[Federal Register Volume 67, Number 189 (Monday, September 30, 2002)]
[Notices]
[Pages 61358-61360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24696]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46519; File No. SR-CBOE-2002-46]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to Its 
AutoQuote Triggered Ebook Execution System

September 20, 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 August 21, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1)
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its ``Trigger'' rule (Rule 
6.8(d)(v)) to provide that the Trigger Volume shall be set at a size 
not to exceed the RAES eligible order size for the particular series of 
options, and that the appropriate Floor Procedure Committee shall be 
responsible for setting the Trigger Volume. Below is the text of the 
proposed rule change. Proposed new language is italicized. Proposed 
deletions are in [brackets].
* * * * *

Chicago Board Options Exchange, Inc.

Rules

* * * * *

Chapter VI--Doing Business on the Exchange Floor

Section A: General

RAES Operations
* * * * *
    Rule 6.8 (a)--(c) No change.
    (d) Execution on RAES
    (i)-(iv) No change.
    (v) Notwithstanding sub-paragraph (d)(iv), for classes of options 
as determined by the appropriate Floor Procedure Committee, for any 
series of options where the bid or offer generated by the Exchange's 
Autoquote system (or any Exchange approved proprietary

[[Page 61359]]

quote generation system used in lieu of the Exchange's Autoquote 
system) is equal to or crosses the Exchange's best bid or offer as 
established by an order in the Exchange's limit order book, orders in 
the book for options of that series will be automatically executed 
against participants on RAES (``Trigger'') up to a size not to exceed 
the number of contracts equal to the applicable maximum size of RAES-
eligible orders for that series of options (``Trigger Volume''). The 
appropriate Floor Procedure Committee is responsible for determining 
the Trigger Volume for a particular series of options. In the event a 
member in the trading crowd verbally initiates a trade with a book 
order prior to the time the book staff announces to the trading crowd 
that the order has been removed from the book by Trigger, the book 
staff will manually endorse the book order to that member(s). In the 
event the order in the book is for a larger number of contracts than 
the applicable [RAES contract limit] Trigger Volume, the balance of the 
book order will be executed manually by the trading crowd. In the 
limited circumstance where contracts remain in the book after an 
execution of a book order up to the applicable [RAES contract limit] 
Trigger Volume, and the disseminated quote remains crossed or locked 
with the Autoquote bid or offer, or for any series where Trigger has 
not yet been implemented by the appropriate Floor Procedure Committee, 
orders in RAES for options of that series will not be automatically 
executed but instead will be rerouted on ORS to the crowd PAR terminal 
or to another location in the event of system problems or contrary firm 
routing instructions.
    (e)-(g) No change.
* * * Interpretations and Policies
    .01-.09 No change.
* * * * *

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

    In its filing with the Commission, the 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. 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
    The Exchange proposes to amend Rule 6.8(d)(v), which governs the 
operation of the AutoQuote Triggered EBook Execution system 
(``Trigger''). Trigger is a system that allows certain orders resting 
in the book to be automatically executed in the limited situation where 
the bid or offer for a series of options generated by the Exchange's 
AutoQuote system (or any Exchange approved proprietary quote generation 
system used in lieu of the Exchange's AutoQuote system) is equal to or 
crosses the Exchange's best bid or offer for that series as established 
by a booked order.\3\ The Exchange proposes to amend the Trigger rule 
to provide that the Trigger system will automatically remove orders in 
the Exchange's limit order book up to the ``Trigger Volume'' amount, 
which will be an amount not to exceed the RAES eligible size for the 
particular series of options. The appropriate Floor Procedure Committee 
shall be responsible for setting the Trigger Volume for a particular 
series of options.
---------------------------------------------------------------------------

    \3\ The Commission approved the rule governing the Trigger 
system in Securities Exchange Act Release No. 44462 (June 21, 2001), 
66 FR 34495 (June 28, 2002) (approving SR-CBOE-00-22) (``Original 
Order''). For a detailed description of the operation of the Trigger 
System, see the Original Order and Securities Exchange Act Release 
No. 45992 (May 29, 2002), 67 FR 38530 (June 4, 2002) (approving SR-
CBOE-2002-12).
---------------------------------------------------------------------------

    Currently, the Trigger rule provides that Trigger will remove 
orders in the book up to the RAES size for the particular series of 
options. Thus, under the current rule, the volume that is removed from 
the book by Trigger cannot be set at a size less than the RAES size 
(and clearly, the volume cannot exceed the RAES size). As Dynamic 
Quotes with Size (``DQWS'') has been rolled out across the trading 
floor, trading crowds have increased the RAES eligible order size for 
their options, in some cases up to 250 contracts. In these crowds, 
because the Trigger size is tied to the RAES size, Trigger will 
automatically remove up to 250 contracts from the book when there is a 
large order in the book that is setting the market and AutoQuote 
crosses or locks with that book order. The size of booked orders that 
Trigger removes is now currently much larger than was originally 
contemplated when Trigger was implemented.
    Under the Trigger rule, a book order removed by Trigger will be 
endorsed to the RAES wheel or manually endorsed to certain crowd 
members when required. In classes that have increased their RAES size 
since the inception of DQWS, more orders are being executed on RAES and 
larger book orders are being removed by Trigger and endorsed to the 
RAES wheel, resulting in fewer orders for market-makers to compete for.
    Therefore, the Exchange proposes to amend the Trigger rule to 
provide that the volume Trigger will automatically remove from the book 
(Trigger Volume) may be set up to a size not to exceed the RAES 
eligible size for the particular series of options. As a result, the 
Trigger Volume could be set at a size lower than the RAES size (such as 
50 contracts, which may have been the RAES size prior to DQWS).
    The Exchange believes that this proposed rule change simply 
provides that Trigger will operate in the same fashion that it did 
prior to DQWS in those classes that have increased their RAES sizes, 
while providing those trading crowd members with the opportunity to 
trade with part of a large book order that is setting the market and is 
locked or crossed with AutoQuote.
    Additionally, the Exchange proposes to amend the Trigger rule to 
provide that the appropriate Floor Procedure Committee (``FPC'') shall 
be responsible for setting the Trigger Volume for a particular series 
of options. Currently, the Trigger rule provides only that the 
appropriate FPC has the authority to determine the classes that are 
eligible for Trigger. The Exchange believes that it should be 
explicitly set forth in the rule that the appropriate FPC also has the 
authority to set the Trigger Volume.
2. Statutory Basis
    The proposed rule change is consistent with and furthers the 
objectives of section 6(b)(5) of the Act in that it is designed to 
remove impediments to a free and open market and to protect investors 
and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change will impose 
any burden on competition.

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.

[[Page 61360]]

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 proposal 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 CBOE. All submissions 
should refer to File No. CBOE-2002-46 and should be submitted by 
October 21, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
---------------------------------------------------------------------------

    \4\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-24696 Filed 9-27-02; 8:45 am]
BILLING CODE 8010-01-P