[Federal Register Volume 69, Number 127 (Friday, July 2, 2004)]
[Notices]
[Pages 40424-40426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15085]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49919; File No. SR-CBOE-2004-36]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc., Relating to a One-Month Extension of the $5 Quote Width 
Pilot Program

June 25, 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 June 25, 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 Exchange. The CBOE has 
submitted the proposed rule

[[Page 40425]]

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

    In January 2004, the CBOE implemented a six-month pilot program 
(``Pilot Program''), which expires on June 29, 2004, that permits quote 
spread parameters of up to $5, regardless of the price of the bid, for 
up to 200 options classes traded on the CBOE's Hybrid Trading System 
(``Hybrid'').\5\ The CBOE subsequently expanded the Pilot Program to 
include all options classes traded on Hybrid \6\ and limited the 
applicability of the $5 quote spreads permitted under the Pilot Program 
to quotations that are submitted electronically to Hybrid.\7\ The CBOE 
proposes to extend the Pilot Program through July 29, 2004. To prevent 
a lapse of the Pilot Program, the CBOE has asked the Commission to 
waive the 30-day operative delay in Rule 19b-4(f)(6)(iii).\8\ The text 
of the proposed rule change appears below. Additions are italicized; 
deletions are bracketed.
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    \5\ See Securities Exchange Act Release No. 49153 (January 29, 
2004), 69 FR 5620 (February 5, 2004) (notice of filing and immediate 
effectiveness of File No. SR-CBOE-2003-50) (``Pilot Notice'').
    \6\ See Securities Exchange Act Release No. 49318 (February 25, 
2004), 69 FR 10085 (March 3, 2004) (notice of filing and immediate 
effectiveness of File No. SR-CBOE-2004-10) (``February Notice'').
    \7\ See Securities Exchange Act Release No. 49791 (June 2, 
2004), 69 FR 32389 (June 9, 2004) (order approving File No. SR-CBOE-
2004-20) (``June Order'').
    \8\ 17 CFR 240.19b-4(f)(6)(iii).
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Rule 8.7 Obligations of Market-Makers

    (a) No change.
    (b) No change.
    (i)-(iii) No change.
    (iv) No change.
    (A) [For a six month period expiring on June 29, 2004] Until July 
29, 2004, options on classes trading on the Hybrid system may be quoted 
electronically with a difference not to exceed $5 between the bid and 
offer regardless of the price of the bid. The $5 quote widths shall 
only apply to classes trading on the Hybrid system and only following 
the opening rotation in each security (i.e., the widths specified in 
paragraph (b)(iv) above shall apply during opening rotation). Quotes 
given in open outcry in Hybrid classes may not be quoted with $5 widths 
and instead must comply with the legal width requirements (e.g., no 
more than $0.25 between the bid and offer for each option contract for 
which the bid is less than $2) described in paragraph (iv) and not 
subparagraph (iv)(A).

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 Exchange 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 Exchange 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 Pilot Program became effective in January 2004 and designated 
200 options classes that, for a six-month period, could be quoted with 
a difference not to exceed $5 between the bid and offer regardless of 
the price of the bid.\9\ In February 2004, the CBOE expanded the number 
of options classes in the Pilot Program to include all options classes 
trading on Hybrid.\10\ The CBOE subsequently limited the applicability 
of the $5 quote spreads permitted under the Pilot Program to quotations 
that are submitted electronically to Hybrid.\11\
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    \9\ See Pilot Notice, supra note 5.
    \10\ See February Notice, supra note 6.
    \11\ See June Order, supra note 7.
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    The Pilot Program expires on June 29, 2004. As part of the Pilot 
Program, the CBOE committed to prepare and submit to the Commission a 
report assessing the operation of the Pilot Program and, in particular, 
the quality of the quotations for the options included in the Pilot 
Program. The CBOE is in the process of preparing the report and 
anticipates submitting it to the Commission shortly. Given the 
impending expiration of the Pilot Program, however, the CBOE requests a 
one-month extension of the Pilot Program, through July 29, 2004, to 
allow the Commission to review the report and consider a subsequent 
CBOE request to make the Pilot Program permanent.
2. Statutory Basis
    The CBOE believes the proposed rule change is consistent with the 
Act and the rules and regulations under the Act applicable to a 
national securities exchange and, in particular, the requirements of 
Section 6(b) of the Act.\12\ Specifically, the CBOE believes the 
proposed rule change is consistent with the Section 6(b)(5)\13\ 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts and, in general, to protect investors and the public 
interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 impose 
any burden on competition 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.

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

    The CBOE has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \14\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\15\ Because the foregoing proposed rule change: (1) Does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
and Rule 19b-4(f)(6) thereunder. As required under Rule 19b-
4(f)(6)(iii), the CBOE provided the Commission with written notice of 
its intent to file the proposed rule change at least five business days 
prior to filing the proposal with the Commission or such shorter period 
as designated by the Commission.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-

[[Page 40426]]

4(f)(6)(iii) permits the Commission to designate a shorter time if such 
action is consistent with the protection of investors and the public 
interest. The CBOE has requested that the Commission waive the 30-day 
operative delay to allow the CBOE to continue the Pilot Program without 
interruption for an additional 30 days, through July 29, 2004, while 
the Commission considers the Pilot Program report that the CBOE will 
submit to the Commission. The CBOE believes that the Pilot Program has 
been successful and has provided market makers with the ability to more 
accurately price options in all types of market conditions. For this 
reason, the CBOE believes that it is important from a liquidity-
providing standpoint to allow the Pilot Program to continue 
uninterrupted.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will permit the Pilot Program to continue without 
interruption through July 29, 2004.\16\ For this reason, the Commission 
designates that the proposal become operative immediately.
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    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.

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-2004-36 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-2004-36. 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 File Number SR-
CBOE-2004-36 and should be submitted on or before July 23, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-15085 Filed 7-1-04; 8:45 am]
BILLING CODE 8010-01-U