Document ID: SEC-2008-0188-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Incorporated
Posted Date: 2008-02-05T05:00Z

[Federal Register: February 5, 2008 (Volume 73, Number 24)]
[Notices]               
[Page 6752-6753]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05fe08-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57231; File No. SR-CBOE-2007-152]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change as Modified by Amendments No. 1, 2, and 3 Relating to a 
Hybrid Agency Liaison (``HAL'') Step-Up Rebate and Pass-Through of 
Certain Linkage Related Costs

January 30, 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 December 21, 2007, 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 substantially 
prepared by CBOE. On January 16, 2008, CBOE filed Amendment No. 1 to 
the proposed rule change. On January 23, 2008, CBOE filed Amendment No. 
2 to the proposed rule change, and on January 28, CBOE filed Amendment 
No. 3 to the proposed rule change.\3\ CBOE has designated this proposal 
as one establishing or changing a due, fee, or other charge applicable 
only to a member under section 19(b)(3)(A)(ii) of the Act,\4\ and Rule 
19b-4(f)(2) thereunder,\5\ 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\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on January 28, 2008, the date on which the Exchange 
filed Amendment No. 3. See 15 U.S.C. 78s(b)(3)(C).
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to: (i) Establish a HAL step-up rebate, and (ii) pass 
through to members certain costs related to Intermarket Option Linkage 
(``Linkage'') Principal orders. The text of the rule proposal 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, CBOE 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 these statements may be examined at the places specified in 
Item IV below. 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, the Proposed Rule Change

1. Purpose
HAL Step-Up Rebate
    HAL is a system for automated handling of electronically received 
orders that are not automatically executed upon receipt by the Hybrid 
Trading System (``Hybrid''). CBOE Rule 6.14 governs the operation of 
the HAL system.
    Orders received by the HAL system are electronically exposed to all 
CBOE market-makers appointed to the relevant option class, as well as 
to all members acting as agent for orders at the top of the Exchange's 
book in the relevant option series. This exposure and a subsequent 
allocation period (together, the ``HAL auction'') afford crowd members 
an opportunity to match the away national best bid or offer (``NBBO'') 
price. If any portion of an exposed order remains unexecuted at the end 
of a HAL auction, then the remaining order would be booked if it is a 
limit order that is not marketable, or, if marketable, routed to the 
exchange showing the NBBO via Linkage.
    In order to provide an incentive to market makers to execute orders 
at CBOE, versus routing orders away via Linkage, the Exchange proposes 
to establish a program whereby the Exchange would provide a rebate to 
market-makers that ``step-up'' and trade all or part of certain orders 
on the HAL system. Specifically, the Exchange will rebate to a market-
maker $.20 per contract against transaction fees generated from a 
transaction on the HAL system in a penny pilot class, provided that at 
least 80% of the market-maker's quotes in that class (excluding quotes 
in LEAPS series) in that same month were on one side of the NBBO. 
Market-makers not meeting this 80% criteria would not be eligible to 
receive a rebate. The Exchange believes the HAL rebate will allow 
market-makers to compete better for order flow in the penny pilot 
classes.
Pass-Through of Linkage P Order Costs
    Pursuant to Section 21 of the CBOE Fees Schedule, the Exchange 
provides certain rebates and credits to Designated Primary Market-
Makers (``DPMs'') for fees they incur related to the execution of 
outbound Principal orders (``P orders'') on behalf of orders that are 
for the account of a broker-dealer (i.e., ``B'' and ``F'' origin 
codes).
    The Exchange proposes to amend this program in two respects. First, 
the

[[Page 6753]]

Exchange proposes to expand the program to apply to any non-customer 
order underlying a P order.\6\ Second, in order to recover the 
significant costs of this program, the Exchange proposes to pass 
through to the member that originated the underlying order the total 
amount of the credits paid by the Exchange to the DPM under the program 
(i.e., away exchange transaction fee, and OCC, clearing firm and Sales 
Value fees). The Exchange represents that members seeking to send 
orders to the Exchange that are not routed away through the Linkage 
(thereby avoiding any pass-through Linkage charges) may do so by 
marking orders sent to CBOE with an Immediate or Cancel (``IOC'') 
designation. IOC orders are not routed to other market centers, instead 
if they cannot be executed on CBOE they are cancelled.
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    \6\ The Exchange is expanding the application of the P order 
program due to the fact that HAL now processes market-maker orders 
in addition to broker-dealer orders.
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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)(4) \8\ of the Act in particular, in that it is designed to 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among CBOE members and other persons using its 
facilities.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will result in 
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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(2) \10\ thereunder because 
it establishes or changes a due, fee, or other charge applicable only 
to a member. 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-(f)(2).
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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-2007-152 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-2007-152. 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 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-2007-152 
and should be submitted on or before February 26, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-2059 Filed 2-4-08; 8:45 am]

BILLING CODE 8011-01-P