[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