[Federal Register Volume 68, Number 208 (Tuesday, October 28, 2003)]
[Notices]
[Pages 61499-61500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27092]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48672; File No. SR-CBOE-2003-07]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Chicago Board Options Exchange, Inc., 
Relating to the Trading of Ratio Orders

October 21, 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 February 24, 2003, the Chicago Board Options Exchange, Inc. 
(``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 CBOE filed Amendment No. 1 to the proposal on October 
8, 2003.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, 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 James M. Flynn, Attorney II, Legal Division, 
CBOE, to Yvonne Fraticelli, Division of Market Regulation, 
Commission, dated October 6, 2003 (``Amendment No. 1''). Amendment 
No. 1 revises the proposal to provide that the permissible ratio for 
a ratio order is any ratio that is equal to or greater than one to 
three (.333) and less than or equal to three to one (3.0).
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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 Rules 6.45, ``Priority of Bids and 
Offers,'' and 6.53, ``Certain Types of Orders Defined,'' to allow ratio 
orders to be executed through the CBOE. The text of the proposed rule 
change appears below. Additions are italicized; deletions are 
bracketed.
Priority of Bids and Offers
    Rule 6.45 Except as provided by Rules, including but not limited to 
Rule 6.2A, 6.8, 6.9, Rule 6.47, Rule 8.87, and CBOE Regulatory 
Circulars approved by the SEC concerning Participation Rights, the 
following rules of priority shall be observed with respect to bids and 
offers:
    (a)-(d) No Change.
    (e) Complex Order Priority Exception: A member holding a spread, 
straddle, [or ] combination, or ratio order (or a stock option order as 
defined in Rule 1.1(ii)(b)) and bidding (offering) on a net debit or 
credit basis (in a multiple of the minimum increment) may execute the 
order with another member without giving priority to equivalent bids 
(offers) in the trading crowd or in the book provided at least one leg 
of the order betters the corresponding bid (offer) in the book. Stock-
option orders, as defined in Rule 1.1(ii)(a), have priority over bids 
(offers) of the trading crowd but not over bids (offers) of public 
customers in the limit order book.
    * * * Interpretation and Policies:
    .01-.02 No change.
* * * * *
Certain Types of Orders Defined
* * * * *
    Rule 6.53(a)-(m) No change.
    (n) Ratio Order. A Ratio Order is a spread, straddle, or 
combination order in which the stated number of option contracts to buy 
(sell) is not equal to the stated number of option contracts to sell 
(buy), provided that the number of contracts differ by a permissible 
ratio. For purposes of this section, a permissible ratio is any ratio 
that is equal to or greater than one-to-three (.333) and less than or 
equal to three-to-one (3.0). For example, a one-to-two (.5) ratio, a 
two-to-three (.667) ratio, or a two-to-one (2.0) ratio is permissible, 
whereas a one-to-four (.25) ratio or a four-to-one (4.0) ratio is not.
* * * * *

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

    CBOE Rule 6.53 lists and defines the several types of orders that 
are executed through the CBOE.\4\ Of the several types of orders 
defined in CBOE Rule 6.53, three are complex orders: spread orders, 
combination orders, and straddle orders.\5\ The CBOE proposes to add 
another type of complex order, ratio orders, to the list of orders 
included in CBOE Rule 6.53. A ratio order is either a spread, straddle, 
or combination order in which the stated number of option contracts to 
buy (sell) is not equal to the stated number of option contracts to 
sell (buy), provided that the number of contracts differs by a 
permissible ratio. Under the CBOE's proposal, a permissible ratio is 
any ratio that is equal to or greater than one to three (.333) or less 
than or equal to three to one (3.0). For example, a one to two (.5) 
ratio, a two to three (.667) ratio, or a two to one (2.0) ratio is 
permissible, whereas a one to four (.25) ratio or a four to one (4.0) 
ratio is not.
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    \4\ These orders include, for example, market orders, 
contingency orders, and straddle orders.
    \5\ These types of orders are defined in paragraphs (d), (e), 
and (f), respectively, of CBOE Rule 6.53.
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    The CBOE believes that ratio orders are merely slight variations on 
the types of complex orders currently permitted on the CBOE. For this 
reason, the CBOE believes that it is appropriate to treat ratio orders 
in a manner similar to the existing complex orders that currently trade 
on the CBOE. Accordingly, the CBOE proposes to afford ratio orders 
within the permissible ratio the exception to the priority rules under 
CBOE Rule 6.45(e).
    Specifically, CBOE Rule 6.45(e) provides for exceptions to the 
Exchange's priority rules when a member is holding a spread order, 
straddle order, or a combination order. Under CBOE Rule 6.45(e), a 
member holding a spread, straddle, or combination order and bidding 
(offering) on a net debit or credit basis (in a multiple of the minimum 
increment) may execute the order with another member without giving 
priority to equivalent bids (offers) in the trading crowd or in the 
book, provided that at least one leg of the order betters the 
corresponding bid (offer) in the book. Under the CBOE's proposal, ratio 
orders that are equal to or greater than one to three (.333) or less 
than or equal to three to one (3.0) will be given the same exception 
under CBOE Rule 6.45(e) as spread, straddle, and combination orders.
    Because the proposal seeks consistent priority treatment for 
similar types of orders traded on the CBOE, the CBOE believes that the 
proposal furthers the objectives of section 6(b)(5) of the Act \6\

[[Page 61500]]

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 to protect investors and the public 
interest.
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    \6\ 15 U.S.C. 78f(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.

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 Exchange 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, as amended, 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 the 
CBOE. All submissions should refer to file number SR-CBOE-2003-07 and 
should be submitted by November 18, 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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27092 Filed 10-27-03; 8:45 am]
BILLING CODE 8010-01-P