Document ID: SEC-2005-0313-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2005-12-02T05:00Z

[Federal Register: December 2, 2005 (Volume 70, Number 231)]
[Notices]               
[Page 72318-72320]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02de05-67]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52824; File No. SR-CBOE-2005-69]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change and Amendment No. 1 Thereto To Delete Certain 
Exchange Rules, or Portions Thereof, Which Have Been Determined by the 
Exchange To Be Obsolete or Unnecessary

November 22, 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 September 1, 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. 
On November 8, 2005, the Exchange filed Amendment No. 1 to the 
proposal.\3\ The Exchange filed the proposed rule change, as amended, 
as a ``non-controversial'' rule change under Rule 19b-4(f)(6) under the 
Act,\4\ which renders the proposal effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4 dated November 8, 2005, which replaced the 
original filing in its entirety (``Amendment No. 1'').
    \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 CBOE proposes to delete certain rules, or portions thereof, 
which have been determined by the Exchange to be obsolete or 
unnecessary. The text of the proposed rule change is available on 
Exchange's Web site (http://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

[[Page 72319]]

rule change. 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, Proposed Rule Change

1. Purpose
    The Exchange proposes to delete the rules, or portions thereof, 
that pertain to the former Joint Venture Participation Agreement 
(``Agreement'') between CBOE and the Chicago Board of Trade (``CBOT''). 
The Exchange represents that the Agreement, among other things, 
provided that CBOE would waive certain dues and fees for CBOT Exercise 
members who made no trades in CBOE contracts in a given quarter. In 
addition, the Agreement waived all membership application fees and 
technology fees for CBOT Exercise members. The Exchange represents that 
the Agreement terminated on December 29, 1998, and the Exchange has no 
intention of initiating this program in the future. On December 10, 
1998, CBOE issued Regulatory Circular RG98-140 to its members informing 
them that the Agreement would terminate effective December 29, 1998 and 
that the Agreement would not be renewed. In addition, the Commission 
issued Securities Exchange Act Release No. 40973, which pertained to 
the termination of the Agreement and the initiation of fees that would 
ultimately be charged to the CBOT Exercise members pursuant to the 
termination of the Agreement.\5\ The proposed CBOE rules that pertain 
to the obsolete Agreement, or the portions thereof, that are to be 
deleted are: CBOE Rule 1.1, Rule 6.7, Rule 6.20, Rule 6.70, Rule 9.1, 
Rule 19.1, and Rule 30.12.
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    \5\ Securities Exchange Act Release No. 40973 (January 25, 
1999), 64 FR 4915 (February 1, 1999) (SR-CBOE-98-55).
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    Also, the Exchange proposes to delete the rules, or portions 
thereof, that pertain to Board Brokers. A Board Broker is an individual 
member, a nominee of a member organization or a member organization who 
or which is registered with the Exchange for the purposes of (i) acting 
as a ``broker's broker'' for specified classes of options, at the post 
at which such classes of options are traded, by accepting and 
attempting to execute orders placed with him by other members, and (ii) 
monitoring the market for such classes of options at the post. The 
Exchange represents that it has not used Board Brokers for 
approximately 22 years, and does not intend to use them in the future. 
The proposed CBOE rules pertaining to Board Brokers, or the portions 
thereof, that are to be deleted are: CBOE Rule 6.43, Rule 6.46, Rule 
6.47, Rule 6.54, Rule 6.70, Rule 7.1, Rule 7.2, Rule 7.3, Rule 7.4, 
Rule 7.5, Rule 7.7, Rule 7.8, Rule 7.9, Rule 7.10, and Rule 7.11.
    In addition to the deletions of the above-referenced ``Joint 
Venture'' and ``Board Broker'' rules, or portions thereof, the Exchange 
proposes to delete each of the following rules, or portions thereof:
     CBOE Rule 2.21--This rule allows the Exchange to impose a 
charge upon Exchange members measured by their respective net 
commissions. The Exchange represents that Exchange members have not 
assessed the commissions that such charges are measured by since the 
early 1970s, and such commissions will not be assessed by Exchange 
members in the future. For this reason, the Exchange has not imposed 
and will not impose such charges upon its members, since there is no 
commission to base it upon, therefore making this rule obsolete and 
unnecessary.
     CBOE Rule 2.25 and CBOE Rule 2.30--These rules allow the 
Exchange to assess fees for the delayed submission of trade 
information. Specifically, these rules allow the Exchange to assess 
fees to members who failed to submit trade information for at least 80% 
of all of that member's transactions. Currently, over 98% of all trade 
information is disseminated within one hour after the time of 
execution. The Exchange represents that it no longer assesses such 
fees, since 98% of all trade information is disseminated within one 
hour after the time of execution, and does not intend to assess them in 
the future.
     CBOE Rule 14.2, CBOE Rule 14.3, and CBOE Rule 14.5--The 
rules in Chapter 14 of the CBOE rulebook were created for the purpose 
of charging and collecting commissions. Specifically, CBOE Rule 14.1 
made it mandatory for commissions to be charged and collected upon the 
execution of all orders, for the accounts of members and non-members, 
of securities dealt on CBOE. CBOE Rule 14.1 stated that the commissions 
would be no less than the rates established by CBOE and such 
commissions shall be ``net and free from any rebate, return, discount 
or allowance.'' The Exchange represents that CBOE Rule 14.1 was deleted 
from CBOE's rules on May 15, 1975, since such fixed commissions would 
no longer be charged and would not be charged in the future.
    For this reason, at this time, the Exchange proposes to delete CBOE 
Rules 14.2, 14.3, and 14.5, since the Exchange believes that there is 
no need for these rules since they pertained specifically to the 
commissions discussed in CBOE Rule 14.1 and which are no longer 
necessary.
    Specifically, CBOE Rule 14.2 involves reciprocal arrangements. The 
Exchange states that reciprocal arrangements were agreements that 
brokers used with other brokers to permit such brokers to participate 
in the commissions that were generated from the execution of orders. 
The Exchange represents that reciprocal arrangements have not been used 
since the early 1970s. Specifically, CBOE Rule 14.2(a) states that any 
such arrangement had to be reported to CBOE and subject to CBOE's 
approval. CBOE Rule 14.2(b) states that no member, in consideration of 
the receipt of business, shall make any payments, or give up any work 
or give up any part of any commission to which such member is or will 
be entitled. Since such arrangements as described in CBOE Rule 14.2(b) 
were never permitted, the Exchange would not approve such arrangements 
pursuant to CBOE Rule 14.2(a), if and when an Exchange member reported 
such an arrangement to the Exchange. Further, since the commissions as 
discussed in CBOE Rule 14.1 are no longer charged, and have not been 
charged since the early 1970s, the Exchange believes that there is no 
need to have a rule pertaining to reciprocal arrangements, since the 
commissions that the arrangements were based on are no longer charged 
and will not be charged in the future. Specifically, CBOE Rule 14.2 
prohibited those arrangements that were used to circumvent the 
commissions referred to in CBOE Rule 14.1, and therefore, since CBOE 
Rule 14.1 was deleted on May 15, 1975, there is no need for CBOE Rule 
14.2.
    CBOE Rule 14.3 deals with commissions charged on non-member orders. 
This rule specifically sets forth that the commissions to be charged on 
non-member orders shall be mutually agreed upon. Again, the Exchange 
represents that this rule is obsolete, since the commissions that this 
rule pertains to are no longer charged and have not been charged since 
the early 1970s. Therefore, the Exchange believes that there is no need 
for this rule.
    CBOE Rule 14.5 deals with intra-member rates for floor brokerage. 
This rule states that for those orders that are executed when a 
principal is given up, the commission shall be mutually

[[Page 72320]]

agreed upon. As with CBOE Rule 14.3, the Exchange believes that this 
rule is obsolete, since the commissions that this rule pertains to have 
not been charged since the early 1970s and the Exchange does not plan 
to charge such commissions in the future. For this reason, the Exchange 
believes that there is no need for this rule.
     CBOE Rule 15.4--This rule pertains to a monthly commission 
report that the Exchange required certain individual members and member 
organizations to submit to the Treasurer of the Exchange. Specifically, 
this rule required certain members to disclose commissions on business 
done on the Exchange for each month. The Exchange believes that this 
rule is obsolete, since such a report is no longer necessary given that 
such commissions are no longer charged and collected.
2. Statutory Basis
    By deleting certain Exchange rules, or portions thereof, which have 
been determined to be obsolete or unnecessary, the Exchange believes 
that the proposed rule change is consistent with Section 6(b) of the 
Act \6\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act \7\ in particular, in that it should promote just and equitable 
principles of trade, serve to remove impediments to and perfect the 
mechanism of a free and open market and national market system, and, in 
general, protect investors and the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 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

    Written comments on the proposed rule change were neither solicited 
nor received.

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

    Because the proposed rule change, as amended: (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) by its terms, does not become operative for 30 days after the 
date of filing, the proposed rule change has become effective pursuant 
to Section 19(b)(3)(A) of the Act \8\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\9\ As required under Rule 19b-4(f)(6)(iii),\10\ the 
Exchange provided the Commission with 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 the filing of the proposed rule change.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 17 CFR 240.19b-4(f)(6)(iii).
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    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 the furtherance of the purposes of the Act.\11\
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    \11\ The effective date of Amendment No. 1 is November 8, 2005. 
For purposes of calculating the 60-day period within which the 
Commission may summarily abrogate the proposal, the Commission 
considers the period to commence on November 8, 2005, the date on 
which the Exchange submitted Amendment No. 1.
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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, as amended, 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-2005-69 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9309.
    All submissions should refer to File Number SR-CBOE-2005-69. 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 Section. 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-2005-69 and should be submitted on or before 
December 23, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6751 Filed 12-1-05; 8:45 am]

BILLING CODE 8010-01-P