[Federal Register Volume 71, Number 43 (Monday, March 6, 2006)]
[Notices]
[Pages 11250-11251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-3092]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53377; File No. SR-CBOE-2005-112]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Seeking 
Permanent Approval of a Pilot Program Relating to Market-Maker Access 
to the Exchange's Hybrid Automatic Execution System

February 27, 2006.
    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 December 30, 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, II, and III 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 make permanent its pilot program in CBOE 
Rule 6.13 relating to market-maker (``MM'') access to the Exchange's 
automatic execution system. The text of the proposed rule change is 
available on the Exchange's Web site (http://www.cboe.com), at the 
Exchange'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 those 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 parts of such 
statements.

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

1. Purpose
    In July 2004, the Exchange implemented on a pilot basis CBOE Rule 
6.13(b)(i)(C)(iii), which relates to the frequency with which certain 
market participants may submit orders for automatic execution through 
the Exchange's Hybrid Trading System (``Hybrid'').\3\ The Exchange has 
subsequently extended the pilot program, which expires on October 12, 
2006, on two occasions.\4\ CBOE Rule 6.13(b)(i)(C)(iii) currently 
provides in relevant part:
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    \3\ See Securities Exchange Act Release No. 50005 (July 12, 
2004), 69 FR 43032 (July 19, 2004) (SR-CBOE-2004-33) (approving the 
pilot program).
    \4\ See Securities Exchange Act Release Nos. 51030 (January 12, 
2005), 70 FR 3404 (January 24, 2005) (SR-CBOE-2004-91) (extending 
the pilot program until October 12, 2005); and 52494 (September 22, 
2005), 70 FR 56943 (September 29, 2005) (SR-CBOE-2005-70) (extending 
the pilot program until October 12, 2006).
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    (iii) 15-Second Limitation: With respect to orders eligible for 
submission pursuant to paragraph (b)(i)(C)(ii), members shall neither 
enter nor permit the entry of multiple orders on the same side of the 
market in an option class within any 15-second period for an account or 
accounts of the same beneficial owner. The appropriate FPC may shorten 
the duration of this 15-second period by providing notice to the 
membership via a Regulatory Circular that is issued at least one day 
prior to implementation. The effectiveness of this rule shall terminate 
on October 12, 2006.
    Upon approval of the pilot program, the Exchange began allowing 
orders from options exchange MMs to be eligible for automatic 
execution, subject to the 15-second limitation described above.\5\ The 
Exchange believes that the

[[Page 11251]]

pilot program has been successful and has helped to contribute to the 
maintenance of efficient markets and to attract MM volume to the 
Exchange. Given this success, the Exchange is requesting permanent 
approval of the pilot program.
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    \5\ CBOE Rule 6.13(b)(i)(C)(ii) governs the submission of orders 
from MMs (paragraph (C)(ii)(A)) and stock exchange specialists 
(paragraph (C)(ii)(B)). It should be noted that, pursuant CBOE Rule 
6.13(b)(i)(C)(iii), the floor procedures committees (``FPCs'') 
determined to shorten to 5 seconds (from 15 seconds) the period 
required between entry of multiple market-maker orders (including 
non-CBOE MM orders) on the same side of the market in an option 
class for an account or accounts of the same beneficial owner using 
Hybrid. This change went into effect on July 18, 2005 and was 
announced to the membership via Regulatory Circular RG05-61.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \6\ 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.\7\ Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \8\ 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts and practices \9\ and, in general, to protect 
investors and the public interest.
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    \6\ 15 U.S.C. 78a et seq.
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ At the request of the Exchange, the Commission staff has 
added ``and practices,'' which was inadvertently omitted from the 
proposed rule change. Telephone conversation between Jennifer M. 
Lamie, Managing Senior Attorney, CBOE, and Kim M. Allen, Special 
Counsel, Division of Market Regulation, Commission, on February 23, 
2006.
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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 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 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-2005-112 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2005-112. 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. 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-2005-112 and should be submitted on or before March 27, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-3092 Filed 3-3-06; 8:45 am]
BILLING CODE 8010-01-P