[Federal Register Volume 69, Number 240 (Wednesday, December 15, 2004)]
[Notices]
[Pages 75092-75093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3649]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50821; File No. SR-CBOE-2004-73]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. To Restrict a 
Designated Primary Market-Maker's Ability To Charge a Brokerage 
Commission

December 8, 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 November 12, 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, II, and III below, which items have been prepared by the 
Exchange. 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 Exchange proposes to amend its rules relating to a designated 
primary market-maker's (``DPMs'') ability to charge a brokerage 
commission. Proposed new language is in italics.
* * * * *
Rule 8.85. DPM Obligations
    (a) Dealer Transactions. No Change.
    (b) Agency Transactions. No Change.
    (i)-(iii) No Change.
    (iv) not charge any brokerage commission with respect to:
    (1) the execution of any portion of an order for which the DPM has 
acted as both agent and principal, unless the customer who placed the 
order has consented to paying a brokerage commission to the DPM with 
respect to the DPM's execution of the order while acting as both agent 
and principal; or
    (2) any portion of an order for which the DPM was not the executing 
floor broker, including any portion of the order that is automatically 
executed through an Exchange system; or
    (3) any portion of an order that is automatically cancelled, or;
    (4) any portion of an order that is not executed and not cancelled.
* * * * *

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange believes that the proposed rule change clarifies 
within CBOE rules that a DPM cannot charge a brokerage commission on 
orders for which they do not perform an agency function. The Exchange 
also believes the proposed rule change is both appropriate and 
necessary to clarify to the investing public that orders sent to the 
CBOE will not be subject to excessive or arbitrary costs. In addition 
to protecting investors, the Exchange believes that this rule change 
also preserves the competitiveness of the Exchange.
    Therefore, the Exchange proposes to amend CBOE rules that govern 
DPMs to specifically prohibit DPMs from charging a brokerage commission 
for an order, or the portion of an order, (1) for which the DPM was not 
the executing broker, which includes any portion of the order that is 
automatically executed through an Exchange system; (2) that is 
automatically cancelled; or (3) that is not executed, and not 
cancelled. The Exchange believes that the prohibition on charging floor 
brokerage commissions under the aforementioned order scenarios is 
appropriate simply because the DPM does not handle or perform any 
agency function for such orders.
    Finally, the proposed rule change also proposes to make a technical 
clarification to current CBOE Rule 8.85(b)(iv), which is related to 
this filing and which prohibits a DPM from charging a brokerage 
commission for the portion of any order in which the DPM acts as both 
principal and agent. This proposal would add the term ``portion'' to 
the rule text to clarify that a DPM can charge a brokerage commission 
for the part of any order that it has not executed as principal, but 
did act as executing

[[Page 75093]]

broker in the execution of that order. The Exchange believes that this 
is the current practice on the Exchange and in the industry.
2. Statutory Basis
    The Exchange believes that restricting a DPM from unnecessarily 
charging brokerage commission for agency orders will benefit both 
investors and will preserve the competitiveness of the Exchange. The 
Exchange believes that the proposed rule change is consistent with 
section 6(b) of the Act \3\ in general and furthers the objectives of 
section 6(b)(5) of the Act \4\ in particular in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market, and to protect 
investors and the public interest.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does not 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

    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 Exchange 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-2004-73 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-2004-73. 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-2004-73 
and should be submitted on or before January 5, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E4-3649 Filed 12-14-04; 8:45 am]
BILLING CODE 8010-01-P