[Federal Register Volume 71, Number 98 (Monday, May 22, 2006)]
[Notices]
[Pages 29371-29373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-7718]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53808; File No. SR-CBOE-2006-33]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to Accommodation Liquidations (Cabinet Trades)
May 16, 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 May 4, 2006, 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 and II below, which Items have been prepared by the Exchange.
CBOE has designated this proposal as non-controversial under section
19(b)(3)(A)(iii) 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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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 the provisions of CBOE Rule 6.54
that pertain to accommodation liquidations (also referred to as
``cabinet trades'') \5\ to authorize PAR Officials and Floor Brokers to
represent cabinet orders on the Exchange. The Exchange is also
proposing various other non-substantive changes to reorganize and
update the existing text in CBOE Rule 6.54 and to update references in
the heading of Chapter VII of the CBOE rulebook and CBOE Rule 7.4. The
text of the proposed rule change is set forth below. Additions are in
italics and deletions are in [brackets].
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\5\ Accommodation liquidations are transactions to close out
positions in worthless or nearly worthless out-of-the-money option
contracts.
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* * * * *
Chicago Board Options Exchange, Incorporated Rules
* * * * *
Chapter VI
Doing Business on the Exchange Floor (Rules 6.1-6.85)
* * * * *
Section C: Trading Practices and Procedures
* * * * *
Rule 6.54. Accommodation Liquidations (Cabinet Trades)
Cabinet t[T]rading under the following terms and conditions shall
be available in each series of option contracts open for trading on the
Exchange.
(a) For classes not trading on the CBOE Hybrid System:
(i) Trading shall be conducted in accordance with other CBOE Rules
except as otherwise provided herein.
(ii) Limit orders labeled at a price of $1 per option contract must
be placed with the Order Book Official or with a Floor Broker.
(iii) Orders may be placed for customer, firm, and Market-Maker
accounts and, to the extent such orders are placed with the Order Book
Official, priority in the cabinet book will be based upon the sequence
in which such orders are placed with the Order Book Official.
[(iii)](iv) Bids or offers for opening transactions at a price of
$1 per option contract may be placed with the Order Book Official only
to the extent that the [public order book] cabinet book contains
unexecuted contra closing orders with which the opening orders
immediately may be matched. Bids and offers at a price of $1 per option
contract may also be provided in response to a request for quote by an
Order Book Official or a Floor Broker, but must yield priority to all
orders in the cabinet book.
[(iv) Orders may be placed for customer, firm, and Market-Maker
accounts, with priority based upon the sequence in which such orders
are placed with the Order Book Official.]
(v) Market-Makers shall not be subject to the requirements of Rule
8.7 for orders placed pursuant to this Rule.
(vi) The Order Book Official appointed to each class of option
contracts shall be responsible for $1 orders that are placed with him
for that class. All bids and offers that are submitted to the Order
Book Official must be submitted to the Order Book Official in writing
and displayed as such in accordance with Rule 7.7, and the Order Book
Official shall effect [all such] transactions during the day by
matching such orders placed with him or by executing such orders placed
with him with a Floor Broker representing a contra order.
(vii) All cabinet transactions at a price of $1 per option contract
shall be reported to the Exchange following the close of each business
day.
(b) For classes trading on the CBOE Hybrid System:
(i) Trading shall be conducted in accordance with other CBOE Rules
except as otherwise provided herein.
(ii) Limit orders labeled at a price of $1 per option contract must
be traded on the Exchange in a form and manner prescribed by the
Exchange. Currently, accommodation liquidations are only eligible for
Exchange trading via open outcry and hence are not eligible for
placement into the Electronic Book.
. . . Interpretations and Policies
.01 Order Book Official: An Order Book Official who receives a
closing buy (sell) order for $1 per option contract shall attempt to
execute the order against any $1 closing sell (buy) orders in his
possession. If any part of the buy (sell) order cannot be immediately
[[Page 29372]]
executed, the Order Book Official shall display the $1 bid (offer).
[Upon receiving a closing sell order for $1 per option contract,
the Order Book Official shall attempt to execute the order against any
$1 closing buy orders in his possession. If any part of the sell order
cannot be immediately executed, the Order Book Official shall display
the $1 offer.] The Order Book Official may accept bids or offers for
opening transactions at a price of $1 per contract only to the extent
that the [public order book] cabinet book already contains closing
orders for the contra side.
Upon execution of any $1 per contract orders, the Order Book
Official shall promptly supply reports of the transaction back to the
member firms involved. In accordance with (a)(vii) above, he will not
report the transactions to the Exchange until after the close of each
business day.
.02 PAR Officials: For purposes of this Rule, a PAR Official may
also perform the functions of an Order Book Official.
* * * * *
Chapter VII
Order Book Officials [and Board Brokers] (Rules 7.1--7.50)
* * * * *
Rule 7.4. Obligations for Orders
(a)-(c) No change.
(d)(1)-(2) No change.
(3) The provisions of paragraph (d) of this Rule shall not apply to
matching [1[cent]] buy and sell orders under Rule 6.54.
(4) No change.
(e)-(f) No change.
. . . Interpretations and Policies
No change.
* * * * *
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
An ``accommodation'' or ``cabinet'' trade refers to trades in
listed options on the Exchange that are worthless or not actively
traded. Cabinet trading is generally conducted in accordance with CBOE
rules; CBOE Rule 6.54, Accommodation Liquidations, sets forth specific
procedures for engaging in cabinet trades. CBOE Rule 6.54 currently
provides for cabinet trades to occur via open outcry whether or not the
security class trades on the Exchange's Hybrid Trading System.
The purpose of the rule change is to amend CBOE Rule 6.54 to
clarify through proposed Interpretation and Policy .02 that PAR
Officials \6\ may perform the functions that Order Book Officials
perform with respect to cabinet trading. Clarifying that PAR Officials
are authorized to represent cabinet orders and effect cabinet trades is
consistent with recent amendments to the CBOE rules that established
the PAR Official position on the Exchange.\7\
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\6\ A PAR Official is an Exchange employee or independent
contractor whom the Exchange may designate as being responsible for
(i) operating the PAR workstation in a DPM trading crowd with
respect to the classes of options assigned to him/her; (ii) when
applicable, maintaining the book with respect to the classes of
options assigned to him/her; and (iii) effecting proper executions
of orders placed with him/her. See CBOE Rule 7.12.
\7\ See Securities Exchange Act Release No. 52798 (November 18,
2005), 70 FR 71344 (November 28, 2005) (File No. SR-CBOE-2005-46)
(order approving amendments relating to the removal of agency
responsibilities from DPMs and establishing Exchange PAR Officials).
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The Exchange is also proposing to amend CBOE Rule 6.54 to authorize
Floor Brokers to represent cabinet orders and effect cabinet trades. As
a result, in addition to the existing procedures which permit cabinet
orders to be placed with an Order Book Official (which, as this rule
change clarifies, would include a PAR Official fulfilling the duties of
an Order Book Official) for representation and execution, a Floor
Broker may now represent and execute a cabinet order in the trading
crowd, thereby saving the additional time and steps involved in first
placing a cabinet order with an Order Book Official who would then in
turn represent and execute the order. Thus, permitting Floor Brokers to
handle cabinet orders and trades in accordance with the procedures
described in Rule 6.54 will provide members with additional flexibility
and assist in the fair, orderly and efficient handling of cabinet
transactions on the Exchange.
The revised cabinet trading procedures set forth in the proposed
rule change will be substantially similar to the procedures that
currently exist. Under the revised procedures, limit orders labeled at
a price of $1 per option contract may be still be placed with the Order
Book Official or, as this rule change proposes, with a Floor Broker or
a PAR Official. As is the case under the current procedures, cabinet
orders may be placed for the accounts of customers, firms, and Market-
Makers. To the extent such orders are placed with an Order Book
Official, priority will continue to be based on the sequence in which
such orders are placed with the Order Book Official. Also as under the
current procedures, bids and offers for opening transactions at a price
of $1 per option contract may be placed with the Order Book Official
only to the extent that the cabinet contains unexecuted contra closing
orders with which those opening orders immediately may be matched.
Under the proposed revisions, bids and offers (whether opening or
closing a position) at a price of $1 per option contract may also be
provided in response to a request for quotes by an Order Book Official
or a Floor Broker, but must yield priority to all orders in the Order
Book Official's cabinet book. All cabinet transactions will continue to
be reported to the Exchange following the close of each business day
and the procedures for maintaining quotation, order and transaction
information for cabinet transactions will remain unchanged.\8\
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\8\ Accommodation liquidations as described in CBOE Rule 6.54
are exempt from the requirements of CBOE Rule 6.24, Required Order
Information, pertaining to the Consolidated Options Audit Trail.
However, the Exchange maintains quotation, order and transaction
information for accommodation liquidations in the same format as the
COATS data is maintained, and will make such information available
to the Commission upon request. See Interpretation and Policy .04 to
CBOE Rule 6.24.
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The responsibilities of the Order Book Official under the revised
cabinet trading procedures will be substantially similar to his current
responsibilities. The Order Book Official will continue to be
responsible for $1 orders that are placed with him. Further, all bids
and offers that are submitted to the Order Book Official must continue
to be submitted in writing and displayed as such in accordance with
CBOE Rule 7.7. The Order Book Official will continue to effect cabinet
transactions during the day by matching such orders placed with him or,
under the revised procedures, by executing orders placed with him with
a Floor Broker representing a contra order. The Order Book Official
will also continue to
[[Page 29373]]
supply reports of cabinet transactions he executes back to member
firms. In addition, the Order Book Official will continue to report
cabinet transactions to the Exchange after the close of each business
day.
Finally, the rule change makes various non-substantive changes to
reorganize and update the existing text in CBOE Rule 6.54 and update
references in the heading of Chapter VII of the CBOE rulebook and CBOE
Rule 7.4.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act \9\ in general and furthers the objectives
of section 6(b)(5) of the Act \10\ in particular in that it is designed
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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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 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
The foregoing proposed rule change has become effective pursuant to
section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) \12\
thereunder because it (i) does not significantly affect the protection
of investors or the public interest; (ii) does not impose any
significant burden on competition; and (iii) does not become operative
for 30 days from the date on which it was filed, or such shorter time
as the Commission may designate, provided that the self-regulatory
organization has given the Commission written notice of its intent to
file the proposed rule change at least five business days prior to the
filing date of the proposed rule change.\13\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
\13\ As required under Rule 19b-4(f)(6)(iii), the Exchange
provided the Commission with written notice of its attempt to file
the proposed rule change at least five days prior to the filing
date.
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The Exchange has requested that the Commission waive the 30-day
operative delay of Rule 19b-4(f)(6)(iii) so that the proposed rule
change may become effective immediately. The Commission believes that
waiving the pre-filing requirement and the operative delay is
consistent with the protection of investors and the public interest.
The Commission notes that the proposal does not substantially change
the existing cabinet trading procedures, but does provide market
participants on the Exchange with additional flexibility for handling
cabinet trades, which should promote the fair, orderly and efficient
handling of these transactions. Therefore, the Commission has
determined to waive the 30-day operative delay and allow the proposed
rule change to become operative immediately.\14\
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\14\ For purposes only of waiving the operative delay of this
proposal, the Commission notes that it has considered the proposed
rule's impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate the 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-2006-33 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-2006-33. 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 Commissions 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-2006-33 and should be submitted on or before June
12, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-7718 Filed 5-19-06; 8:45 am]
BILLING CODE 8010-01-P