[Federal Register Volume 75, Number 95 (Tuesday, May 18, 2010)]
[Notices]
[Pages 27850-27854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11811]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62083; File No. SR-CBOE-2010-038]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change, as Modified
by Amendment No. 1 Thereto, Related to the Hybrid Matching Algorithms
May 12, 2010.
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 April 22, 2010, the 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 May 6, 2010, CBOE filed Amendment No. 1 to the proposed
rule change. The Commission is publishing this notice, as amended, 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 Rules 6.45A, Priority and Allocation
of Equity Option Trades on the CBOE Hybrid System, and 6.45B, Priority
and Allocation of Trades in Index Options and Options on ETFs on the
CBOE Hybrid System, to revise its market turner and modified
participation entitlement priority overlays. The text of the proposed
rule change is available on the Exchange's Web site (http://www.cboe.org/Legal), at the Office of the Secretary, CBOE 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
Background
CBOE Rules 6.45A and 6.45B set forth, among other things, the
manner in which incoming electronic orders in options are allocated on
the Hybrid System. Paragraph (a) of each rule currently provides a
``menu'' of allocation algorithms to choose from when executing
incoming electronic orders. The menu format allows the Exchange to
utilize different allocation algorithms on a class-by-class basis. The
menu includes, among other choices, the Ultimate Matching Algorithm
(``UMA''),\3\ and price-time and pro-rata priority allocation
algorithms. Additional priority overlays can be applied to the base
allocation algorithms. The price-time and pro-rata priority overlays
currently include: public customer priority for public customer orders
resting on the Hybrid System, participation entitlements for certain
qualifying market-makers \4\ (the
[[Page 27851]]
``original participation entitlement(s)'') \5\ and a market turner
priority for participants that are first to improve CBOE's disseminated
quote. In addition, a small order participation entitlement overlay for
Designated Primary Market-Makers (``DPMs'') and Lead Market-Makers
(``LMMs'') can be applied to each of the three allocation algorithms
(i.e., price-time, pro-rata or UMA).\6\ These overlays are all
optional.
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\3\ Under the UMA algorithm, public customer orders in the
electronic book have first priority to trade against incoming
electronic orders, then the Market-Maker participation entitlement
has second priority. Thereafter, any remaining balance of the
incoming order, if any, is allocated among other market participants
based on a weighting of the number of market participants quoting at
the best bid or offer (Component A) and the percentage that the size
of each market participant's quote is at the best bid or offer
relative to the total number of contracts at the disseminated quote
(Component B). See Rules 6.45A(a)(i)(B)(2) and 6.45B(a)(ii)(B)(2)
for a more detailed description of UMA.
\4\ Under the original participation entitlement, the Exchange
may determine to grant Market-Makers participation entitlements
pursuant to the provisions of Rules 8.87, Participation Entitlement
of DPMs and e-DPMs, 8.13, Preferred Market-Maker Program, or 8.15B,
Participation Entitlement of LLMs. More than one such participation
entitlements may be activated for an option class (including at
different priority sequences), however in no case may more than one
participation entitlement be applied on the same trade. In
allocating the participation entitlement, all of the following
apply: (i) To be entitled to their participation entitlement, the
Market-Maker's order and/or quote must be at the best price on the
Exchange. (ii) The Market-Maker may not be allocated a total
quantity greater than the quantity that it is quoting (including
orders not part of quotes) at that price. If pro-rata priority is in
effect, and Market-Maker's allocation of an order pursuant to its
participation entitlement is greater than its percentage share of
quotes/orders at the best price at the time that the participation
entitlement is granted, the Market-Maker shall not receive any
further allocation of that order. (iii) In establishing the
counterparties to a particular trade, the participation entitlement
must first be counted against that Market-Maker's highest priority
bids or offers. (iv) The participation entitlement shall not be in
effect unless the public customer priority is in effect in a
priority sequence ahead of the participation entitlement and then
the participation entitlement shall only apply to any remaining
balance. See Rules 6.45A(a)(ii)(2) and 6.45B(a)(i)(2).
\5\ The terms of the original participation entitlement(s) vary
depending on the particular base allocation algorithm. For UMA
classes, the Market-Maker receives an allocation that is either (i)
The greater of the amount the Market-Maker would be entitled to
pursuant to the participation entitlement or the amount it would
otherwise receive pursuant to the operation of the UMA algorithm,
(ii) the amount the Market-Maker would be entitled to pursuant to
the participation entitlement or (iii) in index and ETF option
classes, the amount the Market-Maker would be entitled to receive
pursuant to the operation of the UMA algorithm. The Exchange
determines which of the various entitlement formulas will be in
effect on a class-by-class basis. Also, under formulas (i) and (ii)
above, additional ``Component A'' allocations are provided to
certain On-Floor DPMs and On-Floor LMMs. See Rules 6.45A(a)(i)(C)
and 6.45B(a)(ii)(C). For pro-rata classes, the Market-Maker would
receive a participation that is the greater of its participation
entitlement or its pro-rata allocation share. For price-time
classes, the Market-Maker would receive a participation entitlement
and a time priority share on any remaining balance. Whether UMA,
pro-rata, or price-time priority is in effect for an options class,
each allocation calculation is based on any remaining balance of the
incoming order after public customer priority is applied, as well as
after any other higher ranked priority overlay, such as market
turner priority, is applied.
\6\ If the small order priority overlay is in effect for an
option class, then orders for five (5) contracts or fewer will be
executed first by the DPM or LMM, as applicable, appointed to the
option class. This participation entitlement is subject to certain
conditions, including a condition that public customer priority must
be in effect in priority sequence ahead of the participation
entitlement. See Rules 6.45A(a)(iii) and 6.45B(a)(iii).
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The Exchange recently adopted another priority overlay for the
price-time and pro-rata allocation algorithms that the Exchange refers
to as the ``modified participation entitlement.'' \7\ The modified
participation entitlement currently operates in the same manner as the
original participation entitlement(s) with a few exceptions. In
particular, the modified participation entitlement provides that, if at
the time of execution of an inbound order there are no Public Customer
orders resting at the best price or a Public Customer was the first to
rest interest at the best price, then the original participation
entitlement(s) will be applied. In all other cases, participation
entitlement and public customer priority overlays will not be in
effect. This modified participation entitlement overlay is only
applicable to automatic executions and is not applicable for auctions.
Lastly, like the other priority overlays, the modified participation
entitlement is optional. The Exchange can determine whether one or more
of the priority overlays shall apply to an option class and if more
than one is selected, the sequence in which they shall apply
(consistent with applicable rules). All determinations are set forth in
a regulatory circular.
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\7\ Securities Exchange Act Release No. 60665 (September 14,
2009), 74 FR 4814 [sic] (September 21, 2009) (SR-CBOE-2009-052).
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Amendments to Market Turner and Modified Participation Entitlement
Priority Overlays
The purpose of this rule change is to revise the market turner and
modified participation entitlement priority overlays in various
respects described below. First, currently the rules provide that the
market turner priority overlay is only available for classes utilizing
the price-time and pro-rata algorithms. The Exchange is now proposing
to amend the rules to make this entitlement overlay available for
classes utilizing any of the priority methods utilized by the Exchange.
Second, currently the modified participation entitlement overlay
available for the price-time and pro-rata priority methods is only
applicable to automatic executions of incoming electronic orders. It is
not applicable to electronic auctions. The Exchange is also proposing
to provide that the modified participation entitlement overlay would
not be applicable for executions of incoming electronic orders
initiated from PAR.\8\ Instead, as described in more detail below, the
original participation entitlement parameters would be applied when PAR
is used to initiate an execution of an electronic order.\9\ Thus, this
outcome would be no change from how the original participation
entitlement(s) works today when PAR is utilized.
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\8\ PAR is utilized to accommodate trading in open outcry, where
different rules on electronic book priority apply. For example, in
open outcry at the same price, public customer orders in the
electronic book have first priority, bid (offers) of in-crowd market
participants have second priority, and bids (offers) of broker-
dealer orders in the electronic book and electronic quotes of
Market-Makers have third priority. See, e.g., Rules 6.45A(b) and
6.45B(b).
\9\ See note 10, infra.
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Third, currently the modified participation entitlement overlay
available for the price-time and pro-rata priority methods only
modifies the application of the original participation entitlement. It
does not modify the application of the small order participation
entitlement for DPMs and LMMs. The Exchange is proposing to provide
that the modified participation entitlement overlay would also be
available to modify the application of the small order participation
entitlement.
Fourth, currently under the modified participation entitlement
overlay available for options classes utilizing the price-time or pro-
rata method, a participation entitlement(s) is only applied if there
are no Public Customer orders resting at the best price or if a Public
Customer was the first to rest interest at the best price. In all other
cases, the participation entitlement and public customer priority
overlays are not in effect for the allocation of incoming electronic
orders.
The Exchange is proposing to replace this provision with what we
refer to as the ``greater than'' provision. Under this provision, a
Market-Maker that is the subject of a participation entitlement
(including a small order participation entitlement) would only receive
an entitlement if the amount the Market-Maker would be entitled to
pursuant to the participation entitlement is greater than the amount
the Market-Maker would otherwise receive pursuant to the operation of
the algorithm. In all other cases, the participation entitlement and
public customer priority would not be applied. This allocation would be
subject to the following:
The Market-Maker's entitlement share would be calculated
based on any remaining balance after all public customer orders at the
best price are satisfied. For options classes using the pro-rata
method, the Exchange may determine on a class-by-class basis to
calculate the Market-Maker's entitlement share using the UMA
methodology or the pro-rata methodology. For options classes using
[[Page 27852]]
the price-time method, the Market-Maker's entitlement share would be
calculated using the price-time methodology only.\10\
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\10\ This modified participation entitlement overlay would only
be applicable to automatic executions and would not be applicable
for executions of incoming electronic orders initiated from PAR or
from electronic auctions. Instead, the original participation
entitlement parameters would be applied for PAR and electronic
auctions. In pro-rata classes where the UMA method is selected to
calculate the Market-Maker's modified participation entitlement
share, executions of incoming electronic orders initiated from PAR
and electronic auctions would be allocated using the UMA method.
Therefore, in such classes, the Market-Maker's original
participation entitlement share of a PAR or electronic auction
execution would be calculated using the UMA method.
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When calculating the amount the Market-Maker would
otherwise receive pursuant to the operation of the algorithm, the
participation entitlement and public customer priority overlays would
not be considered. Instead the calculation would be based on a price-
time or pro-rata basis, as applicable, and subject to any other
applicable priority overlays, such as market turner priority.
The following example illustrates some outcomes when using CBOE's
existing allocation algorithms and when using the proposed modified
participation entitlement. Assume that an incoming electronic order for
24 contracts is received and that the following trading interest is
represented at the execution price: three Market-Makers for 10
contracts each, the DPM for 40 contracts, and a public customer for 10
contracts.
In a class where the algorithm is simply pro-rata, each
Market-Maker is allocated 3 contracts, the DPM is allocated 12
contracts, and the public customer is allocated 3 contracts.
In a class where the algorithm is pro-rata with original
DPM entitlement and public customer priority overlays, the public
customer is allocated 10 contracts, the DPM is allocated 8 contracts
(14 contracts remaining after the public customer order * greater of
30% or 40/70), and each Market-Maker is allocated 2 contracts.
In a class where the algorithm is pro-rata with the
proposed modified DPM entitlement overlay (and the DPM entitlement is
calculated based on the pro-rata method), the allocation would be
simple pro-rata because the DPM's pro-rata share of 12 contracts (24
contracts * pro-rata share of 40/80) is greater than the DPM's
entitlement share of 8 contracts (14 contracts remaining after the
public customer order * greater of 30% or 40/70). Therefore, each
Market-Maker would be allocated 3 contracts, the DPM would be allocated
12 contracts, and the public customer would be allocated 3 contracts.
In a class where the algorithm is pro-rata with the
proposed modified DPM entitlement overlay (and the DPM entitlement is
calculated based on UMA using a 0% Component A weighting and a 100%
Component B weighting),\11\ the allocation would be simple pro-rata
because the DPM's pro-rata share of 12 contracts (24 contracts * pro-
rata share of 40/80) is greater than the DPM's UMA entitlement share of
8 contracts (14 contracts remaining after the public customer order *
greater of 30% or 40/70). Therefore, each Market-Maker would be
allocated 3 contracts, the DPM would be allocated 12 contracts, and the
public customer would be allocated 3 contracts.\12\
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\11\ For purposes of this example, assume that the original DPM
participation entitlement is based on the greater of the amount the
DPM would be entitled to pursuant to the participation entitlement
or the amount it would otherwise receive pursuant to the operation
of the UMA algorithm. See note 5, supra.
\12\ As another example, assume that an incoming electronic
order for 4 contracts is received and that the following trading
interest is represented at the execution price: three Market-Makers
for 10 contracts each, the DPM for 40 contracts, and a public
customer for 10 contracts. In a class where the algorithm is pro-
rata with the proposed modified participation entitlement for small
orders, the allocation would be simple pro-rata because the DPM's
pro-rata share 2 contracts (4 contracts * pro-rata share of 40/80)
is greater than the DPM's small order preference entitlement share
of 0 contracts (0 contracts remaining after the public customer
order * 100%).
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As illustrated above, the outcomes that would result when the
modified participation entitlement is activated in a class are not
novel or unique. Each outcome is an allocation that is currently
permitted under CBOE's existing allocation rules. Specifically:
For classes using a price-time methodology, the resulting
allocation would be either a simple price-time allocation or a price-
time allocation with a participation entitlement after yielding to all
public customer orders at the best price; and
For classes using a pro-rata methodology, the resulting
allocation would be either a simple pro-rata allocation, a pro-rata
allocation with a participation entitlement after yielding to all
public customer orders at the best price or, if applicable, an UMA
allocation with a participation entitlement after yielding to all
public customer orders at the best price.
Put another way, the allocation that occurs when a modified
participation entitlement is applied would be no change from how the
allocation operates under the existing rules for a class utilizing the
original participation entitlement (and small order participation
entitlement). Specifically, if the amount the Market-Maker would be
entitled to pursuant to the participation entitlement is greater than
the amount the Market-Maker would otherwise receive pursuant to the
operation of the algorithm, then the participation entitlement
allocation share will continue to be calculated based on any remaining
balance of the incoming order after public customer priority and any
other priority overlay ranked ahead of the entitlement. When
calculating the amount the Market-Maker would otherwise receive
pursuant to the operation of the algorithm, the resulting allocation
would be no change from how the allocation would operate under the
existing rules for a class utilizing a simple price-time or pro-rata
algorithm. Specifically, the Hybrid System will calculate the Market-
Maker's price-time or pro-rata share, as applicable, without regard to
any public customer priority or participation entitlement priority
(because public customer priority would not be applied when a
participation entitlement is not applied). Any other higher ranked
priority overlays, such as market turner priority, will be considered
in determining the balance of the incoming order to be allocated under
the price-time or pro-rata algorithms, as applicable.
The notion of a ``greater than'' concept for determining the
participation entitlement amount is also not novel or unique.\13\ The
primary distinction with the instant proposal is that, under the
original participation entitlement, public customer priority must be
applied in a priority sequence ahead of the participation entitlement
at all times for the entitlement to be in effect. Under the modified
participation entitlement, public customer priority will not be
``hardcoded'' into the algorithm methodology--instead the participation
entitlement and public customer priority will only be applied if the
entitlement share is greater than the price-time or pro-rata share, as
applicable, and subject to any other applicable priority overlays, such
as market turner priority. This distinction
[[Page 27853]]
itself is not entirely novel or unique. In this regard, the Exchange
notes, for example, that the price-time algorithm being proposed is
substantially similar to what currently exists on at least one other
options exchange, except that CBOE would propose to yield to all public
customer orders at the same price when a Market-Maker participation
entitlement is applied (not just public customer orders received in
time sequence ahead of the Market-Maker receiving the entitlement).\14\
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\13\ For example, a CBOE Market-Maker gets the greater of its
UMA share (price-time or pro-rata share, if applicable) or
entitlement share. See CBOE Rules 6.45A(a)(i) and (ii) and
6.45B(a)(i) and (ii). On NYSE Arca, Inc. (``Arca''), an LMM or
directed option market maker (``DOMM'') gets the greater of its
price-time share or, subject to public customer priority,
entitlement share. See Arca Rule 6.76A(a). On the International
Securities Exchange, LLC (``ISE''), an primary market maker or
preferred market maker gets the greater of its pro-rata share or
entitlement share, which is applied after priority customers but
based on the total order size (as opposed to size remaining after
priority customers are satisfied). See ISE Rule 713.01 and .03.
\14\ See, e.g., Arca Rule 6.76A(a).
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The Exchange notes that the Commission has stated that priority of
public customer orders is not an essential attribute of an exchange and
in the past the Commission has approved trading rules at options
exchanges that do not give priority to public customers that are priced
no better than the orders of other market participants.\15\ Indeed, the
Exchange's price-time and pro-rata methodologies discussed above are
examples of allocation methodologies that do not require public
customer priority. However, when an entitlement applies (such as the
Market-Maker participation entitlement or a crossing entitlement), the
Commission has had a general policy for the options exchanges to
require yielding to all public customers at the same price before the
entitlement can be applied.\16\ CBOE's proposed amendments to the
modified participation entitlement are entirely consistent with this
policy objective--before any entitlement can be applied, all public
customer orders at the best price must be satisfied. There is no
requirement that public customer priority be ``hardcoded'' on every
allocation, only those allocations where an entitlement is applied.\17\
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\15\ See Securities Exchange Act Release No. 61198 (December 17,
2009), 74 FR 68880 (December 29, 2009) (SR-CBOE-2009-078).
\16\ See, e.g., CBOE Rules 6.45A, 6.45B, 6.74, 6.74A and 6.74B,
and ISE Rules 713, 716 and 723. Arca Rule 6.76A(a) is a slight
exception because it only requires yielding to public customers at
the same price that have time priority over the LMM or DOMM.
\17\ Arca's price-time and LMM/DOMM entitlement is one example.
See, e.g., Arca Rule 6.76A(a). CBOE's price-time or pro-rata and
existing modified participation entitlement are other examples. See
CBOE Rules 6.45A(a)(ii)(3) and 6.45B(a)(i)(3).
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The Exchange believes that public customers will be treated
equitably and fairly under the proposed rule change. We are proposing
to apply a general allocation algorithm where all market participants
are treated equally (i.e., price-time or pro-rata, as applicable, and
subject to any other applicable priority overlays, such as market
turner priority) and, to the extent a Market-Maker participation
entitlement is applied, to apply the entitlement only after all public
customer orders at the same price have been satisfied. The proposed
amendments to the modified participation entitlement do not serve to in
any way disadvantage public customers or advantage other market
participants over public customers. In fact, the proposed amendments
actually favor public customers because they receive an added benefit
if any entitlement is applied (i.e., they are completely satisfied with
a 100% fill) when public customers would otherwise only receive a
price-time or pro-rata share like any other market participant.
Moreover, the Exchange believes that the modified participation
entitlement, as amended, would encourage quote competition because is
designed to reward aggressive pricing by offering incentives both for
Market-Makers to support and participate in the CBOE marketplace and
for market participants to establish the best price or quote at the
best price with size. In classes utilizing a price-time algorithm with
a modified participation entitlement, all market participants
(including public customers) are incented to compete by establishing
the best price. In classes utilizing a pro-rata algorithm with a
modified participation entitlement, all market participants (including
public customers) are incented to compete by quoting more size.
With each incoming electronic order, public customers can expect to
receive their respective price-time or pro-rata share (same as other
market participants) or, in some cases, a 100% fill.\18\ To the extent
that public customers may strategically rest orders based on the
allocation algorithm employed at a given exchange,\19\ public customers
can adjust their ``quoting'' behavior accordingly, similar to how they
and other market participants already would do today. Several market
characteristics factor into a market participant's quoting behavior
including, but certainly not limited to, the applicable fee structure,
average incoming order size, and the average touch rate (i.e., average
allocation a market participant actually receives on incoming
electronic orders). The allocation for any market participant
(including public customers) changes constantly from order-to-order,
second-to-second for various reasons. For instance on CBOE the ultimate
allocation depends upon, among other things, the size of an incoming
order and whatever trading interest happens to be represented at the
time the order is received (e.g., one second only public customers may
be represented at the best price, in which case the allocation to an
individual customer is based on time priority; the next second there
may be one public customer and multiple market makers at the best
price, in which case the allocation to the customer is based on
customer priority regardless of when the customer entered the order and
to the other market-makers based on a price-time (or pro-rata or UMA
share, if applicable) and any applicable entitlement share; a few
seconds later there may be a market-turner, in which case the market
turner trades first either entirely or based on a percentage share,
then public customers at the best price trade based on time priority;
the next second there may be only one public customer at the best price
and incoming order takes out the entire balance of the resting order).
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\18\ That the Exchange may use a pro-rata or UMA methodology to
determine the Market-Maker's entitlement percentage does not have
any impact from the public customer's perspective. The public
customer either gets a pro-rata share or a 100% fill. See, e.g.,
notes 11 and 12, supra, and surrounding discussion.
\19\ The Exchange believes that public customers that are
traditional retail investors do not typically enter resting orders
based on allocation algorithms, so this change will not impact them.
To the contrary, public customers actually benefit from the proposed
allocation methodology because they get a minimum price-time or pro-
rata share and, sometimes, a 100% fill before other market
participants. Voluntary Professional and Professional customers are
treated the same as broker-dealers (not public customers) under
CBOE's allocation rules. See Rule 1.1(fff) and (ggg).
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In determining their desired quote size and price, other market
participants already account for the existence or non-existence of a
Market-Maker entitlement (the entitlement may or may not be applied on
an order-by-order basis and to different degrees under the current
rules depending on, for example, whether a Market-Maker with an
entitlement is actually quoting at the best price, the size of the
Market-Maker's quote, the number of other Market-Makers quoting at that
price, and the size of the incoming order). Under the proposed rule
change, public customers that may adjust their quoting dynamics based
upon, among other things, the applicable allocation algorithm may also
want to account for the existence or non-existence of a Market-Maker
entitlement, similar to how other market participants would already do
today.\20\
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\20\ For example, the impact of the proposed rule change would
be reflected in a customer's average touch rate, which the customer
might then use to determine size and price when entering orders.
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[[Page 27854]]
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \21\ and the rules thereunder, and in
particular with: Section 6(b)(5) of the Act, which requires that the
rules of a national securities exchange, among other things, be
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism for a free and open market and
a national market system, and, in general, to protect investors and the
public interest; and not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers; \22\ and Section
6(b)(8) of the Act, which requires the rules of an exchange not to
impose any burden on competition not necessary or in furtherance of the
Act.\23\ The proposed rule change ensures that incoming electronic
orders are allocated in an equitable and fair manner and that all
market participants (including public customers) have a fair and
reasonable opportunity for allocations based on established criteria
and procedures. CBOE believes that the change will allow the Exchange
other methods to reward aggressive pricing in options trading on the
Hybrid System by making market turner available for classes utilizing
any of the priority methods utilized by the Exchange. CBOE also
believes that the modified participation entitlement, as amended, would
encourage quote competition because is designed to reward aggressive
pricing by offering incentives both for Market-Makers to support and
participate in the CBOE marketplace and for market participants to
establish the best price or quote at the best price with size. In
classes utilizing a price-time algorithm with a modified participation
entitlement, all market participants (including public customers) are
incented to compete by establishing the best price. In classes
utilizing a pro-rata algorithm with a modified participation
entitlement, all market participants (including public customers) are
incented to compete by quoting more size.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
\23\ 15 U.S.C. 78f(b)(8).
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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 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date 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 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 e-mail to [email protected]. Please include
File No. SR-CBOE-2010-038 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 No. SR-CBOE-2010-038. 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,\24\ 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 a.m. and 3 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of CBOE.
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-2010-038 and
should be submitted on or before June 8, 2010.
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\24\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-11811 Filed 5-17-10; 8:45 am]
BILLING CODE 8010-01-P