[Federal Register Volume 75, Number 54 (Monday, March 22, 2010)]
[Notices]
[Pages 13626-13629]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-6183]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61715; File No. SR-CBOE-2010-028]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Related to Market-Maker Joint Accounts
March 16, 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 on March 8, 2010, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend CBOE Rule 6.55, Multiple
Representation Prohibited, and to eliminate related Regulatory
Circulars pertaining to joint account activity. The Exchange is also
proposing related amendments to CBOE Rule 8.9, Securities Accounts and
Orders of Market-Makers. 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'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 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 Rule 6.55 pertains to multiple representation by an individual
Market-Maker in open outcry. Currently, the rule provides in relevant
part that, except in accordance with procedures established by the
Exchange or with respect the Exchange's permission in individual cases,
no Market-Maker shall enter or be present in a trading crowd while a
Floor Broker present in the trading crowd is holding an order on behalf
of the Market-Maker's individual account or an order initiated by the
Market-Maker for an account in which the Market-Maker has an interest.
In addition, Interpretation and Policy .02 to CBOE Rule 6.55
advises members to consult CBOE's Regulatory Circulars for procedures
governing the simultaneous presence in a trading crowd of participants
in and orders for the same joint account. The relevant circulars, RG01-
60 and RG01-128, set forth Exchange procedures and requirements for
trading in joint accounts that vary depending upon whether the
particular trading occurs in equity options or in index options and
options on exchange-traded funds (``ETFs'').\5\ While certain
restrictions apply to joint account activity in equity options,\6\
there are generally no
[[Page 13627]]
restrictions on the joint account activity of an individual Market-
Maker vis-[agrave]-vis other joint account participants in certain
index and ETF options except that the members ensure that they do not
trade in-person or by orders such that (i) a trade occurs between a
joint account participant's individual Market-Maker account and the
joint account of which he is a participant, or (ii) a trade occurs in
which the buyer and seller are representing the same joint account and
are on opposite sides of a transaction.\7\ These limitations on trading
between a Market-Maker's individual account or a joint account in which
he is a participant and another member acting on behalf of the joint
account are provided in RG01-60 and RG01-128, as well as in
Interpretation and Policy .06 to CBOE Rule 8.9. Interpretation and
Policy .03 to CBOE Rule 6.55 also sets forth in relevant part an
exception procedure that applies to any options class and allows a
Market-Maker to enter or be present in the trading crowd when a Floor
Broker holds a solicited order on behalf of a Market-Maker's joint
account.\8\ This procedure is in addition to, and not a limitation of,
the joint account exception procedures identified in Interpretation and
Policy .02.
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\5\ The Regulatory Circular governing joint account trading in
equity products, RG01-60, was last amended through Securities
Exchange Act Release No. 44152 (April 5, 2001), 66 FR 19262 (April
13, 2001) (SR-CBOE-00-13). The Regulatory Circular governing joint
account trading in certain index options and options on ETFs was
last amended through Securities Exchange Act Release No. 44433 (June
15, 2001), 66 FR 33589 (June 22, 2001) (SR-CBOE-2001-30).
\6\ For equity option classes, RG01-60 currently provides in
part that: (i) A joint account may be simultaneously represented in
a trading crowd only by participants trading in-person; orders for a
joint account may not be entered in a crowd where a participant of
the joint account is trading in-person for the joint account;
however, if no participant is trading in-person for the joint
account, orders may be entered via Floor Broker so long as the same
option series in not represented by more than one Floor Broker; (ii)
members may alternate trading in-person between their individual and
joint accounts while in the crowd; members who alternate trading
between accounts must ensure that while trading the joint account
another participant does not enter orders through a Floor Broker for
the joint account in the same crowd or that an order is not being
continuously represented for the joint account in the same crowd;
(iii) it is the responsibility of a joint account participant to
ascertain whether joint account orders have been entered in a crowd
prior to trading the joint account in-person; (iv) joint account
participants may not act as a Floor Broker for the joint account of
which they are a participant; (v) when a joint account participant
is trading in a crowd for his individual account or actively as a
Floor Broker for accounts unrelated to his joint account, another
participant of the joint account may either trade in-person for the
joint account or enter orders for the joint account with other Floor
Brokers; (vi) members are prohibited from entering orders in a
particular crowd with Floor Brokers for their individual or joint
account whenever they are trading in-person in that crowd; this
applies even though the orders are for an account they are not then
actively trading. Other exceptions to these procedures and
requirements may apply. For example, exceptions to item (vi) above
are currently outlined in Interpretations and Policies .01, .03 and
.04 of CBOE Rule 6.55.
\7\ For certain index and ETF option classes, RG01-128 currently
provides in part that: (i) Joint accounts may be simultaneously
represented in a trading crowd by participants trading in-person for
the joint account; (ii) joint account participants who are not
trading in-person in a trading crowd, may enter orders for the joint
account with Floor Brokers even if other participants are trading
the same joint account in-person; (iii) when series are
simultaneously opened during rotation, joint account participants
trading the joint account in-person may enter orders for the joint
account with Floor Brokers in series where they are unable to trade
the joint account in-person; (iv) there is no restriction on the
number of joint account participants that may participate on behalf
of the joint account on the same trade in the option; (v) when joint
account participants are trading in a trading crowd for their
individual account or as a Floor Broker, another participant of the
joint account may trade for the joint account in-person or enter
orders for the joint account with Floor Brokers; (vi) except for the
exemption described in (vii) below, members are prohibited from
entering orders for their individual or joint accounts while they
are trading in-person in a trading crowd even if the orders are for
an account they are not then actively trading; (vii) managers of
Exchange approved RAES joint accounts may enter orders with Floor
Brokers for the RAES joint account if the manager is trading in-
person for his individual account in the trading crowd; if the
manager is trading in-person for the joint account the manager may
not enter an order for the joint account with a Floor Broker; (viii)
joint account participants may not act as a Floor Broker for the
joint account of which they are a participant; and (ix) members may
alternate trading in-person for their individual account and their
joint account while in a trading crowd. Other exceptions to these
procedures and requirements may apply. For example, exceptions to
item (vi) above are currently outlined in Interpretations and
Policies .01, .03 and .04 of CBOE Rule 6.55.
\8\ CBOE Rule 6.55.03 currently provides that, subject to the
requirements of CBOE Rule 6.9, Solicited Transactions, or 6.74,
Crossing Orders, as applicable, a Market-Maker may permissibly enter
or be present in a trading crowd in which a Floor Broker is present
who holds (a) a solicited order on behalf of the Market-Maker's
individual or joint account or (b) a solicited order initiated by
the Market-Maker for an account in which the Market-Maker has an
interest, provided that the Market-Maker makes the Floor Broker
aware of the Market-Maker's intention to enter or to be present in
the trading crowd and the Market-Maker refrains from trading in-
person on the same trade as the original order. It is the
responsibility of the Market-Maker utilizing these procedures to
ascertain whether solicited orders for the Market-Maker's joint
account have been entered in a trading crowd prior to the Market-
Maker trading the joint account in-person.
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Proposed Changes
In order to simplify the rule and create uniform requirements in
all options classes for joint account activity of an individual Market-
Maker vis-[agrave]-vis other joint account participants, the Exchange
is proposing to apply the terms of the circular currently applicable to
trading in certain index and ETF options (RG01-128) to trading in all
options classes. To accomplish this change, the provisions of the index
and ETF options circular (RG01-128) will be incorporated into the rule
text, replacing existing Interpretation and Policy .02. CBOE does not
propose to modify any of the existing joint account trading policies or
procedures set forth in RG01-128, except as noted below. The equity
option circular (RG01-60) will no longer be applicable and will be
superseded by revised Interpretation and Policy .02.
The joint account trading policies and procedures applicable to all
options classes will be the same as is set forth in RG01-128,\9\ except
as follows. First, references to CBOE's Retail Automatic Execution
System (``RAES'') will not be incorporated into the rule text. CBOE no
longer utilizes RAES and, therefore, the references in RG01-128 are
outdated. Second, RG01-128 includes a description of a manual process
for identifying joint account transactions on trade tickets that is
outdated and no longer applicable, and thus will not be incorporated
into the rule text.\10\ Proposed Rule 6.55.02(j) and amended Rule
8.9.03 will set forth the updated process. In particular, proposed Rule
6.55.02(j) will provide that, when completing a trade ticket for a
joint account, it must contain such information as may be required by
the Exchange under Rule 6.51(d). Rule 8.9.03, as proposed to be
amended, would provide that, for purposes of evaluating Market-Maker
performance in accordance with Rule 8.7.03, trading activity in the
joint account shall be credited to the Market-Maker either individually
or collectively with the Market-Makers of the same member
organization.\11\ Third, with respect to the prohibitions on Market-
Makers trading with their joint account and on trades in which the
buyer and seller represent the same joint account and are on opposite
sides of the transaction, the rule text will provide that it is the
responsibility of a joint account participant to ascertain whether
joint account orders have been entered in a crowd prior to trading the
joint account in-person.
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\9\ See note 7, supra, and related discussion.
\10\ Specifically, RG01-128 provides that the proper procedure
for completing a trade ticket for joint account transactions is that
both the member's and joint account acronym must be included. The
circular also indicates that this information is required to ensure
that the initiating joint account member receives credit for such
transactions as they relate to reporting and market performance
obligations set forth in Exchange Rules 6.51(d) and 8.7.03. Rule
6.51(d) provides that each member shall file with the Exchange trade
information showing for each transaction certain trade information
specified in the Rule as well as such other information as may be
required by the Exchange. Rule 8.7.03 provides for certain
percentage requirements that apply to Market-Maker trading activity
in appointed classes and in-person requirements for Market-Makers in
Hybrid 3.0 classes.
\11\ This change is intended to update Rule 8.9.03 to be
consistent with the provisions of Rule 8.7.03. In accordance with
Rule 6.51(d)(m), the Exchange may require that other information
beyond that specified in Rule 6.51(d) shall be reported for Exchange
transactions. In this regard, the Exchange intends to specify that
transactions for Market-Maker joint accounts be identified with the
joint account acronym. This trade information reporting requirement
for joint account transactions, and any changes thereto, will be
announced to the membership via circular.
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Lastly, CBOE is proposing to delete Interpretation and Policy .03
to Rule 6.55.\12\ The provisions in Interpretation and Policy .03
pertaining to simultaneous joint account activity are no longer
necessary given the above-described proposed changes to Interpretation
and Policy .02. The
[[Page 13628]]
remaining provisions in Interpretation and Policy .03 pertaining to
multiple representation by an individual Market-Maker (for solicited
orders entered on behalf of the Market-Maker's individual account or
solicited orders initiated by the Market-Maker himself for an account
in which the Market-Maker has an interest) are no longer necessary
since they are duplicative of Interpretation and Policy .04.\13\
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\12\ See note 8, supra.
\13\ CBOE Rule 6.55.04, which is proposed to be renumbered to
CBOE Rule 6.55.01(b), applies to a Market-Maker's orders generally,
including solicited orders. In [sic] provides that a Market-Maker
may permissibly enter or be present in a trading crowd in which a
Floor Broker is present who holds an order on behalf of the Market-
Maker's individual account or an order initiated by the Market-Maker
for an account in which the Market-Maker has an interest, provided
that (i) the Market-Maker makes the Floor Broker aware of the
Market-Maker's intention to enter or to be present in the trading
crowd and (ii) the Market-Maker refrains from trading in-person on
the same trade as the order being represented by the Floor Broker.
In addition to renumbering Rule 6.55.04 to 6.55.01(b), the Exchange
is proposing to clarify that, with respect to the condition in (ii)
above, the Market-Maker does not need to refrain from trading in-
person on the same order if other in-crowd market participants
choose not to trade the remaining portion of the order. This
allowance to trade when other in-crowd market participants choose
not to trade is similar to language in other CBOE rules. See, e.g.,
subparagraph (d)(viii) of Rule 6.74, Crossing Orders, which provides
that nothing prohibits a Floor Broker, On-Floor DPM or On-Floor LMM,
as applicable, from trading more than his percentage entitlement if
the other in-crowd market participants do not choose to trade the
remaining portion of an order.
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The proposed changes will make the policy governing joint account
trading in equity options the same as the current policy governing
index option trading (subject to the changes described above), where
multiple representation of orders for the same joint account is
permitted by participants in the joint account trading in-person at the
trading post and/or by Floor Brokers representing orders at the post.
(The current equity option policy is more restrictive in that it only
permits joint representation by participants trading in-person and does
not permit multiple representation of orders for the same joint account
if one or more of the orders is represented by a Floor Broker.) In this
regard, the Exchange believes the proposed changes to the equity option
policy reflect changes that have occurred in the trading environment
since that policy was enacted over 13 years ago, including the
Exchange's migration from a floor-based market to a hybrid environment
where Market-Makers can trade in-person on the floor or remotely in a
larger number of option classes (which may present more need for the
services of Floor Brokers), and the increasing prevalence of CBOE
Market-Maker member organizations utilizing joint accounts (as compared
to individual accounts). The proposed changes ensure that member
organizations that choose to employ a joint account for their Exchange
trading are not disadvantaged in participating in trades vis-[agrave]-
vis those member organizations that choose to employ individual Market-
Maker accounts.\14\ The Exchange also believes the proposed changes
will reduce unnecessary complexity and confusion, and delineate an
unambiguous standard for multiple representation across all option
classes.\15\
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\14\ Some member organizations choose to have their various
Market-Makers trade in a joint account so that the member
organization's positions can be more easily monitored and managed.
Under the current equity options policy regarding joint accounts,
however, a joint account may be simultaneously represented in a
trading crowd only by participants trading in-person. Orders for a
joint account may not be entered with a Floor Broker in a crowd
where a participant of the joint account is trading in-person for
the joint account (unless the in-crowd participant and Floor Broker
refrain from participating on the same trade). However, if no
participant is trading in-person for the joint account, orders may
be entered via Floor Broker so long as the same option series is not
represented by more than one Floor Broker. On the other hand, under
the current equity options policy, a member organization using
individual Market-Maker accounts is able to be simultaneously
represented by each Market-Maker's individual account, whether the
accounts are being traded in-person and/or by order. The proposed
change would eliminate the disadvantage currently suffered by member
organizations using joint account structures.
\15\ For example, the Exchange notes that many trading crowds no
longer exclusively trade equity options or index options. In that
regard, the proposed rule change will reduce unnecessary complexity
and confusion over which policy applies.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act \16\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\17\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \18\ 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. The Exchange believes the proposed changes will
eliminate a distinction that currently exists between member
organizations that manage their equity option positions differently
and, overall, will reduce unnecessary complexity and confusion, and
delineate an unambiguous standard for multiple representation across
all option classes.
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\16\ 15 U.S.C. 78s(b)(1).
\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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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
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, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6)
thereunder.\20\ At any time within 60 days of the filing of such
proposed rule change, the Commission may summarily abrogate such rule
change 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.
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f)(6).
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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
[[Page 13629]]
Send an e-mail to [email protected]. Please include
File Number SR-CBOE-2010-028 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-2010-028. 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 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 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-2010-028 and should be
submitted on or before April 12, 2010.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6183 Filed 3-19-10; 8:45 am]
BILLING CODE 8011-01-P