[Federal Register Volume 68, Number 160 (Tuesday, August 19, 2003)]
[Notices]
[Pages 49826-49827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-21133]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48324; File No. SR-CBOE-2003-27]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to the 
Representation of Orders by Floor Brokers

August 12, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 7, 2003, the Chicago Board Options Exchange, Inc. (``CBOE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the CBOE. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend CBOE Rule 6.45A to permit floor brokers 
to represent as agent orders from unaffiliated broker-dealers. The text 
of the proposed rule change is set forth below.

Rule 6.45A Priority and Allocation of Trades for CBOE Hybrid System

    (a)-(b) No change.
    (c) Interaction of Market Participant's Quotes and/or Orders with 
Orders in Electronic Book
    Market participants, as defined in Rule 6.45A(a)(i), may submit 
quotes or orders electronically to trade with orders in the electronic 
book. A floor broker market participant may only represent as agent 
customer orders or orders from unaffiliated broker-dealers. When a 
market participant's quote or order interacts with the order in the 
book, a trade occurs, CBOE will disseminate a last sale report, and the 
size of the book order will be decremented to reflect the execution. 
Allocation of the book order shall be as follows:
    (i)-(iv) No change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the 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 Rule 6.45A(c) governs the interaction of market participants' 
quotes/orders with orders in the electronic book.\3\ In short, under 
the rule, multiple market participants submitting orders to access the 
book within a period of time not to exceed N-seconds (the ``N-second 
group'') are entitled to receive an allocation of the book order 
pursuant to an allocation algorithm.\4\ CBOE Rule 6.45A(c) limits the 
orders that floor brokers may represent as agent to customer orders. In 
adopting this restriction, the Exchange recognized that allowing floor 
brokers to represent certain broker-dealer orders could raise issues 
under section 11(a) of the Act.\5\
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    \3\ The Commission recently approved CBOE Rule 6.45A as part of 
the Hybrid filing. See Securities Exchange Act Release No. 47959 
(May 30, 2003), 68 FR 34441 (June 9, 2003).
    \4\ See CBOE Rule 6.45A(c)(ii).
    \5\ 15 U.S.C. 78k(a).
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    The Exchange proposes to delete this restrictive language from the 
text of CBOE Rule 6.45A and instead allow floor brokers to represent as 
agent broker-dealer orders from unaffiliated parties (in addition to 
customer orders) as part of the N-second group. By limiting floor 
brokers' representation of broker-dealer orders to non-affiliated 
entities, the CBOE believes that the requirements of section 11(a) of 
the Act will be satisfied by reason of the exemption provided in Rule 
11a2-2(T) under the Act.\6\
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    \6\ 17 CFR 240.11a2-2(T).
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    The Exchange believes that the proposed rule change is consistent 
with the manner in which ``Electronic Book Executions'' occur in PCX 
Plus.\7\ Pursuant to PCX Rule 6.76(b)(4), when a market maker's quote 
interacts with a public customer order in the book, that market maker 
receives an allocation of the book order while the balance of that 
order is allocated on a size pro rata basis to all ``crowd 
participants'' who respond within a designated time. The term ``crowd 
participants'' includes floor brokers representing orders for both 
customers and broker-dealers.\8\ Accordingly, the PCX rule allows floor 
brokers to submit orders to buy (sell) the book on behalf of public 
customers and broker-dealers, as proposed by the CBOE.
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    \7\ See Securities Exchange Act Release 47838 (May 13, 2003), 68 
FR 27129 (May 19, 2003).
    \8\ PCX Rule 6.1(b)(38) defines ``crowd participants'' as 
``market makers appointed to an option issue under Rule 6.35, and 
any Floor Brokers actively representing orders at the best bid or 
offer on the Exchange for a particular option series.'' It is the 
CBOE's understanding that Floor Brokers on PCX acting under this 
Rule are limited by section 11(a) to representing broker-dealer 
orders from non-affiliated entities.
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    The CBOE believes that this proposal enhances the ability of floor 
brokers to represent unaffiliated broker-dealer orders, which will 
serve to increase depth and liquidity in those affected classes.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations under the Act applicable to a 
national securities exchange and, in particular, the requirements of 
section 6(b) of the Act.\9\ Specifically, the Exchange believes the 
proposed rule change is consistent with the section 6(b)(5)\10\ 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of

[[Page 49827]]

trade, to prevent fraudulent and manipulative acts and, in general, to 
protect investors and the public interest.
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    \9\ 15 U.S.C. 78(f)(b).
    \10\ 15 U.S.C. 78(f)(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change will impose 
any burden on competition 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 the 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 CBOE 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 person are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. Persons making written submissions should file 
six copies thereof with the Secretary, Securities and Exchange 
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 Room. Copies of such filing will also be available for 
inspection and copying at the principal office of CBOE. All submissions 
should refer to the File No. SR-CBOE-2003-27 and should be submitted by 
September 9, 2003. 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Margaret H. McFarland,
Deputy Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 03-21133 Filed 8-18-03; 8:45 am]
BILLING CODE 8010-01-P