[Federal Register: June 14, 2004 (Volume 69, Number 113)]
[Notices]
[Page 33090-33091]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14jn04-122]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49814; File No. SR-CBOE-2004-33]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc. Relating to
Frequency of Executions on the Hybrid Trading System
June 4, 2004.
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 May 19, 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. 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)(l).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to adopt a rule governing the frequency with
which certain professional orders may be submitted for automatic
execution in the Hybrid Trading System (``Hybrid''). Below is the text
of the proposed rule change. Proposed new language is italicized.
* * * * *
Rule 6.13: CBOE Hybrid System's Automatic Execution Feature
(a) No change
(b) Automatic Execution
(i) Eligibility: Orders eligible for automatic execution through
the CBOE Hybrid System may be automatically executed in accordance with
the provisions of this Rule. This section governs automatic executions
and split-price automatic executions. The automatic execution and
allocation of orders or quotes submitted by market participants shall
be governed by Rules 6.45A(c) and (d).
(A)-(B) No change
(C) Access:
(i)-(ii) No Change
(iii) 15-Second Limitation: With respect to orders eligible for
submission pursuant to paragraph (b)(i)(C)(ii), members shall neither
enter nor permit the entry of multiple orders on the same side of the
market in an option class within any 15-second period for an account or
accounts of the same beneficial owner. The appropriate FPC may shorten
the duration of this 15-second period by providing notice to the
membership via a Regulatory Circular that is issued at least one day
prior to implementation.
(ii)-(iv) No change
(c)-(e) No change
* * * * *
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 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 CBOE 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange represents that all of the floor-based options
exchanges have rules generally restricting the entry of certain orders
into their automatic execution systems to one order per 15 seconds per
beneficial account.\3\ CBOE has a 15-second rule applicable to its RAES
system (see CBOE Rule 6.8(e)(iii)) but not to its Hybrid auto-ex
system. The purpose of this rule filing is to adopt a 15-second rule
applicable to certain professional orders entered for execution through
CBOE's Hybrid system.
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\3\ See, e.g., CBOE Rule 6.8(e)(iii), Amex Rule 933(e), PCX Rule
6.87(d)(2), and Phlx Rule 1080(c)(ii)(B)(3). NYSE Rule 1005 contains
a 30-second limitation.
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The Exchange proposes new CBOE Rule 6.13(b)(i)(C)(iii) to adopt
rule language similar to that currently in effect in CBOE Rule
6.8(e)(iii).\4\ As applied, the rule would prohibit members from
entering or permitting the entry of multiple orders on the same side of
the market in an option class within any 15-second period for an
account or accounts of the same beneficial owner. The proposed language
also allows the appropriate floor procedure committee (``FPC'') to
shorten the duration of this 15-second timer by providing advance
notice to the membership via Regulatory Circular. The timer may never
exceed 15-seconds and, if shortened, would serve to allow the entry of
more orders.
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\4\ There is one minor difference in the rule language of CBOE
Rule 6.8 and that which is proposed in CBOE Rule 6.13: the use of
the word ``issue'' in CBOE Rule 6.8 versus the use of the word
``class'' in CBOE Rule 6.13. ``Issue'' and ``class'' are synonymous,
however, ``issue'' is not a defined term in CBOE's rules while
``class'' is.
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The Exchange also proposes to limit to whom the rule applies. The
Exchange represents that while all of the floor-based options
exchanges' rules, including CBOE Rule 6.8(e)(iii) broadly apply to all
orders (i.e., from customers and broker-dealers), the proposed
amendment to CBOE Rule 6.13 would apply only to orders from options
exchange market makers and stock exchange specialists, as defined in
[[Page 33091]]
CBOE Rule 6.13(b)(i)(C)(ii).\5\ Customers and broker-dealers (as
described in CBOE Rule 6.13(b)(i)(C)(i)) will not be subject to the
rule and as such will continue to be eligible to receive unlimited
automatic executions.
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\5\ In SR-CBOE-2004-15, the Exchange proposed modifications to
the definitions contained in this paragraph. On May 13, 2004, the
Commission published the rule filing in the Federal Register. See
Exchange Act Release No. 49659 (May 6, 2004), 69 FR 26627. If
approved, the new rule language will be as appears below. Nothing in
the instant proposed rule change proposes to change either of those
definitional subparagraphs. Rather, the instant proposal merely
clarifies that both of those categories (i.e., options exchange
market makers and stock exchange specialists) will be subject to the
15-second restriction.
(ii) (A) Options Exchange Market Makers: The appropriate FPC may
also determine, on a class-by-class basis, to allow orders for the
accounts of market makers or specialists on an options exchange
(collectively ``options market makers'') who are exempt from the
provisions of Regulation T of the Federal Reserve Board pursuant to
Section 7(c)(2) of the Securities Exchange Act of 1934 to be
eligible for automatic execution. The appropriate FPC may establish
the maximum order size eligibility for such options market maker
orders at a level lower than the maximum order size eligibility
available to non-broker-dealer public customers and non-market maker
or non-specialist broker-dealers. Pronouncements pursuant to this
provision regarding options market maker access shall be made by the
appropriate FPC and announced via Regulatory Circular.
(B) Stock Exchange Specialists: The appropriate FPC may
determine, on a class-by-class basis, to allow orders for the
account of a stock exchange specialist, with respect to a security
in which it acts as a specialist, to be eligible for automatic
execution in the overlying option class. The appropriate FPC may
establish the maximum order size eligibility for such specialist
orders at a level lower than the maximum order size eligibility
available to options exchange market makers. Stock exchange
specialists, with respect to orders in securities in which they do
not act as specialist, will be treated as broker-dealers that are
not market makers or specialists on an options exchange and will be
eligible to submit orders for automatic execution in accordance with
subparagraph (i) above.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6 of the Act \6\ in general and furthers the objectives of
section 6(b)(5) \7\ in particular in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\6\ 15 U.S.C. 78f.
\7\ 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 not necessary or appropriate in furtherance of
the purpose of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
CBOE neither solicited nor received written comments on 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 self-regulatory organization 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 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
SR-CBOE-2004-33 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 SR-CBOE-2004-33. 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 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 CBOE. 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 SR-CBOE-2004-33 and should be submitted on
or before July 6, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-13279 Filed 6-10-04; 8:45 am]
BILLING CODE 8010-01-P