Document ID: SEC-2006-1526-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2006-11-27T05:00Z

[Federal Register: November 27, 2006 (Volume 71, Number 227)]
[Notices]               
[Page 68659-68660]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27no06-135]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54792; File No. SR-CBOE-2006-96]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change Regarding 
Allocation of Stocks to CBSX DPMs

 November 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 November 20, 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 Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange submits this rule change filing to modify its rules 
relating to the allocation of stocks for the Exchange's proposed stock-
trading facility, CBSX. The text of the proposed rule change is set 
forth below. Additions are in italics; deletions are in [brackets].

Chicago Board Options Exchange, Incorporated

Rules

* * * * *

RULE 53.54. [Conditions on the] Allocation of Securities to [STOC] CBSX 
DPMs

    (a) CBSX [The STOC DPM Committee] may establish [(i) restrictions 
applicable to all STOC DPMs on the concentration of securities 
allocable to a single STOC DPM and to affiliated STOC DPMs and (ii)] 
minimum eligibility standards applicable to all [STOC] CBSX DPMs which 
must be satisfied in order for a [STOC] CBSX DPM to receive allocations 
of securities, including but not limited to standards relating to 
adequacy of capital and number of personnel.
    (b) CBSX shall determine, for each security in which CBSX begins 
trading, which CBSX DPM should be allocated such security. Factors to 
be considered in making such determinations may include, but are not 
limited to, any one or more of the following: Performance, volume, 
capacity, market performance commitments, operational factors, 
efficiency, competitiveness, expressed preferences of issuers, and the 
best interest of CBSX. Alternatively, in instances where multiple 
securities are being allocated at one time, CBSX may allocate such 
securities utilizing a draft where the draft selection order for the 
eligible CBSX DPMs is determined randomly by CBSX.
    (c) Prior to the commencement of trading on CBSX, all securities 
that will initially trade on CBSX (pursuant to a rollout schedule 
determined by CBSX) shall be allocated as follows:
    (1) CBSX will randomly set a draft rotation for all CBSX DPMs.
    (2) The top 500 securities (based on a twelve-month average daily 
volume) will be selected by the DPMs (one by one) in the established 
rotation order.
    (3) Any additional securities selected by CBSX to initially trade 
on CBSX shall be allocated equally among the CBSX DPMs in a random 
fashion by CBSX.
* * * * *

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
    In September 2006, the Commission approved Exchange Chapters 50-55 
governing the trading of non-option securities on the Exchange.\3\ The 
Exchange, via a separate rule filing, will be proposing to further 
modify Chapters 50-55 in connection with the establishment of the CBOE 
Stock Exchange (``CBSX''). CBSX will be a facility of the Exchange and 
will serve as the Exchange's vehicle for trading non-option securities. 
CBSX would be a separate legal entity (a Delaware Limited Liability 
Company) that is owned by the Exchange and several strategic partners. 
The Exchange is also submitting rule filings proposing to establish 
CBSX as a facility of the Exchange and proposing to allow CBSX to 
appoint CBSX DPMs. The purpose of this filing is to adopt rules that 
would allow for the allocation of stocks to CBSX DPMs (the Exchange 
expects that the filing allowing appointment of

[[Page 68660]]

CBSX DPMs will become effective prior to approval of this filing). Any 
such appointments and allocations would be contingent on Commission 
approval of rules governing CBSX DPM trading procedures and 
obligations.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 54422 (September 11, 
2006), 71 FR 54537 (September 15, 2006) (approving SR-CBOE-2004-21). 
See also Securities Exchange Act Release No. 54526 (September 27, 
2006), 71 FR 58646 (October 4, 2006) (approving SR-CBOE-2006-70).
---------------------------------------------------------------------------

    Initial CBSX DPM stock allocations would be handled pursuant to 
proposed modified CBOE Rule 53.54. For the initial launch, and 
potentially in instances where CBSX seeks to commence trading a number 
of new securities at one time, CBSX would conduct a ``draft'' for 
eligible CBSX DPMs to select available stocks. The draft order would be 
determined randomly. In connection with the initial launch, the draft 
would only apply to the first 500 securities selected.\4\ After that 
point, all of the remaining securities slated for trading on CBSX would 
be allocated randomly by CBSX to the CBSX DPMs equally.
---------------------------------------------------------------------------

    \4\ Telephone conversation between Angelo Evangelou, Assistant 
General Counsel, CBOE, and Nathan Saunders, Special Counsel, 
Division of Market Regulation, Commission, November 20, 2006.
---------------------------------------------------------------------------

    CBSX would utilize proposed CBOE Rule 53.54 for future stock 
allocations as well. In those cases, a draft could be employed or CBSX 
could allocate the stocks based on any one or more of the following: 
Performance, volume, capacity, market performance commitments, 
operational factors, efficiency, competitiveness, expressed preferences 
of issuers, and the best interest of CBSX.
    The ability to allocate stocks to CBSX DPMs ahead of the launch of 
the CBSX facility would allow the Exchange and the CBSX DPM firms to be 
prepared to commence trading on CBSX immediately upon approval of CBSX 
trading rules and pursuant to a robust rollout schedule. The Exchange 
seeks to launch the CBSX facility on February 5, 2007.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \5\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \6\ in particular in that it serves to 
remove impediments to and perfect the mechanism of a free and open 
market because it will help the Exchange manage the initial launch of 
trading on CBSX.
---------------------------------------------------------------------------

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

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that this proposed rule change would 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

    The Exchange neither solicited nor received comments 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 Exchange consents, the Commission will:
    (A) By order approve the 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-2006-96 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-2006-96. 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 the 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-2006-96 and should be submitted on or before December 18, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
[FR Doc. E6-19982 Filed 11-24-06; 8:45 am]

BILLING CODE 8011-01-P