Document ID: SEC-2015-1787-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2015-11-02T05:00Z

[Federal Register Volume 80, Number 211 (Monday, November 2, 2015)]
[Notices]
[Pages 67457-67461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27793]

[[Page 67457]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76273; File No. SR-CBOE-2015-089]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Relating to 
Complex Orders, as Modified by Amendment No. 1

October 27, 2015.
    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 October 13, 2015, 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. On October 26, 2015, the Exchange submitted Amendment No. 1 
to the proposed rule change. 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 Rule 6.53C. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 6.53C regarding complex orders. 
The proposed rule change (1) amends the rule provisions regarding the 
initiation of a complex order auction (``COA''), (2) adds rule 
provisions regarding the impact of certain incoming orders and changes 
in the leg markets on an ongoing COA, and (3) updates the rule text 
regarding who can submit complex orders. The proposed rule change also 
makes technical and other nonsubstantive changes.
    First, the Exchange proposes to amend Rule 6.53C and Interpretation 
and Policy .04 regarding the initiation of a COA. Currently, CBOE Rule 
6.53C(d)(ii) provides that on receipt of (1) a COA-eligible order \3\ 
with two legs and request from the Trading Permit Holder representing 
the order or the PAR operator handling the order, as applicable, that 
it be COA'd or (2) a complex order with three or more legs that (a) 
meets the class, marketability, size and complex order type parameters 
included in the definition of a COA-eligible order or (B) is designated 
as immediate-or-cancel and meets the class, marketability and size 
parameters included in the definition of a COA-eligible order,\4\ in 
both cases regardless of the order's routing parameters or handling 
instructions (except for orders routed for manual handling), the 
Exchange will send a request for response (``RFR'') message to all 
Trading Permit Holders who have elected to receive RFR messages.\5\ 
Interpretation and Policy .04(a) states that, with respect to the 
initiation of a COA, Trading Permit Holders routing complex orders 
directly to the complex order book (``COB'') may request that the 
complex orders be COA'd on a class-by-class basis, and Trading Permit 
Holders with resting complex orders on PAR may request that complex 
orders be COA'd on an order-by-order basis. Currently, all Trading 
Permit Holders have requested that all of their COA-eligible orders 
with two legs process through COA upon entry into the System. 
Therefore, rather than have Trading Permit Holders and PAR operators 
affirmatively request that their COA-eligible orders with two legs COA, 
the Exchange proposes to amend Rule 6.53C(d)(ii) to provide that 
incoming COA-eligible orders with two legs (including orders submitted 
for electronic processing from PAR) will COA by default.\6\
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    \3\ A ``COA-eligible order'' means a complex order that, as 
determined by the Exchange on class-by-class basis, is eligible for 
a COA considering the order's marketability (defined as a number of 
tickets away from the current market), size, complex order type and 
complex order origin types. Currently, in all Hybrid classes, (a) 
only complex orders with origin codes for public and professional 
customers, (b) all complex order types except for immediate-or-
cancel (``IOC'') orders, and (c) marketable orders and ``tweener'' 
limit orders bettering the same side of the derived net market are 
eligible for COA. In Hybrid 3.0 classes (i.e. SPX), (a) all complex 
order types (including IOC orders) and (b) only customer orders are 
eligible for COA. See Regulatory Circulars RG06-73, RG08-38 and 
RG08-97.
    \4\ This description of the current rule includes changes to 
Rule 6.53C proposed in SR-CBOE-2015-081, which CBOE filed for 
immediate effectiveness on October 2, 2015.
    \5\ ``RFR'' stands for a ``request for responses'' that occurs 
in the COA process. 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.
    \6\ The proposed rule change applies to all COA-eligible orders 
with two legs, including eligible stock-option orders, in all Hybrid 
and Hybrid 3.0 classes. The proposed rule change does not change the 
allocation or priority provisions of complex orders, nor does it 
impact leg order functionality described in Rule 6.53C(c)(iv), which 
functionality the Exchange has the authority to implement (the 
Exchange that leg order functionality is currently not available in 
any classes). The proposed rule change also makes a nonsubstantive 
change to move language regarding the System sending RFR messages to 
the beginning of the provision.
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    The Exchange believes Trading Permit Holders should still maintain 
flexibility to have these two-legged orders not COA. In order to 
provide Trading Permit Holders with this flexibility, the proposed rule 
change adds that, notwithstanding the foregoing, Trading Permit Holders 
may request on an order-by-order basis that a COA-eligible order with 
two legs not COA (referred to as a ``do-not-COA'' request). The 
proposed rule change adds that if a two-legged order with a do-not-COA 
requests rests on PAR, the PAR operator may not request that the order 
COA (in other words, if the PAR operator submits that order for 
electronic processing, the PAR operator cannot override the Trading 
Permit Holder's do-not-COA order request, and the order will enter the 
COB). Because of this proposed rule change, the Exchange deletes the 
language in Interpretation and Policy .04(a) that indicates Trading 
Permit Holders may request that complex orders be COA'd on a class-by-
class basis, as it is no longer necessary.\7\

[[Page 67458]]

While the proposed rule change will not permit Trading Permit Holders 
to not COA orders on a class-by-class basis, the Exchange believes that 
it will not burden Trading Permit Holders because they have not 
requested this in the past. Additionally, allowing Trading Permit 
Holders to make a do-not-COA request on an order-by-order basis will 
better allow them to make decisions regarding the handling of their 
orders based on market conditions at the time they submit their 
orders.\8\
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    \7\ The proposed rule change deletes Interpretation and Policy 
.04(a) in order to include all information regarding the initiation 
of a COA in subparagraph (d)(ii) in the same place within the rule. 
As a result, the proposed rule change deletes the lettering for 
paragraph (b), which will be the only remaining provision in 
Interpretation and Policy .04. The proposed rule change makes a 
corresponding change in subparagraph (d)(ii) to delete a reference 
to making a request pursuant to Interpretation and Policy .04.
    \8\ For organizational purposes, the proposed rule change 
divides paragraph (d)(ii) into two subparagraphs (A) and (B), which 
address the general rule regarding when complex orders will COA and 
the treatment of complex orders with do-not-COA requests, 
respectively, and makes corresponding changes to cross-references in 
the rule.
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    While the proposed rule change provides that Trading Permit Holders 
may include a do-not-COA request on complex orders with two legs, the 
proposed rule change indicates that an order with a do-not-COA request 
may still COA after it has rested on the COB pursuant to Interpretation 
and Policy .04.\9\ The Exchange believes that Trading Permit Holders 
that include a do-not-COA request for an order upon entry into the 
System do so to receive automatic execution with the leg market or the 
COB, as applicable, without the delay of the COA.\10\ However, if that 
does not occur and the order enters the COB to rest, the Exchange 
believes it is appropriate to COA the order after resting on the COB 
(if that functionality has been activated for the class) to try and 
obtain an execution even though the Trading Permit Holder initially did 
not want the order to COA, as the COA will not delay execution at that 
point.
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    \9\ Interpretation and Policy .04(b) (which the proposed rule 
change amends to become Interpretation and Policy .04) provides that 
the Exchange may determine on a class-by-class basis to 
automatically COA nonmarketable orders resting at the top of the COB 
if they are within a number of ticks away from the current derived 
net market.
    \10\ The current COA response time interval is 100 milliseconds.
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    The Exchange notes that an order with a do-not-COA request will 
still have execution opportunities. For example, such an order may 
execute automatically upon entry into the System against the leg 
markets or complex orders on the COB to the extent marketable (in 
accordance with allocation rules set forth in Rule 6.53C). 
Additionally, pursuant to Rule 6.53C(d)(viii)(1), such an order on the 
opposite side of and marketable against a COA-eligible order may trade 
against the COA-eligible order if the System receives the order while a 
COA is ongoing. A do-not-COA request merely provides the order with the 
opportunity to execute upon entry into the System rather than after 
going through an auction; the order will be subject to the same 
priority and allocation rules.\11\
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    \11\ A complex order that COAs upon entry into the System or 
after resting in the COB will not miss any execution opportunities. 
Pursuant to current Interpretation and Policy .04(b), an order that 
COAs after resting on the COB will be nonmarketable and at the top 
of the COB (and thus is the best-priced complex order at the time). 
Rule 6.53C(d)(viii) (including as amended by this rule filing, as 
further discussed below) describes how incoming complex orders 
received during a COA impact the COA, including providing that the 
COA'd order (which may be an order that COAs upon entry into the 
System or after resting in the COB) will have time priority over the 
incoming order, and ultimately provides that a COA'd order will not 
lose execution opportunities to complex orders submitted during the 
COA.
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    Second, the proposed rule change adds subparagraphs Rule 
6.53C(d)(viii)(4) and (5) to describe additional circumstances that 
will cause a COA to end early.\12\ Proposed subparagraph (viii)(4) 
describes how an incoming order with a do-not-COA request or that is 
not COA-eligible may impact an ongoing COA. Rule 6.53C(d)(viii) 
currently describes the handling of unrelated complex orders that are 
received prior to the expiration of the COA Response Time Interval.\13\ 
The proposed rule change states that if an order with a do-not-COA 
request or an order that is not COA-eligible is received prior to the 
expiration of the Response Time Interval for the original COA and is on 
the same side of the market and at a price better than or equal to the 
starting price, then the original COA will end. Similar to the current 
provisions regarding incoming unrelated COA-eligible orders on the same 
side of the COA-eligible order (and at a price better than or equal to 
the starting price), the processing of the original COA pursuant to 
subparagraphs (d)(iv) through (d)(vi) remains the same \14\ with the 
addition that the priority of the original COA-eligible order and the 
order with the do-not-COA request or the order that is not COA-
eligible, as applicable, will be according to time priority. In other 
words, the COA-eligible order would trade before the order with the do-
not-COA request or order that is not COA-eligible, regardless of the 
price of each order.\15\ The purpose of this proposed provision (as it 
is for the current provisions related to unrelated complex orders) is 
to prevent the order with the do-not-COA request or the order that is 
not COA-eligible,\16\ as applicable, from executing prior to the 
original COA-eligible order, which, if it did not COA, may have 
executed or entered the COB

[[Page 67459]]

(because it would have entered the COB first, it potentially would have 
priority over the incoming order to the extent the algorithm applicable 
to the class considered time as a factor for allocation).
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    \12\ The proposed rule change makes corresponding changes to the 
heading and introductory paragraph of subparagraph (d)(viii).
    \13\ Rule 6.53C(d)(viii) states that incoming complex orders 
that are received prior to the expiration of the response time 
interval for a COA-eligible order (the ``original COA'') will impact 
the original COA as follows: (a) Incoming complex orders that are 
received prior to the expiration of the response time interval for 
the original COA that are on the opposite side of the market and are 
marketable against the starting price of the original COA-eligible 
order will cause the original COA to end. The processing of the 
original COA pursuant to subparagraphs (d)(iv) through (d)(vi) 
remains the same. (The ``starting price'' means the better of the 
original COA-eligible order's limit price or the best price, on a 
net debit or credit basis, that existed in the EBook or COB at the 
beginning of the response time interval.) (b) Incoming COA-eligible 
orders that are received prior to the expiration of the response 
time interval for the original COA that are on the same side of the 
market, at the same price or worse than the original COA-eligible 
order and better than or equal to the starting price will join the 
original COA. The processing of the original COA pursuant to 
subparagraphs (d)(iv) through (d)(vi) remains the same with the 
addition that the priority of the original COA-eligible order and 
incoming COA-eligible order(s) will be according to time priority. 
(c) Incoming COA-eligible orders that are received prior to the 
expiration of the response time interval for the original COA that 
are on the same side of the market and at a better price than the 
original COA-eligible order will join the original COA, cause the 
original COA to end, and a new COA to begin for any remaining 
balance on the incoming COA-eligible order. The processing of the 
original COA pursuant to subparagraphs (d)(iv) through (d)(vi) 
remains the same with the addition that the priority of the original 
COA-eligible order and incoming COA-eligible order will be according 
to time priority.
    \14\ Rule 6.53C(d)(iv) through (d)(vi) provides that at the 
expiration of the response time interval, the COA-eligible order 
will trade with orders and quotes in the following order: (a) 
Individual orders and quotes residing in the book (with allocation 
consistent with the ultimate matching algorithm (``UMA'') described 
in Rule 6.45A or 6.45B, as applicable), (b) public customer complex 
orders resting in the COB before, or that are received during, the 
response time interval and public customer RFR responses (with 
allocation according to time priority), (c) nonpublic customer 
orders resting in the COB before the response time interval (with 
allocation consistent with UMA described in Rule 6.45A or 6.45B, as 
applicable), and (d) nonpublic customer orders resting in the COB 
that are received during the response time interval and nonpublic 
customer responses (with allocation consistent with the ultimate 
matching algorithm described in Rule 6.45A or 6.45B, as applicable, 
capped at the response size). If a COA-eligible order cannot be 
filled in whole or in a permissible ratio, the order (or any 
remaining balance) will route to the COB or back to PAR, as 
applicable. Thus, the unrelated order with a do-not-COA request or 
the order that is not COA-eligible will have execution opportunities 
against the leg markets, complex orders in the COB and COA 
responses, with priority after the original COA-eligible order.
    \15\ This time priority is the same provided to COA-eligible 
orders over incoming orders in subparagraphs (d)(viii)(2) and (3).
    \16\ Current paragraph (d)(viii) currently addresses the impact 
of incoming COA-eligible orders on the same side of the original 
COA-eligible order. The proposed rule change adds detail regarding 
the impact of orders that are not COA-eligible and orders with a do-
not-COA request. The Exchange believes this provides a more complete 
description in its rules regarding the impact of unrelated complex 
orders received during a COA.
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    For example, assume that a COA-eligible order to buy with a net 
limit price of $1.20 is received when the book or COB price (and thus 
the starting price) is a net price bid of $1.10. The System will 
initiate a COA at a net price of $1.10. An incoming order with a do-
not-COA request to buy at a net price of $1.10 or higher causes the 
original COA to end. To the extent possible, the original COA-eligible 
order will be filled first, and then the order with the do-not-COA 
request will be filled (subject to the COA allocation provisions 
describe above).\17\ Any remaining balance on the original COA-eligible 
order or the incoming order with the do-not-COA request will route to 
COB or back to PAR. The Exchange believes this result to be 
appropriate, even if the incoming order with the do-not-COA request had 
a higher buy price than the COA-eligible order (e.g. $1.21), because if 
the COA-eligible order had not initiated a COA and was marketable at 
the time it was entered (for example, if the offer in the book was 
$1.15), it could have executed against the book before the order was 
entered. Providing the COA-eligible order with time priority is 
intended to ensure it does not miss an execution opportunity it would 
have otherwise received if it had not initiated a COA.
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    \17\ See id.
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    Proposed subparagraph (viii)(5) provides that if the leg markets 
were not marketable against a COA-eligible order when the order entered 
the System (and thus prior to the initiation of a COA) but became 
marketable with the COA-eligible order prior to the expiration of the 
Response Time Interval, it will cause the COA to end.\18\ The 
processing of the original COA pursuant to subparagraphs (d)(iv) 
through (d)(vi) remains the same.
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    \18\ This is similar to the result described in subparagraph 
(viii)(1), which provides that an incoming complex order on the 
opposite side of the market as and marketable against the COA-
eligible order will cause the COA to end.
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    For example, assume that the derived net leg market is $1.00 to 
$1.05. A COA-eligible order to buy at a net price of $1.02 is entered 
and initiates a COA. During the COA (prior to the end of the Response 
Time Interval), the derived net leg market offer changes to $1.01. 
Because this is marketable against the COA-eligible order, this change 
in the derived net leg markets will cause the COA to end. Assuming the 
derived net leg market offer price of $1.01 is the best net price at 
the end of the COA,\19\ the COA-eligible order will execute against the 
leg markets at that net price, and any remainder will then trade 
against complex orders in the COB and auction responses. If a complex 
order to buy was resting on the COB (for example, at a net price of 
$1.01) at the initiation of the COA (for example, a do-not-COA order or 
an order that is not COA-eligible),\20\ that order and the COA-eligible 
order would be allocated against the leg markets in the same manner as 
any other two complex orders pursuant to Rule 6.53C(c)(ii) regarding 
COB executions, which is by price and then pursuant to the rules of 
trading priority otherwise applicable to incoming orders in the 
individual component legs. The COA-eligible order would always have 
priority over the resting order, as it would always have a higher (if a 
buy order) or lower (if a sell order) net price than the resting order.
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    \19\ The leg market offer would be the best price at the end of 
the COA if no auction response, order resting in the COB, or order 
that entered the System during the COA had a better price.
    \20\ As previously indicated, only orders that are marketable or 
that improve the price on the same side of the market initiate a 
COA. See supra note 1. Thus, for there to be a situation where a 
complex order was already resting on the COB at the initiation of a 
COA, the order resting on the COB would be at a worse price than the 
COA-eligible order that initiated the COA. If there is a complex 
order resting on the COB when that is on the same side and at the 
same or better price than an incoming complex order, then the 
incoming order will not COA and will also enter on the COB.
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    In the example above, if a complex order to buy at a net price of 
$1.01 was resting in the COB at the time the COA-eligible order to buy 
at a net price of $1.02 entered the System and initiated the COA, and 
the same change in the derived net leg markets occurs, assuming the 
derived net leg market offer price of $1.01 is the best net price at 
the end of the COA, the COA-eligible order will trade against the 
derived net leg offer at $1.01 first, because it was entered at (and 
thus willing to pay) a better net price than the resting complex order 
(to the extent there was insufficient size in the leg markets to fill 
the COA-eligible order, the remainder would then execute against 
complex orders in the COB and auction responses). If there is 
sufficient size left in the leg markets to trade against the resting 
complex order, then the resting order will also trade (in full or in a 
permissible ratio).
    Third, the proposed rule change amends Rule 6.53C(c)(ii)(3) and 
Interpretation and Policy .06(c) to provide that all Trading Permit 
Holders and PAR Officials may submit orders or quotes to trade against 
orders in the COB. Currently, the rule provides that market 
participants \21\ may submit these orders or quotes. While the rules 
allow the Exchange to determine which order origin types (i.e., public 
customer, Market-Makers, broker-dealers) are eligible for entry into 
the COB,\22\ orders of the eligible origin types submitted by any 
Trading Permit Holders (as applicable) or PAR Officials may enter the 
COB.\23\ The proposed rule change updates the rule text to match 
current System functionality.
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    \21\ Rules 6.45A and 6.45B define market participants as Market-
Makers, Designated Primary Market-Makers with an appointment in the 
subject class, and floor brokers and PAR Officials representing 
orders in the trading crowd. Trading Permit Holders and PAR 
Officials as a group is larger than market participants as a group, 
as the term market participants does not include other types of 
Trading Permit Holders (such as electronic proprietary traders or 
brokers submitting electronic orders on behalf of customers from off 
of the trading floor).
    \22\ See Rule 6.53C(c)(ii).
    \23\ The Exchange notes that only Market-Makers may submit 
quotes. See Rule 8.7.
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    Finally, the proposed rule change makes technical and other 
nonsubstantive changes. Currently, Interpretation and Policy .09 
provides that the Exchange may determine on a class-by-class basis 
which electronic matching algorithm from Rule 6.45A or 6.45B, as 
applicable, will apply to COB executions in lieu of the algorithm 
specified in Rule 6.53C(c)(ii)(2) and (3). The proposed rule change 
moves that language from Interpretation and Policy .09 to both of those 
paragraphs.\24\ The Exchange believes it is simpler and more convenient 
to have the information regarding how COB executions may allocate in 
one place within the rules. The proposed rule change also amends 
subparagraph (c)(ii)(3) to provide that, like subparagraph (c)(ii)(2), 
the allocation of complex orders submitted to trade against orders or 
quotes in the COB that trade against those orders or quotes (which is 
the trade activity to which that paragraph applies) will default to the 
rules of trading priority otherwise applicable to incoming electronic 
orders in the individual leg components. Interpretation and Policy .09 
currently provides the Exchange with the authority to set this as the 
allocation method for subparagraph (c)(ii)(3). The proposed change 
merely indicates that, like the allocation of COB to COB trades as set 
forth in subparagraph (c)(ii)(2), the allocation method will be the 
same as the legs unless the Exchange provides otherwise.
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    \24\ The proposed rule change also makes a corresponding change 
to Interpretation and Policy .06(c), which relates to executions of 
stock-options orders (types of complex orders) in the COB.

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[[Page 67460]]

    In addition, the proposed rule change amends Rule 6.53C(c)(ii)(3) 
to provide that order and quote types (not just quote types) not 
eligible to rest or trade against the COB will be automatically 
cancelled. The first several sentences in that subparagraph reference 
orders and quotes eligible to rest on the COB. The Exchange intended 
for both non-eligible orders and quotes to be cancelled; this proposed 
change merely makes the language in this paragraph consistent 
throughout. Additional nonsubstantive changes to Rule 6.53C are 
discussed above.
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.\25\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \26\ 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) \27\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ Id.
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    In particular, the proposed rule change removes impediments to a 
free and open market and protects investors by providing Trading Permit 
Holders with more flexibility regarding when complex orders will not 
COA. The proposed rule change removes the affirmative obligation 
currently imposed on Trading Permit Holders to request that their COA-
eligible orders with two legs COA on a class-by-class basis, as Trading 
Permit Holders currently request that all of their COA-eligible orders 
COA upon entry into the System. Therefore, the proposed rule change to 
have COA as the default setting for COA-eligible orders will have no 
impact on COA-eligible orders submitted to the Exchange. The proposed 
rule change will allow Trading Permit Holders to evaluate then-current 
market conditions and determine if they do not want to COA orders with 
two legs based on those conditions and instead want those orders to 
route to the COB for potential immediate execution. These orders with 
do-not COA requests will continue to have execution opportunities and 
be subject to the same priority and allocation rules. In addition, the 
proposed rule change promotes just and equitable principles of trade 
and promotes competition because another options exchange has a 
substantially similar rule, as further described below, which similarly 
allows members to designate that orders not initiate a complex order 
auction on that exchange.\28\
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    \28\ See NASDAQ OMX PHLX LLC (``PHLX'') Rule 1080, Commentary 
.07(a)(viii) and (e) (describing the complex order live auction 
(``COLA'') process and ``do not auction'' orders).
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    The current rules describe how COA-eligible orders received while a 
COA is ongoing would impact the COA. The proposed rule change also adds 
detail regarding how incoming orders with do-not-COA requests or that 
are not COA-eligible, as well as how changes in the leg markets, may 
impact ongoing COAs, which protects investors by enhancing the 
description in CBOE Rules of current COA functionality and 
circumstances that may cause a COA to end early. Because the proposed 
rule change adds a provision regarding no-COA orders to the CBOE Rules, 
the Exchange believes it is appropriate to add the provision regarding 
how no-COA orders would impact a COA to the CBOE Rules as well to 
ensure investors understand how these orders may impact a COA. The 
Exchange believes the proposed rule change promotes just and equitable 
principles of trade because, if these orders cause a COA to end, any 
executions that occur following the COA occur in accordance with 
allocation principles in place, subject to an exception that the 
original COA-eligible order receive time priority. This exception 
prevents an order that was entered after the initiation of a COA from 
trading ahead of an order with the same price that may have executed or 
entered the COB if it did not COA. Similarly, the Exchange believe it 
is fair for a COA-eligible order that was entered at a better price 
than an order that was resting in the COB prior to initiation of the 
COA to execute against leg markets that become marketable against the 
COA-eligible order and resting order during the COA, because the 
Trading Permit Holder who entered the COA-eligible order was willing to 
pay a better price than that of the resting order. Incoming orders that 
do not COA and leg market changes impact a COA in a substantially 
similar manner as incoming COA-eligible orders; the proposed rule 
change just applies to different order types not covered by the current 
Rules. This proposed change does not substantively change the COA or 
allocation process.
    The proposed rule change to update the term market participants to 
Trading Permit Holders and PAR Officials and to reorganize certain 
provisions eliminates potential confusion regarding the processing of 
complex orders. This additional information further perfects the 
mechanism of a free and open market and a national market system and 
protects investors. Additionally, updating the term market participants 
to Trading Permit Holders and PAR Officials further benefits investors 
because it more accurately describes who may enter complex orders into 
the System. The Exchange notes that the Trading Permit Holders and PAR 
Officials includes all participants included in the current market 
participant definition (as well as additional participants).

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, 
including the ability to designate orders to not COA, is available to 
all Trading Permit Holders. The Exchange believes the proposed rule 
change provides Trading Permit Holders with more flexibility with 
respect to the submission of their complex orders. The proposed rule 
change also eliminates the affirmative obligation imposed on Trading 
Permit Holders to request that COA-eligible orders COA, which they all 
do for all classes. While Trading Permit Holders may need to undertake 
system work to allow them to include a do-not-COA request on orders, 
use of this designation is voluntary. CBOE believes this flexibility 
may promote competition by encouraging submission of complex orders to 
the Exchange. To the extent that proposed rule change makes CBOE a more 
attractive marketplace to market participants on other exchanges, such 
market participants may elect to send orders to CBOE to take advantage 
of the additional functionality. Additionally, other exchanges may 
determine to provide similar functionality and further enhance 
competition. The Exchange also notes that other options exchanges have 
substantially similar

[[Page 67461]]

provisions as the proposed rule change, as described above.
    The proposed rule change to add detail to the rules regarding the 
impact of changes in the leg markets on a COA describes current 
functionality and is merely intended to enhance the description of this 
functionality in the Rules, and thus has no impact on competition. The 
nonsubstantive and technical changes have no impact 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

    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 Exchange 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-2015-089 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2015-089. 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-2015-089 and should be 
submitted on or before November 23, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-27793 Filed 10-30-15; 8:45 am]
BILLING CODE 8011-01-P