[Federal Register Volume 71, Number 60 (Wednesday, March 29, 2006)]
[Notices]
[Pages 15780-15781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-4539]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53543; File No. SR-CBOE-2006-21]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Revise Provisions of the Exchange's Crossing Rule

March 23, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 28, 2006, 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 and II below, which Items have been prepared by 
CBOE. The Exchange filed the proposal as a ``non-controversial'' rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders the proposed rule change effective 
upon filing with the Commission. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes certain changes to provisions of its rule that 
governs the participation rights of firms crossing orders in open 
outcry. 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, 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, the Proposed Rule Change

1. Purpose
    Paragraphs (d) and (e) of CBOE Rule 6.74 currently provide 
guaranteed participation rights to floor brokers in trades that are 
crossed in open outcry in certain circumstances. Generally, these 
provisions provide that if the trade takes place at the market provided 
by the crowd then, after all public customer orders in the book and 
represented in the trading crowd at the time the market was established 
are satisfied, the floor broker representing the order will be entitled 
to cross a certain percentage of the contracts remaining in the 
original order. The percentage could be 40% or 20%, depending upon the 
particular type of option. For example, transactions in equity options 
are generally subject to a 40% participation guarantee under paragraph 
(d) and broad-based index options (where the option class is not traded 
at an equity option trading post) are generally subject to a 20% 
participation guarantee under paragraph (e).
    In order to clarify and simplify the crossing provisions related to 
the 40% and 20% participation entitlements, the Exchange is deleting 
the current crossing entitlement provisions in paragraphs (d) and (e) 
of CBOE Rule 6.74 and creating a new crossing entitlement provision 
(proposed new paragraph (d) of CBOE Rule 6.74), which combines aspects 
of current paragraphs (d) and (e) of the current rule. The new 
paragraph (d) would provide a crossing entitlement for all option 
classes traded on the Exchange,\5\ and set forth applicable parameters 
that would be set by the appropriate Exchange Procedure Committee on a 
class-by-class basis.\6\ In addition, proposed CBOE Rule 6.74(d)(viii) 
would provide that the appropriate Procedure Committee would have the 
authority to exempt an option class from the section of the rule that 
provides for the crossing guarantee.\7\ For each class that is subject 
to the crossing entitlement provisions, the appropriate Procedure 
Committee would determine the following: (i) Whether the crossing 
guarantee applies to facilitations and/or solicitations; \8\ (ii) a 
crossing guarantee percentage of either 20% or 40% (after public 
customer orders are satisfied); \9\ and (iii) the eligible size for an 
order that may be subject to the guaranteed crossing entitlement, 
although the eligible order size may not be less than 50 contracts.\10\

[[Page 15781]]

    The Exchange is also revising CBOE Rule 6.9.04 to make that 
provision consistent with the first paragraph of proposed CBOE Rule 
6.74(d).
---------------------------------------------------------------------------

    \5\ Currently, the crossing entitlements of CBOE Rule 6.74(d) 
and (e) apply only to trading in equity and broad-based index 
options. See Telephone conversation between David Doherty, Attorney, 
CBOE, and Jan Woo, Attorney, Division of Market Regulation, 
Commission, March 15, 2006 (``Telephone conversation of March 15, 
2006'').
    \6\ The particular open outcry trading procedures applicable to 
the crossing guarantee will continue to apply unchanged. Generally, 
a floor broker representing an order eligible for crossing must 
request bids and offers and make all persons in the trading crowd 
aware of the request. When the cross involves a facilitation of a 
public customer order, the floor broker must make certain 
disclosures on the order ticket for the public customer and must 
disclose all securities that are components of the public customer 
order before requesting bids and offers for the execution of all 
components of the order. Once the trading crowd has provided a 
quote, the floor broker is entitled to cross a certain percentage of 
the order after all public customer orders that were on the limit 
order book and represented in the trading crowd at the time the 
market was established have been satisfied. The current provisions 
describing the Designated Primary Market-Maker's (``DPM'') 
guaranteed participation level (the guaranteed participation level 
will be a percentage that when combined with the percentage the 
originating firm crossed, does not exceed 40% of the order that 
remains after satisfying those public customer orders which trade 
ahead of the cross transaction) and priority of members of the 
trading crowd who established the market also apply unchanged under 
the proposed rule change. As is also provided in the existing 
procedures, nothing prohibits a floor broker or DPM from trading 
more than their applicable participation entitlements if the other 
members of the trading crowd do not choose to trade the remaining 
portion of the order. The proposed rule change also includes 
references to Lead Market-Makers, since that category of Exchange 
market participant may be entitled to a participation entitlement 
pursuant to CBOE Rule 8.15B.
    \7\ This exemptive provision is identical to what is currently 
provided in subparagraph (e)(viii) of CBOE Rule 6.74 with respect to 
broad-based index options. Telephone conversation of March 15, 2006.
    \8\ Currently, CBOE Rule 6.74(d) and Commentary .08 to CBOE Rule 
6.74 provide for a crossing guarantee for both facilitation and 
solicitation orders in the case of equity options, and CBOE Rule 
6.74(e) provides a crossing guarantee for facilitation orders only 
in the case of broad-based index options. Telephone conversation of 
March 15, 2006.
    \9\ As described above, the current rules provide a 20% crossing 
guarantee in the case of broad-based index options and a 40% 
crossing guarantee in the case of equity options. Telephone 
conversation of March 15, 2006.
    \10\ The proposed rule change also would establish that, in 
determining whether an order satisfies the eligible order size 
requirement, any multi-part or complex order (including a spread, 
straddle, combination, or ratio order (or a stock-option order or 
security future-option order, as defined in CBOE Rules 1.1(ii)(b) 
and 1.1(zz)(b), respectively) or any other complex order defined in 
CBOE Rule 6.53C) must contain one leg alone which is for the 
eligible order size or greater. Telephone conversation of March 15, 
2006.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \11\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \12\ in particular in that it is designed to 
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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange neither solicited nor received comments on the 
proposal.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) \13\ of the Act and Rule 19b-4(f)(6) 
thereunder.\14\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). The Exchange provided the 
Commission with written notice of its intention to file the proposed 
rule change on February 13, 2006. The Commission received the 
Exchange's submission, and asked the Exchange to file the instant 
proposed rule change, pursuant to Rule 19b-4(f)(6) under the Act.
---------------------------------------------------------------------------

    CBOE requests that the Commission waive the 30-day operative delay, 
as specified in Rule 19b-4(f)(6)(iii),\15\ and designate the proposed 
rule change to become operative immediately. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because the proposed 
rule change establishes a uniform set of rules with respect to 
facilitation and solicitation orders for all options based on 
principles already approved by the Commission, while setting forth 
parameters by which the appropriate Exchange Procedure Committee may 
apply these rules flexibly on a class-by-class basis.\16\ Waiving the 
30-day pre-operative period will allow the Exchange to implement these 
changes without delay.
---------------------------------------------------------------------------

    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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.

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 No. SR-CBOE-2006-21 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2006-21. 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 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-2006-21 and should be submitted on or before April 19, 2006.
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
Nancy M. Morris,
Secretary.
 [FR Doc. E6-4539 Filed 3-28-06; 8:45 am]
BILLING CODE 8010-01-P