[Federal Register Volume 69, Number 163 (Tuesday, August 24, 2004)]
[Notices]
[Page 52053]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-1892]


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SECURITIES AND EXHANGE COMMISSION

[Release No. 34-50209; File No. SR-CBOE-2004-43]


Self Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval to Proposed Rule Change and 
Amendment No. 1 Thereto To Amend the Exchange's Membership Rules To 
Accommodate e-DPMs

August 18, 2004.
    On July 12, 2004, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``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 its Chapter III 
membership rules to accommodate a new category of CBOE market-making 
participant--electronic Designated Primary Market-Makers (``e-DPMs''). 
On July 12, 2004, the CBOE filed Amendment No. 1 to the proposed rule 
change.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from David Doherty, Attorney, Legal Division, 
CBOE, to Deborah Flynn, Assistant Director, Division of Market 
Regulation, Commission, dated July 12, 2004 (``Amendment No. 1'').
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    The proposed rule change, as amended, was published for comment in 
the Federal Register on July 19, 2004.\4\ The Commission received no 
comments on the proposal.
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    \4\ See Securities Exchange Act Release No. 50007 (July 13, 
2004), 69 FR 43034.
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    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 \5\ 
and, in particular, the requirements of Section 6 of the Act \6\ and 
the rules and regulations thereunder. The Commission specifically finds 
that the proposed rule change, as amended, is consistent with Section 
6(b)(5) of the Act \7\ in that it is designed to promote just and 
equitable principles of trade, to remove impediments and to 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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    \5\ In approving this proposed rule change, as amended, the 
Commission notes that it has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \6\ 6 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
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    In particular, the Commission believes that the CBOE's proposed 
amendment to CBOE Rule 3.8(a)(ii) to allow a member organization acting 
as an e-DPM to have one individual be the nominee for multiple 
memberships that are designated for use in an e-DPM capacity would not 
be inappropriate given that e-DPMs operate from locations outside of 
the trading crowds for their applicable option classes, thereby making 
it possible for a member to act as an nominee on more than one 
membership.\8\ The Commission notes, however, that such individual 
cannot be the designated nominee for any of the organization's other 
memberships in any other market making capacity other than that of an 
e-DPM.
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    \8\ The Commission notes that it would not be possible for an 
in-crowd market participant to act as nominee on more than one 
membership because such participant would be unable to physically be 
present in more than one trading crowd.
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    The Commission further believes that the CBOE's proposal to change 
the reference to ``floor functions'' in CBOE Rules 3.2, 3.8, and 3.9 to 
``trading functions'' should help to clarify the applicability of these 
rules to e-DPMs, who would not necessarily have a floor presence.\9\ In 
addition, Commission believes that the proposed amendment to CBOE Rule 
3.2 to clarify that a member is deemed to have an authorized ``trading 
function'' if the member is approved by the CBOE's Membership Committee 
to act as a nominee or person registered for an e-DPM organization 
should help to ensure that e-DPMs, like other Market-Makers and CBOE 
Floor Brokers, would be required to comply with the CBOE Rule 3.9(g) 
member orientation and qualification exam requirements. Lastly, the 
Commission notes that the CBOE's proposed Rule 3.28 requirement that e-
DPMs provide the Exchange with a letter of guarantee from a clearing 
member is similar to ISE Rule 808 and PCX Rule 6.36(a) requirements, 
previously approved by the Commission.
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    \9\ The Commission notes that it is possible for e-DPMs to 
stream quotes into the Exchange from locations on the trading floor 
other than the trading crowds where their allocated option classes 
are traded. In addition, for an 18-month period, e-DPMs are 
permitted to have no more than one Market-Maker affiliated with the 
e-DPM to trade on the trading floor in any specific options classes 
allocated to the e-DPM. CBOE Rule 8.93(vii).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2004-43) and Amendment 
No. 1 thereto be approved.
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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. E4-1892 Filed 8-23-04; 8:45 am]
BILLING CODE 8010-01-P