[Federal Register Volume 70, Number 30 (Tuesday, February 15, 2005)]
[Notices]
[Pages 7783-7785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-601]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51147; File No. SR-CBOE-2005-15]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc., To Permit a Decrease of the Designated Primary Market-
Maker Participation Entitlement for Certain Option Classes

February 7, 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 31, 2005, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') 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 Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 8.87 to permit the Exchange to 
decrease the Designated Primary Market-Maker (``DPM'') participation 
entitlement for certain option classes. The text of the proposed rule 
change follows. Additions are in italics.
Chicago Board Options Exchange, Incorporated
Rules
* * * * *
Rule 8.87 Participation Entitlements of DPMs and e-DPMs
    (a) Subject to the review of the Board of Directors, the MTS 
Committee may establish from time to time a participation entitlement 
formula that is applicable to all DPMs.
    (b) The participation entitlement for DPMs and e-DPMs (as defined 
in Rule 8.92) shall operate as follows:
    (1) Generally.
    (i) To be entitled to a participation entitlement, the DPM/e-DPM 
must be quoting at the best bid/offer on the Exchange.
    (ii) A DPM/e-DPM may not be allocated a total quantity greater than 
the quantity that the DPM/e-DPM is quoting at the best bid/offer on the 
Exchange.
    (iii) The participation entitlement is based on the number of 
contracts remaining after all public customer orders in the book at the 
best bid/offer on the Exchange have been satisfied.
    (2) Participation Rates applicable to DPM Complex. The collective 
DPM/e-DPM participation entitlement shall be: 50% when there is one 
Market-Maker also quoting at the best bid/offer on the Exchange; 40% 
when there are two Market-Makers also quoting at the best bid/offer on 
the Exchange; and, 30% when there are three or more Market-Makers also 
quoting at the best bid/offer on the Exchange.
    (3) Allocation of Participation Entitlement Between DPMs and e-
DPMs. The participation entitlement shall be as follows: If the DPM and 
one or more e-DPMs are quoting at the best bid/offer on the Exchange, 
the e-DPM participation entitlement shall be one-half (50%) of the 
total DPM/e-DPM entitlement and shall be divided equally by the number 
of e-DPMs quoting at the best bid/offer on the Exchange. The remaining 
half shall be allocated to the DPM. If the DPM is not quoting at the 
best bid/offer on the Exchange and one or more e-DPMs are quoting at 
the best bid/offer on the Exchange, then the e-DPMs shall be allocated 
the entire participation entitlement (divided equally between them). If 
no e-DPMs are quoting at the best bid/offer on the Exchange and the DPM 
is quoting at the best bid/offer on the Exchange, then the DPM shall be 
allocated the entire participation entitlement. If only the DPM and/or 
e-DPMs are quoting at the best bid/offer on the Exchange (with no 
Market-Makers at that price), the

[[Page 7784]]

participation entitlement shall not be applicable and the allocation 
procedures under Rule 6.45A shall apply.
. . . Interpretations and Policies:
    .01 Notwithstanding subparagraph (b)(2) above, the Exchange may 
establish a lower DPM Complex Participation Rate on a product-by-
product basis for newly-listed products or products that are being 
allocated to a DPM trading crowd for the first time. Notification of 
such lower participation rate shall be provided to members through a 
Regulatory Circular.
* * * * *

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 aspects 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 8.87 governs the participation entitlement of DPMs and e-
DPMs (the ``DPM Complex''). Rule 8.87(b)(2) states the actual 
participation entitlement percentages applicable to the DPM Complex, 
which are tiered to take into account the number of non-DPM Market-
Makers also quoting at the best price. The participation entitlement 
percentages are as follows: 50% when there is one Market-Maker also 
quoting at the best bid/offer on the Exchange; 40% when there are two 
Market-Makers also quoting at the best bid/offer on the Exchange; and 
30% when there are three or more Market-Makers also quoting at the best 
bid/offer on the Exchange.
    This proposal would allow the Exchange to establish a lower 
participation right, on a product-by-product basis, for newly-listed 
options or for options that are being allocated to a DPM for the first 
time. The Commission has previously approved specialist entitlements as 
high as 40% (with three or more market-makers also quoting at the same 
price). This filing merely gives the Exchange the flexibility to 
implement a lower participation entitlement (something less than 30%) 
for the DPM Complex if the options are newly-listed or are being 
allocated to a DPM trading crowd (from a non-DPM trading crowd) for the 
first time.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \3\ of the Act in general and furthers the objectives 
of Section 6(b)(5) \4\ 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 and a national market 
system, and protect investors and the public interest.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change 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 solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule does not (i) significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; or (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \5\ and Rule 19b-4(f)(6) \6\ thereunder.
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 19b-4(f)(6).
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    Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\7\ the proposal 
does not become operative for 30 days after the date of its filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest. The CBOE has 
requested that the Commission waive the 30-day operative delay so that 
the proposed rule change becomes effective immediately.\8\ The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission notes that the proposal would give the Exchange the 
flexibility to establish lower participation guarantees than the 
Commission has approved in the past and would apply only to newly-
listed products or products that are being allocated to a DPM trading 
crowd for the first time. Therefore, the Commission has determined to 
waive the 30-day delay and allow the proposed rule change to become 
operative immediately.\9\
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    \7\ 17 CFR 240.19b-4(f)(6)(iii).
    \8\ The Exchange gave the Commission written notice of its 
intent to file the proposed rule change by notice on January 14, 
2005.
    \9\ For purposes only of waiving the operative delay of this 
proposal, the Commission notes that it has considered the proposed 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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    At any time within 60 days of the filing of the 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 No. SR-CBOE-2005-15 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-2005-15. 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 Commissions 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

[[Page 7785]]

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 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-2005-15 and should be 
submitted on or before March 8, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
Margaret H. McFarland,
Deputy Secretary.
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    \10\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E5-601 Filed 2-14-05; 8:45 am]
BILLING CODE 8010-01-P