Document ID: SEC-2012-1061-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2012-07-05T04:00Z

[Federal Register Volume 77, Number 129 (Thursday, July 5, 2012)]
[Notices]
[Pages 39779-39781]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16469]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67302; File No. SR-CBOE-2012-061]

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

June 28, 2012.
    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 June 26, 2012, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') 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 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\ which renders the proposed rule change 
effective upon filing with the Commission. 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 proposes to amend its rules related to its Automated 
Improvement Mechanism (``AIM''). The text of the proposed rule change 
is 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
    In February 2006, CBOE obtained approval from the Commission to 
adopt the AIM auction process.\5\ In March 2012, CBOE obtained approval 
from the Commission to adopt a substantially similar AIM auction 
process for Flexible Exchange Options (``FLEX Options'').\6\ AIM 
exposes certain orders electronically to an auction process to provide 
these orders with the opportunity to receive an execution at an 
improved price. The AIM auction is available only for orders that an 
Exchange Trading Permit Holder represents as agent (``Agency Order'') 
and for which a second order of the same size as the Agency Order (and 
on the opposite side of the market) is also submitted (effectively 
stopping the Agency Order at a given price).
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    \5\ See Securities Exchange Act Release No. 53222 (February 3, 
2006), 71 FR 7089 (February 10, 2006) (SR-CBOE-2005-060).
    \6\ See Securities Exchange Act Release No. 66702 (March 30, 
2012), 77 FR 20675 (April 5, 2012) (SR-CBOE-2011-123). FLEX Options 
provide investors with the ability to customize basic option 
features including size, expiration date, exercise style, and 
certain exercise prices. The rules governing the trading of FLEX 
Options on the FLEX Request for Quote (RFQ) System platform are 
contained in Chapter XXIVA. The rules governing the trading of FLEX 
Options on the FLEX Hybrid Trading System platform are contained in 
Chapter XXIVB.
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    With respect to non-FLEX Options, the Commission approved two 
components of AIM on a pilot basis: (1) That there is no minimum size 
requirement for orders to be eligible for the auction; and (2) that the 
auction will conclude prematurely anytime there is a quote lock on the 
Exchange pursuant to Rule 6.45A(d).\7\ With respect to FLEX Options, 
the Commission approved on a pilot basis the component of AIM that 
there is no minimum size requirement for orders to be eligible for the 
auction.\8\ In connection with the pilot programs, the Exchange has 
submitted to the Commission reports providing detailed AIM auction and 
order execution data, and the Exchange will continue to submit to the 
Commission these reports. Six one-year extensions to the non-

[[Page 39780]]

FLEX pilot programs have previously become effective.\9\ The proposed 
rule change merely extends the duration of the non-FLEX and FLEX pilot 
programs until July 18, 2013. Extending the pilots for an additional 
year will allow the Commission more time to consider the impact of the 
pilot programs on AIM order executions.
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    \7\ A quote lock occurs when a CBOE Market-Maker's quote 
interacts with the quote of another CBOE Market-Maker (i.e. when 
internal quotes lock).
    \8\ The pilot for the FLEX AIM auction process was modeled after 
the existing pilot for non-FLEX Options, and included an expiration 
date of July 18, 2012 so that the FLEX pilot would coincide with the 
existing non-FLEX pilot.
    \9\ See Securities Exchange Act Release Nos. 54147 (July 14, 
2006), 71 FR 41487 (July 21, 2006) (SR-CBOE-2006-064); 56094 (July 
18, 2007), 72 FR 40910 (July 25, 2007) (SR-CBOE-2007-080); 58196 
(July 18, 2008), 73 FR 43803 (July 28, 2008) (SR-CBOE-2008-076) (in 
this filing, the Exchange agreed to provide to the Commission 
additional information relating to the AIM auctions each month in 
order to aid the Commission in its evaluation of the pilot program, 
which the Exchange will continue to do); 60338 (July 17, 2009), 74 
FR 36803 (July 24, 2009) (SR-CBOE-2009-051); 62522 (July 16, 2010), 
75 FR 43596 (July 26, 2010) (SR-CBOE-2010-067); and 64930 (July 20, 
2011), 76 FR 44636 (July 26, 2011) (SR-CBOE-2011-066).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\10\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \11\ requirements that the rules 
of an exchange be designed to promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change protects investors and the 
public interest by allowing for an extension of the AIM pilot programs, 
and thus allowing additional time for the Commission to evaluate the 
AIM pilot programs. The AIM pilot programs will continue to allow (1) 
smaller orders to receive the opportunity for price improvement 
pursuant to the AIM auction (for non-FLEX and FLEX Options), and (2) 
Agency Orders in AIM auctions that are concluded early because of quote 
lock on the Exchange to receive the benefit of the lock price (for non-
FLEX Options).

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.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) by its terms, become 
operative prior to 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest, the proposed rule 
change has become effective upon filing with the Commission pursuant to 
Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6)(iii) 
thereunder.\15\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the Exchange to give the Commission written 
notice of the Exchange's 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 met this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay period. The Commission believes that waiver of the 30-
day operative delay period is consistent with the protection of 
investors and the public interest because such waiver will allow the 
AIM pilot programs to continue without interruption. Accordingly, the 
Commission designates the proposed rule change operative upon filing 
with the Commission.\16\
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    \16\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such 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 shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2012-061 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2012-061. 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 
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 available publicly. All 
submissions should refer to File Number SR-CBOE-2012-061 and should be 
submitted by July 26, 2012.

[[Page 39781]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16469 Filed 7-3-12; 8:45 am]
BILLING CODE 8011-01-P