[Federal Register Volume 65, Number 240 (Wednesday, December 13, 2000)]
[Notices]
[Pages 77943-77945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31681]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43666; File No. SR-CBOE-00-34]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Chicago Board Options Exchange, Inc., Permitting the Implementation 
of the Exchange's Rapid Opening System in Conducting Rotations in 
Options on the S&P 100 Index

December 4, 2000.
    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 October 5, 2000, the Chicago Board Options Exchange, Inc. (``CBOE'' 
or ``Exchange'')

[[Page 77944]]

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.\3\ The 
Commission is publishing this notice to solicit comments on 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\ The CBOE filed its proposed rule change on August 3, 2000. 
On October 5, 2000, however, the CBOE filed Amendment No. 1, which 
clarified that the proposed rule change will be effective only as 
long as ROS is approved for use by the Commission. See Letter from 
Timothy Thompson, Assistant General Counsel and Vice President, 
CBOE, to Susie Cho, Attorney, Division of Market Regulation 
(``Division''), Commission (October 5, 2000).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to adopt Interpretation .01 to its Rapid 
Opening System (``ROS'') rule (CBOE Rule 6.2A), amend its Lead Market-
Maker (``LMM'') and Supplemental Market-Maker (``SMM'') (CBOE Rule 
8.15), and amend Interpretation 0.02 to its index option trading 
rotation rule (CBOE Rule 24.13) to clarify that LMMs and SMMs may 
employ the Exchange's ROS in conducting rotations in options on the S&P 
100 Index (``OES''). The text of the proposed rule change is available 
at the Office of the Secretary, the Exchange, and at the Commission.

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 Exchange 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 Exchange 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In February 1999, the Exchange implemented a Rapid Opening System 
(``ROS'') that has facilitated the expedited openings of options 
classes on the Exchange.\4\ since that time, ROS has been used in a 
number of equity option trading crowds to open options classes within 
seconds of the opening of the underlying security. The Exchange 
believes that by entering into open trading more quickly using ROS, 
customer orders have been addressed in open trading in a timelier 
manner.
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    \4\ The ROS pilot program was first approved by the Commission 
in February 1999. See Securities Exchange Act Release No. 41033 
(February 9, 1999), 64 FR 8156 (February 18, 1999). The ROS pilot 
has been extended through September 2001. See Securities Exchange 
Act Release No. 43395 (September 29, 2000), 65 FR 60706 (October 12, 
2000).
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    Openings in OEX, however, have been conducted for many years by the 
use of LMMs, who are appointed pursuant to the terms of CBOE Rule 8.15, 
and who open the various series of OEX pursuant to the terms of 
Interpretation .02 to CBOE Rule 24.13.\5\ The LMM system was put in 
place to allow for speedier openings in the OEX crowd and to make 
particular market-makers responsible for opening quotes. While the LMM 
system has been successful in speeding up the opening process in the 
OEX trading crowd, the openings still may not be completed for a number 
of minutes, particularly on days of extreme market conditions. 
Consequently, the CBOE Index Floor Procedure Committee, pursuant to its 
authority under CBOE Rule 24.13 to direct the manner of the opening 
rotations, has determined to require the LMMs to employ ROS to open 
OEX.\6\ The CBOE Index Floor Procedure Committee expects to see the 
same benefits that have been experienced in the equity option trading 
crowds that have been using ROS for the past on and a half years, 
namely, entry into open trading within seconds of the opening bell.
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    \5\ The rules governing opening rotations in OEX were approved 
by the Commission on March 31, 1988. See Securities and Exchange Act 
Release No. 25545 (March 31, 1988), 53 FR 11720 (April 8, 1988).
    \6\ Previously, only those open classes that employed the 
Exchange's AutoQuote system were able to use ROS. See Securities 
Exchange Act Release No. 41033 (February 9, 1999), 64 FR 8156 
(February 18, 1999). The OEX does not employ the Exchange's 
AutoQuote; however, the CBOE represents that ROS can now accommodate 
inputs from systems other than the Exchange's AutoQuote. Telephone 
conversation between Timothy Thompson, Assistant General Counsel and 
Vice President, CBOE, and Susie Cho, Attorney, Division, SEC, 
September 11, 2000. For purposes of CBOE Rule 6.2A, the term 
``AutoQuote'' means either the Exchange's AutoQuote system or a 
proprietary autoquote system operated by a member of the trading 
crown. See Securities Exchange Act Release No. 43667 (December 4, 
2000).
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    When the Exchange adopted ROS, it intended for the system to be 
used at any trading location on the floor, whether in an equity option 
trading crown or an index option trading crowd. The rules governing ROS 
did not specifically address to what extent ROS was to be used in 
connection with the LMM system that was operating in the OEX trading 
crowd. The CBOE, however, represents that the ROS system was not meant 
to supplant the LMM system, which has added accountability to the 
openings in OEX. The CBOE believes that, at the option of the 
appropriate CBOE Floor Procedure Committee, ROS would be used as a tool 
by the LMM to facilitate openings. With the proposed rule change, the 
CBOE will thus clarify that the LMMs may use ROS to conduct the opening 
rotation in OEX. To the extent that market-makers want to participate 
in the opening of a series in which they do not hold LMM or SMM 
appointments, they will continue to be able to transmit written non-
cancelable proprietary and market-makers orders to the LMM in the 
appropriate zone ten minutes prior to the opening of trading, pursuant 
to the terms of Interpretation .02 to CBOE Rule 24.13.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \7\ in general and further the objectives 
of section 6(b)(5); \8\ in particular in that it is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change will impose 
any burden on competition that is not necessary or appropriate in 
furtherance of purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The CBOE has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The foregoing rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the Exchange and, therefore, has 
become effective pursuant to section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(1) \10\ thereunder. 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

[[Page 77945]]

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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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(1).
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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, as amended, is consistent with the Act. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, 
DC 20549-0609. 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 at the Commission's Public Reference Room. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the Exchange. All submissions should refer to File 
No. SR-CBOE-00-34 and should be submitted by January 3, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Margaret H. McFarland,
Deputy Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 00-31681 Filed 12-12-00; 8:45 am]
BILLING CODE 8010-01-M