[Federal Register Volume 65, Number 198 (Thursday, October 12, 2000)]
[Notices]
[Pages 60706-60708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26113]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43395; File No. SR-CBOE-00-46]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Partial Accelerated Approval of Proposed Rule Change and 
Amendment No. 1 thereto by the Chicago Board Options Exchange, Inc. 
Relating to its Rapid Opening System Pilot Program

September 29, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\1\ notice is hereby given that 
on September 7, 2000, the Chicago Board Options Exchange (``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. On 
September 27, 2000, the Exchange submitted Amendment No. 1 to the 
proposed rule change.\3\ The Commission is publishing this notice and 
order to solicit comments on the proposed rule change from interested 
persons and to grant partial accelerated approval to the portion of the 
proposal extending the Exchange's ROS pilot program (``Pilot'') until 
the earlier of September 30, 2001 or such time as the Commission has 
approved ROS on a permanent basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, CBOE acknowledged that prior to 
permanent approval of the proposed rule change, the Exchange is 
required to submit to the Commission a workable plan for electronic 
incorporation of non-bookable orders on the Exchange's Rapid Opening 
System (``ROS''), and a description of the methods the Exchange will 
employ to surveil market-maker activities on ROS. The Exchange also 
clarified that the current ROS pilot program would be extended until 
the earlier of September 30, 2001 or such time as the Commission has 
approved ROS on a permanent basis. Letter from Jaime Galvan, 
Attorney, CBOE, to Terri Evans, Special Counsel, Division of Market 
Regulation (``Division''), Commission, dated September 26, 2000 
(``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to adopt ROS on a permanent basis, as well as 
extend the Pilot until the earlier of September 30, 2001 or such time 
as the Commission has approved ROS on a permanent basis.\4\ The text of 
the proposed rule change is available at the Exchange and the 
Commission.
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    \4\ See Amendment No. 1 effectively clarifying that the Pilot 
will not be further extended beyond September 30, 2001 without 
separate Commission approval.
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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
    On February 9, 1999, the Commission approved the implementation of 
the Pilot.\5\ The Pilot was extended once and is scheduled to expire on 
September 30, 2000.\6\ ROS is a system developed by the Exchange to 
open an entire options class, all series, as a single event, based on a 
single underlying value.
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    \5\ Securities Exchange Act Release No. 41033 (February 9, 
1999), 64 FR 8156 (February 18, 1999).
    \6\ Securities Exchange Act Release No. 42596 (March 30, 2000), 
65 FR 18397 (April 7, 2000).

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[[Page 60707]]

    The Exchange is now proposing to make the Pilot program permanent. 
The Exchange's experience with ROS over the past year and a half has 
been positive. The Exchange believes that ROS has successfully 
facilitated the expedited openings of options classes on the Exchange, 
thereby improving market efficiency for all market participants. By 
providing the Exchange's market-makers with the ability to open option 
classes within seconds of the opening of the underlying security, 
customer orders have been addressed in open trading in a more timely 
manner. The Exchange believes that ROS has enhanced the quality of 
customer executions and has served to protect existing order entry 
priority.
    The Exchange is continuing to explore possibilities for bring non-
bookable orders into ROS in an automated fashion. The Exchange 
continues to actively study the possibility of making changes to its 
limit order book to allow for the inclusion of other order types, at 
least at the opening. These changes to the Exchange's limit order book 
would allow ROS to electronically accommodate orders that cannot be 
placed in the limit order book today. The Exchange believes the Pilot 
is operating successfully and requests permanent approval of the 
proposed rule change.
    The Exchange also requests an extension of the Pilot pending the 
Commission's consideration of the proposal to adopt ROS on a permanent 
basis. An extension of the Pilot program would allow the Exchange and 
its customers to continue to realize the benefits of ROS pending 
Commission consideration of permanent approval of ROS.
2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) of the Act \7\ in general and furthers the objectives 
of Section 6(b)(5) \8\ in particular in that it is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest.
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    \7\ 78f(b).
    \8\ 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 not necessary or appropriate in 
furtherance of 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 has neither solicited nor received comments on 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 the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The Exchange has requested that the Commission find good cause, 
pursuant to Section 19(b)(2) of the Act,\9\ for approving the extension 
of the Pilot through September 30, 2001 or until such earlier time as 
the Commission grants the Exchange's request for permanent approval of 
the program, prior to the thirtieth day after publication in the 
Federal Register.
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    \9\ 15 U.S.C. 78s(b)(2).
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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, as amended, is consistent with the Act. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609. 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 Room. Copies of such filing will 
also be available for inspection and copying at the principal office of 
the Exchange. All submissions should refer to File No. SR-CBOE-00-46 
and should be submitted by November 2, 2000.

V. Commission's Findings and Order Granting Partial Accelerated 
Approval of Proposed Rule Change

    The Commission finds that the portion of the proposed rule change 
relating to the extension of the Pilot is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\10\ Specifically, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
of the Act,\11\ which requires that the rules of an exchange be 
designed to promote just and equitable principles of trade, to remove 
the impediments to and perfect the mechanisms of a free and open market 
and a national market system, and, in general, to protect investors and 
the public.
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    \10\ In approving the extension of the Pilot, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78s(b)(5).
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    The Commission believes that accelerating effectiveness of the 
proposed extension of the Pilot will allow the Exchange to continue to 
offer the benefits of ROS without interruption while the Commission 
considers the Exchange's proposal to adopt ROS on a permanent basis.
    The Commission finds good cause for approving this proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register. Specifically, the Commission 
believes that accelerating the effectiveness of the proposed extension 
of the Pilot would benefit investors by providing for the continuation 
of expedited openings of options classes on the Exchange afforded by 
ROS.\12\ In addition, the Commission believes that accelerated approval 
of the Pilot would enable the CBOE to continue uninterrupted operation 
of ROS while ensuring adequate time for the Commission to evaluate the 
Exchange's proposal.
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    \12\ Approval of the extension of the Pilot should not be 
interpreted as suggesting that the Commission is predisposed to 
approving the Pilot on a permanent basis.
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    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the extension of the Pilot by the Exchange (File No. SR-
CBOE-00-46) is approved until the earlier of September 30, 2001 or such 
time as the Commission has approved ROS on a permanent basis.
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 200.30-3(a)(12).


[[Page 60708]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-26113 Filed 10-11-00; 8:45 am]
BILLING CODE 8010-01-M