[Federal Register Volume 69, Number 68 (Thursday, April 8, 2004)]
[Notices]
[Pages 18657-18658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7971]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49518; File No. SR-CBOE-2003-23]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change and Amendment Nos. 1 and 2 Thereto by the Chicago 
Board Options Exchange, Inc., Relating to its Autoquote Triggered Ebook 
Execution System

April 1 , 2004.
    On June 2, 2003, the Chicago Board Options Exchange, Inc. (``CBOE'' 
or ``Exchange''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change relating to its AutoQuote Triggered Ebook 
Execution system (``Trigger''). On September 10, 2003,\3\ and on 
December 29, 2003,\4\ the Exchange amended the proposed rule change. 
The proposed rule change, as amended, was published for comment in the 
Federal Register on February 26, 2004.\5\ The Commission received no 
comments on the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Steve Youhn, Senior Attorney, CBOE, to Nancy 
Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated September 9, 2003.
    \4\ See letter from Steve Youhn, Senior Attorney, CBOE, to Nancy 
Sanow, Assistant Director, Division, Commission, dated December 22, 
2003.
    \5\ See Securities Exchange Act Release No. 49287 (February 19, 
2004), 69 FR 8995.
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    Trigger allows orders resting in the book to automatically execute 
in the limited situation where the bid or offer for a series of options 
generated by the Exchange's AutoQuote system (or any Exchange approved 
proprietary quote generation system used in lieu of the Exchange's 
Autoquote system) crosses or locks the Exchange's best bid or offer for 
that series as established by a booked order. The Exchange proposes to 
amend CBOE Rule 6.8(d)(v) to provide that Trigger will continue to 
provide automatic executions of orders resting in the book \6\ up to 
the maximum number of contracts permitted to be entered into RAES for 
that series (``Trigger Volume''), but that the trading crowd would have 
the ability, but not the obligation, to execute manually the remaining 
contracts in the order that exceed the Trigger Volume. Any unexecuted 
contracts in the booked order in excess of the Trigger Volume would 
remain in the book, and the bid or offer generated by Autoquote would 
be one tick inferior to the price of the booked order, so that the 
disseminated quote would not cross or lock the Autoquote bid or offer.
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    \6\ Such orders would be executed against market makers 
participating in the Exchange's Retail Automated Execution System 
(``RAES''). CBOE Rule 6.8(d).
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    The Commission has reviewed carefully the Exchange's proposed rule 
change and finds that the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\7\ In the Commission's view, the proposed 
rule change would continue to ensure that customers receive automatic 
executions of their booked orders up to the Trigger Volume in the event 
that Autoquote (Exchange or proprietary) locks or crosses the booked 
order's limit price.

[[Page 18658]]

CBOE Rule 6.8(d)(v), however, no longer would assure that an order on 
the book would be executed in full whenever Autoquote for that series 
locks or crosses the quotation established by the booked order. The 
unexecuted portion of the order would remain on the book and the bid or 
offer generated by Autoquote would be one tick inferior to the price of 
the booked order such that the Exchange's disseminated quote would not 
lock or cross with the Autoquote bid or offer.
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    \7\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    The Commission finds that the proposed rule change is consistent 
with section 6(b) of the Act,\8\ in general, and furthers the 
objectives of section 6(b)(5) of the Act.\9\ The Commission notes that 
the proposed rule change does not alter CBOE members' duty to comply 
with the Commission's rule relating to the firmness of quotations.\10\ 
The trading crowd, as the responsible broker or dealer, would continue 
to be required to honor its disseminated quote.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5). Section 6(b)(5) of the Act requires 
that the rules of a national securities exchange be ``designed to 
prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system, 
and in general, to protect investors and the public interest; and 
are not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.''
    \10\ 17 CFR 240.11Ac1-1.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-CBOE-2003-23) is approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-7971 Filed 4-7-04; 8:45 am]
BILLING CODE 8010-01-P