[Federal Register Volume 68, Number 57 (Tuesday, March 25, 2003)]
[Notices]
[Page 14444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6984]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47523; File No. SR-CBOE-2002-69]


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

March 18, 2003.
    On November 26, 2002, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Exchange Act'')\1\ and Rule 19b-
4 thereunder,\2\ a proposed rule change 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. The 
Exchange submitted Amendment No. 1 to the proposed rule change on 
January 21, 2003.\3\
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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'').
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    The proposed rule change, as amended, was published for comment in 
the Federal Register on February 14, 2003.\4\ The Commission received 
no comments on the proposed rule change.
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    \4\ See Securities Exchange Act Release No. 47332 (February 10, 
2003), 68 FR 7633.
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    The Commission has reviewed carefully the CBOE's proposed rule 
change and finds that the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange,\5\ and with the requirements of section 
6(b).\6\ In particular, the Commission finds that the proposal is 
consistent with section 6(b)(5) of the Act,\7\ which requires, among 
other things, that the Exchange's rules be designed to promote just and 
equitable principles of trade, 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.
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    \5\ In approving this rule proposal, the Commission notes that 
it has also considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that currently, the appropriate Floor 
Procedure Committee (``FPC'') may permit broker-dealer orders on RAES 
during the trading day for options by class and/or series. The CBOE is 
proposing to allow an FPC to determine, on a class and/or series basis, 
to prohibit access to RAES for broker-dealer orders after 3 p.m.
    In support of this proposal, the CBOE has represented that the 
options pricing models used by its members to generate the autoquote on 
CBOE use the price of underlying securities on the appropriate 
securities exchange,\8\ and explained that once the underlying stock 
stops trading, there is no price feed from the underlying securities to 
automatically update the options pricing models and the options series 
must be updated manually. The CBOE believes that adding broker-dealers 
orders to those eligible to be executed on RAES could potentially 
increase the number of automatically executed orders significantly. The 
CBOE is concerned that if broker-dealer orders are permitted on RAES 
during times when manual updating is required, this could create 
additional difficulties in updating the option pricing models in a 
timely manner.
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    \8\ For purposes of this discussion securities exchanges 
includes NASDAQ.
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    CBOE has represented that that it would like to permit RAES access 
in more classes and/or series for broker-dealer orders if the 
appropriate FPC were permitted 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 Commission believes that the proposed rule change will permit 
broker-dealers to have access to RAES for the vast majority of the 
trading day. At the same time, the proposed rule change should minimize 
stress to the options pricing models when they are manually updated. 
The Commission further believes that the proposed rule change should 
provide the CBOE with sufficient flexibility to operate RAES in an 
efficient manner, while at the same time permitting increased 
competition for electronic orders and increasing liquidity in affected 
series or classes.
    It is therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-CBOE-2002-69) is approved. 

    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-6984 Filed 3-24-03; 8:45 am]
BILLING CODE 8010-01-P