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###### Securities and Exchange Commission

          - [Releae No. 34-43829; File No. SR-CBOE-00-10]

## I. Introduction

                    On March 28, 2000, the Chicago Board Options Exchange, Inc. (“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”) [1]                                          and Rule 19b-4 thereunder,[2]                                          a proposed rule change that would grant the Chairman of an appropriate Floor Procedure Committee (“FPC”), or his designee, the authority to decrease the size of orders eligible for entry into the Exchange's Retail Automatic Execution System (“RAES”) during unusual market conditions. On January 3, 2001, the Exchange filed Amendment No. 1 to the proposed rule change.[3] 

                    The proposed rule change was published for comment in the                     **Federal Register**                     on June 8, 2004.[4]                                          The Commission received no comments on the proposal. This order approves the proposal.                

## II. Description of Proposal

                    Currently, the appropriate FPC of the CBOE has the authority to determine the size of orders eligible for entry into RAES up to a maximum of seventy-five contracts.[5]                                          In this proposal, the Exchange is seeking to amend Interpretation .05 to Rule 6.8,                     *RAES Operations,*                     to allow the Chairman of the appropriate FPC, or the Chairman's designee,[6]                                          to exercise the authority of the FPC to decrease the size of orders eligible for entry into RAES for option classes during unusual market conditions.[7] 

                    In its filing, the Exchange represented that it is sometimes necessary to temporarily reduce the eligible order size levels for RAES in situations where unusual market conditions exist. However, under the current Exchange rules,a decision to decrease the eligible                           ( print page 4878)                        order size must be made by the appropriate FPC. The Exchange represented that it is not practicable to provide notice to all the members of the appropriate FPC and convene a meeting during the day to make the decision to decrease eligible order size in the event of an unusual market situation.                

                    Consequently, the Exchange seeks to delegate the authority provided in CBOE Rule 6.8(a)(i) to the Chairman of the appropriate FPC, or to the Chairman's designee, to decrease the eligible order size for RAES in unusual market conditions,[8]                                          provided that the Chairman or his designee believes that the action is warranted and provided that the decision is made for no more than one trading day (as is currently the case for the Chairman increasing the order size eligibility for RAES).[9]                                          To the extent that the conditions continue to exist on the following trading day, the Chairman or his designee must review the situation and make an independent decision to decrease the RAES eligible order size for that subsequent day. Further, any decisions made by the Chairman or his designee to decrease the RAES eligible order size for a particular option class for consecutive days will be reviewed by the FPC at its next regularly scheduled meeting. After reviewing these decisions, the FPC can provide guidance to the Chairman or his designee about the use of this authority if the FPC considers it appropriate.                

## III. Discussion

                    After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the  Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, the requirements of section 6(b) of the Act [10]                                          and the rules and regulations thereunder.[11]                                          Section 6(b)(5) of the Act [12]                                          states that the rules of an exchange must be designed to facilitate securities transactions and to remove impediments to and perfect the mechanism of a free and open market. The Commission believes that granting the Chairman of the appropriate FPC, or the Chairman's designee, the discretion to exercise the authority of the Committee to decrease the size of orders for entry into RAES is consistent with these statutory provisions.[13] 

                    The Commission further believes that the requirement that the FPC review any decision made by the Chairman or his designee to decrease the size of orders eligible for entry into RAES for consecutive days will help ensure that the Chairman, or his designee, only uses the discretion in limited circumstances that require that such action be taken to ensure the market's integrity and adequate function. Finally, the Commission notes that because this proposed rule involves changing the parameters of the eligible RAES order size, any action taken pursuant to the proposed rule must be documented in accordance with CBOE Rule 6.8, Interpretation .08.[14] 

## IV. Amendment No. 1

                    In Amendment No. 1, the Exchange clarified that the Chairman may designate his authority to decrease the size of orders for entry into RAES during unusual market conditions only to: (1) Another member of the FPC, or (2) two CBOE floor officials.[15]                                          The Commission believes that this limitation will help to ensure that only those persons with sufficient knowledge and judgment will be vested with the authority to make decisions that will affect the manner in which RAES is operated, and consequently the manner in which customer orders are executed. The Commission believes that is would be inappropriate for the Chairman of an FPC to delegate his authority to make decisions regarding how RAES is operated to an unlimited number of persons, with varying degrees of knowledge and aptitude for making such decisions.                

                    The Commission, therefore, finds that Amendment No. 1 is consistent with section 6(b)(5) of the Act,[16]                                          which requires that the rules of an exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in relating, clearing, settling, processing information with respect to, and facilitating transactions in securities. The Commission also finds good cause to approve Amendment No. 1 to the proposed rule change prior to the thirtieth day after the date of publication of notice of filing of the amendment in the                     **Federal Register**                    . The Commission notes that Amendment No. 1 merely clarifies precisely who is eligible to be the “Chairman's designee” for purposes of the proposed interpretation. Accordingly, the Commission believes that there is good cause, consistent with section 6(b)(5) and 19(b) of the Act [17]                                          to approve Amendment No. 1 on an accelerated basis.                

## V. Solicitation of Comments

                    Interested persons are invited to submit written data, views and arguments concerning Amendment No. 1, including whether Amendment No. 1 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 at the Commission's Public Reference Room. Copies of such filing will also be                           ( print page 4879)                        available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-CBOE-00-10 and should be submitted by February 8, 2001.                

## VI. Conclusion

For all of the aforementioned reasons, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.

*It Is Therefore ordered,*                    pursuant to section 19(b)(2) of the Act,[18]                                          that the proposed rule change (SR-CBOE-00-10), as amended, is approved.                

                        For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[19] 

Margaret H. McFarland,

Deputy Secretary.

# Footnotes

1.                             15 U.S.C. 78s(b)(1).                    
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2.                             17 CFR 240.19b-4.                    
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3.                                                     *See*                         Letter from Angelo Evangelou, Counsel, CBOE, to Jennifer Colihan, Attorney, Division of Market Regulation (“Division”), Commission, dated January 2, 2001. (“Amendment No. 1''). In Amendment No. 1, the Exchange clarified that the Chairman may designate his authority solely to: (1) another member of the FPC, or (2) or (2) two CBOE floor officials.                    
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4.                                                     *See*                         Securities Exchange Act Release No. 42862 (May 30, 2000), 65 FR 36481.                    
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5.                                                     *See*                         Exchange Rules 6.8(a)(i) and 6.8(e). The Commission recently approved a proposed rule change by the Exchange to increase the maximum size of RAES-eligible orders to seventy-five contracts.                         *See*                         Securities Exchange Act Release No. 43517 (November 3, 2000), 65 FR 69082 (November 15, 2000).                    
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6.                                                     *See*                         Amendment No. 1,                         *supra*                         note 3.                    
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7.                             The Exchange has represented that the minimum level to which the Chairman, or his designee, may decrease the size of orders eligible for entry into RAES pursuant to the proposed rule is ten contracts. Telephone conversation between Angelo Evangelou, Counsel,  CBOE, and Jennifer Colihan, Attorney, Division, Commission, on September 8, 2000.                    
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8.                             According to the Exchange, unusual market conditions may include drastic movement in the security underlying an option, or news pending about the issuer of the underlying security. Telephone conversation between Angelo Evangelou, Counsel, CBOE, and Jennifer Colihan, Attorney, Division, Commission, on September 8, 2000.                    
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9.                             Under CBOE Rule 6.8, Interpretation .05, the Chairman of the appropriate FPC currently is authorized to increase the order size eligibility for RAES if he believes that the action is in the interest of alleviating a potential backlog of unexecuted orders in situations where a particular class of option is experiencing a large influx of orders, and provided the decision is made for no more than one trading day. That rule, however, does not permit the Chairman to decrease the order size eligibility maximum.                    
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10.                             15 U.S.C. 78f(b).                    
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11.                             In approving this rule change, the Commission has considered the proposal's impact on efficiency, competition, and capital formation, consistent with section 3(f) of the Act. 15 U.S.C. 78c(f).                    
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12.                             15 U.S.C. 78f(b)(5).                    
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13.                             The Commission notes that approval of this rule change is not dispositive of whether all aspects of the revised Interpretation comply with the terms and conditions of section IV.h.(i)(bb) of the Order Instituting Public Administrative Proceedings Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934, Making Finding and Imposing Remedial Sanctions (the “Order”). The parties to the Order, including the Exchange, are required to “specify the circumstances, if any, under which automated execution systems can be disengaged or operated in any manner other than the  normal manner set forth in the exchange's rules and require the documentation of the reasons for each decision to disengage an automated execution system or operate it in any manner other than the normal manner.” The Order further provides that parties to the Order must submit to the Commission staff draft proposed rule changes that comply with the requirements set forth above no later than six months from the date of the Order.                         *See*                         Securities Exchange Act Release No. 43268 (September 11, 2000).                    
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14.                             The Commission notes that Interpretation .08 to CBOE rule 6.8 requires the CBOE to document instances in which the Chairman or his designee decrease RAES order size eligibility levels pursuant to this proposal.                         *See*                         Securities Exchange Act Release No. 43196 (August 22, 2000), 65 FR 52800 (August 30, 2000) (noticing immediate effectiveness of SR-CBOE-00-38, which implemented Interpretation .08).                    
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15.                                                     *See*                         Amendment No. 1,                         *supra*                         note 3.                    
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16.                             15 U.S.C. 78f(b)(5).                    
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17.                             15 U.S.C. 78f(b)(5) and 78s(b).                    
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18.                             15 U.S.C. 78s(b)(2).                    
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19.                                 17 CFR 200.30-3(a)(12).                        
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[FR Doc. 01-1485  Filed 1-17-01; 8:45 am]

BILLING CODE 8010-02-M