

[Federal Register: May 22, 2007 (Volume 72, Number 98)]
[Notices]               
[Page 28732-28733]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22my07-117]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55772; File No. SR-CBOE-2007-45]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to the Implementation of a ``Holdback Timer''

May 16, 2007.
    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 May 8, 2007, 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 substantially prepared by 
the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    The Exchange proposes to amend CBOE Rule 6.23A pertaining to the 
implementation of a ``holdback timer.'' 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's 
Public Reference Room.

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 self-regulatory organization 
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 proposes to implement an additional quote mitigation strategy. 
Specifically, CBOE intends to systematically limit the dissemination of 
quotations and other changes to CBOE's best bid and offer (e.g., orders 
that improve CBOE's best bid and offer) according to prescribed time 
criteria (``holdback timer''). For instance, if there is a change in 
the price of a security underlying an option, multiple market 
participants may adjust the price or size of their quotes. Rather than 
disseminating each individual change, the holdback timer permits CBOE 
to wait until multiple market participants have adjusted their quotes 
and then to disseminate a new quotation. This mechanism helps to 
prevent the ``flickering'' of quotations. CBOE proposes to codify the 
holdback timer in Rule 6.23A.
    CBOE will utilize a holdback timer that delays quotation updates to 
OPRA for no longer than one (1) second, and will only be used in option 
classes trading on the Hybrid Trading System and Hybrid 2.0 Platform. 
CBOE may vary the holdback timer by option class. If the holdback timer 
is not being utilized in an option class trading on the Hybrid Trading 
System or Hybrid 2.0 Platform, CBOE will notify its members. CBOE does 
not intend to disclose the length of the holdback timer to its members 
or non-members. CBOE notes that the holdback timer addresses the 
dissemination to OPRA of quotation updates and other changes to CBOE's 
best bid and offer, and not the execution of orders.
    The Commission recently approved the International Securities 
Exchange's (``ISE'') and the American Stock Exchange's (``Amex'') usage 
of a holdback timer as a quote mitigation strategy.\5\ Additionally, 
and as noted in the approval orders codifying the ISE's and Amex's 
usage of a holdback timer, the Securities Information and Financial 
Markets Association strongly endorsed the usage of a holdback timer as 
a quote mitigation strategy.\6\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release Nos. 55161 (January 24, 
2007), 72 FR 4754 (February 1, 2007) (order approving SR-ISE-2006-
62); 55162 (January 24, 2007), 72 FR 4738 (February 1, 2007) (order 
approving SR-Amex-2006-106).
    \6\ Id.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act

[[Page 28733]]

and the rules and regulations under the Act applicable to a national 
securities exchange and, in particular, the requirements of Section 
6(b) of the Act.\7\ Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(5) requirements that 
the rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts and, 
in general, to protect investors and the public interest.\8\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 proposed rule change: (1) Does not significantly affect 
the protection of investors or the public interest; (2) does not impose 
any significant burden on competition; and (3) does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(6) thereunder.\10\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). As required by Rule 19b-
4(f)(6)(iii) under the Act, the Exchange also provided with the 
Commission with 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 the 
proposed rule change.
---------------------------------------------------------------------------

    The Exchange has asked the Commission to waive the 30-day operative 
delay and allow the proposed rule change to become operative 
immediately. The Commission hereby grants that request.\11\ The 
Commission believes that it is consistent with the protection of 
investors and the public interest to waive the 30-day operative delay 
so that the CBOE may immediately begin using the holdback timer in an 
effort to mitigate quotes on the CBOE. The Commission does not believe 
that implementation of the holdback timer raises any novel issues of 
regulatory concern as the Commission previously approved the use of 
substantively similar quote mitigation strategies by the ISE and 
Amex.\12\
---------------------------------------------------------------------------

    \11\ 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).
    \12\ See note 5, supra.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that 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.

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-2007-45 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-CBOE-2007-45. 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-2007-45 and should be submitted on or before June 
12, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E7-9807 Filed 5-21-07; 8:45 am]

BILLING CODE 8010-01-P
