[Federal Register Volume 70, Number 31 (Wednesday, February 16, 2005)]
[Notices]
[Pages 7981-7982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-642]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51173; File No. SR-CBOE-2004-85]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Order Approving a Proposed Rule Change and Amendment No. 1 
Thereto and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 2 Thereto Regarding Designated Primary Market-Makers' 
Handling of Non-Public Customer Orders

February 9, 2005.

I. Introduction

    On December 15, 2004, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), 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 its rules regarding 
Designated Primary Market-Makers' handling of non-public customer 
orders. On December 21, 2004, the CBOE submitted Amendment No. 1 to the 
proposed rule change.\3\ The proposed rule change was published for 
comment in the Federal Register on December 29, 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\ Amendment No. 1 made technical corrections to the propose 
rule text of the proposed rule change.
    \4\ See Securities Exchange Act Release No. 50909 (December 22, 
2004), 69 FR 78072.
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    On February 4, 2005, the CBOE submitted Amendment No. 2 to the 
proposed rule change.\5\ This order approves the proposed rule change, 
as amended by Amendment Nos. 1 and 2. Simultaneously, the Commission is 
providing notice of filing of Amendment No. 2 and granting accelerated 
approval of Amendment No. 2.
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    \5\ Amendment No. 2 deleted the language of Interpretation and 
Policy .03 of CBOE Rule 8.85, which defined ``public customer'' 
order for purposes of CBOE Rule 8.85(b)(iii). Since the term 
``public customer'' order will no longer be in CBOE Rule 
8.85(b)(iii), the interpretation is no longer necessary.
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II. Description

    The Exchange proposes to amend CBOE Rule 8.85(b)(iii) to require 
each Designated Primary Market-Maker (``DPM'') to accord priority to 
both public and non-public customer orders which a DPM represents as 
agent over its own principal transactions, unless the customer who 
placed the order has consented to not being accorded such priority.\6\
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    \6\ On January 25, 2002, the Commission approved a CBOE proposed 
rule change eliminating from CBOE rules the obligation of DPMs to 
accord priority to non-public customer orders. See Securities 
Exchange Act Release No. 45341 (January 25, 2002), 67 FR 5016 
(February 1, 2002). In this filing, the Exchange proposes to revert 
back to the original language.
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III. Discussion

    After careful review, 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 \7\ 
and, in particular, the requirements of Section 6(b) of the Act \8\ and 
the rules and regulations thereunder. The Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\9\ 
which requires that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, 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.
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    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Commission finds that requiring DPMs to accord 
priority to all orders, non-public as well as public customer orders, 
that they hold as agent in CBOE's rules should ensure that these orders 
are handled in compliance with federal securities laws and agency law 
principles.
    In Amendment No. 2, the CBOE proposed to delete the language of 
Interpretation and Policy .03 of CBOE Rule 8.85, which defined the term 
``public customer'' order for purposes of CBOE Rule 8.85(b)(iii). 
Because the term ``public customer'' order will no longer be in CBOE 
Rule 8.85(b)(iii), the interpretation is no longer necessary. The 
Commission notes that the proposed text of CBOE Rule 8.85(b)(iii) has 
been subject to notice and comment, and that no comments have been 
received. The Commission believes that the deletion of the language of 
proposed language of Interpretation and Policy .03 of CBOE Rule 8.85 
will clarify CBOE Rule 8.85 by removing a definition that is no longer 
necessary and, therefore, merits approval. Accordingly, the Commission 
finds that there is good cause, consistent with Section 6(b)(5) \10\ 
and Section 19(b)(2) of the Act,\11\ to approve Amendment No. 2 on an 
accelerated basis prior to the 30th day of the date of publication of 
notice of filing thereof in the Federal Register.
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    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 2 
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

[[Page 7982]]

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 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 March 9, 2005.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No. SR-CBOE-2004-85), as 
amended by Amendment No. 1, be, and hereby is, approved, and that 
Amendment No. 2 to the proposed rule change be, and hereby is, approved 
on an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E5-642 Filed 2-15-05; 8:45 am]
BILLING CODE 8010-01-P