[Federal Register Volume 69, Number 74 (Friday, April 16, 2004)]
[Notices]
[Pages 20655-20656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-8661]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49555; File No. SR-CBOE-2003-59]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Order Granting Approval to Proposed Rule Change and Amendment No. 
1 Thereto Relating to the Exchange's Obvious Error Rule

April 12, 2004.
    On December 22, 2003, the Chicago Board Options Exchange, Inc. 
(''CBOE'') 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 to amend CBOE Rule 6.25, which governs the 
nullification and adjustment of electronic transactions resulting from 
obvious error. On January 20, 2004, CBOE 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 February 12, 2004.\4\ 
The Commission received no comments on the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Steve Youhn, Legal Division, CBOE, to Nancy 
J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated January 16, 2004.
    \4\ See Securities Exchange Act Release No. 49194 (February 5, 
2004), 69 FR 7058.
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    The Exchange proposes to extend specified provisions of its obvious 
error rule to open outcry transactions. Specifically, CBOE proposes to 
extend the application of CBOE Rule 6.25(a)(3) (Verifiable Disruptions 
or Malfunctions of Exchange Systems), CBOE Rule 6.25(a)(4) (Erroneous 
Print in the Underlying), and CBOE Rule 6.25 (a)(5) (Erroneous Quote in 
the Underlying) to open outcry trades. CBOE also proposes that 
paragraphs (b) through (e) of CBOE Rule 6.25, which set forth the 
procedures for review, adjustment/nullification, and appeal of obvious 
error electronic transactions, apply to the adjustment and 
nullification of open outcry transactions in the same manner that they 
apply to electronic transactions.
    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 \5\ and, in 
particular, the requirements of Section 6(b) of the Act \6\ and the 
rules and regulations thereunder. The Commission finds that the 
proposed rule change is consistent with Section 6(b)(5)\7\ of the Act, 
which requires that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism for 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\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission considers that in most circumstances trades that are 
executed between parties should be honored. On rare occasions, the 
price of the executed trade indicates an ``obvious error'' may exist, 
suggesting that it is unrealistic to expect that the parties to the 
trade had come to a meeting of the

[[Page 20656]]

minds regarding the terms of the transaction. In the Commission's view, 
the determination of whether an ``obvious error'' has occurred should 
be based on specific and objective criteria and subject to specific and 
objective procedures. CBOE's proposal extends the application of three 
provisions of its current obvious error rule covering electronic 
transactions to open outcry transactions. These provisions are 
Verifiable Disruptions or Malfunctions of Exchange Systems, Erroneous 
Prints in the Underlying, and Erroneous Quotes in the Underlying. The 
determination of whether an obvious error exists for open outcry 
transactions for these three situations is based on the same specific 
and objective criteria that currently exist for electronic 
transactions. Also, the procedures governing the adjustment or 
nullification of Verifiable Disruptions or Malfunctions of Exchange 
Systems, Erroneous Prints in the Underlying, and Erroneous Quotes in 
the Underlying in open outcry transactions are the same specific and 
objective procedures the Exchange has in place for adjustment or 
nullification of these same situations in electronic transactions.\8\
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    \8\ See Securities Exchange Act Release No. 48827 (November 24, 
2003), 68 FR 67498 (December 2, 2003) (File No. SR-CBOE-2001-04).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\9\, that the proposed rule change (File No. SR-CBOE-2003-59), as 
amended, be, and hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-8661 Filed 4-15-04; 8:45 am]
BILLING CODE 8010-01-P