[Federal Register Volume 67, Number 127 (Tuesday, July 2, 2002)]
[Notices]
[Pages 44486-44487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16660]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46113; File No. SR-CBOE-2002-35]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. To Amend Rule 6.8 To Permit the Exchange To Allow 
Broker-Dealer Orders To Be Executed on RAES for Any Product Within 
Index Floor Procedure Committee's Jurisdiction

June 25, 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 June 18, 2002, 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 Exchange has designated the proposed rule change as constituting a 
``non-controversial'' rule change under paragraph (f)(6) of Rule 19b-4 
under the Act,\3\ which renders the proposal effective upon receipt of 
this filing by the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to amend Interpretation and Policy .01 of CBOE Rule 
6.8 to permit the Exchange to allow broker-dealer orders to be executed 
on the Retail Automatic Execution System (``RAES'') for any product 
within Index Floor Procedure Committee's jurisdiction. The text of the 
proposed rule change is available at the CBOE and at the Commission.

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 
text of these statements may be examined at the places specified in 
Item IV below. 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, Proposed Rule Change

1. Purpose
    The proposed rule change broadens the recent amendment to CBOE Rule 
6.8.01, which granted the Index Floor Procedure Committee, on a pilot 
basis, the authority to allow broker-dealer orders for options on 
Nasdaq-100 Index'' Tracking Stock (``QQQ'') to be executed on RAES.\4\ 
The proposed rule change would broaden the products that would be 
eligible to participate in the pilot to any series of any products 
within the scope of responsibilities of the Index Floor Procedure 
Committee, pursuant to the Board approved charter for that 
Committee.\5\ In addition, the proposed rule change would give the 
Exchange the discretion to determine in which series broker-dealer 
orders could be executed on RAES.\6\ All other aspects of 
Interpretation and Policy .01 remain unchanged.
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    \4\ See Securities Exchange Act Release No. 45967 (May 30, 
2002), 67 FR 37888 (May 30, 2002) (SR-CBOE-2002-22).
    \5\ The CBOE represents that RAES has sufficient capacity to 
handle the processing of the potential increased order flow.
    \6\ Under the current rule, it is the Index Floor Procedure 
Committee that has the discretion to permit broker-dealer orders for 
options on QQQ to be executed on RAES. The Exchange discretion would 
be limited to any series of any products that are within the 
jurisdiction of the Index Floor Procedure Committee.
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    For competitive reasons, CBOE believes that it is appropriate to 
expand the products available under the pilot program to those products 
that are under the jurisdiction of the Index Floor Procedure Committee. 
CBOE believes that the expansion of products in the pilot program will 
give the Exchange a fuller and richer data set to evaluate when it 
considers whether the pilot program has been effective and whether it 
has achieved its anticipated purpose.
    CBOE believes that giving the Exchange the discretion to add 
permitted products to the pilot program will enhance the Exchange's 
ability to administer and evaluate the pilot program. Currently, only 
one type of product participates in the pilot program, but due to the 
potential increase in the number of products that may participate in 
the pilot program under the proposed rule change, CBOE believes the 
discretion to permit broker-dealer orders on RAES should operate 
differently.\7\ The Exchange believes this is appropriate so that new 
products will be added to the pilot program in a manner that will 
optimize the evaluation of the pilot program. Since the evaluation and 
conclusions of the pilot program could have a broader impact than just 
on those products that are under the jurisdiction of the Index Floor 
Procedure Committee, CBOE believes that it is appropriate for the 
Exchange to have the discretion to determine which products within the 
jurisdiction of the Index Floor Procedure Committee should be added to 
the pilot program and when they should be added.
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    \7\ New products will be added to the pilot program upon the 
recommendation of the Index Floor Procedure Committee.
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2. Statutory Basis
    The CBOE believes that the proposed rule change is consistent with 
section 6(b)(5) of the Act \8\ in that it is designed to promote just 
and equitable principles of trade, to enhance competition and to 
protect investors and the public interest. CBOE believes, that like the 
recently amended Interpretation and Policy .01 to CBOE Rule 6.8, the 
proposed rule change could enhance competition for the automatic 
execution of broker-dealer orders in a broader range of products. CBOE 
also believes that the expansion of the products eligible for the pilot 
program will give the Exchange a better array of information to 
evaluate the appropriateness of competing for orders

[[Page 44487]]

of the accounts of broker-dealers in this manner.
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    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of 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 has become effective pursuant to section 
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder \10\ because 
the proposed rule change (i) does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) does not 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 intent to file the proposed 
rule change at least five business days prior to the filing date of the 
proposed rule change. At any time within 60 days of the filing of the 
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 the furtherance of the purposes of the Act. \11\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ See 15 U.S.C. 78s(b)(3)(C).
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    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. CBOE has requested that the Commission waive the 
30-day pre-operative waiting period. CBOE contends that, acceleration 
of the operative date is consistent with the protection of investors 
and the public interest because the changes that are proposed make no 
substantive changes to Interpretation and Policy .01 to CBOE Rule 6.8. 
In addition, the proposed rule change will increase competition in 
those products that are a part of the pilot and permit the Exchange to 
compete for orders of the accounts of broker-dealers in these products.
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    \12\ 17 CFR 240.19b-4.
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    The Commission believes waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\13\ Acceleration of the operative date will permit the 
Exchange to extend the pilot to a broader number of products, thus 
increasing competition for such products. For these reasons, the 
Commission designates the proposal to be effective and operative upon 
filing with the Commission.\14\
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    \13\ 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).
    \14\ Commission staff has provided interpretative guidance to 
the Exchange regarding the application of Section 11(a) of the Act, 
15 U.S.C. 78k(a), to the RAES system. See letter from Paula Jenson, 
Deputy Chief Counsel, Division of Market Regulation, Commission, to 
Joanne Moffic-Silver, General Counsel and Corporate Secretary, CBOE, 
dated May 16, 2002.
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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 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 the File No. SR-CBOE-2002-35 and 
should be submitted by July 23, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-16660 Filed 7-1-02; 8:45 am]
BILLING CODE 8010-01-P