

[Federal Register: May 29, 2007 (Volume 72, Number 102)]
[Notices]               
[Page 29563-29564]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29my07-117]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55786; File No. SR-CBOE-2007-15]

 
 Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval of Proposed Rule Change To Amend 
CBOE's Membership Application Procedures

May 18, 2007.

I. Introduction

    On February 14, 2007, 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 amend membership application 
procedures. The proposed rule change was published for comment in the 
Federal Register on April 10, 2007.\3\ The Commission received no 
comments on the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 55570 (April 2, 
2007), 72 FR 17961 (April 10, 2007) (the ``Notice'').
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II. Description of the Proposal

    The Exchange proposed to amend Rule 3.9, entitled ``Application 
Procedures and Approval or Disapproval,'' which requires any person 
applying to the Exchange to (i) have completed the Exchange's Member 
Orientation Program (``Orientation Program'') and (ii) passed an 
Exchange Trading Member Qualification Exam (``Qualification Exam''). A 
person who fulfills these requirements but does not possess an 
authorized trading function for more than one year must complete the 
Orientation Program and pass the Qualification Exam again before 
becoming a member.\4\ If that person is not a member of the exchange 
for up to one year, he can submit an application to become a member 
again without having to complete the orientation program and the exam 
again.
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    \4\ An individual ``possesses an authorized trading function'' 
if he is approved to act as a market maker, floor broker, remote 
market maker (``RMM'') or nominee or person registered for an RMM or 
e-DPM organization.
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    CBOE proposed that PAR Officials and Order Book Officials 
(``OBOs''), as well as others acting in a similar capacity (i.e., an 
exchange trading floor capacity), be included in the rule, because the 
functions they perform as exchange employees are similar to the 
functions performed by members who are deemed to possess an authorized 
trading function.
    In 2005, CBOE amended its rules to remove a Designated Primary 
Market-Maker's (``DPM's'') obligation to act as an agent or Floor 
Broker in its allocated securities on the Exchange.\5\ At the same 
time, the Exchange designated a PAR Official to be responsible for 
handling certain orders in the same manner as they were formerly 
handled by the DPM.\6\ Specifically, the PAR Official is an Exchange 
employee or independent contractor designated by the Exchange to be 
responsible for (i) operating the PAR workstation; (ii) when 
applicable, maintaining the customer limit order book for the assigned 
option classes;\7\ and (iii) effecting proper executions of orders 
placed with him.
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    \5\ See Securities Exchange Act Release No. 52798 (November 18, 
2005), 70 FR 71344 (November 28, 2005) (SR-CBOE-2005-46).
    \6\ Id.
    \7\ This provision will not apply to option classes that are on 
the CBOE's Hybrid System.
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    In addition to PAR Officials, the Exchange also employs OBOs whose 
responsibilities include, among other things, (i) maintaining the book 
with respect to the classes of options assigned to them, (ii) effecting 
proper executions of orders placed with them, (iii) displaying bids and 
offers, and (iv) monitoring the market for the classes of options 
assigned to them.
    The Exchange may employ a former member, who acted in the capacity 
of a DPM before CBOE established the PAR Official position, to act on 
behalf of the Exchange in a trading floor capacity. If these PAR 
Officials and OBOs become members of the Exchange after working for the 
Exchange in a trading floor capacity for longer than one year, these 
individuals would have to complete the Orientation Program and pass the 
Qualification Exam again under current Rule 3.9, since it would have 
been longer than one year since they had been acting in a capacity that 
has an authorized trading function.
    These PAR Officials and OBOs, while acting in an Exchange trading 
floor capacity, are ultimately acting in the same capacity as when they 
were operating in a DPM capacity before the CBOE established the PAR 
Official trading floor capacity. Therefore, the Exchange believes it is 
appropriate to amend its procedures to allow for the one-year period 
under CBOE Rule 3.9(g) to be applied to an individual who has acted in 
an Exchange trading floor capacity.

[[Page 29564]]

III. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\8\ In particular, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\9\ which, among 
other things, requires that the rules of a national securities exchange 
be designed to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating 
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.
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the amendment to CBOE's rules to 
permit persons who had been acting in an exchange trading floor 
capacity within the last year to become members without completing the 
Orientation Program and passing the Qualification Examination again is 
a reasonable expansion of the exception to the rule. The functions 
performed by such persons are similar to those performed by members 
possessing an authorized trading function.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2007-15), be, and 
hereby is, approved.
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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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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-10205 Filed 5-25-07; 8:45 am]

BILLING CODE 8010-01-P
