[Federal Register Volume 67, Number 192 (Thursday, October 3, 2002)]
[Notices]
[Pages 62084-62085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25163]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46539; File No. SR-CBOE-2002-30]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Incorporated Amending 
Rule 8.85(a)(xi) and Rule 17.50 To Require Members To Use and Maintain 
CBOE's AutoQuote System as a Back-Up Quoting System

September 24, 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 11, 2002 the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Exchange. On September 3, 2002 the Exchange filed Amendment No. 
1 to the proposed rule change.\3\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Angelou Evangelou, Senior Attorney, CBOE, to 
Katherine England, Assistant Director, Division of Market 
Regulation, Commission, dated August 30, 2002.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of amendments to CBOE Rules 
8.85(a)(xi) and Rule 17.50 to require members to use and maintain 
CBOE's AutoQuote System as a back-up quoting system. The text of the 
proposed rule change and Amendment No. 1 are available at the Exchange 
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, the Exchange 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 Exchange 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 seeks to adopt new Rule 8.85(a)(xi) which would state 
that, with respect to a Designated Primary Market-Maker (``DPM'') 
trading station utilizing a proprietary autoquote system, such DPM is 
obligated to assure that the CBOE AutoQuote system is maintained as a 
back-up at all times during market hours. The Exchange also proposes to 
add subparagraph (g)(10) to CBOE Rule 17.50--Imposition of Fines for 
Minor Rule Violations, to incorporate in its Minor Rule Violation Plan 
(``Plan'') violations of new Rule 8.85(a)(xi).
    The CBOE AutoQuote system is provided by CBOE for use by its 
members and is available at every post on CBOE's options trading floor. 
It is available to assist DPMs and/or market makers (for trading crowds 
not operating under the DPM system) in automatically updating market 
quotations for the multitude of options series traded at any given 
trading station. The parameters of the AutoQuote system can be 
customized by CBOE traders in several areas including volatility, 
dividend, and what is used to represent the price of the underlying. To 
that end, CBOE Rule 8.85(a)(x) requires DPMs to determine a formula for 
generating automatically updated market quotations.

[[Page 62085]]

    While many DPMs utilize CBOE's AutoQuote system, some DPMs have 
opted to use non-CBOE proprietary automated quotation updating systems. 
CBOE has allowed members to employ proprietary autoquote systems 
provided such systems are approved by the Exchange's appropriate Floor 
Procedure Committee. The failure of a proprietary autoquote system 
could result in CBOE's inability to open for an entire group of listed 
option classes for a brief or sometimes lengthy time period. Thus, CBOE 
has strongly encouraged, and now seeks to require, that members have 
CBOE's AutoQuote system ready as a back-up should a proprietary system 
fail. CBOE believes failure to comply with the proposed requirement 
should be subject to sanction under the Exchange's Plan on a trading 
station by trading station basis.
    Determining a violation would be objective in nature and very 
suitable for inclusion in the Plan. Still, because a DPM could be in 
violation for one minute or four hours, violations can vary greatly in 
terms of the impact on CBOE's marketplace. Therefore, the Exchange 
believes it is appropriate to allow for summary fines under the plan 
that could range from $100 to $2500 for first time violations and from 
$100 to $5000 (the minimum and maximum allowable under the Plan) for a 
limited number of subsequent violations. For egregious violations, 
including those that severely impact the trading of option classes on 
CBOE for an extended period of time, the Modified Trading System 
Appointments Committee (the committee charged with DPM supervision) 
would have the discretion to refer the matter to the CBOE Business 
Conduct Committee instead of handling the violation under the Plan. 
Further, in no event would more than three violations by the same DPM 
in any twelve-month period be handled under the Plan. CBOE floor 
officials would be responsible for issuing summary fines under the 
proposed rule. Lastly, because different trading stations operated by 
the same DPM organization can operate and maintain autoquote systems 
differently, the Exchange believes it is appropriate for the summary 
fines to be handled on a trading station by trading station basis.
2. Statutory Basis
    Because the proposed rule change will refine and enhance the 
Exchange's Minor Rule Violation Plan to make it more efficient and 
effective, the proposed rule change is consistent with section 6(b) of 
the Act,\4\ in general, and furthers the objectives of Sections 6(b)(5) 
\5\ and 6(b)(7) \6\ in particular, in that it is designed to promote 
just and equitable principles of trade, to protect investors and the 
public interest, and enhances the effectiveness and fairness of the 
Exchange's disciplinary procedures.
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    \4\ 15 U.S.C. 78(f).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78(f)(b)(7).
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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 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

    The Exchange has neither solicited nor received written comments on 
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 the proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change and Amendment No. 1 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, as amended, 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 and 
Amendment No. 1 that are filed with the Commission, and all written 
communications relating to the proposed rule change and Amendment No. 1 
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 Exchange. All 
submissions should refer to File No. SR-CBOE-2002-30 and should be 
submitted by October 24, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-25163 Filed 10-2-02; 8:45 am]
BILLING CODE 8010-01-P