Document ID: SEC-2008-0563-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-04-14T04:00Z

[Federal Register: April 14, 2008 (Volume 73, Number 72)]
[Notices]               
[Page 20076-20079]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14ap08-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57629; File No. SR-CBOE-2008-02]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change and Amendment 
No. 1 Thereto To Replace References to Certain Committees With a 
Reference to the Exchange

April 7, 2008.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 17, 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, II, and III below, which Items have been prepared 
substantially by the CBOE. On April 7, 2008, CBOE submitted Amendment 
No. 1 to the proposed rule change. The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
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 CBOE proposes to amend its rules to replace references to 
certain committees with a reference to the ``Exchange.'' The text of 
the proposed rule change is available at the 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 Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the

[[Page 20077]]

proposed rule change. The text of these statements may be examined at 
the places specified in Item IV 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend CBOE Rules to delete certain 
references to the appropriate Procedure, Floor Officials, appropriate 
Market Performance, Membership, and Product Development Committees, as 
well as certain general references to committees such as the 
``appropriate Exchange committee.'' These references are being replaced 
with a reference to the ``Exchange.''
    The Exchange is proposing to make these changes in order to 
simplify and standardize its delegations of authority with respect to 
these Exchange committees. Under CBOE's organizational structure, 
Exchange committees can derive their authority in one of two ways. In 
addition to any powers and duties specifically granted in CBOE's 
Constitution or Rules, each committee has such other powers and duties 
as may be delegated to it by the Board of Directors (``Board'').\3\ 
Thus, in some instances CBOE's Constitution or Rules specifically 
reference a particular committee or ``appropriate Exchange committee.'' 
In other instances, the Board separately delegates a particular 
authority to a committee. Because the authority exercised by committees 
may be delegated by the Board, the Exchange believes that referencing 
these committees in the rule text is not necessary. Instead, the 
Exchange believes a better approach than making a specific reference to 
the above-listed committees or a general reference to the ``appropriate 
Exchange committee'' in the rule text is to simply reference the 
``Exchange.'' In this way, the Exchange will have the flexibility to 
determine who will perform which authorities under the rules, which 
might include Exchange officials or the Board determining to delegate 
certain authorities to an appropriate Exchange committee.\4\ In 
addition, excluding these committee references and referencing the 
``Exchange'' will be more efficient from an administrative perspective 
because the Exchange will not have to make a rule change merely, for 
instance, to accommodate a change in the title of a committee or to 
accommodate the reassignment of an authority to another committee.\5\
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    \3\ See Rule 2.1(d).
    \4\ As indicated above, Exchange committees only have 
authorities to the extent specifically granted in CBOE's 
Constitution or Rules or by Board delegation. The Board may also 
exercise authorities of the ``Exchange'' under CBOE's Constitution 
and Rules. In addition, authorities of the ``Exchange'' may be 
performed by other Exchange officials. For example, the Exchange's 
Chief Executive Officer, President or other officials or designees 
may have authorities of the ``Exchange'' as long as it is not 
inconsistent with CBOE's Constitution or Rules or any Board 
directive.
    \5\ See, e.g., Securities Exchange Act Release Nos. 53537 (March 
21, 2006), 71 FR 15778 (March 29, 2006) (SR-CBOE-2006-15) (deleting 
from the CBOE Rules any specific references to the Clearing 
Procedures Committee, Exemption Committee, Modified Trading System 
Appointments Committee, appropriate Screen-Based Trading Committee, 
appropriate SBT DPM Appointments Committee, and Special Product 
Assignment Committee because the Exchange determined to eliminate 
these committees and reassign their respective authorities to other 
committees and/or to Exchange staff) and 39479 (December 22, 1997), 
62 FR 68326 (December 31, 1997) (SR-CBOE-97-61) (deleting from the 
CBOE Rules any specific references to, and adding `appropriate' to 
all references that related to, a particular Floor Procedure 
Committee or Market Performance Committee to accommodate the 
creation of two new committees, the Index Floor Procedure Committee 
and the Index Market Performance Committee, which among other things 
replaced the OEX Floor Procedure Committee and the OEX Market 
Performance Committee, respectively).
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    In addition, as discussed below, various amendments that 
accommodate the above-described changes and simplify the rule text are 
also being made. First, though specific references to the Floor 
Officials Committee are being removed, specific references to Floor 
Official duties and authorities under the rules will remain. As a 
result, the Exchange is proposing to define the term ``Floor Official'' 
to mean an individual appointed by the Exchange who is granted certain 
duties and authorities under the CBOE Rules with respect to trading 
issues and market actions.\6\
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    \6\ See proposed Rule 1.1(eee). The Exchange is proposing 
similar changes to the definition of a ``Trading Official'' under 
its Screen-Based Trading System Rules. See proposed changes to Rule 
40.1(g).
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    Second, Rule 3.31, Delegation of Authority, will be deleted. This 
rule had indicated that (i) the authority granted to the Exchange under 
Chapter III, Membership, may be exercised by the Membership Committee 
and/or the Membership Department and (ii) the Membership Committee may 
delegate to the Membership Department any of the authority granted to 
the Membership Committee under the CBOE Rules. Instead of specifying 
these particular delegations in the rules, the Exchange will have the 
flexibility to delegate the applicable authorities to a designee(s).\7\
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    \7\ It is CBOE's intent that any Exchange designee would be a 
person or persons that CBOE views as qualified to perform the 
particular authority granted under Chapter III.
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    Third, the procedures contained in Rule 6.3, Trading Halts, 
currently indicate in part that any trading halt that lasts more than 
two consecutive business days shall be reviewed at the next regularly 
scheduled meeting of the Floor Officials Committee. Because the Floor 
Officials Committee will no longer be specifically referenced in the 
CBOE Rules, the proposed revisions to Rule 6.3 indicate that any 
trading halt that lasts more than two consecutive days will be reviewed 
on a regular basis by the Exchange. The revised language will provide 
the flexibility to establish an appropriate schedule for conducting 
such reviews that takes into account the Exchange designee that is 
delegated that responsibility (e.g., a committee that might have 
regularly scheduled meetings or Exchange staff that might that might 
conduct such reviews on a regular schedule).
    Fourth, Rules 6.45A, Priority and Allocation of Equity Option 
Trades on the CBOE Hybrid System, and 6.47, Priority on Split-Price 
Transactions Occurring in Open Outcry, currently contain references to 
the appropriate Exchange committee having authority to make certain 
decisions regarding all options classes or products under the 
committee's jurisdiction.\8\ Under the proposed revisions, such 
decisions will now be made by the Exchange (through a designee 
delegated the applicable authority) on a class/product basis.\9\
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    \8\ See paragraphs (a)(i) and (c) of Rule 6.45A (which currently 
indicates in part that the ``final weighting formula for equity 
options * * * shall be determined by the appropriate Procedure 
Committee and apply uniformly across all options under its 
jurisdiction * * *'', that the ``appropriate Procedure Committee 
shall determine which of the preceding two entitlement formulas will 
be in effect for all classes under its jurisdiction'', and that the 
``appropriate Procedure Committee will determine the length of the 
``N-second group'' timer provided however that the duration of the 
``N-second group'' timer shall not exceed five seconds [and the] 
duration of the ``N-second group'' timer shall apply uniformly 
across all classes under the Procedure Committee's jurisdiction''); 
and paragraph (b) of Rule 6.47 (which currently indicates in part 
that the ``appropriate Exchange committee may increase the `minimum 
qualifying order size' above 100 contracts for all products under 
its jurisdiction'').
    \9\ Rule 6.45A will be revised to indicate that determinations 
on the final weighting formula, entitlement formula, and N-second 
group timer will be made on a class basis (also referred to as a 
product-basis). See proposed changes to paragraphs (a)(i) and (c) of 
Rule 6.45A and note 8, supra. These changes to Rule 6.45A are 
consistent with the existing rule language contained in Rule 6.45B, 
Priority and Allocation of Trades in Index Options and Options on 
ETFs on the CBOE Hybrid System. Rule 6.47 will be revised to 
indicate that determinations on the minimum qualifying order size 
will be made on a class basis. See proposed changes to paragraph (b) 
of Rule 6.47; supra note 8. The Exchange notes that paragraph (b) of 
Rule 8.60, Evaluation of Trading Crowd Performance, also contains a 
reference to jurisdiction that is being revised. Rule 8.60 currently 
indicates in part that the appropriate Market Performance Committee 
``may find that a Market Participant has failed to satisfy its 
market responsibilities if it determines from the results of the 
evaluation that the Market Participant is ranked one or more 
standard deviations from the mean score of all Market Participants 
within the Committee's jurisdiction, or if such a finding may 
reasonably be supported by any other relevant information known to 
the Committee.'' The reference to ``within the Committee's 
jurisdiction'' will be replaced with ``trading the same category of 
option''. See proposed changes to paragraph (b) of Rule 8.60.

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[[Page 20078]]

    Fifth, the procedures contained in Rules 8.16, RAES Eligibility in 
Option Classes Other Than Broad-Based Indexes and Options on Exchange 
Traded Funds on Broad-Based Indexes, and 24.17, RAES Eligibility in 
Broad-Based Index Options, currently indicate in part that the 
appropriate Market Performance Committee may exempt from certain 
percentage requirements with respect to trading,\10\ all market maker 
activity in one or more option classes for certain days, and that data 
provided to the appropriate committee will not contain the identities 
of individual market-makers. Under the revised rules, the Exchange 
(through a designee delegated that authority) may grant the same 
exemptions. In addition, the revised rule will indicate that, to the 
extent the data is provided to an Exchange designee consisting of non-
Exchange staff, the data will not contain the identities of individual 
market-makers.
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    \10\ See paragraph (a)(iii) of Rule 6.8 and paragraph (b)(vii) 
of Rule 24.17 for the applicable percentage requirements.
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    Sixth, the procedures contained in Rule 16.3, Reinstatement, 
currently indicate in part that the affirmative vote of at least five 
members of the Membership Committee shall be required to approve an 
application for reinstatement. Under the revised rule, the Exchange 
(through a designee delegated that authority) would approve such 
applications. The requirement of an affirmative vote of at least five 
members of the Membership Committee will be deleted. The Exchange 
believes that this level of specificity in the rules is no longer 
applicable and unnecessary, and notes that at least one other exchange 
does not have this requirement in its rules.\11\
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    \11\ See, e.g., paragraph (a) to International Securities 
Exchange Rule 1502.
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    Except as described above, the Exchange notes that it is not making 
substantive revisions to its underlying processes as a result of this 
rule change.\12\ The rules are simply being revised to provide more 
flexibility to delegate the applicable authorities, rather than 
including specific delegations to particular committees in the rules. 
It is CBOE's intent that any Exchange designee would be a person or 
persons that CBOE views as qualified to perform the particular 
authorities.\13\
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    \12\ Various other non-substantive changes are also being 
proposed to the CBOE Rules. For example, in Rule 2.1, Committees of 
the Exchange, the heading in paragraph (d) will be changed from 
``General Duties and Powers of Committees'' to ``Duties and Powers 
of Committees'' and the sentence, ``Each committee shall administer 
the provisions of the Constitution and the rules of the Exchange 
pertaining to matters within its jurisdiction[,]'' will be deleted. 
This language is duplicative and unnecessary because paragraph (d) 
also indicates that, ``In addition to any powers and duties 
specifically granted in the Constitution or Rules, each committee 
shall have such other powers and duties as may be delegated to it by 
the Board of Directors.'' In Interpretation and Policy .06 to Rule 
6.8, RAES Operations, a ``the'' will be replaced with an ``a'' for 
consistency. In Interpretation and Policy .01 to Rules 6.75, 
Discretionary Transactions, and 7.5, Obligations for Fair and 
Orderly Market, an unnecessary prefatory phrase ``[t]he appropriate 
Procedure Committee has determined that * * *'' is being deleted. In 
Rule 8.60, references to ``market-maker'' and ``floor official'' are 
being capitalized for consistency.
    \13\ See, e.g., note 7, supra.
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    For example, currently under Rule 3.5, Denial of and Conditions to 
Membership and Association, the CBOE Membership Committee has the 
specific authority to deny (or condition) membership or association 
with a member, and any decision made by the committee may be appealed 
under Chapter XIX of the CBOE Rules. Under the revised Rule 3.5, the 
``Exchange'' will have the authority to deny (or condition) membership 
or association with a member. The authority to make such decisions may 
be delegated to a designee such as Exchange staff or, by a Board 
delegation, a committee or Exchange staff. Any decision by the designee 
to deny (or condition) membership or association with another member 
may be appealed under Chapter XIX, which will continue to apply 
unchanged.\14\ Thus, under the revised Rule 3.5, the procedures will 
remain the same. The rule is simply being revised to provide the 
Exchange with the flexibility to assign a designee the authority to 
deny (or condition) membership or association with a member, rather 
than referencing a particular committee.\15\
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    \14\ The Exchange notes that it is not making any revisions to 
its disciplinary, arbitration or appeals procedures (or related 
Business Conduct, Arbitration and Appeals Committees) as a result of 
this rule change. See Chapter XVII, Discipline, XVIII, Arbitration, 
and XIX, Hearings and Review. Chapter XIX provides the procedure for 
persons aggrieved by Exchange action (including but not limited to 
those persons who have been denied membership, barred from being 
associated with a member, or prohibited or limited with respect to 
Exchange services, or the services of any Exchange member, taken 
pursuant to any contractual arrangement, the Constitution or the 
Rules of the Exchange (other than disciplinary action for which 
review is provided in Chapter XVII, action of the Arbitration 
Committee, and any other action that the Rules specify is not 
subject to appeal under Chapter XXIX) to apply for an opportunity to 
be heard and the complained of action reviewed. Applications for 
hearing and review are referred to the Appeals Committee, which 
appoints a hearing panel to conduct the hearing. The decision of the 
panel of the Appeals Committee is subject to review by the Board (or 
a Committee of the Board) and any Director who participated in a 
matter before it is appealed to the Board shall not participate in 
any review action by the Board concerning the matter.
    \15\ See also, e.g.:
    (i) Proposed changes to Rule 3.18, Members and Associated 
Persons Who Are or Become Subject to a Statutory Disqualification 
(which currently indicates in part that the Chairperson of the 
Membership Committee appoints a panel composed of the Chairperson 
and two other members of the Membership Committee to conduct a 
hearing concerning the matter. The hearing panel then presents its 
recommended decision to the Membership Committee, who may ratify or 
amend the decision. The decision is then provided to the subject of 
the proceeding and CBOE's Executive Committee. The Executive 
Committee may order review of the decision. Under the proposed 
revisions, the Exchange (through a designee delegated that 
authority) will appoint a panel composed of three Exchange members 
to conduct a hearing concerning the matter. The hearing panel then 
will present its recommended decision to an Exchange designee, who 
may ratify or amend the decision (currently the Exchange has 
determined that this designee would be the Membership Committee per 
a Board delegation; however, the rule change will give the Exchange 
the flexibility to change the designee in the future). The decision 
will then be provided to the subject of the proceeding and the 
Executive Committee, and the Executive Committee can order review of 
the decision in the same manner as applies under the Rule today);
    (ii) Proposed changes to Rule 8.60 (which currently indicates in 
part that the appropriate Market Performance Committee (or a panel 
thereof) conducts formal hearings or informal meetings, and actions 
taken after formal hearings may be reviewed by the Board (or a panel 
thereof) while actions taken after an informal meeting may be 
appealed in accordance with Chapter XIX; under the proposed 
revisions, the Exchange (through a designee delegated that 
authority) will conduct such hearings and actions taken by the 
Exchange after a formal hearing may be reviewed by the Board (or a 
panel thereof) while actions taken by the Exchange after an informal 
meeting may be appealed in accordance with Chapter XIX); and
    (iii) Proposed changes to Rule 24.21, Index Crowd Space Dispute 
Resolution Procedures (which currently indicates in part that the 
Chairman of the appropriate Procedure Committee shall select a Crowd 
Space Dispute Resolution Panel composed of seven members of the 
Exchange, two who are members of the Chairman's Procedure Committee, 
and two that trade in the trading station where the dispute has 
arisen and two that do not trade in that station (with preference 
given to members who serve on another Procedure Committee or Market 
Performance Committee), and the seventh being the Floor Officials 
Committee Chairman or another Floor Officials Committee member; 
under the proposed revisions, a designee will be appointed to 
perform the function of selecting the panel (referred to as the 
``Space Mediator'') and the panel shall consist of seven members of 
the Exchange, three who trade in the trading station where the 
dispute has arisen and three that do not trade in that station and 
one Floor Official designated by the Exchange.)
    It is CBOE's intent that any Exchange designee would be a person 
or persons that CBOE views as qualified to perform the particular 
authority granted under the rules noted above.

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[[Page 20079]]

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of section 6 of the Act,\16\ in general and section 
6(b)(5) of the Act,\17\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, and, in general, to protect investors and the public 
interest. In particular, the Exchange believes that this proposal 
complies with the Act because the Exchange is amending its rules to 
eliminate certain committee references to facilitate compliance.
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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does not 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

    No written comments were solicited or received with respect to 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, as amended, 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 No. SR-CBOE-2008-02 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-2008-02. 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, on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also 
will 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-2008-02 and should be submitted on or before May 5, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-7780 Filed 4-11-08; 8:45 am]

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