[Federal Register Volume 65, Number 240 (Wednesday, December 13, 2000)]
[Notices]
[Pages 77945-77946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31683]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43667; File No. SR-CBOE-00-63]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Permitting the Use of the Exchange's AutoQuote System or 
a Proprietary Autoquote System in the Operation of the Exchange's Rapid 
Opening System

December 4, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 1, 2000, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \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 Exchange proposes to adopt Interpretation .02 of its Rapid 
Opening System (``ROS'') rule (CBOE Rule 6.2A) \3\ to clarify that for 
purposes of the rule, ``AuoQuote'' means either the Exchange's 
AutoQuote system or a proprietary autoquote system operated by a member 
of the trading crowd where the particular ROS class is traded. The text 
of the proposed rule change is available at the Office of the 
Secretary, the Exchange, and at the Commission.
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    \3\ The rule text for the CBOE's proposed rule change was 
identified as ``Interpretation .01'' to Rule 6.2A instead of 
``Interpretation .02'' and has been corrected in this notice. 
Interpretation 0.01 to Rule 6.2A was added in Securities Exchange 
Act Release No. 43666 (December 4, 2000). Telephone conversation 
between Timothy Thompson, Assistant General Counsel and Vice 
President, CBOE, and Susie Cho, Attorney, Division, SEC, December 4, 
2000.
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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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    ROS determines a single opening price for each series by applying 
an algorithm that takes into account the AutoQuote values fed into ROS 
as well as those orders contained in the customer limit order book (and 
that are otherwise represented in the crowd pursuant to the ROS rule). 
The algorithm is generally designed to maximize the number of customer 
orders able to be traded at or between the bid-ask values submitted 
from AutoQuote. When the Exchange first implemented ROS, the system was 
designed to operate only with the Exchange's AutoQuote system. The 
Exchange noted, however, that ``[l]ater versions of ROS may accommodate 
inputs from systems other than AutoQuote.'' \5\ The CBOE now represents 
that ROS is able to accept inputs from various proprietary quote 
systems that are operated on the floor of the Exchange.\6\ The Exchange 
is thus proposing to add Interpretation .02 to CBOE Rule 6.2A to make 
it clear that, for purposes of the Rule, the term ``AutoQuote'' means 
either the Exchange's AutoQuote system or a proprietary autoquote 
system operated by a member of the trading crowd.
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    \5\ Id.
    \6\ In lieu of using the Exchange's own AutoQuote system, some 
DPMs and trading crowds employ proprietary autoquote systems which 
serve the same function that operate in much the same manner as the 
Exchange's own system. These systems generally employ the same 
general mathematical formulas for determining the quotes although 
with certain proprietary refinements.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \7\ in general and furthers 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.

[[Page 77946]]

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 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 is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., 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-SBOE-00-63 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. 00-31683 Filed 12-12-00; 8:45 am]
BILLING CODE 8010-01-M