Document ID: SEC-2006-1066-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2006-08-18T04:00Z

[Federal Register: August 18, 2006 (Volume 71, Number 160)]
[Notices]               
[Page 47834-47836]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18au06-133]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54311; File No. SR-CBOE-2005-103]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change and Amendment 
No. 1 Thereto To Amend CBOE Rules Relating to the Electronic Designated 
Primary Market Maker Program

August 11, 2006.
    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 5, 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 CBOE. On 
August 11, 2006, the Exchange filed Amendment No. 1 to the proposed 
rule change. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, 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

    The Exchange proposes to amend CBOE rules relating to the 
Electronic Designated Primary Market Maker (``e-DPM'') Program. The 
text of the proposed rule change is set forth below. Proposed additions 
are in italics, and proposed deletions are in brackets.
* * * * *
Rule 8.92. Electronic DPM Program
    (a)-(b) No change.
    (c) Allocation of Option Classes. The Board of Directors or a 
committee designated by the Board of Directors shall grant e-DPMs 
allocations in option classes. Factors to be considered in granting 
allocations include performance, capacity, performance commitments, 
efficiency, competitiveness, and operational

[[Page 47835]]

factors. In addition, the following shall apply:
    (i)-(iv) No change.
    (v) An e-DPM may not be allocated an option class for which the e-
DPM organization serves as DPM on the trading floor, [.]
    (vi) The Exchange may remove any option class from the e-DPM 
Program at any time if certain factors no longer warrant its inclusion 
in the program. Factors to be considered in removing an option class 
include any of the following: Market share, number of exchanges trading 
the product, average daily trading volume, and liquidity in the 
product. The Exchange shall give prior notice of any removal of an 
option class to the e-DPMs trading in that option class.
    (d)-(e) No change.
* * * * *

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    CBOE's e-DPM Program was created, generally, to enhance the 
liquidity base of the CBOE Hybrid Trading System and to increase the 
Exchange's market share in overall options trading by allowing member 
organizations, e-DPMs, to operate remotely as competing DPMs in the 
same option classes.\3\ The Exchange, through its designees, determines 
which option classes to include in the e-DPM Program and, accordingly, 
which classes to allocate to each respective e-DPM.\4\
---------------------------------------------------------------------------

    \3\ See CBOE Rules 8.92 through 8.94 and Securities Exchange Act 
Release No. 50003 (July 12, 2004), 69 FR 43028 (July 19, 2004) 
(Order approving SR-CBOE-2004-24). e-DPMs operate remotely as 
specialists by entering bids and offers electronically from 
locations other than the trading floor.
    \4\ Id.
---------------------------------------------------------------------------

    This rule change proposes to clarify that the Exchange should also 
have the authority to remove any e-DPM option class from the e-DPM 
Program if certain factors no longer warrant the continued inclusion of 
that option class in the e-DPM Program. The factors used in making such 
a determination would relate to the option class itself and will 
include any of the following: (i) Market share, (ii) number of 
exchanges trading the product, (iii) average daily trading volume, and 
(iv) liquidity in the product. The Exchange will consider any one or 
all of these factors in determining whether to remove an option class 
from the e-DPM Program. Such factors will be considered by the Exchange 
in removing any option class(es) from the e-DPM Program, including 
those option classes that are the top classes trading on the Exchange 
and those option classes that are the bottom classes trading on the 
Exchange.\5\ The ability to remove and limit the number of e-DPM option 
classes is necessary to further the competitive goals of the e-DPM 
Program.
---------------------------------------------------------------------------

    \5\ Based on the National Average Daily Volume.
---------------------------------------------------------------------------

    The purpose of the e-DPM Program is to create, among other things, 
greater market share, volume and liquidity. For certain option classes 
that have been in the e-DPM Program, there may no longer be a need to 
have such option classes in the program since at the present time, 
those classes have consistently maintained a level of greater market 
share, higher volume and/or greater liquidity. In reviewing these 
factors, the Exchange may determine that such class(es) no longer need 
to be in the e-DPM Program and can therefore be removed from the e-DPM 
Program, since that class meets the levels that the Exchange deems 
appropriate. In addition, the Exchange may wish to remove an option 
class from the e-DPM Program for the opposite reason. Certain option 
classes that are in the e-DPM Program may not have increased in market 
share, volume and/or liquidity, or may have even gone down in total 
market share, volume and/or liquidity. Since being in the e-DPM Program 
did not increase these factors, the Exchange may wish to remove such 
option class(es) from the program since they have not benefited from 
being in the program. Prior to removing any option class from the e-DPM 
Program, the Exchange would notify the e-DPMs trading in that option 
class that such class is being removed from the program. Persons 
aggrieved by the removal of an option class from the e-DPM Program may 
appeal such decision to the Exchange's Appeals Committee pursuant to 
Chapter XIX of the rules of the Exchange.
    By being able to review these proposed factors for all option 
classes in the e-DPM Program and in making a determination on whether 
an option class(es) should be included in the e-DPM Program, the 
Exchange believes it will have the flexibility to ultimately enhance 
the overall market share and volume of all option classes trading on 
the Exchange.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\6\ in general, and Sections 6(b)(5) and 6(b)(7) of the 
Act,\7\ in particular, in that it is designed to promote just and 
equitable principles of trade and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and provides a fair procedure for the limitation by the Exchange of any 
person with respect to access to services offered by the Exchange.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5) and 78f(b)(7).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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

    The Exchange did not solicit or receive any written comments 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 self-regulatory organization consents, the Commission will:
    A. By order approve the 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 47836]]

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-2005-103 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street NE., Washington, DC 20549-1090.

    All submissions should refer to File Number SR-CBOE-2005-103. 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 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-2005-103 and should be submitted on or before 
September 8, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
[FR Doc. E6-13643 Filed 8-17-06; 8:45 am]

BILLING CODE 8010-01-P