[Federal Register Volume 69, Number 230 (Wednesday, December 1, 2004)]
[Notices]
[Pages 69964-69965]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3401]



[[Page 69964]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50735; File No. SR-CBOE-2004-69]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Incorporated to Eliminate the Exchange's Marketing Fee Voting 
Procedures

November 24, 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 October 29, 2004, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Exchange. The Exchange filed the proposal pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposal effective upon filing with the 
Commission.\5\ The Commission is publishing this notice to solicit 
comments on the proposed rule change.
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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)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Exchange has asked the Commission to waive the 30-day 
operative delay. See Rule 19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to eliminate its Marketing Fee Voting Procedures, 
previously set forth in Interpretation and Policy .12 to CBOE Rule 8.7. 
Proposed new language is italicized; proposed deletions are in 
[brackets].
Rule 8.7 Obligations of Market-Makers
* * * * *
Interpretations and Policies
    .01-.11 No change.
    .12 Reserved. [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 time the tie vote occurs, 
the marketing fee will not be implemented in the trading crowd at that 
time.]
    .13 No Change.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On July 30, 2004,\6\ the CBOE amended Interpretation and Policy .12 
to CBOE Rule 8.7, setting forth voting procedures specifying how a 
trading crowd, including the DPM and e-DPM, determines whether or not 
to participate in the Exchange's marketing fee program.\7\ The 
marketing fee voting procedures were adopted as a six-month pilot. The 
CBOE has determined to replace its current marketing fee program that 
is assessed on DPM, e-DPM, and Market-Maker transactions in all equity 
option classes in which a DPM has been appointed. The marketing fee is 
assessed only on those Market-Maker, DPM, and e-DPM transactions 
resulting from orders from customers of payment accepting firms with 
which the DPM has agreed to pay for that firm's order flow, and only 
with respect to orders from customers that are for 200 contracts or 
less. According to the Exchange, on October 28, 2004, it held a special 
meeting of its membership for the purpose of holding a membership vote 
on its proposed new marketing fee program. The Exchange states that 
CBOE membership voted in favor of approving the new marketing fee 
program, which does not include a marketing fee voting procedure. In 
conjunction with this filing, the CBOE has filed a rule change 
incorporating the

[[Page 69965]]

new marketing fee program pursuant to Section 19(b)(3)(A)(ii) of the 
Act \8\ and subparagraph (f)(2) of Rule 19b-4 thereunder.\9\
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    \6\ Telephone conversation between Andrew Spiwak, Director Legal 
Division and Chief Enforcement Attorney, CBOE, and David Liu, 
Attorney, Division of Market Regulation, Commission, on November 2, 
2004.
    \7\ The marketing fee voting procedures were described in SR-
CBOE-2004-47 (see Securities Exchange Act Release 50130 (July 30, 
2004) 69 FR 47965 (August 6, 2004).)
    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 240.19b-4(f)(2). The CBOE filed a rule change to 
adopt a new marketing fee to be imposed on transactions of Market-
Makers (including Designated Primary Market-Makers, or DPMs, and 
electronic Designated Primary Market-Makers, or e-DPMs) pursuant to 
Section 19(b)(3)(A)(ii) of the Act and subparagraph (f)(2) of Rule 
19b-4 thereunder (see SR-CBOE-2004-68).
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2. Statutory Basis
    The CBOE believes that the elimination of Interpretation and Policy 
.12 to Rule 8.7 is consistent with and in furtherance of the objectives 
of Section 6(b)(5) of the Act \10\ in that it is designed to enhance 
competition 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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    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

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

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

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

    The foregoing proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) thereunder 
\12\ because the proposal: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) does not become 
operative prior to 30 days after the date of filing (or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest).
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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-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 Exchange satisfied the five-day 
pre-filing requirement. The Exchange requests that the Commission waive 
the 30-day operative delay, as specified in Rule 19b-4(f)(6)(iii),\13\ 
and designate the proposed rule change to become operative immediately.
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
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    The CBOE has requested that the Commission waive the 30-day 
operative delay and to designate the proposed rule change as operative 
on November 1, 2004, to facilitate the implementation of the new 
marketing fee program that became effective on November 1, 2004. The 
Commission believes that waiving the 30-day operative period is 
consistent with the protection of investors and the public 
interest.\14\ The Commission believes that waiving the 30-day operative 
delay would permit the Exchange to eliminate the Marketing Fee Voting 
Procedures at the same time that it implements its revised marketing 
fee program. Under the Exchange's revised marketing fee program, which 
applies to all classes of equity options, voting procedures would not 
be a part of the program.\15\ Accordingly, the Commission, consistent 
with the protection of investors and the public interest, has waived 
the 30-day operative date requirement for this proposed rule change, 
and has determined to designate the proposed rule change as operative 
on November 1, 2004, to facilitate the implementation of the new 
marketing fee program that became effective on November 1, 2004.\16\
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    \14\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \15\ See supra note 9.
    \16\ Id.
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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-2004-69 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-2004-69. 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-2004-69 and should be submitted on or before December 22, 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. E4-3401 Filed 11-30-04; 8:45 am]
BILLING CODE 8010-01-P