[Federal Register Volume 68, Number 216 (Friday, November 7, 2003)]
[Notices]
[Pages 63158-63159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28078]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48721; File No. SR-CBOE-2003-42]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Chicago Board Options Exchange, Inc. To Amend Rule 6.8, 
Interpretation and Policy .01, Relating to the Retail Automatic 
Execution System

October 30, 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 October 1, 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 6.8, Interpretation and Policy 
.01 to allow broker-dealer orders that are eligible for execution on 
CBOE's Retail Automatic Execution System (``RAES'') to automatically 
execute against limit orders on the CBOE book in classes designated by 
the appropriate Floor Procedure Committee. The text of the proposed 
rule change is set forth below. Proposed new language is in italics.
* * * * *

Rule 6.8 RAES Operations

    (a)-(g) No change.
* * * Interpretations and Policies
    .01 (a) Notwithstanding Rule 6.8(c)(ii), the appropriate Floor 
Procedure Committee (``FPC'') may determine, by class and/or series to 
allow the following types of orders to be executed on RAES in 
accordance with the requirements of Rule 6.8, subject to the conditions 
set forth below in subparagraphs (b) and (c):
    1. Broker-dealer orders; or
    2. Broker-dealer orders that are not for the accounts of market-
makers or specialists on an exchange who are exempt from the provisions 
of Regulation T of the Federal Reserve Board pursuant to section 
7(c)(2) of the Securities Exchange Act of 1934.
    (b) The appropriate FPC may permit broker-dealer orders to be 
automatically executed pursuant to this Interpretation and Policy .01, 
subject to the following provisions:
    1. Broker-dealer orders entered through the Exchange's order 
routing system will not be automatically executed against orders in the 
limit order book unless permitted on a class-by-class basis by the 
appropriate Floor Procedure Committee. Broker-dealer orders may 
interact with orders in the limit order book only after being re-routed 
to a floor broker for representation in the trading crowd. Broker-
dealer orders are not eligible to be placed in the limit order book 
pursuant to Rule 7.4.
    2. The maximum order size eligibility for the broker-dealer orders 
may be less than the applicable order size eligibility for non-broker-
dealer orders.
    3. Non-broker-dealer orders may be eligible for automatic execution 
at the NBBO pursuant to Interpretations and Policies .02 of Rule 6.8, 
while broker-dealer orders may not be so eligible. In the event broker-
dealer orders are not so eligible, they shall instead route to either 
PAR or BART.
    4. The appropriate FPC may determine, by class and/or series, to 
prohibit access to RAES for broker-dealer orders after 3 pm.
    (c) CBOE market-makers must assure that orders for their own 
accounts are not entered on the Exchange and represented or executed in 
violation of the following provisions: Interpretations and Policies .02 
of Rule 6.55 and Interpretations and Policies .06 of Rule 8.9 
(concurrent representation of a joint account), Rule 6.55 (concurrent 
representation of a market-maker account), and section 9 of the 
Securities Exchange Act of 1934 (wash sales).
    .02-.09 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

[[Page 63159]]

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
    The Exchange's RAES system was created to allow for the automatic 
execution of retail customer options orders against CBOE market makers 
at their disseminated prices. In 1999, the Exchange expanded the RAES 
system to allow incoming RAES orders to execute against customer limit 
orders on the CBOE book when such booked orders constitute the CBOE's 
best bid/offer.\3\ Recently, the Exchange has allowed broker-dealer 
orders to be executed on RAES in classes/series designated by the 
appropriate Floor Procedure Committee.\4\
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    \3\ See Securities Exchange Act Release No. 41995 (October 8, 
1999), 64 FR 56547 (October 20, 1999) (SR-CBOE-99-29).
    \4\ See Securities Exchange Act Release Nos. 45967 (May 20, 
2002), 67 FR 37888 (May 30, 2002) (SR-CBOE-2002-22); 46113 (June 25, 
2002), 67 FR 44486 (July 2, 2002) (SR-CBOE-2002-35); and 46598 
(October 3, 2002), 67 FR 63478 (October 11, 2002) (SR-CBOE-2002-56).
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    The Exchange now proposes to allow broker-dealer orders that are 
eligible for execution on RAES pursuant to CBOE Rule 6.8, 
Interpretation and Policy .01 to automatically execute against customer 
limit orders on the CBOE's book in classes designated by the 
appropriate Floor Procedure Committee.
2. Statutory Basis
    Because the proposed rule change will expand the number of orders 
eligible to trade automatically with booked customer limit orders, the 
Exchange believes the proposed rule change is consistent with section 
6(b) \5\ of the Act in general, and furthers the objectives of section 
6(b)(5) \6\ of the Act in particular, because it is 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\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will 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 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 persons 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 File No. SR-CBOE-2003-42 and should be submitted by 
November 28, 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-28078 Filed 11-6-03; 8:45 am]
BILLING CODE 8010-01-P