Complex Order Handling

CBOE Hybrid's Complex Order Book (COB) and Complex Order Auction (COA), available in all classes, provide enhanced automatic execution possibilities for complex orders, while continuing to provide potential for price improvement.

COMPLEX ORDER BOOK (COB)

Currently, certain marketable complex orders can be executed automatically in CBOE Hybrid. Non-marketable complex orders may be booked in the Complex Order Book (COB). Once introduced in the COB, the resting order will automatically execute if:

• The quotes for the individual legs line up to make the resting order marketable;
• A CBOE Hybrid quoter submits a strategy quote or order that touches the resting order;
• An opposing order is booked that touches the resting order.
• Orders resting in the COB will re-auction when they become 2 ticks away from the displayed CBOE market.
• Order flow providers may choose to identify their executing firm number, correspondent and/or CMTA on their COA messages.

COMPLEX ORDER AUCTION (COA)

COA further automates the order handling and execution process for certain complex orders while continuing to provide the potential for price improvement through an automated auction process. When COA is enabled:

• Eligible marketable (tradable at the current derived spread price) and near-marketable (tradable inside the current derived spread price) will initiate an electronic auction for price improvement.
• The auction will expire in a randomly selected time period of 1-2 seconds.
• At the expiration of the auction period, the order will either trade at an improved price, the current price or book to the COB.
• If booked, the order will electronically execute if COB conditions are met (see above).
• Orders resting in the COB will re-auction when they become 2 ticks away from the displayed CBOE market.
• Order flow providers may choose to identify their executing firm number, correspondent and/or CMTA on their COA messages.

Stock: Option Orders Automation

Complex orders combining stock and options legs may be executed automatically after being exposed to a brief auction for possibility of price improvement. The option leg will print on CBOE and the stock leg will print on the CBOE Stock Exchange (CBSX).

Functionality Highlights:

• Currently, this feature supports buy-writes and other orders with a single option leg and a stock leg in 1-to-1 ratio. Upon receipt, eligible incoming orders will initiate a 1-2 second electronic COA auction.
• The order will be auctioned as a packaged order with one net price; traders will be able to respond to the auction in pennies.
• Orders that are not marketable at the conclusion of the auction will be electronically monitored and will automatically re-auction if they become marketable.
• Coming in early 2009: Ratios for stock:option orders (up to four legs, one leg stock)

Paired Order Mechanism for Complex Orders (AIM for Complex Orders)

CBOE's Automated Improvement Mechanism (AIM) is an automated process for paired orders of any origin type, which provides potential for price improvement and a participation right through an auction process. By utilizing the AIM paired order mechanism, an order flow providers is afforded the opportunity to participate against their customers' orders (facilitation) or solicit another firm's liquidity (solicitation).

(NOTE: Available in all classes except SPX)

AIM for Complex Orders*
Complex orders having up to four legs and having a ratio of one-to-three or lower are eligible for the AIM mechanism.
Initiating Order and Contra Order must be entered as a pair.
Contra Order must be for full size of Initiating Order / can be facilitating or solicited.
Contra Order price must be at least .01 better than CBOE displayed market.
Auction period is 1 second; minimum improvement increment is .01. Contra Order guaranteed 40% if at best price (matched by multiple participants) or 50% (matched by one participant).
Entering Contra Order as a Market Order guarantees participation at best price (auto-matches best price of other auction participants).

AIM For Option: Stock Orders** (stock leg executes on CBSX)
Price must better NBBO by $.01 or $.02 if CBOE and CBSX are on the NBBO.
All else same as AIM for Complex Orders.
**Coming in early 2009: Ratios for stock:option orders (up to four legs, one leg stock)

AIM All Or None (AON) Solicitation - Simple and Complex
500 contract minimum.
Both orders must be AON.
Solicitation only (no Facilitated). If Contra Order is Firm, cannot be same give-up as Initiating Order.
Price must be at CBOE BBO (NBBO not required) but must improve resting Customer orders.
Contra Order can only be shut out if responses improve Contra Order price FOR FULL VOLUME.
All else same as AIM for Complex Orders.