Document ID: SEC-2007-0145-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2007-01-31T05:00Z

[Federal Register: January 31, 2007 (Volume 72, Number 20)]
[Notices]               
[Page 4550-4552]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31ja07-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55174; File No. SR-CBOE-2007-07]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to Extend the Duration of the SizeQuote Mechanism Pilot

January 25, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 17, 2007, the Chicago Board Options Exchange, 
Incorporated ( ``Exchange'' or ``CBOE'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
substantially by the Exchange. The Exchange filed the proposal as a 
``non-controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) 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)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ CBOE gave the Commission written notice of its intention to 
file the proposed rule change on January 10, 2007. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend the pilot in CBOE Rule 6.74(f) 
pertaining to the SizeQuote Mechanism, which is a process by which a 
Floor Broker may execute and facilitate large-sized orders in open 
outcry. The Exchange is proposing to extend the pilot program, which 
would otherwise expire on February 15, 2007, through February 15, 2008. 
No other changes are being made to the pilot program through this rule

[[Page 4551]]

filing.\6\ The text of the proposed rule change is available at http://www.cboe.org/Legal
, at the Exchange, and at the Commission's Public 

Reference Room.
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    \6\ A separate rule change proposal has been filed and is 
currently pending with the Commission that would make amendments to 
the SizeQuote Mechanism. See SR-CBOE-2005-115 (proposal to modify 
the pilot program in various respects, including to permit a Floor 
Broker to execute the entire SizeQuote Order at a price at least one 
trading increment better than the best price communicated by the in-
crowd market participants (``ICMPs'') in their responses to the 
SizeQuote request).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of those 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    CBOE Rule 6.74(f), which relates to the open outcry ``SizeQuote'' 
Mechanism, was approved on a pilot basis in February 2005 and was 
expanded to include solicited orders in January 2006.\7\ The pilot 
program has been extended once and is currently set to expire on 
February 15, 2007.\8\ The pilot program provides a process by which a 
Floor Broker, using his/her exercise of due diligence to execute orders 
at the best price(s), may execute and facilitate large-sized orders in 
open outcry. Under the pilot program, the ICMPs have priority to trade 
a SizeQuote Order at the best price communicated by the ICMPs in their 
response to a Floor Broker's SizeQuote request and at one increment 
better, while a Floor Broker can execute the entire SizeQuote Order 
with a facilitation order, one or more solicited orders, or a 
combination of solicited and facilitation orders at a price two trading 
increments better than the best price provided by the ICMPs in their 
response to the SizeQuote request. For purposes of the pilot program, 
the minimum qualifying order size is 250 contracts \9\ and Floor 
Brokers must stand ready to facilitate the entire size of the order for 
which they request SizeQuotes.
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    \7\ See Securities Exchange Act Release Nos. 51205 (February 15, 
2005), 70 FR 8647 (February 22, 2005) (approving SR-CBOE-2004-72 on 
a pilot basis through February 15, 2006) and 53135 (January 17, 
2006), 71 FR 3908 (January 24, 2006) (approving SR-CBOE-2005-83, 
which modified the pilot program to enable a Floor Broker to execute 
a SizeQuote Order with either a firm facilitation order, one or more 
solicited orders, or a combination of the Floor Broker's 
facilitation order and such solicited order(s)).
    \8\ See Securities Exchange Act Release No. 53252 (February 8, 
2006), 71 FR 8012 (February 15, 2006) (immediately effective 
proposal, SR-CBOE-2006-05, extending the pilot program from February 
15, 2006 to February 15, 2007).
    \9\ The appropriate Exchange committee determines the classes in 
which SizeQuote operates and may vary the minimum qualifying order 
size, provided that such number may not be less than 250 contracts.
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    The instant rule change seeks to extend the existing pilot program, 
which would otherwise expire on February 15, 2007, through February 15, 
2008. The Exchange notes that, as part of the original pilot program 
approval order and subsequent filing to extend the pilot program,\10\ 
the Exchange represented that it would provide the Commission a report 
at the end of the pilot period summarizing the effectiveness of the 
SizeQuote program. In that regard, though the SizeQuote Mechanism has 
been made available during the pilot period in all equity option 
classes traded on the Exchange for orders of 250 contracts or more, the 
Exchange's continued experience has been that Floor Brokers have not 
generally availed themselves of the SizeQuote Mechanism to facilitate 
large-sized orders.\11\ However, the Exchange continues to believe that 
the SizeQuote Mechanism enhances ICMPs' ability and incentive to quote 
competitively and participate in open outcry trades while at the same 
time creates a process that gives greater certainty to Floor Brokers in 
the execution of large orders in that ICMPs only have one opportunity 
to respond with a quote response (which further enhances an ICMP's 
incentive to quote competitively). The Exchange is therefore seeking to 
extend the existing pilot program for another year through February 15, 
2008 in order to continue its evaluation of the utility of the 
SizeQuote Mechanism.
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    \10\ See notes 7 and 8, supra.
    \11\ The Exchange believes the SizeQuote Mechanism has not been 
actively utilized due to some of the limitations and risks inherent 
in the original design of the pilot program. Thus, CBOE expanded the 
pilot program to include solicited orders. Originally the pilot 
program only applied to facilitation orders. See note 7, supra. CBOE 
has also proposed to modify the pilot program in various other 
respects. See note 6, supra.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \12\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \13\ in particular in that it is designed to 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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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

    The Exchange neither solicited nor received comments on the 
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing rule does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, provided that the self-regulatory organization 
has given the Commission written notice of its intent to file the 
proposed rule change at least five business days prior to the date of 
filing of the proposed rule change or such shorter time as designated 
by the Commission, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and

[[Page 4552]]

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-2007-07 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-2007-07. 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-2007-07 and should be submitted on or before 
February 21, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-1509 Filed 1-30-07; 8:45 am]

BILLING CODE 8011-01-P