[Federal Register: March 5, 2004 (Volume 69, Number 44)]
[Notices]
[Page 10492]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05mr04-135]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49334; File No. SR-CBOE-2004-01]
Self-Regulatory Organizations; Order Granting Approval of
Proposed Rule by the Chicago Board Options Exchange, Incorporated
Relating to the UMA Calculation for the CBOE Hybrid System
February 27, 2004.
On January 8, 2004, the Chicago Board Options Exchange,
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'' or ``SEC'') the proposed rule
change, pursuant to section 19(b)(1) of the Securities Exchange Act of
1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ to allow the
appropriate Index Floor Procedure Committee (``IFPC'') to vary the
component weightings of the Ultimate Matching Algorithm (``UMA'')
formula by product. On January 20, 2004, the Exchange submitted
amendment No. 1 to the proposed rule change.\3\ The proposed rule
change, as amended, was published for comment in the Federal Register
on January 28, 2004.\4\ The Commission received no comments on the
proposal. This order approves the proposed rule change, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Stephen Youhn, Counsel, CBOE, to Deborah
Flynn, Assistant Director, Division of Market Regulation,
Commission, dated January 20, 2004. In Amendment No. 1, CBOE
replaced in its entirety the original proposed rule filing.
\4\ See Securities Exchange Act Release No. 49108 (January 21,
2004), 69 FR 4187.
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The Exchange currently trades equity options on the CBOE Hybrid
System (``Hybrid System'') \5\ and recently commenced trading of index
options and ETF options on Hybrid.\6\ The Exchange trades on Hybrid
index options and options on ETFs pursuant to the existing Hybrid rules
applicable to equity options.
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\5\ The Hybrid System merges the electronic and open outcry
trading models, offering CBOE market makers the ability to stream
electronically their own market quotes. See Securities Exchange Act
Release No. 47959 (May 30, 2003), 68 FR 34441 (June 9, 2003)
(``Hybrid Release'').
\6\ See Securities Exchange Act Release No. 48953 (December 18,
2003), 68 FR 75004 (December 29, 2003) (order approving SR-CBOE-
2003-57).
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CBOE Rule 6.45A governs the priority and allocation of trades on
the Hybrid System, and contains the UMA allocation model, which is a
weighted formula that incorporates and blends the concepts of parity
(Component A) and size prorata distribution (Component B). With respect
to equity option trading, UMA currently assigns equal weighting
percentages to Components A and B. Currently, all products under the
jurisdiction of each floor procedure committee (``FPC'') must utilize
the same UMA weighting percentages (i.e., Components A and B must be
weighted the same in all products under that FPC's jurisdiction). The
Exchange proposes to permit the appropriate index FPC (``IFPC'') to
vary the weighting percentages of Components A and B by index or ETF
option product.
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of section 6 of the Act,\7\ and the
rules and regulations thereunder applicable to a national securities
exchange.\8\ In particular, the Commission finds that the proposed rule
change is consistent with section 6(b)(5) of the Act,\9\ which
requires, among other things, that the Exchange's rules be designed to
promote just and equitable principles of trade, to prevent fraudulent
and manipulative acts and, in general, to protect investors and the
public interest. The Commission believes that the proposal may allow
for more competitive quoting, by permitting the IFPC to take into
account disparate sized trading crowds trading the various index option
or ETF option products. Further, the Commission believes that the
proposed rule change may enhance competition to improve liquidity for
that subset of such products that are generally less liquid.
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\7\ 15 U.S.C. 78f(b).
\8\ In approving the proposed rule change, the Commission has
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78f(b)(5).
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It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-CBOE-2004-01), as amended,
is approved.
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\10\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4904 Filed 3-4-04; 8:45 am]
BILLING CODE 8010-01-P