Document ID: SEC-2017-0537-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2017-04-04T04:00Z

[Federal Register Volume 82, Number 63 (Tuesday, April 4, 2017)]
[Notices]
[Pages 16461-16464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06563]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80328; File No. SR-CBOE-2017-024]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Relating to 
Reporting Duties

March 29, 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 March 22, 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 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 to provide guidance on 
Trading Permit Holder (``TPH'') reporting duties when certain required 
reporting information is unknown. 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

[[Page 16462]]

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
    The Exchange is proposing to amend Rule 6.51 related to trade (or 
``transaction'') reporting to provide guidance on TPH reporting duties 
when certain required reporting information is unknown at the time a 
TPH systematizes orders pursuant to Rule 6.24 or reports a trade 
pursuant to Rule 6.51. The Exchange is also proposing to delete 
outdated language in Rule 6.51. Finally, the Exchange is proposing to 
amend Rule 6.67 to reference any trade record updates that may occur as 
a result of the changes to Rule 6.51.
Background
Rule 6.24
    Pursuant to Rule 6.24, each order, cancellation of, or change to an 
order transmitted to the Exchange must be ``systematized'', in a format 
approved by the Exchange, either before it is sent to the Exchange or 
upon receipt on the floor of the Exchange. An order is systematized if 
an order is sent electronically to the Exchange; or if an order sent to 
the Exchange non-electronically, is input electronically into the 
Exchange's systems contemporaneously upon receipt on the Exchange, and 
prior to representation of an order. With respect to non-electronic, 
market and marketable orders sent to the Exchange, the TPH responsible 
for systematizing the order is required to input into the Exchange's 
systems at least the following specific information with respect to the 
order prior to representation of the order: (1) The option symbol; (2) 
the expiration month; (3) the expiration year; (4) the strike price; 
(5) buy or sell; (6) call or put; (7) the number of contracts; and (8) 
the Clearing Trading Permit Holder. Rule 6.24 further provides that any 
additional information with respect to the order shall be input into 
the Exchange's systems contemporaneously upon receipt, which may occur 
after the representation and execution of the order.
Rule 6.51
    In addition to the order reporting requirements of Rule 6.24, the 
Exchange requires trades to be reported after execution. Pursuant to 
Rule 6.51(a), ``[a] participant in each transaction, to be designated 
by the Exchange, must report or ensure the transaction is reported to 
the Exchange within 90 seconds of the execution in a form and manner 
prescribed by the Exchange so that trade information may be reported to 
time and sales reports'' (or what is often referred to as ``the 
tape''). Pursuant to Rule 6.51(b), a TPH is also required to report 
trades, as promptly as possible, to the TPH for whom such transaction 
was made and/or the TPH that will clear such a transaction in a form 
and manner prescribed by the exchange. Rule 6.51.01 establishes 
procedures for reporting trades pursuant to Rule 6.51(a) and (b). The 
procedures include the submission of an account origin code for any 
agency record to be included in the transaction record. Typical origin 
codes include customer (C), broker-dealer (B) and market-maker (M).
    Pursuant to Rule 6.51(d), the Exchange outlines certain trade 
information that must be reported to the Exchange in order for the 
Exchange to properly match and clear trades. The trade information 
required in Rule 6.51(d) includes the submission of whether the 
transaction was an opening or closing transaction (hereinafter referred 
to as ``opening or closing status''). Rule 6.51.03, establishes 
procedures for reporting trades pursuant to Rule 6.51(d). Rule 6.51.03 
states, in part, ``For trades not executed on an electronic data 
storage medium, or electronic system, trade information shall be 
immediately recorded on a card or ticket and submitted as soon as 
reasonably possible, but not later than the maximum time period stated 
in Rule 2.30.''
Rule 6.67
    Rule 6.67 is related to the CBOE Trade Match System (``CTM'') and 
specifies certain information on trade records that may be updated. The 
Rule states, in part, ``The CBOE Trade Match System (``CTM'') is a 
system in which authorized Trading Permit Holders may add and/or update 
trade records. CTM may be used to enter and report transactions that 
have been effected on the Exchange in accordance with the Exchange's 
rules or to correct certain bona fide errors.''
    Among the fields that can be changed by a TPH pursuant to Rule 
6.67, are (1) opening or closing status and (2) the account origin code 
(subject to Exchange notification if the TPH is changing the origin 
code from customer (C) to any other origin code).
Operational Requirements Related to Rule 6.24 and 6.51
    As noted above, Rule 6.24 provides that any additional information 
with respect to the order shall be input into the Exchange's systems 
contemporaneously upon receipt, which may occur after the 
representation and execution of the order. The Exchange, at an 
operational-level, currently requires certain data fields that must be 
entered into an Exchange-approved system before an order can be 
represented on the Exchange's trading floor. Those data fields include, 
not only those required by Rule 6.24, but also certain fields required 
by Rule 6.51 for trade reporting purposes and additional information, 
not related to Rule 6.24 or 6.51 that may be used to process an order. 
Though not required by Rule 6.24, those data fields the Exchange 
operationally requires of TPHs, at the time of systemization, include 
(1) account origin code, (2) opening or closing status and (3) time-in-
force (i.e. an indication of how long an order will remain active 
before it is executed or expires).\3\
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    \3\ Time-in-force is not rule required order or transaction 
information but it is a data field that can be adjusted via CTM.
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Proposed Changes
Rule 6.51
    The Exchange is proposing to add Interpretation and Policy .04 to 
Rule 6.51. The proposed Rule 6.51.04 will specify what TPHs may enter 
in the event account origin code, opening or closing status, or time-
in-force is not known at the time a TPH systematizes an order or 
reports a trade. In the event the information entered needs to be 
changed, the proposed rule specifies that it will be done via the CBOE 
Trade Match System (``CTM''). Proposed Rule 6.51.04 states:
    If a Trading Permit Holder has no knowledge of the account origin 
code, opening or closing status or time-in-force of an order when the 
Trading Permit Holder systematizes the order pursuant to Rule 6.24 or 
reports a trade pursuant to Rule 6.51, as applicable, the Trading 
Permit Holder may use the following values when systematizing the order 
through an Exchange-approved device or reporting a transaction, 
respectively: (a) Either open or close, in the Trading Permit Holder's 
discretion (for opening or closing status); (b) broker-dealer (for 
account origin code); and (c) day (for time-in-force). The Trading 
Permit Holder may change any of these initial values via CTM, and must 
maintain records of any changes, pursuant to Rule 6.67.

[[Page 16463]]

    Pursuant to Rule 4.22, it remains the responsibility of the Trading 
Permit Holder to provide accurate trade information necessary for the 
reporting of a trade to time and sales reports or to allow the Exchange 
to properly match and clear trades. Any actions taken by the Exchange 
pursuant to this Interpretation and Policy .04 do not constitute a 
determination by the Exchange that an order was systematized or a trade 
was effected in conformity with the requirements of the Rules. Nothing 
in this Rule is intended to define or limit the ability of the Exchange 
to sanction or take other remedial action pursuant to other Rules for 
rule violations or other activity for which remedial measures may be 
imposed.
    In addition to proposed Rule 6.51.04, the Exchange is eliminating 
outdated language in Rule 6.51.03 referencing Rule 2.30. Rule 2.30 was 
deleted in 2005.\4\
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    \4\ See Securities Exchange Act Release No. 52824 (November 22, 
2005), 70 FR 72318 (December 2, 2005) (SR-CBOE-2005-69).
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Rule 6.67
    The Exchange is also proposing changes to Rule 6.67 to reference 
that transaction records may be updated via CTM pursuant to proposed 
Rule 6.51.04.
Analysis
    As stated in proposed Rule 6.51.04, it will remain the 
responsibility of the Trading Permit Holder to provide accurate trade 
information necessary for the reporting of a trade to the Clearing 
Corporation. Any changes to be made to account origin code, opening or 
closing status, or time-in-force will have to be entered via post trade 
adjustment in CTM in accordance with Rule 6.67. The Exchange is not 
changing any current requirement of Rule 6.24, 6.51, or any of the 
transaction reporting procedures outlined therein (other than the 
aforementioned removal of outdated language). The purpose of the 
proposed rule change is only to specify what may be done in the event 
account origin code, opening or closing status, or time-in-force is not 
known at the time an order is systematized or a transaction is 
reported. The additional guidance is necessary due to the fact that 
operationally, account origin code, opening or closing status, or time-
in-force cannot be left blank when an order is systematized pursuant to 
Rule 6.24 or a transaction is reported pursuant to Rule 6.51. 
Furthermore, the Exchange has always allowed post-trade updates to 
transaction records via CTM or otherwise. The proposed rule change will 
have no effect on how transaction records are updated or maintained.
    Neither the Exchange's audit trail nor its ability to properly 
match and clear trades will be adversely effected. Furthermore, account 
origin code, opening or closing status and time-in-force do not appear 
on time and sales reports, so any near real-time transaction 
information publically disseminated by the Exchange will not be 
effected. Finally, because order information related to account origin 
code will be defaulted to broker-dealer, orders entered pursuant to 
proposed Rule 6.51.04 will not be afforded any undue priority over any 
other resting order pursuant to Rule 6.45, Rule 6.45A or 6.45B.
    In connection with this filing, the Exchange reviewed December 2016 
order data from the Exchange floor. Of the 48,599 orders that traded on 
the exchange floor in December 2016, the Exchange noted that 17 (.03%) 
appeared to have had the origin code changed post-trade. Accordingly, 
the Exchange believes that it is rare today for an order to change from 
broker-dealer to customer. Furthermore, the Exchange believes that most 
Exchange brokers know when an order they handling is for a customer and 
they mark it accordingly. Finally, the Exchange notes that customers 
are able to choose their brokers and to the extent any customer feels 
that it did not get a good order fill as the result of a broker's 
actions, including the origin-code marking of an order, such customer 
may have recourse through their broker.
    The proposed Rule also states that TPHs remain responsible for 
reporting accurate trade information and that any actions taken by the 
Exchange pursuant to Rule 6.51.04 do not constitute a determination 
that an order was otherwise systematized or reported in accordance with 
the Rules. For example, CBOE's action to allow TPHs to initially enter 
default values and make a later change via CTM, as necessary, should 
not be construed as a determination by the Exchange that the associated 
order or any resulting transaction proposed is in conformity with 
Exchange Rules. The proposed rule is not intended to be a form of 
regulatory relief and specifically notes it will not define or limit 
the Exchange's ability to sanction TPH for violations of Exchange 
rules.
    The Exchange is basing this rule change on order entry requirements 
already in place on the NYSE Amex Options Floor (``NYSE Amex''). 
Pursuant to a Regulatory Floor Bulletin issued in 2013, NYSE Amex 
allows ``default values'' to be used for account origin code, opening 
or closing status and time-in-force when entering an order.\5\ While 
the NYSE Amex has used close as a default value for opening or closing 
status, the proposed rule use of either open or close, in the Trading 
Permit Holder's discretion. This alternative is used because some 
Exchange TPHs prefer to use the close default value that is also used 
on the AMEX Floor (where some TPHs are also a member or participant), 
while other TPHs prefer to use the open default value because their 
order entry systems are programed to reject opening orders that violate 
Exchange Rules.
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    \5\ See Regulatory Floor Bulletin RBO-AMEX-13-02, April 2, 2013.
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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.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ 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) \8\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    In particular, the Exchange believes that giving TPHs clarity on 
how account origin code, opening or closing status, or time-in-force 
should be entered at the time orders are systematized or trades are 
reported (and in the event that information is unknown) will help 
remove impediments to and perfect the mechanism of a free and open 
market in that it will allow for faster and more efficient processing 
of orders for both TPHs and their customers. The Exchange has always 
allowed updates to trade records, and any record updates that occur as 
a result of the proposed rule will not have a negative impact on the 
Exchange's audit trail or the near

[[Page 16464]]

real-time trade information disseminated publically.
    In addition, the Exchange believes the proposed rule is designed to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities. The proposed Rule states that 
TPHs remain responsible for reporting accurate trade information and 
that any actions taken by the Exchange pursuant to Rule 6.51.04 do not 
constitute a determination that an order was otherwise systematized or 
reported in accordance with the Rules. The proposed rule is not 
intended to be a form of regulatory relief and specifically notes it 
will not define or limit the Exchange's ability to sanction TPHs for 
violations of Exchange rules. The Exchange itself does not set any of 
the default values outlined in the proposed rule and the entry of order 
information remains the responsibility of TPHs. The Exchange monitors 
and surveils TPHs to ensure compliance with Exchange Rules, including 
Rule 6.51.

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 proposed rule change will 
not have any impact on intramarket competition as it applies equally to 
all TPH who are currently subject to requirements of Rule 6.51. 
Additionally, the propose rule change outlines a voluntary method of 
handling orders and will not subject any individual TPH to additional 
burden.
    Furthermore, the proposed rule is meant to ensure Exchange TPH's 
are able to handle and process orders in the same manner as members or 
participants of the NYSE Amex. As such, the proposed rule change will 
promote intermarket 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 \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 No. SR-CBOE-2017-024 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 No. SR-CBOE-2017-024. 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 No. SR-CBOE-2017-024, and should be 
submitted on or before April 25, 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. 2017-06563 Filed 4-3-17; 8:45 am]
BILLING CODE 8011-01-P