistent with the Exchange's priority principles in that it 
complies with Exchange Rule 52.11, and the filing is consistent with 
existing exemption \8\ to the subpenny restrictions of SEC rule 612 in 
that any subpenny executions effected pursuant to the proposal will 
occur at least one penny better than any resting customer interest in 
the CBSX book that has priority order a cross pursuant to CBSX Rule 
52.11.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ See Exchange Act Release No. 34-54714 (November 6, 2006), 71 
FR 66352 (November 14, 2006).

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[[Page 176]]

B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    The Exchange neither solicited nor received comments on the 
proposal.

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

    Because the foregoing rule does not (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest,\9\ the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \9\ In addition, Rule 19b-4(f)(6) requires the Exchange to 
provide the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of 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 Commission has waived the pre-
filing requirement in this case.
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested the Commission to waive the 30-day 
operative delay. The Commission hereby grants such request and believes 
that such action is consistent with the protection of investors and the 
public interest.\12\ The proposed changes to adopt the pegged cross 
order type and the interpretation regarding sub-penny pricing of cross 
orders are similar to rules of other national securities exchanges.\13\
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    \12\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \13\ See, e.g., NYSE Arca Equities Rule 7.31(cc) (Pegged Order); 
ISE Stock Exchange Trading Rule 2104(i) (Pegged Orders); Chicago 
Stock Exchange Article 20 Rule 4(a)(7)(b) (sub-penny provision).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate 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.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2009-100 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2009-100. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the CBOE. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2009-100 and should be 
submitted on or before January 25, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-31164 Filed 12-31-09; 8:45 am]
BILLING CODE 8011-01-P