[Federal Register Volume 68, Number 31 (Friday, February 14, 2003)]
[Notices]
[Pages 7633-7634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3715]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47332; File No. SR-CBOE-2002-69]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Chicago Board Options Exchange, Incorporated Relating to 
Broker-Dealer Orders on RAES

February 10, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'')\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on November 26, 2002, the Chicago Board Options 
Exchange, Incorporated (``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 Exchange submitted Amendment 
No. 1 to the proposed rule change on January 21, 2003.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change 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 Jaime Galvan, Attorney, CBOE, to Jennifer 
Colihan, Special Counsel, Division of Market Regulation, Commission, 
dated January 17, 2003 (``Amendment No. 1''). In Amendment No. 1, 
the Exchange changed the Statement of the Terms of Substance of the 
Proposed Rule Change and the Purpose section of the filing to 
correctly describe the proposal, and made non-substantive, 
clarifying changes to the rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules regarding broker-dealer 
access to RAES. The text of the proposed rule change is available at 
the Office of the Secretary, CBOE 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, 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
    CBOE proposes to amend Interpretation and Policy .01 of CBOE Rule 
6.8 to allow the appropriate Floor Procedure Committee to determine, on 
a class and/or series basis, to prohibit access to RAES for broker-
dealer orders after 3 p.m. Currently, the appropriate Floor Procedure 
Committee may permit broker-dealer orders on RAES during the trading 
day for options by class and/or series. CBOE proposes to expand access 
to RAES for broker-dealer orders, but some issues arise from 3 p.m. 
until the close especially for American style options, which permit 
early exercise.
    Options pricing models used by CBOE members to generate the 
autoquote on CBOE utilize the price of underlying securities on the 
appropriate securities exchange.\4\ Once the underlying stock stops 
trading, there is no price feed from the underlying securities to 
automatically update the options pricing models. Therefore, the 
hundreds of options series must be updated manually. If broker-dealer 
orders are permitted on RAES this could potentially increase the number 
of automatically executed orders significantly, (especially when a news 
release occurs after the close of the securities exchanges but before 
the close of CBOE), which if the increase in orders is significantly 
large, could create even more difficulties in updating the option 
pricing models in a timely manner.
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    \4\ For purposes of this discussion securities exchanges 
includes NASDAQ.
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    Due to the increase in potential orders occurring electronically at 
a greater speed, CBOE would like to permit RAES access in more classes 
and/or series for broker-dealer orders, but permit the appropriate 
floor procedure committee to limit the access in classes or series, 
where appropriate, to the time period when the exchanges for the 
underlying securities are open for their regular trading session, i.e., 
until 3 p.m. The proposed rule change would provide a solution that 
would permit broker-dealers to have access for the vast majority of the 
trading, while at the same time minimizing stress to the options 
pricing models when they are manually updated. CBOE believes that this 
proposed rule change would provide flexibility, while at the same time 
permitting increased competition for electronic orders.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Exchange Act \5\ in general and furthers the 
objectives of section 6(b)(5) \6\ in particular in that it should 
promote just and equitable principles of trade, serve to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and protect investors and the public 
interest. The proposed rule change would promote competition, remove 
impediments to and perfect the mechanism to a free and open market by 
permitting greater competition for electronic order. The proposed rule 
change would permit broker-dealer orders to have RAES access in more 
option classes and/or series, and thus promote competition for these 
orders.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not 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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of 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 proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange

[[Page 7634]]

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 Section. Copies of such filing will also be available 
for inspection and copying at the principal office of the CBOE. All 
submissions should refer to SR-CBOE-2002-69 and should be submitted by 
March 7, 2003.

    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. 03-3715 Filed 2-13-03; 8:45 am]
BILLING CODE 8010-01-P