

[Federal Register: February 22, 2006 (Volume 71, Number 35)]
[Notices]               
[Page 9184-9186]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22fe06-166]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53278; File No. SR-CBOE-2006-09]

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

February 13, 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 January 30, 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 prepared by the CBOE. 
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.
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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 10 seconds to 3 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

[[Page 9185]]

exposed on the Hybrid System for at least [ten (10)]three (3) seconds, 
(ii) the order entry firm has been bidding or offering for at least 
[ten (10)]three (3) 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 [ten (10)]three (3) 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 [ten 
(10)]three (3) seconds, (ii) the order entry firm has been bidding or 
offering for at least [ten (10)]three (3) 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 [ten (10)]three(3) 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 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 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 10-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 10 seconds, (ii) 
the order entry firm has been bidding or offering for at least 10 
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 10 seconds. During this 10 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 10 seconds to 3 
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 3 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 10 seconds to 3 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. 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 CBOE 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 9186]]

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-2006-09 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-2006-09. 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-2006-09 and should be submitted on or before March 
15, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-2439 Filed 2-21-06; 8:45 am]

BILLING CODE 8010-01-P
