[Federal Register Volume 69, Number 249 (Wednesday, December 29, 2004)]
[Notices]
[Pages 78072-78073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3880]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50909; File No. SR-CBOE-2004-85]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Chicago Board Options 
Exchange, Incorporated Regarding Designated Primary Market-Makers' 
Handling of Non-Public Customer Orders

December 22, 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 December 15, 2004, the Chicago Board Options Exchange, Incorporated 
(``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 CBOE. 
On December 21, 2004, the CBOE submitted Amendment No. 1 to the 
proposed rule change.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 made technical corrections to the propose 
rule text of the proposed rule change.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to modify CBOE Rule 8.85(b)(iii) regarding 
Designated Primary Market-Makers' (``DPMs'') handling of non-public 
customer orders. Below is the text of the proposed rule change, as 
amended. Proposed deletions are in [brackets].
* * * * *

Rule 8.85 DPMs Obligations

    (a) No change.
    (b) Agency Transactions. Each DPM shall fulfill all of the 
obligations of a Floor Broker (to the extent that the DPM acts as a 
Floor Broker) and of an Order Book Official under the Rules, and shall 
satisfy each of the following requirements, in respect of each of the 
securities allocated to the DPM:
    (i)-(ii) No change.
    (iii) accord priority to any [public] customer order which the DPM 
represents as agent over the DPM's principal transactions, unless the 
customer who placed the order has consented to not being accorded such 
priority;
    (iv)-(vii) No change.
    (c)-(e) No change.

* * * Interpretations and Policies:

    .01-.04 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 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, as 
amended. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On January 25, 2002 the Commission approved a CBOE rule change 
filing eliminating the obligation of DPMs to accord priority to non-
public customer orders.\4\ In approving the filing, the Commission 
expressly stated that it was making no determination as to whether a 
DPM's failure to accord priority to non-public customer orders, when 
the DPM is acting as an agent, is consistent with the federal 
securities laws or any other applicable law. The Commission further 
stated that the approval does not affect a DPM's fiduciary obligations 
under federal securities laws or agency law principles when it acts as 
agent.
---------------------------------------------------------------------------

    \4\ Securities Exchange Act Release No. 45341 (January 25, 
2002), 67 FR 5016 (February 1, 2002) (approving SR-CBOE-00-42).
---------------------------------------------------------------------------

    The Exchange now proposes to change the rule in question, CBOE Rule

[[Page 78073]]

8.85(b)(iii), to revert back to the original language so that the rule 
applies to both public customer and non-public customer orders.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \5\ in general, and furthers 
the objectives of Section 6(b)(5) \6\ 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 
a national market system and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, will 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 either solicited or received.

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-2004-85 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-2004-85. 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-2004-85 and should be submitted on or before January 19, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3880 Filed 12-28-04; 8:45 am]
BILLING CODE 8010-01-P