[Federal Register Volume 69, Number 120 (Wednesday, June 23, 2004)]
[Notices]
[Pages 35084-35086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14229]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49877; File No. SR-CBOE-2004-05]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto and 
Notice of Filing and Order Granting Accelerated Approval of Amendment 
No. 3 Thereto by the Chicago Board Options Exchange, Inc. Relating to 
the Relocation of an Entire Trading Station's Securities to Another 
Trading Station

June 16, 2004.

I. Introduction

    On January 28, 2004, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``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 Rules 8.84 and 8.95 
to transfer the authority to approve the relocation of an entire 
trading station's securities to another trading station that is 
operated by the same DPM organization to the MTS Committee from the 
Allocation Committee. CBOE filed Amendment No. 1 and 2 on March 15, 
2004,\3\ and May 6, 2004,\4\ respectively. The proposed rule change and 
Amendments Nos. 1 and 2 were published for comment in the Federal 
Register on May 19, 2004.\5\ CBOE filed Amendment No. 3 on May 19, 
2004.\6\ No

[[Page 35085]]

comments were received on the proposed rule change and Amendments Nos. 
1 and 2. This order approves the proposed rule change and Amendments 
Nos. 1 and 2 on an accelerated basis and issues notice of filing and 
approves Amendment No. 3 on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Patrick Sexton, Assistant General Counsel, 
CBOE, to Christopher Solgan, Attorney, Division of Market Regulation 
(``Division''), Commission, dated March 12, 2004 (``Amendment No. 
1'').
    \4\ See letter from Patrick Sexton, Assistant General Counsel, 
CBOE, to Christopher Solgan, Attorney, Division, Commission, dated 
May 5, 2004 (``Amendment No. 2'').
    \5\ See Securities Exchange Act Release No. 49687 (May 12, 
2004), 69 FR 28959.
    \6\ See letter from Patrick Sexton, Assistant General Counsel, 
CBOE, to Christopher Solgan, Attorney, Division, Commission, dated 
May 18, 2004 (``Amendment No. 3''). In Amendment No. 3, CBOE amended 
CBOE Rule 8.84 to clarify that the MTS Committee may determine 
whether to relocate an entire trading station's securities to 
another trading station that is operated by the same DPM, pursuant 
to a request from a DPM organization or on the Committee's own 
initiative. CBOE also requested that the Commission approve the 
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

II. Description of the Proposal

    CBOE proposed to amend CBOE Rules 8.84 and 8.95 to transfer the 
authority to approve the relocation of an entire trading station's 
securities to another trading station that is operated by the same DPM 
organization to the MTS Committee from the Allocation Committee. 
Specifically, CBOE proposed to add a new interpretation to CBOE Rule 
8.84 which states that it shall be the responsibility of the MTS 
Committee to determine whether to relocate all of the securities traded 
at a trading station operated by a DPM organization to another trading 
station operated by the same DPM. Interpretation .01 to CBOE Rule 8.84 
also states that in making such a determination, the MTS Committee 
should evaluate whether the change is in the best interest of the 
Exchange, and that the Committee may consider any information that it 
believes will be of assistance to it. Factors to be considered include, 
but are not limited to, any one or more of the following: Performance, 
operational capacity of the Exchange or the DPM, efficiency, number and 
experience of personnel of the DPM who will be performing functions 
related to the trading of the applicable securities, number of 
securities involved in the relocation, number of market-makers affected 
by the relocation of the securities, and trading volume of the 
securities.
    Under Interpretation .01(b) to CBOE Rule 8.84, before the MTS 
Committee decides whether to relocate all of a trading station's 
securities pursuant to Interpretation .01(a) to CBOE Rule 8.85, it must 
notify the DPM organization and trading crowds that may be affected. 
Interpretation .01(b) also states that the MTS Committee shall convene 
one or more informal meetings with the affected DPM and trading crowds 
to discuss the matter, or provide the interested DPM and trading crowds 
with the opportunity to submit a written statement to the MTS 
Committee. Under Interpretation .01(a) to CBOE Rule 8.84, the MTS 
Committee may forego notice to the interested DPM and trading crowds 
only if expeditious action is required. Expeditious action may be 
required during unusual circumstances such as, for example, extreme 
market volatility. Expeditious action may also occur if there is 
another situation that would similarly require urgent action.
    Finally, DPMs and members of the trading crowd retain the right to 
appeal, if economically aggrieved by a MTS Committee decision under 
this proposed rule change. The appeal process is also available if the 
MTS Committee takes expeditious action.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 3, including whether Amendment No. 3 
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-2004-05 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-2004-05. 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 
Exchange. 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-2004-05 and should be submitted on or before July 14, 2004.

IV. Discussion

    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.\7\ 
In particular, the Commission believes that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\8\ which requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market, and to protect investors and 
the public interest. Specifically, the Commission believes it is 
reasonable to transfer the authority to determine the relocation of all 
of the securities traded at a particular trading station operated by a 
DPM organization to another trading station operated by the same DPM 
organization from the Exchange's Allocation Committee to the MTS 
Committee. The Commission believes that such determinations are 
properly within the MTS Committee's authority because they may impact 
the operational performance and market performance of the DPM.
---------------------------------------------------------------------------

    \7\ 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).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the factors to be considered by the 
MTS Committee in making DPM consolidation decisions, set forth in 
Interpretation .01(a) to CBOE Rule 8.84, are consistent with the Act. 
The Commission notes that these factors are intended to relate to, and 
be more descriptive of, the factors that the Allocation Committee 
considered in making similar decisions. The Commission believes that 
the proposed rule change gives the MTS Committee the flexibility to 
consider the appropriate factors for a determination to consolidate a 
DPM's trading location and alerts the CBOE membership of the factors 
that are considered important in making such a determination.
    The Commission notes that CBOE has established procedural 
safeguards for its members. For example, Interpretation .01(a) to CBOE 
Rule 8.24 requires that the MTS Committee provide notice to the DPM and 
trading crowds potentially affected by the relocation of securities, 
and provide them the opportunity to participate in an informal meeting 
with the MTS Committee or submit a written

[[Page 35086]]

statement concerning the matter. The Commission also notes that any 
person economically aggrieved by a decision made under Interpretation 
.01 to CBOE Rule 8.84 has the right to a formal hearing, with the 
assistance of counsel, before CBOE's Appeals Committee. Moreover, 
decisions of the Appeals Committee may be appealed to the CBOE's Board 
of Directors.\9\
---------------------------------------------------------------------------

    \9\ See Chapter XIX of the CBOE's Rules.
---------------------------------------------------------------------------

    The Commission notes that CBOE believes that MTS Committee 
determinations to consolidate DPM trading locations should have a 
positive impact on the DPM trading those options classes, the trading 
crowds, and other market participants. In addition, CBOE has 
represented that CBOE trading crowd members, including market makers, 
should continue to be able to move freely among the trading crowds to 
which they are appointed on the CBOE trading floor. Therefore, members 
of the trading crowd should continue to be able to trade their assigned 
option classes even if those options classes are moved to another 
trading station due to the consolidation of a DPM's options 
classes.\10\ Further, the Commission notes that the trading crowd would 
retain appeal rights under Chapter XIX of the CBOE Rules if they were 
economically aggrieved by an MTS Committee decision.
---------------------------------------------------------------------------

    \10\ Specifically, CBOE market makers are able to move freely 
around the trading floor, if the market makers execute at least 75% 
of their total contract volume in their appointed classes. See 
Interpretation .03A to CBOE Rule 8.7.
---------------------------------------------------------------------------

    The Commission finds good cause for accelerating approval of the 
proposed rule change and Amendment Nos. 1, 2, and 3 thereto prior to 
the thirtieth day after publication in the Federal Register. The 
Commission notes that the proposed rule change and Amendment Nos. 1and 
2 thereto were noticed for the full comment period and that no comments 
were received. The Commission also notes that the amendments merely 
provided additional description and detail to the proposed rule change. 
The Commission believes that accelerated approval will permit the MTS 
Committee to begin to consider pending requests to relocate an entire 
trading station's securities to another trading station that is 
operated by the same DPM organization in a timelier manner. For these 
reasons, the Commission finds good cause exists, consistent with 
sections 6(b)(5)\11\ and 19(b)(2) of the Act,\12\ to approve the 
proposed rule change and Amendment Nos. 1, 2, and 3 thereto on an 
accelerated basis.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and rules and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-CBOE-2004-05) and Amendment 
Nos. 1, 2, and 3 thereto are approved on an accelerated basis.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14229 Filed 6-22-04; 8:45 am]
BILLING CODE 8010-01-P