Document ID: SEC-2010-0626-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2010-04-27T04:00Z

[Federal Register: April 27, 2010 (Volume 75, Number 80)]
[Notices]               
[Page 22170-22171]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27ap10-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61946; File No. SR-CBOE-2010-032]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Remove a Feature and Revise Outdated Text Regarding 
Certain Execution Rules

April 20, 2010.
    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 April 5, 2010, Chicago Board Options Exchange, Incorporated 
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the self-
regulatory organization. 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 is proposing to eliminate a feature and revise 
outdated text regarding certain of its execution rules. The text of the 
proposed rule change is available on CBOE's Web site at http://
www.cboe.org, on the Commission's Web site at http://www.sec.gov, 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.

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

1. Purpose
    The Exchange is proposing to eliminate a feature and revise 
outdated text regarding certain of its execution rules.
    In August 2008,\5\ the Exchange received Securities and Exchange 
Commission (``Commission'') approval of a rule change to give certain 
non-broker-dealer orders (identified as ``Voluntary Professional'' 
orders) the priority given broker-dealer orders rather than the 
priority given to public customer orders. In December 2009,\6\ the 
Exchange received Commission approval of a rule change to give certain 
other non-broker-dealer orders (identified as ``Professional'' orders) 
the priority given broker-dealer orders rather than the priority given 
to public customer orders. The rules changed the execution priority in 
various Exchange execution rules as they existed in August 2008 and 
December 2009, respectively. After reviewing its execution rules, the 
Exchange has determined to eliminate a feature within its execution 
rules pertaining to customer-to-customer immediate cross orders related 
to Voluntary Professionals and Professionals. Specifically, the 
Exchange is proposing to amend the execution rules as follows:
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    \5\ Securities Exchange Act Release No. 58327 (August 7, 2008), 
73 FR 47988 (August 15, 2008) (SR-CBOE-2008-09).
    \6\ Securities Exchange Act Release No. 61198 (December 17, 
2009), 74 FR 68880 (December 29, 2009) (SR-CBOE-2009-078).
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    Rule 6.74A.09 pertains to customer-to-customer immediate cross 
orders. Under this provision, the Exchange may determine whether the 
customer-to-customer immediate cross functionality will be available on 
a class-by-class basis. If the functionality is available, an agency 
order for the account of a non-broker-dealer customer may be paired 
with a solicited order for the account of a non-broker-dealer customer 
and such orders will be crossed without any auction exposure period, 
provided certain conditions are met. For purposes of this provision, 
the rule provides that Voluntary Professional and Professional orders 
may be considered customer agency orders or solicited orders.\7\ 
However, the system does not currently recognize Voluntary Professional 
and Professional orders as customer orders for purposes of the 
customer-to-customer immediate cross. Thus, the proposed rule change 
narrows the definition of customer-to-customer immediate cross orders 
to only public customer orders that are not Voluntary Professionals or 
Professionals, which is consistent with the current operation of the 
system. The rule will continue to provide that customer-to-customer 
immediate cross orders cannot be executed at the same price as any 
resting customer orders (i.e., non-broker-dealer orders that are not 
Voluntary Professional or Professional orders).\8\
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    \7\ See cross reference to Rule 6.74A.09 in Rule 1.1(fff) and 
(ggg).
    \8\ Under CBOE Rules 6.45A.01 through .02 and 6.45B.01 through 
.02, members are required to expose trading interest to the market 
before executing agency orders as principal or before executing 
agency orders against orders that were solicited from other broker-
dealers (i.e., proprietary and solicited crossing transactions). 
However, the CBOE options rules do not contain any limitations or 
exposure requirements regarding the execution of customer orders 
against other customer orders. Customer-to-customer immediate cross 
orders was [sic] adopted to provide a way to enter opposing customer 
orders using a paired order type that protected customer orders on 
the book. See Securities Exchange Act Release No. 57512 (March 17, 
2008), 73 FR 15546 (March 24, 2008) (SR-CBOE-2008-19). While only a 
public customer order that is not a Voluntary Professional or 
Professional will be permitted to be executed using the customer-to-
customer immediate cross order mechanism under the proposed rule 
change, Rules 6.45A.02 and 6.45B.02 continue to allow the execution 
of all public customer orders (including Voluntary Professional and 
Professional orders) without an exposure period. Members may 
continue to enter two public customer orders (including Voluntary 
Professional and Professional orders) on the Exchange with the 
intent to cross them without the use of the customer-to-customer 
immediate cross order type. See cross references to Rules 6.45A.02 
and 6.45B.02 in Rule 1.1(fff) and (ggg).

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[[Page 22171]]

    The Exchange also proposes to delete a provision from Rule 6.74A.09 
(which is proposed to be re-numbered to Rule 6.74A.08) regarding 
customer-to-customer immediate cross orders that was related to a block 
exemption from the old linkage rules that does not now exist under the 
distributive linkage plan.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \9\ that an exchange have rules that 
are designed to promote just and equitable principles of trade, and to 
remove impediments to and perfect the mechanism for a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. In particular, the proposed rule 
change corrects an inconsistency by eliminating a feature and revises 
outdated text regarding certain Exchange execution rules.
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    \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 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 proposed rule change: (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 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, it 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 the self-regulatory organization to submit to the 
Commission 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 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) \12\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing.
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    \12\ 17 CFR 240.19b-4(f)(6).
    \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. 
The Commission notes that the proposed rule change removes an 
inconsistency in the Exchange rules, which may eliminate member 
confusion and provide clarity on the meaning and applicability of the 
affected rules. Therefore, the Commission designates the proposal 
operative upon filing.\14\
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    \14\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
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 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.

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-2010-032 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-2010-032. 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 Web site viewing and 
printing 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 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 Number SR-CBOE-2010-032 and should be 
submitted on or before May 18, 2010.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9678 Filed 4-26-10; 8:45 am]
BILLING CODE 8011-01-P