Document ID: SEC-2009-0061-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2009-01-13T05:00Z

[Federal Register: January 13, 2009 (Volume 74, Number 8)]
[Notices]               
[Page 1737-1738]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13ja09-95]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59210; File No. SR-CBOE-2008-118]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval of Proposed Rule Change Related 
to Obvious Error Rules

January 7, 2009.
    On November 26, 2008, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend CBOE Rules 6.25 and 
24.16 (collectively, the ``Obvious Error Rules'') to adopt procedures 
that would allow CBOE to review transactions on its own motion. The 
proposed rule change was published for comment in the Federal Register 
on December 8, 2008.\3\ The Commission received no comment letters on 
the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 59038 (December 2, 
2008), 73 FR 74543.
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    The proposed rule change would provide that, in the interest of 
maintaining a fair and orderly market and for the protection of 
investors, the President of CBOE or his/her designee, who shall be an 
officer of CBOE but may not be a member (collectively ``CBOE 
officer''), may, on his or her own motion or upon request, determine to 
review any transaction occurring on CBOE that is believed to be 
erroneous.\4\ CBOE would nullify or adjust a transaction reviewed 
pursuant to this new provision only if it is determined that the 
transaction is erroneous as provided in CBOE Rule 6.25(a)(1)-(6) or 
Rule 24.16(a)(1)-(6), as applicable.\5\ Trading Officials (or the 
senior official in the control room, in the case of opening trades in 
CBOE Rule 5.4 restricted series being reviewed under CBOE Rule 
6.25(a)(6) or Rule 24.16(a)(6)) may assist the CBOE officer in 
reviewing a transaction.
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    \4\ In the event a party to a transaction requests that the 
President or his/her designee review a transaction, the CBOE officer 
nonetheless would need to determine, on his or her own motion, 
whether to review the transaction. In addition, if a transaction is 
reviewed and a determination is rendered pursuant to paragraphs 
(b)(1) and (b)(2) of CBOE Rule 6.25 or Rule 24.16, relief shall not 
be granted under the new provision of the applicable Obvious Error 
Rule.
    \5\ The transaction would be adjusted or nullified in accordance 
with the provision under which it is deemed an erroneous 
transaction, including consideration of whether the parties involved 
are CBOE market-makers, non-CBOE market makers, or customers 
pursuant to CBOE Rule 6.25(a)(1)(i)-(iv) and CBOE Rule 24.16(c).
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    Under the proposed rule change, the CBOE officer would be required 
to act as soon as possible after receiving notification of the 
transaction, and ordinarily would be expected to act on the same day as 
the transaction. However, because a transaction under review may have 
occurred near the close of trading or due to unusual circumstances, the 
rule provides that the CBOE officer would be required to act no later 
than 8:30 a.m. (CT) on the next trading day following the date of the 
transaction at issue. A member affected by a determination to nullify 
or adjust a transaction pursuant to this new provision would be 
permitted to appeal such determination in accordance with Rule 6.25(d) 
or Rule 24.16(d); however, a determination by a CBOE officer not to 
review a transaction, or a determination not to nullify or adjust a 
transaction for which a review was requested or conducted, is not 
appealable. Transactions adjusted or nullified pursuant to this new 
provision cannot be reviewed by an Obvious Error Panel under paragraph 
(c) of Rule 6.25.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange \6\ and, in 
particular, the requirements of Section 6(b) of the Act \7\ and the 
rules and regulations thereunder. Specifically, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\8\ in 
that the proposal is designed to promote just and equitable principles 
of trade, to prevent fraudulent and manipulative acts, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest.
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    \6\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that, in approving proposals relating to 
adjustment or nullification of trades involving obvious errors, it has 
stated that the determination of whether an obvious error has occurred 
and the process for reviewing such a determination should be based on 
specific and objective criteria and subject to specific and objective 
procedures.\9\ The Commission notes that the new provisions in the 
Obvious Error Rules also have specific and objective procedures for 
determining whether a trade should be adjusted or nullified. The 
purpose of the new provisions is only to enable a CBOE officer on his/
her own motion or upon request, to provide relief in instances where 
parties failed to meet the established time reporting requirements in 
CBOE's Obvious Error Rules. The new provisions still require that the 
transaction be erroneous as provided in CBOE Rules 6.25 or 24.16, as 
applicable, and the new provisions set forth specific time frames and 
procedures. Therefore, the Commission believes that that proposed rule 
change is appropriate.
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    \9\ See, e.g., Securities Exchange Act Release Nos. 58778 
(October 14, 2008), 73 FR 62577 (October 21, 2008) and 54228 (July 
27, 2006), 71 FR 44066 (August 3, 2006) (SR-CBOE-2006-14) (approving 
revisions to CBOE's Obvious Error Rules).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2008-118) is hereby 
approved.
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    \10\ 15 U.S.C. 78s(b)(2).

[[Page 1738]]

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    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. E9-461 Filed 1-12-09; 8:45 am]

BILLING CODE 8011-01-P