[Federal Register Volume 69, Number 113 (Monday, June 14, 2004)]
[Notices]
[Pages 33090-33091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13279]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49814; File No. SR-CBOE-2004-33]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to 
Frequency of Executions on the Hybrid Trading System

June 4, 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 May 19, 2004, the Chicago Board Options Exchange, Inc. (``CBOE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The CBOE proposes to adopt a rule governing the frequency with 
which certain professional orders may be submitted for automatic 
execution in the Hybrid Trading System (``Hybrid''). Below is the text 
of the proposed rule change. Proposed new language is italicized.
* * * * *

Rule 6.13: CBOE Hybrid System's Automatic Execution Feature

    (a) No change
    (b) Automatic Execution
    (i) Eligibility: Orders eligible for automatic execution through 
the CBOE Hybrid System may be automatically executed in accordance with 
the provisions of this Rule. This section governs automatic executions 
and split-price automatic executions. The automatic execution and 
allocation of orders or quotes submitted by market participants shall 
be governed by Rules 6.45A(c) and (d).
    (A)-(B) No change
    (C) Access:
    (i)-(ii) No Change
    (iii) 15-Second Limitation: With respect to orders eligible for 
submission pursuant to paragraph (b)(i)(C)(ii), members shall neither 
enter nor permit the entry of multiple orders on the same side of the 
market in an option class within any 15-second period for an account or 
accounts of the same beneficial owner. The appropriate FPC may shorten 
the duration of this 15-second period by providing notice to the 
membership via a Regulatory Circular that is issued at least one day 
prior to implementation.
    (ii)-(iv) No change
    (c)-(e) No change
* * * * *

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

    In its filing with the Commission, the CBOE included statements 
concerning the purpose of, and basis for, the 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. The 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange represents that all of the floor-based options 
exchanges have rules generally restricting the entry of certain orders 
into their automatic execution systems to one order per 15 seconds per 
beneficial account.\3\ CBOE has a 15-second rule applicable to its RAES 
system (see CBOE Rule 6.8(e)(iii)) but not to its Hybrid auto-ex 
system. The purpose of this rule filing is to adopt a 15-second rule 
applicable to certain professional orders entered for execution through 
CBOE's Hybrid system.
---------------------------------------------------------------------------

    \3\ See, e.g., CBOE Rule 6.8(e)(iii), Amex Rule 933(e), PCX Rule 
6.87(d)(2), and Phlx Rule 1080(c)(ii)(B)(3). NYSE Rule 1005 contains 
a 30-second limitation.
---------------------------------------------------------------------------

    The Exchange proposes new CBOE Rule 6.13(b)(i)(C)(iii) to adopt 
rule language similar to that currently in effect in CBOE Rule 
6.8(e)(iii).\4\ As applied, the rule would prohibit members from 
entering or permitting the entry of multiple orders on the same side of 
the market in an option class within any 15-second period for an 
account or accounts of the same beneficial owner. The proposed language 
also allows the appropriate floor procedure committee (``FPC'') to 
shorten the duration of this 15-second timer by providing advance 
notice to the membership via Regulatory Circular. The timer may never 
exceed 15-seconds and, if shortened, would serve to allow the entry of 
more orders.
---------------------------------------------------------------------------

    \4\ There is one minor difference in the rule language of CBOE 
Rule 6.8 and that which is proposed in CBOE Rule 6.13: the use of 
the word ``issue'' in CBOE Rule 6.8 versus the use of the word 
``class'' in CBOE Rule 6.13. ``Issue'' and ``class'' are synonymous, 
however, ``issue'' is not a defined term in CBOE's rules while 
``class'' is.
---------------------------------------------------------------------------

    The Exchange also proposes to limit to whom the rule applies. The 
Exchange represents that while all of the floor-based options 
exchanges' rules, including CBOE Rule 6.8(e)(iii) broadly apply to all 
orders (i.e., from customers and broker-dealers), the proposed 
amendment to CBOE Rule 6.13 would apply only to orders from options 
exchange market makers and stock exchange specialists, as defined in

[[Page 33091]]

CBOE Rule 6.13(b)(i)(C)(ii).\5\ Customers and broker-dealers (as 
described in CBOE Rule 6.13(b)(i)(C)(i)) will not be subject to the 
rule and as such will continue to be eligible to receive unlimited 
automatic executions.
---------------------------------------------------------------------------

    \5\ In SR-CBOE-2004-15, the Exchange proposed modifications to 
the definitions contained in this paragraph. On May 13, 2004, the 
Commission published the rule filing in the Federal Register. See 
Exchange Act Release No. 49659 (May 6, 2004), 69 FR 26627. If 
approved, the new rule language will be as appears below. Nothing in 
the instant proposed rule change proposes to change either of those 
definitional subparagraphs. Rather, the instant proposal merely 
clarifies that both of those categories (i.e., options exchange 
market makers and stock exchange specialists) will be subject to the 
15-second restriction.
    (ii) (A) Options Exchange Market Makers: The appropriate FPC may 
also determine, on a class-by-class basis, to allow orders for the 
accounts of market makers or specialists on an options exchange 
(collectively ``options market makers'') who are exempt from the 
provisions of Regulation T of the Federal Reserve Board pursuant to 
Section 7(c)(2) of the Securities Exchange Act of 1934 to be 
eligible for automatic execution. The appropriate FPC may establish 
the maximum order size eligibility for such options market maker 
orders at a level lower than the maximum order size eligibility 
available to non-broker-dealer public customers and non-market maker 
or non-specialist broker-dealers. Pronouncements pursuant to this 
provision regarding options market maker access shall be made by the 
appropriate FPC and announced via Regulatory Circular.
    (B) Stock Exchange Specialists: The appropriate FPC may 
determine, on a class-by-class basis, to allow orders for the 
account of a stock exchange specialist, with respect to a security 
in which it acts as a specialist, to be eligible for automatic 
execution in the overlying option class. The appropriate FPC may 
establish the maximum order size eligibility for such specialist 
orders at a level lower than the maximum order size eligibility 
available to options exchange market makers. Stock exchange 
specialists, with respect to orders in securities in which they do 
not act as specialist, will be treated as broker-dealers that are 
not market makers or specialists on an options exchange and will be 
eligible to submit orders for automatic execution in accordance with 
subparagraph (i) above.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6 of the Act \6\ in general and furthers the objectives of 
section 6(b)(5) \7\ in particular in that it is 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ 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 will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purpose of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    CBOE neither solicited nor received written comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 
SR-CBOE-2004-33 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 SR-CBOE-2004-33. 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. 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 SR-CBOE-2004-33 and should be submitted on 
or before July 6, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-13279 Filed 6-10-04; 8:45 am]
BILLING CODE 8010-01-P