[Federal Register Volume 69, Number 95 (Monday, May 17, 2004)]
[Notices]
[Pages 27957-27959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11056]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49679; File No. SR-CBOE-2004-27]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. To Amend the Modified Rapid Opening Procedure Pilot 
Program

May 11, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on May 6, 2004, 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 and 
II, below, which Items have been prepared by the CBOE. CBOE filed the 
proposal pursuant to Section 19(b)(3)(A) of the Act, \3\ and Rule 19b-
4(f)(6) thereunder, \4\ which renders the proposal effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    CBOE proposes to amend the modified ROS opening procedure that was 
approved by the Commission in SR-CBOE-2004-11 on a pilot basis.\5\ The 
text of the proposed rule change is set forth below. Proposed new 
language is in italics. Proposed deletions are in [brackets].
* * * * *
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 49468 (March 24, 
2004), 69 FR 17000 (March 31, 2004).
---------------------------------------------------------------------------

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 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 
8:2[5]8 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

[[Page 27958]]

proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV 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
    On March 24, 2004, the Commission approved the implementation of a 
modified ROS opening procedure on a pilot basis through November 17, 
2004. The modified ROS opening procedure pilot program facilitates the 
trading of options and futures on volatility indexes intended to be 
traded on CBOE or on CBOE Futures Exchange, LLC (``CFE'') by modifying 
certain of the rules that govern ROS for index option series whose 
prices are used to derive the volatility indexes on which options and 
futures are traded. The modified ROS opening procedure pilot program 
also expands the types of orders for these index options that may be 
placed on the electronic book for participation in ROS at the time when 
settlement values for volatility index options and futures are being 
determined. Specifically, the modified ROS opening procedure pilot 
program allows all orders (including public customer, broker-dealer, 
Exchange market-maker and away market-maker and specialist orders), 
other than contingency orders, to 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. The modified ROS opening procedure pilot program is only used 
on the settlement days of options and futures on volatility indexes 
traded on CBOE or CFE. Currently, the modified ROS opening procedure 
pilot program is in use with respect to S&P 500 Composite Stock Price 
Index (``SPX'') options whose prices are used to derive the settlement 
value of futures on the CBOE Volatility Index traded on CFE.
    For purposes of establishing a cut-off time for the placement of 
orders on the electronic book for participation in the modified ROS 
opening procedure, CBOE Rule 6.2A.03(v) under the modified ROS opening 
procedure pilot program requires these orders to be received by 8:25 
a.m. The proposed rule change extends this cut-off time to 8:28 a.m. 
This extended cut-off time will provide market participants with 
additional time to monitor potential changes in the market that may 
occur up until the 8:28 a.m. cut-off time and to respond to those 
changes through the placement of orders, or cancellations or changes to 
orders previously placed on the electronic book, up until 8:28 a.m.
    In addition, since the approval of the modified ROS opening 
procedure pilot program, CBOE has further discussed the cut-off time 
with Lead Market-Makers who will review the order imbalances and 
collectively set the Autoquote values that will be used by ROS in 
calculating the opening prices for the SPX option series pursuant to 
CBOE Rule 6.2A.03(iii). They have indicated to CBOE their belief that a 
two-minute interval (from 8:28 a.m. to 8:30 a.m.) rather than the 
current five-minute interval (from 8:25 a.m. to 8:30 a.m.) is 
sufficient for them to review the order imbalances on the electronic 
book and collectively set the Autoquote values. For these reasons, CBOE 
believes the extended cut-off time will improve the operation of the 
modified ROS opening procedure pilot program.
2. Statutory Basis
    The proposed rule change will provide additional time for market 
participants to place orders (including public customer, broker-dealer, 
Exchange market-maker and away market-maker and specialist orders), 
other than contingency orders, on the electronic book on days that the 
modified ROS opening procedure pilot program is implemented, which will 
further enable market participants to respond to potential changes in 
the market and therefore better fulfill their investment objectives. 
The Exchange has also filed with the Commission a proposed rule change 
that seeks permanent approval of the modified ROS opening procedure 
pilot program.\6\ Accordingly, the proposed rule change is consistent 
with Section 6(b) of the Act in general and furthers the objectives of 
Section 6(b)(5) in particular in that it should 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.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 49614 (April 26, 
2004), 69 FR 23837 (April 30, 2004) (SR-CBOE-2004-23).
---------------------------------------------------------------------------

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

    CBOE does not believe that the proposed rule change will 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \7\ and subparagraph (f)(6) of Rule 19b-4 \8\ 
thereunder because the Exchange has designated the proposed rule change 
as one that does not: (i) Significantly affect the protection of 
investors or the public interest; (ii) impose any significant burden on 
competition; (iii) become operative for 30 days from the date on which 
it was filed, or such shorter time as the Commission may designate; and 
the Exchange has given the Commission written notice of its intention 
to file the proposed rule change at least five business days prior to 
filing, or such shorter time as designated by the Commission. At any 
time within 60 days of the filing of such proposed rule change, the 
Commission may summarily abrogate such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    CBOE has requested a waiver of the 30-day operative delay. The 
Commission believes, consistent with the protection of investors and 
the public interest, that such waiver will permit CBOE to put the 
proposed rule change into effect prior to May 19, 2004, which is the 
first settlement date of the CBOE Volatility Index futures contract, 
and will also permit CBOE to provide advance notice of this change to 
market participants prior to that date. For these reasons, the 
Commission designates the proposal to be effective and operative upon 
filing with the Commission.\9\
---------------------------------------------------------------------------

    \9\ For purposes only of waiving the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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

[[Page 27959]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-CBOE-2004-27 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-CBOE-2004-27. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Copies of such filing also will 
be available for inspection and copying at the principal office of the 
CBOE. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
CBOE-2004-27 and should be submitted on or before June 7, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-11056 Filed 5-14-04; 8:45 am]
BILLING CODE 8010-01-P