[Federal Register Volume 67, Number 28 (Monday, February 11, 2002)]
[Notices]
[Pages 6291-6294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3231]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45389; File No. SR-CBOE-00-40]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval to 
Amendment Nos. 1, 2, 3, and 4 to the Proposed Rule Change by the 
Chicago Board Options Exchange, Inc. Relating to SPX Combination Orders

February 4, 2002.

I. Introduction

    On August 17, 2000, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') a proposed rule change pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder.\2\ The CBOE amended its 
proposal on August 16, 2001,\3\ September 27, 2001,\4\ November 14, 
2001,\5\ and January 11, 2002.\6\ As discussed more fully below, the 
proposal, as amended, will allow a member holding an ``SPX Combo 
Order'' \7\ to execute and print the SPX Combo Order at the prices 
originally quoted within two hours after the time of the original 
quotes, provided that the prices originally quoted satisfy the 
requirements of CBOE Rule 24.20(b)(1).\8\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Jaime Galvan, Attorney, Legal Division, 
CBOE, to Yvonne Fraticelli, Division of Market Regulation 
(``Division''), Commission, dated August 14, 2001 (``Amendment No. 
1''). Amendment No. 1 revises the text of CBOE Rule 24.20, ``SPX 
Combination Orders,'' to define the term ``SPX Combo Order'' and to 
indicate that, as long as the conditions in CBOE Rule 24.20 are 
satisfied, an SPX Combo Order may be executed and printed at the 
prices originally quoted for each of the component option series 
within two hours after the time of original quotes, rather than at 
any time during the trading day, as the proposal had originally 
provided. Amendment No. 1 also provides additional information 
concerning the need for the proposed rule.
    \4\ See letter from Jaime Galvan, Attorney, Legal Division, 
CBOE, to Yvonne Fraticelli, Division, Commission, dated September 
26, 2001 (``Amendment No. 2''). Amendment No. 2 revises the text of 
CBOE Rule 24.20 to make the numbering of paragraph 24.20(b) 
consistent with the numbering of paragraph 24.20(a) and to indicate 
that SPX Combo Orders may be executed and printed at the originally 
quoted prices, rather than printed and executed at the originally 
quoted prices.
    \5\ See letter from Jaime Galvan, Attorney, Legal Division, 
CBOE, to Yvonne Fraticelli, Division, Commission, dated November 13, 
2001 (``Amendment No. 3''). Amendment No. 3 revises CBOE Rule 
24.20(b)(1) to provide that when a member holding an SPX Combo Order 
and bidding or offering in a multiple of the minimum increment on 
the basis of a total net debit or credit has determined that the 
order may not be executed by a combination of transactions with the 
bids and offers displayed in the SPX limit order book or by the 
displayed quotes in the crowd, the order may be executed at the best 
net debit or credit so long as: (1) no leg of the order would trade 
at a price outside the currently displayed bids or offers in the 
trading crowd or bids of offers in the SPX limit order book; and (2) 
at least one leg of the SPX combination would trade at a price that 
is better than the corresponding bid or offer in the SPX limit order 
book.
    \6\ See letter from Jaime Galvan, Attorney, Legal Division, 
CBOE, to Yvonne Fraticelli, Division, Commission, dated January 10, 
2002 (``Amendment No. 4''). Amendment No. 4 revises the text of 
proposed CBOE Rule 24.20(a) to: (1) define an ``SPX combination'' as 
a long SPX call and a short SPX put having the same expiration date 
and strike price; (2) define ``delta'' as the positive (negative) 
number of SPX combinations that must be sold (bought) to establish a 
market neutral hedge with an SPX option position; and (3) indicate 
that an ``SPX Combo Order'' is an order to purchase or sell SPX 
options and the offsetting number of SPX combinations defined by the 
delta.
    \7\ The proposal defines an ``SPX Combo Order'' as an order to 
purchase or sell SPX options and the offsetting number of SPX 
combinations defined by the delta. See Amendment No. 4, supra note 
6.
    \8\ Telephone conversation between Jaime Galvan, Attorney, Legal 
Division, CBOE, and Yvonne Fraticelli, Special Counsel, Division, 
Commission, on November 28, 2001.
---------------------------------------------------------------------------

    The proposed rule change was published for comment in the Federal 
Register on October 24, 2000.\9\ The Commission received no comments 
regarding the proposal. This order approves the proposed rule change, 
as amended. In addition, the Commission is publishing notice to solicit 
comments on, and is simultaneously approving, on an accelerated basis, 
Amendment Nos. 1, 2, 3, and 4 to the proposal.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 43452 (October 17, 
2000), 65 FR 63658 (``October Release'').
---------------------------------------------------------------------------

II. Description of the Proposal

A. Revised Text of CBOE Rule 24.20

    In Amendment Nos. 1, 2, 3, and 4, the CBOE proposes the following 
amendments to the text of proposed CBOE Rule 24.20, as published in the 
October Release. Additions are italicized and deletions are in 
[brackets].
SPX Combination Orders
    Rule 24.20  (a) For purposes of this rule, the following terms 
shall have the following meanings:
    (1) An ``SPX combination'' is [an order combining] a long SPX call 
and a short SPX put [of the same series, or an order combining a short 
SPX call and a long SPX put of the same series] having the same 
expiration date and strike price.
    (2) A ``delta'' is the positive (negative) number of SPX 
combinations that must be sold (bought) [required] to establish a 
[delta] market neutral hedge with an SPX option position[, based on the 
value of the underlying S&P 500 futures contract].
    (3) An ``SPX Combo Order'' is an order to purchase or sell SPX 
options and the offsetting number of SPX combinations defined by the 
delta.
    (b) [Notwithstanding any other rules of the Exchange, orders for 
SPX options executed in conjunction with SPX combination orders] An SPX 
Combo Order may be transacted in the following manner:
    ([i]1) When [A]a member holding an [order(s) to purchase or sell 
SPX options must indicate the delta of the option and] SPX Combo Order 
[must] and bidding or offering [for each option and each of the legs of 
a combination order(s)] in a multiple of the minimum increment on the 
basis of [the] a total debit or credit for the order has determined 
that the order may not be executed by a combination of transactions 
with the bids and offers displayed on the SPX limit order book or by 
the displayed quotes of the crowd, then the order may be executed at 
the best net debit or credit so long as [At the time they are 
originally quoted, the prices quoted for the options and each leg of 
the combination order(s) must be such that none] (A) no leg of the 
order would trade at a price outside the currently displayed bids or 
offers in the trading crowd or bids or offers in the SPX [customer] 
limit order book and (B) at least one leg of the SPX combination would 
trade at a price that is better than the corresponding bid or offer in 
the SPX limit order book. 
    ([ii]2) [The option order(s) and each leg of the combination 
order(s) may be executed immediately or at any time during the trading 
day. If the orders are not executed immediately, the option order(s) 
and each leg of the combination order(s) may be printed at their 
originally quoted prices in order to achieve the total debit or credit 
agreed to for the entire transaction.] Notwithstanding any other rules 
of the Exchange, if an SPX Combo Order is not executed immediately, the 
SPX Combo Order may be executed and printed at the prices originally 
quoted for each of the component option series within 2

[[Page 6292]]

hours after the time of the original quotes. 

B. Amendment No. 1

    In Amendment No. 1 the CBOE revises the text of CBOE Rule 24.20 to, 
among other things, add a definition of ``SPX Combo Order'' and to 
provide that an SPX Combo Order that is not executed immediately may be 
executed at the prices originally quoted for each of the component 
option series within two hours after the time of the original quotes. 
In addition, Amendment No. 1 provides information concerning the need 
for the proposed rule. In this regard, Amendment No. 1 states that when 
SPX traders and customers trade SPX options, they hedge their 
underlying risk with either S&P 500 Index futures contracts traded at 
the Chicago Mercantile Exchange (``CME'') or with SPX call and put 
options traded as combinations.\10\ An options position can be hedged 
by trading the number of combos equivalent to the delta \11\ of the 
particular option multiplied by the number of options in the 
transaction.\12\
---------------------------------------------------------------------------

    \10\ CBOE Rule 6.53(e) defines a combination order as an order 
involving a number of call option contracts and the same number of 
put option contracts in the same underlying security. A combination 
(``combination'' or ``combo'') is a long combo when it combines a 
long call and a short put of the same series, and it is a short 
combo when it combines a short call and a long put of the same 
series.
    \11\ The delta is the number of SPX combinations required to 
establish a market neutral hedge with an SPX option contract based 
on the value of the underlying S&P 500 Index futures contract. See 
CBOE Rule 24.20(a)(2).
    \12\ For example, a customer that purchases 100 SPX calls that 
have a delta of ``30'' (expressed as 30% or .30) may hedge against a 
downward movement in the S&P 500 Index by either selling S&P 500 
Index futures on the CME or by trading short combos. If combos are 
used to hedge, the customer will need to trade 30 short combos (.30 
x 100). The appropriate ratio of combos in this example is to sell 
30 SPX calls and buy 30 SPX puts with the same strike price and 
expiration date. If futures are used to hedge, the customer will 
need to sell 12 S&P 500 Index futures on the CME ((.30 x 100)/2.5 = 
12), where 2.5 is the multiplier used to convert SPX options 
positions to the equivalent S&P 500 Index futures position (one S&P 
500 Index future equals 2.5 SPX combos).
---------------------------------------------------------------------------

    The CBOE notes that an SPX trader or customer hedging an SPX 
options position with S&P 500 Index futures must execute two separate 
trades in two separate markets, first trading SPX options at the CBOE, 
then submitting an order to the CME to trade the appropriate number of 
S&P 500 Index futures to hedge the SPX options trade. According to the 
CBOE, traders and customers prefer not to hedge SPX options by using 
S&P 500 Index futures because of the execution risk involved in trading 
in two separate markets. Specifically, the trader or customer is 
exposed to the risk of the S&P 500 Index moving significantly before 
the hedging futures transaction can be executed.\13\
---------------------------------------------------------------------------

    \13\ Using the example in footnote 11, suppose the customer 
completes the purchase of the 100 SPX calls but the S&P 500 Index 
declines sharply before the customer can trade the futures. As a 
result of the market declines, the customer must sell the futures at 
a much lower price to complete the hedge.
---------------------------------------------------------------------------

    The CBOE states that SPX traders and customers prefer to hedge an 
SPX options position with SPX combinations because all of the required 
transactions can be effected as a package in one market, the CBOE. 
Hedging SPX options with SPX combinations avoids the execution risk and 
the increased costs involved in trading in the futures market. In 
addition, the CBOE notes that SPX traders and customers prefer to use 
SPX combinations because an options order can be ``tied'' to a 
particular level of the S&P 500 Index to establish the hedge price.\14\ 
The CBOE states that when SPX options are tied to SPX combinations, the 
underlying hedge level of the S&P 500 Index is established and traders 
and customers can determine the exact implied volatilities of their 
options trades.\15\ According to the CBOE, hedging SPX options with SPX 
combinations acts as an incentive to market makers to reduce the price 
width of their markets because they know that their hedge price has 
been established and they will not have to trade in another market. 
Thus, the CBOE maintains that customers who trade SPX options tied to 
SPX combinations enjoy tighter and more liquid markets.
---------------------------------------------------------------------------

    \14\ Again using the example in footnote 11, the customer will 
request a market from a market maker for the calls that the customer 
wishes to purchase based on a specified underlying level of the S&P 
500 Index. The customer specifies an underlying level of the S&P 500 
Index to allow the market maker to determine the delta (in this case 
30) and a theoretical value for the calls. The market maker will 
then give his or her market for the 30 delta calls and for the 
component call and put options that will make up the combos. The 
combos portion of the order is equivalent to an order to trade 
futures at the underlying value of the S&P 500 Index that has been 
specified by the parties. The prices quoted for the call and put 
option components of the combos establish the hedge price for the 
transaction. When the foregoing occurs, SPX traders and customers 
say that the calls have been ``tied'' to combos.
    \15\ Implied volatility is the volatility percentage that 
justifies an option's price. When the customer and the market maker 
establish the underlying hedge level of the S&P 500 Index and a 
market price for the calls, the market maker and the customer are 
able to use option pricing models to determine the implied 
volatility of the calls. The CBOE states that knowing the implied 
volatility that is being quoted in the market is useful to customers 
and traders because customers and traders frequently take positions 
in the market based on the implied volatility level.
---------------------------------------------------------------------------

    According to the CBOE, certain market activity occurs occasionally 
that makes it difficult to effect these types of trades. The CBOE notes 
that an order may not trade immediately if, for example, the customer 
submitting the order wants to show the order to other market 
participants to improve the initial quote received or a member firm 
needs time to locate a customer that it believes might like to 
participate in the trade. In a volatile market, the S&P 500 Index can 
move substantially in one direction so that the originally quoted 
prices for the SPX options and the SPX combinations are no longer 
within the current market quotes. In such market conditions, the 
parties are unable to consummate the trade because CBOE rules preclude 
trading the legs of a combination outside of the currently displayed 
market quotes (``out-of-range'').
    The purpose of CBOE Rule 24.20 is to permit the trading of out-of-
range SPX Combo Orders under certain conditions. If the SPX Combo Order 
is not traded immediately, CBOE Rule 24.20(b)(2) would permit the SPX 
Combo Order to be executed and printed outside of the current market 
quotes at the originally quoted prices within two hours after the time 
of the original quotes, provided that the originally quoted prices for 
the SPX Combo Order comply with the requirements of CBOE Rule 
24.20(b)(1).
    The CBOE believes that the two-hour time window is necessary to 
provide SPX traders and customers with sufficient relief from the 
requirement to trade at or within the current market quotes when they 
attempt to trade SPX Combo Orders in a volatile market. The CBOE states 
that when SPX Combo Orders do not trade immediately, market conditions 
later may change so that the parties become willing to consummate the 
trade as originally designed.\16\
---------------------------------------------------------------------------

    \16\ According to the CBOE, an example of such market action in 
the S&P 500 Index occurred on March 22, 2001. The S&P 500 Index 
traded as low as 1081.19 as late as 1:50 p.m. From that point, the 
market rallied about 40 points to a high of 1121.43 through the end 
of the trading day and never went below 1088.73 after 2 p.m. or 
below 1101.11 after 2:40 p.m. Had a customer entered an order 
options tied to combos at an S&P 500 Index equivalent of 1082 at 
1:45 p.m., the order could not have been filled during the ensuing 
rally because the original quoted prices of the options would trade 
out-of-range of the current market quotes. The customer might have 
been unable or unwilling to change his or her prices. Additionally, 
the order flow that accompanies a 40-point rally in the S&P 500 
Index will often enable the market maker to provide the liquidity 
necessary to fill the customer's order. The proposed rule would 
enable the parties in this scenario to trade the order for options 
tied to combos as the 1082 S&P 500 Index level at any time before 
the end of the trading day (because the order came in with 1\1/2\ 
hours left in the trading day, and assuming a two-hour time window), 
notwithstanding the fact that the market rally had taken the 
originally quoted prices out-of-range.

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

[[Page 6293]]

    Although the CBOE believes that CBOE Rule 24.20 will result in an 
increase in the number of SPX Combo Orders, the CBOE does not believe 
that the number of trades reported out-of-range will be significant. 
The CBOE believes that CBOE Rule 24.20 will not be used very often 
because the relief provided by the rule normally would be required only 
during times of market volatility. On trading days during which the S&P 
500 Index moves very little, it is unlikely that members would need to 
invoke CBOE Rule 24.20. The CBOE believes that SPX traders will use 
CBOE Rule 24.20 to accommodate large orders of primarily institutional 
customers.
    The CBOE notes that orders for the component series of an SPX Combo 
Order will be price reported to the trading floor and to the Options 
Price Reporting Authority (``OPRA'') using an indicator. When orders 
are traded out-of-range pursuant to CBOE Rule 24.20, the indicator 
attached to the reported prices will be notice to the public that the 
reported prices were part of an out-of-range combo trade. Therefore, 
the CBOE believes that price discovery should not be adversely affected 
by the operation of CBOE Rule 24.20.
    The CBOE believes that proposed CBOE Rule 24.20 will enable the 
CBOE to better compete with futures exchanges such as the CME, which 
has a rule that permits options spreads and combinations to trade at 
prices outside the current market quotes.\17\ The CBOE states that it 
will issue a regulatory circular to its membership to explain the 
operation of CBOE Rule 24.20. In the regulatory circular, the CBOE will 
remind its membership that the adoption of CBOE Rule 24.20 does not 
lessen the obligation of members to obtain best execution of options 
orders for their customers.
---------------------------------------------------------------------------

    \17\ See CME Rule 542.
---------------------------------------------------------------------------

C. Amendment No. 2

    Amendment No. 2 revises the text of CBOE Rule 24.20 to provide 
consistent numbering in paragraphs (a) and (b) and to indicate that SPX 
Combo Orders may be executed and printed at the originally quoted 
prices, rather than printed and executed at the originally quoted 
prices.

D. Amendment No. 3

    In Amendment No. 3, the CBOE clarifies that CBOE Rule 24.20 is an 
exception to paragraph (e) of CBOE Rule 6.45, ``Priority of Bids and 
Offers,'' CBOE Rule 6.46, ``Transactions Outside Book's Last Quoted 
Range,'' and any other applicable CBOE rules when an SPX Combo Order is 
transacted out-of-range pursuant to CBOE Rule 24.20. In addition, 
Amendment No. 3 revises CBOE Rule 24.20(b)(1) to state the priority 
requirement for SPX Combo Orders in the same manner as CBOE Rule 
6.45(e).\18\ Specifically, CBOE Rule 24.20(b)(1) provides that when a 
member holding an SPX Combo Order and bidding or offering in a multiple 
of the minimum increment on the basis of a total net debit or credit 
has determined that the order may not be executed by a combination of 
transactions with the bids and offers displayed in the SPX limit order 
book or by the displayed quotes in the crowd, the order may be executed 
at the best net debit or credit so long as: (1) No leg of the order 
would trade at a price outside the currently displayed bids or offers 
in the trading crowd or bids or offers in the SPX limit order book; and 
(2) at least one leg of the SPX combination would trade at a price that 
is better than the corresponding bid or offer in the SPX limit order 
book.
---------------------------------------------------------------------------

    \18\ CBOE Rule 6.45(e) provides a limited exception from the 
normal time and price priority rules for spread, straddle, and 
combination orders. Specifically, CBOE Rule 6.45(e) states that when 
a member holding a spread, straddle, or combination order and 
bidding or offering in a multiple of the minimum increment on the 
basis of a total credit or debit for the order has determined that 
the order may not be executed by a combination of transactions with 
the bids and offers displayed in the customer limit order book or 
announced by members in the trading crowd, then the order may be 
executed as a spread, straddle, or combination at the total debit or 
credit with one other member without giving priority to bids or 
offers of members in the trading crowd that are not better than the 
bids or offers comprising such total debit or credit and bids and 
offers in the customer limit order book provided at least one leg of 
the order would trade at a price that is better than the 
corresponding bid or offer in the book.
---------------------------------------------------------------------------

    In Amendment No. 3, the CBOE maintains that SPX Combo Orders should 
be given priority over orders in the SPX limit order book for several 
reasons. First, the CBOE notes that SPX traders will continue to be 
required under CBOE Rule 24.20(b)(1) to check the limit order book when 
an order is first entered and before trading the order. Second, the 
CBOE states that CBOE Rule 24.20 would likely be used only during times 
of market volatility to provide liquidity to large orders of primarily 
institutional customers. The CBOE believes that the benefit of 
accommodating these large customer orders outweighs any disadvantage to 
customer orders that could be placed into the limit order book after an 
SPX Combo Order has been represented and quoted. Third, the CBOE notes 
that each component leg of an SPX Combo Order will be price reported to 
the trading floor and OPRA using an indicator that will act as notice 
to the public that the reported prices are part of an SPX Combo Order.

E. Amendment No. 4

    Amendment No. 4 revises the text of proposed CBOE Rule 24.20(a) to: 
(1) Define an ``SPX combination'' as a long SPX call and a short SPX 
put having the same expiration date and strike price; (2) define 
``delta'' as the positive (negative) number of SPX combinations that 
must be sold (bought) to establish a market neutral hedge with an SPX 
option position; and (3) indicate that an ``SPX Combo Order'' is an 
order to purchase or sell SPX options and the offsetting number of SPX 
combinations defined by the delta.

III. Discussion

    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 and, in 
particular, the requirements of Section 6(b)(5) \19\ in that it is 
designed to remove impediments to and perfect the mechanism of a free 
and open market and a national market system and to protect investors 
and the public interest.\20\ Specifically, the Commission believes that 
the proposal will contribute to the maintenance of a fair and orderly 
market by helping market participants to execute SPX Combo Orders 
during times of market volatility. According to the CBOE, market 
participants prefer to use SPX combinations, rather than S&P 500 Index 
futures, to hedge positions in SPX options to avoid the increased cost 
and execution risk associated with trading in the futures market.\21\ 
However, the CBOE maintains that in a volatile market the originally 
quoted prices for an SPX Combo Order may be out-of-range by the time 
the parties to a trade are prepared to complete the transaction.\22\ 
CBOE Rule 24.20(b)(2) is designed to address this issue by permitting 
members to execute out-of-range SPX Combo Orders at the originally 
quoted prices within two hours after the time of the original quotes.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b)(5).
    \20\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \21\ See Amendment No. 1, supra note 3.
    \22\ See Amendment No. 1, supra note 3.
---------------------------------------------------------------------------

    The Commission believes that CBOE Rule 24.20(b)(2) should 
facilitate transactions in SPX Combo Orders while limiting the out-of-
range transactions that may occur. In this regard, the Commission notes 
that CBOE

[[Page 6294]]

Rule 24.20(b)(2) provides a member with a limited amount of time, two 
hours from the time of the originally quoted prices, within which to 
execute the SPX Combo Order. In addition, the prices originally quoted 
for the SPX Combo Order must satisfy the requirements of CBOE Rule 
24.20(b)(1), which provides, among other things, that the order must be 
quoted so that no leg of the order would trade at a price outside the 
currently displayed bids or offers in the trading crowd or bids or 
offers in the SPX limit order book.\23\ The Commission believes that 
CBOE Rule 24.20(b)(2) will provide market participants with flexibility 
to execute SPX Combo Orders and may help market participants to hedge 
positions in SPX options during times of market volatility.
---------------------------------------------------------------------------

    \23\ Telephone conversation between Jaime Galvan, Attorney, 
Legal Division, CBOE, and Yvonne Fraticelli, Special Counsel, 
Division, Commission, on November 28, 2001.
---------------------------------------------------------------------------

    The Commission finds that CBOE Rule 24.20(b)(1) clarifies the 
procedures that a member holding an SPX Combo Order must follow. The 
procedures specified in CBOE Rule 24.20(b)(1) are the same as the 
procedures set forth in CBOE Rule 6.45(e) and, accordingly, do not 
raise new regulatory issues.\24\
---------------------------------------------------------------------------

    \24\ In addition, CBOE Rule 24.19, ``OEX-SPX Spread Orders,'' 
contains similar requirements for members holding OEX-SPX spread 
orders.
---------------------------------------------------------------------------

    Each component series of an out-of-range SPX Combo Order will be 
price reported to the CBOE's trading floor and to OPRA with an 
indicator that will provide notice to the public that the reported 
prices were part of an out-of-range SPX Combo Order trade. The 
Commission believes that the indicator should help to avoid investor 
confusion regarding out-of-range SPX Combo Order trades and minimize 
any negative impact on price discovery. In addition, the indicator 
should help the CBOE to monitor the trading of SPX Combo Orders.
    The Commission believes that that the CBOE has adopted surveillance 
procedures that are adequate to monitor compliance with the 
requirements of CBOE Rule 24.20.
    Finally, the Commission notes that in its regulatory circular to 
members explaining the operation of CBOE Rule 24.20, the CBOE will 
remind its members that the adoption of CBOE Rule 24.20 does not 
diminish the obligation of CBOE members to obtain best execution for 
their customers.\25\
---------------------------------------------------------------------------

    \25\ See Amendment No. 1, supra note 3.
---------------------------------------------------------------------------

Accelerated Approval of Amendment Nos. 1, 2, 3, and 4
    The Commission finds good cause for approving Amendment Nos. 1, 2, 
3, and 4 prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. Amendment No. 1 
strengthens the CBOE's proposal by limiting the time for executing an 
out-of-range SPX Combo Order to two hours after the time of the 
original quotes. Amendment No. 2 clarifies the CBOE's proposal by 
providing consistent numbering in paragraphs (a) and (b) of CBOE Rule 
24.20. Amendment No. 3 strengthens the CBOE's proposal by adopting the 
requirements in CBOE Rule 24.20(b)(1) for members holding SPX Combo 
Orders. Amendment No. 4 strengthens the proposal by clarifying the 
definitions of ``SPX combination,'' ``delta,'' and ``SPX Combo Order.'' 
Accordingly, the Commission finds that there is good cause, consistent 
with Sections 6(b)(5) and 19(b) of the Act,\26\ to approve Amendment 
Nos. 1, 2, 3, and 4 on an accelerated basis.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b)(5) and 78s(b).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment Nos. 1, 2, 3, and 4, including whether 
Amendment Nos. 1, 2, 3, and 4 are 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 CBOE. All 
submissions should refer to file number SR-CBOE-00-40 and should be 
submitted by March 4, 2002.

V. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule change (SR-CBOE-00-40), as amended, is 
approved.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-3231 Filed 2-8-02; 8:45 am]
BILLING CODE 8010-01-P