Document ID: SEC-2009-0504-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change To Amend its Rules Prohibiting Members From Functioning as Market Makers
Posted Date: 2009-04-09T04:00Z

[Federal Register: April 9, 2009 (Volume 74, Number 67)]
[Notices]               
[Page 16246-16247]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09ap09-115]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59700; File No. SR-CBOE-2009-009]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving a Proposed Rule Change To Amend its Rules 
Prohibiting Members From Functioning as Market Makers

April 2, 2009.

I. Introduction

    On February 18, 2009, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to revise CBOE Rule 6.8C to 
eliminate certain restrictions prohibiting members

[[Page 16247]]

from functioning as market makers. The proposed rule change was 
published for comment in the Federal Register on February 26, 2009.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 59425 (February 19, 
2009), 74 FR 8829.
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II. Description of the Proposal

    The Exchange proposes to amend Rule 6.8C, Prohibition Against 
Members Functioning as Market Makers, to eliminate certain of its 
restrictions. Rule 6.8C currently provides that a member, acting either 
as principal or agent, may neither enter nor permit the entry of orders 
into the Exchange's electronic order routing system if (i) the orders 
are limit orders for the account or accounts of the same beneficial 
owner(s); and (ii) the limit orders are entered in such a manner that 
the beneficial owner(s) effectively is operating as a market maker by 
holding itself out as willing to buy and sell such securities on a 
regular or continuous basis. The Exchange proposes that these 
restrictions be amended to apply only to customer orders (i.e., non-
broker-dealer orders) that are not Voluntary Professional orders.\4\ 
The restrictions would no longer be applicable to instances where a 
member is acting as principal on its own behalf or is acting as agent 
on behalf of other broker-dealer orders or Voluntary Professional 
orders. The Exchange noted that it is retaining the restriction for 
customers who are not Voluntary Professionals because such customers 
have priority at any price over the bids and offers of market makers, 
other broker-dealers, and Voluntary Professionals.
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    \4\ The term ``Voluntary Professional'' is defined in CBOE's 
rules as any person or entity that is not a broker or dealer in 
securities that elects, in writing, to be treated in the same manner 
as a broker or dealer in securities for purposes of specified rules 
relating to priority in the execution of orders, and for 
cancellation fee calculation purposes. See Rule 1.1(fff) and 
Securities Exchange Act Release No. 58327 (August 7, 2008), 73 FR 
47988 (August 15, 2008) (SR-CBOE-2008-09). As part of this proposed 
rule change, the Exchange is proposing to amend Rule 1.1(fff) to 
provide that a Voluntary Professional will be treated in the same 
manner as a broker or dealer in securities for purposes of Rule 
6.8C.
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    In addition, in those instances where its restrictions are 
applicable, Rule 6.8C currently provides that, in determining whether a 
beneficial owner effectively is operating as a market maker, the 
Exchange will consider, among other things, the simultaneous or near 
simultaneous entry of limit orders to buy and sell the same security, 
the entry of multiple limit orders at different prices in the same 
security, and the multiple acquisition and liquidation of positions in 
the security during the same day. The Exchange proposes to remove the 
last condition pertaining to the multiple acquisition and liquidation 
of positions from its list of factors used for determining whether a 
beneficial owner is operating as a market maker. The Exchange noted 
that this activity no longer should be considered as a factor in 
determining whether a beneficial owner is effectively acting as a 
market maker.

III. Discussion

    After careful review, 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 \5\ 
and, in particular, the requirements of Section 6 of the Act.\6\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\7\ in that the proposal has been designed 
to promote just and equitable principles of trade, and to protect 
investors and the public interest.
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    \5\ The Commission has considered the proposed rule change's 
impact on efficiency, competition and capital formation. 15 U.S.C. 
78c(f).
    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that it is consistent with the Act for an 
options exchange not to prohibit a user of its market from operating as 
a market maker without registering as such. The Commission previously 
approved rules at other options exchanges that do not impose such a 
prohibition,\8\ or impose such a prohibition on customers only.\9\ The 
Commission notes that while the Exchange will continue to prohibit 
customers who are not Voluntary Professionals from operating as market 
makers, those customers will continue to have priority over the bids 
and offers of market makers, other broker-dealers, and Voluntary 
Professionals.
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    \8\ See Securities Exchange Act Release No. 57478 (March 12, 
2008), 73 FR 14521 (March 18, 2008) (approving rules governing the 
trading of options on the NASDAQ Options Market).
    \9\ See Securities Exchange Act Release No. 59472 (February 27, 
2009), 74 FR 9843 (March 6, 2009) (approval of rules for the trading 
of listed options on NYSEAlternext).
    The Commission notes that any entity that acts as ``dealer,'' as 
defined in Section 3(a)(5) of the Act, 15 U.S.C. 78c(a)(5), would be 
required to register with the Commission under Section 15 of the 
Act, 15 U.S.C. 78o, and the rules and regulations thereunder, or 
qualify for any exception or exemption from registration. Activity 
that may cause a person to be deemed a dealer includes `` `quoting a 
market in or publishing quotes for securities (other than quotes on 
one side of the market on a quotations system generally available to 
non-broker-dealers, such as a retail screen broker for government 
securities).' '' See Definitions of Terms in and Specific Exemptions 
for Banks, Savings Associations, and Savings Banks Under Sections 
3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934, 
Securities Exchange Act Release No. 47364, 68 FR 8686, 8689, note 26 
(February 24, 2003) (quoting OTC Derivatives Dealers, Securities 
Exchange Act Release No. 40594 (October 23, 1998), 63 FR 59362, 
59370, note 61 (November 3, 1998)).
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    The Commission also believes that the Exchange's proposal to remove 
the condition pertaining to the multiple acquisition and liquidation of 
positions from its list of factors used for determining whether a 
beneficial owner is operating as a market maker is consistent with the 
Act. The Commission believes that the remaining factors are sufficient 
to enable the Exchange to determine whether a user of its market is 
operating as a market maker.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2009-09) is approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-8002 Filed 4-8-09; 8:45 am]

BILLING CODE 8010-01-P