[Federal Register Volume 69, Number 179 (Thursday, September 16, 2004)]
[Notices]
[Pages 55852-55853]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2226]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50340; File No. SR-CBOE-2004-41]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to Minimum 
Size Guarantees for Linkage Orders

September 9, 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 7, 2004, the Chicago Board Options Exchange, Inc. (``CBOE'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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.
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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 CBOE proposes to amend its rules to conform to Amendment No. 13 
to the Plan for the Purpose of Creating and Operating an Intermarket 
Option Linkage (``Linkage Plan'').
    The text of the proposed rule change is below. Proposed additions 
are in italics.
* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Section E: Intermarket Linkage

Rule 6.80 Definitions

    (1)-(8) (No change.)
    (9) ``Firm Customer Quote Size'' with respect to a P/A Order 
means the lesser of (a) The number of option contracts that the 
Participant Exchange sending a P/A Order guarantees it will 
automatically execute at its disseminated quotation in a series of 
an Eligible Option Class for Customer orders entered directly for 
execution in that market; or (b) the number of option contracts that 
the Participant Exchange receiving a P/A Order guarantees it will 
automatically execute at its disseminated quotation in a series of 
an Eligible Option Class for Customer orders entered directly for 
execution in that market. The Firm Customer Quote Size will be at 
least 10 contracts for each series of an Eligible Option Class 
unless the receiving Participant Exchange is disseminating a 
quotation of less than 10 contracts, in which case this number may 
equal such quotation size.
    (10) ``Firm Principal Quote Size'' means the number of options 
contracts that a Participant Exchange guarantees it will execute at 
its disseminated quotation for incoming Principal Orders in an 
Eligible Option Class. This number shall be no fewer than 10, 
however if the Participant Exchange is disseminating a quotation 
size of less than 10 contracts, this number may equal such quotation 
size.
    (11)-(21) (No change.)
* * * * *

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 had 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 this filing is to conform CBOE's linkage rules to 
proposed Amendment No. 13 to the Linkage Plan, which would accommodate 
``natural size'' of quotations.\3\ Specifically, the Linkage Plan and 
CBOE rules currently require that the Exchange be firm for both 
Principal Acting as Agent (``P/A'') and Principal Orders for at least 
10 contracts (the ``10-up'' requirement). The proposed rule change 
would permit CBOE members to be firm for the actual size of their 
quotation, even if this amount is less than 10 contracts.
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    \3\ The participants in the Linkage Plan (``Participants'') have 
filed an amendment to the Linkage Plan to change the definitions of 
``Firm Customer Quote Size'' (``FCQS'') and ``Firm Principal Quote 
Size'' (``FPQS'') (Joint Amendment No. 13). See Securities Exchange 
Act Release No. 50211 (August 18, 2004), 69 FR 52050 (August 26, 
2004) (File No. 4-429).
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    The Participants adopted the 10-up requirement for the Linkage Plan 
at a time when all the exchanges had rules requiring that their 
quotations be firm for customer orders for at least 10 contracts.\4\ 
The CBOE no longer applies the 10-up requirement to all its quotes.\5\ 
Thus, the CBOE now seeks to conform its quotation requirements for 
incoming Principal and P/A Orders to be more consistent with the 
quotation requirements for non-Linkage orders.
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    \4\ See Securities Exchange Act Release No. 44383 (June 1, 
2001), 66 FR 30959 (June 8, 2001) (SR-Amex-2001-18; SR-CBOE-2001-15; 
SR-ISE-2001-07; SR-PCX-2001-18; and SR-Phlx-2001-37)..
    \5\ See CBOE Rule 8.51(c).
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    The proposed rule change would amend the definitions of both FCQS 
and FPQS. While CBOE's Linkage rules would maintain a general 
requirement that the FCQS and FPQS be at least 10 contracts, that 
minimum would not apply if CBOE were disseminating a quotation of fewer 
than 10 contracts. In that case, the Exchange may establish a FQCS or 
FPQS equal to its disseminated size.
    As with Principal and P/A Orders today, if the order is of a size 
eligible for automatic execution (``auto-ex''),\6\ the receiving 
exchange must provide for the auto-ex of the order. If this is not the 
case (for example, the receiving exchange's auto-ex system is not 
engaged), the receiving exchange still must provide a manual execution 
for at least the FCQS or FPQS, as appropriate (in this case, the size 
of its disseminated quotation of less than 10 contracts).
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    \6\ At the request of the Exchange, Commission staff removed an 
extraneous reference provided in the original filing regarding the 
automatic execution size at exchanges sending and receiving 
Principal Orders. Telephone conversation between Angelo Evangelou, 
CBOE and Tim Fox, Attorney, Division of Market Regulation, 
Commission, on August 23, 2004.
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2. Statutory Basis
    The CBOE believes that the proposed rule is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5) \8\ in particular in that it is designed to prevent fraudulent 
and manipulative acts and practices, 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, 
in general, 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).8
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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

[[Page 55853]]

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 with respect to the 
proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the CBOE consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2004-41 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-2004-41. 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-2004-41 and 
should be submitted on or before October 7, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-2226 Filed 9-15-04; 8:45 am]
BILLING CODE 8010-01-P