[Federal Register Volume 69, Number 249 (Wednesday, December 29, 2004)]
[Notices]
[Pages 78069-78070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-28480]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50915; File No. SR-CBOE-2004-52]


Self-Regulatory Organizations; Order Granting Approval of a 
Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Board 
Options Exchange, Incorporated to Amend its ``Trigger'' Rule to Permit 
RAES Orders to Automatically Execute Against Orders Resting on the 
Exchange's Limit Order Book

December 22, 2004.
    On July 30, 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 relating to the Exchange's 
AutoQuote Triggered Ebook Execution system (``Trigger''). On September 
23, 2004, the Exchange amended the proposed rule

[[Page 78070]]

change.\3\ The proposed rule change, as amended, was published for 
comment in the Federal Register on November 22, 2004.\4\ The Commission 
received no comments on the proposal. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from David Doherty, CBOE, to Nancy J. Sanow, 
Assistant Director, Division of Market Regulation, Commission, dated 
September 22, 2004, and accompanying Form 19b-4 (``Amendment No. 
1''). Amendment No. 1 replaced and superseded the original filing in 
its entirety.
    \4\ See Securities Exchange Act Release No. 50673 (November 16, 
2004), 69 FR 67971.
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    Trigger allows orders resting in CBOE's electronic book to 
automatically execute in the limited situation where the bid or offer 
for a series of options generated by the Exchange's AutoQuote system 
(or any Exchange approved proprietary quote generation system used in 
lieu of the Exchange's Autoquote system) crosses or locks the 
Exchange's best bid or offer for that series as established by a booked 
order. Currently, Trigger provides for automatic executions of orders 
resting in the book \5\ up to the maximum number of contracts permitted 
to be entered into RAES for that series (``Trigger Volume''). The 
trading crowd has the ability, but not the obligation, to execute 
manually the remaining contracts in the book that exceed the Trigger 
Volume. Any unexecuted contracts in the booked order in excess of the 
Trigger Volume remain in the book, and the bid or offer generated by 
Autoquote is one tick inferior to the price of the booked order, so 
that the disseminated quote does not cross or lock the Autoquote bid or 
offer.
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    \5\ Such orders are executed against market makers participating 
in the Exchange's Retail Automated Execution System (``RAES''). CBOE 
Rule 6.8(d).
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    The Exchange proposes to amend CBOE Rule 6.8(d)(v) to provide that 
where contracts remain in the book after an execution (or partial 
execution), or for any series where Trigger has not yet been 
implemented, orders in RAES for options of that series may, as 
determined by the appropriate FPC on a class by class basis, be (1) 
Automatically executed; or (2) rerouted on the Exchange's Order Routing 
System to the crowd PAR terminal (or to another location in the event 
of system problems or contrary firm routing instructions).
    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 \6\ and, in 
particular, the requirements of section 6(b) of the Act \7\ and the 
rules and regulations thereunder. The Commission finds specifically 
that the proposed rule change is consistent with section 6(b)(5) of the 
Act,\8\ because, in the Commission's view, the proposed rule change 
should help facilitate the execution of incoming RAES orders submitted 
during the Trigger process by making such orders eligible for automatic 
execution against the book orders that are crossed or locked by the 
Exchange's Autoquote system (or any Exchange approved proprietary quote 
generation system used in lieu of the Exchange's Autoquote system). The 
Commission notes that the proposed rule change would not change the 
existing execution process for incoming RAES orders that are submitted 
prior to a locked or crossed market.\91\
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    \6\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5). Section 6(b)(5) of the Act requires 
that the rules of a national securities 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 
mechanisms of a free and open market and a national market system, 
and in general, to protect investors and the public interest; and 
are not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.''
    \9\ These orders would continue to be executed in accordance 
with the RAES procedures set forth in CBOE Rule 6.8.
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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-2004-52) is 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. 04-28480 Filed 12-28-04; 8:45 am]
BILLING CODE 8010-01-M