[Federal Register Volume 70, Number 1 (Monday, January 3, 2005)]
[Notices]
[Page 128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-28670]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50907; File No. SR-CBOE-2004-04]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Order Granting Approval to Proposed Rule Change and Amendment No. 
1 Thereto To Amend the Exchange's Guaranteed Participation Rule 
Relating to Facilitation and Crossing Transactions

December 22, 2004.
    On January 16, 2004, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC''), 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 to amend CBOE Rule 6.74, Crossing 
Orders, relating to facilitation and crossing transactions. On November 
3, 2004, CBOE submitted Amendment No. 1 to the proposed rule change.\3\ 
The proposed rule change, as amended, was published for comment in the 
Federal Register on November 18, 2004.\4\ The Commission received no 
comments on the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Stephen Youhn, Legal Division, CBOE, to 
Nancy J. Sanow, Assistant Director, Dvision of of Market Regulation 
(``Division''), Commission, dated November 2, 2004 (``Amendment No. 
1''). Amendment No. 1 replaced and superseded the original filing in 
its entirety.
    \4\ See Securities Exchange Act Release No. 50655 (November 10, 
2004), 69 FR 67614.
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    CBOE proposes to amend Exchange Rule 6.74 with respect to the 
guaranteed participation to which a floor broker is entitled when 
seeking to execute crossing and facilitation transactions. Under the 
current rule, after requesting a market from the trading crowd, a floor 
broker seeking to cross an order he or she is holding with another 
order, or, in the case of a public customer order, with a facilitation 
order from the firm from which the public customer order originated, is 
entitled to a guaranteed participation of 20% when the order trades at 
a price that matches the price given by the trading crowd in response 
to the initial request for a market, and 40% when the order trades at a 
price that improves upon that price. The proposed rule change would 
entitle the floor broker to a 40% guarantee in both cases.\5\
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    \5\ These guaranteed percentages apply after all public customer 
orders that were on the limit order book and represented in the 
trading crowd at the time the market was established have been 
satisfied. The proposal would also amend CBOE Rule 6.74(d)(v) to 
make corresponding changes to the DPM participation entitlement as 
it pertains to facilitation and crossing orders. Specifically, the 
rule would be amended to state that DPMs are not entitled to any 
guaranteed participation for trades occurring pursuant to CBOE Rule 
6.74(d) unless the floor broker crosses less than its guaranteed 
40%, in which case the DPMs guarantee would be a percentage that, 
when combined with the firm's percentage, does not exceed 40% of the 
order. The intent of the provision is that the aggregate of the 
guarantees may not exceed 40% of the remainder of the order after 
public customer orders have been satisfied. Telephone conversation 
between Stephen Youhn, Legal Division, CBOE, and Ira Brandriss, 
Assistant Director, Division, Commission, on December 17, 2004.
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    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)(5) of the Act.\7\ The 
Commission has found with respect to participation guarantees in other 
contexts that a maximum guarantee of 40% is not inconsistent with 
statutory standards of competition and free and open markets.\8\
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    \6\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact of efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ See, e.g., Securities Exchange Act Release Nos. 42455 
(February 24, 2000), 65 FR 11388 (March 2, 2000) at 11398; and 43100 
(July 31, 2000), 65 FR 48778 (August 9, 2000) at notes 96-99 and 
accompanying text.
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    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\9\, that the proposed rule change (File No. SR-CBOE-2004-04), as 
amended, be, and hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Dvision of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-28670 Filed 12-30-04; 8:45 am]
BILLING CODE 8010-10-M