[Federal Register Volume 70, Number 53 (Monday, March 21, 2005)]
[Notices]
[Pages 13557-13558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1208]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51371; File No. SR-CBOE-2005-23]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Incorporated To Amend 
CBOE Rule 8.4 To Remove the Physical Trading Crowd Appointment 
Alternative for Remote Market-Makers and To Create an ``A+'' Tier 
Consisting of the Two Most Actively-Traded Products on the Exchange

March 15, 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 March 15, 2005, the Chicago Board Options Exchange, Incorporated 
(``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 CBOE. 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

    CBOE proposes to amend CBOE Rule 8.4(d) to remove the Physical 
Trading Crowd (``PTC'') appointment alternative for Remote Market-
Makers (``RMMs'') and to create an ``A+'' tier consisting of the two 
most actively-traded products on the Exchange. The text of the proposed 
rule change is available on the CBOE's Web site (http://www.cboe.com), 
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 aspects of such 
statements.

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

1. Purpose
    On March 14, 2005, the Commission approved rules governing the 
Exchange's RMM Program.\3\ The RMM Program would allow members and 
member firms to elect status as an RMM, which would enable them to 
stream quotes from a location outside of the physical trading station 
for the subject class. The Exchange's original plans called for the 600 
most actively-traded equity option classes to be part of the RMM 
Program, excluding options on exchange-traded funds. Recently, however, 
the Exchange has determined to include two of its most actively-traded 
products in the RMM Program (and, correspondingly, include them on the 
Hybrid 2.0 Platform), options on Standard & Poor's Depositary Receipts 
(``Spiders'') and options on the Nasdaq-100 Index Tracking Stock. The 
CBOE represents that the purpose of this proposal is to amend the RMM 
rules relating to appointments in order to accommodate the inclusion of 
these two products in the RMM Program.
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    \3\ See Securities Exchange Act Release No. 51366.
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    Elimination of Physical Trading Crowd Appointment. CBOE Rule 8.4(d) 
governs the RMM appointment process and provides that an RMM may choose 
either a PTC or Virtual Trading Crowd (``VTC'') appointment. A PTC 
Appointment corresponds to the location of a physical trading station 
on the floor of the CBOE.\4\ The Exchange proposes to eliminate the PTC 
appointment option and, as a result, RMMs would be required to have a 
VTC appointment. CBOE represents that, in its discussions with its 
members, member organizations, and other potential RMM candidates, it 
has become evident that there is little if any interest in the ability 
to have a PTC appointment. The CBOE further represents that a vast 
majority of potential RMMs have indicated that the ability to choose 
their own appointments is the attribute of the RMM Program they find 
most desirable. For this reason, CBOE has determined to eliminate from 
CBOE Rule 8.4(d) the PTC appointment option.
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    \4\ An RMM that chooses a PTC appointment would have the right 
to quote electronically (and not in open outcry) in either 20 or 30 
Hybrid 2.0 products traded in that specific trading station for each 
Exchange membership it leases or owns, respectively.
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    Creation of an ``A+'' Tier. The RMM rules incorporate the concept 
of ``tiers'' in two instances. First, the VTC

[[Page 13558]]

appointment process assigns appointment costs to products based on 
their locations in tiers that have been established based on trading 
volume. Second, proposed CBOE Rule 8.3A assigns Class Quoting Limits 
(``CQLs'') based on a product's trading volume.\5\ The Exchange 
proposes to create a new tier, the ``A+'' tier consisting of two 
products: options on Spiders and options on the Nasdaq-100 Index 
Tracking Stock. The ``appointment cost'' for each ``A+'' tier product 
would be .60 (6/10ths of a membership) and the CQL would be 40.
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    \5\ For example, the 20% most actively-traded products have a 
CQL of 40 quoters. The tiers for CQLs correspond to the appointment 
cost tiers contained in CBOE Rule 8.4(d). Accordingly, the 20% most 
actively-traded products (i.e., the A tier products) would have a 
CQL of 40 quoters and an appointment cost of .10. Tier A+ products 
would be excluded when determining the 20% most actively-traded 
products for Tier A and for CQL purposes. See proposed changes to 
CBOE Rules 8.4(d) and 8.3A, Interpretation and Policy .01(a), 
respectively.
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    The CBOE represents that there are two primary reasons supporting a 
higher appointment cost for ``A+'' tier products. First, these two 
products have trading volumes that substantially exceed the trading 
volumes of most other Hybrid or Hybrid 2.0 products. The whole 
``tiering'' concept is premised on the fact that the more actively-
traded products should cost more in terms of appointment costs. The 
addition of an ``A+'' tier is no different in that it operates on the 
same principle. Second, currently these products trade either by 
themselves or in a trading crowd with only one other product. In this 
regard, Spiders options are the only product traded in one trading 
station, which essentially creates an appointment cost of 1.0. 
Accordingly, the CBOE believes that assigning a higher appointment cost 
to these products is justified because they already have higher 
appointment costs than do other Hybrid 2.0 products.
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, CBOE believes the proposed rule 
change is consistent with the section 6(b)(5) of the Act\7\ 
requirements 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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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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

    No written comments were solicited or received comments.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2005-23 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-2005-23. 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-2005-23 and should be submitted on or before April 11, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1208 Filed 3-18-05; 8:45 am]
BILLING CODE 8010-01-P