Federal Register / Vol. 74, No. 39 / Monday, March 2, 2009 / Notices 9115 

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

2 17 CFR 240.19b–4. 

does not normally weaken the plan’s 

contribution base. For that reason, 

Congress established special withdrawal 

rules for the construction and 

entertainment industries. 

For construction industry plans and 

employers, section 4203(b)(2) of ERISA 

provides that a complete withdrawal 

occurs only if an employer ceases to 

have an obligation to contribute under 

a plan, and the employer either 

continues to perform previously covered 

work in the jurisdiction of the collective 

bargaining agreement or resumes such 

work within five years without 

renewing the obligation to contribute at 

the time of resumption. Section 

4203(c)(1) of ERISA applies the same 

special definition of complete 

withdrawal to the entertainment 

industry, except that the pertinent 

jurisdiction is the jurisdiction of the 

plan rather than the jurisdiction of the 

collective bargaining agreement. In 

contrast, the general definition of 

complete withdrawal in section 4203(a) 

of ERISA defines a withdrawal to 

include permanent cessation of the 

obligation to contribute regardless of the 

continued activities of the withdrawn 

employer. 

Congress also established special 

partial withdrawal liability rules for the 

construction and entertainment 

industries. Under section 4208(d)(1) of 

ERISA, ‘‘[a]n employer to whom section 

4203(b) (relating to the building and 

construction industry) applies is liable 

for a partial withdrawal only if the 

employer’s obligation to contribute 

under the plan is continued for no more 

than an insubstantial portion of its work 

in the craft and area jurisdiction of the 

collective bargaining agreement of the 

type for which contributions are 

required.’’ Under section 4208(d)(2) of 

ERISA, ‘‘[a]n employer to whom section 

4203(c) (relating to the entertainment 

industry) applies shall have no liability 

for a partial withdrawal except under 

the conditions and to the extent 

prescribed by the [PBGC] by 

regulation.’’ 

Section 4203(f) of ERISA provides 

that the PBGC may prescribe regulations 

under which plans in other industries 

may be amended to provide for special 

withdrawal liability rules similar to the 

rules prescribed in section 4203(b) and 

(c) of ERISA. Section 4203(f)(2) of 

ERISA provides that such regulations 

shall permit the use of special 

withdrawal liability rules only in 

industries (or portions thereof) in which 

the PBGC determines that the 

characteristics that would make use of 

such rules appropriate are clearly 

shown, and that the use of such rules 

would not pose a significant risk to the 

insurance system under Title IV of 

ERISA. Section 4208(e)(3) of ERISA 

provides that the PBGC shall prescribe 

by regulation a procedure by which 

plans may be amended to adopt special 

partial withdrawal liability rules upon a 

finding by the PBGC that the adoption 

of such rules is consistent with the 

purposes of Title IV of ERISA. 

The PBGC’s regulation, Extension of 

Special Withdrawal Liability Rules (29 

CFR part 4203), prescribes procedures 

whereby a multiemployer plan may ask 

PBGC to approve a plan amendment 

that establishes special complete or 

partial withdrawal liability rules. The 

regulation may be accessed on the 

PBGC’s Web site (http://www.pbgc.gov). 

Request 

The PBGC has received a request from 

the Service Employees International 

Union Local 1 Pension Trust Fund 

(‘‘Local 1 Plan’’) for approval of a plan 

amendment providing for special 

withdrawal liability rules. A copy of the 

originating request, and PBGC’s 

summary of the actuarial reports that 

the plan provided, may be accessed on 

the PBGC’s Web site (http:// 

www.pbgc.gov). A copy of the complete 

filing may be requested from the PBGC 

Disclosure Officer. The fax number is 

202–326–4042. It may also be obtained 

by writing the Communications and 

Public Affairs Department, PBGC, 1200 

K Street, NW., Suite 1200, Washington, 

DC 20005. 

In brief, the Local 1 Plan, a 

multiemployer plan covering the 

residential building cleaning industry in 

Chicago, represents that the industry 

has characteristics similar to those of 

the construction industry. The plan has 

adopted an amendment prescribing 

special withdrawal liability rules, 

which, if approved by the PBGC, would 

be effective as of July 1, 2005. Under the 

proposed amendment, complete 

withdrawal of an employer would occur 

only under conditions similar to those 

described in ERISA section 4203(b)(2), 

or certain other conditions including a 

mass withdrawal. Partial withdrawal of 

an employer would occur only under 

conditions similar to those described in 

ERISA section 4208(d)(1). The request 

includes actuarial data to support the 

plan’s contention that the amendment 

will not pose a significant risk to the 

insurance system under Title IV of 

ERISA. 

Comments 

All interested persons are invited to 

submit written comments concerning 

the pending request to the PBGC at the 

above address by April 16, 2009. All 

comments will be made a part of the 

record. Comments received will be 

available for public inspection at the 

address set forth above. 

Issued in Washington, DC, on this 17th day 

of February, 2009. 

Vincent K. Snowbarger, 

Acting Director, Pension Benefit Guaranty 

Corporation. 

[FR Doc. E9–4312 Filed 2–27–09; 8:45 am] 

BILLING CODE 7708–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59435; File No. SR–CBOE– 

2009–007] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing of 

Proposed Rule Change Relating to 

Tied Hedge Transactions 

February 23, 2009. 

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 February 

13, 2009, 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 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to adopt 

Interpretation and Policy .10 to Rule 

6.74, Crossing Orders, to allow hedging 

stock, security future or futures contract 

positions to be represented currently 

with option facilitations or solicitations 

in the trading crowd (‘‘tied hedge’’ 

orders). The text of the proposed rule 

change is available on the Exchange’s 

Web site (http://www.cboe.org/Legal), at 

the Office of the Secretary, CBOE 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, 

CBOE included statements concerning 

the purpose of, and basis for, the 

proposed rule change and discussed any 

comments it received on the proposed 


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3For example, Rule 6.43, Manner of Bidding and 

Offering, requires bids and offers to be made at the 

post by public outcry, and Rule 6.74 imposes 

specific order exposure requirements on floor 

brokers seeking to cross buy orders with sell orders. 

4For example, the rule requires that the member 

or member organization representing an original 

order that is the subject of a solicitation to disclose 

the terms of the original order to the crowd before 

the original order can be executed. This disclosure 

is intended to eliminate the unfairness that can be 

associated with pre-negotiated transactions among 

the parties to the solicitation versus the in-crowd 

market participants, and would subject the order 

that is the subject of the solicitation to full auction 

interaction with other orders in the crowd. In 

addition, priority is accorded depending on 

whether the original order is disclosed throughout 

the solicitation period; whether the solicited order 

improves the best bid or offer in the trading crowd; 

and whether the solicited order matches the 

original order’s limit. Rule 6.74(d) contains 

exceptions to these priority provisions in instances 

were a crossing participation entitlement is sought. 

5An ‘‘original order’’ is an order respecting an 

option traded on the Exchange, including a spread, 

combination, straddle, stock option, security-futureoption or any other complex order. See Rule 6.9. 

6For purposes of Rule 6.9(e), an order to buy or 

sell a ‘‘related instrument,’’ means, ‘‘in reference to 

an index option, an order to buy or sell securities 

comprising ten percent or more of the component 

securities in the index or an order to buy or sell a 

futures contract on any economically equivalent 

index. With respect to an SPX option, an OEX 

option is a related instrument, and vice versa.’’ 

7CBOE’s proposed exception is similar to an 

exception that had been proposed in 2003 by the 

Philadelphia Stock Exchange (‘‘Phlx’’). See 

Securities Exchange Act Release No. 48875 

(December 4, 2003), 68 FR 70072 (December 16, 

2003) (SR–Phlx–2003–75). At the time of the Phlx 

proposal, which was ultimately not pursued to 

approval, CBOE commented that the proposal 

should not be approved unless certain amendments 

were made. For example, CBOE suggested that the 

tied hedge procedures should be limited to 

scenarios where the order cannot be satisfied by the 

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

for similar reasons, the order is of a significantly 

larger than average size. See letters from Edward J. 

Joyce, President and Chief Operating Officer, CBOE, 

to Jonathan G. Katz, Secretary, Commission, dated 

January 14, 2004 and May 20, 2004; see also note 

15, infra. 

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 

Rule 6.74 generally sets forth the 

procedures by which a floor broker may 

cross an order with a contra-side order. 

Transactions executed pursuant to Rule 

6.74 are subject to the restrictions of 

paragraph (e) of Rule 6.9, Solicited 

Transactions, which prohibits trading 

based on knowledge of imminent 

undisclosed solicited transactions 

(commonly referred to as ‘‘anticipatory 

hedging’’). 

Existing Anticipatory Hedge Rule 

By way of background, when Rule 6.9 

was adopted in 1994, the Exchange 

noted its belief that it is appropriate to 

permit solicitation between potential 

buyers and sellers of options in advance 

of the time they send actual orders to 

the trading crowd on the Exchange. The 

Exchange also noted that complex 

orders, such as spreads, straddles, 

combination and stock-option orders, 

often require the ‘‘advance shopping’’ 

that is characteristic of a solicited 

transaction, and that such interactions 

between buyers and sellers and the 

resulting solicited transactions can 

enhance liquidity and depth at the 

CBOE by bringing orders to the floor 

that might otherwise be difficult to 

effect. While recognizing this, Exchange 

also noted that, if the orders that 

comprise a solicited transaction are not 

suitably exposed to the order interaction 

process on the CBOE floor, the 

execution of such orders would not be 

consistent with CBOE rules designed to 

promote order interaction in an openoutcry auction.3 Solicited transactions 

by definition entail negotiation, and if 

the orders that comprise a solicited 

transaction are not adequately exposed 

to the floor auction, the in-crowd market 

participants (e.g., Market-Makers in the 

trading crowd) cannot have sufficient 

time to digest and react to those orders’ 

terms. The pre-negotiation inherent in 

the solicitation process thus can enable 

the parties to a solicited transaction to 

preempt the crowd to an execution at 

the pre-negotiated price. Thus, the 

Exchange notes, Rule 6.9 was originally 

designed to preserve the right to solicit 

orders in advance of submitting a 

proposed trade to the crowd, while at 

the same time assuring that orders that 

are the subject of a solicitation are 

exposed to the auction market in a 

meaningful way. In addition to 

requiring disclosure of orders and 

clarifying the priority principles 

applicable to solicited transactions,4

Rule 6.9 provides that it is inconsistent 

with just and equitable principles of 

trade for any member or associated 

person, who has knowledge of all the 

material terms of an original order 5 and 

a solicited order (including a facilitation 

order) that matches the original order’s 

price, to enter an order to buy or sell an 

option of the same class as any option 

that is the subject of the solicitation 

prior to the time the original order’s 

terms are disclosed to the crowd or the 

execution of the solicited transaction 

can no longer reasonably be considered 

imminent. This prohibition extends to 

orders to buy or sell the underlying 

security or any ‘‘related instrument,’’ as 

that term is defined in the rule.6

When originally adopted in 1994, the 

CBOE believed that the prohibition on 

anticipatory hedging was necessary to 

prevent members and associated 

persons from using undisclosed 

information about imminent solicited 

option transactions to trade the relevant 

option or any closely-related instrument 

in advance of persons represented in the 

relevant options crowd. CBOE believes 

the basic principle remains true today, 

but changes in the marketplace have 

caused CBOE to re-evaluate the 

effectiveness and efficiency of CBOE’s 

existing rule’s procedural requirements, 

as well as CBOE’s previous objections to 

an exception proposed by another 

exchange for its proposed equivalent 

rule in 2003.7 Since that time, the 

Exchange believes that increased 

volatility in the markets, as well as the 

advent of penny trading in underlying 

stocks and resultant decreased liquidity 

at the top of each underlying market’s 

displayed national best bid or offer, it 

has become increasingly difficult for 

members and member organizations to 

assess ultimate execution prices and the 

extent of available stock to hedge related 

options facilitation/solicitation 

activities, and to manage that market 

risk. This risk extends to simple and 

complex orders, and to all market 

participants involved in the transaction 

(whether upstairs or on-floor) because of 

the uncertainty of the extent to which 

the market participant will participate 

in the transaction, the amount of time 

associated with the auction process, and 

the likelihood that the underlying stock 

prices in today’s environment may be 

difficult to assess and change before 

they are able to hedge. These 

circumstances make it difficult to obtain 

a hedge, difficult to quote orders and 

difficult to achieve executions, and can 

translate into less liquidity in the form 

of smaller size and wider quote spreads, 

fewer opportunities for price 

improvement, and the inefficient 

handling of orders. Additionally, more 

and more trading activity appears to be 

taking place away from the exchangelisted environment and in the over-thecounter (‘‘OTC’’) market, which by its 

nature is not subject to the same tradethrough type risks present in the 

exchange environment. Therefore, the 

Exchange is seeking to make its trading 

rules more efficient not only to address 

the market risk and execution concerns, 

but also to effectively compete with and 

attract volume from the OTC market. 

What is more, Market-Makers’ trading 

strategies have evolved. Whereas before 


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8The price of an option is not completely 

dependent on supply and demand, nor on the price 

of the underlying security. Market-Makers price 

options based on basic measures of risk as well. 

One of these such measures, delta, is the rate of 

change in the price of an option as it relates to 

changes in the price of the underlying security, 

security future or futures contract. The delta of an 

option is measured incrementally based on 

movement in the price of the underlying security, 

security future or futures contract. For example, if 

the price of an option increases or decreases by 

$1.00 for each $1.00 increase or decrease in the 

price of the underlying security, the option would 

have a delta of 100. If the price of an option 

increases or decreases by $0.50 for each $1.00 

increase or decrease in the price of the underlying 

security, the option would have a delta of 50. 

9 Volatility is a measure of the fluctuation in the 

underlying security’s market price. Market-Makers 

that trade based on volatility have options positions 

that they hedge with the underlying. Once hedged, 

the risk exposure to the Market-Maker is realized 

volatility and implied volatility. Realized volatility 

is the actual volatility in the underlying. Implied 

volatility is determined by using option prices 

currently existing in the market at the time rather 

than using historical data on the market price 

changes of the underlying. 

10The proposed definition of a ‘‘related 

instrument’’ with respect to an index option is 

modeled after the definition that currently applies 

under Rule 6.9(e). See proposed Rule 6.74.10(c)(i) 

and note 6, supra. 

11For example, a tied hedge order involving 

options on the iShares Russell 2000 Index ETF 

might involve a hedge position in the underlying 

ETF, security futures overlying the ETF, or futures 

contracts overlying the Russell 2000 Index. 

12FLEX Options provide investors with the 

ability to customize basic option features including 

size, expiration date, exercise style, and certain 

exercise prices. 

13The designated classes and minimum order 

size applicable to each class would be 

communicated to the membership via Regulatory 

Circular. For example, the Exchange could 

determine to make the tied hedge transaction 

procedures available in options class XYZ for 

orders of 1,000 contracts or more. Such a 

determination would be announced via Regulatory 

Circular, which would include a cumulative list of 

all classes and corresponding sizes for which the 

tied hedge procedures are available. 

14 In determining whether an individual original 

order satisfies the eligible order size requirement, 

any complex order must contain one leg alone 

which is for the eligible order size or greater. This 

approach to the eligible order size requirement for 

complex orders is analogous to Rule 6.74(d)(iii), 

which provides that a complex order must contain 

one leg alone which is for the eligible order size or 

greater to be eligible for an open outcry crossing 

entitlement. 

15As discussed above in note 7, in commenting 

on the prior Phlx proposal, CBOE suggested that the 

tied hedge procedures should be limited to 

scenarios where the order cannot be satisfied by the 

NBBO or, for similar reasons, the order is of a 

significantly larger than average size. CBOE’s 

reasoning was that there may not be as much 

benefit to delaying the representation and execution 

of smaller orders that may be immediately fillable 

or executed more quickly by sending an order to the 

options crowd (as opposed to tying up such an 

order with stock). See CBOE Letter II at 3–4. 

Particularly given the decreased amount of liquidity 

available at the NBBO, the frequency with which 

quotes may flicker, and differing costs associated 

with accessing liquidity on various markets, as well 

as for ease of administration, the Exchange believes 

that its proposed 500 contract minimum is 

sufficient to address these considerations. The 

Exchange intends to evaluate whether 500 contracts 

is the appropriate threshold and whether smaller 

sized orders may benefit from the procedures. If any 

reduction in the eligible size is desired, the 

Exchange would submit a separate rule filing on 

this subject in the future. 

Market-Makers tended to trade based on 

delta risk,8 now market-making strategy 

is based more on volatility.9 The tied 

hedge transaction procedures (described 

below) are designed in a way that is 

consistent with this shift toward a 

volatility trading strategy, and makes it 

more desirable for Market-Makers to 

compete for orders that are exposed 

through the solicitation process. 

In order to address the concerns 

associated with increased volatility and 

decreased liquidity and more effectively 

compete with the OTC market, the 

Exchange is proposing to adopt a 

limited exception to the anticipatory 

hedging restrictions that would permit 

the representation of hedging stock 

positions in conjunction with option 

orders, including complex orders, in the 

options trading crowd (a ‘‘tied hedge’’ 

transaction). The Exchange believes this 

limited exception remains in keeping 

with the original design of Rule 6.9(e), 

but sets forth a more practicable 

approach considering today’s trading 

environment that will provide the 

ability to hedge in a way that will still 

encourage meaningful competition 

among upstairs and floor traders. 

Besides stock positions, the proposal 

would also permit security futures 

positions to be used has a hedge. In 

addition, in the case where the order is 

for options on indices, options on 

exchange-traded funds (‘‘ETF’’) or 

options on HOLding Company 

Depository ReceiptS (‘‘HOLDRS’’), a 

related instrument may be used as a 

hedge. A ‘‘related instrument’’ would 

mean, in reference to an index option, 

securities comprising ten percent or 

more of the component securities in the 

index or a futures contract on any 

economically equivalent index 

applicable to the option order. With 

respect to SPX, OEX would be an 

economically equivalent index, and vice 

versa.10 A ‘‘related instrument’’ would 

mean, in reference to an ETF or HOLDR 

option, a futures contract on any 

economically equivalent index 

applicable to the ETF or HOLDR 

underlying the option order.11

With a tied hedge transaction, 

Exchange members would be permitted 

to first hedge an option order with the 

underlying security, a security future or 

futures contract, as applicable, and then 

forward the option order and the 

hedging position to an Exchange floor 

broker with instructions to represent the 

option order together with the hedging 

position to the options trading crowd. 

The in-crowd market participants that 

chose to participate in the option 

transaction must also participate in the 

hedging position. First, under the 

proposal, the original option order must 

be in a class designated as eligible for 

a tied hedge transaction as determined 

by the Exchange, including FLEX 

Options classes.12 The original option 

order must also be within designated 

tied hedge eligibility size parameters, 

which would be determined by the 

Exchange and would not be smaller 

than 500 contracts.13 The Exchange 

notes that the minimum order size 

would apply to an individual original 

order.14 Multiple original orders could 

not be aggregated to satisfy the 

requirement (though multiple contraside solicited orders could be aggregated 

to execute against the original order). 

The Exchange states that the primary 

purpose of this provision is to limit use 

of the tied hedge procedures to larger 

orders that might benefit from a 

member’s or member organization’s 

ability to execute a facilitating hedge.15

Assuming an option order meets these 

eligibility parameters, the proposal also 

includes a number of other conditions 

that must be satisfied. 

Second, the proposal would also 

require that, prior to entering tied hedge 

orders on behalf of customers, the 

member or member organization must 

deliver to the customer a one-time 

written notification informing the 

customer that his order may be executed 

using the Exchange’s tied hedge 

procedures. Under the proposal, the 

written notification must disclose the 

terms and conditions contained in the 

proposed rule and be in a form 

approved by the Exchange. Given the 

minimum size requirement of 500 

contracts per order, the Exchange 

believes that use of the tied hedges 

procedures will generally consist of 

orders for the accounts of institutional 

or sophisticated, high net worth 

investors. The Exchange therefore 

believes that a one-time notification 

delivered by the member or member 

organization to the customer would be 

sufficient, and that an order-by-order 

notification would be unnecessary and 

overly burdensome. 

Third, a member or member 

organization would be required to create 

an electronic record that it is engaging 

in a tied hedge order in a form and 

manner prescribed by the Exchange. 

The Exchange states that the purpose of 

this provision is to create a record to 

ensure that hedging trades would be 

appropriately associated with the 

related options order and appropriately 


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16As with designated classes and minimum order 

size, the eligible hedging positions applicable to 

each class would be communicated to the 

membership via Regulatory Circular, which would 

include a cumulative list of all classes and 

corresponding sizes for which the tied hedge 

procedures are available. See note 13, supra. 

17For example, if an in-crowd market 

participant’s allocation is 100 contracts out of a 500 

contract option order (1⁄5), the same in-crowd 

market participant would trade 10,000 shares of a 

50,000 stock hedge position tied to that option 

order (1⁄5). 

18The Exchange notes that there may be scenarios 

were the introducing member purchases (sells) less 

than the delta, e.g., when there is not enough stock 

is available to buy (sell) at the desired price. In such 

scenarios, the introducing member would present 

the stock that was purchased (sold) and share it 

with the in-crowd market participants on equal 

terms. This risk of obtaining less than a delta hedge 

is a risk that exists under the current rules because 

of the uncertainty that exists when market 

participants price an option and have to anticipate 

the price at which they will be able to obtain a 

hedge. The proposed tied hedge procedures are 

designed to help reduce this risk, but the initiating 

member may still be unable to execute enough stock 

at the desired price. To the extent the initiating 

member is able to execute any portion of the hedge, 

the risk exposure to the initiating member and incrowd market participants would be diminished 

because those shares would be ‘‘tied up’’ and 

available for everyone that participates on the 

resulting tied hedge transaction. The Exchange does 

not believe that the initiating member would have 

an unfair advantage by having the ability to prefacilitate less than a delta hedge because the 

proposed procedures would require the in-crowd 

market participants to get a proportional share of 

the hedge. To the extent more stock is needed to 

complete a hedge, the initiating member and the incrowd market participants would have the same 

risk exposure that they do today. 

evaluated in the Exchange’s surveillance 

program. The Exchange believes that 

this requirement should enable the 

Exchange to monitor for compliance 

with the requirements of the proposed 

rule, as discussed below, by identifying 

the specific purchase or sell orders 

relating to the hedging position. 

Fourth, the proposed rule would 

require that members and member 

organizations that have decided to 

engage in tied hedge orders for 

representation in the trading crowd 

would have to ensure that the hedging 

position associated with the tied hedge 

order is comprised of a position that is 

designated as eligible for a tied hedge 

transaction. Eligible hedging positions 

would be determined by the Exchange 

for each eligible class and may include 

(i) the same underlying stock applicable 

to the option order, (ii) a security future 

overlying the same stock applicable to 

the option order, or (iii) in reference to 

an option on an index, ETF or HOLDR, 

a ‘‘related instrument’’ (as described 

above). For example, for options 

overlying XYZ stock, the Exchange may 

determine to designate the underlying 

XYZ stock or XYZ security futures or 

both as eligible hedging positions.16 The 

Exchange states that the purpose of this 

provision is to ensure that the hedging 

position would be for the same stock, 

equivalent security future or related 

instrument, as applicable, thus allowing 

crowd participants who may be 

considering participation in a tied hedge 

order to adequately evaluate the risk 

associated with the option as it relates 

to the hedge. With stock positions in 

particular, the Exchange notes that 

occasionally crowd participants hedge 

option positions with stock that is 

related to the option, such as the stock 

of an issuer in the same industry, but 

not the actual stock associated with the 

option. Except as otherwise discussed 

above for index options, the proposed 

rule change would not allow such a 

‘‘related’’ hedging stock position, but 

would require the hedging stock 

position to be the actual security 

underlying the option. 

Fifth, the proposal would require that 

the entire hedging position be brought 

without undue delay to the trading 

crowd. In considering whether the 

hedging position is presented without 

‘‘undue delay,’’ the Exchange believes 

that members and member organizations 

should continue to have the same ability 

to shop an order in advance of 

presenting it to the crowd and should be 

able to enhance that process through 

obtaining a hedge. The Exchange also 

believes that, once a hedge is obtained, 

the order should be brought to the 

crowd promptly in order to satisfy the 

‘‘undue delay’’ requirement. In addition, 

the proposal would require that the 

hedging position be announced to the 

trading crowd concurrently with the 

option order, offered to the crowd in its 

entirety, and offered at the execution 

price received by the member or 

member organization introducing the 

order to any in-crowd market 

participant who has established parity 

or priority for the related options. Incrowd market participants that 

participate in the option transaction 

must also participate in the hedging 

position on a proportionate basis 17 and 

would not be permitted to prevent the 

option transaction from occurring by 

giving a competing bid or offer for one 

component of the tied hedge order. The 

Exchange states that the purpose of 

these requirements is to ensure that the 

hedging position represented to the 

crowd would be a good faith effort to 

provide in-crowd market participants 

with the same opportunity as the 

member or member organization 

introducing the tied hedge order to 

compete most effectively for the option 

order. 

For example, if a member or member 

organization introducing a tied stock 

hedge order were to offer 1,000 XYZ 

option contracts to the crowd (overlying 

100,000 shares of XYZ stock) and 

concurrently offer only 30,000 of 

100,000 shares of the underlying stock 

that the member obtained as a hedge, 

crowd participants might only be 

willing or able to participate in 300 of 

the option contracts offered if the 

hedging stock position cannot be 

obtained at a price as favorable as the 

stock hedging position offering price, if 

at all. The Exchange states that the effect 

of this would be to place the crowd at 

a disadvantage relative to the 

introducing member or member 

organization for the remaining 700 

option contracts in the tied stock hedge 

order, and thus create a disincentive for 

the crowd to bid or offer competitively 

for the remaining 700 option contracts. 

The Exchange believes the requirement 

that the hedging position be presented 

concurrently with the option order in 

the crowd and offered to the crowd in 

its entirety at the execution price 

received by the member or member 

organization introducing the order 

should ensure that the crowd would be 

competing on a level playing field with 

the introducing member or member 

organization to provide the best price to 

the customer. 

Sixth, the proposal would require that 

the hedging position not exceed the 

options order on a delta basis. For 

example, in the situation where a tied 

stock hedge order involves the 

simultaneous purchase of 50,000 shares 

of XYZ stock and the sale of 500 XYZ 

call contract (known as a ‘‘buy-write’’), 

and the delta of the option is 100, it 

would be considered ‘‘hedged’’ by 

50,000 shares of stock. Accordingly, the 

proposed rule would not allow the 

introducing member firm to purchase 

more than 50,000 shares of stock in the 

hedging stock position. The Exchange 

believes that it is reasonable to require 

that the hedging position be in amounts 

that do not exceed the equivalent size of 

the related options order on a delta 

basis, and not for a greater number of 

shares. The Exchange believes that the 

proposed rule change would support its 

view that the member or member 

organization introducing the tied hedge 

order be guided by the notion that any 

excess hedging activity could be 

detrimental to the eventual execution 

price of the option order. Consequently, 

while delta estimates may vary slightly, 

the introducing member or member 

organization would be required to 

assume hedging positions not to exceed 

the equivalent size of the options order 

on a delta basis.18


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19The Exchange also believes that the proposed 

exception to the anticipatory hedging procedures 

will assist in the Exchange’s competitive efforts to 

attract order flow from the OTC market, which may 

result in increased volume on the exchange 

markets. 

20 Generally, a complex order may be expressed 

in any increment and executed at a net debit or 

credit price with another member without giving 

priority to equivalent bids (offers) in the individual 

series legs that are represented in the trading crowd 

or in the public customer options limit order book 

provided at least one leg of the order betters the 

corresponding bid (offer) in the public customer 

options limit order book. For stock-option orders 

and security future-option orders, this means that 

the options leg of the order has priority over bids 

(offers) of the trading crowd but not over bids 

(offers) in the public customer options limit order 

book. In addition, for complex orders with nonoption leg(s), such as stock-option orders, a bid or 

offer is made and accepted subject to certain other 

conditions, including that the options leg(s) may be 

cancelled at the request of any member that is a 

party to the transaction if market conditions in any 

non-CBOE market(s) prevent the execution of the 

non-options leg(s) at the agreed price(s). See, e.g., 

CBOE Rules 6.42, Minimum Increments for Bids 

and Offers, 6.45, Priority of Bids and Offers— 

Allocation of Trades, 6.45A(b), Allocation of Orders 

Represented in Open Outcry (for equity options), 

6.45B(b), Allocation of Orders Represented in Open 

Outcry (for index options and options on ETFs), 

6.48, Contract Made on Acceptance of Bid or Offer, 

and 6.74. Any crossing participation entitlement 

would also apply to the tied hedge procedures in 

accordance with Rule 6.74(d). 

21A ‘‘complex trade’’ is defined as: (i) The 

execution of an order in an option series in 

conjunction with the execution of one or more 

related orders in different option series in the same 

underlying security occurring at or near the same 

time in a ratio that is equal to or greater than oneto-three (.333) and less than or equal to three-to-one 

(3.0) and for the purpose of executing a particular 

investment strategy; or (ii) the execution of a stock 

option order to buy or sell a stated number of units 

of an underlying stock or a security convertible into 

the underlying stock (‘‘convertible security’’) 

coupled with the purchase or sale of option 

contract(s) on the opposite side of the market 

representing either (A) the same number of units of 

the underlying stock or convertible security, or (B) 

the number of units of the underlying stock or 

convertible security necessary to create a delta 

neutral position, but in no case in a ratio greater 

than 8 option contracts per unit of trading of the 

underlying stock or convertible security established 

for that series by the Options Clearing Corporation. 

See paragraph (4) of CBOE Rule 6.80, Definitions 

(applicable to Options Intermarket Linkage), and 

subparagraph (b)(7) to CBOE Rule 6.83, Order 

Protection. 

22A ‘‘qualified contingent trade’’ is defined as a 

transaction consisting of two or more component 

orders, executed as agent or principal, where: (i) At 

least one component order is in an NMS stock; (ii) 

all components are effected with a product or price 

contingency that either has been agreed to by the 

respective counterparties or arranged for by a 

broker-dealer as principal or agent; (iii) the 

execution of one component is contingent upon the 

execution of all other components at or near the 

same time; (iv) the specific relationship between the 

component orders (e.g., the spread between the 

prices of the component orders) is determined at 

the time the contingent order is placed; (v) the 

component orders bear a derivative relationship to 

one another, represent different classes of shares of 

the same issuer, or involve the securities of 

participants in mergers or with intentions to merge 

that have been announced or since cancelled; and 

(vi) any trade-throughs caused by the execution of 

an order involving one or more NMS stocks (each 

an ‘‘Exempted NMS Stock Transaction) is fully 

hedged (without regard to any prior existing 

position) as a result of the other components of the 

contingent trade. See Securities Exchange Act 

Release No. 57620 (April 4, 2008), 73 FR 19271 

(April 9, 2008). 

23See paragraph (b) to CBOE Rule 6.48. The 

Exchange notes that, in the event of a cancellation, 

members may be exposed to the risk associated 

with holding the hedge position. The Exchange 

intends to address this point in a circular to 

members should the Exchange receive approval of 

this proposal. 

The Exchange believes that the delta 

basis requirement, together with the 

additional conditions that an 

introducing member or member 

organization bring the hedging position 

without undue delay to the trading 

crowd and announce it concurrently 

with the option order, offer it to the 

crowd in its entirety, and offer it at the 

execution price received by the member 

or member organization to any in-crowd 

market participant who has established 

parity or priority, will help assure that 

the hedging activity is bona fide and not 

for speculative or manipulative 

purposes. Additionally, the Exchange 

believes these conditions will help 

assure that there is no adverse effect on 

the auction market because, as 

discussed above, in-crowd market 

participants will have the same 

opportunity as the member or member 

organization introducing the tied hedge 

order to compete for the option order 

and will share the same benefits of 

limiting the market risk associated with 

hedging. The Exchange believes that 

customers will also benefit if the market 

risks are limited in the manner 

proposed. Once an original order is 

hedged, there is no delta risk. With the 

delta risk minimized, quotes will likely 

narrow as market participants (whether 

upstairs or on-floor) are better able to 

hedge and compete for orders. For 

example, Market-Makers could more 

easily quote markets to trade against a 

customer’s original order based on 

volatility with the delta risk minimized, 

which would ultimately present more 

price improvement opportunities to the 

original order.19

At this time, the Exchange is not 

proposing any special priority 

provisions applicable to tied hedge 

transactions, though it intends to 

evaluate whether such changes are 

desired and may submit a separate rule 

filing on this subject in the future. 

Under the instant proposal, all tied 

hedge transactions will be treated as 

complex orders (regardless of whether 

the original order was a simple or 

complex order). Priority will be afforded 

in accordance with the Exchange’s 

existing open outcry allocation and 

reporting procedures for complex 

orders.20 Any resulting tied hedge 

transactions will also be subject to the 

existing NBBO trade-through 

requirements for options and stock, as 

applicable. In this regard, the Exchange 

believes that the resulting option and 

stock components of the tied hedge 

transactions may qualify for various 

NBBO trade through exceptions 

including, for example, the complex 

trade exception to the Options Linkage 

Program 21 and the qualified contingent 

trade exception to Rule 611(a) of 

Regulation NMS for the stock 

component.22

The Exchange recognizes that, at the 

time a tied hedge transaction is 

executed in a trading crowd, market 

conditions in any of the non-CBOE 

market(s) may prevent the execution of 

the non-options leg(s) at the price(s) 

agreed upon. For example, the 

execution price may be outside the nonCBOE market’s best bid or offer 

(‘‘BBO’’), e.g., the stock leg is to be 

executed at a price of $25.03 and the 

particular stock market’s BBO is $24.93– 

$25.02, and such an execution would 

normally not be permitted unless an 

exception applies that permits the trade 

to be reported outside the BBO. The 

Exchange notes that the possibility of 

this scenario occurring exists with 

complex order executions today and 

tied hedge transactions would present 

nothing unique or novel in this regard. 

In the event the conditions in the nonCBOE market continue to prevent the 

execution of the non-option leg(s) at the 

agreed price(s), the trade representing 

the options leg(s) of the tied hedge 

transaction may ultimately be cancelled 

in accordance with CBOE’s existing 

rules.23

The following examples illustrate 

these priority principles: 

• Simple Original Order: Introducing 

member receives an original customer 

order to buy 500 XYZ call options, 

which has a delta of 100. The 

introducing member purchases 50,000 

shares of XYZ stock on the NYSE for an 

average price of $25.03 per share. Once 

the stock is executed on the NYSE, the 

introducing member, without undue 

delay, announces the 500 contract 

option order and 50,000 share tied stock 

hedge at $25.03 per share to the CBOE 

trading crowd. 

• Complex Original Order: 

Introducing member receives an original 

customer stock-option order to buy 500 

XYZ call options and sell 50,000 shares 

of XYZ stock. The introducing member 

purchases 50,000 shares of XYZ stock 

on the NYSE for an average price of 

$25.03 per share. Once the stock is 

executed on the NYSE, the introducing 


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24 Id. 

25As market participants are better able to hedge 

risk associated with completing these transactions, 

the Exchange believes that quotes may narrow and 

result in increased price improvement 

opportunities. 

26 15 U.S.C. 78f(b). 

27 15 U.S.C. 78f(b)(5). 

member, without undue delay, 

announces the 500 contract option order 

and 50,000 share tied stock hedge at 

$25.03 per share to the trading crowd. 

In either the simple or complex order 

scenario, the next steps are the same 

and are no different from the procedures 

currently used to execute a complex 

order on CBOE in open outcry. 

• The in-crowd market participants 

would have an opportunity to provide 

competing quotes for the tied hedge 

package (and not for the individual 

component legs of the package). For 

example, assume the best net price is 

$24.53 (equal to $0.50 for each option 

contract and $25.03 for each 

corresponding share of hedging stock). 

• The option order and hedging stock 

would be allocated among the in-crowd 

market participants that established 

priority or parity at that price, including 

the initiating member, in accordance 

with the allocation algorithm applicable 

to the options class, with the options leg 

being executed and reported on the 

CBOE and the stock leg being executed 

and reported on the stock market 

specified by the initiating member. For 

example, the introducing member might 

trade 40% pursuant to an open outcry 

crossing entitlement (200 options 

contracts and 20,000 shares of stock) 

and the remaining balance might be 

with three different Market-Makers that 

each participated on 20% of the order 

(100 options contracts and 10,000 shares 

of stock per Market-Maker). 

• The resultant tied hedge 

transaction: (i) Would qualify as a 

‘‘complex trade’’ under the Options 

Intermarket Linkage and the execution 

of the 500 option contracts with the 

market participants would not be 

subject to the NBBO for the particular 

option series; and (ii) would qualify as 

a ‘‘qualified contingent trade’’ under 

Regulation NMS and the execution of 

the 30,000 shares of stock (the original 

50,000 shares less the initiating 

member’s 20,000 portion) with the 

market participants would not be 

subject to the NBBO for the underlying 

XYZ stock. 

• The execution of the options leg 

would have to satisfy CBOE’s intramarket priority rules for complex orders 

(including that the execution price may 

not be outside the CBOE BBO). Thus, if 

the CBOE BBO for the series was $0.40– 

$0.55, the execution could take place at 

or inside that price range (e.g., at the 

quoted price of $0.50) and could not 

take place outside that price range (e.g., 

not at $0.56). 

• Similarly, the execution of the stock 

at $25.03 per share would have to 

satisfy the intra-market priority rules of 

the non-CBOE market(s) where the stock 

is to be executed (including that the 

execution price may not be outside that 

market’s BBO) or, alternatively, qualify 

for an exception that permits the trade 

to be reported outside the non-CBOE 

market(s)’ BBO. 

• If market conditions in the nonCBOE market(s) prevent the execution 

of the stock leg(s) at the price(s) agreed 

upon from occurring (e.g., the BBO 

remains at $24.93–$25.02), then the 

options leg(s) could be cancelled at the 

request of any member that is a party to 

that trade.24

While the particular circumstances 

surrounding each transaction on the 

Exchange’s trading floor are different, 

the Exchange does not believe, as a 

general proposition, that the tied hedge 

procedures would be inherently harmful 

or detrimental to customers or have an 

adverse effect on the auction market. 

Rather, the Exchange believes the 

procedures will improve the 

opportunities for an order to be exposed 

to a competitive auction and represent 

an improvement over the current rules. 

The fact that the parties to such a trade 

end up fully hedged may contribute to 

the best execution of the orders,25 and, 

in any event, participants continue to be 

governed by, among other things, their 

best execution responsibilities. The 

Exchange also believes that the 

proposed tied hedge procedures are 

fully consistent with the original design 

of Rule 6.9 which, as discussed above, 

was to eliminate the unfairness that can 

be associated with a solicited 

transaction and encourage meaningful 

competition. The tied hedge procedures 

will keep in-crowd market participants 

on equal footing with solicited parties in 

a manner that minimizes all parties’ 

market risk while continuing to assure 

that orders are exposed in a meaningful 

way. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b) of the Act,26 in general, and 

furthers the objectives of Section 6(b)(5) 

of the Act,27 in particular, because it is 

designed to promote just and equitable 

principles of trade, 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, by 

establishing rules governing tied hedge 

orders, which include specific 

requirements and procedures to be 

followed. Specifically, the Exchange 

believes the procedures will improve 

the opportunities for an order to be 

exposed to price improvement in a 

manner that will encourage a fair, 

competitive auction process and 

minimize all parties’ market risk. 

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 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 the Exchange 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. 

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 

No. SR–CBOE–2009–007 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 


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Federal Register / Vol. 74, No. 39 / Monday, March 2, 2009 / Notices 9121 

28 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

4The current FINRA rulebook consists of (1) 

FINRA Rules; (2) NASD Rules; and (3) rules 

incorporated from NYSE (‘‘Incorporated NYSE 

Rules’’) (together, the NASD Rules and Incorporated 

NYSE Rules are referred to as the ‘‘Transitional 

Rulebook’’). While the NASD Rules generally apply 

to all FINRA members, the Incorporated NYSE 

Rules apply only to those members of FINRA that 

are also members of the NYSE (‘‘Dual Members’’). 

The FINRA Rules apply to all FINRA members, 

unless such rules have a more limited application 

by their terms. For more information about the 

rulebook consolidation process, see FINRA 

Information Notice, March 12, 2008 (Rulebook 

Consolidation Process). 

5See Securities Exchange Act Release No. 58643 

(September 25, 2008), 73 FR 57174 (October 1, 

2008) (Order Approving File Nos. SR–FINRA– 

2008–021; SR–FINRA–2008–022; SR–FINRA–2008– 

026; SR–FINRA–2008–028 and SR–FINRA–2008– 

029); Securities Exchange Act Release No. 58661 

(September 26, 2008), 73 FR 57395 (October 2, 

2008) (Order Approving File No. SR–FINRA–2008– 

030); Securities Exchange Act Release No. 58932 

(November 12, 2008), 73 FR 69696 (November 19, 

2008) (Order Approving File No. SR–FINRA–2008– 

032). 

6See Securities Exchange Act Release No. 56726 

(October 31, 2007), 72 FR 62719 (November 6, 2007) 

(Notice of Filing and Immediate Effectiveness of 

File No. SR–NYSE–2007–96). 

7See FINRA Regulatory Notice 08–78 (December 

2008) (FINRA Announces SEC Approval and 

Effective Date for New Consolidated FINRA Rules 

Relating to Warrants, Options and Security 

Futures). 

8 15 U.S.C. 78o–3(b)(6). 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2009–007. 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 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– 

2009–007 and should be submitted on 

or before March 23, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–4287 Filed 2–27–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59432; File No. SR–FINRA– 

2009–005] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Update Rule CrossReferences and Make Other Various 

Non-Substantive Technical Changes to 

FINRA Rules 

February 23, 2009. 

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 February 

13, 2009, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by FINRA. FINRA has 

designated the proposed rule change as 

constituting a ‘‘non-controversial’’ rule 

change under paragraph (f)(6) of Rule 

19b–4 under the Act,3 which renders 

the proposal effective upon receipt of 

this filing by the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to update rule 

cross-references and make other nonsubstantive technical changes to certain 

FINRA rules that have been adopted in 

the consolidated FINRA rulebook. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA 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, 

FINRA 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. FINRA 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 

FINRA is in the process of developing 

a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’).4

That process involves FINRA submitting 

to the Commission for approval a series 

of proposed rule changes over time to 

adopt rules in the Consolidated FINRA 

Rulebook. The phased adoption and 

implementation of those rules 

necessitates periodic amendments to 

update rule cross-references and other 

non-substantive technical changes in 

the Consolidated FINRA Rulebook. 

The proposed rule change would 

update rule cross-references in FINRA 

Rules 2360, 2370, 6181, 6635, 9217 and 

9610 that are needed as the result of 

Commission approval of three recent 

FINRA proposed rule changes.5 In 

addition, the proposed rule change 

would amend FINRA Rule 7410(m) to 

update cross-references to NYSE Rule 

80A, which was renumbered as NYSE 

Rule 132B.6 Finally, the proposed rule 

change would amend FINRA Rule 5130 

to reflect a change in FINRA style 

convention when referencing SEC rules 

and regulations. 

FINRA has filed the proposed rule 

change for immediate effectiveness and 

has requested that the SEC waive the 

requirement that the proposed rule 

change not become operative for 30 days 

after the date of the filing, such that 

FINRA could implement the proposed 

rule change on February 17, 2009, the 

date on which certain of the previously 

approved rule changes will also be 

implemented.7

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,8 which 

requires, among other things, that 

FINRA rules must be designed to 


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