On May 16, 2008, the Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”), filed with the Securities and Exchange Commission (“Commission”) pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The Exchange proposes to reduce the order handling and exposure periods contained in Rules 6.45A,
Rules 6.45A and 6.45B provide that an order entry firm may not execute an order it represents as agent with a facilitation or solicited order (referred to herein as “crossing orders”) using the Hybrid Trading System (“Hybrid”) unless it first complies with the three-second exposure requirement. Specifically, order entry firms may not execute a facilitation cross unless: (i)
Rule 6.74A provides that orders entered into AIM must be exposed for a random time period that is not less than three seconds and not more than five seconds, to provide an opportunity for additional trading interest to be entered before the orders are automatically executed. Rule 6.74B provides that orders entered into the Solicitation Auction Mechanism (the “SAM Auction”) must be exposed for a three second period, also to provide an opportunity for additional trading interest to be entered before the orders are automatically executed. CBOE proposes to reduce the exposure period for AIM and the exposure period for the SAM Auction to one second.
The Commission has carefully reviewed the proposed rule change and finds that it is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.
The Commission believes that, in the electronic environment of Hybrid, reducing each of the exposure periods from three seconds to one second could facilitate the prompt execution of orders, while continuing to provide participants in Hybrid with an opportunity to compete for exposed bids and offers. According to the Exchange, numerous CBOE market participants have the capability to and do opt to respond within a one-second exposure period on its Hybrid trading platform. Specifically, the Exchange noted that the exposure and allocation timers for the Exchange's Hybrid Agency Liaison (“HAL”) mechanism, which employs the same type of mechanical messaging as the AIM and SAM Auction mechanisms, are currently both set at 0.300 seconds and numerous market participants can and do opt to respond to HAL exposure messages within this time frame. The Exchange also noted that market participants receive mechanically messaged information about book updates, and are able to and do opt to automatically submit orders and quotes in response to those book updates on the Hybrid trading system, in substantially the same manner as they would respond to a HAL message. Accordingly, the Commission believes that it is consistent with the Act for these order exposure times to be reduced from three seconds to one second.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.