Document ID: SEC-2006-0323-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2006-03-13T05:00Z

[Federal Register: March 13, 2006 (Volume 71, Number 48)]
[Notices]               
[Page 12753-12755]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13mr06-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53414; File No. SR-CBOE-2006-25]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Amending Its Rule 8.4 To Extend for an Additional Year a 
Pilot Program Relating to RMM Multiple Aggregation Units

March 3, 2006.
    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 March 2, 2006, 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 and II below, which Items have been prepared by the CBOE. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders the proposal effective upon filing 
with the Commission.\5\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ As required by Rule 19b-4(f)(6)(iii), 17 CFR 240.19b-
4(f)(6)(iii), the CBOE submitted written notice of its intent to 
file the proposed rule change, along with a brief description and 
text of the proposed rule change, at least five business days prior 
to the date of filing.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend CBOE Rule 8.4 to extend for an 
additional year a pilot program relating to Remote Market Makers 
(``RMMs'') multiple aggregation units.\6\ The text of the proposed rule 
change is below. Proposed additions are in italics and proposed 
deletions are in [brackets]:
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    \6\ The Commission notes that the Exchange is also amending a 
cross-reference to this program contained in CBOE Rule 8.3.
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Rule 8.3--Appointment of Market-Makers
    Rule 8.3. This Rule governs the appointment of Market-Makers other 
than Remote Market-Makers. Rule 8.4 governs the appointment of Remote 
Market-Makers.
    (a) No change.
    (b) No change.
    (c) Absent an exemption by the appropriate Market Performance 
Committee, an appointment of a Market-Maker confers the right to quote 
as described below:
    (i) No change.
    (ii) No change.
    (iii) Additionally, a Market-Maker that is submitting electronic 
quotations in his/her appointed Hybrid and Hybrid 2.0 Classes can 
submit electronic quotations in either two (2) additional Hybrid 2.0 
Classes in Tier A or Tier B that are not located in the Market-Maker's 
appointed trading station, or five (5) additional Hybrid 2.0 Classes in 
Tiers C, D, or E that are not located in the Market-Maker's appointed 
trading station. (For purposes of this paragraph,

[[Page 12754]]

the Exchange is using the Tiers set forth in Rule 8.4 that have been 
structured for purposes of RMM appointments.) A Market-Maker cannot be 
affiliated with an e-DPM or RMM that holds an appointment in any of 
these additional Hybrid 2.0 Classes. Pursuant to a Pilot Program that 
expires on September 14, 2006, a Market-Maker can be affiliated with 
another Market-Maker (``Affiliated Market-Maker'') who holds an 
appointment in one of these additional Hybrid 2.0 Classes, provided the 
Market-Maker cannot submit electronic quotations in these additional 
Hybrid 2.0 Classes if the Affiliated Market-Maker is submitting 
electronic quotations from outside its appointed trading station. 
Pursuant to a Pilot Program that expires on March 14, 2007 [2006], if 
both Market-Makers operate as multiple aggregation units under the 
criteria set forth in Rule 8.4(c)(ii), the preceding restriction does 
not apply.
    (d) No Change.
* * * * *
Rule 8.4--Remote Market-Makers
    Rule 8.4. (a) No Change.
    (b) No change.
    (c) Affiliation Limitations: Except as provided in subparagraphs 
(i) or (ii), an RMM may not have an appointment as an RMM in any class 
in which it or its member organization serves as DPM, e-DPM, RMM, or 
Market-Maker on CBOE.
    (i) No change.
    (ii) A CBOE Member or Member Firm may have, as part of a pilot 
program until March 14, 2007 [2006], multiple aggregation units 
operating as separate RMMs within the same class provided:
    (A) No change.
    (B) No change.
    (C) No change.
    (d) No change.
    (e) No change.
    (f) No change.
* * * * *

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 proposal. The text of these 
statements may be examined at the places specified in Item IV below. 
The 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
    The purpose of this rule change is to extend for an additional 
year, until March 14, 2007, an existing Pilot Program which allows a 
CBOE member or member firm to have multiple aggregation units operating 
as separate RMMs within the same class, provided they satisfy certain 
criteria set forth in CBOE Rule 8.4(c)(ii)(A)-(C).
    In March 2005, CBOE amended its rules to establish a new membership 
status called RMM, who have the ability to submit quotes to the CBOE 
from a location outside of the physical trading station of the RMM's 
appointed class.\7\ In connection with the adoption of these rules, 
CBOE also adopted provisions in its rules relating to RMM affiliation 
limitations. Specifically, CBOE Rule 8.4(c) provides that except as 
otherwise provided, an RMM may not have an appointment as an RMM in any 
class in which it or its member organization serves as DPM, e-DPM, RMM, 
or Market-Maker on CBOE. One exception that was approved on a pilot 
basis was the ability of a CBOE member or member firm to have multiple 
aggregation units operating as separate RMMs within the same class, 
provided certain specific criteria were complied with.\8\ These 
criteria were set forth in subparagraphs (A) though (C) of CBOE Rule 
8.4(c)(ii), and were based on the criteria contained in Regulation SHO 
which was approved by the Commission in July 2004.
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    \7\ See Securities Exchange Act Release No. 51366 (March 14, 
2005), 70 FR 13217 (March 18, 2005) (approving SR-CBOE-2004-75).
    \8\ A second exception, also adopted on a pilot basis for a 
period ending September 14, 2006 and contained in CBOE Rule 
8.4(c)(i), permits a member or member firm operating as an RMM in a 
class to have one Market-Maker affiliated with the RMM organization 
trading in open outcry in any specific class allocated to the RMM, 
provided such Market-Maker trades on a separate membership.
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    CBOE's believes that the Pilot Program has been successful, in that 
it allows a CBOE member or member firm to have multiple aggregation 
units operating as separate RMMs within the same class, provided they 
comply with certain specific criteria. CBOE has not experienced any 
negative effects with respect to the Pilot Program. Thus, CBOE believes 
it would be appropriate and beneficial to extend this Pilot Program for 
an additional year, until March 14, 2007.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations under the Act applicable to a 
national securities exchange and, in particular, the requirements of 
Section 6(b) of the Act.\9\ Specifically, the Exchange believes the 
proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Act,\10\ which requires that the rules of an exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts 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 believes that the proposed rule change will not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The CBOE 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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
    Normally, a proposed rule change filed under Rule 19b-4(f)(6) does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest.
    The CBOE has asked the Commission to waive the 30-day operative 
delay. Allowing a CBOE member or member firm to have multiple 
aggregation units operating as separate RMMs within the same class, 
subject certain specific requirements, does not raise any new or

[[Page 12755]]

unique issues.\11\ The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because the continuation of this practice may enhance 
competition and liquidity.\12\ For this reason, the Commission 
designates that the proposal has become effective and operative 
immediately upon filing with the Commission. At any time within 60 days 
of the filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.\13\
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    \11\ See supra, at n.7.
    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \13\ See Rule 19b-4(f)(6)(iii), 17 CFR 240.19b-4(f)(6)(iii).
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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 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 rule-comments@sec.gov. Please include 

File Number SR-CBOE-2006-25 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2006-25. 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 CBOE.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-CBOE-2006-25 
and should be submitted on or before April 3, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Nancy M. Morris,
Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E6-3496 Filed 3-10-06; 8:45 am]

BILLING CODE 8010-01-P