Document ID: SEC-2008-1608-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-11-26T05:00Z

[Federal Register: November 26, 2008 (Volume 73, Number 229)]
[Notices]               
[Page 72089-72091]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26no08-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58978; File No. SR-CBOE-2008-116]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend CBOE Rules Relating to an Expansion of the SPX 
Trading Crowd

November 19, 2008.
    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 November 19, 2008, 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 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 amend its rules relating to the physical 
expansion of a trading crowd. 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'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 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.

[[Page 72090]]

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

1. Purpose
    CBOE recently completed an expansion of the back area of the SPX 
options trading crowd, which will result in a number of new trading 
spaces opening up in the trading crowd. In anticipation of the 
expansion, CBOE is filing this proposed rule change to describe the 
objective processes that it may utilize to determine which individuals 
can use one of the new trading spaces that are available, provided the 
demand for trading spaces in the trading crowd exceeds the supply.
    Historically, an order in time process has generally been applied 
to determine which individuals can use new trading spaces in a crowd 
located on the CBOE trading floor. Recently CBOE codified in its rules 
pursuant to Commission approval objective processes pertaining to the 
issuance of new Interim Trading Permits (``ITPs'') through either a 
random lottery process or order in time process, in anticipation that 
the demand for the ITPs would exceed the supply.\5\ In the event the 
demand for trading spaces in the back area of the SPX trading crowd 
exceeds the supply, CBOE is adopting similar processes to determine 
which individuals can use one of the new trading spaces. Specifically, 
CBOE may choose to utilize either a random lottery process or an order 
in time process, which are the two objective processes that CBOE 
recently codified for the issuance of ITPs. CBOE notes that when it 
adopted these two processes for the issuance of ITPs, the rule filing 
did not receive any negative comments from its members relating to 
these objective processes. Instead, CBOE believes that the issuance of 
ITPs using the random lottery process was a positive experience, and 
now seeks to apply one of these two processes in the context of the 
physical expansion of the SPX trading crowd.
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    \5\ See Securities Exchange Act Release No. 58178 (July 17, 
2008), 73 FR 42634 (July 22, 2008), approving SR-CBOE-2008-40.
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    Under either of the processes that it chooses to utilize, CBOE 
would announce a deadline by which an approved individual CBOE member 
who desires to use the trading space can submit an indication of 
interest for one of the available trading spaces in the back area of 
the SPX trading crowd. Only those individuals who are approved members 
of CBOE would be eligible to submit an indication of interest, and the 
individual who would be using the trading space must be an effective 
member under CBOE Rule 3.10 (i.e., must be on a membership \6\), a 
temporary member, or ITP Holder at the time of the random lottery 
process or the order in time process. If an existing member of the SPX 
trading crowd submits an indication of interest, is ``selected'' 
through the random lottery process or the order in time process and 
chooses a new trading space in the back area of the SPX trading crowd, 
that member's prior trading space would be deemed vacant.
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    \6\ Being ``on a membership'' means that the member has 
satisfied the applicable requirements to obtain a membership and a 
membership has been released to that member by the Exchange's 
Membership Department.
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    After the deadline for indications of interest has passed, the 
available trading spaces in the back area of the SPX trading crowd 
would be allocated through a random lottery process or an order in time 
process.\7\ Each individual member who is ``selected'' through either 
the random lottery process (based on the lottery selection sequence) or 
the order in time process (based on time sequence) would choose the new 
trading space where he or she would like to stand.
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    \7\ A member who selects a trading space following the random 
lottery process or the order in time process does not obtain any 
ownership right in that particular trading space. In the event a 
space dispute should arise, the crowd space dispute resolution 
procedures in Rule 24.21 will continue to apply.
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    CBOE believes that these processes would provide for the issuance 
of new trading spaces in an objective manner and consequently would 
provide for fair access to the Exchange.
2. Statutory Basis
    The proposed rule change would permit the Exchange to allocate new 
trading spaces in the SPX trading crowd pursuant to one of two 
objective processes: a random lottery process or an order in time 
process. CBOE notes that both of these processes have been codified in 
connection with the issuance of ITPs in a prior filing that was 
approved by the Commission. As a result, 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.\8\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) Act \9\ requirements 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. CBOE believes that these 
processes would provide for the issuance of new trading spaces in an 
objective manner and consequently would provide for fair access to the 
Exchange.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give 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 Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\12\ 
However, Rule 19b-4(f)(6)(iii) \13\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay because it has now 
completed the expansion of its SPX trading crowd and has recently come 
to believe that the demand for additional trading spaces may exceed the 
newly available supply. To respond to this possibility, CBOE would like 
the flexibility to utilize a

[[Page 72091]]

lottery process when it allocates the additional space in the next 
several days. CBOE notes that its proposed rule change is a copy of its 
current lottery process applicable to the allocation of ITPs, which the 
Commission previously approved, and would apply that methodology in the 
context of expanding its SPX trading crowd.
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    \12\ Id.
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\14\ In particular, the Commission believes that waiver of the 
operative delay will promote competition and efficiency by providing 
CBOE with the option to utilize its new lottery process to manage the 
expansion of the SPX trading crowd, which it anticipates allocating in 
the next several days. Waiving the operative delay will enable CBOE to 
use either this new process or the historically-utilized first in time 
process as it deems appropriate, and will enable CBOE to allocate the 
new space promptly through a fair and objective methodology. For these 
reasons, the Commission designates the proposed rule change as 
operative upon filing.
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    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's effect on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 
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-2008-116 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2008-116. 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 
am and 3 pm. 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 available publicly. All 
submissions should refer to File No. SR-CBOE-2008-116 and should be 
submitted on or before December 17, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-28045 Filed 11-25-08; 8:45 am]

BILLING CODE 8011-01-P