Document ID: SEC-2007-0256-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2007-02-20T05:00Z

[Federal Register: February 20, 2007 (Volume 72, Number 33)]
[Notices]               
[Page 7782-7784]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20fe07-29]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55275; File No. SR-CBOE-2006-94]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change and Amendment 
No. 1 Thereto Relating to Off-Floor DPMs

February 12, 2007.
    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 November 13, 2006, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or the ``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 the Exchange. The Exchange filed Amendment 
No. 1 to the proposed rule change on January 18, 2007. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to amend CBOE rules to allow a Designated Primary 
Marker-Maker (``DPM'') to operate remotely away from CBOE's trading 
floor. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.cboe.com), at the Office of the 

Secretary, CBOE 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 Exchange 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    CBOE proposes to amend its rules to allow a DPM to operate remotely 
away from CBOE's trading floor. DPMs are member organizations that 
function in option classes allocated to them as a Market-Maker, and 
also are subject to the obligations under Rule 8.85 or as otherwise 
provided in CBOE's Rules. Currently, all DPMs operate on CBOE's trading 
floor. However, some member organizations have expressed an interest in 
acting as a DPM remotely away from CBOE's trading floor. As discussed 
below, the proposed rule change is intended to provide DPMs with the 
flexibility to operate on CBOE's trading floor (``On-Floor DPM'') or 
remotely away from CBOE's trading floor (``Off-Floor DPM''). A DPM 
would only be permitted to operate as an Off-Floor DPM in equity option 
classes traded on the Hybrid Trading System.
    CBOE proposes to amend Rule 8.83 to provide that in selecting an 
applicant for approval as a DPM, the appropriate exchange committee may 
place one or more conditions on the approval, including, but not 
limited to, whether the DPM will operate on-floor or off-floor. 
Additionally, CBOE proposes to amend Rule 8.83 to provide that an On-
Floor DPM can request that the appropriate Exchange committee authorize 
it to operate as an Off-Floor DPM in one or more equity option classes 
traded on the Hybrid Trading System. The appropriate Exchange committee 
will consider the factors specified in Rule 8.83(b) in determining 
whether to permit an On-Floor DPM to operate as an Off-Floor DPM. In 
the event a DPM is approved to operate as an Off-Floor DPM, Rule 8.83 
provides that the Off-Floor DPM can have a DPM Designee trade in open 
outcry in the option classes allocated to the Off-Floor DPM, but the 
Off-Floor DPM shall not receive a participation entitlement under Rule 
8.87 with respect to orders represented in open outcry. CBOE also 
proposes to amend Rule 6.45A(a)(C) and Rule 6.74 to make clear that the 
DPM participation entitlement is only applicable to an On-Floor DPM.
    As provided in new Interpretation .01 to Rule 8.83, if an Off-Floor 
DPM wishes to operate as an On-Floor DPM, the Off-

[[Page 7783]]

Floor DPM can request that the appropriate Exchange Committee authorize 
it to do so. In making a determination pursuant to this Interpretation, 
the appropriate Exchange committee would evaluate whether the change is 
in the best interests of the Exchange, and the committee may consider 
any information that it believes will be of assistance to it. Factors 
to be considered may include, but are not limited to, any one or more 
of the following: performance, operational capacity of the Exchange or 
the DPM, efficiency, number and experience of personnel of the DPM who 
will be performing functions related to the trading of the applicable 
securities, number of securities involved, number of Market-Makers 
affected, and trading volume of the securities.
    In connection with this rule change, CBOE proposes to amend certain 
DPM obligations contained in Rule 8.85. In particular, CBOE proposes to 
amend the obligation contained in subparagraph (a)(iv) which currently 
provides that the DPM must assure that the number of DPM Designees and 
support personnel continuously present at the trading station 
throughout every business day is not less than the minimum required by 
the appropriate Exchange committee. CBOE proposes to amend subparagraph 
(a)(iv) to state that an Off-Floor DPM similarly shall assure that the 
number of DPM Designees and support personnel continuously overseeing 
the DPM's activities is not less than the minimum required by the 
appropriate Exchange committee. Additionally, an Off-Floor DPM shall 
provide members with telephone access to a DPM Designee at all times 
during market hours for purposes of resolving problems involving 
trading on the Exchange.
    CBOE also proposes to amend the provision in subparagraph (a)(v) of 
Rule 8.85 that states a DPM shall trade in all securities allocated to 
the DPM only in the capacity of a DPM and not in any other capacity. 
CBOE proposes to allow, as part of an existing pilot program applicable 
to e-DPMs,\3\ an Off-Floor DPM to have not more than one Market-Maker 
affiliated with the Off-Floor DPM trade on CBOE's trading floor in any 
specific option class allocated to the Off-Floor DPM, provided such 
Market-Maker is trading on a separate membership.\4\ The affiliated 
Market-Maker would also have to comply with the ``Guidelines for 
Exemptive Relief Under Rule 8.91(e) for Members Affiliated with DPMs'', 
set forth in Rule 8.91. (Absent the pilot program, an Off-Floor DPM may 
not allow any Market-Makers affiliated with the Off-Floor DPM to trade 
on CBOE's trading floor in any class allocated to the Off-Floor DPM.) 
If the Off-Floor DPM has an affiliated Marker-Maker trade on CBOE's 
trading floor in any specific option class allocated to the Off-Floor 
DPM pursuant to the pilot program, Rule 8.85(a)(v) provides that the 
Off-Floor DPM cannot also have a DPM Designee trading in open outcry in 
the option classes allocated to the Off-Floor DPM.
---------------------------------------------------------------------------

    \3\ See CBOE Rule 8.93(vii). The Pilot Program is scheduled to 
expire on March 14, 2007.
    \4\ CBOE proposes to make a corresponding change to the 
``Guidelines for Exemptive Relief Under Rule 8.91(e) for Members 
Affiliated with DPMs.'' See Guidelines, Paragraph (b)(viii).
---------------------------------------------------------------------------

    Finally, CBOE proposes to amend Interpretation .02 of Rule 3.8 to 
allow an Off-Floor DPM to appoint one individual to be the nominee for 
all memberships utilized by the organization in an Off-Floor DPM 
capacity. Interpretation .02 of Rule 3.8 currently provides that a 
member organization can appoint one individual to be the nominee for 
all memberships utilized by the organization in an RMM capacity or an 
e-DPM capacity. This is an exception to the general requirement of Rule 
3.8(a)(ii) which provides that ``if a member organization is the owner 
or lessee of more than one membership, the organization must designate 
a different individual to be the nominee for each of the memberships.''
2. Statutory Basis
    CBOE 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.\5\ Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(5) \6\ requirements 
that the rules of an exchange be designed 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.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78(f)(b).
    \6\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2006-94 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-2006-94. 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

[[Page 7784]]

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, 100 F Street, 
NE., Washington, DC 20549. 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-2006-94 and should be 
submitted on or before March 13, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-2849 Filed 2-16-07; 8:45 am]

BILLING CODE 8011-01-P