Document ID: SEC-2017-0376-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2017-03-09T05:00Z

[Federal Register Volume 82, Number 45 (Thursday, March 9, 2017)]
[Notices]
[Pages 13155-13157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04604]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80152; File No. SR-CBOE-2017-018)]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Related to the Automated Improvement Mechanism

March 3, 2017.
    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 February 23, 2017, 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 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 seeks to amend Rule 6.74A. The text of the proposed 
rule change is provided below. (additions are italicized; deletions are 
[bracketed])
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 6.74A. Automated Improvement Mechanism (``AIM'')

    Notwithstanding the provisions of Rule 6.74, a Trading Permit 
Holder that represents agency orders may electronically execute an 
order it represents as agent (``Agency Order'') against principal 
interest or against a solicited order provided it submits the Agency 
Order for electronic execution into the AIM auction (``Auction'') 
pursuant to this Rule.
    (a) No change.
    (b) Auction Process. Only one Auction may be ongoing at any given 
time in a series and Auctions in the same series may not queue or 
overlap in any manner. The Auction may not be cancelled and shall 
proceed as follows:
    (1) Auction Period and Request for Responses (RFRs).
    (A) To initiate the Auction, the Initiating Trading Permit Holder 
must mark the Agency Order for Auction processing, and specify (i) a 
single price at which it seeks to cross the Agency Order (with 
principal interest or a solicited order) (a ``single-price 
submission''), including whether the Initiating Trading Permit Holder 
elects to have last priority in allocation, [or] (ii) that it is 
willing to automatically

[[Page 13156]]

match (``auto-match'') as principal the price and size of all Auction 
responses up to an optional designated limit price in which case the 
Agency Order will be stopped at the NBBO (if 50 standard option 
contracts or 500 mini-option contracts or greater) or one cent/one 
minimum increment better than the NBBO (if less than 50 standard option 
contracts or 500 mini-option contracts), or (iii) the initial price at 
which it seeks to cross the Agency Order (with principal interest or a 
solicited order) and that it is willing to auto-match. Once the 
Initiating Trading Permit Holder has submitted an Agency Order for 
processing pursuant to this subparagraph, such submission may not be 
modified or cancelled.
    (B)-(I) No change.
    (2)-(3) No change.
* * * * *
    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 seeks to amend Rule 6.74A in order to allow a Trading 
Permit Holder (``TPH'') to input an initial price when selecting the 
auto-match feature in the Automated Improvement Mechanism (``AIM'').
    In order to initiate an AIM auction a TPH must specify: (i) A 
single price at which it seeks to cross the Agency Order (with 
principal interest or a solicited order) (a ``single-price 
submission''), including whether the Initiating Trading Permit Holder 
elects to have last priority in allocation, (ii) that it is willing to 
automatically match (``auto-match'') as principal the price and size of 
all Auction responses up to an optional designated limit price in which 
case the Agency Order will be stopped at the NBBO (if 50 standard 
option contracts or 500 mini-option contracts or greater) or one cent/
one minimum increment better than the NBBO (if less than 50 standard 
option contracts or 500 mini-option contracts). When a TPH specifies 
the auto-match feature the TPH does not identify the initial stop 
price. Instead, the Agency Order is automatically stopped at the NBBO 
(if 50 standard option contracts or 500 mini-option contracts or 
greater) or one cent/one minimum increment better than the NBBO (if 
less than 50 standard option contracts or 500 mini-option contracts). 
In order to allow TPHs to offer greater price improvement to Agency 
Orders the Exchange is seeking to amend Rule 6.74A in order to allow 
TPHs to specify the initial auction price when the TPH specifies the 
auto-match feature.
    Currently, if a TPH selects the auto-match feature and there are no 
auction responses, the Agency Order will execute at either the NBBO (if 
50 standard option contracts or 500 mini-option contracts or greater) 
or one cent/one minimum increment better than the NBBO (if less than 50 
standard option contracts or 500 mini-option contracts). In order to 
allow price-improvement beyond the NBBO or beyond one cent/one minimum 
increment better than the NBBO when there are no auction responses, the 
Exchange is amending Rule 6.74A to allow a TPH to input an initial 
auction price when using the auto-match feature. For example, consider 
a TPH using the auto-match feature when the NBBO is 1.00-1.20 and the 
Agency Order is to buy for 50 contracts or less. Currently, the Agency 
Order is automatically stopped at 1.19. If there are no auction 
responses the Agency Order will be executed at 1.19. This proposed 
amendment will allow TPHs to specify the auto-match feature and specify 
the initial auction price. Thus, in the above example, a TPH could 
specify the initial auction price as 1.18 instead of 1.19, guaranteeing 
price improvement beyond the NBBO improved by one minimum increment. If 
any auction responses are received they would be processed in the same 
manner as the current auto-match feature (i.e., Rule 
6.74A(b)(1)(A)(ii)). Additionally, the Exchange notes that as provided 
in Rule 6.74A(a) the Agency Order and contra order will be cancelled if 
the initial auction price does not meet the conditions described in 
paragraph (a) of Rule 6.74A.
    The Exchange will announce the availability of the new feature via 
Regulatory Circular at least 7 business days prior to the 
implementation date. The implementation date will be within 120 days of 
the operative date of this filing.
2. Statutory Basis
    The The [sic] 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.\5\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \6\ 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) \7\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
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    In particular, the proposed amendment will give TPHs initiating AIM 
auctions the ability, when utilizing the auto-match feature, to 
guarantee price improvement beyond the NBBO (if 50 standard option 
contracts or 500 mini-option contracts or greater) or beyond one cent/
one minimum increment better than the NBBO (if less than 50 standard 
option contracts or 500 mini-option contracts), which generally 
protects investors and the public interest by giving Agency Orders the 
possibility of receiving better execution prices. The Exchange also 
notes that the proposed functionality is not unique as Nasdaq PHLX LLC 
(``PHLX'') and Nasdaq BX, Inc. (``BX'') currently offer such 
functionality.\8\
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    \8\ See PHLX Rule 1080(n)(ii)(A)(1) and BX Rules at Chapter VI, 
Section 9(ii)(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 that is not necessary or appropriate in 
furtherance of the purposes of the Act because the

[[Page 13157]]

proposed amendment simply gives TPHs initiating AIM auctions the 
ability, when utilizing the auto-match feature, to guarantee price 
improvement beyond the NBBO (if 50 standard option contracts or 500 
mini-option contracts or greater) or beyond one cent/one minimum 
increment better than the NBBO (if less than 50 standard option 
contracts or 500 mini-option contracts, which generally protects 
investors and the public interest by giving Agency Orders the 
possibility of receiving better execution prices.

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 
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 \9\ and 
Rule 19b-4(f)(6) \10\ 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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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-2017-018 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-2017-018. 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 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 available publicly. All 
submissions should refer to File Number SR-CBOE-2017-018, and should be 
submitted on or before March 30, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-04604 Filed 3-8-17; 8:45 am]
BILLING CODE 8011-01-P