Document ID: SEC-2005-0460-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2005-12-29T05:00Z

[Federal Register: December 29, 2005 (Volume 70, Number 249)]
[Notices]               
[Page 77211-77213]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29de05-103]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53008; File No. SR-CBOE-2005-95]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Complex Orders on the Hybrid System

December 22, 2005.
    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 December 19, 2005, 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 CBOE has filed this proposal pursuant to Section 19(b)(3)(A)(iii) 
of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the 
proposal effective upon filing with the Commission.\5\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \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).
    \5\ The CBOE has requested that the Commission waive the 30-day 
operative delay, as specified in Rule 19b-4(f)(6)(iii). 17 CFR 
240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend CBOE Rule 6.53C, ``Complex Orders on the 
Hybrid System,'' to better describe the routing of complex orders and 
to include orders from Market-Makers and specialists on an options 
exchange as additional order categories eligible to be routed to the 
Hybrid System complex order book (``COB'') from PAR workstations or 
directly to the COB. The text of the proposed rule change is available 
on the Exchange's Web site (http://www.cboe.com), 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 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 Commission recently approved CBOE Rule 6.53C, which sets forth 
the procedures used to trade complex orders on the CBOE's COB 
system.\6\ Currently, CBOE Rule 6.53C provides that the appropriate 
Exchange committee may determine whether to allow complex orders to 
route to PAR or to the COB and whether to allow

[[Page 77212]]

complex orders from non-broker-dealer public customers and from broker-
dealers that are not Market-Makers or specialists on an options 
exchange to route from PAR workstations to the COB.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 51271 (February 28, 
2005), 70 FR 10712 (March 4, 2005) (order approving File No. SR-
CBOE-2004-45).
---------------------------------------------------------------------------

    The CBOE proposes to amend CBOE Rule 6.53C to better describe the 
routing of complex orders. The CBOE intended at all times and built its 
COB in such a way that, depending on committee determination, complex 
orders could be routed directly to the COB (which facilitates more 
automated handling of complex orders), to the PAR workstation (where 
complex orders are announced to the trading crowd and are traded in 
open outcry), and/or from the PAR workstation to the COB.\7\ 
Accordingly, the revised rule more clearly states the routing 
alternatives for complex orders.
---------------------------------------------------------------------------

    \7\ The appropriate committee may determine that more than one 
of these routing alternatives is available. Thus, for example, if 
the appropriate committee determines that the routing alternatives 
available for public customer complex orders in a particular class 
are to: (i) Route directly to the COB, (ii) route to PAR, and (iii) 
route from PAR to the COB, a member representing a public customer 
complex order could elect whether to route that order directly to 
the COB or to a PAR workstation and, if routed to a PAR workstation, 
whether the order would be represented in open outcry or routed from 
the PAR workstation to the COB for electronic handling.
---------------------------------------------------------------------------

    The CBOE also proposes to include orders from Market-Makers and 
specialists on an options exchange as additional order categories that 
are eligible to be entered in the COB. As part of the original CBOE 
Rule 6.53C proposal and text, the CBOE never intended to route these 
types of orders to the COB (either directly to the COB or from PAR to 
the COB). Instead, the CBOE intended that such orders would be routed 
to PAR workstations for handling. However, the CBOE is now proposing to 
make these orders eligible for entry into the COB, subject to committee 
determination. The CBOE also proposes to make corresponding changes to 
the rule text to clarify that, in addition to routing to PAR 
workstations, as determined by the appropriate Exchange committee, such 
orders would be eligible for routing from PAR workstations to the COB 
and/or routing to the COB directly.
2. Statutory Basis
    The CBOE believes the proposed rule change is consistent with the 
Act \8\ 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.\9\ Specifically, the Exchange believes the 
proposed rule change is consistent with Section 6(b)(5) \10\ in that it 
is designed to facilitate transactions in securities, to promote just 
and equitable principles of trade, to enhance competition and to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78a et seq.
    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The 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

    The Exchange has designated the proposed rule change as one that: 
(i) Does not significantly affect the protection of investors or the 
public interest; (ii) does not impose any significant burden on 
competition; and (iii) does not become operative for 30 days from the 
date of filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. In 
addition, as required under rule 19b-4(f)(6)(iii),\11\ the CBOE 
provided the Commission with written notice of its intention 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 
filing the proposal with the Commission. Therefore, the foregoing rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\12\ and Rule 19b-4(f)(6) thereunder.\13\
---------------------------------------------------------------------------

    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    Pursuant to rule 19b-4(f)(6)(iii) under the Act, a 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 CBOE has requested 
that the Commission waive the 30-day operative delay. The CBOE believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest because the proposal 
clarifies the CBOE's existing rule and amends the rule to allow orders 
from Market Makers and options exchange specialists to be eligible for 
entry into the COB, which could facilitate more automated handling of 
complex orders and allow CBOE participants to access potentially larger 
pools of liquidity located on the CBOE.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposal clarifies the CBOE's existing rule and because 
allowing orders from Market Makers and options exchange specialists to 
be eligible for entry into the COB could facilitate the execution of 
complex orders entered into the COB.\14\ For these reasons, the 
Commission designates that the proposed rule change become operative 
immediately.
---------------------------------------------------------------------------

    \14\ For purposes of waiving the 30-day operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the 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-2005-95 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File No. SR-CBOE-2005-95. 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

[[Page 77213]]

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. 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 No. SR-CBOE-2005-95 and should be 
submitted on or before January 19, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
 [FR Doc. E5-8052 Filed 12-28-05; 8:45 am]

BILLING CODE 8010-01-P