[Federal Register: May 19, 2004 (Volume 69, Number 97)]
[Notices]
[Page 28959-28962]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my04-91]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49687; File No. SR-CBOE-2004-05]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendments Nos. 1 and 2 Thereto by the Chicago Board Options
Exchange, Inc. Relating to the Relocation of an Entire Trading
Station's Securities to Another Trading Station
May 12, 2004.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on January 28, 2004, the Chicago Board Options
Exchange, Inc. (``CBOE'' or ``Exchange'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the Exchange. CBOE filed Amendment No. 1 on March 15,
2004.\3\ CBOE filed Amendment No. 2 on May 6, 2004.\4\ The Commission
is publishing this notice to solicit comments on the proposed rule
change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Patrick Sexton, Assistant General Counsel,
CBOE, to Christopher Solgan, Attorney, Division of Market Regulation
(``Division''), Commission, dated March 12, 2004 (``Amendment No.
1''). In Amendment No. 1, CBOE amended the proposal to further
explain why it is transferring to the Modified Trading System
Appointments (``MTS'') Committee the authority to determine whether
to relocate an entire trading station's securities to another
trading station that is operated by the same Designated Primary
Market Maker (``DPM''). CBOE also clarified the process the MTS
Committee would follow in deciding whether to relocate securities.
CBOE also noted in Amendment No. 1 that the MTS Committee would
relocate securities in accordance with CBOE Rule 30.18, which allows
for limited side-by-side trading and integrated market making, and
that to the extent any person is aggrieved economically by any MTS
Committee decision, such person may seek to have the decision
reviewed under Chapter XIX of CBOE's Rules. Finally, CBOE also
amended its proposed rule text in its entirety.
\4\ See letter from Patrick Sexton, Assistant General Counsel,
CBOE, to Christopher Solgan, Attorney, Division, Commission, dated
May 5, 2004 (``Amendment No. 2''). In Amendment No. 2, CBOE
clarified when the MTS Committee may forgo giving notice to a DPM
organization and trading crowds prior to relocation because
expeditious action is necessary. CBOE also stated that it
anticipates that the relocation of securities under this proposal
pursuant to the consideration of the appropriate factors, will have
a positive impact on the affected DPM's, market makers, and market
participants.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to amend CBOE Rules 8.84 and 8.95 to grant to the MTS
Committee, and not the Allocation Committee, the authority to approve
the relocation of an entire trading station's securities to another
trading station that is operated by the same DPM organization. The text
of the proposed rule change follows. Additions are in italics.
* * * * *
Section C: Designated Primary Market-Makers (Rules 8.80-8.91)
* * * * *
Rule 8.84. Conditions on the Allocation of Securities to DPMs
(a) The MTS Committee may establish (i) restrictions applicable to
all DPMs on the concentration of securities allocable to a single DPM
and to affiliated DPMs and (ii) minimum eligibility standards
applicable to all DPMs which must be satisfied in order for a DPM to
receive allocations of securities, including but not limited to
standards relating to adequacy of capital and number of personnel.
(b) The MTS Committee has the authority under other Exchange rules
to
[[Page 28960]]
restrict the ability of particular DPMs to receive allocations of
securities, including but not limited to, Rules 8.88(b) and 8.60, Rule
8.83(d), and Rule 8.90.
Interpretations and Policies
.01 (a) It shall be the responsibility of the MTS Committee,
pursuant to this Rule, to determine whether or not to relocate all of
the securities traded at a trading station operated by a DPM
organization to another trading station operated by the same DPM. In
making a determination pursuant to this Interpretation, the MTS
Committee should evaluate whether the change is in the best interests
of the Exchange, and the Committee may consider any information that it
believes will be of assistance to it. Factors to be considered may
include, but are not limited to, any one or more of the following:
performance, operational capacity of the Exchange or the DPM,
efficiency, number and experience of personnel of the DPM who will be
performing functions related to the trading of the applicable
securities, number of securities involved in the relocation, number of
market-makers affected by the relocation of the securities, and trading
volume of the securities.
(b) Prior to making a determination pursuant to this
Interpretation, except when expeditious action is required, the MTS
Committee shall notify the DPM organization and trading crowds affected
by the relocation of the securities of the action the MTS Committee is
considering taking, and shall convene one or more informal meetings of
the Committee with the DPM and the trading crowds to discuss the
matter, or shall provide the DPM and the trading crowds with the
opportunity to submit a written statement to the Committee.
* * * * *
Rule 8.95 Allocation of Securities and Location of Trading Crowds and
DPMs
(a) The Allocation Committee shall be responsible for determining
for each equity option class traded on the Exchange: (i) whether the
option class should be allocated to a trading crowd or to a DPM and
(ii) which trading crowd or DPM should be allocated the option class.
The Allocation Committee shall also be responsible for determining the
location on the Exchange's trading floor of each trading crowd, each
DPM, and each security traded on the Exchange. The Special Product
Assignment Committee shall be responsible for determining for each
security traded on the Exchange other than an equity option (i) whether
the security should be allocated to a trading crowd or to a DPM and
(ii) which trading crowd or DPM should be allocated the security.
(b)-(g) no change.
Interpretations and Policies
.04 Notwithstanding paragraph (a) of this Rule, the MTS Committee
shall have the authority to relocate all of the securities traded at a
trading station operated by a DPM organization to another trading
station operated by the same DPM organization pursuant to
Interpretation .01 of Rule 8.84.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, CBOE 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
CBOE Rule 8.95(a) currently provides that the Exchange's Allocation
Committee is responsible for determining the location on the Exchange's
trading floor of each trading crowd, each DPM, and each security traded
on the Exchange. Moreover, Paragraph (c) of Rule 8.95 provides that any
decision made by the Allocation Committee (or the Special Product
Assignment Committee) may be changed if the committee concludes that a
change is in the best interest of the Exchange based on operational
factors or efficiency. Paragraph (d) of Rule 8.95 describes the process
the Allocation Committee follows prior to taking any action under Rule
8.95(c), including giving notice to the DPM and trading crowd affected
by the proposed committee action, and giving the DPM and the trading
crowd an opportunity to appear before the committee or submit a written
statement to the committee.
Recently, some DPM organizations, which operate as a DPM at more
than one trading station on the Exchange's trading floor, have
requested to relocate all of the securities traded at a particular
trading station operated by that DPM organization to another trading
station operated by the same DPM (sometimes referred to as
consolidations of DPM trading stations). Pursuant to CBOE Rule 8.95,
CBOE's Allocation Committee has considered these requests.
However, because these requests may impact the operational
performance and market performance of the DPM organization, the
Exchange believes that it would be appropriate for the MTS Committee to
consider these types of requests.\5\ Indeed, the MTS Committee
typically reviews DPM transfer of interest proposals that involve,
among other things, changes to a DPM's management structure. Further,
under current CBOE's rules, the MTS Committee is vested with the
authority to, among other things, approve member organizations to act
as DPMs (CBOE Rule 8.83); establish restrictions applicable to all DPMs
on the concentration of securities allocable to a single DPM and
minimum eligibility standards applicable to all DPMs which must be
satisfied in order for a DPM to receive allocations (CBOE Rule 8.84);
review DPMs' operations and performance, including an evaluation of the
extent to which a DPM has satisfied its obligations under CBOE Rule
8.85--DPM Obligations (CBOE Rule 8.88); and approve the transfer of DPM
appointments (CBOE Rule 8.89).\6\ Accordingly, CBOE believes that it is
appropriate for the MTS Committee to determine whether or not to
relocate an entire trading station's securities to another trading
station that is operated by the same DPM.\7\ As a result, the Exchange
proposes to add a new interpretation to CBOE Rule 8.84 which states
that it shall be the responsibility of the MTS Committee to determine
whether or not to relocate all of the securities traded at a trading
station operated by a DPM organization to another trading station
operated by the same DPM.\8\
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\5\ In Amendment No. 1, CBOE clarified that the MTS Committee
may determine whether to relocate an entire trading station's
securities to another trading station that is operated by the same
DPM, pursuant to a request from a DPM organization or on the
Committee's own initiative. See Amendment No. 1, supra note 3.
\6\ See Amendment No. 1, supra note 3.
\7\ Id.
\8\ CBOE also proposes to add a new interpretation to CBOE Rule
8.95 stating that notwithstanding paragraph (a) of CBOE Rule 8.95,
the MTS Committee shall have the authority to relocate all of the
securities traded at a trading station operated by a DPM
organization to another trading station operated by the same DPM
organization pursuant to Interpretation .01 of CBOE Rule 8.84.
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Proposed Interpretation .01 to CBOE Rule 8.84 also states that in
making a determination pursuant to the Interpretation, the MTS
Committee
[[Page 28961]]
should evaluate whether the change is in the best interest of the
Exchange and may consider any information that it believes will be of
assistance to it.\9\ Factors to be considered may include, but are not
limited to, any one or more of the following: performance, operational
capacity of the Exchange or the DPM, efficiency, number and experience
of personnel of the DPM who will be performing functions related to the
trading of the applicable securities, number of securities involved in
the relocation, number of market-makers affected by the relocation of
the securities, and trading volume of the securities. CBOE believes
that the various factors identified under proposed Interpretation .01
to CBOE Rule 8.84 that the MTS Committee may consider when evaluating
whether to relocate an entire trading station's securities are
generally intended to relate to and be more descriptive of the factors
that the Allocation Committee previously utilized when making such
relocation decisions under CBOE Rule 8.95.\10\ CBOE further believes
that if, after reviewing the appropriate factors and determining that a
relocation of securities is in the best interests of the Exchange in
accordance with Interpretation .01(a) to CBOE Rule 8.84, the MTS
Committee determines to relocate an entire trading station's securities
to another trading station that is operated by the same DPM
organization, that such relocation would have a positive impact on the
DPM trading those option classes, the market-makers choosing to trade
those options classes, and other market participants.\11\
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\9\ CBOE believes that this requirement is consistent with the
requirement of current CBOE Rule 8.95(c). See Amendment No. 2, supra
note 4. Paragraph (c) of CBOE Rule 8.95 provides that any decision
made by the Allocation Committee may be changed if the Committee
concludes that a change is in the best interest of the Exchange
based on operational factors or efficiency.
\10\ See Amendment No. 1, supra note 3.
\11\ See Amendment No. 2, supra note 4. CBOE trading crowd
members, including market makers, are able to move freely around
CBOE's trading floor among the trading crowds to which they are
appointed. Therefore, market makers would continue to be able to
trade their assigned option classes if those options classes were
moved to another trading station due to the consolidation of a DPM's
options classes. Specifically, CBOE market makers are able to move
freely around the trading floor, if the market makers execute at
least 75% of their total contract volume in their appointed classes.
See Interpretation .03A to CBOE Rule 8.7. Telephone conversation
between Patrick Sexton, Assistant General Counsel, CBOE, to
Christopher Solgan, Attorney, Division, Commission, on April 30,
2004.
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Similar to paragraph (d) of CBOE Rule 8.95, the proposed new
Interpretation .01 to CBOE Rule 8.84 also includes a provision
requiring the MTS Committee to notify the DPM organization and trading
crowds affected by the relocation of the securities of the action the
MTS Committee is considering taking, and shall convene one or more
informal meetings of the Committee with the DPM and the trading crowds
to discuss the matter, or shall provide the DPM and the trading crowds
with the opportunity to submit a written statement to the
Committee.\12\
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\12\ In Amendment No. 1, CBOE clarified that proposed
Interpretation .02 to CBOE Rule 8.84 allows the MTS Committee to
forego giving notice to the DPM organization and trading crowds
affected by the relocation of the securities when expeditious action
is required. CBOE noted that this is consistent with existing CBOE
Rule 8.95(d), which states that the Allocation Committee similarly
may forego giving notice when expeditious action is required. See
Amendment No. 1, supra note 3. CBOE clarified, however, that the MTS
Committee would do this only in unusual circumstances, such as
extreme market volatility or some other situation requiring urgent
action. Any determination by the MTS Committee in this regard could
be, but would not be required to be, temporary. See Amendment No. 2,
supra note 4.
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This proposed change maintains the authority of the Allocation
Committee (under CBOE Rules 8.95(a) and (c)) to determine whether or
not to relocate less than all of the securities at a particular trading
station to another trading station that is operated by the same DPM
organization.
Finally, CBOE notes that (i) nothing in this proposal is intended
to amend CBOE's rules which allow for limited side-by-side trading and
integrated market making (CBOE Rule 30.18), and (ii) to the extent any
person is aggrieved in an economic sense by any decision made by the
MTS Committee, such person may seek to have the decision reviewed under
Chapter XIX of the Exchange's Rules.\13\
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\13\ See Amendment No. 1, supra note 3. The appeal process
continues to be available in event the MTS Committee forgoes giving
notice to the affected trading crowd because expeditious action is
required. Telephone conversation between Patrick Sexton, Assistant
General Counsel, CBOE, to Christopher Solgan, Attorney, Division,
Commission, on April 27, 2004.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
section 6(b) of the Act \14\ in general and furthers the objectives of
section 6(b)(5)\15\ in particular in that it will 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,
in general, to protect investors and the public interest.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose a burden on competition that is not necessary or appropriate in
furtherance of purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) by order approve such proposed rule change, or,
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, 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 Number CBOE-2004-05 on the subject line.
Paper comments:
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-CBOE-2004-05. 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 Commission's 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
[[Page 28962]]
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 Section, 450 Fifth Street, NW., Washington, DC 20549. 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-2004-05 and should be submitted on or before June
9, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-11310 Filed 5-18-04; 8:45 am]
BILLING CODE 8010-01-P