Document ID: SEC-2012-2155-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2012-12-27T05:00Z

[Federal Register Volume 77, Number 248 (Thursday, December 27, 2012)]
[Notices]
[Pages 76320-76324]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31119]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68487; File No. SR-CBOE-2012-124]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Proposed Rule To Amend Various CBOE Rules 
Governing Letters of Guarantee and Authorization

December 20, 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 December 14, 2012, the Chicago Board Options Exchange, 
Incorporated (``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

    CBOE proposes to amend various CBOE rules governing letters of 
guarantee and authorization. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Trading Permit Holders (``TPHs'') that have trading functions on 
CBOE, are required to submit a letter of guarantee or authorization \3\ 
for that TPH's trading activities on CBOE from a Clearing TPH.\4\ The 
purpose of this proposal is to amend various CBOE rules governing 
letters of guarantee and authorization to:
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    \3\ A letter of guarantee is typically provided to CBOE by a 
Clearing TPH guaranteeing any trades made by one of its TPH 
customers, e.g., a Market-Maker. A letter of authorization is 
typically provided to CBOE by a Clearing TPH accepting financial 
responsibility for all transactions on CBOE made by a guaranteed 
Floor Broker.
    \4\ CBOE Rule 1.1(f) defines ``Clearing Trading Permit Holder'' 
as a Trading Permit Holder that has been admitted to membership in 
the Clearing Corporation pursuant to the provisions of the Rules of 
the Clearing Corporation.
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     Give CBOE the ability to prevent access to its marketplace 
if a TPH does not have an effective letter of guarantee or 
authorization on file with the Exchange;
     Provide that any written revocation of a letter of 
guarantee or authorization will be given effect as quickly as CBOE can 
process it;
     Give CBOE the ability to take any action necessary to give 
effect to actions by the Clearing Corporation,\5\ such as restricting 
the activities of a Clearing TPH or suspending a Clearing TPH;
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    \5\ The Options Clearing Corporation (``OCC'') is currently the 
only Clearing Corporation of CBOE.
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     Automatically terminate the trading permit(s) and TPH 
status of a TPH if the TPH does not have a required letter of guarantee 
or authorization in place for ninety consecutive days;
     Delete obsolete and outdated rule text; and
     Make technical, non-substantive rule text changes.
    The changes proposed in this filing are intended to clarify and 
codify existing and well-established principles regarding activities 
permitted by Clearing TPHs. While elementary, the Exchanges believes 
that it is important to specifically provide in its rules that a TPH 
must have a valid letter of guarantee or authorization in order to 
engage in trading activities and, if one is not in place, the Exchange 
is permitted to prevent connectivity and access to the Exchange by that 
TPH. Similarly, the definition of a Clearing

[[Page 76321]]

TPH requires that a TPH be admitted to membership in the OCC.\6\ If the 
OCC restricts the activities of a Clearing TPH or terminates a Clearing 
TPH's membership in the OCC, that TPH no longer meets the definition of 
a ``Clearing TPH.'' As a result, the Exchange believes it is 
appropriate to codify its ability to take action, as necessary, to give 
effect to any restriction or suspension issued by the OCC.\7\ Finally, 
the Exchange is proposing to provide that if a TPH does not have a 
required letter of guarantee or authorization in place for ninety 
consecutive days, the TPH's TPH status and trading permit(s) will 
automatically terminate (in addition to previous action by the Exchange 
not to allow the TPH to have access and connectivity to the Exchange 
without a required guarantee which would occur following the revocation 
of a guarantee). If a TPH no longer has a valid letter of guarantee and 
authorization, that TPH presents risk to the marketplace and the 
Exchange believes it is appropriate to terminate trading, access and 
connectivity and then TPH status in this situation.
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    \6\ See CBOE Rule 1.1(f).
    \7\ Earlier this year, the SEC approved a proposal by a stock 
exchange that resulted in a modest expansion of its emergency 
suspension authority. In that filing, the Chicago Stock Exchange 
(``CHX'') proposed to permit officers designated by its Chief 
Regulatory Officer to suspend or otherwise limit membership of a 
market participant if a qualified clearing agency refuses to act to 
clear and settle the trades of that market participant. The Exchange 
believes its current proposal is similar in nature to the CHX filing 
since CBOE is seeking to codify its ability to give effect to 
actions (restrictions or suspensions) taken by the OCC. See 
Securities Exchange Act Release No. 66366 (February 9, 2012), 77 FR 
8927 (February 15, 2012) (order approving SR-CHX-2011-34).
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Changes to Rule 3.28 (Letters of Guarantee)
    The Exchange is proposing to amend CBOE Rule 3.28 so that it will 
govern letters of guarantee and authorization (currently Rule 3.28 is 
limited to letters of guarantee).\8\ The Exchange is proposing to add 
new paragraphs (b) through (g) to Rule 3.28 to expressly provide CBOE 
with remedial powers in the event the OCC restricts or suspends a 
Clearing TPH. The Exchange is also proposing to add new paragraph (h) 
to Rule 3.28 to govern the termination of TPH status when a TPH is 
without a required letter of guarantee or authorization for a ninety 
consecutive day period.
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    \8\ Rule 6.72 will also continue to govern Letters of 
Authorization for Floor Brokers and Rule 8.5 will also continue to 
govern Letters of Guarantee for Market-Makers.
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    First, the Exchange is proposing to provide that a TPH may not 
engage in any trading activities on the Exchange if an effective letter 
of guarantee or authorization required to engage in those activities is 
not on file with the Exchange. If a Trading Permit Holder does not have 
an effective letter of guarantee or authorization on file with the 
Exchange, the Exchange will be permitted to prevent access and 
connectivity to the Exchange by that Trading Permit Holder.
    Second, the Exchange is proposing to provide that letters of 
guarantee and authorization filed with the Exchange will remain in 
effect until a written notice of revocation has been filed with the TPH 
Department and the revocation becomes effective or the letter of 
guarantee or authorization otherwise becomes invalid pursuant to 
Exchange rules. A written notice of revocation will become effective as 
soon as the Exchange is able to process the revocation. A revocation 
will in no way relieve a Clearing TPH of responsibility for 
transactions guaranteed prior to the effectiveness of the revocation.
    Third, the Exchange is proposing to provide that if the OCC 
restricts the activities of a Clearing TPH or suspends a Clearing TPH 
as a Clearing Member of the OCC, the Exchange will be permitted to take 
action as necessary to give effect to the restriction or suspension. 
For example, if the OCC restricts transactions cleared by a Clearing 
TPH to ``closing only'' transactions, the Exchange will be similarly 
able to restrict transactions on the Exchange for clearance by that 
Clearing TPH as a Clearing Member of the OCC to ``closing only'' 
transactions. Similarly, if the OCC suspends a Clearing TPH, the 
Exchange will be similarly able to prevent access and connectivity to 
the Exchange by the suspended Clearing TPH.
    Fourth, the Exchange is proposing to provide that if a Clearing 
TPH's status as a Clearing Member of the OCC is terminated or if a 
Clearing TPH's status as a CBOE TPH is terminated, all letters of 
guarantee and authorization on file with the Exchange from that 
Clearing TPH will no longer be valid effective as soon as the Exchange 
is able to process the invalidation of these letters of guarantee and 
authorization.
    Fifth, the Exchange is proposing to provide that if a Clearing TPH 
has been suspended as a Clearing Member of the OCC or as a CBOE TPH, 
all existing letters of guarantee and authorization from that Clearing 
TPH will be invalid during the period of the suspension effective as 
soon as the Exchange is able to process the invalidation of those 
letters of guarantee and authorization.
    Sixth, the Exchange is proposing to provide that the invalidation 
of a letter of guarantee or authorization will in no way relieve the 
Clearing TPH that issued the letter of guarantee or authorization of 
responsibility from transactions guaranteed prior to the effectiveness 
of the invalidation.
    Seventh, the Exchange is proposing to provide that if a Trading 
Permit Holder does not have a required letter of guarantee or 
authorization for period of ninety consecutive days, the Trading Permit 
Holder's trading permit(s) and status as a Trading Permit Holder shall 
automatically be terminated.
    A revocation of a letter of guarantee or authorization will not 
occur immediately upon receipt of the revocation by the TPH Department 
because it takes time for the Exchange to process and effectuate the 
revocation. For example, there are changes that must be input into the 
Exchange's systems in order to systematize and effectuate a revocation. 
Also Exchange staff may be occupied with other matters when a 
revocation is received and may not immediately be able to process the 
revocation. Accordingly, the revocation and invalidation of letters of 
guarantee and authorization under proposed Rules 3.28(c) and 3.28(f) 
shall become effective as soon as the Exchange is able to process the 
revocation or invalidation. The Exchange will endeavor to process 
revocations and invalidations in a timely manner under the 
circumstances but makes no guarantees in this respect.
    If a TPH has a letter of guarantee or authorization that is revoked 
or invalidated, that TPH's orders and quotes will be rejected after the 
revocation or invalidation after the revocation or invalidation becomes 
effective unless and until the TPH has another effective letter of 
guarantee or authorization in place and on file with the Exchange. This 
means that a TPH without an effective letter of guarantee or 
authorization will not be able to continue to trade on the Exchange.
Changes to Rule 6.72 (Letters of Authorization)
    The Exchange is proposing to amend CBOE Rule 6.72 to provide that a 
letter of authorization previously filed with the Exchange will remain 
effective until a written notice of revocation has been filed with the 
TPH Department and the revocation becomes effective or until such time 
that the letter of authorization otherwise becomes invalid under CBOE's 
rules. In the event a written notice of revocation is provided, the 
Exchange is proposing to provide that the revocation shall become 
effective as soon as the Exchange is able to process it. The current 
rule sets forth a time

[[Page 76322]]

period for the effectiveness of a revocation to take place. The 
Exchange does not believe that a rigid timeframe is necessary. Due to 
the Exchange's ability to process revocations more quickly, a rigid 
timeframe for processing is no longer needed. The Exchange is also 
proposing to eliminate the provision that a Clearing TPH may request 
that the Exchange post notice of the revocation because the Exchange 
believes that such notice is no longer necessary. A posting is not 
currently required unless requested by the Clearing TPH that submitted 
the revocation, and the Exchange believes that all such revocations 
should be handled in the same manner in this regard. Since it is 
unusual for a Clearing TPH to request that notice of a revocation be 
posted, the Exchange does not see a need to do so based on this past 
experience.
    The Exchange also proposes to include an internal cross reference 
to Rule 3.28 that would provide that letters of authorization issued 
for Floor Brokers under Rule 6.72 will be subject to Rule 3.28 whereas 
those letters of authorization issued to Floor Brokers were previously 
only governed by Rule 6.72. There would be some overlap between current 
Rule 6.72 and the newly proposed provisions to Rule 3.28; however, the 
following new provisions to Rule 3.28 would apply to letters of 
authorization issued pursuant to Rule 6.72 by reference:
     Give CBOE the ability to prevent access to its marketplace 
if a Floor Broker TPH does not have an effective letter of 
authorization on file with the Exchange (Proposed Rule 3.28(b));
     Give CBOE the ability to take any action necessary to give 
effect to actions by the Clearing Corporation, such as restricting the 
activities of a Clearing TPH or suspending a Clearing TPH (Proposed 
Rule 3.28(d));
     Give CBOE the ability to invalidate a Floor Broker's 
letter of authorization if it was issued by a Clearing TPH whose 
Clearing TPH status as a Clearing Member of the OCC is terminated or if 
a Clearing TPH's status as a CBOE TPH is terminated effective as soon 
as the Exchange is able to process the invalidation of the letter of 
authorization (Proposed Rule 3.28(e));
     Give CBOE the ability to invalidate a Floor Broker's 
letter of authorization, if it was issued by a Clearing TPH who has 
been suspended as a Clearing Member of the OCC or as a CBOE TPH, during 
the period of the suspension effective as soon as the Exchange is able 
to process the invalidation of the letter of authorization (Proposed 
Rule 3.28(f));
     Provide that the invalidation of a letter of authorization 
shall in no way relieve the Clearing Trading Holder that issued the 
letter of authorization of responsibility from transactions guaranteed 
prior to the effectiveness of the invalidation (Proposed Rule 3.28(g)); 
and
     Automatically terminate the trading permit(s) and TPH 
status of a Floor Broker TPH if the Floor Broker TPH does not have a 
required letter of guarantee or authorization in place for ninety 
consecutive days (Proposed Rule 3.28(h)).
    Finally, the Exchange proposes to make a few, non-substantive and 
technical changes to Rule 6.72 (i.e., minor word phrasing changes).
Changes to Rule 8.5 (Letters of Guarantee)
    The Exchange is proposing to amend CBOE Rule 8.5 to provide that a 
letter of guarantee previously filed with the Exchange will remain 
effective until a written notice or revocation has been filed with the 
TPH Department and the revocation becomes effective or until such time 
that the letter of guarantee otherwise becomes invalid under CBOE's 
rules. In the event a written notice of revocation is provided, the 
Exchange is proposing to provide that the revocation shall become 
effective as soon as the Exchange is able to process it. The current 
rule sets forth a time period for the effectiveness of a revocation to 
take place. The Exchange does not believe that a rigid timeframe is 
necessary. Due to the Exchange's ability to process revocations more 
quickly, a rigid timeframe for processing is no longer needed. The 
Exchange is also proposing to eliminate the provision that a Clearing 
TPH may request that the Exchange post notice of the revocation for the 
same reasons set forth in the paragraph above relating to revocations 
under Rule 6.72.
    The Exchange also proposes to include an internal cross reference 
to Rule 3.28 that would provide that letters of guarantee issued for 
Market-Makers under Rule 8.5 will be subject to Rule 3.28 whereas those 
letters of guarantee issued to Market-Makers were previously only 
governed by Rule 8.5. There would be some overlap between current Rule 
8.5 and the newly proposed provisions to Rule 3.28; however, the 
following new provisions to Rule 3.28 would apply to letters of 
guarantee issued pursuant to Rule 8.5 by reference:
     Give CBOE the ability to prevent access to its marketplace 
if a Market-Maker TPH does not have an effective letter of guarantee on 
file with the Exchange (Proposed Rule 3.28(b));
     Give CBOE the ability to take any action necessary to give 
effect to actions by the Clearing Corporation, such as restricting the 
activities of a Clearing TPH or suspending a Clearing TPH (Proposed 
Rule 3.28(d));
     Give CBOE the ability to invalidate a Market-Maker's 
letter of guarantee if it was issued by a Clearing TPH whose Clearing 
TPH status as a Clearing Member of the OCC is terminated or if a 
Clearing TPH's status as a CBOE TPH is terminated effective as soon as 
the Exchange is able to process the invalidation of the letter of 
guarantee (Proposed Rule 3.28(e));
     Give CBOE the ability to invalidate a Market-Maker's 
letter of guarantee, if it was issued by a Clearing TPH who has been 
suspended as a Clearing Member of the OCC or as a CBOE TPH, during the 
period of the suspension effective as soon as the Exchange is able to 
process the invalidation of the letter of guarantee (Proposed Rule 
3.28(f));
     Provide that the invalidation of a letter of guarantee 
shall in no way relieve the Clearing Trading Holder that issued the 
letter of guarantee of responsibility from transactions guaranteed 
prior to the effectiveness of the invalidation (Proposed Rule 3.28(g)); 
and
     Automatically terminate the trading permit(s) and TPH 
status of a Market-Maker Broker TPH if the Market-Maker TPH does not 
have a required letter of guarantee or authorization in place for 
ninety consecutive days (Proposed Rule 3.28(h)).
    The Exchange also proposes to make a few, non-substantive and 
technical changes to Rule 8.5 (i.e., minor word phrasing changes).
    Finally, the Exchange is proposing to delete Interpretations and 
Policies .01, .02 and .04 from Rule 8.5 since .01 is obsolete as the 
Exchange no longer offers trading in the product referenced in that 
provision and .02 and .04 are obsolete since the OCC is no longer 
involved in approving CBOE letters of guarantee.
Changes to Rules 24A.15 and 24B.13 (Letters of Guarantee or 
Authorization)
    CBOE Rules 24A.15 and 24B.13 relate to FLEX options. The Exchange 
is proposing to amend those rules by deleting a provision in each rule 
relating to OCC approval of letters of guarantee that are being amended 
to include FLEX option transactions, since that provision is obsolete 
as the OCC is no longer involved in approving CBOE letters of 
guarantee.

[[Page 76323]]

    The Exchange also proposes to include an internal cross reference 
to Rule 3.28 that would provide letters of guarantee or authorization 
issued for FLEX Market-Makers and Floor Brokers under Rules 24A.15 and 
24B.13 will be subject to Rule 3.28 whereas those letters of guarantee 
or authorization issued to FLEX Market-Makers or Floor Brokers were 
previously only governed by Rules 24A.15 and 24B.15. There would be 
some overlap between current Rules 24A.15 and 24B.15 and the newly 
proposed provisions to Rule 3.28; however, the following new provisions 
to Rule 3.28 would apply to letters of guarantee or authorization 
issued pursuant to Rules 24A.15 and 24B.15 by reference:
     Give CBOE the ability to prevent access to its marketplace 
if a FLEX Market-Maker or Floor Broker TPH does not have an effective 
letter of guarantee or authorization on file with the Exchange 
(Proposed Rule 3.28(b));
     Give CBOE the ability to take any action necessary to give 
effect to actions by the Clearing Corporation, such as restricting the 
activities of a Clearing TPH or suspending a Clearing TPH (Proposed 
Rule 3.28(d));
     Give CBOE the ability to invalidate a FLEX Market-Maker or 
Floor Broker TPH's letter of guarantee or authorization if it was 
issued by a Clearing TPH whose Clearing TPH status as a Clearing Member 
of the OCC is terminated or if a Clearing TPH's status as a CBOE TPH is 
terminated effective as soon as the Exchange is able to process the 
invalidation of the letter of guarantee or authorization (Proposed Rule 
3.28(e));
     Give CBOE the ability to invalidate a FLEX Market-Maker or 
Floor Broker TPH's letter of guarantee or authorization, if it was 
issued by a Clearing TPH who has been suspended as a Clearing Member of 
the OCC or as a CBOE TPH, during the period of the suspension effective 
as soon as the Exchange is able to process the invalidation of the 
letter of guarantee or authorization (Proposed Rule 3.28(f));
     Provide that the invalidation of a letter of guarantee or 
authorization shall in no way relieve the Clearing Trading Holder that 
issued the letter of guarantee or authorization of responsibility from 
transactions guaranteed prior to the effectiveness of the invalidation 
(Proposed Rule 3.28(g)); and
     Automatically terminate the trading permit(s) and TPH 
status of a FLEX Market-Maker or Floor Broker TPH if the FLEX Market-
Maker or Floor Broker TPH does not have a required letter of guarantee 
or authorization in place for ninety consecutive days (Proposed Rule 
3.28(h)).
    Finally, the Exchange also proposes to make a few, non-substantive 
and technical changes to Rules 24A.15 and 24B.13 (i.e., the addition of 
the word ``effective'' in subparagraphs (a) and (b) to each rule).
Changes to Rules 26.11 (Market-Makers) and 26.13 (Floor Broker 
Financial Requirements)
    CBOE Rules 26.11 and 26.13 relate to market basket contracts, which 
the Exchanges does not currently list for trading, but the Exchange is 
taking the opportunity to amend the identified rules since the changes 
proposed in this filing are on subject. The Exchange is proposing to 
amend those rules by deleting a provision in each rule relating to OCC 
approval of letters of guarantee that are amended to include market 
basket transactions, since that provision is obsolete as the OCC is no 
longer involved in approving CBOE letters of guarantee.
    The Exchange also proposes to include an internal cross reference 
to Rule 3.28 that would provide that letters of guarantee issued for 
Market-Makers in market basket contracts and letters of authorization 
issued for Floor Brokers in market basket contracts under Rules 26.11 
and 26.13, respectively, will be subject to Rule 3.28 whereas those 
letters of guarantee or authorization issued to Market-Makers and Floor 
Brokers in market basket contracts were previously only governed by 
Rules 26.11 and 26.13. There would some overlap between current Rules 
26.11 and 26.13 and the newly proposed provisions to Rule 3.28; 
however, the following new provisions to Rule 3.28 would apply to 
letters of guarantee or authorization issued pursuant to Rules 26.11 
and 26.13 by reference:
     Give CBOE the ability to prevent access to its marketplace 
if a Market-Maker or Floor Broker TPH in market basket contracts does 
not have an effective letter of guarantee or authorization on file with 
the Exchange (Proposed Rule 3.28(b));
     Give CBOE the ability to take any action necessary to give 
effect to actions by the Clearing Corporation, such as restricting the 
activities of a Clearing TPH or suspending a Clearing TPH (Proposed 
Rule 3.28(d));
     Give CBOE the ability to invalidate a market basket 
Market-Maker or Floor Broker TPH's letter of guarantee or authorization 
if it was issued by a Clearing TPH whose Clearing TPH status as a 
Clearing Member of the OCC is terminated or if a Clearing TPH's status 
as a CBOE TPH is terminated effective as soon as the Exchange is able 
to process the invalidation of the letter of guarantee or authorization 
(Proposed Rule 3.28(e));
     Give CBOE the ability to invalidate a market basket 
Market-Maker or Floor Broker TPH's letter of guarantee or 
authorization, if it was issued by a Clearing TPH who has been 
suspended as a Clearing Member of the OCC or as a CBOE TPH, during the 
period of the suspension effective as soon as the Exchange is able to 
process the invalidation of the letter of guarantee or authorization 
(Proposed Rule 3.28(f));
     Provide that the invalidation of a letter of guarantee or 
authorization shall in no way relieve the Clearing Trading Holder that 
issued the letter of guarantee or authorization of responsibility from 
transactions guaranteed prior to the effectiveness of the invalidation 
(Proposed Rule 3.28(g)); and
     Automatically terminate the trading permit(s) and TPH 
status of a Market-Maker or Floor Broker TPH in market basket contracts 
if the Market-Maker or Floor Broker TPH in market basket contracts does 
not have a required letter of guarantee or authorization in place for 
ninety consecutive days (Proposed Rule 3.28(h)).
    The Exchange also proposes to make a few, non-substantive and 
technical changes to Rules 26.11 and 26.13 (i.e., the addition of the 
words ``Exchange'' and ``effective'' to Rule 26.11 and the addition of 
the word ``valid'' to Rule 26.13).
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.\9\
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    \9\ 15 U.S.C. 78f(b).
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    Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \10\ 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)(5).
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    Expressly permitting the Exchange to take action as needed to give 
effect to a restriction or suspension issued by the OCC will protect 
the integrity of the Exchange's marketplace by limiting

[[Page 76324]]

trading to only those TPHs with effective and unrestricted letters of 
guarantee and authorization. A key purpose for having Clearing TPHs is 
to reduce the risk of market participants failing to honor executed 
trades. By requiring that TPHs have an effective and unrestricted 
letters of guarantee, the Exchange is advancing this purpose. 
Additionally, the Exchange believes that the proposed rule change is 
designed 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 in that it will allow CBOE to 
take actions to give effect to restrictions or suspensions issued by 
the OCC. The ability to take action is designed to prevent the 
execution of trades on CBOE which may not be able to be ultimately 
cleared and settled if access to CBOE's marketplace is not restricted 
in tandem with a restriction or suspension issued by the OCC. Also, 
preventing access and connectivity to the Exchange by a TPH if that 
TPH's Clearing TPH revokes the TPH's letter of guarantee or 
authorization is beneficial to the marketplace and serves to protect 
investors since it prevents trading by a TPH without a financial 
guarantee for that trading. If a TPH no longer has a valid letter of 
guarantee or authorization, that TPH presents risk to the marketplace 
and the Exchange believes it is appropriate to prevent access and 
connectivity to the Exchange by that TPH in this situation. The 
Exchange also believes that having the ability to terminate the TPH 
status and trading permit(s) of a TPH that does not have a required 
letter of guarantee or authorization for ninety consecutive days is 
desirable since it allows the Exchange to appropriately manage and 
control access to its marketplace by limiting access only to those with 
a financial guarantee which thereby serves to protect investors by 
ensuring that counterparties to trades have such a guarantee.
    The Exchange believes the proposed rule change is also consistent 
with the Section 6(b)(7) \11\ requirements that the rules of an 
exchange provide a fair procedure for the denial of membership to any 
person seeking membership therein and the prohibition or limitation by 
an exchange of any person with respect to access to services offered by 
the exchange.
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    \11\ 15 U.S.C. 78f(b)(7).
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    Specifically, with respect to the proposed automatic termination 
provision when a TPH does not have a required letter of guarantee or 
authorization for ninety consecutive days, the Exchange believes that 
that provision establishes a fair procedure because it strikes the 
appropriate balance between giving a deficient TPH an adequate amount 
of time to cure the deficiency of not having a required letter of 
guarantee or authorization and allowing the Exchange to appropriately 
limit access to its marketplace only to those TPHs with a financial 
guarantee. Furthermore, the automatic termination provision does not 
prohibit or limit a previously terminated TPH from seeking to gain 
access again to the Exchange by applying to become a TPH subsequent to 
the termination if the TPH is able to again acquire the required letter 
of guarantee and authorization.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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 up to 90 days (i) as the 
Commission may designate 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 email to rule-comments@sec.gov. Please 
include File Number SR-CBOE-2012-124 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-2012-124. 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 Number SR-CBOE-2012-124 and should be 
submitted on or before January 17, 2013

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-31119 Filed 12-26-12; 8:45 am]
BILLING CODE 8011-01-P