Document ID: SEC-2015-0219-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2015-02-04T05:00Z

[Federal Register Volume 80, Number 23 (Wednesday, February 4, 2015)]
[Notices]
[Pages 6145-6148]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02104]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74169; File No. SR-CBOE-2015-011]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change To Amend 
Exchange Rules Related to Order Tickets

January 29, 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 January 23, 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 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 amend its rules related to order tickets. 
The text of

[[Page 6146]]

the proposed rule change is provided below.
    (additions are in italics; deletions are [bracketed])
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 6.53. Certain Types of Orders Defined

* * * * *
    . . . Interpretations and Policies:
    .01 No change.
    .02 Complex orders of twelve (12) legs or less (one leg of which 
may be for an underlying security or security future, as applicable) 
must be entered on a single order ticket at time of systemization. If 
permitted by the Exchange (which the Exchange will announce by 
Regulatory Circular), complex orders of more than twelve (12) legs (one 
leg of which may be for an underlying security or security future, as 
applicable) may be split across multiple order tickets, if the Trading 
Permit Holder representing the complex order includes twelve (12) legs 
on one of the order tickets and identifies for the Exchange the order 
tickets that are part of the same complex order (in a form and manner 
prescribed by the Exchange).
* * * * *

Rule 24.20. SPX Combo Orders

* * * * *
    . . . Interpretations and Policies:
    .01 An SPX Combo Order for twelve (12) legs or less must be entered 
on a single order ticket at time of systemization. If permitted by the 
Exchange (which the Exchange will announce by Regulatory Circular), an 
SPX Combo Order for more than twelve (12) legs may be represented or 
executed as a single SPX Combo Order in accordance with this Rule 24.20 
if it is split across multiple order tickets and the Trading Permit 
Holder representing the SPX Combo Order includes twelve (12) legs on 
one of the order tickets and identifies for the Exchange the order 
tickets that are part of the same SPX Combo Order (in a manner and form 
prescribed by the Exchange).
* * * * *
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to set forth order ticket requirements 
applicable to complex orders in open outcry pursuant to Rule 6.53, as 
well as SPX Combo Orders \3\ pursuant to Rule 24.20.
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    \3\ An ``SPX Combo Order'' consists of an order to purchase or 
sell one or more SPX option series and the offsetting number of SPX 
combinations defined by the delta, where an ``SPX combination'' is a 
purchase (sale) of an SPX call and sale (purchase) of an SPX put 
having the same expiration date and strike price and a ``delta'' is 
the positive (negative) number of SPX combinations that must be sold 
(bought) to establish a market neutral hedge with one or more SPX 
option series.
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Background
    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.'' \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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    \4\ Securities Exchange Act Release No. 34-72271 (May 29, 2014), 
79 FR 32342 (June 4, 2014) (SR-CBOE-2014-046).
    \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\ See supra, note 2. 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, Id.
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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 was proposed to require that any complex order in open 
outcry, 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) (``Notice''), 79 FR 53230 (September 8, 2014) (SR-CBOE-2014-
015). SR-CBOE-2014-015 was withdrawn by the Exchange on November 21, 
2014, in order to bifurcate the filing into two separate filings. 
The first filing is represented by this proposed rule change 
regarding the single order ticket requirements. The second filing 
will, among other things, include amendments to the complex order 
definitions.
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    Pursuant to rule change filing SR-CBOE-2014-046, the Exchange 
issued a Regulatory Circular requiring Trading Permit Holders 
(``TPHs'') to begin applying the combo indicator upon systematization 
on November 1, 2014.\8\ The implementation date was subsequently 
delayed until February 27, 2015 \9\ in order to coincide with the 
implementation date of the order ticket requirements in SR-CBOE-2014-
015.\10\
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    \8\ CBOE Regulatory Circular RG14-125--Implementation of SPX 
Combo Order Indicator (August 15, 2014).
    \9\ See CBOE Regulatory Circular RG14-153--Delayed 
Implementation of SPX Combo Order Indicator (October 31, 2014).
    \10\ See Securities Exchange Act Release No. 34-73479 (October 
31, 2014), 79 FR 66014 (November 6, 2014) (SR-CBOE-2014-083) 
(delaying the combo indicator requirement in SR-CBOE-2014-046 in 
order to coincide with the order ticket requirements of 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, developed an enhanced version of FBW to support the

[[Page 6147]]

entry of complex orders with up to twelve legs. The enhanced version of 
FBW was made available to TPHs for training purposes on January 2, 
2015.\11\ The Exchange notes that PULSe, which is an Exchange provided 
alternative to FBW, also currently allows up to twelve (12) legs on a 
single order ticket and has been updated with the combo indicator.\12\ 
In addition, the Exchange has been in contact with TPH broker groups 
consistently since the filing of SR-CBOE-2014-015 in an effort to 
prepare TPH broker groups for the combo indicator and the single order 
ticket requirements.\13\
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    \11\ See RG14-176.
    \12\ The Exchange also notes that TPHs will not be required to 
make changes to their own or third-party vendor's order entry and 
execution systems. However, to the extent a TPH wants to represent 
and execute a multi-part order in open outcry as a complex order, 
the order must be entered on a single order ticket and cannot exceed 
twelve (12) legs (or, if the Exchange has determined to make it 
available, an order for more than twelve (12) legs that is entered 
on multiple order tickets, which tickets are linked in a form and 
manner prescribed by the Exchange). For example, if a TPH's order 
entry and execution system currently only supports the open outcry 
processing of a complex order with up to four (4) legs, the system 
would not need to be enhanced if the TPH does not intend to 
represent and execute complex orders with more than four (4) legs. 
If the TPH intends to represent and execute complex orders with more 
than four (4) legs (i.e., complex orders with five (5) to twelve 
(12) legs), then the TPH may need to enhance its existing system or 
utilize another order entry and execution system that supports the 
open outcry processing of such orders on a single order ticket.
    \13\ See RG14-125; RG-14-153; and RG14-176. Beyond Regulatory 
Circulars, the Exchange has been in contact with TPHs about the 
upcoming single order ticket requirements.
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Proposal
    Currently, Exchange system limitations may prevent a multi-part 
order with more than a certain number of legs from being entered on a 
single order ticket for representation and execution in open outcry as 
a complex order.\14\ As a result, complex orders with more than the 
applicable leg limitation that are represented in open outcry must be 
split up and entered on multiple order tickets. For consistency in 
processing and in order to enhance the Exchange's audit trail, the 
Exchange proposes to amend Rules 6.53 to require:
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    \14\ As noted above, system enhancements currently allow orders 
with up to twelve legs to be processed for open outcry.
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     Complex orders of twelve (12) legs or less (one leg of 
which may be for an underlying security or security future, as 
applicable) must be entered on a single order ticket at time of 
systemization. If permitted by the Exchange (which the Exchange will 
announce by Regulatory Circular), complex orders of more than twelve 
(12) legs (one leg of which may be for an underlying security or 
security future, as applicable) may be split across multiple order 
tickets, if the Trading Permit Holder representing the complex order 
includes twelve (12) legs on one of the order tickets \15\ and 
identifies for the Exchange the order tickets that are part of the same 
complex order (in a form and manner prescribed by the Exchange).
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    \15\ The Exchange recognizes that SR-CBOE-2014-015 indicated 
that the Exchange was not imposing requirements on how a complex 
order with more than 12 legs should be split across multiple 
tickets. See supra note 5, at page 6. However, the Exchange does not 
believe TPHs will be adversely affected by the proposed requirement 
specifying how an order with more than 12 legs should be split 
across multiple tickets because the Exchange believes PULSe, the 
enhanced version of FBW, and proprietary systems that TPHs have 
designed to comply with the single order ticket requirements of SR-
CBOE-2014-015 are capable of complying with the requirement 
specifying how orders with more than 12 legs should be split across 
multiple tickets without further programming or configuration.
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    With respect to the order ticket requirements, the Exchange also 
proposes to add to Rule 24.20 (pertaining to SPX Combo Orders) 
Interpretation and Policy .01 to require that an SPX Combo Order for 
twelve (12) legs or less be entered on a single order ticket at time of 
systemization. An SPX Combo Order that contains more than twelve (12) 
legs may be represented and executed as a single SPX Combo Order in 
accordance with Rule 24.20 if it is split across multiple order tickets 
and the TPH representing the SPX Combo Order includes twelve (12) legs 
on one of the order tickets \16\ and identifies for the Exchange the 
order tickets that are part of the same SPX Combo Order (in a manner 
and form prescribed by the Exchange). The Exchange will announce by 
Regulatory Circular whether it permits SPX Combo Orders with more than 
12 legs and, if so permitted, the form and manner in which the TPH must 
link the multiple order tickets. The Exchanges notes that a TPH may 
submit an order that does not satisfy these ticket requirements, but 
such order may not be represented or executed as a single SPX Combo 
Order in accordance with Rule 24.20. The Exchange also notes that Rules 
24.20 already specifies an applicable ratio (defined by the delta as 
noted above), and it is proposing no changes to the ratio through this 
rule filing.
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    \16\ As noted in the proposed rule text, for an open outcry 
complex order and an SPX Combo Order, if an order with more than 
twelve legs is split across multiple order tickets, one of the order 
tickets must contain twelve legs. For example, a thirteen leg order 
cannot have seven legs on one ticket and six legs on another ticket; 
rather, one ticket must have twelve legs and the other ticket must 
have one leg.
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    The Exchange will announce the implementation date of the proposed 
rule change in a Regulatory Circular to be published within 90 days of 
the filing date of this filing. The implementation date of this filing, 
if the filing is approved, will be within 180 days of the filing date, 
but no earlier than the approval date of the filing.
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.\17\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \18\ 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) \19\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ Id.
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    In particular, the Exchange believes enhancing the audit trail with 
respect to open outcry complex order processing and SPX Combo Orders 
will help to protect investors and the public interest because an 
enhanced audit trail promotes transparency and aids in surveillance, as 
well as, provides the Exchange the ability to better 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, thereby protecting investors.
    In addition, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(1) of the Act,\20\ 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

[[Page 6148]]

the Exchange. Enhancing the audit trail with respect to open outcry 
complex order processing will further improve the Exchange's ability to 
better 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.
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    \20\ 15 U.S.C. 78f(b)(1).
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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 Exchange does not believe 
that the proposed rule change will impose any burden on intramarket or 
intermarket competition because the order ticket requirements will be 
applicable to all TPHs executing complex orders in open outcry and SPX 
Combo Orders.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The Exchange has requested accelerated approval of the proposed 
rule change. The Commission is considering granting accelerated 
approval of the proposed rule change at the end of a 15-day comment 
period.

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-2015-011 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-2015-011. 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-2015-011 and should be 
submitted on or before February 19, 2015.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02104 Filed 2-3-15; 8:45 am]
BILLING CODE 8011-01-P