[Federal Register Volume 70, Number 181 (Tuesday, September 20, 2005)]
[Notices]
[Pages 55193-55194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-18670]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52424; File No. SR-CBOE-2005-68]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change Relating to the 
Definition of Firm Customer Quote Size in the Linkage Plan

September 14, 2005.
    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 August 29, 2005, 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 CBOE. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules governing the operation of 
the intermarket option linkage (``Linkage'') to conform with a proposed 
amendment \3\ to the Plan for the Purpose of Creating and Operating an 
Intermarket Option Linkage (``Linkage Plan'').\4\ The Exchange is 
proposing: (i) To amend the definition of ``Firm Customer Quote Size'' 
(``FCQS'')\5\ to provide automatic executions for Linkage Principal 
Acting as Agent Orders (``P/A Orders'')\6\ up to the full size of the 
Exchange's disseminated quotation; and (ii) to eliminate a 15-second 
waiting period between the sending of P/A Orders.
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    \3\ See Securities Exchange Act Release No. 52401 (September 9, 
2005) (File No. 4-429) (``Amendment No. 16'').
    \4\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
option market linkage proposed by the American Stock Exchange, LLC, 
CBOE, and International Securities Exchange, Inc. See Securities 
Exchange Act Release No. 43086 (July 28, 2000), 65 FR 48023 (August 
4, 2000). Subsequently, upon separate requests by the Philadelphia 
Stock Exchange, Inc., Pacific Exchange, Inc. and Boston Stock 
Exchange, Inc. the Commission issued orders to permit these 
exchanges to participate in the Linkage Plan. See Securities 
Exchange Act Release Nos. 43573 (November 16, 2000), 65 FR 70850 
(November 28, 2000), 43574 (November 16, 2000), 65 FR 70851 
(November 28, 2000) and 49198 (February 5, 2004), 69 FR 7029 
(February 12, 2004).
    \5\ See Exchange Rule 6.80(9).
    \6\ See Section 2(16)(a) of the Linkage Plan and Exchange Rule 
6.80(12)(i).
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    The text of the proposed rule change is available on CBOE's Web 
site (www.cboe.com), at the CBOE's Office of the Secretary, 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, the CBOE 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
    The purpose of the proposed rule change is to modernize the 
definition of FCQS in CBOE rules related to the operation of the 
Linkage rules. At the time the Linkage commenced, options quote sizes 
were not disseminated through the Options Price Reporting Authority and 
most participants in the Linkage Plan employed automatic execution 
systems that guaranteed automatic fills on orders under a certain 
contract size (which was generally a static number). As such, the FCQS 
was

[[Page 55194]]

calculated based on the number of contracts the sending and receiving 
Linkage Plan participants (``Participants'') guaranteed they would 
automatically execute. Now that all Participants disseminate dynamic 
quotes with size, the Participants believe that it is appropriate to 
calculate the FCQS based on the size of the disseminated quotation of 
the Participant receiving the P/A Order. Accordingly, the Exchange 
proposes to amend CBOE Rule 6.80 to effect this change.\7\
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    \7\ The Commission added to this sentence pursuant to a 
telephone conversation with CBOE, as noted herein. Telephone call 
between Tim Fox, Special Counsel, Commission, and Patrick Sexton, 
Assistant General Counsel, CBOE on September 12, 2005.
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    The other purpose of the proposed rule change is to eliminate a 15-
second wait period for sending a secondary P/A Order currently provided 
in Exchange Rule 6.81(b)(2). Exchange Rule 6.81(b)(2) governs the 
manner in which a P/A Order larger than the FCQS can be broken into 
smaller P/A Orders. Currently, Exchange Rule 6.81(b)(2) provides that 
an initial P/A Order can be sent to the Participant disseminating the 
National Best Bid or Offer for the FCQS, and if that Participant 
continues to disseminate the same price after 15 seconds from the 
execution of the initial P/A Order, a subsequent P/A Order can be sent 
for at least the lesser of (i) the size of the disseminated quote; (ii) 
100 contracts; or (iii) the remainder of the customer order underlying 
the P/A Orders. The Exchange proposes to eliminate the 15-second 
waiting period because the dynamic quotes with size now employed by the 
Participants obviate the need for a manual quote refresh period for P/A 
Orders. This proposed rule change would conform the CBOE rules to the 
pending Amendment No. 16 to the Linkage Plan.\8\
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    \8\ See Supra note 3.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act \9\ in general, and furthers the objectives of section 
6(b)(5) of the Act \10\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change would 
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

    Written comments were neither solicited nor received.

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 CBOE consents, the Commission will:
    A. By order approve such 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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#7705021b125a14181a1a121903043704121459101801"><span class="__cf_email__" data-cfemail="7200071e175f111d1f1f171c0601320117115c151d04">[email protected]</span></a>. Please include 
File Number SR-CBOE-2005-68 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-CBOE-2005-68. 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. 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 publicly available. All submissions should refer to 
File Number SR-CBOE-2005-68 and should be submitted on or before 
October 11, 2005.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Jonathan G. Katz,
Secretary.
[FR Doc. 05-18670 Filed 9-19-05; 8:45 am]
BILLING CODE 8010-01-P


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