[Federal Register Volume 66, Number 125 (Thursday, June 28, 2001)]
[Notices]
[Page 34495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16206]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44462; File No. SR-CBOE-00-22]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change by the Chicago Board Options Exchange, Inc., 
Relating to the Automatic Execution of Certain Orders on the Exchange's 
Electronic Limit Order Book

June 21, 2001.
    On June 1, 2000, the Chicago Board Options Exchange, Inc. (``CBOE'' 
or ``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change relating to the automatic 
execution of certain orders on the Exchange's electronic limit order 
book. Notice of the proposed rule change and Amendment Nos. 1 and 2 
thereto were published for comment in the Federal Register on May 7, 
2001.\3\ No comments were received 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\ See Securities Exchange Act Release No. 44236 (April 30, 
2001), 66 FR 23055 (May 7, 2001).
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    The Exchange proposes to amend its rules governing the operation of 
its Retail Automatic Execution System (``RAES'') to provide for the 
automatic execution, under certain circumstances, of orders in the 
Exchange's electronic limit order book when they become marketable. The 
Exchange proposes to implement a system enhancement called ``Autoquote 
Triggered EBook Execution'' (``Trigger'') to particular option classes, 
as determined by the appropriate Floor Procedure Committee. Trigger 
will allow orders resting in the book to be automatically executed 
where the bid or offer for a series of options generated by the 
Exchange's Autoquote system (or any Exchange-approved proprietary quote 
generation system used in lieu of Autoquote) is equal to or crosses the 
Exchange's best bid or offer for that series as established by a booked 
order. Only series in which Autoquote (or any Exchange-approved quote 
generation system) is employed are eligible for Trigger.
    Where Trigger has been activated, as Autoquote changes and the 
quote generated by Autoquote either touches or crosses an order in the 
book, the booked order(s) will be automatically executed up to the 
applicable RAES contract limit. The booked order then will be 
immediately taken out of the book and a last sale will be disseminated. 
A ticket will be printed on the book printer notifying the book clerk 
that a trade has been executed and an endorsement is required. After 
the book clerk verifies with the Designated Primary Market-Maker 
(``DPM'') that the trade is valid based on movements in the underlying 
security, the trade will be endorsed by the book clerk.\4\ In most 
instances, it will be endorsed to the RAES ``wheel'' up to the 
applicable RAES contract limit. However, the Trigger system will have 
the functionality to allow the trade to be endorsed manually (as is 
done today) when appropriate.
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    \4\ If the DPM determines that the trade is not valid, e.g., if 
the trade was based on an erroneous print in the underlying 
security, the order will be re-booked and the last sale canceled.
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    If the number of contracts in the book is greater than the 
applicable RAES contract limit, the trading crowd will manually execute 
the remainder. In the limited circumstance where contracts remain in 
the book after a Trigger execution and a disseminated quote remains 
locked or crossed, orders in RAES for options of that series will be 
``kicked-out'' of RAES, and immediately and automatically routed to the 
crowd Public Automated Routing (``PAR'') terminal (absent contrary 
instructions of the firm), where they will be represented by the broker 
and, if executable, will ordinarily be executed immediately. Because 
these orders remain RAES eligible, they will be entitled to receive 
firm quote treatment when represented in the crowd.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\5\ In 
particular, the Commission believes that the proposal is consistent 
with Section 6(b)(5) of the Act,\6\ which requires, among other things, 
that the rules of an exchange be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market, and to protect investors and the public 
interest. The proposed rule change should help provide faster execution 
of customer orders, while reducing the burden on the Exchange's DPMs 
with respect to manual execution of booked orders, limiting the number 
of book trade-throughs, and eliminating a large number of RAES kick-
outs.
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    \5\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78(c)(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (File No. SR-CBOE-00-22) be, and 
it hereby is, approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-16206 Filed 6-27-01; 8:45 am]
BILLING CODE 8010-01-M