[Federal Register Volume 67, Number 111 (Monday, June 10, 2002)]
[Notices]
[Pages 39758-39759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14430]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46020; File No. SR-CBOE-2002-18]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Chicago Board Options Exchange, Inc. Relating to its DPM 
Membership Ownership Requirement

June 3, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on April 19, 2002, the Chicago Board Options 
Exchange, Inc. (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'' or ``SEC'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the CBOE. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend Rule 8.85(e) pertaining to the 
Designated Primary Market-Maker (``DPM'') seat ownership requirement. 
The text of the proposed rule change appears below.
    New text is in italics; deletions are in [brackets].

Chicago Board Options Exchange, Incorporated Rules

    Rule 8.85(e) Requirement to Own Membership. Each DPM organization 
shall own at least one Exchange membership for each trading location in 
which the organization serves as a DPM, as determined by the MTS 
Committee. An Exchange membership shall include a transferable regular 
membership or a Chicago Board of Trade full membership that has 
effectively been exercised pursuant to Article Fifth(b) of the 
Certificate of Incorporation. [A DPM shall be deemed to satisfy this 
ownership requirement if the DPM or a senior principal of the DPM owns 
an Exchange membership. No single] The same Exchange membership(s) may 
not be used to satisfy this ownership requirement for different [more 
than one] DPM organizations or different trading locations operated by 
the same DPM organization. Each DPM shall have until [February 21, 
2002] insert date 90 days from date of SEC approval to satisfy this 
ownership requirement, but each DPM organization must continually own 
at least one membership until that date.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, CBOE 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 
CBOE 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
    On August 21, 2000, the Commission approved a CBOE rule filing 
adopting a DPM membership ownership requirement.\3\ This requirement is 
contained in Rule 8.85(e). Currently, it provides, among other things, 
that each DPM must own at least one Exchange membership. It also states 
that this requirement would be deemed satisfied if the senior principal 
of the DPM owned the required membership(s). Pursuant to the terms of 
the rule, DPMs were required to comply with Rule 8.85(e) by February 
21, 2002. The Exchange now seeks to modify Rule 8.85(e) to make clear 
that the requirements of the Rule are applicable to each DPM trading 
location (as opposed to each DPM organization), and to eliminate the 
concept that a senior principal can own a membership in place of the 
DPM organization.
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    \3\ See Exchange Act Release No. 43186 (August 21, 2000), 65 FR 
51880 (August 25, 2000) (Order approving File No. SR-CBOE-99-37).
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    CBOE proposed the seat ownership requirement at roughly the same 
time it was seeking to convert the entire equity option trading floor 
to the DPM system. At that time, each CBOE DPM managed only one trading 
location (trading post) on the CBOE trading floor. Thus, at that time, 
each DPM trading location would have been subject to the seat ownership 
requirement. Further, because Rule 8.85(e) does not state that each DPM 
organization needs to own a membership, Rule 8.85(e) could arguably 
apply to each DPM trading location on the floor, since for many 
purposes (including the allocation of option classes) different DPM 
trading locations managed by the same DPM organization are treated as 
separate DPMs.\4\ Since that time, there has been a significant 
consolidation of DPM operations at CBOE resulting in several DPM 
organizations each operating multiple DPM trading locations on CBOE's 
floor.
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    \4\ However, because of the ambiguity in Rule 8.85(e), CBOE has 
applied the Rule to DPM organizations and not DPM trading locations 
on the Exchange floor.
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    CBOE believes it is more consistent with the Exchange's original 
intent to modify the rule to make clear that each DPM organization must 
own at least one Exchange membership for each trading location in which 
the organization acts as a DPM. Such a change is also consistent with 
the Exchange's original rationale for these requirements: to contribute 
toward assuring that DPMs have a long-term commitment to the Exchange 
given the important functions performed by DPMs and that DPMs are a 
pivotal component of the Exchange's marketplace.
    With respect to the use of the term ``trading location,'' 
generally, a trading location is meant to be a trading station on 
CBOE's floor. However, because certain spots on the trading floor are 
structured in a way that makes it difficult to distinguish the 
boundaries of a trading station, CBOE proposes that the Exchange's 
Modified Trading System Appointments Committee (``MTS Committee''),\5\ 
determine the number of trading locations in which a DPM organization 
serves as a DPM.
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    \5\ The MTS Committee is the Committee responsible for reviewing 
and ensuring compliance with Rule 8.85.
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    Lastly, in order to simplify the application and enforcement of the 
DPM membership ownership requirement, CBOE is proposing to eliminate 
the provision allowing a senior principal of a DPM to own a required 
membership instead of the DPM organization. As proposed, each DPM 
organization would be required to own any seats required to be owned 
under Rule 8.85(e).
2. Statutory Basis
    The Exchange believes the proposed rule change will contribute 
toward assuring that DPMs have a long-term commitment to the Exchange. 
Accordingly, the Exchange believes the proposed rule change is 
consistent with

[[Page 39759]]

Section 6(b) of the Act,\6\ in general, and further the objectives of 
section 6(b)(5),\7\ in particular, in that it is 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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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. 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 Section. Copies of such filing will also 
be available for inspection and copying at the principal office of 
CBOE. All submissions should refer to the File No. CBOE-2002-18 and 
should be submitted by July 1, 2002.

    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. 02-14430 Filed 6-7-02; 8:45 am]
BILLING CODE 8010-01-P