How to pull the rug on SPX market makers

cbkswonk · Sep 10, 2007

(c) For those option classes in which a DPM, LMM, SMM, or appointed market-maker do not have the responsibility set forth in paragraph (b) above, the components in the formula used in each trading crowd to generate automatically updated market quotations shall be as agreed upon by the respective trading crowds. For those classes in which a DPM, LMM, or SMM, or a market-maker in good standing has been appointed the responsibility to determine a formula for generating automatically updated market quotations, the DPM, LMM, SMM or appointed market-maker may, but is not required to, consult with and/or agree with members of the trading crowd in setting the components of the formula, but the members of the trading crowd are not required to provide input in these decisions, and in all instances, the DPM, LMM, SMM, or appointed market-maker has the responsibility to make the final determination as to the components. The provisions of this Interpretation .07 shall also apply to the use of automated quotation updating systems to generate indicative prices that are indications of interest and not firm quotes.

Adopted June 6, 1988; amended March 15, 2002 (01-64)

.08 The Exchange or its authorized agent may calculate bids and asks for various indices for the sole purpose of determining permissible bid/ask differentials on options on these indices. These values will be calculated by determining the weighted average of the bids and asks for the components of the corresponding index. These bids and asks will be disseminated by the Exchange at least every fifteen seconds during the trading day solely for the purpose of determining the permissible bid/ask differential that market-makers may quote on an in-the-money option on the indices. For in-the-money series in index options where the calculated bid/ask differential is wider than the applicable differential set out in Rule 8.7(b)(iv), the bid/ask differential in the index option series may be as wide as the calculated bid/ask differential in the underlying index. The Exchange will not make a market in the basket of stock comprising the indices and is not guaranteeing the accuracy or the availability of the bid/ask values.

The bid/ask values for those certain indices, which are calculated by the Exchange or its authorized agent, are disseminated for the purpose of determining permissible bid/ask differentials on in-the-money index option series, in accordance with interpretations to Rule 8.7. As such, the Exchange is not making a market in these indices and these values should not be relied upon as indicative of the market in the indices. The Exchange's liability in connection with the calculation and dissemination of these bid/ask values for indices is limited to the same extent as provided in Rule 24.12 in connection with the calculation and dissemination of current index values.

Approved October 25, 1995, effective November 20, 1995 (95-60).

.09The obligations and duties of Market-Makers set forth in Rule 8.7 paragraphs (a) and (b) apply to an in-crowd Market-Maker only when the in-crowd Market-Maker is present in the trading crowd and to a Market-Maker electronically quoting from outside of his/her appointed trading station (in accordance with Rule 8.3(c)) or to an RMM only when the Market-Maker or RMM is logged on to the CBOE Hybrid system. Market-Makers remain subject to Rule 7.5 while on the floor of the Exchange.

Adopted July 24, 1997 (97-34); amended March 14, 2005 (04-75); March 24, 2005 (04-58).

.10 Market-Makers may display indicative spread prices on the websites of member organizations through a system licensed from a third party, developed by the Exchange or otherwise. Such indicative prices shall not be regarded as firm quotes, and a Market-Maker shall not be obligated to execute at the indicative prices spread orders that are entered into the market.

Adopted July 19, 2001 (01-41).

.11 (a) In classes in which CBOE Rule 6.8 is applicable, the obligation of Market-Makers to make competitive markets under Rule 8.7 does not preclude members in a trading crowd from discussing a request for a market that is greater than the RAES order eligibility size for that option class, for the purpose of making a single bid (offer) based upon the aggregate of individual bids (offers) by members in the trading crowd, but only when the member representing the order asks for a single bid (offer). Whenever a single bid (offer) pursuant to this paragraph is made, such bid (offer) shall be a firm quote and each member of the trading crowd participating in the bid (offer) shall be obligated to fulfill his portion of the single bid (offer) at the single price.

(b) In classes in which the CBOE Hybrid System is operational, the obligation of Market-Makers to make competitive markets under Rule 8.7 does not preclude members in a trading crowd from discussing a request for a market that is greater than the disseminated size for that option class, for the purpose of making a single bid (offer) based upon the aggregate of individual bids (offers) by members in the trading crowd, but only when the member representing the order asks for a single bid (offer). Whenever a single bid (offer) pursuant to this paragraph is made, such bid (offer) shall be a firm quote and each member of the trading crowd participating in the bid (offer) shall be obligated to fulfill his portion of the single bid (offer) at the single price.

.12 Reserved.

Approved April 22, 2002 (2001-65); amended May 30, 2003 (02-05); May 30, 2003 (03-20); amended July 30, 2004 (04-47); amended December 1, 2004 (04-69).

.13 Market-Makers will be exempt from the requirements of subparagraph (b)(iv) of this Rule for a period of 30 seconds in cases where the Exchange automatically adjusts one side of the disseminated quote to one minimum increment below (above) the NBBO bid (offer): (1) because the size associated with that quote has been exhausted by automatic executions; or (2) to comply with the terms of the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage. This exemption will be in effect until February 17, 2007 on a pilot basis.

Amended September 16, 2003 (03-08); amended August 31, 2004 (04-39); amended December 1, 2004 (04-69); February 17, 2006 (06-17).

cbkswonk · Sep 10, 2007

In Addition:

(d) Each LMM or SMM appointed in accordance with this Rule to determine a formula for generating automatically updated market quotations shall for the period in which it acts as LMM or SMM use the Exchange's AutoQuote system or a proprietary automated quotation updating system to update market quotations during the trading day. In addition, the LMM or SMM shall disclose the following components of the formula to the other members trading at the trading station at which the formula is used: option pricing calculation model, volatility, interest rate, dividend, and what is used to represent the price of the underlying. Notwithstanding the foregoing, the appropriate Market Performance Committee shall have the discretion to exempt LMMs and SMMs using proprietary automated quotation updating systems from having to disclose proprietary information concerning the formulas used by those systems.

kny3 · Sep 10, 2007

Can I pull up a chair and watch this? Day is so much more fun than NoMoreOptions.

Agent Scully: Homer, we're going to ask you a few simple yes or no questions. Do you understand?

Homer Simpson: Yes. (lie dectector blows up)

Day you remind me of Homer

kny3

xflat2186 · Sep 10, 2007

Kny... like I said before, everyone loves a good train wreck, they just cant turn away and this clown Day is a big train wreck

HedgefundTrader2 · Sep 11, 2007

Quote from xflat2186:

Kny... like I said before, everyone loves a good train wreck, they just cant turn away and this clown Day is a big train wreck
More...

GET LOST.

HedgefundTrader2 · Sep 11, 2007

Quote from cbkswonk:

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.
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Thank you. Now get lost...

HedgefundTrader2 · Sep 11, 2007

Quote from cbkswonk:

(c) For those option classes in which a DPM, LMM, SMM, or appointed market-maker do not have the responsibility set forth in paragraph (b) above, the components in the formula used in each trading crowd to generate automatically updated market quotations shall be as agreed upon by the respective trading crowds. For those classes in which a DPM, LMM, or SMM, or a market-maker in good standing has been appointed the responsibility to determine a formula for generating automatically updated market quotations, the DPM, LMM, SMM or appointed market-maker may, but is not required to, consult with and/or agree with members of the trading crowd in setting the components of the formula, but the members of the trading crowd are not required to provide input in these decisions, and in all instances, the DPM, LMM, SMM, or appointed market-maker has the responsibility to make the final determination as to the components. The provisions of this Interpretation .07 shall also apply to the use of automated quotation updating systems to generate indicative prices that are indications of interest and not firm quotes.

Adopted June 6, 1988; amended March 15, 2002 (01-64)

.08 The Exchange or its authorized agent may calculate bids and asks for various indices for the sole purpose of determining permissible bid/ask differentials on options on these indices. These values will be calculated by determining the weighted average of the bids and asks for the components of the corresponding index. These bids and asks will be disseminated by the Exchange at least every fifteen seconds during the trading day solely for the purpose of determining the permissible bid/ask differential that market-makers may quote on an in-the-money option on the indices. For in-the-money series in index options where the calculated bid/ask differential is wider than the applicable differential set out in Rule 8.7(b)(iv), the bid/ask differential in the index option series may be as wide as the calculated bid/ask differential in the underlying index. The Exchange will not make a market in the basket of stock comprising the indices and is not guaranteeing the accuracy or the availability of the bid/ask values.

The bid/ask values for those certain indices, which are calculated by the Exchange or its authorized agent, are disseminated for the purpose of determining permissible bid/ask differentials on in-the-money index option series, in accordance with interpretations to Rule 8.7. As such, the Exchange is not making a market in these indices and these values should not be relied upon as indicative of the market in the indices. The Exchange's liability in connection with the calculation and dissemination of these bid/ask values for indices is limited to the same extent as provided in Rule 24.12 in connection with the calculation and dissemination of current index values.

Approved October 25, 1995, effective November 20, 1995 (95-60).

.09The obligations and duties of Market-Makers set forth in Rule 8.7 paragraphs (a) and (b) apply to an in-crowd Market-Maker only when the in-crowd Market-Maker is present in the trading crowd and to a Market-Maker electronically quoting from outside of his/her appointed trading station (in accordance with Rule 8.3(c)) or to an RMM only when the Market-Maker or RMM is logged on to the CBOE Hybrid system. Market-Makers remain subject to Rule 7.5 while on the floor of the Exchange.

Adopted July 24, 1997 (97-34); amended March 14, 2005 (04-75); March 24, 2005 (04-58).

.10 Market-Makers may display indicative spread prices on the websites of member organizations through a system licensed from a third party, developed by the Exchange or otherwise. Such indicative prices shall not be regarded as firm quotes, and a Market-Maker shall not be obligated to execute at the indicative prices spread orders that are entered into the market.

Adopted July 19, 2001 (01-41).

.11 (a) In classes in which CBOE Rule 6.8 is applicable, the obligation of Market-Makers to make competitive markets under Rule 8.7 does not preclude members in a trading crowd from discussing a request for a market that is greater than the RAES order eligibility size for that option class, for the purpose of making a single bid (offer) based upon the aggregate of individual bids (offers) by members in the trading crowd, but only when the member representing the order asks for a single bid (offer). Whenever a single bid (offer) pursuant to this paragraph is made, such bid (offer) shall be a firm quote and each member of the trading crowd participating in the bid (offer) shall be obligated to fulfill his portion of the single bid (offer) at the single price.

(b) In classes in which the CBOE Hybrid System is operational, the obligation of Market-Makers to make competitive markets under Rule 8.7 does not preclude members in a trading crowd from discussing a request for a market that is greater than the disseminated size for that option class, for the purpose of making a single bid (offer) based upon the aggregate of individual bids (offers) by members in the trading crowd, but only when the member representing the order asks for a single bid (offer). Whenever a single bid (offer) pursuant to this paragraph is made, such bid (offer) shall be a firm quote and each member of the trading crowd participating in the bid (offer) shall be obligated to fulfill his portion of the single bid (offer) at the single price.

.12 Reserved.

Approved April 22, 2002 (2001-65); amended May 30, 2003 (02-05); May 30, 2003 (03-20); amended July 30, 2004 (04-47); amended December 1, 2004 (04-69).

.13 Market-Makers will be exempt from the requirements of subparagraph (b)(iv) of this Rule for a period of 30 seconds in cases where the Exchange automatically adjusts one side of the disseminated quote to one minimum increment below (above) the NBBO bid (offer): (1) because the size associated with that quote has been exhausted by automatic executions; or (2) to comply with the terms of the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage. This exemption will be in effect until February 17, 2007 on a pilot basis.

Amended September 16, 2003 (03-08); amended August 31, 2004 (04-39); amended December 1, 2004 (04-69); February 17, 2006 (06-17).
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No comments.

HedgefundTrader2 · Sep 11, 2007

Quote from kny3:

Can I pull up a chair and watch this? Day is so much more fun than NoMoreOptions.

Agent Scully: Homer, we're going to ask you a few simple yes or no questions. Do you understand?

Homer Simpson: Yes. (lie dectector blows up)

Day you remind me of Homer

kny3

More...

Take a hike. Don't come back son.

HedgefundTrader2 · Sep 11, 2007

Quote from xflat2186:

Internet muscles.. this thread is so entertaining LOL

Day's been exposed as a fraud and a phony and now he thinks he's intimidating people with internet muscles CLASSIC
More...

I didn't initiate this. You can't deal with people who are stronger than you every which way.

The other idiot CBSWONK, is grazing his horns against a steel wall, just like you are doing my beloved son.

HedgefundTrader2 · Sep 11, 2007

Quote from cbkswonk:

DEAR CLUELESS:

Judging by the lack of knowledge that you have spewed forth about SPX options (which you have been proven wrong countless numbers of times), I am going to extrapolate that your most recent statement(s) are indicative of someone who has a mental issue (or you're just being a total asshole, which I can't rule out entirely).

Explain how I shall "cook an omelette" as you say?

Now that you've given me a thinly veiled threat, why don't I detail what I am going to do to you if I ever see you on the streets of NYC or any other major city:

I am going to bash your head into the nearest concrete object, around 5-6 times. I assume that first, due to the thickness of your head, I may be forced to kickbox you in it a couple times, combined with a hit to the crotch. After bashing your head in, I am going to repeatedly hit you with the latest copy of the CBOE rulebook, so that maybe, just MAYBE the rules "sink in"

After a good asswhipping with the CBOE rulebook (which I will make sure is built with a heavy duty binder), I'm going to slam your head repeatedly against the hood of the nearest car, preferrably one with a hood ornament on it. After that, I figure, hell, I've already dented the hood, so I might as well smash your head into the driver's side window and dump you on the street.

The CBOE Rulebook is yours, free of charge.

Thanks,
CBK.
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Reported to the moderator.

Let them decide if this is appropiate material to post. If threats and violence is a part and parcel of this posting community and if such acts should or should not be moderated.

I can answer this very well myself , but with the best of judgment, I have chosen not to.

Day7793