[Federal Register Volume 72, Number 215 (Wednesday, November 7, 2007)]
[Notices]
[Pages 62883-62885]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21838]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56730; File No. SR-CBOE-2007-74]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change, as Modified by 
Amendment No. 1 Thereto, To Amend CBOE Rule 6.13A To Modify the Simple 
Auction Liaison Auction Process and Incorporate Specific Provisions for 
Hybrid 3.0 Classes

November 1, 2007.
    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 July 2, 2007, 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 substantially 
prepared by CBOE. On October 16, 2007, CBOE filed Amendment No. 1 to 
the proposed rule 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    \3\ Amendment No. 1 replaced and superseded the original filing 
in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to amend CBOE Rule 6.13A to (i) modify the increments 
in which responses may be submitted during the Simple Auction Liaison 
(``SAL'') auction process and (ii) incorporate provisions for Hybrid 
3.0 Classes in which SAL is activated. The text of the proposed rule 
change is available on the Exchange's Web site (http://www.cboe.com/Legal ), 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
    CBOE Rule 6.13A governs the operation of the Exchange's SAL system. 
SAL is a feature on CBOE's Hybrid system that auctions marketable 
orders for price improvement over the National Best Bid and Offer. The 
purpose of this proposed rule change is to amend CBOE Rule 6.13A to (i) 
modify the increments in which responses may be submitted during the 
SAL auction process and (ii) incorporate provisions for Hybrid 3.0 
Classes in which SAL is activated. Although modifying the auction 
increments in which responses could be submitted to include standard 
increments would widen the quote as compared to one-cent increments, 
the Exchange believes this modification may encourage Market-Makers and 
other market participants to quote more aggressively overall. In 
addition, incorporating SAL on the Hybrid 3.0 Platform will further 
automate the order handling process on Hybrid 3.0.
    In providing marketable orders with the potential for price 
improvement, SAL provides an auction, for a period of time not to 
exceed two seconds as determined by the Exchange on a class-by-class 
basis, for any qualifying order (``Agency Order'') that is eligible for 
automatic execution by CBOE's Hybrid System.\4\ Under the current SAL 
rule, during the auction process, Market-Makers with an appointment in 
the relevant option class and CBOE members acting as agents for orders

[[Page 62884]]

resting at the top of the Exchange's book opposite the Agency Order 
could submit a response during the auction. CBOE Rule 6.13A(b) outlines 
the procedures regarding how a response shall be submitted during the 
auction and provides that the response may be submitted in one-cent 
increments. This filing proposes to modify this rule to allow the 
auction response in all option classes in which SAL is activated to be 
submitted in one-cent increments, unless for the relevant option class 
the Exchange has determined that responses shall be submitted in 
standard increments.\5\
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    \4\ See CBOE Rule 6.13(b)(C)(i).
    \5\ See proposed changes to CBOE Rule 6.13A(b)(ii).
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    Pursuant to CBOE's existing SAL rule, Agency Orders would be 
allocated intwo rounds.\6\ For Hybrid 3.0 Classes, the filing proposes 
to conduct only one round of allocations, since the DPM/LMM is the only 
``quoter'' on the Hybrid 3.0 Platform.\7\ Specifically, the first round 
allocation specified in paragraph (c)(i) shall not apply. In Hybrid 3.0 
Classes, the single round allocation will be conducted pursuant to the 
criteria in paragraph (c)(ii), with a few differences.
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    \6\ See CBOE Rule 6.13A(c).
    \7\ Pursuant to CBOE Rule 1.1(aaa), the Hybrid 3.0 Platform is 
an electronic trading platform on the Hybrid trading system that 
allows a single quoter to submit an electronic quote which 
represents the aggregate Market-Maker quoting interest in a series 
for the trading crowd.
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    Such differences involve proposed modifications to the allocation 
and participation entitlement process for SAL on Hybrid 3.0 Classes. 
The current SAL rule allocates the Agency Order pursuant to the 
matching algorithm that is in effect for the class pursuant to Rule 
6.45A or Rule 6.45B.\8\ This filing proposes to provide the Exchange 
with some flexibility regarding the allocation of the Agency Order to 
permit the matching algorithm as applied to SAL to be different from 
the matching algorithm that is currently in effect for the Hybrid 3.0 
Class. Therefore, for Hybrid 3.0 Classes, the Exchange proposes to 
allow the appropriate Exchange Procedure Committee to determine, on a 
class-by-class basis, which electronic matching algorithm shall apply 
to SAL executions. The matching algorithm applied to SAL in Hybrid 3.0 
Classes will continue to be pursuant to Rule 6.45B.
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    \8\ See CBOE Rule 6.13A(c)(1).
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    The existing SAL rule also provides for a Market-Maker to receive a 
participation entitlement only if the applicable matching algorithm 
(from Rule 6.45A or 6.45B) that is in effect for the class includes a 
participation entitlement.\9\ Currently, Hybrid 3.0 does not permit an 
LMM or DPM to receive a participation entitlement as it pertains to the 
allocation of incoming electronic orders. In Hybrid 3.0 Classes, 
pursuant to existing rules, all eligible orders pursuant to Rule 6.13 
can receive automatic execution against public customer orders in the 
electronic book. The remaining balance of the eligible order, if any, 
may be represented in the electronic book, provided such order is 
eligible for book entry pursuant to Rule 7.4; if not book eligible, the 
remaining balance of the eligible order will route to PAR, BART, or the 
order entry firm's book printer.\10\ Orders not eligible for automatic 
execution will route on a class-by-class basis to PAR, BART, or the 
order entry firm's booth printer.\11\ Since the LMM or DPM does not 
receive a participation entitlement with regard to incoming electronic 
orders, this filing proposes to permit the appropriate Exchange Market 
Performance Committee to establish, on a class-by-class basis, an LMM 
or DPM participation entitlement applicable only to SAL executions in 
Hybrid 3.0 Classes. Incorporating SAL on the Hybrid 3.0 Platform will 
provide not only a more automated order handling process in Hybrid 3.0 
Classes, but will also provide Market-Makers with electronic access to 
the Agency Order since Market-Makers will be able to electronically 
respond to the Agency Order through SAL. The Exchange believes that 
with Market-Makers having access to electronically respond to the 
Agency Order, incorporating an LMM/DPM participation entitlement to SAL 
executions may in turn provide more aggressive quoting. The 
participation entitlement shall be in compliance with the provisions of 
Rule 6.45B(a)(i)(2). The size of each response to the SAL auction shall 
continue to be capped to the size of the Agency Order for allocation 
purposes.
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    \9\ See CBOE Rule 6.13A(c)(3).
    \10\ See CBOE Rule 6.13(b)(i)(A)(2).
    \11\ See CBOE Rule 6.13(b)(i)(B).
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    When the SAL system is enabled, the Exchange will conduct a SAL 
auction only when the Exchange's quote is represented by the DPM/LMM 
quote. The Exchange will not conduct a SAL auction when the Exchange's 
quote is represented by a manual quote.\12\ All other aspects of SAL 
pursuant to CBOE Rule 6.13A shall apply to Hybrid 3.0 Classes.
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    \12\ See proposed CBOE 6.13A.04(iii).
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2. Statutory Basis
    As noted above, modifying the SAL auction increments in which 
responses could be submitted to include standard increments may 
encourage more aggressive quoting, and incorporating SAL on the Hybrid 
3.0 Platform will further automate the order handling process on Hybrid 
3.0. Accordingly, the Exchange believes the proposed rule change is 
consistent with Section 6(b) of the Act \13\ in general and furthers 
the objectives of Section 6(b)(5) of the Act \14\ in particular in that 
it 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 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 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 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

[[Page 62885]]

Number SR-CBOE-2007-74 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-2007-74. 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 on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such 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-2007-74 and 
should be submitted on or before November 28, 2007.

    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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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-21838 Filed 11-6-07; 8:45 am]
BILLING CODE 8011-01-P