[Federal Register: August 29, 2005 (Volume 70, Number 166)]
[Notices]
[Page 51101-51102]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29au05-91]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52319; File No. SR-CBOE-2005-28]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval to Proposed Rule Change Relating
to DPM Obligations for Maintaining Backup Autoquote Systems
August 23, 2005.
On April 1, 2005, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) \1\ of the
Securities Exchange Act of 1934 (``Act'') and Rule 19b-4 thereunder,\2\
a proposed rule change to amend Rules 8.85(a)(xi) and (xii) to remove
the requirement that Designated Primary Market-Makers (``DPMs'')
maintain a back-up quoting system for Hybrid and non-Hybrid option
classes. The Exchange proposes a corresponding amendment to its Minor
Rule Plan to remove references to Rules 8.85(a)(xi) and 8.85(a)(xii).
The proposed rule change was published for comment in the Federal
Register on July 22, 2005.\3\ The Commission received no comments on
the proposal. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 52044 (July 15,
2005), 70 FR 42397 (``Notice'').
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The Commission finds that the proposed rule change is consistent
with the requirements of Section 6 of the Act,\4\ applicable to a
national securities exchange.\5\ In particular, the
[[Page 51102]]
Commission believes that the proposal is consistent with Sections
6(b)(5) and 6(b)(7) of the Act,\6\ which require, among other things,
that an exchange have rules designed to promote just and equitable
principles of trade, protect investors and the public interest, and
enhance the effectiveness and fairness of the Exchange's disciplinary
procedures. The Commission believes that CBOE's proposed rule changes
should help to improve the efficiency of CBOE's market by eliminating
unnecessary costs now borne by the Exchange's DPMs relating to the
maintenance of back-up quotation systems.
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\4\ See 15 U.S.C. 78f.
\5\ In approving this proposed rule change, the Commission has
considered its impact on efficiency, competition and capital
formation. 15 U.S.C. 78c(f).
\6\ 15 U.S.C. 78f(b)(5) and 78f(b)(7).
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As set forth in the Notice, CBOE Rules 8.85(a)(xi) and (xii) both
impose an obligation on DPMs to maintain independent backup autoquote
systems that can be employed in the event that a DPM's proprietary
autoquote system should fail or be otherwise unavailable. Rule
8.85(a)(xi) governs non-CBOE Hybrid System (``non-Hybrid'') classes,
while Rule 8.85(a)(xii) governs CBOE Hybrid System (``Hybrid'')
classes.
With regard to CBOE Rule 8.85(a)(xi), the Commission notes that the
Exchange has converted all of its DPM option classes to the CBOE Hybrid
System. Thus, because non-Hybrid option classes no longer exist, CBOE
Rule 8.85(a)(xi) has no applicability. Its repeal will have no impact
on market participants.
As regards CBOE Rule 8.85(a)(xii), which requires DPMs to maintain
an independent backup autoquote system that it may employ in the event
its proprietary autoquote system fails, the Commission believes that
the CBOE has made a reasonable determination that the backup obligation
is no longer necessary. The Commission has no basis at this time to
disagree with the CBOE's assessment that the recent adoption and
implementation of the electronic DPM (``e-DPM'') program \7\ on the
Exchange should provide a more appropriate and cost effective safeguard
against a DPM's inability to generate quotes in such option classes.
Pursuant to the Exchange's rules governing the program, CBOE may
allocate an option class that is already allocated to a DPM to one or
more e-DPMs.\8\ Such e-DPMs provide competing quotations accessible by
CBOE market participants.
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\7\ See Exchange Act Release Nos. 49577 (April 19, 2004), 69 FR
22576 (April 26, 2004) (order approving the process for approving e-
DPMs on the Exchange); 50003 (July 12, 2004), 69 FR 25647 (July 19,
2004) (order approving e-DPM trading rules).
\8\ See CBOE Rules 8.92 and 8.93.
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Thus, the Commission believes that, given the CBOE's current
trading environment, the exchange has made a reasonable determination
that the requirement to maintain a backup quotation system is
unnecessary and unduly burdensome on DPMs. The proposed rule changes
appear to be reasonably designed to help to put DPMs on a more equal
competitive footing other market participants, including electronic
DPMs, which do not have a backup quotation system maintenance
requirement. Moreover, the Commission notes that deletion of the backup
autoquote rules would not affect a DPM's separate obligation to provide
continuous market quotations for each of its allocated classes and
respective series.\9\
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\9\ See CBOE Rule 8.85(a)(i).
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Finally, the Commission approves CBOE's proposal to remove
references to Rules 8.85(a)(xi) and 8.85(a)(xii) in its Minor Rule
Violations Plan.\10\
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\10\ See CBOE Rule 17.50(g)(10).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-CBOE-2005-28) be, and hereby
is, approved.
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\11\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4712 Filed 8-26-05; 8:45 am]
BILLING CODE 8010-01-P