Document ID: SEC-2009-0275-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2009-03-03T05:00Z

[Federal Register: March 3, 2009 (Volume 74, Number 40)]
[Notices]               
[Page 9320-9322]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr09-129]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59448; File No. SR-CBOE-2009-011]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to the Simple Auction Liaison (SAL)

February 25, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\

[[Page 9321]]

notice is hereby given that on February 20, 2009, 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 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\ 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify Rule 6.13A, Simple Auction Liaison 
(SAL), so that SAL will be available when the size of the agency order 
is larger than the disseminated Market-Maker quotation size on the 
opposite side of the market in Hybrid 3.0 classes. The text of the 
proposed rule change is available on the Exchange's Web site (http://
www.cboe.org/Legal), at the Exchange's Office of the Secretary 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, the self-regulatory organization 
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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    SAL is a feature within CBOE's Hybrid System that auctions 
marketable orders for price improvement over the national best bid or 
offer (``NBBO''). Currently, SAL automatically initiates an auction 
process for any SAL-eligible order \5\ that is eligible for automatic 
execution by the Hybrid System (an ``agency order'') pursuant to Rule 
6.13, CBOE Hybrid System's Automatic Execution Feature, except when the 
Exchange's disseminated quotation on the opposite side of the market 
from the agency order does not contain sufficient Market-Maker 
quotation size to satisfy the entire Agency Order. Prior to commencing 
the auction, SAL stops the agency order at the NBBO against Market-
Maker quotations displayed at the NBBO on the opposite side of the 
market as the agency order. For example, if an otherwise eligible 
agency order for 120 contracts is entered and the disseminated 
quotation size is 100, SAL will not initiate an auction process. On the 
other hand, if an eligible agency order for 100 contracts is entered 
and the disseminated quotation size is 100, SAL will stop the entire 
agency order at the NBBO against the disseminated quotation size of 100 
while SAL initiates an auction for price improvement over the NBBO.
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    \5\ With respect to SAL eligibility, the Exchange designates the 
eligible order size, eligible order type, eligible order origin code 
(i.e., public customer orders, non-Member Maker broker-dealer 
orders, and Market Maker broker-dealer orders), and classes in which 
SAL is activated.
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    In order to offer additional opportunities for price improvement in 
Hybrid 3.0 classes that are singly-listed (which currently only 
includes options on the Standard and Poor's 500 Index, SPX), we propose 
to modify the process so that SAL will operate in instances where the 
agency order size exceeds the disseminated Market-Maker quotation size. 
In such instances, the order would be stopped to the extent of the 
disseminated Market-Maker quotation size. To the extent an order 
exceeds the disseminated Market-Maker quotation size, a stop is not 
necessary and will not be applied. Thus, using our example above, if an 
eligible agency order for 120 contracts is entered in a Hybrid 3.0 
class and the disseminated quotation size is 100, SAL will partially 
stop the agency order at the NBBO against the disseminated quotation 
size of 100 (the remaining 20 contracts will not be stopped) while SAL 
initiates an auction for price improvement over the NBBO for the entire 
120 contract order. After expiration of the SAL auction, the order will 
execute to the extent possible in accordance with the matching 
algorithm in effect for SAL executions in the Hybrid 3.0 class. If 
there is any remainder and the order is a market order, the remainder 
would trade with the book at the next price level(s). If there is any 
remainder that is not executable and the order is a limit order, and if 
the Hybrid Agency Liaison (``HAL'') is activated for the class pursuant 
to Rule 6.14, that remainder will HAL.\6\ If HAL is not active, any 
remainder of the limit order will book. The Exchange believes this 
change would allow for additional opportunities for price improvement 
to orders that would otherwise not be eligible for SAL. All other 
provisions of the SAL rule would apply unchanged.
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    \6\ HAL is a feature within the Hybrid System that provides 
automated order handing in designated classes trading on Hybrid for 
qualifying electronic orders that are not automatically executed by 
the Hybrid System. In Hybrid 3.0 Classes that are singly-listed, HAL 
automatically processes upon receipt, eligible limit orders that 
would improve the Exchange's disseminated quotations except when the 
disseminated quotation is represented by a manual quote in which 
case the order will automatically route to the electronic book 
instead of being processed by HAL and the manual quote will be 
cancelled.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \7\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \8\ in particular in that it is designed 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. 
In particular, the Exchange believes that the proposed change would 
give additional opportunities to provide orders executions at improved 
prices.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 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

[[Page 9322]]

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 
\9\ and Rule 19b-4(f)(6) thereunder.\10\ 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). The Commission notes that CBOE has 
satisfied this 5-day requirement.
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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-2009-011 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2009-011. 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, 100 F Street, NE., 
Washington, DC 20549, 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 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-2009-011 and should be 
submitted on or before March 24, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E9-4428 Filed 3-2-09; 8:45 am]

BILLING CODE 8011-01-P