[Federal Register Volume 68, Number 136 (Wednesday, July 16, 2003)]
[Notices]
[Page 42150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17923]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48142; File No. SR-CBOE-2002-36]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Order Approving Proposed Rule Change Relating to Closing-Only 
Transactions

July 9, 2003.
    On June 27, 2002, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``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. On April 2, 2003, the CBOE filed 
Amendment No. 1 that entirely replaced the original rule filing.\3\ On 
April 21, 2003, the Exchange's rule proposal was published for comment 
in the Federal Register, as amended.\4\ No comments letters were 
received 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\ See Letter from Andrew Spiwak, Director Legal Division and 
Chief Enforcement Attorney, CBOE, to John Roeser, Special Counsel, 
Division of Market Regulation, Commission, dated April 1, 2003.
    \4\ See Securities Exchange Act Release No. 47659 (April 10, 
2003), 68 FR 19588.
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    CBOE proposes to amend Exchange Rule 5.4 regarding its procedures 
for limiting transactions in options that have closing-only 
restrictions. Currently, the Exchange has the authority to prohibit an 
opening purchase transaction in an option, but must seek approval 
through the Office of the Chairman. The proposal would change this 
procedure by granting two floor officials, in consultation with a 
designated senior executive officer of the Exchange, the authority to 
prohibit opening purchase transactions for equity options whenever the 
Exchange has determined that an underlying security previously approved 
for Exchange option transactions does not meet the current requirements 
for continuance of such approval. In addition, the proposal would 
permit certain specific types of opening transactions by members to 
accommodate the closing transactions of other market participants. In 
particular, the Exchange proposes to permit: (i) Opening transactions 
by market-makers executed to accommodate closing transactions of other 
market participants and (ii) opening transactions by CBOE member 
organizations to facilitate the closing transactions of public 
customers executed as crosses pursuant to and in accordance with CBOE 
Rule 6.74(b) or (d) (Crossing Orders).
    The Exchange also proposes similar procedural changes to 
Interpretations and Policies .05 (to lift restrictions on opening 
transactions if the underlying security, which previously did not meet 
the Exchange's listing standards, again meets the Exchange's listing 
standards), .08 (for securities consisting of shares or other 
securities that represent interests in registered investment companies 
organized as open-end management investment companies, unit investment 
trusts or similar entities) and .09 (for Trust Issued Receipts).
    Finally, the CBOE proposes to add Interpretation and Policy .11 
under CBOE Rule 8.51 regarding the implementation of non-firm mode for 
options that are restricted to closing-only transactions. When a series 
or class of option is in non-firm mode, CBOE Rule 8.51(e)(4) requires 
the DPM and floor officials to review and reaffirm the condition of the 
market every 30 minutes. The proposal would provide an exception to 
this requirement in situations when opening transactions have been 
prohibited in an option and the underlying security has been delisted, 
and is subsequently traded on the OTC Bulletin Board, Pink Sheets or a 
similar trading system. Under these circumstances, the Exchange would 
monitor the activity or condition of the market and the DPM and floor 
officials would not be required to review and reaffirm the market 
conditions causing the non-firm mode designation every 30 minutes.
    After careful review, 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 \5\ 
and, in particular, the requirements of section 6 and the rules and 
regulations thereunder.\6\ Specifically, the Commission believes the 
proposal is consistent with the section 6(b)(5) requirements that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, and, 
in general, to protect investors and the public interest. In 
particular, the Commission believes that these procedural changes 
should promote efficiency regarding transactions in options that have 
closing-only restrictions. Further, the Commission believes that the 
proposal should provide a more efficient process for monitoring market 
conditions in options classes for which opening transactions have been 
restricted when the underlying security is delisted.
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    \5\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\7\ that the proposed rule change (File No. SR-CBOE-2002-36) is 
hereby approved, as amended.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17923 Filed 7-15-03; 8:45 am]
BILLING CODE 8010-01-P