On November 22, the Chicago Board Options Exchange, Inc. (the “Exchange” or CBOE) filed a proposal to amend CBOE Rules 6.45A, 6.45B and 6.73, specifying that, for transactions between floor brokers and market makers, the “initiator” of an order is the party responsible for ensuring that transactions are executed in accordance with open outcry priority and allocation requirements and trade-through prohibitions. The Exchange’s current rules and interpretations regarding responsibility for trade-throughs were considered ambiguous, and the Exchange has taken the position in enforcement actions that all parties to a trade are liable for any trade-through violation. The filing specifically states that in a typical open outcry transaction, it is the floor broker representing an order and requesting quotes from market makers in the trading crowd. In that circumstance, the floor broker will be deemed to have initiated the transaction.

The proposal does not affect transactions between floor brokers or transactions between market makers. If such transactions result in a trade-through violation, that violation would continue to be enforced against both parties to the transaction.

The Exchange asserts that this proposal places responsibility for ensuring compliance with priority, allocation, and trade-through rules on the appropriate parties.

The Commission has up to 90 days to approve or disapprove the proposed rule change, or institute further proceedings to determine whether the proposed rule change should be amended.

The Exchange’s proposal is available here.