

[Federal Register: December 12, 2005 (Volume 70, Number 237)]
[Notices]               
[Page 73495-73497]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12de05-99]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52889; File No. SR-CBOE-2005-94]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change Relating to the Exposure Period for Crossing 
Orders in the Hybrid Trading System

December 5, 2005.
    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 4, 2005, 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 prepared by the CBOE. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and is approving the 
proposal on an accelerated basis.
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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

    CBOE proposes to decrease the exposure period for crossing orders 
in its Hybrid Trading System (``Hybrid'') from 30 seconds to 10 
seconds. The text of the proposed rule change is provided below 
(additions are italicized; deletions are [bracketed]).

Chicago Board Options Exchange, Incorporated

Rules
* * * * *
Rule 6.45A.--Priority and Allocation of Equity Option Trades on the 
CBOE Hybrid System
    (a)-(e) No change.
    * * * Interpretations and Policies:
    .01 Principal Transactions: Order entry firms may not execute as 
principal against orders they represent as agent unless: (i) Agency 
orders are first exposed on the Hybrid System for at least [thirty 
(30)]ten (10) seconds, (ii) the order entry firm has been bidding or 
offering for at least [thirty (30)]ten (10) seconds prior to receiving 
an agency order that is executable against such bid or offer, or (iii) 
the order entry firm proceeds in accordance with the crossing rules 
contained in Rule 6.74.
    .02 Solicitation Orders: Order entry firms must expose orders they 
represent as agent for at least [thirty (30)]ten (10) seconds before 
such orders may be executed electronically via the electronic execution 
mechanism of the Hybrid System, in whole or in part, against orders 
solicited from members and non-member broker-dealers to transact with 
such orders.
* * * * *
Rule 6.45B--Priority and Allocation of Trades in Index Options and 
Options on ETFs on the CBOE Hybrid System
    (a)-(d) No change.
    * * * Interpretations and Policies:
    .01 Principal Transactions: Order entry firms may not execute as 
principal against orders they represent as agent unless: (i) Agency 
orders are first exposed on the Hybrid System for at least [thirty 
(30)]ten (10) seconds, (ii) the order entry firm has been bidding or 
offering for at least [thirty (30)]ten (10) seconds prior to receiving 
an agency order that is executable against such bid or offer, or (iii) 
the order entry firm proceeds in accordance with the crossing rules 
contained in Rule 6.74.
    .02 Solicitation Orders. Order entry firms must expose orders they 
represent as agent for at least [thirty (30)]ten (10) seconds before 
such orders may be executed electronically via the electronic execution 
mechanism of the Hybrid System, in whole or in part, against orders 
solicited from members and non-member broker-dealers to transact with 
such orders.
* * * * *

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

[[Page 73496]]

comments it received on the proposed rule change. The text of these 
statements may be examined at the places specified in Item III 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
    CBOE rules provide that an order entry firm may not execute an 
order it represents as agent with a facilitation or solicited order 
(referred to herein as ``crossing orders'') using Hybrid unless it 
first complies with the 30-second exposure requirement. Specifically, 
order entry firms may not execute a facilitation cross unless (i) the 
agency order is first exposed on Hybrid for at least 30 seconds, (ii) 
the order entry firm has been bidding or offering for at least 30 
seconds prior to receiving the agency order that is executable against 
such bid or offer, or (iii) the order entry firm proceeds in accordance 
with the floor-based open outcry crossing rules contained in CBOE Rule 
6.74, ``Crossing'' Orders. Similarly, order entry firms may not execute 
a solicitation cross unless the agency order is first exposed on Hybrid 
for at least 30 seconds. During this 30 second exposure period for 
crossing orders, other members may enter orders to trade against the 
exposed order.
    The Exchange proposes to shorten the duration of the exposure 
period contained in the rules governing such transactions, as set forth 
in Interpretations and Policies .01 and .02 to CBOE Rules 6.45A, 
Priority and Allocation of Equity Option Trades on the CBOE Hybrid 
System, and 6.45B, Priority and Allocation of Trades in Index Options 
and Options on ETFs on the CBOE Hybrid System, from 30 seconds to 10 
seconds. This shortened exposure period is fully consistent with the 
electronic nature of Hybrid. Market participants on the CBOE have 
implemented systems that monitor any updates to the CBOE market 
including any changes resulting from orders being entered into Hybrid 
and can automatically respond based on pre-set parameters. Thus, an 
exposure period of 10 seconds will permit exposure of orders on the 
CBOE in a manner consistent with the Exchange's electronic market.
    By reducing the exposure time from 30 seconds to 10 seconds, the 
CBOE believes that members will be able to provide liquidity to their 
customers' orders on a timelier basis, thus providing investors with 
more speedy executions. Timely and accurate executions are consistent 
with the principles under which Hybrid was developed.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act \3\ in general and furthers the objectives of 
section 6(b)(5) of the Act \4\ in particular in that it is designed 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, and, in general, to protect investors and the public interest. 
In particular, the proposed rule change will provide investors with 
more timely execution of their options orders, while ensuring that 
there is an adequate exposure of all crossing orders in the CBOE 
marketplace.
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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

    CBOE 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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. 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-2005-94 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-CBOE-2005-94. 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 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-2005-94 and should be submitted on or before 
January 3, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of section 6(b) of the 
Act \5\ and the rules and regulations thereunder applicable to a 
national securities exchange,\6\ and in particular with section 6(b)(5) 
of the Act.\7\ The Commission believes that, in the electronic 
environment of Hybrid, reducing the exposure period to 10 seconds could 
facilitate the prompt execution of orders, while providing participants 
in Hybrid with an adequate opportunity to compete for exposed bids and 
offers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange has requested accelerated approval of the proposed 
rule change. The Commission finds good cause, pursuant to section 
19(b)(2)

[[Page 73497]]

of the Act,\8\ for approving the proposed rule change prior to the 
thirtieth day after the date of publication of the notice of filing in 
the Federal Register. The Commission believes that accelerated approval 
of the proposed rule change will allow the Exchange to remain 
competitive with other exchanges that permit the crossing of orders 
after a 10-second exposure period.\9\
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    \8\ 15 U.S.C. 78s(b)(2).
    \9\ See, e.g., Securities Exchange Act Release No. 52814 
(November 21, 2005), 70 FR 71591 (November 29, 2005) (SR-PCX-2005-
85).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2005-94) is hereby 
approved on an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-7193 Filed 12-9-05; 8:45 am]

BILLING CODE 8010-01-P
