[Federal Register Volume 70, Number 25 (Tuesday, February 8, 2005)]
[Notices]
[Pages 6742-6743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-496]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51112; File No. SR-CBOE-2005-013]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change and Amendment No. 1 Thereto To Extend a Pilot Program Relating 
to Certain Limitations on Trade-Through Liability at the End of the 
Options Trading Day

January 31, 2005.
    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 January 26, 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 and 
II below, which items have been prepared by the CBOE. On January 28, 
2005, the CBOE filed Amendment No. 1 to the proposed rule change.\3\ 
The Exchange has filed the proposal as a ``non-controversial'' rule 
change pursuant to Section 19(b)(3)(A) of the Act,\4\ and Rule 19b-
4(f)(6) thereunder,\5\ which renders the proposal effective upon filing 
with the Commission.\6\ 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\ In Amendment No. 1 the Exchange made certain technical 
corrections to Exhibit 5 to the filing.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ The CBOE asked the Commission to waive the 30-day operative 
delay. See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

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

    CBOE proposes to extend a pilot program relating to certain 
limitations on trade-through liability at the end of the trading day.
    The text of the proposed rule change is available on the CBOE's Web 
site at http://www.cboe.com, at the Exchange'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, CBOE 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the filing is to conform CBOE rules to Joint 
Amendment No. 14 to the Plan for the Purpose of Creating and Operating 
an Intermarket Option Linkage (the ``Linkage Plan'') \7\ to extend the 
pilot provision in the CBOE rules limiting trade-through liability at 
the end of the options trading day. Pursuant to the Linkage Plan pilot 
as currently in effect, an options exchange member's trade-through 
liability is limited to 25 contracts per Satisfaction Order \8\ for the 
period between five minutes prior to the close of trading in the 
underlying security and the close of trading in the options class. The 
participant option exchanges in the Linkage Plan (``Participants'') 
originally proposed this limitation on liability as a one-year pilot in 
Joint Amendment No. 4 to the Linkage Plan. The Commission temporarily 
put into effectiveness the Linkage Plan pilot on January 31, 2003,\9\ 
followed by permanent approval on June 18, 2003.\10\ The Commission 
then granted two extensions to the Linkage Plan pilot, first until June 
30, 2004\11\ and then until January 31, 2005.\12\
---------------------------------------------------------------------------

    \7\ See Joint Amendment No. 14 to the Linkage Plan filed by the 
Exchange on January 27, 2005 in a letter from Edward J. Joyce, 
President and Chief Operating Officer, CBOE, to Jonathan G, Katz, 
Secretary, Commission, dated January 26, 2005.
    \8\ A ``Satisfaction Order'' is an order sent through the 
Linkage to notify a Participant Exchange of a Trade-Through and to 
seek satisfaction of the liability arising from that Trade-Through. 
See Section 2(16)(c) of the Linkage Plan.
    \9\ See Securities Exchange Act Release No. 47298 (January 31, 
2003), 68 FR 6524 (February 7, 2003) (Temporary effectiveness of 
pilot program on a 120-day basis).
    \10\ See Securities Exchange Act Release No. 48055 (June 18, 
2003), 68 FR 37869 (June 25, 2003) (Order approving Joint Amendment 
No. 4).
    \11\ See Securities Exchange Act Release No. 49146 (January 29, 
2004), 69 FR 5618 (February 5, 2004) (Order approving Joint 
Amendment No. 8).
    \12\ As a part of this extension of the Linkage Plan pilot 
program, the Participants increased the maximum liability from 10 to 
25 contracts. See Securities Exchange Act Release No. 49863 (June 
15, 2004), 69 FR 35081 (June 23, 2004) (Order approving Joint 
Amendment No. 12).
---------------------------------------------------------------------------

    The Exchange is proposing to extend the pilot in CBOE's rules for 
an additional year, until January 31, 2006. In addition, the Exchange 
proposes to increase the limit on trade-through liability at the end of 
the day from 25 contracts to 50 contracts per Satisfaction Order. This 
increase in the limit on liability would be effective on February 1, 
2005, when the current pilot expires. The period during which this 
limit will apply will remain the same, from five minutes prior to the 
close of trading in the underlying security until the close of trading 
in the options class.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\13\ in general, and furthers the 
objectives of Section 6(b)(5),\14\ in particular, in particular in that 
it should promote just and equitable principles of trade, serve to 
remove impediments to and perfect the mechanism of a free and open 
market

[[Page 6743]]

and a national market system, and protect investors and the public 
interest.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 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 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 has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\15\ and Rule 19b-4(f)(6) thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the five-day pre-filing requirement and the 30-day 
operative delay, as specified in Rule 19b-4(f)(6)(iii), and designate 
the proposed rule change immediately operative.
---------------------------------------------------------------------------

    \17\ 17 Id.
---------------------------------------------------------------------------

    The Commission believes that waiving the five-day pre-filing 
provision and the 30-day operative delay is consistent with the 
protection of investors and the public interest.\18\ By waiving the 
pre-filing requirement and accelerating the operative date, the Pilot 
Program can continue without interruption. The Commission believes that 
allowing the pilot to continue will allow Participants to either gather 
sufficient information to justify the need for the pilot program or 
determine that the exemption from trade-through liability is no longer 
necessary. Increasing the maximum number of contracts to be satisfied 
with respect to Satisfaction Orders in the last seven minutes of 
trading in options to 50 contracts will enhance customer order 
protection.
---------------------------------------------------------------------------

    \18\ For purposes of accelerating the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

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

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-2005-013 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-2005-013. 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 Room. Copies of the 
filing also will be available for inspection and copying at the 
principal offices 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-2005-013 and should be submitted on or before March 
1, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-496 Filed 2-7-05; 8:45 am]
BILLING CODE 8010-01-P