[Federal Register Volume 67, Number 139 (Friday, July 19, 2002)]
[Notices]
[Page 47585]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18224]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46185; File No. SR-CBOE-2002-31]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Order Approving Proposed Rule Change Relating to Handling of 
Customer Orders

July 11, 2002
    On June 10, 2002, the Chicago Board Options Exchange, Incorporated 
(``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 establish the Large Order 
Utility (``LOU''). Through LOU, eligible customer orders larger than 
CBOE's maximum ``auto-ex'' size for the relevant option would be 
stopped at the Exchange's disseminated price up to the size of the 
Exchange's disseminated quote, and subsequently routed to the trading 
crowd for possible price improvement and allocation in open-outcry.\3\ 
Thus, LOU would allow for price-improvement while guaranteeing an 
execution at a price equal to or better than the stop price. If price 
improvement was not attainable in the open-outcry, the order would be 
allocated at the stop price among the members of the trading crowd 
under specified procedures.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ To be eligible for LOU, an incoming order would be required 
to: (i) be a market order or marketable limit order that is not for 
an account in which a member or any non-member broker-dealer 
(including foreign broker-dealer) has an interest; (ii) be of a size 
greater than the eligibility limit of CBOE's Retail Automatic 
Execution System (``RAES'') for the subject option series; (iii) be 
in an option class which is designated by the appropriate Floor 
Procedure Committee as eligible for LOU; and (iv) not be an order 
routed to CBOE through intermarket linkage. Further, at the time of 
the order's receipt, (i) the CBOE quote would be required to be 
priced equal to the National Best Bid or Offer; (ii) the 
requirements of CBOE Rule 6.8.B (governing automated book priority 
for larger than RAES-size public customer orders received through 
the Exchange's Order Routing System) would have to be in effect for 
the subject option class; and (iii) the CBOE quote could not be a 
manual quote.
    \4\ The order would be assigned in a manner consistent with 
existing open-outcry procedures under CBOE Rules 6.45 and 8.87. To 
the extent any order is not fully assigned in open-outcry, an ``In-
Person Wheel'' would evenly assign contracts to market-makers 
present in the crowd up to a 5-contract maximum per order. If the 
In-Person Wheel has been exhausted for a particular LOU order and a 
balance still remains on the LOU order, the entirety of such balance 
would be assigned in accordance with the RAES trade allocation 
methodology in effect for the subject option class.
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    The proposed rule change was published for comment in the Federal 
Register on June 19, 2002.\5\ The Commission received no comments on 
the proposal. On July10, 2002, the CBOE filed Amendment No. 1 to the 
proposed rule change, in which it requested that the Commission find 
good cause to approve the proposed rule change prior to the thirtieth 
day after its publication in the Federal Register.\6\
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    \5\ See Securities Exchange Act Release No. 46073 (June 13, 
2002), 67 FR 41743.
    \6\ See Letter from Angelo Evangelou, Senior Attorney, Legal 
Division, CBOE, to Ira Brandriss, Special Counsel, Division of 
Market Regulation, Commission, dated July 9, 2002 (Amendment No. 1).
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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 \7\ and, in 
particular, the requirements of Section 6 of the Act \8\ and the rules 
and regulations thereunder. The Commission finds specifically that the 
proposed rule change is consistent with Section 6(b)(5) of the Act \9\ 
because, by automatically securing the Exchange's disseminated prices 
for customer orders up to the disseminated size of the Exchange, while 
allowing for potential price improvement for those orders, it should 
benefit customers and improve the overall efficiency of the market. In 
addition, the Commission finds that the manner of allocating contracts 
in the crowd under the proposed rule change is consistent with 
equitable principles.
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    \7\ 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).
    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause, consistent with Section 19(b)(2) 
of the Act, to approve the proposed rule change prior to the thirtieth 
day after the date of publication of the notice of filing thereof in 
the Federal Register. The Commission notes that the CBOE has 
represented that all required systems work for LOU has been completed 
and successfully tested, and that the CBOE is prepared to begin 
utilizing the system within a week of approval by the Commission.\10\ 
The Commission believes that accelerated approval of this proposal 
should permit the CBOE to immediately begin providing customers with 
the benefits described above, and serve to enhance competition among 
the markets.
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    \10\ See Amendment No. 1, supra note 6.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act\11\, that the proposed rule change (File No. SR-CBOE-2002-31) be, 
and it hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-18224 Filed 7-18-02; 8:45 am]
BILLING CODE 8010-01-P