[Federal Register Volume 74, Number 137 (Monday, July 20, 2009)]
[Notices]
[Pages 35215-35217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17134]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60295; File No. SR-CBOE-2009-049]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Related to Market-Maker Guidelines
July 13, 2009.
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 July 9, 2009, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I, II, and III 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)(iii) of the Act
\3\ and Rule 19b-4(f)(6) thereunder.\4\ 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)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend Rule 8.7, Obligations of Market-
Makers, to: (i) Eliminate the provision providing for bids (offers) to
be no more than $1 lower (higher) than the last preceding transaction
plus or minus the aggregate change in the last sale price of the
underlying, and (ii) amend the provision pertaining to trades that are
more than $0.25 below parity. The text of the proposed rule change is
available on the Exchange's Web site (http://www.cboe.org/Legal), at
the Exchange's Office of the Secretary and at the Commission.
[[Page 35216]]
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 self-regulatory organization
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
Rule 8.7, in part, provides that Market-Makers are expected
ordinarily, except in unusual market conditions, not to bid more than
$1 lower or offer more than $1 higher than the last preceding
transaction price for the particular option contract plus or minus the
aggregate change in the last sale price of the underlying security
since the time of the last preceding transaction for the particular
option contract (the ``one point'' rule). In addition, Market-Makers
are expected ordinarily, except in usual market conditions, to refrain
from purchasing a call option or a put option at a price more than
$0.25 below parity. In the case of calls, parity is measured by the bid
in the underlying security, and in the case of puts, parity is measured
by the offer in the underlying security (the ``parity'' rule).
First, the Exchange is proposing to eliminate the one point rule.
The one point rule was originally adopted as a guideline in 1987.\5\
Since that time, various market changes have rendered the rule obsolete
and unnecessary. For example, Market-Makers now stream electronic
quotes and are subject to various electronic quotation requirements,
including bid/ask quote width requirements contained elsewhere in Rule
8.7. In addition, the options intermarket linkage plan was adopted and
contains trade-through and locked/crossed market requirements (e.g.,
Rules 6.83 and 6.84). The Exchange has also adopted an obvious error
rule that contains provisions on erroneous pricing errors (e.g., Rule
6.25) and has in place certain price check parameters that will not
permit the automatic execution of certain orders if the execution would
take place outside an acceptable price range (e.g., Rule 6.13(b)(v)).
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\5\ See Securities Exchange Act Release No. 24040 (January 30,
1987), 52 FR 4070 (February 9, 1987) (SR-CBOE-86-34).
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Second, at this time the Exchange is proposing to retain the parity
rule (which was also adopted in 1987) \6\ as a guideline but to modify
it to provide that an amount larger than $0.25 may be appropriate
considering the particular market conditions (not just unusual market
conditions as the rule currently states). The text is also being
revised to provide that the $0.25 guideline may be increased, or the
parity rule waived, by the Exchange on a series-by-series basis. The
Exchange believes that revising the $0.25 parity rule in this manner
modernizes the guideline to reflect market changes (including those
discussed above) and will provide more flexibility to take into
consideration the particular trading in a security, including but not
limited to the underlying market price, market conditions, and
applicable minimum bid/ask width requirements for a given options
series.
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\6\ Id.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act \7\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\8\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \9\ requirements that the rules of
an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest, because it will eliminate the outdated one point
rule and update the parity rule to incorporate more flexibility and
recognize changing market conditions.
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\7\ 15 U.S.C. 78s(b)(1).
\8\ 15 U.S.C. 78f(b).
\9\ 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 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 rule 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 if consistent with the protection of investors
and the public interest, provided that the self-regulatory organization
has given the Commission written notice of its intent to file 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,\10\ the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6)
thereunder.\12\ At any time within 60 days of the filing of such
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that 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.
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\10\ The Exchange has fulfilled this requirement.
\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
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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 [email protected]. Please include
File Number SR-CBOE-2009-049 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
[[Page 35217]]
All submissions should refer to File Number SR-CBOE-2009-049. 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 Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. 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-2009-049 and should be
submitted on or before August 10, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
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\13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-17134 Filed 7-17-09; 8:45 am]
BILLING CODE 8010-01-P