[Federal Register Volume 67, Number 223 (Tuesday, November 19, 2002)]
[Notices]
[Pages 69776-69777]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29315]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46808; File No. SR-CBOE-2002-30]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change 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

November 12, 2002.

I. Introduction

    On June 11, 2002, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') submitted to the Securities and Exchange 
Commission (``SEC'' or ``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 amending Rule 8.85(a)(xi) and 
Rule 17.50 to require Exchange members to use and maintain CBOE's 
AutoQuote System as a back-up quoting system. On September 3, 2002 the 
Exchange filed Amendment No. 1 to the proposed rule change.\3\ The 
proposed rule change was published for public comment in the Federal 
Register on October 3, 2002.\4\ The Commission received no comments on 
the proposal. This order approves the proposal, as amended.
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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.
    \4\ Securities Exchange Act Release No. 46539 (September 24, 
2002), 67 FR 62084.
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II. Description of the Proposed Rule Change

    The Exchange is adopting new Rule 8.85(a)(xi) which states 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 
autoquote system at all times during market hours. 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

[[Page 69777]]

option classes for a brief or sometimes lengthy time period. Thus, CBOE 
strongly encouraged, and now requires, that members have CBOE's 
AutoQuote system ready as a back-up should a proprietary system fail. 
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 violations of new Rule 8.85(a)(xi).

III. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with section 6 of the Act \5\ and the rules and regulations 
thereunder applicable to a national securities exchange. In particular, 
the Commission finds that the proposed rule change is consistent with 
section 6(b)(5) of the Act \6\ which requires, among other things, that 
the rules of the exchange be designed to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The proposed rule change is also consistent with section 6(b)(6) of the 
Act,\7\ which generally requires that the Exchange provide for the 
appropriate discipline of its members, and Rule 19d-1(c)(2) under the 
Act,\8\ which governs minor rule violation plans.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78f(b)(6).
    \8\ 17 CFR 240.19d-1(c)(2).
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    The proposed rule change removes impediments to and perfects the 
mechanism of a free and open market because by requiring members of the 
Exchange to maintain CBOE's AutoQuote system as a back-up, the Exchange 
provides a mechanism for ensuring the smooth and uninterrupted 
operation of the Exchange in the event of a failure by a member's 
proprietary autoquote system. Without CBOE's AutoQuote system in place 
as a back-up, the Exchange might be unable to open trading for an 
entire group of listed option classes if a proprietary autoquote system 
fails. Requiring members to maintain CBOE's AutoQuote system as a back-
up would avoid such disruptions, which in turn would benefit investors 
and the public interest.
    The Commission also finds that adding Rule 8.85(a)(xi) to the list 
of violations included in the Exchange's Minor Rule Violation Plan 
(``Plan'') is consistent with requirements of Section 6(b)(6) of the 
Act \9\ because it provides an additional option for the appropriate 
discipline of Exchange members. The Commission notes that while the 
Plan provides the Exchange with the option of proceeding under the Plan 
against a member found to be in violation of a rule included in the 
Plan, the Exchange must continue to conduct surveillance of its members 
and ensure their compliance with the Exchange's rules, and to proceed 
with formal disciplinary action if a particular case warrants such 
action. Finally, the Commission finds that the addition of Rule 
8.85(a)(xi) to the list of violations included in the Exchange's Plan 
is consistent with Rule 19d-1(c)(2) under the Act,\10\ which governs 
minor rule violation plans because the Plan provides an efficient means 
to punish violations of Exchange rules, consistent with the public 
interest and the protection of investors.
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    \9\ 15 U.S.C. 78f(b)(6).
    \10\ 17 CFR 240.19d-1(c)(2).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-CBOE-2002-30), as amended, 
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. 02-29315 Filed 11-18-02; 8:45 am]
BILLING CODE 8010-01-P