[Federal Register Volume 73, Number 155 (Monday, August 11, 2008)]
[Notices]
[Pages 46654-46655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-18485]



[[Page 46654]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58307; File No. SR-CBOE-2008-79]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to the Automated Improvement Mechanism

August 5, 2008.
    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 30, 2008, 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 prepared by the 
Exchange. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders it 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).
    \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 modify its Automated Improvement Mechanism 
(``AIM'') in order to (i) give the Exchange the flexibility to lower 
the applicable crossing entitlement percentage on a class-by-class 
basis, and (ii) clarify that AIM can be made available in Hybrid 3.0 
classes. The text of the proposed rule change is available on the 
Exchange's Web site (www.cboe.org/Legal), at the Exchange's Office of 
the Secretary and at the Commission.

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 self-regulatory organization 
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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Under the AIM auction process, a member that represents agency 
orders may submit an order it represents as agent (``Agency Order'') 
along with a second order (a principal order or a solicited order for 
the same amount as the Agency Order) into the AIM auction where other 
participants could compete with the submitting member's second order to 
execute against the Agency Order. The Exchange is proposing to modify 
the AIM rule in order to provide the Exchange with the ability to 
determine the applicable crossing entitlement percentage afforded to 
the members initiating AIM executions (``Initiating Members''). 
Currently the crossing entitlement percentage is fixed at the 
following:
     If the best price equals the Initiating Member's single-
price submission, the Initiating Member's single-price submission shall 
be allocated the greater of one contract or 40% of the order. However, 
if only one Market-Maker matches the Initiating Member's single price 
submission then the Initiating Member shall be allocated 50% of the 
order.
     If the Initiating Member selected the auto-match option of 
AIM, the Initiating Member shall be allocated its full size at each 
price point until a price point is reached where the balance of the 
order can be fully executed. At such price point, the Initiating Member 
shall be allocated the greater of one contract or 40% of the remainder 
of the order.

Under the proposed rule change, the Exchange may determine the 
applicable crossing entitlement percentage on a class-by-class basis, 
provided that the percentage cannot exceed 40% (or, in a scenario 
involving a single price submission and only one other Market-Maker 
matching that price, 50%). This change would therefore allow the 
Exchange to set a lower crossing entitlement percentage than what is 
currently permitted under the rule. Any such changes to the entitlement 
percentage for a given class would be announced by circular.
    The Exchange believes that the ability to set a lower entitlement 
percentage for AIM does not present any new, unique or substantive 
issues because various other rules already permit the Exchange to 
modify the applicable crossing entitlement percentage on a class-by-
class basis. For example, paragraph (d) of Rule 6.74, Crossing Orders, 
permits the applicable crossing entitlement percentage for crossing 
orders in open outcry to be established on a class-by-class basis.
    In addition, the Exchange wants to take this opportunity to clarify 
that the Exchange can determine to make AIM available in Hybrid 3.0 
classes. Currently, the rule provides that an AIM auction can be 
initiated in classes designated by the Exchange as eligible. This could 
include, for example, classes trading on the Exchange's Hybrid Trading 
System and Hybrid 3.0 Platform.\5\ The rule also provides that there 
must be at least three Market-Makers quoting in the relevant series for 
an AIM auction to begin (the ``three quoter requirement'').\6\ In 
Hybrid 3.0 classes, since only a single quoter may submit an electronic 
quote (whether submitted electronically or as manual quote) that is 
disseminated on behalf of the Market-Maker quoting interest in the 
trading crowd, the Exchange is herein clarifying that the three quoter 
requirement is satisfied as long as there are at least three Market-
Makers present in the trading crowd for the particular class on behalf 
of whom the single quoter is representing the electronic quote. No 
changes to the rule text are proposed in connection with this 
clarification.
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    \5\ The ``Hybrid Trading System'' refers to the Exchange's 
trading platform that allows individual Market-Makers to submit 
electronic quotes in their appointed classes. 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. Members of the trading crowd may also 
verbalize quotes (``manual quotes'') to be input into the Exchange's 
systems by quote reporters for dissemination in classes trading on 
the Hybrid 3.0 Platform. Additionally, bids and offers may be made 
at the trading crowd post by public outcry in any option class 
trading on either the Hybrid Trading System or Hybrid 3.0 Platform. 
See Rules 1.1(aaa) and 6.43.
    \6\ The Exchange notes that it is proposing to eliminate the 
requirement that there be at least three (3) Market-Makers quoting 
in the relevant series through a separate rule filing, SR-CBOE-2008-
42.
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    The Exchange believes it is reasonable to clarify that AIM can be 
made available in Hybrid 3.0 classes. Making AIM available in such 
classes would provide additional flexibility for members to obtain 
executions on behalf of their customers while continuing to provide a 
meaningful, competitive auction. In this regard, the Exchange notes 
that while there may be only a single quoter submitting electronic 
quotes for dissemination in Hybrid 3.0

[[Page 46655]]

classes, responses may be submitted by all Market-Makers with an 
appointment in the relevant option class and Members on behalf of 
orders resting at the top of the Exchange's book opposite the agency 
order being auctioned.\7\ In Hybrid 3.0 classes, which currently 
include options on the Standard and Poor's 500 Index (SPX), American-
style options on the Standard and Poor's 100 Index (OEX) and options on 
the Morgan Stanley Retail Index (MVR), there are many Market-Makers at 
any given time that are eligible and connected to participate in AIM.
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    \7\ See Rule 6.74A(b)(1)(D)--(E).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \8\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \9\ in particular in that it is designed to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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. 
In particular, the proposed rule change will provide the Exchange with 
more flexibility to set a lower crossing entitlement percentage than 
what is currently permitted in the rule, which will allow us to 
determine the appropriate percentage for a given class based on 
competitive and other market considerations. With respect to Hybrid 
3.0, the proposed rule change will also clarify that AIM can be made 
available in such classes and thus provide additional opportunities for 
price improvement.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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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 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 rule does not (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, 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 date of 
filing of the proposed rule change or such shorter time as designated 
by the Commission, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\ At any time within 60 days of the filing of such 
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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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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-2008-79 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-CBOE-2008-79. 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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 am and 3 pm. 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-2008-79 and should be 
submitted on or before September 2, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-18485 Filed 8-8-08; 8:45 am]
BILLING CODE 8010-01-P