Document ID: SEC-2006-0730-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2006-06-07T04:00Z

[Federal Register: June 7, 2006 (Volume 71, Number 109)]
[Notices]               
[Page 33017-33019]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07jn06-141]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53922; File No. SR-CBOE-2006-52]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Extending the Exchange's Preferred Market-
Maker Pilot Program

June 1, 2006.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 33018]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 22, 2006, 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 and II 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 and is approving the 
proposal on an accelerated basis, for a pilot period through June 2, 
2007.
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    \1\ 15 U.S.C. 78s(b)(1).
    \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

    The Exchange proposes to amend its rules to extend the Preferred 
Market-Maker Pilot Program for one year, until June 2, 2007. The text 
of the proposed rule change is set forth below. Brackets indicate 
deletions; italics indicates new text.
* * * * *

Chicago Board Options Exchange, Incorporated

Rules

* * * * *

Rule 8.13 Preferred Market-Maker Program

    (a) Generally. The Exchange may allow, on a class-by-class basis, 
for the receipt of marketable orders, through the Exchange's Order 
Routing System when the Exchange's disseminated quote is the NBBO, that 
carry a designation from the member transmitting the order that 
specifies a Market-Maker in that class as the ``Preferred Market-
Maker'' for that order. A qualifying recipient of a Preferred Market-
Maker order shall be afforded a participation entitlement as set forth 
in subparagraph (c) below. The Preferred Market-Maker Program shall be 
in effect until June 2, 2007[6] on a pilot basis.
    (b)-(c) 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, 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 these statements may be examined at the places specified in 
Item III below. The Exchange 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
    In June 2005, CBOE obtained approval of a filing adopting a 
Preferred DPM Program.\3\ This allowed order providers to send orders 
to the Exchange designating a Preferred DPM from among the DPM complex. 
If the Preferred DPM was quoting at the NBBO at the time the order was 
received by CBOE, the Preferred DPM was entitled to the entire DPM 
participation entitlement. The Exchange subsequently modified the 
applicable participation entitlement percentages under the program \4\ 
and, then expanded the scope of the program to apply to qualifying 
Market-Makers (as opposed to just DPMs).\5\ At that time, the program 
was renamed the Preferred Market-Maker Program.
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    \3\ See Securities Exchange Act Release No. 51779 (June 2, 
2005), 70 FR 33564 (June 8, 2005) (approving SR-CBOE-2004-71).
    \4\ See Securities Exchange Act Release Nos. 51824 (June 10, 
2005), 70 FR 35476 (June 20, 2005) (approving SR-CBOE-2005-45); and 
52021 (July 13, 2005), 70 FR 41462 (July 19, 2005) (approving SR-
CBOE-2005-50).
    \5\ See Securities Exchange Act Release No. 52506 (September 23, 
2005), 70 FR 57340 (September 30, 2005) (approving SR-CBOE-2005-58).
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    CBOE Rule 8.13 establishes a Preferred Market-Maker Program on a 
pilot basis. The pilot is due to expire on June 2, 2006. CBOE proposes 
extending the pilot program an additional year, until June 2, 2007. 
According to CBOE, since the pilot program was put into operation it 
has been positively received by the options trading community. CBOE 
believes that there has not been any adverse or unanticipated negative 
impact on the market by the presence of the Preferred Market-Maker 
Program. Further, CBOE believes that the pilot program helps generate 
greater order flow for the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \6\ in general, and furthers the 
objectives of section 6(b)(5) of the Act \7\ in particular, in that it 
should promote just and equitable principles of trade, serve to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and protect investors and the public 
interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 does not 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 has not solicited, and does not intend to solicit 
comments on the proposed rule change.

III. 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 and whether the pilot time frame is 
appropriate. 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-2006-52 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-2006-52. 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

[[Page 33019]]

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-2006-52 and should be submitted on or before June 28, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    The Exchange has asked the Commission to approve the proposed rule 
change on an accelerated basis for an additional year so that the pilot 
program may continue uninterrupted. After careful consideration, the 
Commission finds that the proposed rule change is consistent with the 
requirements of section 6 of the Act \8\ and the rules and regulations 
thereunder applicable to a national securities exchange,\9\ and, in 
particular, the requirements of section 6(b)(5) of the Act.\10\ Section 
6(b)(5) requires, among other things, that the rules of a national 
securities exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
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. The Commission notes that the 
current pilot was approved on a one-year basis to give the Commission 
an opportunity to evaluate the impact of the pilot program on the 
options markets to determine whether it would be beneficial to 
customers and to the options markets as a whole before approving any 
request for permanent approval of the pilot program. The Commission 
believes that a one-year extension of the pilot period would provide 
the Commission with additional time to continue evaluate the Exchange's 
Preferred Market-Maker Program.
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    \8\ 15 U.S.C. 78f.
    \9\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of notice thereof in the Federal Register. The Commission 
believes that granting accelerated approval of the proposed rule change 
would allow the pilot program to continue without disruption while the 
Commission and the Exchange continue to review the pilot program's 
impact on the options market. Accordingly, the Commission finds good 
cause, consistent with section 19(b)(2) of the Act,\11\ for approving 
the proposed rule change prior to the thirtieth day after publication 
of notice thereof in the Federal Register.
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    \11\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-CBOE-2006-52), which 
institutes the pilot program through June 2, 2007, is hereby approved 
on an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-8805 Filed 6-6-06; 8:45 am]

BILLING CODE 8010-01-P