[Federal Register Volume 70, Number 117 (Monday, June 20, 2005)]
[Notices]
[Pages 35475-35476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3158]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51828; File No. SR-CBOE-2005-42]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendment No. 1 Thereto Relating to a Fee Cap for 
Options Merger Spread Transactions

June 13, 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 May 23, 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. On 
May 31, 2005, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Exchange designated the proposed rule change, as 
amended, as establishing or changing a due, fee, or other charge 
imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act,\4\ 
and Rule 19b-4(f)(2) thereunder,\5\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange replaced the first 
paragraph under Item 3 of the Form 19b-4 to correct a formatting 
error that appeared in the original filing.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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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 its Fee Schedule to adopt a fee cap 
on merger spread transactions. The text of the proposed rule change is 
available on the Exchange's Web site (http://www.cboe.com), at the 
Office of the Secretary, CBOE, and at the Commission.

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. CBOE 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, Proposed Rule Change

1. Purpose
    The Exchange currently caps market-maker, firm, and broker-dealer 
transaction fees associated with ``dividend spread'' transactions at 
$2,000 for all dividend spread transactions executed on the same 
trading day in the same options class.\6\ According to the Exchange, a 
dividend spread is defined as any trade done to achieve a dividend 
arbitrage between any two deep-in-the-money options.
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    \6\ See Securities Exchange Act Release No. 51468 (April 1, 
2005), 70 FR 17742 (April 7, 2005) (SR-CBOE-2005-18). The dividend 
spread fee cap program is in effect as a pilot program that will 
expire on September 1, 2005.
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    The Exchange proposes to amend its Fee Schedule to adopt a similar 
fee cap for ``merger spread'' transactions.\7\ Specifically, the 
Exchange proposes to cap market-maker, firm, and broker-dealer 
transaction fees at $2,000 for all merger spread transactions executed 
on the same trading day in the same options class. Because the Exchange 
believes that merger spread transactions have similar economic risks 
and are

[[Page 35476]]

executed in similar ways as dividend spread transactions, the Exchange 
believes adopting this fee cap would attract additional liquidity and 
should permit the Exchange to remain competitive.
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    \7\ According to the Exchange, a merger spread transaction is 
defined as a transaction executed pursuant to a strategy involving 
the simultaneous purchase and sale of options of the same class and 
expiration date, but with different strike prices, followed by the 
exercise of the resulting long options position, each executed prior 
to the date on which shareholders of record are required to elect 
their respective form of consideration, i.e., cash or stock.
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    Similar to the dividend spread fee cap program, the merger spread 
fee cap would be in effect as a pilot program that would expire on 
September 1, 2005. The Exchange represents that the proposed fee cap is 
similar to merger spread fee caps adopted by other exchanges.\8\
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    \8\ See Securities Exchange Act Release Nos. 51596 (April 21, 
2005), 70 FR 22381 (April 29, 2005) (SR-PHLX-2005-19) and 51787 
(June 6, 2005), 70 FR 34174 (June 13, 2005) (SR-PCX-2005-65).
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    As is done under the current dividend spread fee cap program, the 
Exchange would rebate transaction fees for qualifying merger spread 
transactions. To qualify transactions for the cap, a rebate request 
form, along with supporting documentation (e.g., clearing firm 
transaction data), must be submitted to the Exchange within 30 days of 
the transactions.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and Section 6(b)(4) of the 
Act,\10\ in particular, in that it provides for the equitable 
allocation of reasonable dues, fees, and other charges among CBOE 
members and other persons using its facilities.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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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 that is not necessary or appropriate in 
furtherance of 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and subparagraph (f)(2) of Rule 19b-4 
thereunder\12\ because it establishes or changes a due, fee, or other 
charge imposed by the Exchange. 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.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(2).
    \13\ The effective date of the original proposed rule change is 
May 23, 2005, the date of the original filing, and the effective 
date of the amendment is May 31, 2005, the date of filing of 
Amendment No. 1. For purposes of calculating the 60-day period 
within which the Commission may summarily abrogate the proposed rule 
change, as amended, under Section 19(b)(3)(C) of the Act, the 
Commission considers the period to commence on May 31, 2005, the 
date on which the Exchange submitted Amendment No. 1. See 15 U.S.C. 
78s(b)(3)(C).
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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-2005-42 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-CBOE-2005-42. 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 such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. 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-2005-42 and should be submitted on or before July 
11, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3158 Filed 6-17-05; 8:45 am]
BILLING CODE 8010-01-P