Document ID: SEC-2009-0396-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange
Posted Date: 2009-03-24T04:00Z

[Federal Register: March 24, 2009 (Volume 74, Number 55)]
[Notices]               
[Page 12416-12417]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24mr09-136]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59585; File No. SR-CBOE-2009-017]

 
 Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to the Complex Order Book

March 17, 2009.
    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 March 13, 2009, the Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') 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 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 Rule 6.53C, Complex Orders on the 
Hybrid System, to permit conversions and reversals \5\ to be eligible 
for routing to the complex order book (``COB''). 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.
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    \5\ A conversion (reversal) order is an order involving the 
purchase (sale) of a put option and the sale (purchase) of a call 
option in equivalent units with the same strike price and expiration 
in the same underlying security, and the purchase (sale) of the 
related instrument. See Rule 6.53C(a)(9).
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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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    When the Exchange originally adopted its electronic COB rule in 
2005, the rule contained a provision related to the routing of 
conversions and reversals. Specifically, the rule provided that 
conversions and reversals will not be eligible for routing to the COB 
and that, when the Exchange determines to allow conversions and 
reversals to route to COB, it will submit to the Commission a rule 
filing pursuant to Section 19(b)(3)(A) of the Act.\6\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
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    The Exchange has enhanced its COB system functionality and has 
determined to permit conversions and reversals to be routed to COB. As 
such, as provided in the rule, this rule change is being submitted 
pursuant to Section 19(b)(3)(A) to eliminate the restriction on routing 
conversions and reversals to COB. Conversions and reversals, as well as 
any other complex orders with stock that have more than one option leg, 
will be handled by COB in the same manner as stock-option orders that 
have only one option leg with one exception.\7\
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    \7\ As a result of being eligible for COB, these complex orders 
will also be eligible for electronic auction via the complex order 
auction (``COA''), the automated improvement mechanism (``AIM'') 
and/or the solicitation auction mechanism (``AIM SAM''). See Rules 
6.53C.06, 6.74A.07 and 6.74B.01.
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    For stock-option orders that have only one option leg, the rule 
currently provides that the option leg will not be executed on the 
Hybrid System at the Exchange's best bid (offer) in that series if one 
or more public customer orders are resting at that price on the 
electronic book, unless the option leg trades with such public customer 
order(s). This COB provision is consistent with CBOE's open outcry 
priority rules for stock-option orders that have only one option 
leg.\8\ For conversions, reversals and other complex orders with stock 
that have more than one option leg, the rule text will clarify that 
this provision will apply only if there are public customer orders 
resting on the Hybrid System at the Exchange's best bid (offer) in the 
electronic book for each of the options legs of the conversion, 
reversal or stock-option order. Thus, the options legs of such an order 
would not execute on the Hybrid System at the Exchange's best bid 
(offer) if one or more public customer orders are resting at that price 
in the electronic book in each of the options legs, unless the options 
legs trade with such public customer orders. This proposed COB 
provision is consistent with CBOE's open outcry priority rules for 
stock-option orders that have more than one option leg.\9\
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    \8\ In open outcry, stock-option orders that have only one 
option leg have priority over bid (offers) of the trading crowd, but 
not over bids (offers) in the public customer limit order book. See, 
e.g., Rules 6.45A(b)(ii) and 6.45B(b)(ii).
    \9\ In open outcry, stock-option orders that have more than one 
option leg are handled in the same manner as other complex orders 
that have more than one option leg and, as such, have priority over 
equivalent bids (offers) in the individual series legs that are 
represented in the trading crowd or in the public customer limit 
order book provided at least one leg of the order betters the 
corresponding bid (offer) in the public customer limit order book by 
at least the minimum trading increment or a $0.01 increment, which 
increment shall be determined by the Exchange on a class-by-class 
basis. Id.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \10\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \11\ in particular in that it is designed 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. 
In particular, the Exchange believes that the addition of conversions 
and reversals to the list of complex orders eligible for electronic 
handling under Rule 6.53C is a significant enhancement for investors

[[Page 12417]]

seeking automated handling of conversions and reversals.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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

    The Exchange neither solicited nor received comments on the 
proposal.

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

    Because the foregoing rule does not (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 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, provided that the self-regulatory organization 
has given the Commission written notice of its intent to file 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 proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) 
thereunder.\13\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). The CBOE satisfied the requirement 
under Rule 19b-4(f)(6)(iii) that the CBOE give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change.
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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-2009-017 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-2009-017. 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, 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 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-2009-017 and should be submitted on or before April 14, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-6404 Filed 3-23-09; 8:45 am]

BILLING CODE 8010-01-P