[Federal Register Volume 66, Number 56 (Thursday, March 22, 2001)]
[Notices]
[Pages 16077-16079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7073]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44073; File No. SR-CBOE-01-05]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Extending the Pilot Program for Rule 6.8(c) Regarding 
Operation of the Retail Automatic Execution System

    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 February 16, 2001, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed a proposed rule change with the 
Securities and Exchange Commission (``SEC'' or ``Commission''). The 
proposed rule change is described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Exchange has designated 
the proposed rule change as a ``non-controversial'' rule change under 
paragraph (f)(6) of Rule 19b-4,\3\ which renders the proposed rule 
change effective upon receipt of this filing by the Commission. 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\ 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 hereby proposes to amend CBOE Rule 6.8(c) in order to 
extend, for an additional six-month period until August 21, 2001, the 
pilot program (``Pilot'') that currently provides for certain orders to 
be rejected from the CBOE's retail Automatic Execution System 
(``RAES'') \4\ for manual handling in certain limited situations.\5\ 
The text of the proposed rule change is available at the CBOE and the 
Commission.
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    \4\ RAES is the Exchange's automatic execution system for public 
customer market or marketable limit orders of less than a certain 
size.
    \5\ The current Pilot expired on February 21, 2000. See 
discussion below, Section II.A.1.

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[[Page 16078]]

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
    The Commission approved the Pilot on November 22, 1999.\6\ The 
Pilot amends CBOE Rule 6.8, which governs the operation of RAES, to 
provide for certain orders to be rejected from RAES for manual handling 
in the limited situation where the bid or offer for a series of options 
generated by the Exchange's Autoquote system (or any Exchange approved 
proprietary quote system) becomes crossed or locked with the best bid 
or offer for that series as established by a booked order. On April 3, 
2000, the Commission approved an extension of the Pilot until August 
21, 2000.\7\ On October 17, 2000, the Commission approved another 
extension of the Pilot until February 21, 2001.\8\
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    \6\ Securities Exchange Act Release No. 42168 (November 22, 
1999), 64 FR 66952 (November 30, 1999).
    \7\ Securities Exchange Act Release No. 42615 (April 3, 2000), 
65 FR 19401 (April 11, 2000) (``First Extension Notice'').
    \8\ Securities Exchange Act Release No. 43448 (October 17, 
2000), 65 FR 63272 (October 23, 2000).
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    In addition, during the six-month period covered by the first 
extension of the Pilot,\9\ the Exchange filed two proposed rule changes 
to implement systems changes developed by the Exchange. The CBOE 
represents that the systems changes it proposed are designed to 
virtually eliminate the need for certain orders to be rejected from 
RAES in the situations currently covered by the Pilot (``Certain RAES 
Kick-Outs''). The first proposal,\10\ which has been approved by the 
Commission,\11\ involves an enhancement to the Exchange's Automated 
Book priority system (``ABP''). The Enhancement is called ABP Split 
Price. The second proposal, which is pending, seeks approval for an 
enhancement to the Exchange's electronic limit order book (``EBook''). 
That proposed enhancement is called Autoquote Triggered EBook Execution 
(``Trigger'').\12\
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    \9\ See First Extension Notice.
    \10\ Securities Exchange Act Release No. 43430 (October 11, 
2000), 65 FR 62776 (October 19, 2000) (notice of proposed rule 
change).
    \11\ Securities Exchange Act Release No. 43932 (February 6, 
2001), 66 FR 10332 (February 14, 2001).
    \12\ SR-CBOE-00-22. The Exchange represents that Trigger, if 
approved and implemented as currently proposed, would allow certain 
booked orders to be automatically executed up to applicable RAES 
contract limits, but only where an Autoquote-generated bid has 
become crossed or locked with the Exchange's best bid or offer as 
established by a booked order. According to the Exchange, 
implementation of Trigger would eliminate the majority of RAES kick-
outs that ensure when firms submit orders seeking to take advantage 
of pricing anomalies.
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    The Exchange now seeks approval to extend the Pilot for an 
additional six months. The Exchange represents that implementation of 
Trigger (if approved by the Commission) and ABP Split Price (which has 
been approved by the Commission) would virtually eliminate, but not 
obviate, Certain RAES Kick-Outs. The Exchange is requesting this 
extension of the Pilot so that procedures currently permitting Certain 
RAES Kick-outs will remain in effect while the Commission considers the 
Exchange's Trigger proposal and during Commission review of any 
forthcoming Exchange proposal seeking permanent approval of those RAES 
kick-out procedures.\13\
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    \13\ The Exchange intends to file a proposed rule change seeking 
permanent approval of the procedures that currently permit Certain 
RAES Kick-Outs.
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2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with and furthers the objectives of Section 6(b)(5) \14\ of the Act in 
that it is designed to remove impediments to a free and open market and 
to protect investors and the public interest.
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    \14\ 15 U.S.C. 78s(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 
a burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The foregoing rule change has become effective upon filing pursuant 
to section 19(b)(3)(A)(iii) of the Act \15\ and Rule 19b-4(f)(6) 
thereunder \16\ because the proposed rule change 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 the proposed rule 
change was filed, or such shorter time as the Commission may designate. 
At any time within 60 days of the filing of such proposal, 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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    Proposed rule changes filed with the Commission pursuant to Rule 
19b-4(f)(6) of the Act do not ``become operative for 30 days after the 
date of the filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest.'' \17\ The CBOE has requested that the Commission waive the 
30-day delay in the operative date of the proposed rule change.\18\ The 
Commission finds that it is consistent with the protection of investors 
and the public interest to waive the 30-day delay in the operative date 
of the proposed rule change because the proposal simply extends the 
previously approved Pilot.\19\
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    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ Telephone conversation between Angelo Evangelou, Attorney, 
CBOE, and Gordon Fuller, Counsel to the Assistant Director, Division 
of Market Regulation, Commission (February 26, 2001).
    \19\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
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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.

[[Page 16079]]

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 in the Commission's Public 
Reference Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the CBOE. All 
submissions should refer to the File No. SR-CBOE-01-05 and should be 
submitted by April 12, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \20\
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    \20\ 17 CFR 200.30-3(a)(12).


Jonathan G. Katz,
Secretary.
[FR Doc. 01-7073 Filed 3-21-01; 8:45 am]
BILLING CODE 8010-01-M