Document ID: SEC-2006-0575-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2006-05-03T04:00Z

[Federal Register: May 3, 2006 (Volume 71, Number 85)]
[Notices]               
[Page 26152-26153]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03my06-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53727; File No. SR-CBOE-2006-37]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend CBOE Rule 8.4 Relating to Remote Market-Maker 
Appointments

April 26, 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 April 12, 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 Exchange filed the proposal as a ``non-controversial'' proposed 
rule change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder.\4\ 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)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to amend CBOE Rule 8.4 relating to Remote Market-
Maker appointments. The text of the proposed rule change is available 
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 these 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 aspects of such 
statements.

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

1. Purpose
    The purpose of this rule change is to amend CBOE Rule 8.4 relating 
to Remote Market-Maker (``RMM'') appointments. CBOE Rule 8.4 provides 
that RMMs will have a Virtual Trading Crowd (``VTC'') Appointment, 
which confers the right to quote electronically in a certain number of 
products selected from various ``Tiers''. There are five Tiers (Tiers 
A, B, C, D, and E) that are structured according to trading volume 
statistics, and an ``A+'' Tier which consists of five option classes--
options on Standard & Poor's Depositary Receipts, options on the 
Nasdaq-100 Index Tracking Stock, options on Diamonds, reduced value 
options on the Standard & Poor's 500 Stock Index, and options based on 
The Dow Jones Industrial Average. CBOE Rule 8.4(d) assigns 
``appointment costs'' to Hybrid 2.0 Classes based on the Tier in which 
they are located, and an RMM may select for each Exchange membership it 
owns or leases any combination of products trading on the Hybrid 2.0 
Platform whose aggregate ``appointment cost'' does not exceed 1.0.
    CBOE proposes to make the following changes to the Tiers. CBOE 
proposes to remove from the A+ Tier reduced value options on the 
Standard & Poor's 500 Stock Index (XSP). Going forward, XSP options 
would fall within one of the remaining Tiers A through E depending on 
its trading volume. As a result of this change, the appointment cost 
for XSP options would be reduced from .25 to the appointment cost for 
whichever Tier (A through E) it is assigned.
    CBOE also proposes to make two changes to the non-A+ Tiers. First, 
CBOE proposes to lower the appointment costs for Tiers B, C, D, and E 
as follows (the costs for Tiers A and A+ remain the same):

------------------------------------------------------------------------
                                                Existing         New
                   Tiers                      appointment    appointment
                                                  cost          cost
------------------------------------------------------------------------
B..........................................          .0667           .05
C..........................................          .05             .04
D..........................................          .04             .02
E..........................................          .033            .01
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    CBOE believes that the above new appointment costs for Tiers B, C, 
D, and E, are more appropriate for each of these four Tiers which would 
effectively lower an RMM's cost to access CBOE's marketplace and 
receive an appointment in multiple Hybrid 2.0 Classes. Moreover, these 
revised appointment costs are more competitive with the access costs at 
other options exchanges to hold an appointment as a market-maker in 
multiple option classes.
    Second, CBOE proposes to amend the composition of the five non-A+ 
Tiers, in connection with CBOE's determination to increase the total 
number of option classes traded on the Hybrid 2.0 Platform from 
approximately 605 to 905. When CBOE launched its RMM program in March 
2005, it initially designated as Hybrid 2.0 Classes the 602 most 
actively traded, multiply listed option classes. CBOE also advised its 
members that it may designate additional classes as Hybrid 2.0 Classes 
as conditions warrant. Increasing the total number of Hybrid 2.0 
Classes to 905 would increase competition and liquidity in these option 
classes by allowing RMMs to have an appointment in them, and would 
provide RMMs with additional trading opportunities.
    As noted above, Tiers A through E are structured according to 
trading volume statistics, with Tier A consisting of the 20% most 
actively-traded Hybrid 2.0 Classes over the preceding three calendar 
months, (excluding ``A+'' Tier products), Tier B consisting of the next 
20% most actively-traded products, etc., through Tier E, which consists 
of the 20% least actively-traded Hybrid 2.0 Classes. Currently, there 
are approximately 605 option classes traded on the Hybrid 2.0 Platform. 
Tiers A through E thus each consist of approximately 120 Hybrid 2.0 
Classes.
    CBOE proposes to amend the composition of Tiers A through E as 
follows:

[[Page 26153]]

------------------------------------------------------------------------
      Tiers         Current tier composition      New tier composition
------------------------------------------------------------------------
A................  20% Most Active Hybrid 2.0  Hybrid 2.0 Classes 1-60.
                    Classes (Classes 1-120).
B................  Next 20% Most Active        Hybrid 2.0 Classes 61-
                    Hybrid 2.0 Classes          120.
                    (Classes 121-240).
C................  Next 20% Most Active        Hybrid 2.0 Classes 121-
                    Hybrid 2.0 Classes          345.
                    (Classes 241-360).
D................  Next 20% Most Active        Hybrid 2.0 Classes 346-
                    Hybrid 2.0 Classes          570.
                    (Classes 361-480).
E................  Next 20% Most Active        All Remaining Hybrid 2.0
                    Hybrid 2.0 Classes          Classes.\5\
                    (Classes 481-600).
------------------------------------------------------------------------

    CBOE believes that these new Tier compositions more accurately 
reflect the appropriate appointment costs for the classes located in 
them, based on the average daily trading volume for these classes.
2. Statutory Basis
    The Exchange 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.\6\ Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) of the 
Act,\7\ which requires that the rules of an exchange be designed to 
promote just and equitable principles of trade, to prevent fraudulent 
and manipulative acts and, in general, to protect investors and the 
public interest.
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    \5\ CBOE will publish periodically to its members via 
Information Circular the total number of option classes traded on 
the Hybrid 2.0 Platform.
    \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

    CBOE does not believe that the proposed rule change will impose any 
burden on competition 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) of the Act \8\ and subparagraph (f)(6) of Rule 19b-4 
\9\ thereunder because it does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; (iii) become operative for 30 days 
from the date on which it was filed, or such shorter time as the 
Commission may designate; and the Exchange has given the Commission 
written notice of its intention to file the proposed rule change at 
least five business days prior to filing. At any time within 60 days of 
the filing of such proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
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    Under Rule 19b-4(f)(6) of the Act,\10\ the proposal does not become 
operative for 30 days after the date of its filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest. The Exchange has requested that 
the Commission waive the 30-day operative date, so that the proposal 
may take effect upon filing. The proposal lowers the appointment costs 
for Tiers B, C, D, and E, and changes the composition of the five non-
A+ Tiers to reflect the designation of additional Hybrid 2.0 classes. 
The Exchange believes that the proposed rule change does not raise any 
new regulatory issues and promotes competition by reducing the access 
costs of trading in multiple options classes as an RMM. The Commission 
agrees and, consistent with the protection of investors and the public 
interest, has determined to waive the 30-day operative date so that the 
proposal may take effect upon filing.
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    \10\ 17 CFR 240.19b-4(f)(6).
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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-2006-37 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-2006-37. 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 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-2006-37 and should be 
submitted on or before May 24, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-6659 Filed 5-2-06; 8:45 am]

BILLING CODE 8010-01-P