Document ID: SEC-2009-1177-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Related to Market-Maker Orders
Posted Date: 2009-08-19T04:00Z

[Federal Register: August 19, 2009 (Volume 74, Number 159)]
[Notices]               
[Page 41953-41955]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19au09-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60491; File No. SR-CBOE-2009-057]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Related to 
Market-Maker Orders

August 12, 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 August 10, 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, 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)(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 is proposing to eliminate an order identification rule 
for Market-Maker and Specialist orders. The text of the proposed rule 
change is available on the Exchange's Web site (http://www.cboe.org/
Legal), 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 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
    Rule 6.73(d) currently provides that a Floor Broker holding an 
order for the account of a Market-Maker or Specialist shall verbally 
identify the order as such

[[Page 41954]]

in open outcry prior to requesting a quote. The rule was originally 
adopted in 2002 to ensure that Market-Maker and Specialist orders are 
not inadvertently represented as public customer orders, which receive 
preferential treatment in certain instances under CBOE Rules.\3\
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    \3\ See Securities Exchange Act Release No. 46102 (June 21, 
2002), 67 FR 43692 (June 28, 2002) (SR-CBOE-2002-33) (immediately 
effective rule change relating to the identification of Market-Maker 
and Specialist orders).
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    When the rule was adopted, CBOE noted that orders submitted 
electronically are required to contain an account origin code. An 
origin code identifies the type of order such that CBOE can route it to 
the proper location. For example, ``C'' orders represent public 
customer orders. At that time, ``C'' orders were eligible for routing 
to the Retail Automatic Execution System (``RAES''), which CBOE no 
longer utilizes. In addition, only ``C'' orders were eligible for entry 
into the limit order book when RAES was utilized, and public customer 
orders resting in the limit order book had priority over other bids and 
offers represented in the trading crowd at the same price. ``M'' 
orders, on the other hand, indicate the order emanates from a CBOE 
Market-Maker. ``M'' orders were not eligible for routing to RAES or for 
entry into the limit order book when RAES was in use and instead were 
routed to a crowd printer.\4\ Origin codes also assisted, and continue 
to assist, CBOE and The Options Clearing Corporation in the clearing of 
trades.
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    \4\ When RAES was utilized, the Exchange had also determined 
that clearing firm and broker-dealer orders utilizing origin codes 
``F'' and ``B'' (but not Market-Makers or Specialist orders) were 
allowed to access RAES for automatic executions, but such broker-
dealer orders could not be placed in the limit order book.
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    The 2002 rule change simply extended the origin code requirement to 
the open outcry environment by requiring Market-Maker and Specialist 
orders to be verbally identified as such. The premise was that 
requiring the identification of the orders as Market-Maker or 
Specialist orders would reduce the likelihood that such orders would be 
inadvertently treated as public customer orders.
    The Exchange is proposing to eliminate this requirement as it is 
superfluous and unnecessary. First, as indicated above, the requirement 
to verbally identify Market-Maker and Specialist orders was introduced 
as an added requirement beyond the order marking requirement so that 
such orders would not be inadvertently represented as public customer 
orders on the RAES trading platform. However, the preferential 
treatment afforded to public customer orders was system enforced 
through the order marking requirement and, therefore, the requirement 
to verbally identify such orders was superfluous and unnecessary. 
Second, as indicated above, the Exchange no longer utilizes the RAES 
trading platform for which the order identification procedure was 
introduced. Instead CBOE utilizes the Hybrid Trading System, which 
permits public customer, Market-Maker, Specialist and other types of 
broker-dealer orders to be routed for automatic execution and to rest 
in a consolidated electronic book. Public customer orders resting in 
the consolidated electronic book do generally continue to have priority 
over other bids and offers at the same price when utilizing the Hybrid 
Trading System, however, this priority is system enforced for 
electronic transactions. For open outcry transactions, members are able 
to distinguish public customer orders in the consolidated electronic 
book because they are separately displayed through a public customer 
limit order book. Thus, the Market-Maker and Specialist verbal order 
identification requirement continues to be superfluous and unnecessary 
for the Hybrid Trading System. Third, the Exchange also notes that the 
CBOE Rules do not require the verbal identification of other order 
types, such as clearing firm and broker-dealer orders, in open outcry 
and the Exchange no longer believes it is necessary to single out and 
verbally identify Market-Maker and Specialist orders in open outcry 
either.
    The Exchange notes that this rule change simply eliminates the 
requirement to verbally identify Market-Maker and Specialist orders in 
open outcry. Orders will continue to be required to contain an account 
origin code that identifies the type of order (e.g., an origin code of 
``M'' is still used for Market-Maker orders).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \5\ and the rules and regulations thereunder 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) \7\ requirements that the rules of 
an exchange be designed to promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest. In particular, by proposing to eliminate Rule 
6.73(d) and its requirement to verbally identify Market-Maker and 
Specialist orders, which the Exchange as [sic] determined to be 
superfluous and unnecessary, the Exchange believes the proposed rule 
change should serve to remove an unnecessary burden and simplify the 
administration of its rules, while also maintaining other existing 
procedures that would reduce the likelihood that such orders would be 
inadvertently treated as public customer orders.
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    \5\ 15 U.S.C. 78s(b)(1).
    \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

    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

[[Page 41955]]

Number SR-CBOE-2009-057 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-2009-057. 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 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-2009-057 and should be 
submitted on or before September 9, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-19893 Filed 8-18-09; 8:45 am]

BILLING CODE 8010-01-P