[Federal Register: February 15, 2006 (Volume 71, Number 31)]
[Notices]
[Page 8012-8014]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15fe06-139]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53252; File No. SR-CBOE-2006-05]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Extend the Duration of the SizeQuote Mechanism Pilot
February 8, 2006.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 30, 2006, 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 prepared by
the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to section 19(b)(3)(A) of
the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders it
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to extend the pilot in CBOE Rule 6.74(f)
pertaining to the SizeQuote Mechanism, which is a process by which a
Floor Broker may execute and facilitate large-sized orders in open
outcry. The Exchange is proposing to extend the pilot program, which
would otherwise expire on February 15, 2006, through February 15, 2007.
No other changes are being made to the pilot program through this rule
filing.\5\ The text of the proposed rule change is available on the
Exchange's Web site (http://www.cboe.com), at the Exchange's Office of
the Secretary and at the Commission.
---------------------------------------------------------------------------
\5\ A separate rule change proposal has been filed and is
currently pending with the Commission that would make amendments to
the SizeQuote Mechanism. See SR-CBOE-2005-115 (proposal to modify
the pilot program in various respects, including to permit a Floor
Broker to execute the entire SizeQuote Order at a price at least one
trading increment better than the best price communicated by the in-
crowd market participants (``ICMPs'') in their responses to the
SizeQuote request).
---------------------------------------------------------------------------
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 those 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 parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
CBOE Rule 6.74(f), which relates to the open outcry ``SizeQuote''
Mechanism, was approved on a pilot basis in February 2005; was recently
expanded, in January 2006, to include solicited orders; and will expire
on February 15, 2006.\6\ This pilot program
[[Page 8013]]
provides a process by which a Floor Broker, using his or her exercise
of due diligence to execute orders at the best price(s), may execute
and facilitate large-sized orders in open outcry. Under the pilot
program, the ICMPs have priority to trade a SizeQuote Order at the best
price communicated by the ICMPs in their response to a Floor Broker's
SizeQuote request and at one increment better, while a Floor Broker can
execute the entire SizeQuote Order with a facilitation order, one or
more solicited orders, or a combination of solicited and facilitation
orders at a price two trading increments better than the best price
provided by the ICMPs in their response to the SizeQuote request. For
purposes of the pilot program, the minimum qualifying order size is 250
contracts \7\ and Floor Brokers must stand ready to facilitate the
entire size of the order for which they request SizeQuotes.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release Nos. 51205 (February 15,
2005), 70 FR 8647 (February 22, 2005) (approving SR-CBOE-2004-72 on
a pilot basis through February 15, 2006) and 53135 (January 17,
2006), 71 FR 3908 (January 24, 2006) (approving SR-CBOE-2005-83,
which modified the pilot program to enable a Floor Broker to execute
a SizeQuote Order with either a Floor Broker's facilitation order,
one or more solicited orders, or a combination of the Floor Broker's
facilitation order and such solicited order(s)).
\7\ The appropriate Exchange committee determines the classes in
which SizeQuote operates and may vary the minimum qualifying order
size, provided that such number may not be less than 250 contracts.
---------------------------------------------------------------------------
The instant proposed rule change seeks to extend the existing pilot
program, which would otherwise expire on February 15, 2006, through
February 15, 2007. The Exchange notes that, as part of the original
pilot program approval order,\8\ the Exchange represented that it would
provide the Commission a report at the end of the initial pilot period
summarizing the effectiveness of the SizeQuote program. In that regard,
though the SizeQuote Mechanism has been made available during the pilot
period in all equity option classes traded on the Exchange for orders
of 250 contracts or more, Floor Brokers have not generally availed
themselves of the SizeQuote Mechanism to facilitate large-sized
orders.\9\ However, the Exchange continues to believe that the
SizeQuote Mechanism enhances ICMPs' ability and incentive to quote
competitively and participate in open outcry trades while at the same
time creates a process that gives greater certainty to Floor Brokers in
the execution of large orders in that ICMPs only have one opportunity
to respond with a quote response (which further enhances an ICMP's
incentive to quote competitively). The Exchange is therefore seeking to
extend the existing pilot program, including the amendment made thereto
pursuant to SR-CBOE-2005-83,\10\ for another year, through February 15,
2007, in order to continue its evaluation of the utility of the
SizeQuote Mechanism.
---------------------------------------------------------------------------
\8\ See note 6, supra.
\9\ The Exchange believes the SizeQuote Mechanism has not been
actively utilized due to some of the limitations and risks inherent
in the original design of the pilot program. Thus, apart from the
instant proposal to extend the pilot period, CBOE recently expanded
the pilot program to include solicited orders. Originally the pilot
program only applied to facilitation orders. See note 6, supra, and
accompanying text. CBOE has also proposed to modify the pilot
program in various other respects. See note 5, supra.
\10\ See note 6, supra.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
section 6(b) of the Act \11\ in general and furthers the objectives of
section 6(b)(5) of the Act \12\ in particular in that it is designed to
promote just and equitable principles of trade, serve to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and protect investors and the public
interest.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 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
Because the foregoing proposed rule change, as amended, does not:
(i) Significantly affect the protection of investors or the public
interest;
(ii) Impose any significant burden on competition; and
(iii) Become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to section 19(b)(3)(A) of the Act \13\ and
Rule 19b-4(f)(6) thereunder.\14\ At any time within 60 days after the
filing of the proposed rule change, the Commission may summarily
abrogate the rule change if it appears to the Commission 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.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
Pursuant to Rule 19b-4(f)(6)(iii) under the Act, the Exchange is
required to give the Commission written notice of its intent to file
the proposed rule change, along with a brief description and text of
the proposed rule change, at least five business days prior to the
date of filing of the proposed rule change, or such shorter time as
designated by the Commission. The Commission notes that the Exchange
provided notice of the filing at least five business days prior to
the date of filing.
---------------------------------------------------------------------------
A proposed rule change filed under section 19b-4(f)(6) normally may
not become operative prior to 30 days after the date of its filing.\15\
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest.\16\ CBOE has requested that the Commission waive
the 30-day operative delay. The Commission believes that waiving the
30-day operative delay is consistent with the protection of investors
and the public interest so that the pilot program may continue until
February 15, 2007 without interruption.\17\
---------------------------------------------------------------------------
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ Id.
\17\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
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 Number SR-CBOE-2006-05 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2006-05. 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 change that are
filed with the Commission, and all written
[[Page 8014]]
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, 100 F Street, NE., 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
File Number SR-CBOE-2006-05 and should be submitted on or before March
8, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-2111 Filed 2-14-06; 8:45 am]
BILLING CODE 8010-01-P