[Federal Register Volume 69, Number 151 (Friday, August 6, 2004)]
[Notices]
[Pages 47965-47967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17956]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50130; File No. SR-CBOE-2004-47]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change by the Chicago 
Board Options Exchange, Incorporated Relating to Marketing Fee Voting 
Procedures

July 30, 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 July 19, 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 at the same 
time is granting accelerated approval of the proposed rule change on a 
six-month pilot basis.
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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 reinstate its Marketing Fee Voting 
Procedures,\3\ which previously were set forth in Interpretation and 
Policy .12 to CBOE Rule 8.7. Under those procedures, a trading crowd 
could determine whether or not to participate in the CBOE's marketing 
fee program. Under the procedures, as proposed to be reinstated, 
electronic DPMs (``e-DPMs'') \4\ would be incorporated into the 
Marketing Fee Voting Procedures.\5\ Below is the text of the proposed 
rule change. Proposed new language is italicized.
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    \3\ The voting procedures previously were described in SR-CBOE-
2003-20. See Securities Exchange Act Release No. 47957 (May 30, 
2003), 68 FR 35035 (June 11, 2003) (``Marketing Fee Voting 
Procedures Approval Order'').
    \4\ On July 12, 2004, the SEC approved a proposed rule change, 
SR-CBOE-2004-24, which pertains to the establishment of e-DPMs. See 
Securities Exchange Act Release No. 50003 (July 12, 2004), 69 FR 
43028 (July 19, 2004).
    \5\ Upon approval of this proposed rule change, the CBOE intends 
to file a proposed rule change, pursuant to Section 19(b)(3)(A)(ii) 
of the Act and subparagraph (f)(2) of Rule 19b-4 thereunder, 
incorporating e-DPMs into the CBOE's existing marketing fee program.
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* * * * *
RULE 8.7 Obligations of Market-Makers
    (a)-(c) No change.
Interpretations and Policies
    .01-.11 No change.
    .12 Marketing Fee Voting Procedures: The following procedures 
specify how a trading crowd determines whether to participate or not to 
participate in the Exchange's marketing fee program. These procedures 
expire six months from the date of SEC approval, or such earlier time 
as the Commission has approved them on a permanent basis.
    (a) Eligible Voters
    (i) The term ``trading crowd'' is synonymous with the term 
``station,'' which is defined in Interpretation and Policy .01 to Rule 
8.8.
    (ii) Eligible Trading Crowd Members: Members of a trading crowd 
that will be eligible to participate in the vote (``eligible trading 
crowd members'') shall include (1) those Market-Makers who have 
transacted at least 80% of their Market-Maker contracts and 
transactions in each of the three immediately preceding calendar months 
in option classes traded in the trading crowd, and who continue to be 
present in the trading crowd in the capacity of a Market-Maker at the 
time of the vote; (2) the DPM for a trading crowd; and (3) any e-DPM, 
and shall each have one vote. Any e-DPM appointed to one or more option 
classes shall be eligible to vote on marketing fees for those option 
classes.
    (b) Requesting a Trading Crowd Vote. Any eligible trading crowd 
member (including the DPM and any e-DPM) can request that a vote be 
held to determine whether or not the trading crowd should continue to 
participate in the marketing fee program for one or more of the option 
classes located at that station by submitting a written request to that 
effect to the Secretary of the Exchange. The Exchange shall post a 
notice at the station and provide written notice to the e-DPM of the 
time and date of any vote to be taken at least 10 calendar days prior 
to the time of the vote. The marketing fee oversight committee shall 
determine all other administrative procedures pertaining to the vote.
    (c) Participation in the Marketing Fee Program. A trading crowd 
shall be deemed to have indicated that it desires to participate in the 
Exchange's marketing fee program for one or more of the option classes 
located at that station if a majority of those eligible trading crowd 
members participate in the vote and if a majority of the total votes 
cast are in favor of participating in the marketing fee program for 
those option classes. Conversely, a trading crowd shall be deemed to 
have indicated that it does not desire to participate in the Exchange's 
marketing fee program for one or more of the option classes located at 
that station if a majority of those eligible trading crowd members 
participate in the vote and if a majority of the total votes cast are 
against participating in the marketing fee program for those option 
classes.
    (i) Frequency of Vote: Once a crowd votes to participate in the 
marketing fee program, subsequent votes to determine whether to 
continue its participation may be held only once every three calendar 
months. Once a crowd votes not to participate in the marketing fee 
program, subsequent votes to determine whether to participate in the 
marketing fee program may be held only once every thirty days.
    (ii) Tie Votes: If a vote conducted in accordance with this rule 
results in a tie, the status quo for that trading crowd shall remain in 
effect. Accordingly, if the trading crowd currently participates in the 
marketing fee program and a tie vote occurs, the marketing fee program 
will remain in effect in that trading crowd. If the trading crowd does 
not participate in the marketing fee at the

[[Page 47966]]

time the tie vote occurs, the marketing fee will not be implemented in 
the trading crowd at that time.
* * * * *

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 its proposal and discussed any 
comments it received on the proposal. 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
    On May 30, 2003, the Commission approved a proposed rule change 
that adopted Interpretation and Policy .12 to CBOE Rule 8.7, setting 
forth voting procedures that specify how a trading crowd, including the 
DPM, determines whether or not to participate in the CBOE's marketing 
fee program.\6\ The Marketing Fee Voting Procedures were implemented as 
a one-year pilot program and expired on May 30, 2004. Although the CBOE 
has been evaluating whether to make modifications to its marketing fee 
program, in the interim, the CBOE proposes to re-institute these voting 
procedures on a pilot basis to expire six months after Commission 
approval of the proposed rule change. The Exchange represents that 
these procedures are substantially similar to those previously approved 
by the Commission before the pilot expired,\7\ except that the CBOE 
proposes that the Marketing Fee Voting Procedures be amended to include 
e-DPMs in the category of trading crowd members who are eligible to 
participate in a marketing fee vote, on an option-by-option class 
basis, and only for those option classes to which they have been 
appointed.
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    \6\ See Securities Exchange Act Release No. 47948 (June 1, 
2003), 68 FR 33749 (June 5, 2003) (SR-CBOE-2003-19).
    \7\ See Marketing Fee Voting Procedures Approval Order, supra 
note 3.
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Eligible Voters in a Trading Crowd

    Proposed Interpretation and Policy .12 of CBOE Rule 8.7 provides 
that eligible trading crowd members include:
    (1) Those Market-Makers who have transacted at least 80% of their 
Market-Maker contracts and transactions in each of the three 
immediately preceding calendar months in option classes traded in the 
trading crowd and who continue to be present in the trading crowd in 
the capacity of a Market-Maker at the time of the vote; \8\
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    \8\ The CBOE states that it routinely monitors Market-Maker 
trading activity for purposes of determining compliance with 
Interpretation and Policy .03 of CBOE Rule 8.7, relating to 
appointment and in-person trading requirements. Additionally, the 
Exchange has committed to monitor Market-Maker trading activity for 
purposes of determining compliance with the electronic quoting 
requirements adopted in SR-CBOE-2002-05 (the Hybrid Trading System). 
See Securities Exchange Act Release No. 47959 (May 30, 2003), 68 FR 
34441 (June 9, 2003). As such, the CBOE believes that it has the 
capability to determine who constitutes an ``eligible trading crowd 
member'' for purposes of the proposed Marketing Fee Voting 
Procedures. Furthermore, the CBOE believes that the trading activity 
and in-person requirements of Interpretation and Policy .12 of CBOE 
Rule 8.7 ensure that only those members who are currently engaged as 
Market-Makers in that trading crowd, and who have concentrated their 
activity in that trading crowd over the last three months, may 
participate in the vote.
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    (2) The DPM; and
    (3) Any e-DPM, for those option classes to which the e-DPM has been 
appointed.

Process To Request a Vote

    The CBOE proposes that the DPM, e-DPM or any other eligible trading 
crowd member may request that a vote be held by submitting a written 
request to that effect to the Secretary of the CBOE. The CBOE will 
provide at least ten calendar days posted notice to the trading crowd 
and will provide written notice to the e-DPM of the time and date of 
the vote. The Secretary of the CBOE will verify that the member 
requesting a vote is an eligible trading crowd member and will keep the 
identity of such individual confidential.

Trading Crowd Participating in Marketing Fee Program

    Proposed Interpretation and Policy .12 to CBOE Rule 8.7 provides 
that a trading crowd will be deemed to have indicated that it does not 
wish to continue participating in the marketing fee program for one or 
more of the option classes located at that station only if: (i) The 
question is put to a vote of the eligible trading crowd members; \9\ 
(ii) a majority of the eligible trading crowd members participate in 
the vote; \10\ and (iii) a majority of the votes cast are in favor of 
not participating in the marketing fee program. In the event the vote 
of the members of the trading crowd is tied, the marketing fee program 
will remain in effect in the option class or classes in that trading 
crowd for the next three consecutive months.
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    \9\ The DPM and any e-DPM appointed to the option class are 
considered to be eligible trading crowd members and, as such, may 
(but are not required to) participate in the vote. The DPM and any 
e-DPM are each entitled to only one vote.
    \10\ To the extent the CBOE's rules permit a Market-Maker 
affiliated with an e-DPM to trade in a station, that Market-Maker is 
eligible to vote pursuant to CBOE Rule 8.7, Interpretation and 
Policy .12(a)(ii).
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Trading Crowd Not Participating in Marketing Fee Program

    According to the CBOE, twenty days after a trading crowd votes not 
to participate in the marketing fee program, any eligible trading crowd 
member may then request that another vote be held to determine whether 
the trading crowd should participate in the marketing fee program.\11\ 
In this case, if a majority of the votes cast are in favor of 
participating in the marketing fee program, the trading crowd will be 
deemed to have indicated that it wishes to participate in the marketing 
fee program and the marketing fee program will be in effect in that 
trading crowd for the next three consecutive months. In the event the 
vote of the members of the trading crowd is tied, the trading crowd 
will be deemed to have indicated that it does not wish to participate 
in the marketing fee program.
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    \11\ The CBOE notes that actual votes may only be held once 
every thirty days. Because there is a ten calendar day notice period 
prior to a vote, however, an eligible trading crowd member may 
request a vote twenty days after the preceding vote.
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    The CBOE further states that these Marketing Fee Voting Procedures 
are substantially similar to procedures adopted by the American Stock 
Exchange (``Amex'').\12\
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    \12\ See Amex Rule 958.11. See Securities Exchange Act Release 
Nos. 48577 (September 30, 2003), 68 FR 57943 (October 7, 2003) (File 
No. SR-AMEX-2003-80); and 49488 (March 26, 2004), 69 FR 17460 (April 
2, 2004) (File No. SR-AMEX-2004-18).
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    Moreover, the CBOE proposes that a marketing fee oversight 
committee of the CBOE shall determine administrative procedures for 
conducting the vote. If a payment accepting firm materially changes its 
execution status or a DPM transfers its DPM appointment to a separate 
organization pursuant to CBOE Rule 8.89, any eligible trading crowd 
member may then request that a vote be held to determine whether or not 
the trading crowd should participate in the marketing fee program by 
conducting a vote pursuant to the above procedures.
2. Statutory Basis
    The CBOE believes that, because the reinstated Interpretation and 
Policy .12 to CBOE Rule 8.7 will provide fair and orderly procedures 
for the administration of any marketing fee program, the proposed rule 
change is

[[Page 47967]]

consistent with and furthers the objectives of Section 6(b)(5) of the 
Act,\13\ which requires, among other things, that the rules of the 
exchange are designed to promote just and equitable principles of trade 
and to remove impediments to and perfect the mechanisms of a free and 
open market.
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    \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 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

    The CBOE states that 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 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-2004-47 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-2004-47. 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 Room. Copies of the 
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-2004-47 and should be submitted on or before August 
27, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change as a Pilot Program

    After careful consideration, 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.\14\ Specifically, the Commission believes the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\15\ which 
requires, among other things, that the rules of the Exchange be 
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 regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
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    \14\ The Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that this proposal, which allows the 
appropriate eligible trading crowd members to determine whether to 
participate in the CBOE's marketing fee program, promotes member 
participation in the procedures of the CBOE. Further, the Commission 
notes that the proposed Marketing Fee Voting Procedures are 
substantially similar to the voting procedures previously in place at 
the Exchange on a pilot basis and to those procedures of another self-
regulatory organization, which have previously been approved by the 
Commission.\16\
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    \16\ See Amex Rule 958.11, supra note 12.
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    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day of the date of publication of notice of 
filing thereof in the Federal Register. The Commission notes that the 
proposed Marketing Fee Voting Procedures correspond to the voting 
procedures that had been in place at the Exchange until recently. 
Moreover, the CBOE is proposing to institute these procedures as a 
pilot program that will expire six months from the date of this order. 
Therefore, the Commission finds that there is good cause, consistent 
with Section 19(b)(2) of the Act,\17\ to approve the proposed rule 
change on an accelerated basis.
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    \17\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (File No. SR-CBOE-2004-47) be 
approved until January 30, 2005.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-17956 Filed 8-5-04; 8:45 am]
BILLING CODE 8010-01-P