[Federal Register: January 18, 2007 (Volume 72, Number 11)]
[Notices]
[Page 2317-2319]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18ja07-116]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55081; File No. SR-CBOE-2007-02]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Amend Its Rule Pertaining to Accommodation Liquidations
(Cabinet Trades)
January 10, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 8, 2007, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been substantially prepared by
the Exchange. The Exchange has designated this proposal as non-
controversial under Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder,\4\ which renders the proposed rule change
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend provisions in CBOE Rule 6.54
pertaining to accommodation liquidations (also referred to as ``cabinet
trades'') to provide that a Market-Maker may initiate a cabinet trade
without the need to place an order with an Order Book Official
(``OBO'') or a Floor Broker. The Exchange is also proposing to make
clear in the rule that a Floor Broker or a Market-Maker can enter into
an opening or closing cabinet transaction, but must yield priority to
all orders in the cabinet book. The text of the proposed rule change is
available at CBOE, the Commission's Public Reference Room, and http://www.cboe.com
.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
An ``accommodation'' or ``cabinet'' trade refers to trades in
listed options on the Exchange that are worthless or not actively
traded. Cabinet trading is generally conducted in accordance with
Exchange Rules; Exchange Rule 6.54, Accommodation Liquidations (Cabinet
Trades), sets forth specific procedures for engaging in cabinet trades.
Rule 6.54 currently provides for cabinet transactions to occur via open
outcry at a cabinet price of a $1 per option contract whether or not
the class trades on the Exchange's Hybrid Trading System.
[[Page 2318]]
The first purpose of the rule change is to amend Rule 6.54 to
authorize Market-Makers to initiate cabinet trades. Thus, in addition
to the existing cabinet trading procedures which permit Market-Makers
to (i) place cabinet orders with an OBO \5\ or a Floor Broker for
representation and execution, and (ii) respond at a cabinet price in
response to a request for quote from an OBO or a Floor Broker, a
Market-Maker may now himself or herself initiate a cabinet trade in the
trading crowd without need to first place the cabinet order with an OBO
or Floor Broker. This will save the additional time and process
involved in a Market-Maker needing to first place a cabinet order that
he or she is initiating with an OBO or a Floor Broker, who would then
in turn represent and execute the order on behalf of the Market-Maker.
Thus, permitting Market-Makers to initiate cabinet orders and trades in
accordance with the procedures described in Rule 6.54 will provide
Market-Makers with additional flexibility and assist in the fair,
orderly and efficient handling of cabinet transactions on the
Exchange.\6\
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\5\ A PAR Official may also perform the functions of an OBO. See
Interpretation and Policy .02 to Rule 6.54.
\6\ The Exchange notes that permitting a Market-Maker to
initiate a cabinet trade is similar to and consistent with a recent
amendment to Rule 6.54 that permitted Floor Brokers to initiate
cabinet orders and trades. See Securities Exchange Act Release No.
53808 (May 16, 2006), 71 FR 29371 (May 22, 2006) (SR-CBOE-2006-33).
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The second purpose of the rule change is to amend Rule 6.54 to make
clear that Floor Brokers or Market-Makers may enter into both opening
and closing cabinet transactions, so long as they first yield priority
to all orders in the cabinet book. Rule 6.54 currently provides that
bids and offers for cabinet transactions may be placed with an OBO,
provided that bids and offers for opening transactions may only be
placed with an OBO to the extent that the cabinet book maintained by
the OBO contains unexecuted contra closing orders with which the
opening orders may be immediately matched. In addition, Rule 6.54
currently provides that Floor Brokers are permitted to represent and
execute cabinet orders and also provides that bids and offers may be
provided by Floor Brokers and Market-Makers in response to a request by
an OBO or a Floor Broker, provided they yield priority to all orders in
the OBO's cabinet book. However, the existing rule text is silent as to
whether such orders represented by Floor Brokers and such bids and
offers provided by Floor Brokers and Market-Makers may be for opening
and closing transactions. In order to resolve any ambiguity that may
exist, the rule text is being amended to make clear that both opening
and closing transactions by Floor Brokers and Market-Makers are
permitted, so long as they first yield priority to all orders in the
cabinet book.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act \7\ in general and furthers the objectives of
Section 6(b)(5) of the Act \8\ in particular in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and to protect investors and the public interest.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange neither solicited nor received comments on the
proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \9\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\10\ Because the foregoing proposed rule change (i) does not
significantly affect the protection of investors or the public
interest; (ii) does not impose any significant burden on competition;
and (iii) does not become operative for 30 days from the date on which
it was filed, or such shorter time as the Commission may designate, if
consistent with the protection of investors and the public interest,
the proposed rule change has become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.\11\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6).
\11\ Rule 19b-4(f)(6)(iii) requires the Exchange to give written
notice to the Commission of its intent to file the proposed rule
change at least five business days prior to filing. The Exchange
complied with this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to waive the operative
delay if such action is consistent with the protection of investors and
the public interest. The Exchange has asked the Commission to waive the
operative delay to permit the proposed rule change to become effective
prior to the 30th day after filing.
The Commission has determined to waive the 30-day delay and allow
the proposed rule change to become operative immediately.\12\ The
Commission believes that CBOE's proposal to permit Market-Makers to
initiate cabinet trades without the need to go through an OBO or Floor
Broker should result in more efficient handling of cabinet
transactions. In addition, explicitly permitting Floor Brokers or
Market-Makers to enter into both opening and closing transactions
(provided that they yield to any existing orders in the cabinet book)
will eliminate ambiguity from the rule text. For these reasons, the
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
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\12\ For purposes only of waiving the operative delay of this
proposal, the Commission notes that it has considered the proposed
rule's impact on efficiency, competition, and capital formation. See
15U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-CBOE-2007-02 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission,
[[Page 2319]]
100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2007-02. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commissions Internet Web site (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
CBOE-2007-02 and should be submitted on or before February 8, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12)
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-615 Filed 1-17-07; 8:45 am]
BILLING CODE 8011-01-P