Document ID: SEC-2007-1152-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: CBOE Futures Exchange,  LLC
Posted Date: 2007-08-17T04:00Z

[Federal Register: August 17, 2007 (Volume 72, Number 159)]
[Notices]               
[Page 46255-46257]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17au07-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56241; File No. SR-CFE-2007-01]

 
Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to Block Trading

August 13, 2007.
    Pursuant to section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-7 under the Act,\2\ notice is hereby given 
that on July 31, 2007, CBOE Futures Exchange, LLC (``CFE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change described in Items 
I, II, and III below, which Items have been substantially prepared by 
CFE. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons. CFE also filed the 
proposed rule change with the Commodity Futures Trading Commission 
(``CFTC''), together with a written certification under Section 5c(c) 
of the Commodity Exchange Act (``CEA'') \3\ on July 30, 2007.
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
    \3\ 7 U.S.C. 7a-2(c).
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    The Exchange proposes to amend CFE Rule 415, which governs Block 
Trading, to further describe: (a) The specific conditions under which 
it is permissible to aggregate orders for different accounts in order 
to satisfy minimum Block Trade size requirements, (b) the factors to be 
considered in determining whether the price of a Block Trade is ``fair 
and reasonable,'' and (c) certain aspects relating to CFE's review of 
Block Trades. Although Rule 415 and these proposed rule amendments are 
applicable to all of CFE's products, CFE is submitting this proposed 
rule change to the Commission solely with respect to its applicability 
to any security futures that may be listed for trading on CFE. The text 
of the proposed rule change is available at CFE, the Commission's 
Public Reference Room, and http://cfe.cboe.com/aboutcfe/.

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
    First, CFE is proposing to amend CFE Rule 415(a)(i) to further 
specify the conditions under which it is permissible to aggregate 
orders for different accounts in order to satisfy minimum Block Trade 
size requirements. For each futures contract traded on CFE, there is a 
separate rule chapter that governs the relevant contract and which sets 
forth, among other things, the minimum Block Trade quantity for that 
contract. Rule 415(a)(i) currently permits three classes of persons 
(hereinafter, ``permissible persons'') to aggregate orders for 
different accounts in order to meet the designated minimum Block Trade 
quantity.\4\ CFE proposes amending Rule 415(a)(i) to specify that a 
permissible person may only aggregate accounts that are under the 
management or control of that permissible person in order to satisfy 
the designated Block Trade size requirement. CFE also proposes to amend 
the rule to explicitly state that, other than as described above, 
orders for different accounts may not be aggregated to satisfy Block 
Trade size requirements. The aggregation allowance in Rule 415(a)(i) 
was intended as a narrow exception and was made available so that 
permissible persons who used the same strategy for different accounts 
under their same management could receive the same treatment. CFE 
believes that the addition of the proposed language more clearly sets 
forth the original intent of the aggregation allowance in Rule 
415(a)(i).
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    \4\ The three permissible persons identified in CFE Rule 415 are 
(1) a commodity trading advisor registered under the CEA, (2) an 
investment adviser registered as such with the SEC that is exempt 
from regulation under the CEA and CFTC Regulations thereunder, or 
(3) any person authorized to perform functions similar or equivalent 
to those of a commodity trading advisor in any jurisdiction outside 
the United States of America, in each case with total assets under 
management exceeding US$25 million.
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    CFE additionally proposes to amend Rule 415(a)(i) to provide that 
if a Block Trade is executed as a spread or combination, each leg of 
the order must meet the designated minimum size set forth in the rule 
chapter governing the relevant futures contract. Currently, every rule 
chapter specifies that one leg must meet the minimum Block Trade 
quantity for that contract (which is currently 100 contracts for each 
CFE futures contract) and the other leg(s) must have a contract size 
that is reasonably related to the leg meeting the

[[Page 46256]]

minimum Block Trade quantity. By amending Rule 415(a)(i) to refer to 
the required size of each leg of the order instead of to the total 
quantity of the legs (as is currently the case), the Rule will mesh 
better with the provisions of these rule chapters.
    Second, CFE is proposing to add new sub-paragraph (b) to Rule 415 
to set forth the factors to be considered in determining whether the 
price of a Block Trade is ``fair and reasonable.'' Specifically, CFE 
proposes to move the four factors already codified in sub-paragraph (c) 
of Rule 415 and to add two new factors to be considered. The existing 
four factors are: (1) The size of the Block Trade; (2) the prices and 
sizes of transactions in the same contract at the relevant time; (3) 
the prices and sizes of transactions in other relevant markets, 
including without limitation the underlying cash and futures markets, 
at the relevant time; and (4) the circumstances of the parties to the 
Block Trade. CFE proposes adding two new factors, which are: (1) Prices 
and sizes of resting book orders on the Exchange or other relevant 
markets; and (2) whether the Block Trade is executed as a spread or 
combination.
    CFE also proposes amending Rule 415(b) to provide that the 
foregoing ``guidelines apply in determining whether the execution price 
of a Block Trade that is not executed as a spread or combination is 
`fair and reasonable.' These guidelines are general and may not be 
applicable in each instance. Whether the execution price of a Block 
Trade is `fair and reasonable' depends upon the particular facts and 
circumstances. In the event the quantity present in the order book is 
greater or equal to the quantity needed to fill an order of the size of 
the Block Trade, it would generally be expected that the Block Trade 
price would be better than the price present in the order book. In the 
event the quantity present in the order book is less than the quantity 
needed to fill an order of the size of the Block Trade, it would 
generally be expected that the Block Trade price would be relatively 
close to the price present in the order book and that the amount of the 
differential between the two prices would be smaller to the extent that 
the differential between the quantity present in the order book and the 
Block Trade quantity is smaller.'' CFE believes that these general 
guidelines will help market participants by providing them with 
additional guidance regarding when the price of a Block Trade is 
considered ``fair and reasonable.''
    Third, CFE is proposing to add new sub-paragraphs (i) and (j) to 
Rule 415 to codify pre-existing practices and aspects of CFE's review 
of Block Trades. Proposed new sub-paragraph (i) provides that the CFE 
Help Desk may review a Block Trade for compliance with the requirements 
of Rule 415 and may determine not to permit the Block Trade to be 
consummated if the Help Desk determines that the Block Trade does not 
conform with the requirements of Rule 415. Additionally, proposed new 
sub-paragraph (j) provides that (i) the posting of a Block Trade by the 
CFE Help Desk does not constitute a determination by CFE that the Block 
Trade was effected in conformity with the requirements of Rule 415, and 
(ii) a Block Trade that is posted by the CFE Help Desk which does not 
conform to the requirements of Rule 415 shall be processed and given 
effect but will be subject to appropriate disciplinary action in 
accordance with the rules of CFE. Although this reflects current CFE 
policy and practice, CFE believes it is beneficial to explicitly 
reflect it in CFE's rules.
    Lastly, the proposed rule change makes some clarifying wording 
changes to the current language of Rule 415, which are non-substantive.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \5\ in general and section 6(b)(5) of the 
Act \6\ in particular in that it provides additional detail to market 
participants regarding CFE's Block Trading requirements and thus is 
designed to prevent fraudulent and manipulative acts and practices, and 
to promote just and equitable principles of trade, and in general, to 
protect investors and the public interest.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CFE 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 proposed rule change has become effective pursuant to 
section 19(b)(7) of the Act.\7\ Within 60 days of the date of 
effectiveness of the proposed rule change, the Commission, after 
consultation with the CFTC, may summarily abrogate the proposed rule 
change and require that the proposed rule change be refiled in 
accordance with the provisions of section 19(b)(1) of the Act.\8\
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    \7\ 15 U.S.C. 78s(b)(7).
    \8\ 15 U.S.C. 78s(b)(1).
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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-CFE-2007-01 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-CFE-2007-01. 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 such filing also will be

[[Page 46257]]

available for inspection and copying at the principal office of 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-CFE-2007-01 
and should be submitted on or before September 7, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(73).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-16209 Filed 8-16-07; 8:45 am]

BILLING CODE 8010-01-P