Document ID: SEC-2005-0337-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2005-12-08T05:00Z

[Federal Register: December 8, 2005 (Volume 70, Number 235)]
[Notices]               
[Page 73043-73044]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08de05-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52872; File No. SR-CBOE-2005-92]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change To Prohibit the 
Practice of Unbundling Orders to Maximize Rebates of Fees

December 1, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, as amended, (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on November 7, 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 the Exchange. 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)(l).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to adopt a new rule to prohibit the practice of 
unbundling orders in order to maximize rebates of fees. The text of the 
proposed rule change appears below. Additions are in italics.
* * * * *

Rule 4.23--Unbundling of Orders to Maximize Rebates of Fees

    Rule 4.23. No member shall divide an order into multiple smaller 
orders for the primary purpose of maximizing rebates of fees resulting 
from the execution of such orders, or any other similar payment of 
value to the member.
* * * * *

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 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. The CBOE has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

[[Page 73044]]

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

1. Purpose
    The purpose of this rule change is to amend CBOE rules to expressly 
prohibit the practice of tape shredding, i.e., the practice of 
splitting large orders into multiple smaller orders for the purpose of 
maximizing market data revenues. The Commission has requested that all 
U.S. self-regulatory organizations implement rule changes to inhibit 
the practice of tape shredding.
    CBOE agrees that the practice of ``tape shredding'' is a distortive 
practice. For options trading, CBOE's members do not have any incentive 
to engage in this practice because CBOE does not share its market data 
revenue in options with its members. With regard to its limited stock 
trading, until very recently CBOE did not share market data revenue 
with its members.\3\ Nonetheless, because CBOE shares the Commission's 
concerns about this dubious practice, CBOE agrees that it would be 
appropriate for CBOE to amend its rules to expressly prohibit its 
members from dividing single orders into multiple orders for the sole 
purpose of maximizing market data rebates.
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    \3\ CBOE recently adopted a revenue sharing program with its 
Designated Primary Market-Makers and Market-Makers for trades in 
Tape B securities, of which CBOE trades a very small number, upon 
the launch of CBOE's new stock trading platform. Because CBOE's 
revenue sharing plan does not propose to share revenue with order 
flow providers, only with CBOE's DPMs and Market-Makers in these 
Tape B securities, CBOE does not believe that its plan promotes the 
breaking up of single orders into multiple orders to maximize market 
data rebates.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\4\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\5\ in particular, in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to, and perfect the mechanism of, a 
free and open market and a national market system, and in general, to 
protect investors and the public interest.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose no 
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 has neither solicited nor received comments on this 
proposal.

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 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 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-2005-92 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-CBOE-2005-92. 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 offices 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-2005-92 and should be submitted on or before December 29, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-7071 Filed 12-7-05; 8:45 am]

BILLING CODE 8010-01-P