SEC invites comments on CBOE plans to offer electronic-only order type

Maria Nikolova

An electronic order type aims to create an easy and convenient way for market participants to indicate they want a specific order to avoid manual handling.

On Thursday, October 12, 2017, the United States Securities and Exchange Commission (SEC) posted a notice about a regulatory submission made by Chicago Board Options Exchange, a subsidiary of CBOE Holdings, Inc (NASDAQ:CBOE), regarding a new order type the Exchange plans to introduce.

The Exchange proposes a rule change to create an electronic-only order type.

The proposed rule states:

“An electronic-only order is an order to buy or sell that is to be executed in whole or in part via electronic processing on the Exchange without routing the order to a PAR workstation or an order management terminal for manual handling on the Exchange floor. Electronic-only orders will be cancelled if routing for manual handling would be required under Exchange Rules.”

CBOE explains that orders that do not execute via electronic processing and are not entered into the electronic book are, by default, routed to either a Public Automated Routing (PAR) workstation or an Order Management Terminal (OMT) designated by the Trading Permit Holder (TPH) entering the order.

At present, TPHs are free to set routing designations for their orders and move or cancel orders according to their needs. If an order is routed to a PAR or OMT and the TPH who entered the order prefers the order not be handled manually, they are free to resubmit the order electronically or cancel the order. However, today, this could lead to a manual and time-consuming process of contacting a PAR broker or OMT operator and informing them of their instructions regarding an order.

For that matter, an electronic order type is simply creating a convenient way for market participants to indicate they want a specific order to avoid manual handling.

CBOE insists that the “electronic-only” will act as an order routing designation and does not substantially change how orders can be handled or processed today. The electronic-only designation aims to allow order entry firms and TPH to escape from potentially time-consuming steps of retrieving or resubmitting their orders from PAR or OMT.

Also, the proposed rule change seeks to remove impediments to and perfect the mechanism of a free and open market. CBOE argues that the proposed rule will not permit unfair discrimination between customers, issuers, brokers, or dealers as it is available to any TPH who routes an order to the Exchange electronically.

SEC invites interested persons to submit their feedback on the CBOE proposal. The comments may include written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Securities Exchange Act of 1934. Comments may be submitted electronically via the Commission’s Internet comment form; or via e-mail to [email protected]. (Please include File Number SR-CBOE-2017-064 on the subject line.) Paper comments in triplicate should be sent to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.

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