Document ID: SEC-2008-1138-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-08-15T04:00Z

[Federal Register: August 15, 2008 (Volume 73, Number 159)]
[Notices]               
[Page 47988-47990]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15au08-98]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58327; File No. SR-CBOE-2008-09]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Amendment No. 2 and Order Granting 
Accelerated Approval to Proposed Rule Change, as Modified by Amendment 
No. 2, Establishing a Voluntary Professional Designation

August 7, 2008.
    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 January 18, 2008, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I and II below, which Items have been prepared substantially by 
the Exchange. The proposed rule change was published for comment in the 
Federal Register on February 1, 2008.\3\ On February 15, 2008, the 
Commission received a comment letter on the proposal.\4\ On July 8, 
2008, the Exchange filed Amendment No. 2 to the proposal.\5\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment No. 2, from interested 
persons. For the reasons discussed below, the Commission is granting 
accelerated approval of the proposed rule change as modified.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57256 (February 1, 
2008), 73 FR 7338 (February 7, 2008).
    \4\ See letter from Andrea Schneider to Florence E. Harmon, 
Acting Secretary, Commission, dated February 15, 2008 (``Schneider 
Letter'').
    \5\ According to the Exchange, the purpose of Amendment No. 2 is 
to add a more complete list of Exchange rules for which the 
Voluntary Professional designation would apply, and to provide that 
the Voluntary Professional designation would not be available in 
Hybrid 3.0 classes. The Commission received notice of the withdrawal 
of Amendment No. 1 on July 2, 2008.
---------------------------------------------------------------------------

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

    The Exchange proposes to adopt a ``Voluntary Professional'' 
designation. 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, CBOE 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 III below. CBOE 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to allow non-broker-dealer customers to 
voluntarily have their orders categorized as broker-dealer orders for 
order handling, order execution, and cancel fee calculation purposes. 
Specifically, these orders would be treated as broker-dealer orders for 
purposes of Rules 6.2A (Rapid Opening System); 6.2B (Hybrid Opening 
System); 6.9 (Solicited Transactions); 6.13A (Simple Auction Liaison); 
6.45 (Priority of Bids and Offers--Allocation of Trades); 6.13B (Penny 
Price Improvement); 6.45A (Priority and Allocation of Equity Option 
Trades on the CBOE Hybrid System) (except that Voluntary Professional 
orders may be considered public customer orders, and therefore not be 
subject to the exposure requirements for solicited broker-dealer 
orders, under Interpretation and Policy.02); 6.45B (Priority and 
Allocation of Trades in Index Options and Options on ETFs on the CBOE 
Hybrid System) (except that Voluntary Professional orders may be 
considered public customer orders, and therefore not be subject to the 
exposure requirements for solicited broker-dealer orders, under 
Interpretation and Policy.02); 6.53C(c)(ii) and (d)(v) and 6.53C.06(b)-
(c) (Complex Orders on the Hybrid System); 6.74 (Crossing Orders) 
(except that Voluntary Professional orders may be considered public

[[Page 47989]]

customer orders subject to facilitation under paragraphs (b) and (d)); 
6.74A (Automated Improvement Mechanism) (except that Voluntary 
Professional orders may be considered customer Agency Orders or 
solicited orders eligible for customer-to-customer immediate crosses 
under Interpretation and Policy.09); 6.74B (Solicitation Auction 
Mechanism); 8.13 (Preferred Market-Maker Program); 8.15B (Participation 
Entitlement of LMMs); 8.87 (Participation Entitlement of DPMs and e-
DPMs); 24.19 (Multi-Class Broad-Based Index Option Spread Orders); 43.1 
(Matching Algorithm/Priority); 44.4 (Obligations of SBT Market-Makers); 
and 44.14 (SBT DPM Obligations). Lastly, the Voluntary Professional 
designation would not be available in Hybrid 3.0 classes.
    Some Exchange users have requested the flexibility to voluntarily 
designate their orders as broker-dealer orders because it is more 
suitable to their trading strategies, which involve high-volume order 
submission and cancellation. Except as noted above, the orders of these 
Voluntary Professionals would participate in trades on the same terms 
as broker-dealer orders for purposes of the rules set forth above. 
Orders from Voluntary Professionals would continue to be treated as 
public customer orders for purposes of the linkage-related rules.
    With respect to linkage-related rules, CBOE states that it would 
provide the same away-market protection for orders from Voluntary 
Professionals as for orders from public customers. In addition, orders 
from Voluntary Professionals that are cancelled would not be counted as 
public customer order cancellations in connection with the cancellation 
fee charged to clearing members. It is expected that member firms 
seeking to facilitate customer use of this new designation would mark 
these orders with a new origin code to be provided by the Exchange. The 
Exchange intends to establish, in a separate rule filing under Section 
19(b) of the Act, a transaction fee applicable to Voluntary 
Professionals and the Exchange would not commence the Voluntary 
Professional program until such fee was in place.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general and furthers the objectives of 
Section 6(b)(5) of the Act \6\ in particular in that it is designed to 
promote just and equitable principles of trade, serve to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and protect investors and the public 
interest.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 did not solicit or receive written comments with 
respect to the proposed rule change.

III. 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-2008-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2008-09. 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 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-CBOE-2008-09 and should be 
submitted on or before September 5, 2008.

IV. Commission Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange and, in 
particular, the requirements of Section 6(b)(5) of the Act, which 
requires that the rules of a national securities exchange, among other 
things, be designed to promote just and equitable principles of trade, 
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; and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.\7\ The 
Commission notes that it recently approved a substantially similar 
proposal by the International Securities Exchange, LLC (``ISE'') to 
create a Voluntary Professional category.\8\ The grounds upon which the 
Commission based its approval of the ISE proposal apply equally to the 
CBOE proposal.
---------------------------------------------------------------------------

    \7\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \8\ See Securities Exchange Act Release No. 57553 (March 25, 
2008), 73 FR 16916 (March 31, 2008) (SR-ISE-2007-76).
---------------------------------------------------------------------------

    Under the proposed rule change, a public customer could elect to be 
designated as a Voluntary Professional. One of the consequences of 
electing this designation is that a customer's orders no longer would 
be subject to CBOE's cancellation fees. Thus, choosing to become a 
Voluntary Professional could represent significant savings for a public 
customer whose trading strategy involves placing, and then cancelling, 
orders frequently.
    By electing to become a Voluntary Professional, a public customer 
would also cede priority rights normally granted to public customer 
orders. Importantly, however, this result is determined solely by the 
choice of the

[[Page 47990]]

customer, and may be rescinded at a customer's election.
    The commenter questioned how the proposed rule change would benefit 
public customers.\9\ The commenter maintained that if CBOE is willing 
to forgive its cancellation fees, ``then * * * there was never a 
problem with cancels from public customers but only [the Exchange] 
trying to concentrate power and punish the public customer.'' The 
Commission is not today considering CBOE's cancellation fee.\10\ 
Instead, the Commission is approving a proposed rule change that would 
give public customers more flexibility in how they participate in 
CBOE's marketplace. In sum, the Commission believes that the proposed 
rule change would provide an additional choice to public customers.
---------------------------------------------------------------------------

    \9\ See Schneider Letter, supra note 4.
    \10\ See Securities Exchange Act Release No. 44607 (July 27, 
2001), 66 FR 40757 (August 3, 2001) (SR-CBOE-2001-40) (establishing 
the CBOE Order Routing System cancellation fee).
---------------------------------------------------------------------------

    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. The Commission 
believes that accelerated approval of the Exchange's proposal relating 
to Voluntary Professionals is appropriate because it is similar to an 
ISE rule that recently was approved by the Commission.\11\ The 
Commission believes that CBOE's proposal does not raise any new issues 
that were not considered by the Commission in connection with the ISE 
proposal.
---------------------------------------------------------------------------

    \11\ See supra note 8.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-CBOE-2008-09), as modified by 
Amendment No. 2, be, and hereby is, approved on an accelerated basis.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

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

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18895 Filed 8-14-08; 8:45 am]

BILLING CODE 8010-01-P