400 S. La Salle Chicago, IL 60605

Transcription

1 400 S. La Salle Chicag, IL Regulatry Circular T: Members Frm: Trading Operatins Date: Re: CFLEX Settings and Trading Prcedures (Revised) 1 In light f the recent apprval f tw new FLEX pilts (see Regulatry Circular RG10-21), CBOE is issuing this circular t remind members f the applicable CFLEX settings and trading prcedures. The CFLEX settings are as fllws: Strike Price and Trading Increments: $0.01 fr all FLEX Optins Crssing Entitlements: Electrnic RFQs: 20% fr facilitatins and slicitatins in the fllwing classes: DJX, DTX, DUX, DXL, FVX, GOX, INX, IRX, MVR, OEX, OIX, POU, SPX, TNX, TXX, TYX and XEO; fr all ther classes, the crssing entitlement shall be 40% fr facilitatins and slicitatins Open Outcry RFQs: Per the attached table Electrnic RFQ Timers: Respnse Perid (T1): minimum f 10 secnds, maximum f 5 minutes Reactin Perid (T2): maximum f 5 minutes Expsure Perid (T3): minimum f 3 secnds Open Outcry RFQ Timers: Respnse Perid fr FLEX Index Optins and FLEX Equity Optins n ETFs: minimum f 5 minutes Respnse Perid fr all ther FLEX Equity Optins: minimum f 3 minutes A detailed summary f the CFLEX trading prcedures is attached. 2 Fr further infrmatin, please g t r refer t Chapter XXIVB f the CBOE Rules lcated at Additinal questins may als be directed t Lisa Mran at r t the CFLEX Helpdesk at (Replaces Regulatry Circular RG07-130) 1 This circular has been revised t include infrmatin n the applicable strike price increments fr FLEX Optins. N ther changes were made frm the riginal circular issued n February 2, This circular pertains nly t FLEX Optins. Please als nte that Transfer Packages which are ffered at the FLEX pst subject t the transfer prcedures under Rule 6.49A are traded in pen utcry nly and are nt subject t the prcedures described in this circular. Fr a detailed descriptin f the transfer prcedures, refer t Rule 6.49A.

2 Page 2 f 5 CFLEX Crssing Participatin Entitlements fr Open Outcry RFQs 3 Fr the classes listed belw, 40% fr pen utcry facilitatins and slicitatins: ALL NON-ETF FLEX EQUITY OPTION CLASSES & BBH BDH DVY EFA EEM HHH IAH IBB IDU IEF IGV IWC IWP IWR IWS IWV IWW IWZ IYE IYH IYY LQD MDY OIH ONEQ OOO PPH RKH RSP RTH SHY SMH SML SWH TLT TTH UTH WMH XLB XLE XLF XLK XLP XLU XLV Fr the classes listed belw, 40% fr pen utcry facilitatins (and nt slicitatins): DGT DIA IGN IGU IGW IWB IWD IWF IWM IWN IWO OEF RMN SPY XLI XLY Fr the classes listed belw, 20% fr pen utcry facilitatins (and nt slicitatins): CYX DJX DTX DUX DXL FVX GOX INX IRX MNX MUT MVR NDX OEX OIX PFU POQ POU POY PVC PVF PVK PVL PVO PVP PVU QQQQ RLG RLV RMC RPY RUT SPX TNX TXX TYX VIX XEO XSP & ALL OTHER FLEX INDEX AND ETF OPTIONS CLASSES 3 Fr all FLEX Index Optin classes, the pen utcry crssing participatin entitlement is the larger f the percentage nted abve, a prprtinal share, $1 millin underlying equivalent value r the remaining underlying equivalent value n a clsing transactin.

3 Page 3 f 5 CFLEX Trading Prcedures Market Participants: There are Qualified Market-Makers ( QMMs ) appinted t each class (see Rule 24B.9 fr requirements); there are currently n Appinted Market-Makers ( AMMs ). QMMs and brkers seeking t trade FLEX must file an amended letter f guarantee r authrizatin with CBOE s Membership Department (6 th Flr). Yu may btain a frm fr such amended letter frm the Membership Department. Fr thse QMMs and brkers seeking t trade in pen utcry n the Exchange s trading flr, E-FLEX and/r I- FLEX will be printed n yur badge. Only Market-Makers and brkers with these indicatrs n their badges may trade in pen utcry. In additin, members custmers seeking t have direct electrnic access t the CFLEX system (referred t as Spnsred Users ) must file a Spnsred User Agreement with the Membership Department (see Rule 6.20A). T cnfirm whether yu have the current paperwrk n file r t btain the necessary frms, cntact the Membership Department. Prduct Terms & Specs: These are described in Rule 24B.4. Please nte the fllwing: 4 The minimum values size requirements fr all FLEX Optins and pm-settlement restrictins fr FLEX Index Optins have been eliminated n a pilt basis until March 28, 2011 (see Rule 24B.4.01 and Regulatry Circular RG10-21 fr further infrmatin). FLEX Optins that expire n r within tw business days f a third Friday-f-the-mnth expiratin (referred t as the ld blackut perid ) are subject t additinal requirements (see Rule 24B.4.02 and Regulatry Circular RG10-23 fr further infrmatin). FLEX Optins n Vlatility Indexes (e.g., CBOE Vlatility Index (VIX)) may nly expire n business days that nn-flex ptins n Vlatility Indexes expire (see Regulatry Circular RG09-55 fr further infrmatin). Strike price increments n all new FLEX Optins may be expressed dwn t the nearest $0.01. Existing FLEX Equity Optin series with strike prices in ne-eighth f a dllar increments may cntinue t trade. The minimum trading increment is $0.01 fr all FLEX Optins. Psitin & Exercise Limits, Reprting Requirements: Fr the applicable psitin and exercise limits, as well as reprting requirements, please refer t Rules 24B.7 and 24B.8. Crssing Participatin Entitlements: The applicable crssing participatin entitlements (after yielding t certain trading interests) will be as fllws: Electrnic RFQs: 20% fr facilitatins and slicitatins in the fllwing classes: DJX, DTX, DUX, DXL, FVX, GOX, INX, IRX, MVR, OEX, OIX, POU, SPX, TNX, TXX, TYX and 4 All transactins must als be in cmpliance with Sectin 11(a)(1) f the Exchange Act and the rules prmulgated thereunder. Sectin 11(a)(1) prhibits a member frm effecting transactins n the Exchange fr the member s wn accunt, the accunt f an assciated persn, r an accunt ver which the member r its assciated persn exercises investment discretin (cllectively referred t as prprietary rders), unless an exceptin applies. In this regard, Market- Makers effecting transactins in a market-making capacity are generally exempt frm the restrictins f Sectin 11(a)(1). In additin, with respect t the FLEX electrnic bk: (i) a FLEX Order submitted n behalf f the prprietary accunt f a member that satisfies the requirements f the G exemptin may nly be entered t hit the electrnic bk. T the extent such a FLEX Order is nt executed in whle r in part as sn as it hits the electrnic bk, it must be immediately cancelled by the FLEX Trader; and (ii) a member that satisfies the requirements f the effect versus execute exemptin may use the System t submit a prprietary rder riginating frm ff the Exchange s trading flr int the electrnic bk. Fr further infrmatin n the applicable exceptin requirements, please refer t Sectin 11(a)(1) and CBOE Rule 24B.5(d)(4).

4 Page 4 f 5 XEO; fr all ther classes, the crssing entitlement shall be 40% fr facilitatins and slicitatins Open Outcry RFQs: Per the table abve It shuld be nted that the initiatr f an RFQ (referred t as the Submitting Member r SM ) utilizing the electrnic r pen utcry RFQ mechanics cannt crss an rder with a QMM unless certain cnditins are satisfied (see Rule 24B.5(d)(2)(i)(C)). It shuld als be nted that an agency rder cannt be crssed with a principal r slicited rder via the bk unless the agency rder is first subject t an RFQ and the agency rder is expsed fr at least 3 secnds r, in the case f a principal rder being executed against an agency rder, the SM has been bidding (ffering) fr at least 3 secnds prir t receiving the agency rder (see Rule 24B.5(b)(3)). Electrnic RFQs: T initiate a FLEX transactin using the electrnic RFQ prcess, the SM submits an electrnic RFQ cntaining the applicable cntract terms. If the SM is seeking a crssing participatin entitlement (discussed belw), the SM must check the intent t crss bx as part f the RFQ request. Varius timers apply during an electrnic RFQ: Respnse Perid (T1): minimum f 10 secnds, maximum f 5 minutes T1 is a variable perid set by the SM that dentes when respnses can be entered, mdified r canceled, including respnses frm the SM. Nte that respnses fr the accunt f nn-member Market-Makers (rigin cde N ) are nt permitted and respnses fr the accunt f a nn-member brker-dealer must be submitted using the rigin cde C. Reactin Perid (T2): maximum f 5 minutes T2 is a perid when the SM can decide t trade; respnses can cntinue t be entered, mdified r cancelled during T2, but n trading will ccur until the SM determines t accept r reject the RFQ respnses. Nte that if the SM enters a respnse during T2, the SM must wait a minimum f 3 secnds befre entering a cntra-side rder. Expsure Perid (T3): minimum f 3 secnds T3 is a perid that applies in crssing scenaris; if the SM enters an rder during T2 that imprves the BBO r matches the BBO but exceeds the available size, the SM must wait a minimum f 3 secnds befre entering a cntra-side rder. Open Outcry RFQs: The fllwing summarizes the FLEX pen utcry RFQ prcedures: The SM must ntify the FLEX Official (r ther designee appinted by the Exchange in accrdance with Rule 24B.14(a)) abut all terms f the RFQ befre ntifying the trading crwd. Ntificatin can be made ver the phne but must be fllwed by a written RFQ frm. The frms are available at the FLEX pst. The RFQ must als include a respnse time interval specified in minutes and, except as prvided belw, must be fr a perid f at least 5 minutes fr FLEX Index Optins and FLEX Equity Optins n ETFs, and a perid f at least 3 minutes fr all ther FLEX Equity Optins. N RFQs can be submitted t the FLEX Official after 2:57 p.m. in a FLEX Equity Optin class r 3:10 p.m. in a FLEX Index Optin class (all times nted are Central). After submitting an RFQ t the FLEX Official, the SM must then immediately annunce the terms and specificatins f the RFQ t the trading crwd where the listed ptin is traded. This cmmunicatin must ccur as sn as pssible (and generally within 1 minute) fllwing submissin f the RFQ t the FLEX Official. FLEX qutes respnsive t the RFQ may be prvided t the SM and must be entered during the request respnse time by public utcry. QMMs and agents representing

5 Page 5 f 5 custmer and/r firm accunts may participate. At the prescribed time, the SM will review all qutes fr several secnds and will then annunce the best bid and ffer ( BBO ). Once the BBO is annunced, the SM will have a reasnable amunt f time t cnvey this infrmatin t the custmer and determine if the custmer will hit the bid r the ffer, better the market r decline t trade. 5 See ftnte 4 abve. N trade shall take place sner than the expiratin f the request respnse time interval (e.g., 5 minutes after an RFQ fr a FLEX Index Optin has been annunced t the trading crwd). By this time, any public interest in respnse t the RFQ will be prepared t give a qute alng with the QMMs in the trading crwd. If the SM des nt intend t crss r act as principal with respect t any part f the FLEX trade, the SM shall prmptly accept r reject the BBO; prvided, hwever, that if the SM either rejects the BBO r is given a BBO fr less than the entire size requested, all FLEX Traders present in the trading crwd (ther than the SM) will have an pprtunity during the BBO Imprvement Interval in which t match r imprve, as applicable, the BBO. At the expiratin f any such BBO Imprvement Interval, the SM must prmptly accept r reject the BBO. If the SM indicates an intentin t crss r act as principal with respect t any part f the FLEX trade, acceptance f the displayed BBO shall be autmatically delayed until the expiratin f the BBO Imprvement Interval. Prir t the BBO Imprvement Interval, the SM must annunce t the trading crwd the price at which the SM expects t trade. In these circumstances, the SM may participate with all ther FLEX Traders present in the trading crwd in attempting t imprve r match the BBO during the BBO Imprvement Interval. At the expiratin f the BBO Imprvement Interval, the SM must prmptly accept r reject the BBO. If the SM accepts the best bid r ffer, highest bid (lwest ffer) shall have pririty. Allcatin amng multiple best bids (ffers) at the same price shall be as fllws: any crssing participatin entitlement will have first pririty; then all ther FLEX respnses submitted in respnse t an pen utcry RFQ will have secnd pririty based n the sequence in which they are submitted; t the extent that tw r mre best bid (ffer) respnses are submitted in pen utcry at the same time and same price, r the SM cannt reasnably determine the sequence in which the pen utcry bid (ffer) respnses were made, pririty will be apprtined equally amng the pen utcry bids (ffers); then trading interested represented in the bk will have third pririty. All transactins must be in cmpliance with Sectin 11(a)(1) f the Securities Exchange Act f 1934 and the rules prmulgated thereunder. 5 In this regard, ntwithstanding the pririty prvisins described abve, bids (ffers) submitted in pen utcry n behalf f the prprietary accunt f a member relying n the G exemptin must yield pririty t any bid (ffer) at the same price that is represented in the bk and all ther bids (ffers) represented in the trading crwd that have pririty ver the bk. If the SM decides nt t accept the best bid r ffer made in respnse t the RFQ, any flr brker r QMM may accept the best bid r ffer up t the size currently represented. If the SM accepts the best bid r ffer, but there is excess size available, any flr brker r QMM may trade the balance available. Please refer t Regulatry Circular RG fr additinal infrmatin regarding trade entry and trade recnciliatin.