10572 Federal Register / Vol. 72, No. 45 / Thursday, March 8, 2007 / Notices 

11For purposes only of waiving the operative date 

of this proposal, the Commission has considered 

the proposed rule’s impact on efficiency, 

competition and capital formation. 15 U.S.C. 78c(f). 

12 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 55034 

(December 29, 2006), 72 FR 1350 (the ‘‘Notice’’). 

4Amendment No. 1 amended the proposal: (i) To 

set forth restrictions on the use of hand signals 

between the CBSX Floor Post and the option trading 

posts; (ii) to limit the types of proprietary orders 

that may be submitted by non-DPM members at the 

CBSX Floor Post; and (iii) to allow CBSX traders to 

avail themselves of any exemptions from Rule 611 

of Regulation NMS that are granted by the 

Commission. 

5See Securities Exchange Act Release No. 54422 

(September 11, 2006), 71 FR 54537 (September 15, 

2006) (approving SR–CBOE–2004–21). 

6Securities Exchange Act Release No. 54526 

(September 27, 2006), 71 FR 58646 (October 4, 

2006) (approving SR-CBOE–2006–70). 

7 17 CFR 242.600 et seq. 

8The Exchange separately filed with the 

Commission a proposal to establish a new corporate 

structure for CBSX (the ‘‘CBSX Facility Filing’’). See 

Securities Exchange Act Release No. 55172 (January 

25, 2007), 72 FR 4745 (February 1, 2007) (notice of 

filing of SR-CBOE–2006–110). The Commission also 

approves the CBSX Facility Filing today. See 

Securities Exchange Act Release No. 55389 (March 

2, 2007). 

9 IOC orders would be cancelled if a better-priced 

protected quotation existed on another exchange. 

See CBOE Rule 51.8(g)(4). In addition, the 

Commission notes that an Intermarket Sweep Order 

(‘‘ISO’’) received by CBSX will be executed or 

cancelled immediately and not ‘‘flashed’’ to CBSX 

traders for possible matching of the NBBO. See 

CBOE Rule 51.8(n). 

begin trading on the Hybrid 2.0 platform 

without delay.11

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 rulecomments@sec.gov. Please include File 

Number SR–CBOE–2007–17 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–2007–17. 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 

Section, 100 F Street, NE., Washington, 

DC 20549. 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–2007–17 and should 

be submitted on or before March 29, 

2007.12

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–4053 Filed 3–7–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55392; File No. SR–CBOE–

2006–112] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing of 

Amendment No. 1 and Order Granting 

Accelerated Approval to a Proposed 

Rule Change as Modified by 

Amendment No. 1 Relating to Its Nonoption Security Trading Rules 

March 2, 2007. 

I. Introduction 

On December 29, 2006, the Chicago 

Board Options Exchange, Incorporated 

(‘‘CBOE’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and 

Rule 19b–4 thereunder,2 a proposal to 

modify its trading rules for non-option 

securities. The proposal was published 

for comment in the Federal Register on 

January 11, 2007.3 The Commission 

received no comments on the proposal. 

The Exchange filed Amendment No. 1 

with the Commission on March 2, 

2007.4 This order provides notice of and 

solicits comment on the proposed rule 

change as modified by Amendment No. 

1 and approves the proposal on an 

accelerated basis. 

II. Description of the Proposal 

In September 2006, the Commission 

approved Exchange Chapters 50–55 

governing the trading of non-option 

securities on the Exchange through a 

new electronic trading platform known 

as Stock Trading on CBOEdirect 

(‘‘STOC’’). Also in September 2006, the 

Commission approved 5modifications 6

to the STOC rules to conform them to 

aspects of Regulation NMS.7 In this 

filing, the Exchange proposes to further 

modify its trading rules for equity 

securities and rename its equity trading 

facility the CBOE Stock Exchange 

(‘‘CBSX’’).8 CBOE anticipates launching 

CBSX as of the compliance date for 

Regulation NMS. A full discussion of 

the proposed rule change is set forth in 

the Notice; significant aspects of the 

proposal are discussed below. 

First, the Exchange has proposed to 

further automate order handling and 

trade-through prevention. Under the 

current rules, if CBOE receives an order 

in an equity security when it is not at 

the national best bid or offer (‘‘NBBO’’), 

the designated primary market-maker 

(‘‘DPM’’) for that security must route the 

order to the NBBO market for execution 

if no STOC trader steps up to match the 

NBBO. The Exchange now proposes to 

program CBSX to automatically route, 

via an unaffiliated routing broker, a 

marketable order in such circumstances 

(except if the order is labeled 

immediate-or-cancel (‘‘IOC’’)).8 9

Second, the Exchange has proposed to 

move the CBSX opening from 8:30 a.m. 

Central Time (‘‘CT’’) to 8:15 a.m. CT and 

eliminate a DPM’s obligation to open its 

assigned securities at a single price that 

matches the primary market or at a price 

that does not trade-through another 

exchange’s quote. At the opening, the 

CBSX system would automatically 

execute pre-opening orders at a price 

that allows the greatest number of 

shares to trade. 

Third, the Exchange is proposing to 

add a floor component to its electronic 

trading system. CBSX would dedicate a 

space on the Exchange’s trading floor 

(the ‘‘CBSX Floor Post’’) that CBSX 

DPMs will be required to staff for the 

purpose of responding to price 


sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 72, No. 45 / Thursday, March 8, 2007 / Notices 10573 

10 17 CFR 242.611. 

11CBSX has also adopted, via a separate rule 

filing, a fee structure that would discount fees for 

CBSX Market-Makers that meet certain competitive 

quoting thresholds. See File No. SR–CBOE–2007–25 

(filed March 1, 2007). 

12See Notice, 72 FR at 1352 (discussing these 

proposed changes). 

13 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

14 15 U.S.C. 78f(b)(5). 

discovery inquiries from brokers. Openoutcry trading is not permitted, and 

time priority would attach to the order 

only when it was entered into the 

system. Any order entered at the CBSX 

Floor Post would be executed 

electronically in the same manner as an 

order entered from any other location. 

In Amendment No. 1, the Exchange also 

proposed to amend the rule governing 

the CBSX Floor Post to permit only 

cross orders and IOC orders to be 

submitted by non-DPM members from 

the CBSX Floor Post. 

The CBSX Floor Post would be 

located near the Exchange’s index 

options pits in a location that is 

generally isolated from the equity 

options trading posts. Proposed Rule 

51.12 stipulates that there shall be no 

direct sightlines between the CBSX 

Floor Post and the equity option trading 

posts. In Amendment No. 1, the 

Exchange is adding restrictions on the 

use of hand signals between the CBSX 

Floor Post and the equity option trading 

posts. 

Fourth, the Exchange proposes to 

adopt the following new order types in 

connection with the establishment of 

CBSX: 

A Reserve Order is a limit order in 

which the order originator designates a 

portion of the order for display and 

dissemination (the ‘‘display amount’’) 

and designates a portion of the order in 

‘‘reserve.’’ A reserve portion is not 

displayed but is available for execution 

against incoming orders. If a quantity 

remains on the Reserve Order after an 

execution, the order would be refreshed 

to include the display amount while any 

remaining balance would remain in 

reserve. 

A Middle Market Cross Order is an 

order submitted to trade at the midpoint 

of the NBBO. It must always be 

submitted with a contra order for the 

same size and could be entered only 

when the bid price for the stock is $1 

or greater. These orders could be 

executed in increments as small as onehalf the minimum quoting increment 

established under CBSX rules. However, 

proposed CBSX Rule 51.8(p) would 

prohibit a member from entering a 

Middle Market Cross Order as principal 

buyer (seller) if the NBBO spread is one 

cent wide and that member is an agent 

for any customer order resting at the 

prevailing national best bid (offer). 

A Cross Only Order is an order that 

could be executed only against another 

Cross Only Order for the same size and 

price. These orders could be entered 

only at or between the NBBO, and when 

entered at the CBSX BBO, only when 

the terms of the orders meet the crossing 

parameters set forth in proposed CBSX 

Rule 52.11 relating to priority for 

crosses at the CBSX’s disseminated 

market price. 

A Cross and Sweep Order is an order 

that is priced outside of the NBBO and/ 

or the BBO where the applicable side of 

the CBSX book is satisfied by the Cross 

and Sweep Order and any disseminated 

better-priced protected quotations at 

away market centers are swept with 

ISOs by the CBSX system. In other 

words, before executing the cross, a 

Cross and Sweep Order will satisfy (i) 

Any protected quotations that are priced 

better than the crossing price, and (ii) 

any interest on CBSX that is priced at 

or better than the crossing price. Any 

remaining imbalance on either side of a 

partially executed Cross and Sweep 

Order which results from satisfying 

protected quotations or other CBSX 

interest would be cancelled by the 

CBSX system. 

The Exchange proposes to modify the 

manner in which Stop Orders 

(including Stop Limit Orders) are 

handled. CBOE rules currently provide 

that a stop buy (or sell) order is elected 

when the stock trades, or is bid (or 

offered), at or above (or below) the stop 

price on the Exchange. The Exchange 

proposes to change the provision that 

stipulates when a stop buy (or sell) 

order is elected to state that the order is 

elected (not when the stock is bid or 

offered) at, or above or below, the stop 

price. The Exchange also proposes to 

change the rule to provide that a stop 

buy (or sell) order is elected when the 

stop price is reached on the primary 

market for the stock, rather than on 

CBSX. 

Fifth, in Amendment No. 1, the 

Exchange has proposed to amend CBOE 

Rule 52.7, ‘‘Sweeping and Trading 

Through Away Markets,’’ to incorporate 

any future exemptions from Rule 611 of 

Regulation NMS (the ‘‘Order Protection 

Rule’’) 10 granted by the Commission. 

Rule 52.7 already incorporates several of 

the exceptions codified in Rule 611(b) of 

Regulation NMS. With this provision, 

CBSX would automatically incorporate 

into its rules any future exemptions 

from the Order Protection Rule granted 

by Commission order. 

Sixth, CBOE proposes to adopt a 

provision in Rule 53.55 stating that 

routine failure to qualify for the 

thresholds set forth in any fee incentive 

program 11 that may be employed by 

CBSX from time to time could subject a 

DPM to remedial action by CBSX under 

that rule. 

Seventh, certain existing rules are 

being eliminated because the Exchange 

does not believe that they are necessary 

or relevant to the operation and 

regulation of the CBSX platform.12 Most 

notably, all rules regarding the 

Intermarket Trading System are being 

deleted as the Exchange anticipates 

using private linkages with the CBSX 

platform and because the ITS Plan will 

terminate upon the trading phase date 

for Regulation NMS. 

III. Discussion 

After careful review, the Commission 

finds that the proposed rule change, as 

amended, is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.13 In 

particular, the Commission believes that 

the proposal is consistent with the 

requirements of Section 6(b)(5) of the 

Act,14 which requires, among other 

things, that the rules of a national 

securities exchange be designed to 

promote just and equitable principles of 

trade; to facilitate 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. The 

Commission did not receive any 

comments on the proposal. This order 

approves the proposed rule change, as 

modified by Amendment No. 1, in its 

entirety, although only selected aspects 

of the proposed rules governing the 

CBSX system are discussed below. 

A. Compliance With the Order 

Protection Rule 

The Order Protection Rule of 

Regulation NMS provides that a trading 

center shall establish policies that are 

reasonably designed to prevent tradethroughs on that trading center of 

protected quotations in NMS stocks that 

do not fall within one of the enumerated 

exceptions of the Rule. The Commission 

believes that the proposed CBSX rules 

are reasonably designed to promote 

compliance with the Order Protection 

Rule. The CBSX system is programmed 

to automatically process and route 

orders to avoid trading through any 

protected quotations on away markets. 

Like its predecessor, the STOC system, 

CBSX will automatically match a market 


sroberts on PROD1PC70 with NOTICES
10574 Federal Register / Vol. 72, No. 45 / Thursday, March 8, 2007 / Notices 

15See Securities Exchange Act Releases No. 

54552 (September 29, 2006), 71 FR 59546 (October 

10, 2006) (approving the Amex Auction & 

Electronic Market Integration hybrid market 

structure) and 53539 (March 22, 2006), 71 FR 16353 

(March 31, 2006) (approving the NYSE Hybrid 

Market). 

16See Securities Exchange Act Release No. 39631 

(February 9, 1998), 63 FR 8229 (February 18, 1998) 

(approving SR–Amex–97–37). 

17 15 U.S.C. 78k(a). 

18See, e.g., Securities Exchange Act Releases No. 

54528 (September 28, 2006), 71 FR 58650 (October 

4, 2006) (approving SR–ISE–2006–48) and 54101 

(July 5, 2006), 71 FR 39382 (July 12, 2006) 

(approving SR–NASD–2005–140). 

19See NASD Interpretive Materials 2110–2. 

20 15 U.S.C. 78s(b)(2). 

or marketable limit order against the 

best-priced orders in the CBSX book 

until the order is fully executed or until 

an execution would result in a tradethrough of a protected quotation at 

another automated market center 

(unless an exception is available). An 

incoming order (other than an IOC order 

or ISO) in a security will be ‘‘flashed’’

to CBSX traders for a short period if 

CBSX is not at the NBBO for that 

security. If no CBSX trader determines 

to step up and match the NBBO, the 

order will be routed to the market center 

disseminating the protected quotation 

for execution. Under the existing rules, 

such orders would be routed manually 

by the DPM. CBOE now proposes that 

CBSX would route such orders 

automatically, via an unaffiliated 

routing broker. As a result, CBSX DPMs 

would no longer serve as agent for such 

orders. 

B. CBSX Opening Procedures 

Proposed Rule 51.2(a) provides that 

the CBSX system would open for 

trading at 8:15 a.m. CT (9:30 a.m. 

Eastern Time), 15 minutes before the 

primary markets. The Commission 

believes that establishing trading hours 

is generally within the business 

discretion of an exchange, and CBOE’s 

proposal in this regard does not appear 

to raise any regulatory issues. The 

Commission notes that other exchanges 

have trading sessions before 9:30 a.m. 

Eastern Time. 

Proposed Rule 52.2 provides that the 

CBSX system would automatically open 

each security at a price that provides the 

highest matched quantity of order 

volume. In connection with the 

automation of the opening, the 

Exchange also proposes to eliminate a 

DPM’s obligation to open a security at 

a single price that matches the opening 

price on the primary market. The 

Commission believes that the proposed 

opening matching algorithm is 

reasonable and consistent with the Act. 

C. Hybrid Trading Model 

The Commission believes that CBOE’s 

integration of the electronic CBSX 

system with a post on the Exchange 

floor is generally consistent with the Act 

and is within the business discretion of 

the Exchange. The Commission 

previously has found hybrid trading 

rules of other exchanges to be consistent 

with the Act.15

The CBSX Floor Post is near the posts 

where related options may be traded. 

CBOE has proposed to prohibit 

members from using hand signals or 

other like means of communication to 

communicate between the CBSX Floor 

Post and the equity options trading 

posts. CBOE’s proposed rule is 

substantially similar to policies adopted 

by the American Stock Exchange in 

connection with its proposal to permit 

side-by-side trading that the 

Commission previously has found 

consistent with the Act.16 For the same 

reasons, the Commission believes that 

the CBOE rule also is consistent with 

the Act. 

CBOE also has proposed to prohibit 

members, except DPMs, from entering 

proprietary orders while at the CBSX 

Floor Post, unless such orders are cross 

orders or IOC orders. These restrictions 

appear reasonably designed to prevent a 

non-DPM CBOE member from executing 

a trade ahead of a non-member at the 

same price and thus are generally 

consistent with Section 11(a) of the 

Act.17

D. New Order Types 

The Exchange proposes to adopt 

several new order types in connection 

with the establishment of CBSX: 

Reserve Orders, Middle Market Cross 

Orders, Cross Only Orders, and Cross 

and Sweep Orders. The Commission 

finds that the rules relating to these 

order types are consistent with the Act 

and should provide market participants 

with additional flexibility in executing 

transactions while protecting displayed 

interest on the CBSX book and protected 

quotations of other trading centers. 

The Commission notes in particular 

that it previously has approved order 

types on other exchanges similar to 

what CBOE terms the Middle Market 

Cross Order.18 The Commission notes 

that proposed CBSX Rule 51.8(p) 

prohibits a member from entering a 

Middle Market Cross Order as principal 

buyer (seller) if the NBBO spread is one 

cent wide and that member was an 

agent for any customer order resting at 

the prevailing NBBO bid (offer). This 

provision would preclude a member 

from trading as principal at a price that 

is less than one cent better than a price 

expressed by its customer. By requiring 

at least a one-cent improvement over the 

customer limit order that the member 

represents as agent, this rule promotes 

compliance by the member with its 

Manning obligation to the customer 

order.19

E. Accelerated Approval 

Pursuant to Section 19(b)(2) of the 

Act,20 the Commission finds good cause 

for approving the proposal prior to the 

thirtieth day after the publication of the 

proposal, as modified by Amendment 

No. 1, in the Federal Register. The 

revisions to the proposed rule change 

made by Amendment No. 1 do not raise 

any novel or substantive regulatory 

issues. Therefore, the Commission finds 

good cause for approving the amended 

proposal on an accelerated basis. 

IV. Solicitation of Comments 

Concerning Amendment No. 1 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the proposed rule 

change as modified by Amendment No. 

1, including whether it 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 rulecomments@sec.gov. Please include File 

Number SR–CBOE–2006–112 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–2006–112. 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 


sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 72, No. 45 / Thursday, March 8, 2007 / Notices 10575 

21 Id. 

22 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 55172 

(January 25, 2007), 72 FR 4745. 

4Pursuant to Section 3(a)(2) of the Act, the term 

‘‘facility’’ when used with respect to an exchange, 

includes ‘‘its premises, tangible or intangible 

property whether on the premises or not, any right 

to the use of such premises or property or any 

service thereof for the purpose of effecting or 

reporting a transaction on an exchange (including, 

among other things, any system of communication 

to or from the exchange, by ticker or otherwise, 

maintained by or with the consent of the exchange), 

and any right of the exchange to the use of any 

property or service.’’ 15 U.S.C. 78c(a)(2). The 

Commission notes that although the Operating 

Agreement refers to CBSX LLC as a facility of 

CBOE, the scope of the CBSX facility is not limited 

to CBSX LLC. 

5 15 U.S.C. 78c(a)(2). 

6CBOE represents that it has adequate funds to 

discharge all regulatory functions related to the 

facility. CBOE further represents that CBSX LLC 

will not be entitled to any revenue generated in 

connection with penalties, fines, and regulatory fees 

that may be assessed by CBOE against CBOE 

members in connection with trading on CBSX. 

Rather, all regulatory fines, penalties and fees 

assessed against and paid by CBOE members to 

CBOE in connection with trading on CBSX will 

remain with CBOE. 

7The Commission approved the Exchange’s 

proposed rule change relating to the CBSX permit 

program. See Securities Exchange Act Release No. 

55326 (February 21, 2007), 72 FR 8816 (February 

27, 2007). The Commission also approved the 

Exchange’s proposed rule change to establish the 

equity trading rules for CBSX. See Securities 

Exchange Act Release No. 34–55392 (March 2, 

2007). 

8 ‘‘Owner’’ means a limited liability company 

‘‘member’’ as that term is defined in § 18–101(11) 

of the Delaware Limited Liability Company Act 

(‘‘DLLCA’’), and shall include each Voting Owner 

and each Management Owner, but only so long as 

such person is shown on CBSX’s books and records 

as the owner of at least one (1) Share (or fraction 

of one (1) Share). ‘‘Owner’’ shall include a 

‘‘Substituted Owner’’ as defined in Section 6.5(a) of 

the Operating Agreement, but only upon 

compliance with all of the requirements of Sections 

6.4 and 6.5 of the Operating Agreement. For 

purposes of clarity, no person shall become an 

‘‘Owner’’ as to any Shares, if the acquisition of 

those Shares will require a change of ownership 

notice to the Commission, or will constitute a 

proposed rule change subject to the requirements of 

the rule filing process of Section 19 of the Act, until 

all of the requirements of such notice or rule filing 

process have been accomplished and, if necessary, 

approved by the Commission. See Section 2.1(16) 

of the Operating Agreement. 

9 ‘‘Voting Shares’’ means those Shares entitled to 

vote on matters submitted to the Owners, which 

Voting Shares are held by the Voting Owners. See 

Section 2.1(27) of the Operating Agreement. 

10As noted in Section 3.2 of the Operating 

Agreement, it is the intention of the Owners that no 

other members of CBSX LLC (other than Affiliates 

of CBOE) be owners of Series A Voting Shares, and 

that no additional Series A Voting Shares be 

authorized, created or issued for such purpose; 

provided however, that this provision is not 

intended to limit or restrict any rights of CBOE to 

transfer any of its Series A Voting Shares with the 

prior approval of the Commission as provided for 

in Article VI, including Section 6.14 of the 

Operating Agreement, or any other provision 

thereof, or any rights to be acquired by a transferee 

of those Shares as provided therein. 

11 ‘‘Non-Voting Restricted Share’’ means a Share 

held by a Management Owner containing the voting 

limitations and other restrictions described in the 

Operating Agreement. See Section 2.1(15) of the 

Operating Agreement. 

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–2006–112 and 

should be submitted on or before March 

29, 2007. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,21 that the 

proposed rule change (File No. SR–

CBOE–2006–112), as modified by 

Amendment No. 1, be, and it hereby is, 

approved on an accelerated basis. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.22

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–4124 Filed 3–7–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55389; File No. SR–CBOE–

2006–110] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Order Granting Approval 

of Proposed Rule Change as Modified 

by Amendment No. 1 Thereto and 

Notice of Filing and Order Granting 

Accelerated Approval to Amendment 

Nos. 2 and 3 Relating to the 

Establishment of CBOE Stock 

Exchange, LLC 

March 2, 2007. 

I. Introduction 

On December 26, 2006, the Chicago 

Board Options Exchange, Incorporated, 

(the ‘‘CBOE’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934, as amended 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2 a 

proposed rule change relating to the 

establishment of the CBOE Stock 

Exchange (‘‘CBSX’’), which will be 

operated by CBOE Stock Exchange, LLC 

(‘‘CBSX LLC’’). On January 10, 2007, the 

CBOE filed Amendment No. 1 to the 

proposed rule change. The proposed 

rule change was published for comment 

in the Federal Register on February 1, 

2007.3 The Commission received no 

comments regarding the proposal. On 

March 1, 2007, the CBOE filed 

Amendment No. 2 to the proposed rule 

change. On March 2, 2007, the CBOE 

filed Amendment No. 3 to the proposed 

rule change. This order approves the 

proposed rule change, grants accelerated 

approval to Amendment Nos. 2 and 3, 

and solicits comments from interested 

persons on Amendment Nos. 2 and 3. 

II. Overview 

The Exchange proposes to establish 

CBSX as a facility,4 as that term is 

defined in Section 3(a)(2) of the Act,5 of 

CBOE. As the self-regulatory 

organization (‘‘SRO’’) for CBSX, CBOE 

will have regulatory responsibility for 

the activities of CBSX.6 CBSX will be a 

fully automated marketplace for the 

trading of securities other than options 

by CBOE members. CBSX will be 

operated by CBSX LLC, a Delaware 

limited liability company. In the instant 

proposed rule change, CBOE seeks the 

Commission’s approval of the proposed 

governance structure of CBSX LLC as 

reflected in the Operating Agreement of 

CBSX LLC. CBOE has submitted 

separate proposed rule changes to 

establish rules relating to listing, 

membership and trading on CBSX and 

to establish a permit program in 

connection with CBSX.7

As a limited liability company, 

ownership of CBSX LLC is represented 

by limited liability membership 

interests. The holders of such interests 

are referred to as ‘‘Owners.’’ 8 Initially, 

there are five Owners of CBSX LLC. 

CBOE is one of the Owners of CBSX 

LLC, and owns all ‘‘Series A’’ Voting 

Shares 9 of CBSX LLC, representing 50% 

of CBSX LLC.10 The other four Owners 

and their respective ownership interests 

are: VDM Chicago, LLC (20%); 

LaBranche & Co., Inc. (10%); IB 

Exchange Corp. (10%); and 

Susquehanna International Group, LLP. 

(10%). Each of these four Owners owns 

‘‘Series B’’ Voting Shares of CBSX LLC. 

Under Section 3.2 of the Operating 

Agreement, the CBSX LLC Board of 

Directors (‘‘Board of Directors’’ or 

‘‘Board’’) may authorize the issuance of 

‘‘Series C’’ Non-Voting Restricted 

Shares 11 from time to time to 

employees, consultants, or officers of 

CBSX LLC, or any other person, each of 


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