[Federal Register Volume 69, Number 121 (Thursday, June 24, 2004)]
[Notices]
[Pages 35405-35406]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14284]



[[Page 35405]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49867; File No. SR-CBOE-2004-29]


Self-Regulatory Organizations; Notice of Filing an Order Granting 
Accelerated Approval to a Proposed Rule Change, and Amendment No. 1 
thereto, by the Chicago Board Options Exchange, Incorporated Proposing 
to Extend a Pilot Program Relating to Certain Limitations on Trade-
Through Liability.

June 15, 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 11, 2004, the Chicago Board Options Exchange, Incorporated 
(``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. The 
CBOE filed Amendment No. 1 to the proposed rule change on June 2, 
2004.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons, and 
to grant accelerated approval to the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Angelo Evangelou, CBOE, to Nancy Sanow, 
Assistant Director, Division of Market Regulation, Commission, dated 
June 2, 2004 (``Amendment No. 1''). In Amendment No. 1, the Exchange 
made technical corrections to the proposed rule text submitted to 
the Commission.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE is proposing to extend a pilot program relating to certain 
limitations on Trade Through \4\ liability during the last seven 
minutes of the trading day pursuant to the Linkage Plan. The text of 
the proposed rule change is available at the Exchange and at the 
Commission.
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    \4\ A ``Trade-Through'' is defined as a transaction in an 
options series at a price that is inferior to the national best bid 
or offer in an options series calculated by a Participant. See 
Section 2(29) of the Plan for the Purpose of Creating and Operating 
an Intermarket Option Linkage (``Linkage Plan''). A ``Participant'' 
is defined as an Eligible Exchange whose participation in the 
Linkage Plan has become effective pursuant to Section 4(c) of the 
Linkage Plan. See Section 2(24) of the Linkage Plan. Currently, the 
Participants in the Linkage Plan are the International Securities 
Exchange, Inc., the American Stock Exchange LLC, the CBOE, the 
Pacific Exchange, Inc., the Philadelphia Stock Exchange, Inc. and 
the Boston Stock Exchange, Inc.
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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 III 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The CBOE has represented that the purpose of the proposed rule 
change is to conform CBOE Rule 6.83 to a recent Linkage Plan amendment 
to extent the pilot provision limiting Trade-Through liability during 
the last seven minutes of the trading day.\5\ Pursuant to the pilot 
currently in effect, an Exchange member's Trade-Through liability is 
limited to 10 contracts per Satisfaction Order \6\ for the time period 
between five minutes prior to the close of trading in the underlying 
security and the close of trading in the options class.
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    \5\ The CBOE has separately filed Joint Amendment No. 12 to the 
Linkage Plan to implement substantially the same change to the 
Linkage Plan. See Securities Exchange Act Release No. 49692 (May 12, 
2004), 69 FR 29956 (May 19, 2004) (Notice of Joint Amendment No. 
12). The Commission previously approved the pilot to implement a 
limitation on Trade-Through liability during the last seven minutes 
of the trading day on a 120-day temporary basis on January 31, 2003. 
See Securities Exchange Act Release No. 47298, 68 FR 6524 (February 
7, 2003). On June 18, 2003, the Commission approved the pilot until 
January 31, 2004. See Securities Exchange Act Release No. 48055, 68 
FR 37869 (June 25, 2003) (Order approving Joint Amendment No. 4). 
The Commission subsequently extended the pilot until June 30, 2004. 
See Securities Exchange Act Release No. 49146 (January 29, 2004), 69 
FR 5618 (February 5, 2004) (Order approving Joint Amendment No. 8).
    \6\ A ``Satisfaction Order'' is defined as an order sent through 
the Options Intermarket Linkage to notify a member of another 
Participant of a Trade-Through and to seek satisfaction of the 
liability arising from that Trade-Through. See Section 2(16) of the 
Linkage Plan.
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    The Participants are proposing to extend the pilot for an 
additional seven months, until January 31, 2005. In addition, the 
Participants are proposing to increase the limit on Trade-Through 
liability during the last seven minutes of the trading day from 10 
contracts to 25 contracts per Satisfaction Order. This increase in the 
limit on Trade-Through liability would be effective on July 1, 2004, 
when the current pilot expires. The time period during the trading day 
in which this limit would apply would remain the same, from five 
minutes prior to the close of trading in the underlying security until 
the close of trading in the options class.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \8\ in particular, in that it 
should promote just and equitable principles of trade, serve to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and protect investors and the public 
interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change will result 
in 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. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2004-29 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-2004-29. 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

[[Page 35406]]

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 Room 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 File Number SR-CBOE-2004-29 and should be submitted on 
or before July 15, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\9\ 
In particular, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act,\10\ 
which requires, among other things, that the rules of a national 
securities 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 a national market system, and to protect 
investors and the public interest. As discussed in Joint Amendment No. 
12, as a condition to granting permanent approval of the Trade-Through 
limitation, the Commission required that the Participants provide the 
Commission with a report regarding data on the use of the exemption no 
later than 60 days before seeking permanent approval (the ``Report''). 
The Participants have provided the Commission with certain information 
required in the Report, and continue to discuss with Commission staff 
what additional information the staff may need to evaluate possible 
permanent approval of the Trade-Through limitation. The Commission 
believes that extending the pilot will enable Participants to continue 
to compile the data necessary for the Commission to determine whether 
permanent approval of the proposed rule change is appropriate and in 
the public interest. The Commission further believes that raising the 
limitation in liability for Satisfaction Orders during the last seven 
minutes of the trading day from 10 contracts to 25 contracts for this 
pilot period should help to protect investors and promote the public 
interest.
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    \9\ 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).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publication of the 
notice thereof in the Federal Register. As noted above, the proposed 
rule change incorporates changes into the CBOE Rules that correspond to 
changes made to the Linkage Plan through Joint Amendment No. 12, which 
was published for public comment in the Federal Register on May 19, 
2004.\11\ The Commission received no comments in response to public of 
Joint Amendment No. 12. The Commission believes that no new issues of 
regulatory concern are being raised by the CBOE's proposed rule change. 
The Commission believes, therefore, that granting accelerated approval 
of the proposed rule change is appropriate and consistent with Sections 
6 and 19(b) of the Act.\12\
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    \11\ See supra note 5.
    \12\ 15 U.S.C. 78f and 78s(b).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-CBOE-2004-29), as amended, 
is approved on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14284 Filed 6-23-04; 8:45 am]
BILLING CODE 8010-01-M