[Federal Register Volume 70, Number 11 (Tuesday, January 18, 2005)]
[Notices]
[Pages 2910-2911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-150]



[[Page 2910]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51007; File No. SR-CBOE-2005-03]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Relating to Allocations of Securities

January 10, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
January 7, 2005, 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 CBOE. The Exchange 
has filed this proposed rule change pursuant to Section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ which renders the 
proposal effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------

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

    The Exchange proposes to adopt an Interpretation to CBOE Rule 8.95 
relating to temporary allocations of securities. The text of the 
proposed rule change is available at the CBOE's Office of the Secretary 
and at the Commission's Public Reference Room.

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 parts of such 
statements.

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

1. Purpose
    CBOE Rule 8.95 governs the allocation of securities on the Exchange 
and generally provides a framework by which the Allocation or Special 
Product Assignment Committee determines whether to allocate a security 
to a trading crowd or a Designated Primary Market-Maker (``DPM''). 
Paragraph (b) gives these Committees the ability to consider any 
factors they believe to be relevant in making such determinations. The 
purpose of this rule filing is to adopt Interpretations and Policies 
.05 (``I&P .05'') to CBOE Rule 8.95 to clarify that the Exchange has 
the authority to grant a temporary allocation.
    In this regard, the Exchange anticipates listing on the Hybrid 
Trading System (``Hybrid'') new option classes on ETFs and possibly 
indexes in the very near future. Currently, index options and options 
on ETFs (``index-based products'') may only trade on Hybrid if they 
have an assigned DPM, which precludes the trading of an index-based 
product on Hybrid using an LMM system or a trading crowd with only 
Market-Makers. In December, the Exchange filed SR-CBOE-2004-87, which 
would allow it to trade these index-based products without a DPM. Upon 
approval of that rule filing, the Exchange would like the ability to 
reconsider changing the trading platform \5\ with respect to these 
index-based products in order to determine if the product should trade 
in a non-DPM environment.
---------------------------------------------------------------------------

    \5\ The term ``trading platform,'' for purposes of this rule 
filing, refers to the system by which a security trades. A security 
may trade using a DPM system, an LMM system, or upon approval of SR-
CBOE-2004-87, with a Market-Maker system without a DPM or LMM.
---------------------------------------------------------------------------

    Accordingly, proposed I&P .05 provides the ability to grant initial 
allocations on a temporary basis and at any point within one year to 
reallocate the security such that it trades on a different trading 
platform (e.g., from a DPM to a non-DPM trading crowd or vice versa). 
The proposed I&P provides that the Special Product Assignment or 
Allocation Committee may make temporary allocations of securities 
either to a DPM or a non-DPM trading crowd by explicitly indicating to 
such DPM or non-DPM trading crowd at the time of allocation that the 
allocation is temporary. The Committee that made the temporary 
allocation may, at any time during the first twelve months following 
the granting of the temporary allocation, determine it is in the best 
interest of the Exchange to reallocate the security such that: (i) A 
security initially allocated to a DPM is reallocated to a non-DPM 
trading crowd; or (ii) a security initially allocated to a non-DPM 
trading crowd is reallocated to a DPM. While proposed I&P .05 
establishes the right to make temporary allocations, nothing in this 
proposal eliminates the ability of the appropriate committee to take 
action in accordance with existing paragraphs (c) and (d) of CBOE Rule 
8.95.
2. Statutory Basis
    CBOE believes the proposed rule change is consistent with the Act 
and the rules and regulations under the Act applicable to a national 
securities exchange and, in particular, the requirements of Section 
6(b) of the Act.\6\ Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(5) of the Act,\7\ which 
requires, among other things, that the rules of an exchange be designed 
to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts and, in general, to protect investors 
and the public interest.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------

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

    CBOE does not believe that the proposed rule change will impose any 
burden on competition 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

    The Exchange neither solicited nor received written 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 is immediately effective 
pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(1) 
thereunder,\9\ because it constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule. 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

[[Page 2911]]

appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------

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-2005-03 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-2005-03. 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-2005-03 and should be submitted on or before February 8, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-150 Filed 1-14-05; 8:45 am]
BILLING CODE 8010-01-P