Document ID: SEC-2014-1832-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-11-03T05:00Z

[Federal Register Volume 79, Number 212 (Monday, November 3, 2014)]
[Notices]
[Pages 65263-65268]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-26010]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73450; File No. SR-CBOE-2014-081]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Functionality of Public Automated 
Routing System

October 28, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 15, 2014, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt Rule 6.12A (Public Automated Routing 
System (PAR)) to describe the functionality of the PAR workstation. The 
text of the proposed rule change is below and in Exhibit 1 (additions 
are italicized; deletions are [bracketed]).
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 6.12. Reserved

* * * * *

6.12A. Public Automated Routing System (PAR)

    Rule 6.12A. The PAR workstation (PAR) is an Exchange-provided order 
management tool for use on the Exchange's trading floor by Trading 
Permit Holders or Exchange PAR Officials (see Rule 7.12 for a 
description of the responsibilities of PAR Officials). The Exchange's 
Order Handling System allows for orders to be routed to and from PAR in 
accordance with TPH and Exchange order routing parameters and the Rules 
including, but not limited to, this Rule 6.12A and Chapters VI, VII, 
and VIII of the Rules and Rules 6.2B, 6.13, 6.14B, 6.53, 6.53C, 6.74, 
7.12, and 8.51 thereunder.
    (a) Order Routing. Eligible orders will be routed to PAR in 
accordance with TPH and Exchange order routing parameters and the 
order's terms.
    (b) Order Handling. Once an order is on PAR, the order shall be 
processed in accordance with the manual or automatic settings 
established by the user and the order's terms. Subject to the forgoing, 
once an order is on PAR, the user may:
    (i) Submit the order into the Hybrid Trading System (including for 
execution against quotes and orders resting in the electronic book and 
exposure to appropriate electronic auctions pursuant to Rules 6.13A, 
6.14A, 6.53C, 6.74B, and 24B.5B);
    (ii) Execute the order in open outcry, including against other 
orders on PAR and with other TPHs or PAR Officials in accordance with 
Rules 6.74 and 7.12;
    (iii) Route the order to an Order Management Terminal (OMT)

[[Page 65264]]

designated by the TPH or otherwise return the order to the order entry 
firm or originating TPH;
    (iv) Route the order or a portion thereof to an away exchange in 
accordance with Rules 6.14B and 6.81;
    (v) Reflect the price and/or quantity related to the order or a 
portion thereof in the displayed Exchange BBO (applicable only in 
options classes on the Hybrid 3.0 Platform); or
    (vi) Cancel the unexecuted order, including upon receipt of a 
cancel request from the order entry firm or originating TPH or as 
prescribed by Exchange or TPH order routing parameters.
    (c) Eligible Order Types. Unless otherwise specified in the Rules, 
all order types specified in Rule 6.53 are eligible to route to PAR, 
except that the order types defined in Rules 6.53(h), 6.53(o)-(r), and 
6.53(t)-(v) may not be routed to PAR.
    (d) Preemption. To the extent that any provision(s) of this Rule 
6.12A conflicts with any provision(s) of any Regulatory Circular 
previously issued by the Exchange regarding the operation or 
functionality of PAR, this Rule supersedes and supplants the limited 
conflicting provision(s) of any such Regulatory Circular.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to adopt new Rule 6.12A to describe its 
existing PAR operations and PAR workstation \3\ functionality. The 
Exchange notes that PAR is currently in use on the Exchange and that 
PAR is referenced throughout the Rules \4\ and in various Regulatory 
Circulars.\5\ While there are various references to PAR throughout the 
Rules and in Regulatory Circulars, the Rules do not describe the 
substantive aspects of the order handling process available to users 
once orders are received on PAR (and thus how Trading Permit Holders 
(``TPHs'') or PAR Officials,\6\ as applicable, may process such 
orders). The purpose of this rule filing is to codify the details of 
the Exchange's existing PAR operations and functionalities within the 
Rules. The Exchange believes that adding details to the Rules regarding 
PAR would be useful to TPHs.
---------------------------------------------------------------------------

    \3\ The PAR workstation is an Exchange-provided facility used to 
operate the Exchange's Public Automated Routing System. The Public 
Automated Routing System and Public Automated Routing workstation 
are referred to collectively as ``PAR'' herein.
    \4\ The Exchange is currently working on a separate filing that 
would consolidate the Rules that interact with PAR (see, e.g., Rule 
6.2B.03(c)(ii); Rule 6.8(d)(iv)(A); Rule 6.13(b)(i)(A)(2); Rule 
6.13(b)(iii); Rule 6.13(b)(iv); Rule 6.13(b)(v)(B); Rule 6.53C(c); 
Rule 6.53C(d)(vi); Rule 6.53C.06(b); Rule 6.53C.07(a)(3); Rule 
6.53C.07(b); Rule 6.53C.07(e); Rule 7.12; Rule 8.51.10) into a 
single Rule.
    \5\ See, e.g., Regulatory Circular RG97-018 (Order Routing of 
Contingency Orders) (February 7, 1997); RG97-019 (New PAR 
Functionality--Contingency, Discretionary Orders) (February 7, 
1997); RG03-003 (Limit Order Display Requirements) (January 10, 
2003); RG03-029 (Market Linkage Implementation II) (April 17, 2003); 
RG03-043 (Failure to Address Orders and Honor Firm Quote) (June 25, 
2003); RG03-064 (Market Maker Orders Now Book-Eligible in Hybrid 
Classes) (July 31, 2003); RG04-056 (How Firm Quote Applies to 
Marketable Orders Entered At or Near the Close) (April 30, 2004); 
RG04-066 (All or None (AON) Orders in Hybrid Classes) (June 2, 
2004); RG04-068 (Routing of Discretionary Orders to DPM PAR 
Workstations) (June 4, 2004); RG05-017 (Autobook) (February 11, 
2005); RG07-046 (PAR Reporting Enhancements) (April 13, 2007); RG07-
084 (Hybrid 2.0 Auto-Ex on Single-List Classes) (August 3, 2007); 
RG07-104 (EPW Activation in Single-List, Hybrid 2.0 Classes) 
(October 8, 2007); RG07-112 (Hybrid Auto-Ex and ``Exchange 
Prescribed Widths'' (EPWs)) (November 5, 2007); RG09-084 (New Option 
Linkage Implementation) (August 14, 2009); RG11-005 (CBOEdirect 
Version 8.5 System Modifications) (January 13, 2011); RG11-074 
(Processing of Stock-Option Strategy Orders) (June 17, 2011); RG11-
102 (Price Protection Enhancements) (August 26, 2011); RG12-037 
(Prefix Usage for SPX Combination (``Combo'') Orders) (February 29, 
2012); RG13-083 (New Order Designations) (June 5, 2013); RG13-105 
(New Order Designations) (July 29, 2013); RG13-154 (Exchange Rule 
6.51--``Reporting Duties'') (November 29, 2013); RG14-037 (PAR 
Enhancements) (March 25, 2014); RG14-047 (PAR Enhancements) (April 
2, 2014); RG14-096 (PAR Enhancements) (June 20, 2014); see also 
Information Circular IC03-08 (Systems Enhancements--Complex Orders 
and Linkage) (January 23, 2003); IC03-38 (Complex Order TNT Entry) 
(March 21, 2003); IC04-018 (Floor Broker Workstation (FBW 
Enhancements) (February 17, 2004); IC04-020 (CBOE Systems 
Enhancements) (February 17, 2004); IC05-006 (Complex Order TNT 
Entry) (January 24, 2005); IC05-112 (PAR AutoLink and COB) (August 
31, 2005); IC06-076 (PAR Routed Orders) (June 23, 2006).
    \6\ A PAR Official is an Exchange employee or independent 
contractor whom the Exchange may designate as being responsible for 
(i) operating the PAR workstation in a DPM trading crowd with 
respect to the classes of options assigned to him/her; (ii) when 
applicable, maintaining the book with respect to the classes of 
options assigned to him/her; and (iii) effecting proper executions 
of orders placed with him/her. The PAR Official may not be 
affiliated with any Trading Permit Holder that is approved to act as 
a Market-Maker. Rule 7.12(a). The duties and obligations of PAR 
Officials are set forth in Rule 7.12.
---------------------------------------------------------------------------

    The Exchange is continuously evaluating additions to the Rules, 
particularly with respect to systems processes and order handling. The 
Exchange believes that the adoption of Rule 6.12A describing PAR 
functionality is consistent with this effort.
Background
    PAR is a touch-screen order routing and handling tool that is used 
by TPHs and PAR Officials on the floor of the Exchange to manage and 
process orders that are routed to PAR for processing. PAR is equipped 
with a dynamic, graphical display that allows users to manually and 
automatically execute orders electronically through the Exchange's 
central trading engine and in open outcry. In general, PAR allows users 
to specify execution quantities, split trades among multiple contra 
parties, report trades, route orders to the book, and generate trading 
reports, including a detailed history on all activity conducted on the 
workstation.
    The Exchange operates a dynamic order handling system (``OHS''),\7\ 
which allows orders to be routed, processed, and transmitted to the 
Exchange's trade engine, in a variety of ways on the Hybrid Trading 
System. The OHS may route orders directly to the Exchange's trade 
engine for automatic execution and book entry, to PAR workstations 
located in the trading crowds for manual handling, and/or to other 
order management terminals (``OMTs'') located in booths on the floor of 
the Exchange. PAR receives orders through the OHS according to Exchange 
and TPH routing parameter configurations.
---------------------------------------------------------------------------

    \7\ The Exchange completed the rollout of the OHS in 2008, which 
replaced the Exchange's Order Routing System (``ORS''). OHS resides 
within the Exchange's central trading platform, CBOE Command and 
thus, functions on same platform as the Exchange's trade processing 
engine, resulting in speedier processing and improved order 
handling.
---------------------------------------------------------------------------

    A TPH or PAR Official may select an order on the workstation and 
enter trade information such as execution quantity, price, and contra 
party information. The PAR interface also allows the user to direct an 
order to be executed or booked

[[Page 65265]]

by the Exchange's trade engine. Once execution of an order is 
completed, PAR transmits the completed execution (also referred to as a 
``fill''), back to the OHS. PAR users can also transmit to the trade 
engine a portion of a selected order to be executed or booked within 
the trade engine. In addition, PAR allows users to execute orders in 
open outcry and record information about open outcry trades for audit-
trail purposes. These functions are described in greater detail below. 
PAR workstations may be used in the form of fixed workstation terminals 
or mobile devices.
    PAR was introduced at the Exchange in 1994 as an innovative trading 
automation solution. In general, PAR was developed to automate the 
manual trading process in open outcry, which previously required the 
use of paper tickets to execute customer orders. Rather than entering 
orders and executions into TPH computer systems, transmitting order and 
trade execution information to and from the Exchange's trade engine, 
printing order tickets and fill reports, and physically delivering the 
order tickets and fill reports to counterparty brokers on the floor of 
the Exchange and to the Options Clearing Corporation, PAR allows users 
to process orders directly through the OHS and from TPH trading 
systems.
    Initially, PAR was placed in use in limited areas on the floor of 
the Exchange.\8\ By 1997, PAR functionality was enhanced to allow the 
direct routing of various order types from the Exchange's system to 
PAR, including the following types of orders: All or None; Opening 
Only; Immediate or Cancel; Market on Close; Fill or Kill; Closing Only; 
Minimum Quantity; Market if Touched; Stop; Not Held; and Stop Limit.\9\ 
Notably, whether a particular order or order type routed to PAR was 
(and continues to be) a function of parameter controls, set by TPHs and 
the Exchange, that allow different order types to be selectively routed 
at the discretion of, and in accordance with, TPH order routing and 
handling instructions.\10\ As technology, regulation, and trading 
practices have shifted, the Exchange has adapted and enhanced PAR to 
meet the trading needs of TPHs and the Exchange. The systemic 
flexibility of PAR has been (and continues to be) essential in 
maintaining PAR as an effective order management tool.
---------------------------------------------------------------------------

    \8\ See Securities and Exchange Act Release No. 34-34876 
(October 21, 1994), FR Doc No: 94-26765 (October 28, 1994) (Order 
Approving Proposed Rule Change and Amendment No. 1 to a Proposed 
Rule Change and Notice of Filing and Order Granting Accelerated 
Approval of Amendment No. 2 to a Proposed Rule Change by the Chicago 
Board Options Exchange, Inc. Relating to Firm Quote 
Responsibilities) (SR-CBOE-94-17).
    \9\ See Regulatory Circular RG97-67 (Permanent Approval of Order 
Routing of Contingency Orders) (June 4, 1997); see also Securities 
and Exchange Act Release No. 34-38702 (May 30, 1997), 62 FR 31184 
[sic] (Notice of Filing and Order Granting Accelerated Approval of 
Proposed Rule Change Relating to Enhancements to the Electronic 
Order Routing System) (June 6, 1997) (SR-CBOE-97-22).
    \10\ See Id.
---------------------------------------------------------------------------

    Until 2005, only Floor Brokers and DPMs used PAR on the floor of 
the Exchange, with DPMs handling agency orders on PAR including orders 
that could not be automatically executed and thus, routed to PAR for 
manual handling. In 2005, the Exchange adopted Rule 7.12, which 
prohibited DPMs from executing agency orders in their appointed classes 
and allowed the Exchange to place PAR Officials at PAR workstations for 
the handling of orders routed to PAR in accordance with Exchange and 
TPH order routing parameters.\11\ TPHs and PAR Officials have 
continually used PAR on the floor of the Exchange since Rule 7.12 was 
adopted.
---------------------------------------------------------------------------

    \11\ See Securities and Exchange Act Release No. 34-52798 
(November 18, 2005), 70 FR 71134 [sic] (Order Approving a Proposed 
Rule Change and Amendment No. 1 Thereto and Notice of Filing and 
Order Granting Accelerated Approval to Amendments No. 2 and 4 
Thereto Relating to the Removal of Agency Responsibilities From 
Designated Primary Market-Makers and the Establishment of PAR 
Officials) (November 28, 2005) (SR-CBOE-2005-46); see also 
Regulatory Circular RG05-117 (Separation of DPM Agency and Principal 
Functions) (November 22, 2005).
---------------------------------------------------------------------------

    The Exchange considers PAR an important Exchange facility and order 
management tool for market participants on the Exchange. Many of the 
orders that cannot be automatically processed by the Exchange's central 
trade engine are routed to PAR for handling. The functionalities 
provided on PAR that allow these orders to be processed are essential 
to the functioning of the Exchange and the maintenance of fair and 
orderly markets. The proposed rule describes the substantive functions 
of PAR and its central operation.
Proposal
    The Exchange proposes to adopt Rule 6.12A to describe the operation 
of PAR and and [sic] functionality of its PAR workstations. Among other 
things, Rule 6.12A would describe how orders may be routed to PAR and 
what PAR users may do to process orders once they are received on PAR. 
Proposed Rule 6.12A describes the substantive operation of PAR and the 
primary functionality of the PAR workstation. The proposed Rule is not 
intended as a user manual or software tutorial. The Exchange notes that 
PAR does not allow market participants to perform any functions that 
are not already authorized under the Rules. Rather, PAR is a tool that 
may be used by market participants, at their discretion, to help 
facilitate the efficient and orderly processing of orders in a manner 
already authorized under the Rules. Thus, the purpose of the proposed 
rule is simply to describe and clarify the substantive functions of 
PAR. The Exchange believes that the proposed rule will add clarity to 
the Rules (inasmuch as PAR is already referenced throughout the Rules 
without a description of PAR or the substantive functions that may be 
performed on PAR) and that the proposed rule would be useful for TPHs.
    Under the Exchange's proposal, the rule would describe the order 
processing functions of PAR including, but not limited to how PAR users 
may: Interact with the electronic trade engine (including executions 
with quotes and orders resting in the electronic book and exposure to 
applicable electronic auctions); execute orders in open outcry 
(including against other orders on the same PAR terminal (i.e., cross 
orders), or with other TPHs and PAR Officials); route orders to Order 
Management Terminals (``OMTs'') or otherwise return orders to order 
entry firms or the TPH that entered the order; route orders or portion 
thereof to an away exchange; route orders to the electronic book; 
reflect a price and/or quantity of orders or portion thereof in the 
CBOE BBO for classes trading on the Hybrid 3.0 Platform; \12\ and 
cancel unexecuted orders. Proposed Rule 6.12A(a) would describe the 
process by which orders may be routed to PAR. Proposed Rule 6.12A(b) 
would describe the order handling process on PAR, including the 
functionalities that may be achieved using a PAR workstation. Proposed 
Rule 6.12A(c) would describe the order types that may be handled on 
PAR. Proposed Rule 6.12A(d) would establish the controlling nature of 
the Rule with respect to previously issued Regulatory

[[Page 65266]]

Circulars concerning PAR and its functionality. Each of these sections 
and the introductory paragraph of the proposed Rule are described in 
greater detail below.
---------------------------------------------------------------------------

    \12\ The Hybrid 3.0 Platform is an electronic trading platform 
on the Hybrid Trading System that allows one or more quoters to 
submit electronic quotes which represent the aggregate Market-Maker 
quoting interest in a series for the trading crowd. Standard SPX 
options contracts are traded on the Hybrid 3.0 Platform. The Hybrid 
Trading System refers to the Exchange's trading platform that allows 
automatic executions to occur electronically and open outcry trades 
to occur on the floor of the Exchange. To operate in this ``hybrid'' 
environment, the Exchange has a dynamic order handling system that 
has the capability to route orders to the trade engine for automatic 
execution and book entry, to Trading Permit Holder and PAR Official 
workstations located in the trading crowds for manual handling, and/
or to other order management terminals generally located in booths 
on the trading floor for manual handling.
---------------------------------------------------------------------------

    The Exchange proposes to adopt an introductory paragraph to Rule 
6.12A that would generally describe order handling and processing on 
PAR and PAR workstation functionality. Under the proposed introductory 
paragraph to Rule 6.12A, PAR would be described as an Exchange-provided 
order management tool for use on the Exchange's trading floor by 
Trading Permit Holders or PAR Officials. The introductory paragraph 
would also describe the order routing process to PAR, explaining that 
the OHS allows for orders to be routed to and from a PAR workstation in 
accordance with Exchange and TPH routing parameters and as set forth in 
the Rules.\13\
---------------------------------------------------------------------------

    \13\ As stated above, various rules reference PAR and Exchange 
routing parameters for orders handled on PAR including, but not 
limited to Rules 6.2B(a), Rule 6.13(b), Rule 6.53; and Rules 
6.53C(c) and 6.53C(d). See supra, note 4. The proposed rule change 
is consistent with Rules and the current authority of the Exchange 
under the Rules.
---------------------------------------------------------------------------

    Proposed Rule 6.12A(a) would reflect the process by which eligible 
orders will route to PAR. Where an order is routed for processing 
depends on various parameters configured by the Exchange and the TPH. 
TPHs are afforded discretion in where they route orders and may route 
orders onto various order management tools available on the Exchange 
according to preset or order- specific routing parameters. Depending on 
the order routing parameters, certain orders may route to PAR. For 
example, a TPH may or the Exchange may set default auto-execution 
``drill-through'' protection limits in the Hybrid Trading System such 
that any order that exceeds a limit will be routed to PAR on the floor 
of the Exchange. These parameters may be used, to limit ``drill-
throughs'' or protect against extreme and potentially erroneous limit 
prices as part of the Exchange's risk controls. TPHs may also customize 
routing instructions to route certain orders to PAR for more detailed 
handling. Thus, the OHS provides TPHs with some flexibility in 
determining how best to process their orders on the Hybrid Trading 
System. The Exchange believes that the use of routing parameters 
supports TPHs' various trading strategies, mitigates order handling and 
processing risks, assists the Exchange in attracting order flow and 
liquidity, and promotes the maintenance of a fair and orderly market. 
The Exchange views the use of routing parameters as an important tool 
to assist TPHs efficiently manage, process, and execute orders in the 
``hybrid'' trading environment.
    The discretion to set order routing parameters to route an order to 
a preferred order management tool on the floor of the Exchange, 
including PAR, is codified throughout the Rules.\14\ For example, under 
Rule 6.13(b)(i)(B), orders that are not eligible for automatic 
execution will route on a class-by-class basis to PAR or, at the order 
entry firm's discretion, to the order entry firm's booth or OMT. 
Similarly, under Rule 6.53C(e), complex orders that are marketable, but 
would executed at a price that is not within an acceptable percentage 
distance from the derived net price of the individual leg series that 
existed at the start of a Complex Order Auction (``COA'') will route on 
a class-by-class basis to PAR, or, at the order entry firm's 
discretion, to the order entry firm's booth. Accordingly, proposed Rule 
6.12A(a) is modeled to reflect the discretion afforded to TPHs under 
the Rules with routing orders to PAR according to an order's terms and 
Exchange order routing parameters.
---------------------------------------------------------------------------

    \14\ See supra, notes 4 and 13.
---------------------------------------------------------------------------

    In addition to TPH order routing parameters, the Exchange sets 
certain order eligibility requirements for orders routing to PAR. For 
example, reserve orders (which are limit orders that have both a 
displayed size as well as an additional non-displayed size amount) are 
currently not eligible to route to PAR. Accordingly, the Exchange's 
proposal is modeled to reflect the fact that only eligible orders will 
be accepted on PAR. Under proposed Rule 6.12A(a) only ``eligible'' 
orders will be routed to PAR.
    Proposed paragraph 6.12A(b) would describe the substantive aspects 
of PAR functionality, which include: Routing an order for electronic 
processing; executing an order; booking an order; routing an order to 
an away exchange; and cancelling an order. Proposed Rule 6.12A(b)(i), 
would provide that orders may be submitted into the Hybrid System 
(including for execution against quotes and orders resting in the 
electronic book and exposure to appropriate electronic auctions 
including auctions pursuant to Rules 6.13A, 6.14A, 6.53C, 6.74B, and 
24B.5B).
    PAR workstations are capable of handling both single-legged 
(``simple'') and multi-legged (``complex'') options orders, including 
those with a stock leg. Simple orders on PAR that are marketable may be 
automatically routed to the electronic book to trade with quotes or 
orders in the book or may be manually executed in open outcry in 
accordance with preset PAR user parameters and the order's terms. Upon 
partial execution of an order on PAR, any remaining balance of an order 
that was previously on PAR may be returned to PAR or booked, provided 
it does not lock or cross a quote of another exchange. Similarly, 
complex orders on PAR that are marketable may automatically initiate an 
electronic auction or trade against orders in the Complex Order Book 
(``COB'') or with quotes of the individual leg series or may be 
manually executed in open outcry after the COB is cleared in accordance 
with preset user parameters and the order's terms. The automatic 
routing functions available on PAR are reflected in the language of 
proposed Rule 6.12A(b), which provides orders on PAR shall be processed 
in accordance with the automatic settings established by the user and 
the order's terms.
    Proposed Rule 6.12A(b)(i) would also reference the auction 
functions that may be performed on PAR. Eligible simple and complex 
orders routed to PAR in classes where electronic auction functionality 
is active may also be auctioned from PAR. The proposed rule would 
reference the auction functions available on the Hybrid Trading System 
under Rules 6.13A, 6.14A, 6.53C(d), 6.74B, and 24B.5B reflecting the 
fact that orders on PAR may be submitted for auction pursuant to 
routing parameter configurations and specific order handling 
instructions. Orders auctioned from PAR, which do not fully execute at 
the conclusion of the auction process, may be returned to PAR or booked 
in accordance with order routing parameters and order handling 
instructions as permitted under the Rules.\15\
---------------------------------------------------------------------------

    \15\ See, e.g., Rule 6.53C(d).
---------------------------------------------------------------------------

    Proposed Rule 6.12A(b)(ii) would provide for the execution of 
orders on PAR in open outcry, including against other orders on PAR and 
with other TPHs or PAR Officials in accordance with Rule 6.74 (Crossing 
Orders). Both simple and complex orders on PAR may be crossed with 
other orders on PAR by PAR users, including by PAR Officials. Proposed 
Rule 6.12A(b)(ii) would describe the process by which orders may be 
crossed on PAR in open outcry, including by PAR Officials, after being 
verbalized to the crowd. Orders that may be crossed on PAR include, but 
are not limited to buy and sell orders in the same options series that 
are marketable against each other and complex orders and inter-
regulator spreads (as defined in Rule 1.1).
    As provided in proposed Rule 6.12A(b)(iii), PAR workstations also

[[Page 65267]]

allow users to route orders to an OMT designated by the TPH that 
entered the order or otherwise return the order to the TPH or order 
entry firm. Proposed Rule 6.12A(b)(iii) is a reflection of current 
rules which permit PAR users to route orders to a designated OMT or 
otherwise return an order to its originator. Under proposed Rule 
6.12A(b)(iv), orders on PAR may also be routed to an away market for 
best execution in accordance with order protection rules under the 
Federal Securities Laws and the Rules including, but not limited to 
Rules 6.81 \16\ and 7.12(b)(ii).\17\
---------------------------------------------------------------------------

    \16\ Rule 6.81 (Order Protection) forbids TPHs from effecting 
Trade-Throughs except as prescribed under Rule 6.81(b).
    \17\ Rule 7.12(b)(ii) (Execution) provides that a ``PAR Official 
shall use due diligence to execute the orders placed in the PAR 
Official's custody at the best prices available to him or her under 
the Rules of the Exchange.''
---------------------------------------------------------------------------

    Proposed Rule 6.12A(b)(v) describes the display functionality of a 
PAR workstation. CBOE PAR Officials may reflect bids and offers for 
orders, or portions of orders, in Hybrid 3.0 classes in the displayed 
CBOE BBO using the ``PAR in the Quote'' feature. Currently, there are 
no CBOE PAR Officials on the trading floor in Hybrid 3.0 trading 
crowds. Accordingly, PAR allows the user to reflect the price and/or 
quantity related to an order or portion of an order in the displayed 
Exchange BBO in classes of options on the Hybrid 3.0 Platform. This 
functionality allows PAR users to protect customer orders at specified 
price points while not displaying the full size of such orders 
(oftentimes customers may not want the full size of an order reflected 
in the quote). Proposed Rule 6.12A(b)(vi) would provide that unexecuted 
orders resting on PAR may be cancelled. All un-executed orders on PAR 
may be cancelled upon receipt of a cancel request from the order entry 
TPH or as prescribed in the routing parameters of the Exchange or order 
entry TPH.
    Proposed Rule 6.12A(c) would codify the ability of the Exchange to 
designate order types eligible to route to PAR and describe the types 
of orders that the Exchange may designate as eligible. Under the 
Exchange's proposal, the Exchange would have the ability to designate 
any order type that it makes available to TPHs pursuant to Rule 6.53 
eligible to route to PAR. Current Rule 6.53 describes and defines the 
order types that may be made available for trading on a class-by-class 
basis by the Exchange. Under the Exchange's proposal, all order types 
specified in Rule 6.53 would be eligible to route to PAR, except that 
the order types defined in Rules 6.53(h), 6.53(o)-(r), and 6.53(t)-(v) 
would not be eligible to be routed to PAR. Proposed Rule 6.12A(c) is 
consistent with the current practices and Rules of the Exchange in that 
all of the order types listed in Rule 6.53 other that those listed in 
Rules 6.53(h), 6.53(o)-(r), and 6.53(t)-(v) are currently eligible to 
be routed to PAR. PAR is a technology that supports the processing of 
order types authorized for trading on the Exchange under Rule 6.53. 
Accordingly, the Exchange may make future enhancements that would 
permit other order types to be processed on PAR or technological issues 
may prevent the Exchange from processing certain order types on PAR at 
any given time. Proposed Rule 6.12A(c) reflects the fluidity of the PAR 
technology as well as the fact that PAR is an order handling tool, 
which only gives TPHs the ability to process orders pursuant to the 
Rules.
    Finally, under proposed Rule 6.12A(d) to the extent that any 
provision(s) of the proposed rule conflicts with any provision of any 
Regulatory Circular previously issued by the Exchange regarding the 
operation or functionality of PAR, the proposed rule would supersedes 
the limited conflicting provisions of any such Regulatory Circular. PAR 
has been in use for approximately a decade on the Exchange. Over the 
years, PAR has been enhanced and reconfigured and changed to reflect 
updates and changes in the Rules. Numerous Regulatory Circulars 
contemplate the use of PAR by DPMs rather than PAR Officials.\18\ Other 
Regulatory Circulars reflect old Linkage rules no longer in effect 
under the new Order Protection rules.\19\ Accordingly, to the extent 
that any provisions of any Regulatory Circular are in conflict with the 
proposed rule, such provisions would be superseded by the rule.
---------------------------------------------------------------------------

    \18\ See, e.g., Regulatory Circular RG04-68 (Routing of 
Discretionary Orders to DPM PAR Workstations) (June 4, 2004).
    \19\ See, e.g., Regulatory Circular RG03-29 (Market Linkage 
Implementation II) (April 17, 2003).
---------------------------------------------------------------------------

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.\20\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \21\ 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) \22\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ Id.
---------------------------------------------------------------------------

    The Exchange views PAR as an important tool that allows TPHs on the 
trading floor of the Exchange to manage and process orders. The 
Exchange believes that the adoption of rules regarding the 
functionality of PAR will contribute to fair and orderly markets by 
making the Exchange's order handling processes more transparent and 
understandable for users. The proposed rules are intended to assist 
TPHs and order entry firms in their ability to efficiently manage, 
process, and execute orders on the Exchange as well as assist the 
Exchange in its ability to effectively attract order flow and liquidity 
to the market. The Exchange also believes that adding transparency and 
efficiency to the market are goals that benefit all investors. The 
Exchange believes that the proposed would further these goals, which 
the Exchange believes are consistent with the Act.

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

    The Exchange 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 Exchange believes that 
proposed Rule 6.12A will promote competition by making the 
functionality of the Exchange's order processing workstations more 
understandable to users and the general public. The Exchange believes 
that by better explaining its order management and order handling 
systems to PAR users and TPHs, PAR users and TPHs will better 
understand the Exchange's systems. The Exchange believes that 
additional clarity and transparency in the Rules will make it easier 
for market participants to compete with one another on equal footing in 
the markets and ultimately benefits all investors.

[[Page 65268]]

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 written comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \23\ and 
Rule 19b-4(f)(6) \24\ thereunder. At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2014-081 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2014-081. 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-2014-081, and should be 
submitted on or before November 24, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26010 Filed 10-31-14; 8:45 am]
BILLING CODE 8011-01-P