[Federal Register Volume 69, Number 122 (Friday, June 25, 2004)]
[Notices]
[Pages 35695-35696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14452]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49887; File No. SR-CBOE-2004-31]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by Chicago Board 
Options Exchange, Inc., Relating to Handling of Principal Acting as 
Agent Orders Under Linkage

June 17, 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'' or ``SEC'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the CBOE. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons and to grant 
accelerated approval to the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules regarding transmission of 
certain linkage orders. The text of the proposed rule change is 
available at the Office of the Secretary, the CBOE and the Commission.

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 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to conform CBOE's 
linkage rules to Joint Amendment No. 10 to the Plan for the Purpose of 
Creating and Operating an Intermarket Option Linkage (``Linkage Plan'') 
regarding the manner in which a member of an options exchange may send 
Principal Acting as Agent Orders (``P/A Orders'') that are larger than 
the Firm Customer Quote Size (``FCQS'').\3\ A P/A Order is an order for 
the account of a market maker authorized to handle agency orders (on 
CBOE, Designated Primary Market Makers or ``DPMs'') reflecting the 
terms of an unexecuted customer order the DPM holds. The FCQS is the 
minimum size for which an exchange must provide an execution in its 
automatic execution system for a P/A Order, if the exchange's auto-ex 
system is available.
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    \3\ See Securities Exchange Act Release No. 49689 (May 12, 
2004), 69 FR 28953 (May 19, 2004) (File No. 4-429) (Notice of Filing 
of Joint Amendment No. 10 to the Linkage Plan).
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    Currently, Linkage Plan Section 7(a)(ii)(B) and CBOE Rule 6.81 
provide a DPM with two ways to send such orders. First, the DPM may 
send a P/A Order larger than the FCQS for manual processing at the 
receiving exchange. Second, the DPM may send an initial P/A Order for 
up to the FCQS. If the DPM then seeks to send another P/A Order, it 
must send an order for the lesser of the entire remaining size of the 
underlying customer order or 100 contracts.
    The proposed rule change addresses the handling of orders if the 
DPM chooses the second alternative, the sending of multiple P/A Orders. 
Currently, CBOE Rule 6.81 does not recognize the possibility that an 
exchange's disseminated quotation may be for less than either the 
remaining size of the customer order or 100 contracts. Thus, the 
proposed rule change specifies that a DPM sending a second P/A Order 
may limit such order to the lesser of: (1) The remaining size of the 
customer order; (2) 100 contracts; or (3) the size of the receiving 
exchange's disseminated quotation.
    In addition, there is a practical issue if multiple exchanges are 
displaying the same bid or offer. In that case, the Linkage Plan is 
unclear as to whether a DPM must send the entire order to one exchange 
or whether it can send orders to multiple exchanges, as long as they 
are for the size of the entire order, or 100 contracts, in the 
aggregate. This proposed rule change seeks to amend CBOE Rule 6.81 to 
specify that a DPM may send P/A Orders to multiple exchanges, as long 
as all such orders, in the aggregate, are for the lesser of the entire 
remaining size or 100 contracts. However, a DPM always may limit the 
size of any single additional order to the size of the receiving 
market's disseminated quotation.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \4\ in general and furthers the objectives of 
Section 6(b)(5) \5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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A. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. 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-2004-31 on the subject line.

[[Page 35696]]

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-2004-31. 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 offices 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-2004-31 and should be submitted on or before July 16, 2004.

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

    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.\6\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act \7\ 
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. The Commission believes 
that the proposed rule change should clarify the DPM's obligations in 
handling P/A Orders, which should facilitate the efficient handling of 
P/A Orders through the Linkage.
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    \6\ 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).
    \7\ 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 thirtieth 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. 10, which 
was published for comment on May 19, 2004.\8\ The Commission received 
no comments on the substance of that Amendment. The Commission believes 
that no new issues of regulatory concern are being raised by CBOE's 
proposed rule change. Therefore, the Commission believes that granting 
accelerated approval of the proposed rule change is appropriate and 
consistent with Sections 6 and 19(b) of the Act.\9\
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    \8\ See note 3, supra.
    \9\ 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,\10\ that the proposed rule change (SR-CBOE-2004-31) is approved on 
an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14452 Filed 6-24-04; 8:45 am]
BILLING CODE 8010-01-P