

[Federal Register: October 3, 2007 (Volume 72, Number 191)]
[Notices]               
[Page 56406-56407]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03oc07-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56532; File No. SR-CBOE-2006-104]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change, as Modified by 
Amendment No. 1 Thereto, To Codify the Hybrid Price Check Parameter

September 26, 2007.

I. Introduction

    On December 7, 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 amend CBOE Rule 6.13, CBOE 
Hybrid System's Automatic Execution Feature, to codify an automated 
system feature that prevents executions at potentially erroneous prices 
(``price check parameter functionality''). On August 1, 2007, the 
Exchange filed Amendment No. 1 to the proposed rule change. The 
proposed rule change, as amended, was published for comment in the 
Federal Register on August 20, 2007.\3\ The Commission received no 
comments regarding the proposal.
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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. 56245 (August 14, 
2007), 72 FR 46525.
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II. Description of the Proposal

    The proposed rule change would amend CBOE Rule 6.13 to adopt the 
price check parameter functionality, which the Exchange would activate, 
on a series by series basis for a given option class, to prevent an 
automatic execution of a market order through CBOE's Hybrid System if 
such execution would occur outside a prescribed market width. 
Specifically, the functionality would be triggered to block an 
execution of a market order if the width between the Exchange's best 
bid and best offer is not within an ``acceptable price range.'' The 
applicable acceptable price range for each series of an option class 
would be determined by the appropriate Exchange Procedure Committee and 
could be no less than 1.5 times the corresponding bid/ask differentials 
in CBOE Rule 8.7(b)(iv)(A).\4\ The acceptable price range for each 
series of an option class would be announced to the CBOE membership via 
Regulatory Circular at least one day in advance.
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    \4\ CBOE Rule 8.7(b)(iv)(A) sets forth the bid/ask differentials 
for open outcry trading, which are as follows: No more than $0.25 
between the bid and offer for each option contract for which the bid 
is less than $2.00; no more than $0.40 where the bid is at least 
$2.00 but does not exceed $5.00; no more than $0.50 where the bid is 
more than $5.00 but does not exceed $10; no more than $0.80 where 
the bid is more than $10 but does not exceed $20; and no more than 
$1.00 where the bid is more than $20.
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    When the price check parameter functionality is triggered for a 
particular market order, such market order no longer would be eligible 
for automatic execution and would be routed on a class by class basis 
to PAR (the public automated routing system) or BART (the booth 
automated routing terminal) or, at the order entry firm's discretion, 
to the order entry firm's booth printer.
    The Exchange also proposed that the senior official in CBOE's 
Control Room or two Floor Officials could grant intra-day relief by 
widening the acceptable price range for one or more option series. If 
such intra-day relief is granted, it would be announced via verbal 
message to the trading crowd, printer message to member organizations 
on the trading floor, and electronic message to members that request to 
receive such messages. The granting of such intra-day relief would be 
for no more than the duration of the particular trading day. Any 
decision to extend relief beyond an intra-day basis would be announced 
to the membership via Regulatory Circular.

[[Page 56407]]

III. Discussion

    The Commission finds that the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\5\ In particular, the 
Commission believes that the proposal is consistent with Section 
6(b)(5) of the Act,\6\ which requires that the rules of an exchange be 
designed to promote just and equitable principles of trade and, in 
general, to protect investors and the public interest. In the 
Commission's view, CBOE's price check parameter functionality 
potentially would benefit customers whose market orders otherwise would 
receive an automatic execution at a price that is outside of an 
acceptable price range that is established by the Exchange and based on 
criteria set forth in CBOE Rule 6.13. Because such orders would be 
routed to PAR, BART, or the order-entry firm's booth, customers 
potentially could receive a more favorable price than the price then 
available through CBOE's Hybrid System.
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    \5\ 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).
    \6\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-CBOE-2006-104), as modified 
by Amendment No. 1, is approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-19540 Filed 10-2-07; 8:45 am]

BILLING CODE 8011-01-P
