Document ID: SEC-2008-0455-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations: Chicago Board Options Exchange
Posted Date: 2008-03-25T04:00Z

[Federal Register: March 25, 2008 (Volume 73, Number 58)]
[Notices]               
[Page 15805-15807]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25mr08-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57519; File No. SR-CBOE-2008-29]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Extend Two Pilot Programs

March 18, 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 March 13, 2008, 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 substantially prepared by 
the Exchange. The Exchange filed the proposed rule change pursuant to 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder, 
which renders it effective upon filing with the Commission.\4\ The

[[Page 15806]]

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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to amend its rules to extend for an additional year, 
until March 14, 2009, two existing pilot programs.
    The text of the proposed rule change is available on the CBOE's Web 
site (http://www.cboe.org/Legal), at the Exchange's Office of 
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 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 purpose of this rule change is to extend for an additional 
year, until March 14, 2009, two existing pilot programs.
    First, CBOE proposes to amend CBOE Rules 8.4(c)(i), 8.85, 8.91 and 
8.93(vii) to extend, until March 14, 2009, the pilot programs that 
allow a Remote Market Maker (``RMM''), an Off-Floor DPM, and an e-DPM 
to have up to one separate affiliated Market-Maker physically present 
in the trading crowds where it operates as an RMM, Off-Floor DPM, or e-
DPM, respectively. (Such Market-Makers would be required to trade on a 
separate membership.) \5\
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    \5\ These pilot programs previously were extended for one year 
until March 14, 2008. See Securities Exchange Act Release No. 55438 
(March 9, 2007), 72 FR 12642 (March 16, 2007) (SR-CBOE-2007-19) 
(granting immediate effectiveness to SR-CBOE-2007-19). See also 
Securities Exchange Act Release No. 55531 (March 26, 2007), 72 FR 
15736 (April 2, 2007) (SR-CBOE-2006-94) (order allowing DPM's to 
operate away from CBOE's trading floor).
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    Second, CBOE proposes to amend Rules 8.3(c)(viii) and 8.4(c)(ii) to 
extend, until March 14, 2009, the pilot program which allows a CBOE 
member or member firm to have multiple aggregation units operating as 
separate Market-Makers or RMMs within the same class, provided they 
satisfy certain criteria set forth in CBOE Rule 8.4(c)(ii)(A)-(C).\6\
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    \6\ This pilot program previously was extended for one year 
until March 14, 2008. See Securities Exchange Act Release No. 55474 
(March 15, 2007), 72 FR 13324 (March 21, 2007) (SR-CBOE-2007-20) 
(granting immediate effectiveness to SR-CBOE-2007-20).
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    CBOE initially proposed to extend these two pilot programs in its 
pending rule filing, SR-CBOE-2007-120, which filing proposes to amend 
CBOE rules relating Market-Makers and RMMs in various respects.\7\ SR-
CBOE-2007-120 has been published for comment in the Federal Register, 
and the comment period expires on March 21, 2008.\8\ Because these 
pilot programs are scheduled to expire prior to when the comment period 
expires on SR-CBOE-2007-120 and the time by when the SEC may approve 
SR-CBOE-2007-120, CBOE determined to seek a one-year extension of the 
two pilot programs in this rule filing.
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    \7\ Among other changes, SR-CBOE-2007-120 proposes to delete 
reference to RMMs in CBOE's rules, amend CBOE Rules 8.3 and 8.7 
relating to the appointment of Market-Makers and Market-Maker 
obligations, respectively, and update or delete outdated provisions 
in other rules, including CBOE Rule 8.3A relating to Class Quoting 
Limits.
    \8\ See Securities Exchange Act Release No. 57367 (February 21, 
2008), 73 FR 11168 (February 29, 2008) (SR-CBOE-2007-120).
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    As noted in SR-CBOE-2007-120, CBOE believes that both of these two 
pilot programs have been successful, and CBOE has not experienced any 
negative effects with respect to the pilot programs. Accordingly, CBOE 
believes that the proposed rule change is designed to promote just and 
equitable principles of trade, and will enhance competition and 
liquidity in the option classes in which the market participants who 
participate in the pilot programs trade.
    Finally, CBOE notes that these pilot programs were initially 
adopted, in part, due to CBOE's usage of an algorithm that allocates 
electronic trades, in whole or in part, in an equal percentage based on 
the number of market participants quoting at the best bid or offer--
specifically CBOE's ultimate matching algorithm, ``UMA.'' In January 
2008, CBOE determined to utilize a pro-rata algorithm, instead of UMA, 
as the applicable matching algorithm in all Hybrid classes. In the 
event CBOE determines to utilize the UMA algorithm in the future in a 
Hybrid option class, CBOE commits to providing data to the Commission 
relating to the pilot programs which allow an RMM, an Off-Floor DPM, 
and an e-DPM to have up to one separate affiliated Market-Maker 
physically present in the trading crowds where it operates as an RMM, 
Off-Floor DPM, or e-DPM, respectively.
2. Statutory Basis
    CBOE believes that the proposed rule change is consistent with 
Section 6(b) of the Act,\9\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\10\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, remove impediments to and perfect 
the mechanisms of a free and open market and a national market system, 
and, in general, protect investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ Rule 19b-4(f)(6) also requires the Exchange to give the 
Commission written notice of its intent to file the proposed rule 
change along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied the pre-filing requirement.

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[[Page 15807]]

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\14\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. CBOE has asked the 
Commission to waive the 30-day operative delay so that the proposal may 
become operative immediately upon filing. The Exchange believes the 
waiver of this period will allow it to continue the pilot programs 
without undue delay, which it believes is in the public interest as it 
will avoid inconvenience and interruption to the public. The Commission 
believes such waiver is consistent with the protection of investors and 
the public interest because it presents no new issues and will allow 
the pilot programs to operate without interruption. For this reason, 
the Commission designates the proposal to be operative upon filing with 
the Commission.\15\
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the 30-day pre-operative 
period, the Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such 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-2008-29 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-CBOE-2008-29. 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 will also be 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-CBOE-2008-29 and should be 
submitted on or before April 15, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-5921 Filed 3-24-08; 8:45 am]

BILLING CODE 8011-01-P