Document ID: SEC-2016-0423-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2016-03-10T05:00Z

[Federal Register Volume 81, Number 47 (Thursday, March 10, 2016)]
[Notices]
[Pages 12764-12769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05326]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77297; File No. SR-CBOE-2016-014]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to Complex Orders

March 4, 2016.
    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 February 25, 2016, 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 seeks to amend its rules related to complex orders. 
The text of the proposed rule change is provided below.
    (additions are italicized; deletions are [bracketed])
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 6.53C. Complex Orders on the Hybrid System

    (a) Definition: No change.
    (b) Types of Complex Orders: No change.
    (c) Complex Order Book
    No change.
    (d) Process for Complex Order RFR Auction: Prior to routing to the 
COB or once on PAR, eligible complex orders may be subject to an 
automated request for responses (``RFR'') auction process.
    (i) For purposes of paragraph (d):
    (1) ``COA'' is the automated complex order RFR auction process.
    (2) A ``COA-eligible order'' means a complex order that, as 
determined by the Exchange on a class-by-class basis, is eligible for a 
COA considering the order's [marketability (defined as a number of 
ticks away from the current market),] size, complex order type (as 
defined in paragraphs (a) and (b) above) and complex order origin types 
(as defined in subparagraph (c)(i) above). Complex orders processed 
through a COA may be executed without consideration to prices of the 
same complex orders that might be available on other exchanges.
    (ii) Initiation of a COA:
    (A) The System will send an RFR message to all Trading Permit 
Holders who have elected to receive RFR messages on receipt of (1) a 
COA-eligible order with two legs (including orders submitted for 
electronic processing from PAR) that is better than the same side of 
the derived net market or (2) a complex order with three or more legs 
that (A) meets the class[, marketability], size, and complex order type 
parameters of subparagraph (d)(i)(2) and is better than the same side 
of the derived net market or (B) is marketable against the derived net 
market, designated as immediate or cancel, and meets the class [, 
marketability,] and size parameters of subparagraph (d)(i)(2).[, in 
both cases] Complex orders as described in subparagraph (ii)(A)(2) will 
initiate a COA regardless of the order's routing

[[Page 12765]]

parameters or handling instructions (except for orders routed for 
manual handling). Immediate or cancel orders that are not marketable 
against the derived net market in accordance with subparagraph 
(ii)(A)(2)(B) will be cancelled. The RFR message will identify the 
component series, the size and side of the market of the COA-eligible 
order and any contingencies, if applicable.
    (B) No change.
    (iii)-(ix) 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On October 2, 2015, the Exchange submitted immediately effective 
filing SR-CBOE-2015-081, which amended Exchange rules related to the 
initiation of a complex order auction (``COA'').\3\ The purpose of SR-
CBOE-2015-081 (as well as predecessor filing SR-CBOE-2014-017) \4\ was 
to limit a potential source of unintended Market-Maker risk (fully 
described below) related to how the Exchange's Hybrid Trading System 
(the ``System'') \5\ calculates risk parameters under Rule 8.18 when 
complex orders leg into the market.
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    \3\ See Securities Exchange Act Release No. 76106 (October 8, 
2015), 80 FR 62125 (October 15, 2015) (SR-CBOE-2015-081) 
(``Notice'').
    \4\ See Securities Exchange Act Release No. 72986 (September 4, 
2014), 79 FR 53798 (September 10, 2014) (SR-CBOE-2014-017) 
(``Approval Order'').
    \5\ The System is a 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. Where an order is routed 
for processing by the Exchange order handling system depends on 
various parameters configured by the Exchange and the order entry 
firm itself.
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    Under Rule 8.18, CBOE offers Market-Makers that are obligated to 
provide and maintain continuous electronic quotes in an option class 
the Quote Risk Monitor Mechanism (``QRM''), which is functionality to 
help Market-Makers manage their quotes and related risk. Market-Makers 
with appointments in classes that trade on the System must, among other 
things, provide and maintain continuous electronic quotes in a 
specified percentage of series in each class for a specified percentage 
of time.\6\ To comply with this requirement, each Market-Maker may use 
its own proprietary quotation and risk management system to determine 
the prices and sizes at which it quotes. In addition, each Market-Maker 
may use QRM.
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    \6\ See Rules 8.7(d)(ii)(iv) (Market-Makers), 8.13(d) (Preferred 
Market-Makers), 8.15A(b)(i) (Lead Market-Makers) and 8.85(a)(i) 
(Designated Primary Market-Makers).
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    A Market-Maker's risk in a class is not limited to the risk in a 
single series of that class. Rather, a Market-Maker is generally 
actively quoting in multiple classes, and each class may comprise 
hundreds or thousands of individual series. The System automatically 
executes orders against a Market-Maker's quotes in accordance with the 
Exchange's priority and allocation rules.\7\ As a result, a Market-
Maker has exposure and risk in all series in which it is quoting in 
each of its appointed classes. QRM is an optional functionality that 
helps Market-Makers, and TPH organizations with which a Market-Maker is 
associated, limit this overall exposure and risk.
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    \7\ See Rules 6.45A, 6.45B and 6.53C.
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    Specifically, if a Market-Maker elects to use QRM, the System will 
cancel a Market-Maker's quotes in all series in an appointed class if 
certain parameters the Market-Maker establishes are triggered. Market-
Makers may set the following QRM parameters (Market-Makers may set 
none, some or all of these parameters):
     A maximum number of contracts for that class (the 
``contract limit'') and a specified rolling time period in seconds 
within which such contract limit is to be measured (the ``measurement 
interval'');
     a maximum cumulative percentage (which is the sum of the 
percentages of the original quoted size of each side of each series 
that trade) (the ``cumulative percentage limit'') that the Market-Maker 
is willing to trade within a specified measurement interval; or
     a maximum number of series for which either side of the 
quote is fully traded (the ``number of series fully traded'') within a 
specified measurement interval.
    If the Exchange determines the Market-Maker has traded more than 
the contract limit or cumulative percentage limit, or has traded at 
least the number of series fully traded, of a class during the 
specified measurement interval, the System will cancel all of the 
Market-Maker's electronic quotes in that class (and any other cases 
with the same underlying security) until the Market-Maker refreshes 
those quotes (a ``QRM Incident''). A Market-Maker, or TPH organization 
with which the Market-Maker is associated, may also specify a maximum 
number of QRM Incidents that may occur on an Exchange-wide basis during 
a specified measurement interval. If the Exchange determines that a 
Market-Maker or TPH Organization, as applicable, has reached its QRM 
Incident limit during the specified measurement interval, the System 
will cancel all of the Market-Maker's or TPH Organization's quotes, as 
applicable, and the Market-Maker's orders resting in the book in all 
classes and prevent the Market-Maker and TPH organization from sending 
additional quotes or orders to the Exchange until the earlier to occur 
of (1) the Market-Maker or TPH organization reactivates this ability or 
(2) the next trading day.
    The purpose of the QRM functionality is to allow Market-Makers to 
provide liquidity across most series in their appointed classes without 
being at risk of executing the full cumulative size of all their quotes 
before being given adequate opportunity to adjust their quotes. For 
example, if a Market-Maker can enter quotes with a size of 25 contracts 
in 100 series of class ABC, its potential exposure is 2,500 contracts 
in ABC. To mitigate the risk of having all 2,500 contracts in ABC 
execute without the opportunity to evaluate its positions, the Market-
Maker may elect to use QRM. If the Market-Maker elects to use the 
contract limit functionality and sets the contract limit at 100 and the 
measurement interval at five seconds for ABC, the System will 
automatically cancel the Market-Maker's quotes in all series of ABC if 
100 or more contracts in series of ABC execute during any five-second 
period.

[[Page 12766]]

    To assure that all quotations are firm for their full size, the 
System performs the parameter calculations after an execution against a 
Market-Maker's quote occurs. For example, using the same parameters in 
class ABC as above, if a Market-Maker has executed a total of 95 
contracts in ABC within the previous three seconds, a quote in a series 
of ABC with a size of 25 contracts continues to be firm for all 25 
contracts. An incoming order in that series could execute all 25 
contracts of that quote, and, following the execution, the total size 
parameter would add 25 contracts to the previous total of 95 for a 
total of 120 contracts executed in ABC. Because the total size executed 
within the previous five seconds now exceeds the 100 contract limit for 
ABC, the System would, following the execution, immediately cancel all 
of the Market-Maker's quotes in series of ABC. The Market-Maker would 
then enter new quotes for series in ABC. Thus, QRM limits the amount by 
which a Market-Maker's executions in a class may exceed its contract 
limit to the largest size of its quote in a single series of the class 
(or 25 in this example).
    The Exchange proposes to amend Rule 6.53C regarding complex orders 
to limit a potential source of unintended Market-Maker risk related to 
how the System calculates risk parameters under Rule 8.18 when complex 
orders leg into the market.\8\ As discussed above, by checking the risk 
parameters following each execution in a series, the risk parameters 
allow a Market-Maker to provide liquidity across multiple series of a 
class without being at risk of executing the full cumulative size of 
all its quotes. This is not the case, however, when a complex order 
legs into the regular market (i.e. the market for individual, or 
simple, orders). Because the execution of each leg of a complex order 
is contingent on the execution of the other legs, the execution of all 
the legs in the regular market is processed as a single transaction, 
not as a series of individual transactions.
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    \8\ Rule 6.53C(c)(ii)(1) provides that complex orders in the 
complex order book (``COB'') may execute against individual orders 
or quotes in the book provided the complex order can be executed in 
full (or a permissible ratio) by the orders and quotes in the book. 
Rule 6.53C(d)(v)(1) provides that orders that are eligible for the 
complex order auction (``COA'') may trade with individual orders and 
quotes in the book provided the COA-eligible order can be executed 
in full (or a permissible ratio) by the orders and quotes in the 
book. COA is an automated request for responses (``RFR'') auction 
process. Upon initiation of a COA, the Exchange sends an RFR message 
to all Trading Permit Holders who have elected to receive RFR 
messages, which RFR message identifies the series, size and side of 
the market of the COA-eligible order and any contingencies. Eligible 
market participants may submit responses during a response time 
interval. At the conclusion of the response time interval, COA-
eligible orders are allocated in accordance with Rule 6.53C(d)(v), 
including against individual orders and quotes in the book.
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    For example, if market participants enter into the System 
individual orders to buy 25 contracts for the Jan 30 call, Jan 35 call, 
Jan 40 call and Jan 45 call in class ABC, the System processes each 
order as it is received and calculates the Market-Makers parameters in 
class ABC following the execution of each 25-contract call. However, if 
a market participant enters into the System a complex order to buy all 
four of these strikes in class ABC 25 times, which complex order 
executes against bids and offers for the individual series (i.e. legs 
into the market), the System will calculate the Market-Maker's 
parameters in class ABC following the execution of all 100 contracts. 
If the Market-Maker had set the same parameters in class ABC as 
discussed above (100-contract limit with five-second measurement 
interval) and had executed 95 contracts in class ABC within the 
previous three seconds, the amount by which the next transaction might 
exceed 100 is limited to the largest size of its quote in a single 
series of the class. In that example, since the largest size of the 
Market-Maker's quotes in any series was 25 contracts, the Market-Maker 
could not have exceeded the 100-contract limit by more than 20 
contracts (95 + 25 = 120). However, with respect to the complex order 
with four legs 25 times, the next transaction against the Market-
Maker's quotes potentially could be as large as 100 contracts 
(depending upon whether there are other market participants at the same 
price), creating the potential in this example for the Market-Maker to 
exceed the 100-contract limit by 95 contracts (95 + 100 = 195) instead 
of 20 contracts.
    As this example demonstrates, legging of complex orders into the 
regular market presents higher risk to Market-Makers than executing 
their quotes against individual orders entered in multiple series of a 
class in the regular market, because it may result in Market-Makers 
exceeding their risk parameters by a greater number of contracts. This 
risk is directly proportional to the number of legs associated with a 
complex order. Market-Makers have expressed concerns to the Exchange 
regarding this risk.
    In order to alleviate this potential risk to Market-Makers, the 
Exchange, in SR-CBOE-2015-081, amended Rule 6.53C(d) to, among other 
things, provide that a COA will be initiated when a complex order with 
three or more legs is designated as IOC and meets the class, 
marketability, and size parameters of subparagraph (d)(i)(2).\9\ The 
Exchange observed IOC orders causing the risk to Market-Makers 
described above and believed the previous amendment proposed in SR-
CBOE-2015-081 would reduce that risk by initiating a COA in those 
circumstances. The Exchange is now proposing to fine tune this 
requirement by amending Rule 6.53C(d)(ii)(A)(2)(B) to provide that a 
COA will be initiated when a complex order with three or more legs that 
is marketable against the derived net market is designated as immediate 
or cancel and the order meets the class and size parameters of 
subparagraph (d)(i)(2).\10\
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    \9\ See Rule 6.53C(d)(ii)(A)(2)(B). The Exchange has not yet 
implemented the changes described in SR-CBOE-2015-081 in 
anticipation of this proposal.
    \10\ This proposed change applies to Hybrid classes only, and 
not Hybrid 3.0 classes. The Exchange does not believe the risk 
discussed in this rule filing is present in Hybrid 3.0 classes 
because in Hybrid 3.0 classes complex orders are not legged into the 
regular market. See Rule 6.53C.10 (providing flexibility for the 
Exchange to determine to not allow marketable complex orders entered 
into COB and/or COA to automatically execute against individual 
quotes residing in the EBook).
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    As noted above, it is the legging of complex orders into the 
regular market that presents the potential risk to Market-Makers. 
Generally, a complex order has the potential to leg into the market 
when the complex order is marketable against leg quotes. For example, 
if the derived net market of a complex order strategy is 1.00-1.20 and 
a complex order to buy or sell at $1.10 is entered, the complex order 
would not execute against the legs of the regular market because the 
leg markets (which make-up the derived net market) cannot satisfy the 
order. A complex order to buy at $1.20 or higher or to sell at $1.00 or 
lower (i.e., an order that is marketable against the derived net 
market) would potentially be executable against the leg quotes. 
However, the current rule requires the Exchange to initiate a COA for a 
complex order with three or more legs that is designated IOC and meets 
the class, marketability, and size parameters of subparagraph 
(d)(i)(2), even if the complex order is not marketable against the 
derived net market. Complex orders that are not marketable against the 
derived net market do not pose the same risk to Market-Makers as 
complex orders that are marketable against the derived net market 
because, as noted above, it is marketable complex orders that can leg 
into the market and execute against individual quotes causing the risk 
to Market-Makers. Thus, the Exchange is proposing to amend Rule 
6.53C(d)(ii)(A)(2)(B) as described above. Additionally, IOC orders that 
are not

[[Page 12767]]

marketable against the derived net market in accordance with 
subparagraph (ii)(A)(2)(B) will be cancelled, which allows order entry 
firms to use their own sophisticated technology to manage their orders 
helping to remove impediments to and perfect the mechanism of a free 
and open market.
    Currently, the marketability parameter in Rule 6.53C(d)(i)(2), 
defined as a number of ticks away from the current market, sets the 
price at which a complex order will initiate a COA. To avoid confusion, 
the Exchange proposes to remove the marketability parameter from the 
definition of ``COA-eligible order,'' which will remove the Exchange's 
flexibility to set the price at which a complex order will initiate a 
COA. The Exchange does not foresee any issues with removing the 
flexibility to determine the price at which a COA will be initiated 
because the Exchange does not foresee a future need to modify the price 
at which auctions are initiated. If unforeseen circumstances arise 
where the Exchange believes it is necessary to modify the price at 
which auctions are initiated then the Exchange will submit a subsequent 
rule filing. Additionally, removing such flexibility may provide 
increased certainty to market participants about the price at which a 
complex order will initiate a COA, helping to remove impediments to and 
perfect the mechanism of a free and open market.
    The Exchange proposes to hardcode the price at which a complex 
order may initiate a COA in Rule 6.53C(d)(ii)(A). For example, assuming 
all of the non-price specific requirements are met, a complex order 
with two legs under subparagraph (d)(ii)(A)(1) and a complex order with 
three legs under subparagraph (d)(ii)(A)(2)(A) will initiate a COA if 
the derived net market is 1-1.20 and the complex order is to buy at 
$1.01 or higher or to sell at 1.19 or lower.\11\ As described above, 
assuming the non-price specific requirements are met, a complex order 
with three legs under subparagraph (d)(ii)(A)(2)(B) will initiate a COA 
if the derived net market is 1-1.20 and the complex order is to buy at 
$1.20 or higher or to sell at $1.00 or lower. Initiating a COA in these 
situations will relieve the risk to Market-Makers noted above, which 
helps promote just and equitable principles of trade by relieving risk 
to Market-Makers allowing them to more efficiently and effectively 
provide important liquidity.
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    \11\ The Exchange notes that the prices at which a complex order 
will initiate a COA under subparagraphs (d)(ii)(A)(1) or 
(d)(ii)(A)(2)(A) are consistent with the current settings for the 
marketability parameter. This portion of the proposal simply 
hardcodes existing settings.
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    In short, SR-CBOE-2015-081, among other things, identified certain 
orders that potentially cause the risk to Market-Makers described above 
(i.e., complex orders with three or more legs that are designated as 
IOC and meet the class, marketability, and size parameters of 
subparagraph (d)(i)(2)). This proposal goes a step further and focuses 
on the above orders that are marketable against the derived net market. 
This is consistent with the purpose of SR-CBOE-2015-081, which was to 
alleviate the potential risk to Market-Makers. Additionally, this 
proposal helps to further balance the protection of Market-Makers with 
the desire of market participants entering IOC orders to have those 
orders cancel if not immediately executed. The Exchange also notes that 
the Exchange is removing its flexibility with regards to the 
marketability parameter.
    The Exchange will announce the implementation date of the proposed 
rule change in a Regulatory Circular to be published no later than 90 
days following the effective date of this filing. The implementation 
date will be no later than 180 days following the effective date of 
this 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.\12\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \13\ 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) \14\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Id.
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    In particular, the Exchange believes the proposed rule change is 
consistent with the purpose of SR-CBOE-2015-081, which was to alleviate 
a potential risk to Market-Makers that arises through the use of QRM. 
Complex orders with three or more legs that are designated as IOC and 
meet the class and size parameters of subparagraph (d)(i)(2) and that 
are marketable against the derived net market (which the Exchange has 
identified as potentially causing risk to Market-Makers) will COA, 
which helps promote just and equitable principles of trade by relieving 
risk to Market-Makers allowing them to more efficiently and effectively 
provide important liquidity. Orders that are designated as IOC and meet 
the class and size parameters of subparagraph (d)(i)(2), but that are 
not marketable against the derived net market, will be cancelled, which 
allows order entry firms to use their own sophisticated technology to 
manage their orders helping to remove impediments to and perfect the 
mechanism of a free and open market. The Exchange is also removing 
flexibility with regards to the marketability parameter. Although the 
Exchange prefers flexibility, the Exchange does not foresee the need to 
retain flexibility with regards to the marketability parameter and 
hardcoding the parameter may help avoid confusion with regards to the 
price at which a complex order will initiate a COA, which also helps to 
remove impediments to and perfect the mechanism of a free and open 
market.
    The Exchange also believes the proposed rule change to initiate a 
COA upon receipt of complex orders with three or more legs that are 
designated as IOC and meet the class and size parameters of 
subparagraph (d)(i)(2) and that are marketable against the derived net 
market is consistent with the requirement that Market-Makers' quotes be 
firm under Rule 602 of Regulation NMS.\15\ The proposed rule change 
does

[[Page 12768]]

not relieve Market-Makers of their obligation to provide ``firm'' 
quotes. If a complex order in a Hybrid class with three or more legs 
goes through COA and then legs into the market for execution upon 
completion of the COA, at which point the complex order would execute 
against a Market-Maker's quotes based on priority rules, the Market-
Maker must execute its quotes against the order at its then-published 
bid or offer up to its published quote size, even if such execution 
would cause the Market-Maker to significantly exceed its risk 
parameters. However, prior to the end of COA (and thus prior to a 
complex order legging into the market), a Market-Maker may adjust its 
published quotes to manage its risk in a class as it deems necessary, 
including to prevent executions that would exceed its risk parameters. 
In this case, the firm quote rule does not obligate the Market-Maker to 
execute its quotes against the complex order at the quote price and 
size that was published when the order entered the System and initiated 
the COA. Rather, the Market-Maker's firm quote obligation applies only 
to its disseminated quote at the time an order is presented to the 
Market-Maker for execution, which presentation does not occur until the 
System processes the order against the leg markets after completion of 
the COA.\16\ Thus, the proposed rule change is consistent with the firm 
quote rule.
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    \15\ Rule 602(b)(2) obligates a Market-Maker to execute any 
order to buy or sell a subject security presented to it by another 
broker or dealer or any other person belonging to a category of 
persons with whom the Market-Maker customarily deals, at a price at 
least as favorable to the buyer or sell as the Market-Maker's 
published bid or offer in any amount up to its published quotation 
size. Rule 602(b)(3) provides that no Market-Maker is obligated to 
execute a transaction for any subject security to purchase or sell 
that subject security in an amount greater than its revised 
quotation size if, prior to the presentation of an order for the 
purchase or sale of a subject security, the Market-Maker 
communicated to the Exchange a revised quotation size. Similarly, no 
Market-Maker is obligated to execute a transaction for any subject 
security if, before the order sought to be executed is presented, 
the Market-Maker has communicated to the Exchange a revised bid or 
offer. CBOE Rule 8.51 imposes a similar obligation (Market-Maker 
must sell (buy) at least the established number of contracts at the 
offer (bid) which is displayed when the Market-Maker receives a buy 
(sell) order at the trading station where the reported security is 
located for trading; however, no Market-Maker is obligated to 
execute a transaction for a listed option when, prior to the 
presentation of an order to sell (buy) to the Market-Maker, the 
Market-Maker has communicated to the Exchange a revised quote).
    \16\ See Staff Legal Bulletin No. 16, Transaction in Listed 
Options Under Exchange Act Rule 11Ac1-1, U.S. Securities and 
Exchange Commission, Division of Market Regulation, January 20, 2004 
(``Scenario 3: When an Order is ``Presented'' . . . If an individual 
market maker generates its own quotations . . . and exchange systems 
route incoming orders to the responsible broker-dealer with 
priority, when is an order presented to a responsible broker-dealer? 
Response: . . . . When each market maker is the responsible broker-
dealer with respect to its own quote, an order is presented to it 
when received by the market maker from the exchange system.''). When 
a complex order is processing through COA, the order is still in the 
System and has not yet been presented to a broker or dealer 
(including a Market-Maker) for execution. Only after completion of 
the COA, when the System allocates the complex order for execution 
in accordance with priority rules, will that order be ``presented'' 
to the Market-Maker for firm quote purposes.
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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 intramarket or intermarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. The Exchange 
does not believe the proposed rule change will impose any burden on 
intramarket competition because all IOC orders will be treated equally 
by the Exchange. The proposed rule change is intended to reduce risk to 
Market-Makers that are quoting in the regular market. CBOE believes 
that the proposed rule change will promote competition by encouraging 
Market-Makers to increase the size of and to more aggressively price 
their quotes, which will increase liquidity on the Exchange. To the 
extent that the rule change makes CBOE a more attractive marketplace, 
market participants are free to become Trading Permit Holders on CBOE 
and other exchanges are free to amend their rules in a similar manner. 
Furthermore, the Exchange does not believe the proposed rule change 
will impose any burden on intermarket competition because the rule 
change does not materially affect the outcome or purpose of SR-CBOE-
2015-081, which was to alleviate potential risk to Market-Makers using 
QRM. The Exchange also does not believe hardcoding the price at which a 
complex order may initiate a COA will impose a burden on competition.

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 \17\ and 
Rule 19b-4(f)(6) \18\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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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-2016-014 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2016-014. 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

[[Page 12769]]

information that you wish to make available publicly. All submissions 
should refer to File Number SR-CBOE-2016-014, and should be submitted 
on or before March 31, 2016.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Brent J. Fields,
Secretary.
[FR Doc. 2016-05326 Filed 3-9-16; 8:45 am]
 BILLING CODE 8011-01-P