Document ID: SEC-2009-0246-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2009-02-24T05:00Z

[Federal Register: February 24, 2009 (Volume 74, Number 35)]
[Notices]               
[Page 8296-8298]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24fe09-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59406; File No. SR-CBOE-2009-006]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend CBOE Rules Relating to DPMs and LMMs

February 13, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 11, 2009, the Chicago Board Options Exchange, 
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities 
and Exchange Commission (the ``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

    The Exchange proposes to amend CBOE rules relating to relating to 
[sic] DPMs and LMMs. The text of the proposed rule change is available 
on the Exchange's Web site (http://www.cboe.org/Legal), at the 
Exchange's Office of the Secretary, and at the Commission's Public 
Reference Room.

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 self-regulatory organization 
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 those 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 parts of such statements.

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

1. Purpose
    DPMs are member organizations that function in option classes 
allocated to them as a Market-Maker, and also are subject to the 
obligations under Rule 8.85 or as otherwise provided in CBOE's Rules. 
LMMs, similarly, function in option classes allocated to them as a 
Market-Maker, and also are subject to other obligations under Rule 
8.15A (for Hybrid classes) or as otherwise provided in CBOE's Rules. 
Recently, CBOE amended its rules to provide DPMs with the flexibility 
to operate remotely away from CBOE's trading floor as a so-called 
``Off-Floor DPM.'' (See, e.g., Rules 8.80 and 8.83.) The purpose of 
this rule filing is to amend CBOE's rules to provide that CBOE in its 
discretion may appoint an ``On-Floor LMM'' in option classes in which 
an ``Off-Floor DPM'' is appointed. Although CBOE does not believe it is 
necessary for an On-Floor LMM to be appointed in each option class in 
which an ``Off-Floor DPM'' is appointed, CBOE believes that having an 
On-Floor LMM in an option class in which an Off-Floor DPM has been 
appointed provides additional flexibility and may be beneficial.
    In connection with this change, CBOE also proposes to amend its 
rules relating to the obligations of LMMs and LMM participation 
entitlements, in option classes in which both an On-Floor LMM and an 
Off-Floor DPM have been appointed. First, CBOE proposes to amend 
paragraph (b)(i) of Rule 8.15A to provide that in option classes in 
which both an On-Floor LMM and an Off-Floor DPM have been appointed, 
the On-Floor LMM shall be obligated to comply with the quoting 
obligations of Market-Makers in Hybrid classes as set forth in Rule 
8.7(d). These obligations generally include a continuous open outcry 
quoting obligation and the obligation to continuously quote 
electronically in 60% of the series with less than nine months to 
expiration of each allocated class. The Off-Floor DPM would continue to 
be required to meet the continuous electronic quoting obligation set 
forth in Rule 8.85(a)(i), namely, to continuously quote in at least 90% 
of the series of each multiply-listed option class allocated to it and 
in 100% of the series of each singly-listed option class allocated to 
it. CBOE does not believe it is necessary to require the On-Floor LMM 
to satisfy the more extensive electronic quoting obligation of DPMs 
given that the Off-Floor DPM will be performing this function and the 
On-Floor LMM will not be eligible to receive a participation 
entitlement for transactions executed electronically. (See Rule 
8.15B(b).)
    CBOE also proposes to amend paragraphs (b)(iv) and (b)(vi) of Rule 
8.15A to provide that the obligations set forth therein will be 
assigned to the Off-Floor DPM in those option classes in which both an 
On-Floor LMM and an Off-Floor DPM have been appointed. CBOE believes 
that it is appropriate that these two obligations, which pertain to the 
prompt initiation of an opening trading rotation and the use of a DPM's 
account for Linkage, be the responsibility of the Off-Floor DPM given 
that it will have the principal electronic quoting obligation in the 
option class and will be eligible to receive a participation 
entitlement for electronic transactions.
    CBOE also proposes to amend Rule 8.15A and Rule 8.15B to provide 
that in option classes in which both an On-Floor LMM and an Off-Floor 
DPM have been appointed, the On-Floor LMM may receive a participation 
entitlement with respect to orders represented in open

[[Page 8297]]

outcry on CBOE's trading floor. CBOE believes that it is appropriate 
for the On-Floor LMM to receive a participation entitlement for orders 
represented in open outcry given that the On-Floor LMM will have a 
continuous open outcry quoting obligation,\5\ is expected to be 
continually present at the trading station and resolve disputes 
relating to transactions in the option classes in which the LMM is 
appointed, make competitive open outcry markets, and promote CBOE in a 
manner likely to enhance CBOE's ability to compete successfully for 
order flow in the classes it trades, among other obligations. CBOE 
notes that its rules currently provide that an Off-Floor DPM shall not 
receive a participation entitlement with respect to orders represented 
in open outcry on CBOE's trading floor, so it is reasonable for an On-
Floor LMM to receive an entitlement for open outcry transactions given 
its obligations including the continuous open outcry quoting 
obligation.
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    \5\ Rule 8.7(d) provides that Market-Makers have a continuous 
open outcry quoting obligation. Specifically, it states ``in 
response to any request for quote by a floor broker, in-crowd 
Market-Makers must provide a two-sided market complying with the 
quote width requirements contained in Rule 8.7(b)(iv) for a minimum 
number of contracts determined by the Exchange on a class by class 
basis, which minimum shall be at least one contract and which 
minimum can vary for non-broker-dealer orders and broker-dealer 
orders.''
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    Finally, CBOE notes that the provisions of Rule 8.15A not being 
amended by this proposed rule change will continue to apply to the On-
Floor LMM that is appointed in option classes in which an Off-Floor DPM 
is appointed. For example, the On-Floor LMM will continue to be 
obligated to honor its displayed quotations (See Rule 8.15A(b)(ii)); 
perform these obligations for a period of one expiration cycle (See 
Rule 8.15A(b)(iii)); respond to open outcry requests for quotes by a 
floor broker (See Rule 8.15A(b)(v)); and maintain information barriers 
that are reasonably designed to prevent the misuse of material, non-
public information with any affiliates that conduct a brokerage 
operation in classes allocated to the On-Floor LMM or act as a 
specialist or Market-Maker in any security underlying options allocated 
to the LMM, and otherwise comply with the requirements of Rule 4.18 
regarding the misuse of material, non-public information (See Rule 
8.15A(b)(vii)).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (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. 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) Act \6\ requirements that the rules 
of an exchange be designed to promote just and equitable principles of 
trade, in that allowing CBOE to appoint an On-Floor LMM in an option 
class in which an Off-Floor DPM has been appointed provides additional 
flexibility and, therefore, could be beneficial and contribute to the 
maintenance of a fair and orderly market.
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    \6\ 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 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 neither solicited nor received comments on the 
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6)(iii) thereunder.\10\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the Exchange to give the Commission written 
notice of the Exchange's intent to file the proposed rule change 
along with a brief description and the text of the proposed rule 
change, at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied the pre-filing requirement.
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    At any time within 60 days of the filing of the 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.

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-2009-006 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2009-006. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-2009-006 and should be submitted on or before March 17, 2009.

[[Page 8298]]

    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. E9-3861 Filed 2-23-09; 8:45 am]

BILLING CODE 8011-01-P