[Federal Register Volume 69, Number 62 (Wednesday, March 31, 2004)]
[Notices]
[Pages 17000-17004]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7147]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49468; File No. SR-CBOE-2004-11]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendments 
Nos. 1 and 2 Thereto by the Chicago Board Options Exchange, Inc. 
Relating to a Pilot Program for Modification of ROS on the Settlement 
Date of Futures and Options on Volatility Indexes

March 24, 2004.
    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 20, 2004, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities Exchange 
Commission (``Commission'' or ``SEC'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
CBOE. On March 15, 2004, CBOE filed Amendment No. 1 to the proposed 
rule change.\3\ On March 18, 2004, CBOE filed Amendment No. 2 to the 
proposed rule change.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons and to grant accelerated approval to the proposed 
rule change, as amended, on a pilot basis through November 17, 2004.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from David Doherty, Attorney, Legal Division, 
CBOE, to Terri Evans, Assistant Director, Division of Market 
Regulation (``Division''), Commission, dated March 12, 2004 
(``Amendment No. 1'') (replacing the original Form 19b-4 filing in 
its entirety).
    \4\ See letter from David Doherty, Attorney, Legal Division, 
CBOE, to Terri Evans, Assistant Director, Division, Commission, 
dated March 17, 2004 (``Amendment No. 2''). In Amendment No. 2, CBOE 
amended its initial filing to request approval of the proposed rule 
change on a pilot basis until November 17, 2004. CBOE also proposed 
to amend CBOE Rule 6.2A.03(vii) to make the description of those 
eligible to place orders on the electronic book for the proposed 
modified ROS opening procedure consistent with the description set 
forth in proposed CBOE Rule 6.2A.03(i). CBOE also represented that 
prior to implementing a systems change to prevent market makers 
logged onto ROS from trading with themselves, it will file a 
proposed rule change with the Commission pursuant to Section 
19(b)(3)(A) of the Act and further clarified that Lead Market-Makers 
(``LLMs'') are treated the same under the modified ROS opening, 
except for the ability of LLMs to collectively set the AutoQuote 
values used by ROS.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to modify the method by which CBOE's Rapid Opening 
System (``ROS'') determines the opening price of certain broad-based 
index options in limited circumstances on a pilot basis through 
November 17, 2004. The purpose of the proposed rule change is to 
facilitate the calculation of a final settlement price for futures and 
options contracts on volatility indexes. The text of the proposed rule 
change is set forth below. Proposed new language is in italics.
* * * * *
Rule 6.2A. Rapid Opening System
    This rule has no applicability to series trading on the CBOE Hybrid 
Opening System. Such series will be governed by Rule 6.2B.
    (a)-(d) No change.
* * * Interpretation and Policies
    .01-.02 No change.
    .03 Modified ROS Opening Procedure for Calculation of Settlement 
Prices of Volatility Indexes.
    All provisions set forth in Rule 6.2A and the accompanying 
interpretations and policies shall remain in effect unless superseded 
or modified by this Rule 6.2A.03. To facilitate the calculation of a 
settlement price for futures and options contracts on volatility 
indexes, the Exchange shall utilize a modified ROS opening procedure 
for any index option series with respect to which a volatility index is 
calculated (including any index option series opened under Rule 
6.2A.01). This modified ROS opening procedure will be utilized only on 
the final settlement date of the options and futures contracts on the 
applicable volatility index in each expiration month.
    The following provisions shall be applicable when the modified ROS 
opening procedure set forth in this Rule 6.2A.03 is in effect for an 
index option with respect to which a volatility index is calculated: 
(i) all orders (including public customer, broker-dealer, Exchange 
market-maker and away market-maker and specialist orders), other than 
contingency orders, will be eligible to be placed on the Electronic 
Book for those option contract months whose prices are used to derive 
the volatility indexes on which options and futures are traded, for the 
purpose of permitting those orders to participate in the ROS opening 
price calculation for the applicable index option series; (ii) all 
market-makers, including any LMMs and SMMs, if applicable, who are 
required to log on to ROS or RAES for the current expiration cycle 
shall be required to log on to ROS during the modified ROS opening 
procedure if the market-maker is physically present in

[[Page 17001]]

the trading crowd for that index option class; (iii) if the ROS system 
is implemented in an option contract for which LMMs have been 
appointed, the LMMs will collectively set the Autoquote values that 
will be used by ROS; (iv) ROS contracts to trade for that index option 
series will be assigned equally, to the greatest extent possible, to 
all logged-on market-makers, including any LMMs and SMMs if applicable; 
(v) all orders for participation in the modified ROS opening procedure, 
and any change to or cancellation of any such order, must be received 
prior to 8:25 a.m. (CST) in order to participate at the ROS opening 
price for that index option series; (vi) all orders for participation 
in the modified ROS opening procedure must be submitted electronically, 
except that market-makers on the Exchange's trading floor may submit 
paper tickets for market orders only; and (vii) until the Exchange 
implements a ROS system change that automatically generates 
cancellation orders for Exchange market-maker, away market-maker, 
specialist, and broker dealer orders which remain on the Electronic 
Book following the modified ROS opening procedure, any such orders that 
were entered in the Electronic Book but were not executed in the 
modified ROS opening procedure must be cancelled immediately following 
the opening of the applicable option series.
* * * * *

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

    In its filing with the Commission, CBOE included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. 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 purpose of the proposed rule change is to facilitate the 
trading of options and futures on volatility indexes intended to be 
traded on CBOE or on the CBOE Futures Exchange LLC (``CFE'') by 
modifying certain of the rules that govern the ROS procedures for index 
option series whose prices are used to derive the volatility indexes on 
which options and futures will be traded. These modifications will 
expand the types of orders for these index options that may be included 
in ROS at the time when settlement values for volatility index options 
and futures are being determined. CBOE believes this will permit a more 
accurate determination of these settlement values, and will assure that 
these values more closely converge with the prices of the index options 
from which they are derived.
    This proposed rule change follows CBOE's recently filed proposal to 
provide for the listing and trading of options on several volatility 
indexes on CBOE; specifically, the CBOE Volatility Index (``VIX''); the 
CBOE Nasdaq 100 Volatility Index (``VXN''); and the CBOE Dow Jones 
Industrial Average Volatility Index (``VXD'').\5\ CBOE may file 
additional rule changes to provide for the listing of options on other 
volatility indexes in the future. The CFE, which is a designated 
contract market approved by the Commodity Futures Trading Commission 
(``CFTC'') intends to file a rule change with the CFTC to provide for 
the listing and trading of futures on the VIX on CFE, and may list 
additional futures products on other volatility indexes in the future. 
The proposed rule change that is the subject of this filing is in 
anticipation of the commencement of trading in these new options and 
futures on volatility indexes on CBOE and on CFE.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 48807 (November 19, 
2003), 68 FR 66516 (November 26, 2003) (Notice of Filing of File No. 
SR-CBOE-2003-40).
---------------------------------------------------------------------------

a. Volatility Index Description
    In general, CBOE states volatility indexes (including, without 
limitation, the VIX, VXN and VXD (each, a ``Volatility Index'')) 
provide investors with up-to-the-minute market estimates of expected 
near-term volatility of the prices of a broad-based group of stocks by 
extracting volatilities from real-time index option bid/ask quotes. 
Volatility Indexes are calculated using real-time quotes of the nearby 
and second nearby index puts and calls on established broad-based 
market indexes, referred to herein as a ``Market Index.'' For example, 
the VIX measures the near-term volatility of the S&P 500 Index 
(``SPX''), the VXN measures the near-term volatility of the Nasdaq 100 
Index (``NDX'') and the VXD measures the near-term volatility of the 
Dow Jones Industrial Average (``DJX''). The futures and options on a 
Volatility Index expire on the Wednesday immediately prior to the third 
Friday of the month that immediately precedes the month in which the 
options used in the calculation of that index expire (the ``Settlement 
Date''). For example, April 2004 VIX futures and options would expire 
on Wednesday, April 14, 2004, which is the Wednesday immediately prior 
to the third Friday of April, which is the month preceding the 
expiration of the May 2004 SPX options. Since Volatility Indexes will 
be A.M.-settled, CBOE will utilize the ROS functionality to facilitate 
the calculation of a settlement price for futures and options contracts 
on Volatility Indexes.
b. Current Market Index Opening Procedures
    ROS is CBOE's automated system for opening classes of options at 
the beginning of the trading day or for re-opening classes of options 
during the trading day. In brief, the current ROS opening procedure 
involves market-makers participating on ROS by logging on each morning 
and identifying the classes of options in which they will participate 
for the opening. If ROS is being employed in a Designated Primary 
Market-Maker (``DPM'') or LMM trading crowd, the DPM and LMM are 
required to participate on ROS. A single opening price for each option 
series is calculated based on the orders contained in the electronic 
book and on the AutoQuote values set by the DPM, LMM, or other market-
maker, as applicable, which AutoQuote values may be adjusted based on 
input from other LMMs and market-makers present at the opening. ROS 
then determines an opening price based on an algorithm that maximizes 
the number of public customer orders able to be executed at the 
opening. Currently, public customer orders, other than public customer 
contingency orders, are the only orders that can be placed in the 
electronic book for ROS. To ensure the participation of broker-dealer 
orders in the opening price calculation, CBOE Rule 6.2A(ii) requires 
the member representing a broker-dealer order to inform the DPM or 
Order Book Official (``OBO''), as applicable, and the logged-in ROS 
market-makers of the terms of such orders prior to the time the class 
is locked. However, under current ROS opening procedures these broker-
dealer orders are not eligible to be entered in the electronic book 
that is used by ROS to calculate opening prices.
c. Proposed Modified ROS Opening Procedure
    Since ROS partially calculates the opening prices of Market Index 
option series based upon orders contained in the electronic book, and 
since these opening prices will be used to derive

[[Page 17002]]

the settlement values of corresponding Volatility Indexes for purposes 
of Volatility Index options and futures, CBOE believes it is necessary 
to modify the ROS opening procedures to permit all orders (including 
public customer, broker-dealer, CBOE market-maker, away market-maker, 
and specialist orders), other than contingency orders, to be eligible 
to be placed on the electronic book solely for the purpose of the ROS 
opening. These orders may be placed on the book in those Market Index 
option contract months the prices of which are used to derive the 
Volatility Indexes on which options and futures will be traded. CBOE 
believes that expanding the scope of orders eligible for entry into the 
electronic book for purposes of the ROS opening will make it easier for 
all market participants to participate fully in the establishment of 
the settlement values of Volatility Indexes in an efficient and 
automated manner. This modified ROS opening procedure will be used only 
on the final Settlement Date of the options and futures contracts on 
the applicable Volatility Index in each expiration month, which is when 
Volatility Index settlement values are determined. The ROS opening 
procedures currently set forth in CBOE rules will continue to govern 
ROS openings of Market Index option classes on all other days.
    To ensure market-maker participation in the modified ROS opening 
procedure, the proposed rule change would provide that all market-
makers, including LMMs and Supplemental Market-Makers (``SMMs''),\6\ if 
applicable, who are required to log on to ROS or Retail Automatic 
Execution System (``RAES'') for the current expiration cycle are 
required to log on to ROS during the modified ROS opening procedure if 
the market-maker is physically present in the trading crowd for that 
Market Index option class. Although it has previously been CBOE's 
observation \7\ that few, if any, non-bookable orders (including 
broker-dealer orders) are represented by firms for participation in the 
ROS opening, CBOE believes that CBOE market-makers and other broker-
dealers that trade Volatility Index futures and options and that use 
Market Index options for hedging purposes will want their Market Index 
option orders to be included in ROS to ensure the convergence of the 
values of their settled Volatility Index positions with the values of 
their positions in related Market Index options.
---------------------------------------------------------------------------

    \6\ CBOE Rule 8.15 and Interpretation .02 to CBOE Rule 24.13 
permit the appropriate Market Performance Committee to appoint one 
or more market-makers in good standing with an appointment in an 
option class for which a DPM has not been appointed as LMMs and 
SMMs.
    \7\ See Securities Exchange Act Release No. 48529 (September 24, 
2003), 68 FR 56658 (October 1, 2003) (SR-CBOE-2002-55) (``ROS 
Permanent Approval Order'').
---------------------------------------------------------------------------

    To participate in the modified ROS opening procedure on Settlement 
Date, all orders for placement on the electronic book would generally 
be required to be submitted electronically. For market-makers on CBOE's 
trading floor, compliance with this requirement may be fulfilled 
through the submission of the order to a floor broker that has access 
to the CBOE's Order Routing System or through the submission of the 
order through a hand-held terminal that has futures and options routing 
functionality. CBOE will also permit market-makers on the trading floor 
to submit paper ticket market orders to the OBO for placement in the 
electronic book. In all circumstances, orders for placement on the 
electronic book must be received by 8:25 a.m. Paper ticket limit orders 
may not be submitted because CBOE believes these orders, which would 
rest on the electronic book if not executed at the opening, may not be 
able to be cancelled within the time period set forth in the proposed 
rule, as further explained below.
    The current ROS procedures pursuant to CBOE Rule 6.2A(i) would then 
take effect and calculate the opening price, at which point the maximum 
number of orders (including broker-dealer or market-maker orders) would 
be crossed and the balance of orders, if any, to be traded at the 
opening price will be assigned to participating market-makers. If the 
ROS system is implemented in an option contract for which LMMs have 
been appointed, the LMMs will review the order imbalances and 
collectively set the AutoQuote values that will be used by ROS in 
calculating the opening prices for the Market Index option series. CBOE 
believes that having all of the LMMs participate in this process will 
contribute toward the establishment of a fair and accurate final 
settlement price for the Volatility Index futures and options since it 
will allow for the primary market-makers in the applicable Market Index 
option contract, as reflected by their designation as LMMs, to all have 
input in the ROS calculation that will ultimately derive that price. 
Other than the role of collectively setting the AutoQuote values that 
will be used by ROS, LMMs would be treated the same as market-makers in 
all respects under the modified ROS opening procedure provided for in 
proposed CBOE Rule 6.2A.03.\8\
---------------------------------------------------------------------------

    \8\ See Amendment No. 2, supra note 4.
---------------------------------------------------------------------------

    Pursuant to proposed CBOE Rule 6.2A.03(iv), contracts traded in ROS 
for a Market Index option series will be assigned equally, to the 
greatest extent possible, to all logged-on market-makers, including any 
LMMs and SMMs if applicable.\9\ Any customer orders not executed at the 
ROS opening will remain in the electronic book.
---------------------------------------------------------------------------

    \9\ For example, if the opening imbalance is twenty contracts 
and ten market-makers are logged on to ROS, each market-maker will 
be assigned two contracts. If the opening imbalance is twenty-one 
contracts and ten market-makers are logged on to ROS, the algorithm 
will assign the greatest amount to the first market-maker chosen in 
the rotation (three contracts) with each remaining nine market-
makers receiving two contracts.
---------------------------------------------------------------------------

    CBOE states that it is in the process of modifying the ROS system 
software to prevent a market-maker who is logged on to ROS from trading 
against an order on behalf of the market-maker or the market-maker firm 
that may be resting in the electronic book.\10\ CBOE states that it 
will also implement a ROS system change to automatically generate 
cancellation orders for those broker-dealer and market-maker orders 
that are not executed during the ROS opening. CBOE expects this work to 
be completed in approximately six months. Meanwhile, CBOE will use an 
interim process whereby market-maker and broker-dealer orders remaining 
on the electronic book because they were not executed in ROS (e.g., 
limit orders) would be required to be cancelled immediately following 
the opening of those option contracts to prevent market-maker and 
broker-dealer orders from remaining in the electronic book. In 
interpreting the requirement of immediate cancellation in this context, 
CBOE expects market-makers and broker-dealers to make a good faith 
effort to cancel these orders as soon as possible, taking into 
consideration the applicable circumstances. For example, it may take a 
member slightly longer to cancel an order submitted through a floor 
broker than if the member has a hand-held terminal with futures and 
options routing functionality.
---------------------------------------------------------------------------

    \10\ CBOE has represented that prior to implementation of the 
system change, it will file a rule change with the Commission 
pursuant to section 19(b)(3)(A) of the Act to amend proposed 
Exchange Rule 6.2A.03 to reflect this system change. See Amendment 
No. 2, supra note 4.
---------------------------------------------------------------------------

d. Surveillance
    As described in the Commission's order granting permanent approval 
to the ROS system,\11\ CBOE currently has in place surveillance 
procedures that are designed to ensure, among other things, that 
market-makers exercise their discretion to set certain AutoQuote

[[Page 17003]]

values consistent with their obligation to price options fairly. CBOE 
has also established supplemental ROS surveillance procedures for the 
modified ROS opening.\12\ In addition to these procedures, CBOE's 
Department of Market Regulation will conduct surveillance to identify 
any broker-dealer or market-maker orders that may have been improperly 
executed on the electronic book which should have been cancelled 
following the modified ROS opening procedure.
---------------------------------------------------------------------------

    \11\ See ROS Permanent Approval Order, supra note 7.
    \12\ See letter from David Doherty, Attorney, Legal Division, 
CBOE, to Terri Evans, Assistant Director, Division, dated March 24, 
2004 (``Supplemental ROS Surveillance Procedures''). CBOE requested 
confidential treatment for these surveillance procedures pursuant to 
17 CFR 200.83.
---------------------------------------------------------------------------

2. Statutory Basis
    CBOE states that the proposed rule change is designed to facilitate 
the calculation of the final settlement values of Volatility Indexes in 
an efficient and automated fashion that reflects all buying and selling 
interest in the associated Market Index. Accordingly, CBOE believes 
that the proposed rule change is consistent with section 6(b) of the 
Act,\13\ in general, and furthers the objectives of section 6(b)(5) of 
the Act \14\ in particular in that it should 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change would 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. 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. Comments may also be submitted electronically at the 
following e-mail address: [email protected]. All comment letters 
should refer to File No. SR-CBOE-2004-11, and this file number should 
be included on the subject line if e-mail is used. To help the 
Commission process and review your comments more efficiently, comments 
may be sent in hard copy or by e-mail, but not by both methods. 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 No. SR-CBOE-2004-11 and 
should be submitted by April 21, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    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.\15\ In particular, the Commission believes that the proposed 
rule change is consistent with the requirements of section 6(b)(5) of 
the Act \16\ that the rules of a national securities exchange, in part, 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system and, in general, protect investors and the public 
interest.
---------------------------------------------------------------------------

    \15\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed rule change seeks to generally modify the current ROS 
opening procedures to allow broker-dealer orders, other than 
contingency orders, to be incorporated into the electronic book for 
purposes of the ROS opening for any index option series with respect to 
which a Volatility Index is calculated. CBOE also proposes to allow 
LLMs, when applicable, to review the order imbalances as well as 
collectively set AutoQuote values, and to require that all market-
makers log on to ROS during the modified ROS opening procedure if the 
market-maker is physically present in the trading crowd for that index 
option class. This modified ROS opening procedure would only be used on 
the final Settlement Date of the options and futures contracts on the 
applicable Volatility Index in each expiration month, which is when 
Volatility Index settlement values are determined. The current, 
unmodified, ROS opening procedures would be applied on all other days.
    The Commission believes that the proposed rule change, including 
incorporating these additional orders into the electronic book for 
purposes of the ROS opening, should ensure that broker-dealer orders 
are fairly incorporated into the opening, as well as contribute to the 
establishment of fair and accurate final settlement values of 
Volatility Index futures and options.\17\ Further, the incorporation of 
broker-dealer orders into the electronic book should enable market 
participants that hedge Volatility Index futures or options contract 
positions against option positions in the related Market Index to 
ensure convergence of the value of those two positions at the time of 
settlement. The ROS modified opening procedure should allow this 
convergence by allowing market participants to close out their open 
Market Index option positions and obtain the exact price (i.e., the 
opening price) for those series that will be used to calculate the 
Volatility Index settlement value. The Commission notes that CBOE has 
also submitted supplemental surveillance procedures designed to ensure, 
among other things, that market-makers exercise their discretion to set 
certain AutoQuote values consistent with their obligation to price 
options fairly and that identify whether any accounts have

[[Page 17004]]

engaged in manipulative or violative activity.\18\
---------------------------------------------------------------------------

    \17\ The Commission notes that it had previously required that 
CBOE develop a workable plan for the electronic incorporation of 
non-bookable orders in ROS. This requirement was waived in light of 
the limited number of non-bookable orders that are present at the 
open and CBOE's forthcoming ability to record information on non-
bookable orders under the Consolidated Options Audit Trail 
(``COATS'') Plan when Phase V of COATS is implemented. CBOE has 
represented as part of this filing that it is still unable to 
incorporate non-bookable orders on a daily basis because of certain 
technological limitations with respect to index products. Telephone 
conversation between David Doherty, Attorney, CBOE, and Christopher 
Solgan, Attorney, Division, Commission, on March 24, 2004. The 
Commission expects that CBOE will continue to actively monitor the 
quality of executions received by non-bookable orders that are not 
incorporated into the modified ROS opening and that CBOE will 
continue to explore methods to electronically incorporate non-
bookable orders in the standard ROS opening in the event that non-
bookable orders are more actively represented in the opening.
    \18\ See Supplemental ROS Surveillance Procedures, supra note 
12. CBOE has represented, and the Commission expects, that the 
Exchange will work with the Commission's Office of Compliance 
Inspections and Examinations (``OCIE'') to finalize any surveillance 
reports used in connection with the modified ROS opening in a manner 
acceptable to OCIE. The Commission also expects CBOE to assess its 
surveillance procedures from time to time to determine whether they 
are adequate to ensure that market makers do not engage in 
manipulative or improper trading practices. Further, the Commission 
expects CBOE to consider whether any additional surveillance 
procedures are necessary to prevent manipulative or other improper 
practices.
---------------------------------------------------------------------------

    The Commission finds good cause for approving the proposal prior to 
the thirtieth day after the date of publication of notice of filing 
thereof in the Federal Register. CBOE has requested that the Commission 
grant accelerated approval of the proposed rule change on a pilot basis 
through November 17, 2004. The Commission notes that the CFE intends to 
begin trading futures contracts on VIX commencing on Friday, March 26, 
2004. Since the VIX futures contracts will be settled using the 
modified ROS process, accelerated approval of the proposed rule change 
would allow CFE to inform members of the process by which settlement 
values would be determined in conjunction with the commencement of 
trading these products. For these reasons, the Commission believes that 
there is good cause, consistent with Sections 6(b)(5) and 19(b) of the 
Act,\19\ to approve CBOE's proposal, as amended, on an accelerated 
basis.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b)(5) and 78s(b).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\20\ that the proposed rule change, as amended, (SR-CBOE-2004-11) 
is hereby approved on an accelerated basis as a pilot program to expire 
on November 17, 2004.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-7147 Filed 3-30-04; 8:45 am]
BILLING CODE 8010-01-P