

[Federal Register: February 27, 2007 (Volume 72, Number 38)]
[Notices]               
[Page 8816-8817]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27fe07-146]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55326; File No. SR-CBOE-2006-107]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval to Proposed Rule Change Regarding 
a Permit Program for CBSX

February 21, 2007.

I. Introduction

    On December 18, 2006, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to establish a permit program for 
CBSX, the Exchange's proposed stock-trading facility (``Permit 
Program''). The proposed rule change was published for comment in the 
Federal Register on December 29, 2006.\3\ The Commission received no 
comments regarding the proposal. This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 54987 (December 20, 
2006), 71 FR 78481.
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II. Description of the Proposal

    CBSX will be a facility of the Exchange and will serve as the 
Exchange's vehicle for trading non-option securities. The Exchange 
proposed to modify its Constitution and Rules to establish the Permit 
Program and thereby allow non-CBOE seat holders access to CBSX. The 
Exchange noted that expanding access to CBSX beyond CBOE's options user 
base would enhance liquidity on CBSX and make it a more attractive 
stock trading venue. The principal features of the Permit Program are 
as follows:
     The permits may only be used for trading stock on CBSX. A 
Permit does not entitle the holder to trade options on CBOE or to 
physically enter an option trading post on the trading floor;
     Up to 100 permits may be issued;
     The Permit Program could be terminated by the Exchange 
pursuant to a rule filing approved by the Commission. This provision is 
incorporated in the Exchange's Constitution to allow the CBSX Permit 
Program to be terminated without a corresponding membership vote (i.e., 
the Exchange's membership has already approved the notion that a future 
termination of the Permit Program could occur without another 
membership vote);
     Permit holders would be deemed statutory members of CBOE. 
Accordingly, they would have the same petition and voting rights as 
regular members except for matters relating to Exchange ownership 
(specifically, matters relating to demutualization, mergers, 
consolidations, dissolution, liquidation, transfer, or conversion of 
assets of the Exchange), and except for matters relating the Chicago 
Board of Trade exercise right;
     Permit holders would have no interest in the assets or 
property of CBOE and would have no right to share in any distribution 
by the Exchange;
     Permit holders (or an executive officer of a Permit 
holder) would be eligible to run for an at-large director position and 
a Nominating Committee position;
     Permit holders would have to be registered broker-dealers;
     Permits would not be transferable; and
     All Permits would expire every October and would be 
eligible for renewal.
    If there are fewer available CBSX Permits than qualified 
applicants, the Exchange will determine which of the applicants to 
approve by lot. Applicants that are affiliated will be deemed one 
applicant in cases where there are fewer available CBSX Permits than 
qualified applicants.
    A Permit holder and its associated persons must comply with and be 
subject to CBOE Rules to the same extent that Exchange members and 
their associated persons are obligated to comply with and are subject 
to Exchange Rules. A Permit holder and its associated persons shall 
also be subject to the disciplinary, appeals, and arbitration 
jurisdiction and rules of the Exchange and entitled to the procedural 
rights under those rules to the same extent that Exchange members and 
their associated persons are subject to such jurisdiction and rules and 
entitled to such procedural rights.

III. Discussion

    The Commission finds that the Exchange's proposal relating to CBSX 
Permits is consistent with Section 6(b)(3) of the Act,\4\ which 
requires that the rules of the exchange assure a fair representation of 
its members in the selection of its directors and administration of its 
affairs and provide that one or more directors shall be representative 
of issuers and investors and not be associated with a member of the 
exchange, broker, or dealer. The Commission notes that, for purposes of 
the Act, Permit holders would be considered members of CBOE. Permit 
holders would be eligible to be nominated for an at-large position on 
CBOE's Board of Directors and to serve on the Exchange's Nominating 
Committee and would have the same petition and voting rights as CBOE 
members except for matters relating to Exchange ownership 
(specifically, matters relating to demutualization, mergers, 
consolidations, dissolution, liquidation, transfer, or conversion of 
assets of the Exchange), and except for matters relating to the Chicago 
Board of Trade exercise right.\5\
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    \4\ 15 U.S.C. 78f(b)(3).
    \5\ Further, the Exchange has represented that Permit holders 
would be eligible to sit on disciplinary panels and on any 
committee(s) that develop trading rules. Telephone conversation 
between Angelo Evangelou, Assistant General Counsel, CBOE and David 
Michehl, Special Counsel, Commission, Division of Market Regulation, 
on February 16, 2007.

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[[Page 8817]]

    The Commission also finds that the Exchange's proposal relating to 
the Permit Program is consistent with Section 6(b)(5) of the Act,\6\ 
which requires that the rules of the exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, 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; and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. The Exchange has imposed various requirements and limitations 
in connection with the issuance of CBSX Permits. In this regard, the 
Commission notes that although the number of Permits to be issued is 
limited to a maximum of 100 Permits, the Exchange will allocate Permits 
by lot if demand for them exceeds 100 Permits.\7\
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ In approving this proposed rule change the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-CBOE-2006-107) is hereby 
approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-3373 Filed 2-26-07; 8:45 am]

BILLING CODE 8010-01-P
