Skip to Content

Notice

Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Rules Related to the Hybrid Agency Liaison and the Complex Order RFQ Auction

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble August 7, 2008.

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 July 31, 2008, 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 Exchange filed the proposal as a “non-controversial” proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act [3] and Rule 19b-4(f)(6) thereunder.[4] The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to modify Rule 6.14, Hybrid Agency Liaison (HAL), so that the order eligibility requirements mirror the requirements for the Exchange's Rule 6.13A, Simple Auction Liaison (SAL). The Exchange also proposes a similar modification to Rule 6.53C(d), Process for Complex Order RFR Auction (“COA”), so that the Exchange may determine eligible complex order type and eligible complex order origin code for COA on a class-by-class basis. The text of the proposed rule change 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 Statutory Basis for, the Proposed Rule Change

1. Purpose

HAL and COA are features within CBOE's Hybrid System. In classes where HAL and/or COA are activated, eligible orders are electronically exposed for an exposure period. During the applicable exposure period, the orders that are subject to exposure are eligible to receive a better price. At the conclusion of the HAL or COA process, as applicable, the order is then allocated or, to the extent not executed, booked or routed as described in the relevant rules.

HAL exposes eligible simple orders for price improvement. For HAL, an eligible order is currently an order in an option class designated by the Exchange that is (i) a market order or limit order that is marketable against the Exchange's disseminated quotation while that quotation is not at the national best bid or offer (“NBBO”); (ii) a limit order that would improve the Exchange's disseminated quotation and Start Printed Page 47987is marketable against quotations disseminated by other exchanges participating in the Intermarket Options Linkage (“Linkage”); and (iii) for Hybrid 3.0 classes, a limit order that would improve the Exchange's disseminated quotation except when the disseminated quotation is represented by a manual quote. To have more flexibility and so that there is consistency in our rules, we are proposing to change these HAL order eligibility provisions to mirror the order eligibility provisions of SAL, which is a feature within CBOE's Hybrid System that auctions eligible marketable orders for price improvement over the NBBO. Specifically, we are proposing to modify the HAL order eligibility parameters to provide that, in addition to designating the eligible option classes, the Exchange may designate the eligible order size, eligible order type and eligible order origin code (i.e., public customer orders, non-Market Maker broker-dealer orders, and Market Maker broker dealer orders) for each class. The proposal would not, however, permit the Exchange to discriminate among individual market participants of the same type (e.g., permit certain market-maker orders but not others to be eligible for the HAL auction). Any changes to the HAL eligibility parameters determined by the Exchange would be announced to the membership via Regulatory Circular.

Thus, an order would be eligible for a HAL auction if it meets these designated criteria and (i) is marketable against the Exchange's disseminated quotation while that quotation is not at the NBBO; (ii) would improve the Exchange's disseminated quotation and is marketable against quotations disseminated by other exchanges participating in Linkage; and (iii) for Hybrid 3.0 classes, would improve the Exchange's disseminated quotation except when the disseminated quotation is represented by a manual quote. All other provisions of the HAL rule would apply unchanged. In this regard, the Exchange notes that orders that are not eligible for a HAL auction would continue to be treated the same as orders that are not eligible today. In Hybrid 3.0 classes, such orders would be booked (or, if not eligible for book entry, routed to PAR, BART or the order entry firm's booth printer). For all other Hybrid classes, the Exchange would initiate the linkage process to attempt to obtain an NBBO fill for the order from an away market or book the order if it is not marketable. Also, if the Exchange determines that immediate-or-cancel (“IOC”) orders are not eligible for HAL, such orders would be automatically cancelled to the extent they are not immediately executed against the Exchange's existing quotes.

COA exposes eligible complex orders for price improvement. For COA, an eligible complex order is currently a complex order that, as determined by the Exchange on a class-by-class basis, is eligible for COA considering the order's marketability (defined as a number of ticks away from the current market, size, and complex order type as defined in paragraph (a) of Rule 6.53C.[5] With respect to COA, we are seeking to make some cross-reference updates related to how a “COA-eligible order” is defined. First, we are seeking to modify the definition to provide that the eligible complex order type determined by the Exchange may also be as defined in paragraph (b) of Rule 6.53C.[6] The proposed change modifies the definition so that the Exchange can determine whether FOK, IOC, AON and GTC complex orders are eligible for COA auctions. Second, we are seeking to modify the definition to provide that the Exchange may determine the complex order origin types that are eligible for COA by adding a cross-reference to subparagraph (c)(i) of the Rule (i.e., non-broker-dealer public customers, broker-dealers that are not Market-Makers or specialists on an options exchange, and/or Market-Makers or specialists on an options exchange). The proposal would not, however, permit the Exchange to discriminate among individual market participants of the same type (e.g., permit certain market-maker orders but not others to be eligible for the COA auction). The proposed change modifies the definition so that the Exchange can make determinations on eligible complex order origin type with respect to both orders into the complex order book and into COA. These modifications are also consistent with Rule 6.13A, which currently allows the Exchange to determine which simple orders are eligible for SAL based on order type and origin code. Any changes to the COA-eligible order parameters determined by the Exchange would be announced to the membership via Regulatory Circular. All other provisions of the COA rule would apply unchanged.

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with Section 6(b) of the Act [7] in general and furthers the objectives of Section 6(b)(5) of the Act [8] in particular in that it is designed 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. In particular, the Exchange believes that the proposed change would provide more flexibility in our HAL and COA rules that is consistent with parallel provisions in the existing SAL rule.

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

The Exchange neither solicited nor received comments on the proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Because the foregoing rule does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, provided that the self-regulatory organization has given the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change or such shorter time as designated by the Commission,[9] the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act [10] and Rule 19b-4(f)(6) thereunder.[11] At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule Start Printed Page 47988change 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.

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

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2008-82. This file number should be included on the subject line if e-mail 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 inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR-CBOE-2008-82 and should be submitted on or before September 5, 2008.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[12]

Florence E. Harmon,

Acting Secretary.

End Signature End Preamble

Footnotes

3.  15 U.S.C. 78s(b)(3)(A)(iii).

Back to Citation

5.  Paragraph (a) defines a complex order to include a spread order, straddle order, strangle order, combination order, ratio order, butterfly spread order, box/roll spread order, collar orders and risk reversals and stock-option orders.

Back to Citation

6.  Paragraph (b) defines the types of complex orders that may be entered as fill-or-kill (“FOK”), IOC, all-or-none (“AON”) or good-'til-cancelled (“GTC”).

Back to Citation

9.  The Exchange has fulfilled this requirement.

Back to Citation

[FR Doc. E8-18894 Filed 8-14-08; 8:45 am]

BILLING CODE 8010-01-P