[Federal Register Volume 69, Number 44 (Friday, March 5, 2004)]
[Notices]
[Page 10492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4904]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49334; File No. SR-CBOE-2004-01]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule by the Chicago Board Options Exchange, Incorporated 
Relating to the UMA Calculation for the CBOE Hybrid System

February 27, 2004.
    On January 8, 2004, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'' or ``SEC'') the proposed rule 
change, pursuant to section 19(b)(1) of the Securities Exchange Act of 
1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ to allow the 
appropriate Index Floor Procedure Committee (``IFPC'') to vary the 
component weightings of the Ultimate Matching Algorithm (``UMA'') 
formula by product. On January 20, 2004, the Exchange submitted 
amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change, as amended, was published for comment in the Federal Register 
on January 28, 2004.\4\ The Commission received no comments on the 
proposal. This order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Stephen Youhn, Counsel, CBOE, to Deborah 
Flynn, Assistant Director, Division of Market Regulation, 
Commission, dated January 20, 2004. In Amendment No. 1, CBOE 
replaced in its entirety the original proposed rule filing.
    \4\ See Securities Exchange Act Release No. 49108 (January 21, 
2004), 69 FR 4187.
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    The Exchange currently trades equity options on the CBOE Hybrid 
System (``Hybrid System'') \5\ and recently commenced trading of index 
options and ETF options on Hybrid.\6\ The Exchange trades on Hybrid 
index options and options on ETFs pursuant to the existing Hybrid rules 
applicable to equity options.
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    \5\ The Hybrid System merges the electronic and open outcry 
trading models, offering CBOE market makers the ability to stream 
electronically their own market quotes. See Securities Exchange Act 
Release No. 47959 (May 30, 2003), 68 FR 34441 (June 9, 2003) 
(``Hybrid Release'').
    \6\ See Securities Exchange Act Release No. 48953 (December 18, 
2003), 68 FR 75004 (December 29, 2003) (order approving SR-CBOE-
2003-57).
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    CBOE Rule 6.45A governs the priority and allocation of trades on 
the Hybrid System, and contains the UMA allocation model, which is a 
weighted formula that incorporates and blends the concepts of parity 
(Component A) and size prorata distribution (Component B). With respect 
to equity option trading, UMA currently assigns equal weighting 
percentages to Components A and B. Currently, all products under the 
jurisdiction of each floor procedure committee (``FPC'') must utilize 
the same UMA weighting percentages (i.e., Components A and B must be 
weighted the same in all products under that FPC's jurisdiction). The 
Exchange proposes to permit the appropriate index FPC (``IFPC'') to 
vary the weighting percentages of Components A and B by index or ETF 
option product.
    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of section 6 of the Act,\7\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\8\ In particular, the Commission finds that the proposed rule 
change is consistent with section 6(b)(5) of the Act,\9\ which 
requires, among other things, that the Exchange's rules 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. The Commission believes that the proposal may allow 
for more competitive quoting, by permitting the IFPC to take into 
account disparate sized trading crowds trading the various index option 
or ETF option products. Further, the Commission believes that the 
proposed rule change may enhance competition to improve liquidity for 
that subset of such products that are generally less liquid.
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    \7\ 15 U.S.C. 78f(b).
    \8\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2004-01), as amended, 
is approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4904 Filed 3-4-04; 8:45 am]
BILLING CODE 8010-01-P