[Federal Register Volume 67, Number 7 (Thursday, January 10, 2002)]
[Notices]
[Pages 1383-1384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-599]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45226; File No. SR-CBOE-2001-69]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Relating to Trade Information Submitted to the Exchange

January 3, 2002.
    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 December 21, 2001, the Chicago Board of Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``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 Amendment No. 1 to the proposed rule 
change on December 26, 2001.\3\ The Exchange filed Amendment No. 2 to 
the proposed rule change on January 2, 2002.\4\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Madge M. Hamilton, Attorney, CBOE, to Nancy 
Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated December 21, 2001 (``Amendment No. 
1''). In Amendment No. 1, the CBOE made certain technical amendments 
to the proposal, amended the purpose section of the proposal and 
provided an enhanced statutory basis for the proposal. In addition, 
the CBOE requested that the Commission waive the 30-day period under 
which the proposal would become operative under Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
    \4\ See letter from Steve Youhn, Attorney, CBOE, to Deborah 
Flynn, Assistant Director, Division, Commission, dated December 28, 
2001 (``Amendment No. 2''). In Amendment No. 2, the CBOE again 
amended the purpose section of the proposal, enhanced the statutory 
basis of the proposal and reiterated its request that the Commission 
waive the 30-day period under which the proposal would become 
operative under Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the provisions of Interpretation and 
Policies .02 of CBOE Rule 6.51 to provide that members include the 
required trade information on orders that they submit to the Exchange. 
The text of the proposed rule change appears below. New text is in 
italics; deletions are in brackets.
Chapter VI--Doing business on the Exchange Floor

Section C: Trading Practices and Procedures

* * * * *

Reporting Duties

    RULE 6.51.(a) No change.
    (b) No change.
    (c) No change.
    (d) No change.

Interpretations and Policies

    .01 No change.
    .02 When entering orders on the Exchange, each Member shall submit 
trade information in such form as may be prescribed by the Exchange in 
order to allow the Exchange to properly prioritize and route orders 
pursuant to the rules of the Exchange and report resulting transactions 
to the Clearing Corporation. [For purposes of Rule 6.51(d), trade 
information shall include the proper account origin codes, which are as 
follows: ``c'' for a customer account, ``f '' for a firm proprietary 
account, ``m'' for a member market-maker account, ``j'' for a non-
member joint venture participant transaction in Exchange options 
contracts, ``y'' for any options account of a stock specialist relating 
to his assignment as specialist on the primary market for the 
underlying stock, ``b'' for a customer range account of a broker-
dealer, and ``n'' for any account of a non-member market-maker or 
specialist relating to his assignment in a class of options listed for 
trading both at this Exchange and at the exchange of the market-maker 
or specialist.]
    .03 No change.

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
    The Exchange states that the proposed rule change mimics the 
International Securities Exchange LLC (``ISE'') Rule 712\5\ and amends 
Interpretations and Policies .02 of CBOE Rule 6.51 (``CBOE Rule 
6.51.02'') to mandate that each Member must submit trade information in 
such form as may be prescribed by the Exchange in order to allow the 
Exchange to properly prioritize and route orders pursuant to the rules 
of the Exchange and report resulting transactions to the Options 
Clearing Corporation (``OCC'').\6\ CBOE Rule 6.51(d) requires members 
to file with the Exchange trade information in such form as may be 
prescribed by the Exchange. CBOE Rule 6.51.02 states that ``trade 
information'' for purposes of Rule 6.51(d) shall include account origin 
codes. The purpose of this marking requirement is primarily twofold. 
First, origin codes ensure that orders route to the proper location 
(e.g., PAR, RAES, Booth) and they provide the Exchange with a mechanism 
by which to surveil whether members are in fact marking orders 
correctly. Second, the marking requirement assists the OCC in the 
clearance of trades.
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 43795 (January 3, 2001), 
66 FR 2468 (January 11, 2001).
    \6\ Currently, Interpretations .02 states that trade information 
submitted under CBOE Rule 6.51(d) includes certain specific origin 
codes.
---------------------------------------------------------------------------

    The Exchange currently lists seven origin codes in CBOE Rule 
6.51.02,\7\ and it has the systems capacity to accommodate 26 origin 
codes (one for each letter of the alphabet). Because the Exchange's 
origin codes are specifically listed in its rules, each time the 
Exchange determines to add, delete, or change an origin code, it must 
submit a rule filing to the Commission. This could require the 
submission of 19 separate rule filings if the Exchange were to add 19 
new origin codes at different times.\8\
---------------------------------------------------------------------------

    \7\ The Exchange currently uses the following origin codes: 
``c'' for a customer account, ``f '' for a firm proprietary account, 
``m'' for a member market-maker account, ``j'' for a non-member 
joint venture participant transaction in Exchange options contracts, 
``y'' for any options account of a stock specialist relating to his 
assignments as specialist on the primary market for the underlying 
stock, ``b'' for a customer range account of a broker dealer, and 
``n'' for any account of a non-member market-maker or specialist 
relating to his assignment in a class of options listed for trading 
both at this Exchange and at the exchange of the market-maker or 
specialist. See CBOE Rule 6.51.02.
    \8\ Over the next several months, the Exchange anticipates 
listing several new origin codes to accommodate linkage orders. This 
could require the submission of several rule filings if all origin 
codes are not added at the same time. For example, ``Principal 
Account'' orders will require a separate origin code, ``Principal 
Acting as Agent'' orders will require a separate origin code, and 
``Principal Account Satisfaction Order'' will require another 
separate code.

---------------------------------------------------------------------------

[[Page 1384]]

    Accordingly, the Exchange proposes to delete the language from CBOE 
Rule 6.51.02 that specifically references the seven specific origin 
codes and instead, replace it with language stating that members must 
``submit trade information in such form as may be prescribed by the 
Exchange.'' This change will have two primary effects. First, it would 
eliminate the need for the Exchange to submit a rule filing each time 
it adds, deletes, or changes an origin code. Second, and more 
importantly, it would allow the Exchange to continue to ensure that 
members submit requisite trade information, including origin codes, in 
an Exchange-dictated manner.
    The Exchange notes that the proposed change to CBOE Rule 6.51.02 
would not eliminate the requirement that members submit tickets with 
origin codes. Rather, this change simply eliminates the specific origin 
codes from CBOE Rule 6.51.02. Members would still be required to submit 
orders with origin codes. Upon approval of this filing, the Exchange 
will notify members of the current order marking requirements (i.e., 
valid origin codes) by regulatory circular. As such, each time the 
Exchange adds, deletes, or changes an origin code, it will distribute a 
regulatory circular to the membership apprising it of the change. The 
Exchange believes that this will ensure that the Exchange's membership 
is aware of the applicable origin codes with which it must mark order 
tickets.
(2) Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act,\9\ in general, and furthers 
the objectives of section 6(b)(5),\10\ in particular, in that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
facilitate transactions in securities, to remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The proposed rule change would enhance the Exchange's ability to 
surveil for and investigate potential fraudulent and manipulative 
conduct. Since the proposed rule change would enhance the Exchange's 
ability to conduct investigations and surveillance for misconduct, it 
would protect investors and the public interest.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, 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

    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, as amended, has become effective 
pursuant to section 19(b)(3)(A) of the Act \11\ and subparagraph (f)(6) 
of Rule 19b-4 \12\ thereunder because it does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate; and the Exchange has given the Commission 
written notice of its intention to file the proposed rule change at 
least five business days prior to filing. 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.\13\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ For purposes of calculating the 60-day abrogation date, the 
Commission considers the 60-day period to have commenced on January 
2, 2002, the date the CBOE filed Amendment No. 2.
---------------------------------------------------------------------------

    The Commission notes that under Rule 19b-4(f)(6)(iii), the proposal 
does not become operative for 30 days after the date of its filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative date.\14\ The 
Exchange contends that acceleration of the operative date is consistent 
with the protection of investors and the public interest because the 
language of this proposed rule is substantially similar to rule 
language that was put out for notice and comment when ISE submitted its 
proposed rule change. For this reason, consistent with Section 19(b)(2) 
of the Act,\15\ the Commission finds good cause to waive the 30-day 
operative period.\16\
---------------------------------------------------------------------------

    \14\ See Amendment No. 2, supra note 4.
    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 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. 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

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, 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 Exchange. All submissions should refer to File 
No. SR-CBOE-2001-69 and should be submitted by January 31, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-599 Filed 1-9-02; 8:45 am]
BILLING CODE 8010-01-M