Submission of Subordination Agreements
In accordance with Appendix D of the Securities Exchange Act of 1934 (“SEA”) Rule 15c3-1, every broker or dealer registered pursuant to SEA Section 15 that enters into a proposed subordination agreement or secured demand note agreement must file such agreements with the firm’s designated examining authority (“DEA”) for review and approval, unless otherwise exempt. Effective April 1, 2016, Trading Permit Holders for whom Chicago Board Options Exchange, Incorporated (“CBOE”) or C2 Options Exchange, Incorporated (“C2” and, collectively with CBOE, the “Exchanges”) is the Designated Examining Authority (“DEA”) will be required to electronically submit requests for approval of proposed subordination loan agreements and secured demand note agreements, including any renewals or amendments of existing agreements, to CBOE or C2 via the FINRA Firm Gateway platform. This submission method will replace the current submission of subordination agreement approval requests (which is via hardcopy or email to DMFRNotification@cboe.com). CBOE and C2 will no longer accept requests filed in hardcopy or email.
• CBOE Regulatory Circular RG16-063/C2 Regulatory Circular RG16-017 (March 29, 2016): Submission of Subordination Agreements
CBOE and C2 Options Exchange (C2) submitted rule filings to amend CBOE and C2 rules governing exchange liability and payments to Trading Permit Holders (TPHs) in connection with certain types of losses that TPHs may allege arose out of business conducted on or through the exchange or in connection with the use of the exchange’s facilities.
Among other things, CBOE Rule 6.7 (Exchange Liability Disclaimers and Limitations) and C2 Rule 6.42 (Disclaimers and Limitations) have been amended to establish: (i) a minimum threshold amount for all compensation requests and (ii) notification and submission deadlines for compensation requests. The proposed changes became effective on July 1, 2015.
• CBOE Regulatory Circular RG15-096/C2 Regulatory Circular RG15-027 (June 30, 2015): Exchange Liability
Tied to Stock Order Marking and Reporting Requirements
The SEC approved the adoption of CBOE Rules 6.53(y), 6.77(e) and 15.2A that require each TPH to, on the business day following order execution date, report to the CBOE certain information regarding the executed stock or convertible security legs of Qualified Contingent Cross orders, stock-options orders and other Tied to Stock Orders that the TPH executed on CBOE that trading day.
CBOE Regulatory Circular RG15-056 previously announced the implementation date for the tied to stock marking requirement as July 1, 2015 (see also SR-CBOE-2015-004). That circular also announced the postponement of the reporting requirement for tied to stock orders under CBOE Rule 15.2A. CBOE Regulatory Circular RG15-093 (i) confirms the July 1, 2015 implementation date of the tied to stock marking requirement only with respect to orders sent to CBOE for non-electronic processing (i.e., orders received and systematized by floor brokers handling orders on the CBOE trading floor), (ii) delays for six to 18 months the implementation date of the tied to stock marking requirement with respect to all other orders (i.e., orders submitted to the Exchange for electronic processing), and (iii) confirms that the implementation date for the reporting requirement has been delayed 12 to 18 months (except for Qualified Contingent Cross orders).
• CBOE Regulatory Circular RG15-093 (June 19, 2015): Updates to CBOE Rules 6.53(y) and 15.2A and TPH Information Session (This circular updates RG15-056)
• CBOE Regulatory Circular RG15-056 (April 7, 2015): Tied to Stock Orders New Implementation Date for Order Marking Requirement Proposed Postponement of the Implementation of Reporting Requirement (This circular updates RG15-018)
• CBOE Regulatory Circular RG15-018 (February 11, 2015): Delayed Implementation of Tied to Stock Order Marking and Reporting Requirements
• CBOE Regulatory Circular RG14-171 (December 10, 2014): Implementation Date for the Tied to Stock Order Marking and Reporting Requirements
CBOE Rule 6.79 – Floor Broker Practices
Effective May 30, 2015, new CBOE Rule 6.79 replaces CBOE Regulatory Circular RG95-49 (Floor Brokerage Practices). CBOE Rule 6.79 sets forth requirements for floor brokers related to the liquidation or reduction of error account positions, erroneously executed orders, lost or misplaced market orders, legging multi-part orders, print-throughs, stopping orders, and documentation of errors and record keeping requirements. Regulatory Circular RG15-088 highlights particular provisions of CBOE Rule 6.79. Please see CBOE Rule 6.79 and SR-CBOE-2015-030 for a complete description of the requirements of CBOE Rule 6.79. If moving a client’s position into the floor broker’s error account requires the broker to make a change in Continuous Trade Match (CTM) to the series; quantity; buy or sell; premium price; or the origin code from “C” to any other origin code, the floor broker must follow the procedures set forth in CBOE Rule 6.67 (CBOE Trade Match System) and CBOE Regulatory Circular RG15-072 (Procedures Related to Rule 6.67).
• CBOE Regulatory Circular RG15-088 (May 29, 2015): New Rule 6.79 – Floor Broker Practices
Trade Nullification and Adjustment of Options Transactions Including Obvious Errors
Effective May 8, 2015, CBOE Rule 6.25 was replaced in its entirety by revised Rule 6.25 (See SR-CBOE-2015-039). RG15-074 highlights particular provisions of revised Rule 6.25. Please see revised CBOE Rule 6.25 and SR-CBOE-2015-039 for a complete description of the requirements of Rule 6.25 (Nullification and Adjustment of Options Transactions including Obvious Errors).
Unless otherwise directed by the CBOE Help Desk, TPHs should not update a trade record in the CTM system pursuant to CBOE Rule 6.25. TPHs directed by the help desk to change a trade record in CTM pursuant to CBOE Rule 6.25 do not need to follow the procedures set forth in CBOE Rule 6.67 or CBOE Regulatory Circular RG15-072. TPHs have the option to use the CBOE Change Notification Form to notify CBOE of a mutually agreed nullification or price adjustment.
• CBOE Regulatory Circular RG15-074 (May 6, 2015): Rule 6.25 - Nullification and Adjustment of Options Transactions Including Obvious Errors (Effective May 8, 2015, this circular replaced CBOE Regulatory Circular RG14-141)
Extended Trading Hours Session Pre-Open Order Entry Time Extension
The Chicago Board Options Exchange (CBOE) announced that beginning July 28, 2015, pre-open order entry availability for the Extended Trading Hours (ETH) session would begin at 4 p.m. on the previous trading day for Tuesday through Friday ETH sessions. The trading hours for the ETH session were not affected by this change.
• CBOE Regulatory Circular RG15-103 (July 13, 2015): Extended Trading Hours (ETH) Session Pre-Open Order Entry Time Extension
Amended Order Ticket Requirements for Complex Orders With More Than 12 Legs
CBOE Rule 6.53.02 requires a complex order of 12 legs or less (one leg of which may be for an underlying security or security future, as applicable) to be entered on a single order ticket at time of systemization. CBOE Rule 24.20.01 similarly requires that an SPX Combo Order of 12 legs or less to be entered on a single order ticket at time of systemization. In accordance with CBOE Rules 6.53.02 and 24.20.01, CBOE has determined that it will permit complex orders and SPX Combo Orders of more than 12 legs to be split across multiple order tickets provided that the TPH representing the order:
• includes 12 legs on one of the order tickets (e.g., a 13-leg order cannot have 7 legs on one ticket and 6 legs on another ticket; rather, one ticket must have 12 legs and the other ticket must have 1 leg); and
• identifies for CBOE the order tickets that are part of the same complex order in the following form and manner: TPHs must identify for CBOE each related order ticket by completing the 12+ Leg Order Submission Form (located at https://www.cboe.org/members/GeneralInfo/) and emailing it to email@example.com by 12:00 pm Central Time on the next trading day following order entry.
As previously announced, mandatory compliance with the aforementioned order ticket and submission form requirements went into effect beginning for trade date June 1, 2015.
• CBOE Regulatory Circular RG15-092 (June 17, 2015): Amended Order Ticket Requirements for Complex Orders with More than 12 Legs (This circular updates CBOE Regulatory Circular RG15-067)
CBOE restates its policy concerning prearranged trading. TPHs are cautioned that any purchase or sale, transaction or series of transactions, coupled with an agreement, arrangement or understanding, directly or indirectly to reverse such transaction, which is not done for a legitimate economic purpose or without subjecting the transactions to market risk, violates CBOE rules and may be inconsistent with various provisions of the SEA and rules thereunder. All transactions must be effected in accordance with applicable trading rules, subject to risk of the market, and reported for dissemination.
• CBOE Regulatory Circular RG15-111 (August 4, 2015): Prearranged Trades
Transactions Below $1 Per Option Contract
The SEC issued a notice of filing and immediate effectiveness of a rule change by CBOE to extend a pilot procedure in CBOE Rule 6.54 (Accommodation Liquidations (Cabinet Trades)) that allows transactions to take place in open outcry at a price of at least $0 but less than $1 per contract through January 5, 2017.