The obligations and duties of an RMM set forth in this paragraph (e)(i) apply to an RMM on a per class basis and only when the RMM is logged on to the CBOE Hybrid system and quoting electronically in a particular class on a given trading day ( e.g., if on a given trading day an RMM is logged in and quoting electronically in 1 of its 10 appointed classes, the RMM has quote width and continuous electronic quoting obligations in that class; the continuous electronic quoting obligation applies to 60% of the series of that class that have a time to expiration of less than nine months while the RMM is logged on to the CBOE Hybrid system and quoting electronically in that class). The obligations and duties are not applicable to an appointed class if an RMM is not logged in and quoting electronically in that appointed class.
(ii) An RMM may be called upon by an Exchange official designated by the Board of Directors to submit a single electronic quote or maintain continuous electronic quotes in one or more series of a class to which the RMM is appointed whenever, in the judgment of such official, it is necessary to do so in the interest of maintaining a fair and orderly market.
(iii) All Exchange rules applicable to Market-Makers will also apply to RMMs unless otherwise provided or unless the context clearly indicates otherwise. RMMs are not considered trading crowd members, except as provided in Rule 8.60 (Evaluation of Trading Crowd Performance) or unless the context clearly indicates otherwise.
(iv) The evaluation of RMM performance shall be pursuant to Rule 8.61.
(v) Failure by an RMM to engage in a course of dealings as specified above will subject the RMM to disciplinary action or suspension or revocation of registration by the Exchange in one or more of the option classes in which the RMM holds an appointment.
(vi) RMMs shall maintain information barriers that are reasonably designed to prevent the misuse of material, non-public information with any affiliates that may conduct a brokerage business in option classes allocated to the RMM or that may act as specialist or Market-Maker in any security underlying options allocated to the RMM, and otherwise comply with the requirements of Rule 4.18 regarding the misuse of material non-public information.
Amended September 1, 1973; February 1, 1974; August 15, 1974; November 15, 1974; January 1, 1975; March 22, 1977; January 11, 1979; June 1, 1979; April 1, 1981; January 30, 1987; September 9, 1988; June 13, 1989 (89-04), effective July 24, 1989; December 2, 1997 (97-61); August 7, 2000 (00-07); May 30, 2003 (02-05); August 22, 2003 (03-28); January 29, 2004 (03-50); April 21, 2004 (04-20); June 25, 2004 (04-36); July 26, 2004 (04-44); August 17, 2004 (03-39); March 14, 2005 (04-75); March 24, 2005 (04-58); August 16, 2005 (05-56); February 6, 2006 (06-12); February 14, 2006 (06-16); July 5, 2006 (06-57); amended July 31, 2006 (05-93); January 23, 2007 (06-92); June 7, 2007 (06-101).
. . . Interpretations and Policies:
.01 Price continuity is an ongoing obligation of Market-Makers and thus applies not only intra-day but also from one day's close to the next day's opening.
.02 Market-Makers are expected ordinarily:
(a) Except in unusual market conditions, to refrain from purchasing a call option or a put option at a price more than $.25 below parity. In the case of calls, parity is measured by the bid in the underlying security, and in the case of puts, parity is measured by the offer in the underlying security.
(b) Not to bid more than $1 lower or offer more than $1 higher than the last preceding transaction price for the particular option contract, plus or minus the aggregate change in the last sale price of the underlying security since the time of the last preceding transaction for the particular option contract. This provision applies from one day's close to the next day's opening and from one transaction to the next in intra-day transactions. With respect to inter-day transactions, this provision applies if the closing transaction occurred within one hour of the close and the opening transaction occurred within one hour after the opening. With respect to intra-day transactions, this provision applies to transactions occurring within one hour of one another. The provisions of this Interpretation subparagraphs (a) and (b) may be waived by two floor officials in an index option when the primary underlying securities market for that index is not trading.
Issued April 15, 1973; amended January 30, 1987; amended September 23, 1991 (91-07).
.03 For purposes of Rule 8.7, the following percentage requirements apply to Market-Maker trading activity for each quarter of a calendar year, except for unusual circumstances as determined by the appropriate Market Performance Committee. The appropriate Market Performance Committee may assign a weighting factor based on volume to one or more classes or series of option contracts in connection with these requirements.
A. Trading in Appointed Classes: Respecting distribution of trading activity, at least 75 percent of a Market-Maker's total contract volume must be in option classes to which he has been appointed pursuant to Rule 8.3. Trading in nonappointed classes of options at the request of a Floor Official, Order Book Official, Board Broker or DPM shall be deemed to be trading in appointed classes for purposes of this Interpretation.
B. In-Person Requirements for Market-Makers in non-Hybrid and Hybrid 3.0 Classes: Respecting the manner in which Market-Maker transactions may be executed in non-Hybrid and Hybrid 3.0 classes, a Market-Maker must execute in person, and not through the use of orders, at least 25 percent of his total transactions, provided, however, that for any calendar quarter in which a Market-Maker receives Market-Maker treatment for off-floor orders in accordance with Rule 8.1, in addition to satisfying the requirements of paragraph A of this Interpretation .03, the Market-Maker must execute in person, and not through the use of orders, at least 80 percent of his total transactions. The off-floor orders for which a Market-Maker receives Market-Maker treatment shall be subject to the obligations of Rule 8.7(a) and in general shall be effected for the purpose of hedging, reducing risk of, rebalancing or liquidating open positions of the Market-Maker. The appropriate Market Performance Committee may exempt one or more options classes from this calculation.
Issued August 15, 1974; amended June 1, 1984 (80-16); January 30, 1987 (86-34); May 25, 1994, effective July 1, 1994 (93-19); December 2, 1997 (97-61); March 14, 2005 (04-75); March 24, 2005 (04-58); June 7, 2007 (06-101).
.04 The obligations of a Market-Maker with respect to those classes of option contracts to which he holds an Appointment shall take precedence over his other Market-Maker obligations.
Issued August 15, 1974; amended April 1, 1981; January 30, 1987.
.05 Unless an options class is exempted by the appropriate Market Performance Committee, under normal market conditions a Market-Maker's bid or offer for a series of options of unspecified size is for five contracts, except that a Market-Maker may be compelled to buy or sell a specific number of contracts at the disseminated bid or offer pursuant to his obligations under Rule 8.51.
Adopted January 30, 1987; amended June 13, 1989 (89-04), effective July 24, 1989; December 2, 1997 (97-61); August 17, 2004 (03-39).
.06 By making a verbal bid, a Market-Maker is also making an offer at the spread allowable under Rule 8.7(b)(iv). By making a verbal offer, a Market-Maker is also making a bid at the spread allowed under Rule 8.7(b)(iv).
Adopted January 30, 1987.
.07 Additional Obligations for Classes in Which CBOE Hybrid System is NOT Implemented:
(a) Market-Makers are expected to participate in and support Exchange sponsored automated programs, including but not limited to the Retail Automatic Execution System and AutoQuote. AutoQuote is the Exchange's electronic quotation system that automatically monitors and updates market quotations using a mathematical formula measuring certain characteristics of the option and the underlying interest. The formula for generating automatically updated market quotations requires the input of certain components including an option pricing calculation model, volatility, interest rate, dividend, and the measure used to represent the value of the underlying.
(b) For those classes in which a DPM, LMM, or SMM has been appointed, the responsibility to determine a formula for generating automatically updated market quotations is done by either the DPM pursuant to Rule 8.85(a)(x) or the LMM or SMM pursuant to Rule 8.15. The DPM, LMM or SMM may choose to use either the Exchange's AutoQuote system or a proprietary automated quotation updating systems to monitor and update market quotations. For those options classes in which a DPM, LMM, or SMM has not been appointed, the appropriate Exchange Committee may appoint one or more market-makers in good standing with an appointment in the particular option class to determine a formula for generating automatically updated market quotations for a particular period of time using the Exchange's AutoQuote system or a proprietary automated quotation updating system.
