Document ID: SEC-2014-1449-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-08-27T04:00Z

[Federal Register Volume 79, Number 166 (Wednesday, August 27, 2014)]
[Notices]
[Pages 51220-51221]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20340]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72892; File No. SR-CBOE-2014-060]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Accelerated Approval of a Proposed Rule 
Change To Amend Rule 24.19

August 21, 2014.

I. Introduction

    On July 25, 2014, the Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend its rule related to 
Multi-Class Broad-Based Index Option Spread Orders. This proposal was 
published for comment in the Federal Register on August 5, 2014.\3\ The 
Commission received no comments regarding the proposal. This order 
approves the proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72704 (July 29, 
2014), 79 FR 45560 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend its Rule 24.19 (Multi-Class Broad-
Based Index Option Spread Orders).\4\ This Rule allows Trading Permit 
Holders (``TPHs'') to execute Multi-Class Broad-Based Index Option 
Spread Orders (``Multi-Class Spread Orders'') that meet certain 
qualifying criteria.
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    \4\ A Multi-Class Broad-Based Index Options Spread Order is 
generally defined as an order to buy a stated number of contracts of 
a broad-based index option or ETF/ETN option derived from a broad-
based index and to sell an equal number, or an equivalent number of 
contracts of a different broad-based index option or ETF/ETN option 
derived from a broad-based index. See CBOE Rule 24.19(a)(2).
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    The Exchange represents that currently not all Multi-Class Spread 
Orders may be entered electronically due to systems constraints, but 
that it is in the process of modifying its electronic order-entry 
systems to provide for the electronic entry and validation of all 
Multi-Class Spread Orders to the floor of the Exchange. In order for 
the Exchange's systems to determine that two separate legs are part of 
the same Multi-Class Spread Order (allowing for treatment as a Multi-
Class Spread Order), both legs must be entered together on a single 
order

[[Page 51221]]

ticket.\5\ Therefore, the Exchange proposes to amend CBOE Rule 24.19 to 
require that Multi-Class Spread Orders be entered on a single order 
ticket at time of systemization to be eligible for the procedures and 
relief provided for in the Rule.\6\ The Exchange represents that it 
will not accept Multi-Class Spread Orders with invalid combinations.\7\ 
The Exchange also explains that while the proposed rule change allows 
for all Multi-Class Spread Orders to be entered electronically, all 
Multi-Class Spread Orders will still be executed in open outcry on the 
Exchange's trading floor.\8\
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    \5\ See Notice, supra note 3, at 45660.
    \6\ See proposed CBOE Rule 24.19(b).
    \7\ See Notice, supra note 3, at 45560.
    \8\ See id.
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    CBOE Rule 24.19 currently states that a Multi-Class Spread Order 
may be represented at the trading station of either Broad-Based Index 
Option comprising the order, and also provides that the TPH initiating 
the order in the trading crowd must contact an Order Book Official 
(``OBO''), Designated Primary Market-Maker (``DPM''), or appropriate 
Exchange staff, as applicable, at the other trading station to have a 
notice of such order disseminated to the other trading crowd. CBOE is 
proposing to modify the Rule to require that a Multi-Class Spread Order 
be represented at the primary trading station,\9\ and require the TPH 
representing the order to contact the DPM or Exchange staff \10\ (as 
applicable) at the other trading station in order to provide notice of 
such order for dissemination to the other trading crowd.\11\
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    \9\ CBOE Rule 24.19(a)(3) defines the ``primary trading 
station'' as ``the trading station where a particular Multi-Class 
Spread Order is first represented.'' The Exchange states that the 
floor broker representing the Multi-Class Spread Order may determine 
which trading station should be the primary trading station. See 
Notice, supra note 3, at 45560.
    \10\ The Exchange proposes to remove the reference to contacting 
an OBO, as the Exchange no longer has OBOs.
    \11\ See proposed CBOE Rule 24.19(c).
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    CBOE Rule 24.19 requires that notice of a Multi-Class Spread Order 
``shall be disseminated by the Recipient who shall verbalize the terms 
of the order to the other trading crowd.'' The Exchange proposes to 
replace the word ``verbalize'' with the word ``announce,'' as the 
Exchange is currently contemplating changes that will allow such notice 
to be posted on screens electronically to the other trading crowd 
(which could be a more efficient method of posting such order 
information).\12\
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    \12\ See Notice, supra note 3, at 45560.
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    CBOE represents that no later than 90 days following the effective 
date of the proposed rule change, the Exchange will announce to TPHs 
via Regulatory Circular the implementation date by which TPHs must be 
in compliance with the changes described herein, and that the 
implementation date will be no later than 180 days following the 
effective date of the proposed rule change, and will be at least 30 
days following the release of the abovementioned Regulatory Circular 
(in order to give TPHs ample time to come into compliance with the 
changes described herein).\13\
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    \13\ See id.
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III. Discussion and Findings

    After careful review, the Commission finds that the proposed change 
to amend CBOE Rule 24.19 is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to the 
Exchange.\14\ In particular, the Commission finds that the proposed 
rule change is consistent with the Section 6(b)(5) \15\ 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. The Commission believes that 
CBOE's proposal to require that all Multi-Class Spread Orders be 
entered on a single order ticket should enhance CBOE's audit trail and 
automated surveillance program with regard to these order types, 
thereby enhancing the integrity of the market to the benefit of 
investors.
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    \14\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Commission also believes that the proposed rule change is 
consistent with Section 6(b)(1) of the Act,\16\ which provides that the 
Exchange be organized and have the capacity to be able to carry out the 
purposes of the Act and to enforce compliance by the Exchange's TPHs 
and persons associated with its TPHs with the Act, the rules and 
regulations thereunder, and the rules of the Exchange. The Commission 
believes that by enhancing the audit trail with respect to Multi-Class 
Spread Orders the Exchange should be better able to ensure that TPHs' 
orders submitted as Multi-Class Spread Orders meet the requirements of 
CBOE Rule 24.19.
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    \16\ 15 U.S.C. 78f(b)(1).
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    In addition, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\17\ for approving the proposed rule change prior 
to the 45th day after publication of notice in the Federal Register. 
The Commission notes that the substance of this proposal was noticed 
for comment as part of changes proposed in a prior CBOE proposed rule 
change, which CBOE withdrew.\18\ The prior CBOE proposed rule change 
was published for the entire 21 day comment period, and no comments 
were received.\19\ In addition, the instant proposed rule change was 
published for a 15 day comment period to ensure that the public had an 
opportunity to review the proposal in its current form and no comments 
were received on the instant filing. The Commission believes that there 
has been ample notice provided for the public to comment on this 
proposed rule change if they had concerns. Moreover, the Commission 
does not believe that this proposed rule change raises any material or 
novel issues. Accordingly, the Commission finds that good cause exists 
for approving the proposed rule change on an accelerated basis.
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ See Securities Exchange Act Release No. 72495 (June 27, 
2014), 79 FR 38080 (July 3, 2014) (Notice of Withdrawal of SR-CBOE-
2014-026).
    \19\ The prior CBOE proposal provided for several changes to 
Rule 24.19; this proposal specifically relates to the electronic 
entry and validation of Multi-Class Spread Orders. See Securities 
Exchange Act Release No. 71872 (April 4, 2014), 79 FR 19940 (April 
10, 2014) (SR-CBOE-2014-026).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (File No. SR-CBOE-2014-060) be, 
and hereby is, approved on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20340 Filed 8-26-14; 8:45 am]
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