[Federal Register Volume 70, Number 150 (Friday, August 5, 2005)]
[Notices]
[Pages 45452-45454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4228]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52173; File No. SR-CBOE-2005-51]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change and Amendment 
No. 1 Thereto Relating to Amendments to the Exchange's Trade-Through 
and Locked Markets Rules

July 29, 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 June 30, 2005, the Chicago Board Options Exchange, Incorporated 
(``CBOE'') 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 substantially prepared by the 
CBOE. On July 26, 2005, the CBOE filed Amendment No. 1 to the proposed 
rule

[[Page 45453]]

change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4 dated July 26, 2005 (``Amendment No. 1''). In 
Amendment No. 1, CBOE revised the rule text to use terms consistent 
with CBOE's current rules and made certain clarifying changes to the 
purpose section.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend its rules to conform to recent proposed 
Intermarket Linkage Plan (``Plan'') changes relating to ``trade and 
ship'' and ``book and ship'' concepts. The text of the proposed rule 
change is available on the CBOE's Web site (http://www.cboe.com), at 
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 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 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, the Proposed Rule Change

1. Purpose
    The CBOE is proposing to amend its rules to conform to recent 
proposed changes governing the operation of the Intermarket Linkage, as 
set forth in Plan Amendment No. 15. Specifically, the CBOE is proposing 
that: (i) An exchange may trade an order at a price that is one-tick 
inferior to the NBBO if a linkage order \4\ is transmitted to the NBBO 
market(s) to satisfy all interest at the NBBO price (``trade and ship'' 
concept); and (ii) an exchange may book an order that would lock 
another exchange if a linkage order is sent to such other exchange to 
satisfy all interest at the lock price (``book and ship'' concept). 
Under the trade and ship proposal, any execution received from the NBBO 
market must (pursuant to agency obligations) be reassigned to the 
customer order that is underlying the linkage order that was 
transmitted to ``take out'' the NBBO market. Examples of the trade and 
ship and book and ship concepts are below:
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    \4\ A linkage order is a certain type of immediate or cancel 
order that is routed through the Linkage facility and is defined in 
Section 2(16) of the Plan.
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    Trade and Ship Example. The CBOE is disseminating an offer of $2.00 
for 100 contracts. Another participating exchange (``Exchange B'') is 
disseminating the national best offer of $1.95 for 10 contracts. No 
other market is at $1.95. CBOE receives a 100-contract customer buy 
order to pay $2.00. Under this proposal, CBOE could execute 90 
contracts (or 100 contracts) of the customer order at $2.00 provided 
CBOE simultaneously transmits a 10-contract Principal Acting as Agent 
Order (``P/A Order'') to Exchange B to pay $1.95. Assuming an execution 
is obtained from Exchange B, the customer would receive the 10-contract 
fill at $1.95 and 90 contracts at $2.00 (if the customer order was 
originally filled in its entirety at $2.00, an adjustment would be 
required to provide the customer with the $1.95 price for 10 contracts 
reflecting the P/A Order execution). As proposed, this would not be 
deemed a Trade-Through.
    Book and Ship Example. CBOE is disseminating a $1.85-$2.00 market. 
Exchange B is disseminating a $1.80-$1.95 market. The $1.95 offer is 
for 10 contracts. No other market is at $1.95. CBOE receives a customer 
order buy 100 contracts at $1.95. Under this proposal, CBOE could book 
90 contracts of the customer buy order at $1.95 provided CBOE 
simultaneously transmitted a 10-contract P/A Order to Exchange B to pay 
$1.95. Assuming an execution is obtained from Exchange B, the customer 
would receive the 10-contract fill and the rest of the customer's order 
will be displayed as a $1.95 bid on CBOE. The national best offer would 
likely be $2.00. As proposed, this would not be deemed a ``locked'' 
market for purposes of the Plan.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act \5\ in general and furthers the objectives of 
section 6(b)(5) of the Act \6\ in particular, in that the proposed rule 
change 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not 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

    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 CBOE 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, as amended, 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-2005-51 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-2005-51. 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 45454]]

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-2005-51 and should be submitted on or before August 26, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-4228 Filed 8-4-05; 8:45 am]
BILLING CODE 8010-01-P