[Federal Register Volume 67, Number 57 (Monday, March 25, 2002)]
[Notices]
[Pages 13672-13673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7040]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45574; File No. SR-CBOE-2001-63]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendment No. 1 Thereto and Notice of Filing and Order 
Granting Accelerated Approval of Amendment No. 2 Thereto by the Chicago 
Board Options Exchange, Inc. Relating to the Exchange's AutoQuote 
System

March 15, 2002.

I. Introduction

    On December 17, 2001, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') submitted to the Securities and Exchange 
Commission (``Commission''), 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 Exchange's Auto-
Quote System. The Exchange filed Amendment No. 1 to the proposed rule 
change on February 7, 2002.\3\ The Federal Register published the 
proposed rule change and Amendment No. 1 for comment on February 13, 
2002.\4\ The Exchange filed Amendment No. 2 to the proposed rule change 
on March 7, 2002.\5\ The Commission received no comments on the 
proposed rule change. This order approves the proposed rule change, as 
amended by Amendment No. 1, and issues notice of, and grants 
accelerated approval to, Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Patrick Sexton, Assistant General Counsel, 
CBOE, to Deborah Flynn, Assistant Director, Division of Market 
Regulation (``Division''), Commission (``Amendment No. 1''). 
Amendment No. 1 requests the Commission to designate the proposed 
rule change as having been filed pursuant to section 19(b)(2) of the 
Act. 15 U.S.C. 78s(b)(2).
    \4\ Securities Exchange Act Release No. 45419 (February 7, 
2002), 67 FR 6772.
    \5\ See letter from Patrick Sexton, Assistant General Counsel, 
CBOE, to Deborah Flynn, Assistant Director, Division, Commission, 
dated March 5, 2002 (``Amendment No. 2'').
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II. Description of Proposal

    CBOE Rule 8.15 currently provides that the appropriate MPC may 
appoint Lead Market-Makers (``LMMs'') and Supplemental Market-Makers 
(``SMMs'') for a specified period of time to participate in opening 
rotations in S&P 100 options (``OEX'') and options on the Dow Jones 
Industrial Average (``DJX''). The proposed rule change amends CBOE Rule 
8.15 to make explicit in the rule that the appropriate Market 
Performance Committee (``MPC'') may appoint LMMs and SMMs to determine 
a formula for generating automatically updated market quotations and to 
use the Exchange's AutoQuote system or to provide a proprietary 
automated quotation updating system to monitor and automatically update 
market quotations during the trading day in any options class for which 
a Designated Primary Market-Maker (``DPM'') has not been appointed.
    Proposed new paragraph (d) of CBOE Rule 8.15 provides that LMMs and 
SMMs appointed pursuant to the CBOE Rule 8.15 to determine a formula 
for generating automatically updated market quotations must, for the 
period in which its acts as LMM or SMM, use the Exchange's AutoQuote 
system or a proprietary automated quotation updating system to update 
market quotations during the trading day. Proposed paragraph (d) also 
requires LMMs to disclose to the trading crowd the variables of the 
formula for generating automatically updated market quotations unless 
exempted by the appropriate MPC. Proposed paragraph (d) further 
provides a cross-reference to the requirements of Interpretation .07 to 
CBOE Rule 8.7, which sets forth the AutoQuote obligations of market 
makers.\6\ The Exchange also proposes to eliminate the references to 
S&P 100 options and options on the DJX from CBOE Rule 8.15 so that the 
appropriate MPC may appoint LMMs and SMMs in other options classes 
without having to file a proposed rule change with the Commission.
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    \6\ See Amendment No. 2, supra note 5.
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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.\7\ 
Specifically, the Commission believes that the proposed rule change is 
consistent with the Section 6(b)(8) \8\ requirement that the rules of 
an exchange not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \7\ In approving the proposal, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \8\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that the proposed rule change should deter 
collective action, except as authorized by the Exchange's rules, by 
clearly establishing in the Exchange's rules the responsibilities of, 
and conduct permitted by, Exchange members in setting AutoQuote 
parameters. For instance, the proposal amends CBOE Rule 8.15 to make 
explicit in the rule that in options for which a DPM has not been 
appointed, the Exchange's MPC may appoint LMMs and SMMs to determine a 
formula for generating automatically updated market quotations and to 
use the Exchange's AutoQuote system or to provide a proprietary 
automated quotation updating system. The Commission believes this 
provision should clarify the obligations of LMMs and SMMs with respect 
to the Exchange's AutoQuote system. In addition, the proposal would 
permit the LMM or SMM to receive input from members of the crowd in 
setting the parameters of the formula used to automatically update 
options quotations. At this time, the Commission believes it is 
reasonable for the Exchange's rules to permit members of the crowd to 
be given a voice in setting AutoQuote parameters because, pursuant to 
the Exchange's rules, they will be obligated to execute orders at the 
resultant quote.\9\
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    \9\ The Commission expects the Exchange to monitor the 
collective actions that are undertaken pursuant to the rule change 
approved herein for any undesirable or inappropriate anticompetitive 
effects. The Commission's examination staff will monitor the 
Exchange's efforts in this regard.
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    Finally, the Commission finds that the proposed rule change is 
designed to effectively limit the circumstances in which collective 
action is permissible.
    The Commission finds good cause for accelerating approval of 
Amendment No. 2 because it clarifies the obligations of LMMs and SMMs 
regarding AutoQuote. Accordingly, the Commission finds that good cause 
exists, consistent with sections 6(b)(5) of the Act,\10\ and section 
19(b)(2) of the Act\11\ to accelerate approval of Amendment No. 2 to 
the proposed rule

[[Page 13673]]

change prior to the thirtieth day after publication in the Federal 
Register.
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    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 2, including whether the Amendment 
No. 2 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 
CBOE. All submissions should refer to File No. SR-CBOE-2001-63 and 
should be submitted by April 15, 2002.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-CBOE-2001-63), as amended, 
is approved, and Amendment No. 2 is approved on an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-7040 Filed 3-22-02; 8:45 am]
BILLING CODE 8010-01-P