Document ID: SEC-2010-1467-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2010-09-27T04:00Z

[Federal Register: September 27, 2010 (Volume 75, Number 186)]
[Notices]               
[Page 59309-59310]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27se10-143]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62951; File No. SR-CBOE-2010-087]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Related to 
CBSX Market-Maker Obligations

September 20, 2010.
    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 September 17, 2010, Chicago Board Options Exchange, Incorporated 
(``CBOE'' or the ``Exchange'') 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 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 is proposing to amend CBOE Stock Exchange's (``CBSX'', 
the CBOE's stock trading facility) rules to enhance quotation 
requirements. The text of the rule proposal is available on the 
Exchange's Web site (http://www.cboe.org/legal), at the Exchange's 
Office of the Secretary and at the Commission.

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 self-regulatory organization 
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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt rules to enhance minimum quotation 
requirements for CBSX Remote Market-Makers, CBSX Designated Primary 
Market-Makers (``CBSX DPMs''), and CBSX Lead Market-Makers (``CBSX 
LMMs'') (collectively ``CBSX Market-Makers''). Under the proposal, the 
Exchange will amend Rules 53.23, Obligations of CBSX Remote Market-
Makers, and Rule 53.56, CBSX DPM Obligations,\3\ to require CBSX 
Market-Makers for each stock in which they are registered to 
continuously maintain a two-sided quotation within a designated 
percentage of the National Best Bid and National Best Offer as 
appropriate during CBSX Regular Trading Hours after the primary listing 
market has disseminated an opening quote in the stock on a given 
trading day.\4\ These enhanced market maker quotation obligations and 
[sic] are intended to eliminate trade executions against market maker 
placeholder quotations traditionally priced far away from the inside 
market, commonly known as ``stub quotes.'' They are also intended to 
augment and work in relation to the single stock pause standards 
already in place on a pilot basis for stocks in the S&P 500, the 
Russell 1000 and certain exchange-trade products.\5\
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    \3\ The Exchange notes that no change is necessary to the text 
related to CBSX LMM obligations as existing Rule 53.51, CBSX LMM 
Defined, already provides that CBSX LMMs will have the same 
obligations of CBSX Remote Market-Makers plus those additional 
obligations of CBSX DPMs.
    \4\ A CBSX Remote Market-Maker would be obligated to provide 
continuous quotes only when the CBSX Remote Market-Maker is quoting 
in a particular security during CBSX Regular Trading Hours after the 
primary listing market has disseminated an opening quote in the 
stock on a given trading day. See proposed Rule 53.23.01(a), which 
is similar to CBOE's existing rule for options Market-Makers, Rule 
8.7(d)(iii). A CBSX DPM or CBSX LMM would be obligated to provide 
continuous quotes during the CBSX Regular Trading Hours after the 
primary listing market has disseminated an opening quote in the 
stock on a given trading day. See proposed Rule 53.56.01(a), which 
is similar to CBOE's existing rules for options DPMs and LMMs, Rules 
8.85(a)(i) and 8.15A(b)(i).
    \5\ See Exchange Act Release Nos. 62252 (June 10, 2010), 75 FR 
34186 (June 16, 2010) and 62886 (September 10, 2010).
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    Under the proposal, the Exchange will require CBSX Market-Makers to 
enter and maintain quotes priced at no more than a certain percentage 
away from the national inside bid and offer. Permissible quotes are 
determined by the individual character of the security, the time of day 
in which the quote is entered, and other factors which are summarized 
below:
    For issues subject to an individual stock trading trigger pause, a 
permissible quote is determined by first looking at the applicable 
stock trading pause trigger percentage of the security and then 
reducing that number by 2%. Since currently the stock pause trigger 
percentage across all exchanges is 10%, a CBSX Market-Maker's quote in 
a such a security may not be more than 8% away from the national best 
bid or best offer as appropriate. Once a compliant quote is entered, it 
may rest without adjustment until such time as it moves to within \1/2\ 
of 1% of the applicable trigger pause percentage (i.e., currently 9.5%) 
whereupon the CBSX Market-Maker must immediately move its quote back to 
at least the permissible default level of 8% away from the national 
best bid or best offer. During times in which a trigger pause 
percentage is not applicable (e.g., before 8:45 a.m. and after 2:35 
p.m. Chicago Time), a market maker must maintain a quote no further 
than 20% away from the inside (i.e., it may rest without adjustment 
until it reaches 21.5%). In the absence of national best or best offer, 
the above calculations will remain the same, but will use the national 
last sale instead of the absent bid or offer.
    For securities not subject to any individual stock pause trigger, 
the proposal will a [sic] assume a hypothetical 32% trigger pause, 
apply a 2% reduction, and require CBSX Market-Makers in those issues to 
maintain quotes no more than 30% away from the national best and 
national best offer. Like securities subject to stock trading pauses, 
once a compliant quote is entered, it may rest without adjustment until 
such time as it moves to within \1/2\ of 1% of its

[[Page 59310]]

applicable trigger pause percentage (31.5%) whereupon the CBSX Market-
Maker must immediately move its quote back to at least the permissible 
default level of 30%. These requirements shall apply to Regulation NMS 
stocks during CBSX Regular Trading Hours after the primary listing 
market has disseminated an opening quote in the stock for the given 
trading day.
    Nothing in the above precludes a CBSX Market-Maker from voluntarily 
quoting at price levels that are closer to the national best bid and 
best offer than required under the proposal.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Act,\6\ which requires the rules of an exchange to promote just 
and equitable principles of trade, 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 
proposed rule change also is designed to support the principles of 
Section 11A(a)(1) \7\ of the Act in that it seeks to assure fair 
competition among brokers and dealers and among exchange markets. The 
Exchange believes that the proposed rule meets these requirements in 
that it promotes transparency and uniformity across markets concerning 
minimum market maker quotation requirements.
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78k-1(a)(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 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization 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.

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-2010-087 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2010-087. 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 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 publicly available. All 
submissions should refer to File Number SR-CBOE-2010-087 and should be 
submitted on or before October 18, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-24055 Filed 9-24-10; 8:45 am]
BILLING CODE 8010-01-P