[Federal Register Volume 67, Number 128 (Wednesday, July 3, 2002)]
[Notices]
[Pages 44654-44655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16690]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46119; File No. SR-CBOE-2002-16]


Self Regulatory Organizations; Order Approving Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to the 
Removal of the Restriction on Floor Brokers From Trading in the Same 
Crowds as Affiliated Designated Primary Market-Makers

June 25, 2002.
    On April 18, 2002, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with 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 to delete existing CBOE Rule 
8.91(d) that prohibits a member affiliated with a Designated Primary 
Market-Maker (``DPM'') from acting as a floor broker in any trading 
crowd in which that DPM is the appointed DPM.
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    \1\ 15 U.S.C. 78s(b)(1).
    \1\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on May 17, 2002.\3\ The Commission received no comments on the 
proposal. This order approves the proposed rule change.
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    \3\ See Securities Exchange Act Release No. 45909 (May 10, 
2002), 67 FR 35165.
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    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 of the Act \4\ and the rules 
and regulations thereunder.\5\ Specifically, the Commission finds that 
the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\6\ which, among other things, requires that the CBOE's rules be 
designed to facilitate transactions in securities, and remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. According to the CBOE, its Rule 8.91(d) was 
originally intended to prevent DPMs from circumventing their 
affirmative obligations, such as placing eligible public orders in the 
book, according priority to any order which the DPM acts as agent over 
the DPM's

[[Page 44655]]

principal transactions, not charging any brokerage commission for the 
execution of orders for which the DPM acts as both agent and principal 
and not representing discretionary orders. The CBOE represented that 
its current rules will continue to prohibit DPMs from circumventing 
their obligations.\7\ Therefore, the Commission believes that the 
regulatory concerns that CBOE Rule 8.91(d) was intended to address will 
continue to be prevented. The Commission expects the CBOE to surveil 
its DPMs and affiliated floor brokers to ensure that they are not using 
their affiliations to circumvent CBOE rules.
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    \4\ 15 U.S.C. 78f.
    \5\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ For example, according to the CBOE, its Rule 6.43, Manner of 
Bidding and Offering, prohibits a DPM from directing its trades to 
particular members. Also, according to the CBOE, its Rule 7.4, 
Obligations for Orders, requires a DPM to ``use due diligence to 
execute the orders placed in his custody at the best prices 
available to him under the Rules of the Exchange.'' Finally, the 
CBOE represented that its Rule 4.1, Just and Equitable Principles of 
Trade, provides a general protection from any illicit intentions by 
stating that: ``No member shall engage in acts or practices 
inconsistent with just and equitable principles of trade. Persons 
associated with members shall have the same duties and obligations 
as members under the Rules of this Chapter [IV].''
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-CBOE-2002-16) be, 
and it hereby is, approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-16690 Filed 7-2-02; 8:45 am]
BILLING CODE 8010-01-P