Document ID: SEC-2006-1712-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2006-12-29T05:00Z

[Federal Register: December 29, 2006 (Volume 71, Number 250)]
[Notices]               
[Page 78481-78482]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29de06-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54987; File No. SR-CBOE-2006-107]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change Regarding a 
Permit Program for CBSX

December 20, 2006.
    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 18, 2006, 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, II and III below, which Items have been substantially prepared 
by the CBOE. 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 proposes to modify its rules relating to the 
establishment of a permit program for the Exchange's proposed stock-
trading facility CBSX. The text of the proposed rule change is 
available at CBOE, the Commission's Public Reference Room, and http://www.cboe.com
.

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 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 IV below. The 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    CBSX will be a facility of the Exchange and will serve as the 
Exchange's vehicle for trading non-option securities. The Exchange (via 
a separate rule filing) is proposing to modify Chapters 50-55 of the 
CBOE Rules in connection with the establishment of the CBSX. CBSX is a 
separate legal entity (a Delaware Limited Liability Company) that is 
owned by the Exchange and several strategic partners. The Exchange is 
also submitting a rule filing proposing to establish CBSX as a facility 
of the Exchange. The purpose of this filing is to modify the Exchange's 
Constitution and Rules to establish a CBSX Permit Program that will 
allow non-CBOE seat holders access to CBSX. The Exchange believes that 
expanding access to CBSX beyond CBOE's options user base will enhance 
liquidity on CBSX and make it a more attractive stock trading venue. 
The salient features of the Permit Program are summarized below.
     The permits may only be used for trading stock on CBSX. A 
Permit does not entitle the holder to trade options on CBOE or to 
physically enter an option trading post on the trading floor.
     Up to 100 permits may be issued.
     The Permit Program could be terminated by the Exchange via 
a rule filing approved by the Commission. This provision is 
incorporated in the Constitution so that the Permit Program could be 
terminated with a rule change filing but without a corresponding 
membership vote (i.e., in approving this Constitutional change, the 
membership is approving the notion that a future termination of the 
Permit Program could occur without another membership vote).
     Permit holders would be deemed statutory members of CBOE. 
Accordingly, they would have the same petition and voting rights as 
regular members except for matters relating to Exchange ownership 
(specifically, matters relating to demutualization, mergers, 
consolidations, dissolution, liquidation, transfer, or conversion of 
assets of the Exchange), and except matters relating the Chicago Board 
of Trade exercise right.
     Permit holders would have no interest in the assets or 
property of CBOE and would have no right to share in any distribution 
by the Exchange.
     Permit holders (or an executive officer of a Permit 
holder) would be eligible to run for an at-large director position and 
a Nominating Committee position.
     Permit holders would have to be registered broker-dealers.
     Permits would not be transferable.
     All Permits would expire every October and would be 
eligible for renewal.
    In connection with the Permit application process, if there are 
fewer available CBSX Permits than qualified applicants, the Exchange 
will determine which of the applicants to approve by lot. Applicants 
that are affiliated shall be deemed one applicant in cases where there 
are fewer available CBSX Permits than qualified applicants.
    A CBSX Permit holder and its associated persons shall comply with 
and be subject to CBOE Rules to the same extent that Exchange members 
and their associated persons are obligated to comply with and are 
subject to Exchange Rules. Further, a CBSX Permit holder and its 
associated persons shall be subject to the disciplinary, appeals, and 
arbitration jurisdiction and rules of the Exchange and entitled to the 
procedural rights under those rules to the same extent that Exchange 
members and their associated persons are subject to such jurisdiction 
and rules and entitled to such procedural rights.
    The rule filing also eliminates outdated references in the 
Constitution to the New York Stock Exchange Options Permit Program 
which no longer exists.
    Lastly, the Exchange notes that on December 14, 2006, the Exchange 
held a special meeting of the membership for purposes of voting on the 
Permit Program. The membership voted in favor of adopting the Permit 
Program.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\3\ in general, and with 
Section

[[Page 78482]]

6(b)(5) of the Act,\4\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system because it will 
expand the user base for CBSX and enhance liquidity.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is 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 any written comments on 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 Number SR-CBOE-2006-107 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE, Washington, DC 20549-1090.
    All submissions should refer to File Number SR-CBOE-2006-107. 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. Copies of such 
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-2006-107 and should be submitted on or before 
January 19, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E6-22392 Filed 12-28-06; 8:45 am]

BILLING CODE 8011-01-P