

[Federal Register: February 15, 2006 (Volume 71, Number 31)]
[Notices]               
[Page 8012-8014]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15fe06-139]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53252; File No. SR-CBOE-2006-05]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Extend the Duration of the SizeQuote Mechanism Pilot

February 8, 2006.
    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 January 30, 2006, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') 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 Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders it 
effective upon filing with the Commission. 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.
    \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

    The Exchange proposes to extend the pilot in CBOE Rule 6.74(f) 
pertaining to the SizeQuote Mechanism, which is a process by which a 
Floor Broker may execute and facilitate large-sized orders in open 
outcry. The Exchange is proposing to extend the pilot program, which 
would otherwise expire on February 15, 2006, through February 15, 2007. 
No other changes are being made to the pilot program through this rule 
filing.\5\ The text of the proposed rule change is available on the 
Exchange's Web site (http://www.cboe.com), at the Exchange's Office of 

the Secretary and at the Commission.
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    \5\ A separate rule change proposal has been filed and is 
currently pending with the Commission that would make amendments to 
the SizeQuote Mechanism. See SR-CBOE-2005-115 (proposal to modify 
the pilot program in various respects, including to permit a Floor 
Broker to execute the entire SizeQuote Order at a price at least one 
trading increment better than the best price communicated by the in-
crowd market participants (``ICMPs'') in their responses to the 
SizeQuote request).
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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 those 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 parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    CBOE Rule 6.74(f), which relates to the open outcry ``SizeQuote'' 
Mechanism, was approved on a pilot basis in February 2005; was recently 
expanded, in January 2006, to include solicited orders; and will expire 
on February 15, 2006.\6\ This pilot program

[[Page 8013]]

provides a process by which a Floor Broker, using his or her exercise 
of due diligence to execute orders at the best price(s), may execute 
and facilitate large-sized orders in open outcry. Under the pilot 
program, the ICMPs have priority to trade a SizeQuote Order at the best 
price communicated by the ICMPs in their response to a Floor Broker's 
SizeQuote request and at one increment better, while a Floor Broker can 
execute the entire SizeQuote Order with a facilitation order, one or 
more solicited orders, or a combination of solicited and facilitation 
orders at a price two trading increments better than the best price 
provided by the ICMPs in their response to the SizeQuote request. For 
purposes of the pilot program, the minimum qualifying order size is 250 
contracts \7\ and Floor Brokers must stand ready to facilitate the 
entire size of the order for which they request SizeQuotes.
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    \6\ See Securities Exchange Act Release Nos. 51205 (February 15, 
2005), 70 FR 8647 (February 22, 2005) (approving SR-CBOE-2004-72 on 
a pilot basis through February 15, 2006) and 53135 (January 17, 
2006), 71 FR 3908 (January 24, 2006) (approving SR-CBOE-2005-83, 
which modified the pilot program to enable a Floor Broker to execute 
a SizeQuote Order with either a Floor Broker's facilitation order, 
one or more solicited orders, or a combination of the Floor Broker's 
facilitation order and such solicited order(s)).
    \7\ The appropriate Exchange committee determines the classes in 
which SizeQuote operates and may vary the minimum qualifying order 
size, provided that such number may not be less than 250 contracts.
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    The instant proposed rule change seeks to extend the existing pilot 
program, which would otherwise expire on February 15, 2006, through 
February 15, 2007. The Exchange notes that, as part of the original 
pilot program approval order,\8\ the Exchange represented that it would 
provide the Commission a report at the end of the initial pilot period 
summarizing the effectiveness of the SizeQuote program. In that regard, 
though the SizeQuote Mechanism has been made available during the pilot 
period in all equity option classes traded on the Exchange for orders 
of 250 contracts or more, Floor Brokers have not generally availed 
themselves of the SizeQuote Mechanism to facilitate large-sized 
orders.\9\ However, the Exchange continues to believe that the 
SizeQuote Mechanism enhances ICMPs' ability and incentive to quote 
competitively and participate in open outcry trades while at the same 
time creates a process that gives greater certainty to Floor Brokers in 
the execution of large orders in that ICMPs only have one opportunity 
to respond with a quote response (which further enhances an ICMP's 
incentive to quote competitively). The Exchange is therefore seeking to 
extend the existing pilot program, including the amendment made thereto 
pursuant to SR-CBOE-2005-83,\10\ for another year, through February 15, 
2007, in order to continue its evaluation of the utility of the 
SizeQuote Mechanism.
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    \8\ See note 6, supra.
    \9\ The Exchange believes the SizeQuote Mechanism has not been 
actively utilized due to some of the limitations and risks inherent 
in the original design of the pilot program. Thus, apart from the 
instant proposal to extend the pilot period, CBOE recently expanded 
the pilot program to include solicited orders. Originally the pilot 
program only applied to facilitation orders. See note 6, supra, and 
accompanying text. CBOE has also proposed to modify the pilot 
program in various other respects. See note 5, supra.
    \10\ See note 6, supra.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act \11\ in general and furthers the objectives of 
section 6(b)(5) of the Act \12\ in particular in that it is designed to 
promote just and equitable principles of trade, serve to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and protect investors and the public 
interest.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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 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 on the 
proposal.

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

    Because the foregoing proposed rule change, as amended, does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to section 19(b)(3)(A) of the Act \13\ and 
Rule 19b-4(f)(6) thereunder.\14\ At any time within 60 days after the 
filing of the proposed rule change, the Commission may summarily 
abrogate the rule change if it appears to the Commission 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    Pursuant to Rule 19b-4(f)(6)(iii) under the Act, the Exchange is 
required 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 Commission notes that the Exchange 
provided notice of the filing at least five business days prior to 
the date of filing.
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    A proposed rule change filed under section 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of its filing.\15\ 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest.\16\ CBOE has requested that the Commission waive 
the 30-day operative delay. The Commission believes that waiving the 
30-day operative delay is consistent with the protection of investors 
and the public interest so that the pilot program may continue until 
February 15, 2007 without interruption.\17\
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    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ Id.
    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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-2006-05 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-2006-05. 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

[[Page 8014]]

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 Section, 100 F Street, NE., Washington, DC 20549. 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-2006-05 and should be submitted on or before March 
8, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-2111 Filed 2-14-06; 8:45 am]

BILLING CODE 8010-01-P
