[Federal Register Volume 68, Number 28 (Tuesday, February 11, 2003)]
[Notices]
[Pages 6975-6976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3380]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47318; File No. SR-CBOE-2002-49]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to RAES 
Access Rules for Broad-Based Index Options and Options on Exchange-
Traded Funds on Broad-Based Indexes

February 5, 2003.

I. Introduction

    On November 1, 2002, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or the ``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 relating to RAES eligibility 
requirements for market makers in broad-based index options and options 
on exchange traded funds on broad based indexes. The Federal Register 
published the proposed rule change for comment on December 27, 2002.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 47033 (December 19, 
2002), 67 FR 79198.
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II. Description of Proposal

    Currently, the eligibility of CBOE market-makers to participate in 
trades through the Retail Automatic Execution System (``RAES'') in 
option classes on broad-based indexes, including OEX and SPX, as well 
as option classes on exchange traded funds (``ETFs'') \4\ on broad-
based indexes (collectively, ``index-related options'') is governed 
under three different Exchange rules. CBOE Rule 8.16 governs RAES 
eligibility for all options classes other than DJX, OEX, and SPX. CBOE 
Rule 24.17 addresses RAES eligibility for market-makers in OEX and DJX. 
Finally, CBOE Rule 24.16, which is separate yet functionally identical 
to CBOE Rule 24.17,\5\ governs RAES eligibility for market makers in 
the SPX.
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    \4\ For purposes of this rule, trust issued receipts or holding 
company depositary receipts (as defined in Interpretation .04 to 
CBOE Rule 1.1), as well as index portfolio receipts (as defined in 
Interpretation .02 to CBOE Rule 1.1) and index portfolio shares (as 
defined in Interpretation .03 to CBOE Rule 1.1), are all included 
within the meaning of the term ``exchange-traded fund.''
    \5\ While a few subsections of CBOE Rule 24.16 are phrased 
somewhat differently than their counterparts in CBOE Rule 24.17, 
they are interpreted and applied by the CBOE as being equivalent. 
Compare CBOE Rules 24.16(a)(ii), (c)(i), and (d)(i) with CBOE Rules 
24.17(b)(ii), (c)(i), and (d)(i) (enabling market-makers to 
``designate'' that their RAES trades be placed into an individual, 
joint, or nominee account in which the market-maker participates); 
also compare CBOE Rule 24.16(a)(iii) with CBOE Rule 24.17(b)(ii)-
(iv) (establishing requirements for personally logging onto RAES and 
remaining in the trading crowd while logged in.)
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    The proposed rule change would broaden CBOE Rule 24.17 to apply to 
market-makers in all index-related options, and delete the current text 
of CBOE Rule 24.16, while reserving the rule number for possible future 
use. The proposal also would amend CBOE Rule 8.16 and clarify that RAES 
eligibility under CBOE Rule 8.16 would apply only to option classes 
other than broad-based indexes and options on ETFs on broad-based 
indexes.
    In addition, CBOE proposes to add to CBOE Rule 24.17 one set of 
provisions already present in the current CBOE Rule 8.16 in order to 
increase and make more consistent the enforcement of market-maker 
obligations in index-related options. These provisions currently exist 
as CBOE Rule 8.16(a)(iii) and the related Interpretations and Policies 
.01-.02. CBOE proposes to add the provisions to CBOE Rule 24.17(b)(vii) 
and Interpretations and Policies .03-.04. These provisions would 
authorize the appropriate Market Performance Committee to establish and 
enforce maximum percentages of transaction and contract volume that 
market-makers can execute through RAES transactions.

III. Discussion

    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.\6\ 
Specifically, the Commission believes that the proposed rule change is 
consistent with the Section 6(b)(5) \7\ requirements that the rules of 
an exchange be designed to promote just and equitable principles of 
trade, to remove impediments to and perfect the mechanisms of a free 
and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \6\ In approving the proposal, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that consolidation of CBOE's RAES 
eligibility rules for index-related options under one rule should 
clarify and simplify the treatment of index-related options under CBOE 
rules and help to

[[Page 6976]]

provide consistent RAES eligibility treatment for market-makers in the 
various index-related options. In addition, the proposal would 
authorize the appropriate Market Performance Committee to establish and 
enforce maximum percentages of transaction and contract volume that 
market-makers can execute through RAES transactions. The Commission 
believes that this should help to ensure that market-makers standing in 
an index-related option crowd live up to their obligations to improve, 
update, and honor competitive markets in their appointed option classes 
in person, and do not simply stand there for the purpose of accepting 
RAES trades.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-CBOE-2002-49), 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. 03-3380 Filed 2-10-03; 8:45 am]
BILLING CODE 8010-01-P