
[Federal Register: April 2, 2008 (Volume 73, Number 64)]
[Notices]               
[Page 18018-18019]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ap08-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57556; File No. SR-CBOE-2008-03]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change Relating to Complex 
Orders

March 26, 2008.

I. Introduction

    On January 14, 2008, 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 regarding complex orders. The 
proposed rule change was published for comment in the Federal Register 
on February 21, 2008.\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. 57326 (February 13, 
2008), 73 FR 9609.
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II. Description of the Proposal

    The Exchange is proposing to amend its priority provisions 
contained in CBOE Rules 6.45, 6.45A and 6.45B to provide that a complex 
order may be executed at a net debit or credit price with another 
member without giving priority to equivalent bids (offers) in the 
individual series legs that are represented in the public customer 
limit order book, provided that one leg of the complex order betters 
the corresponding bid (offer) in the public customer limit order book 
by at least the amount determined by the Exchange on a class-by-class 
basis. The amount shall be either (i) one minimum trading increment 
(i.e., $0.10, $0.05 or $0.01, as applicable) or (ii) a $0.01 increment. 
Currently, the rules provide that one leg of a complex order must 
better the corresponding bid (offer) in the public customer limit order 
book by at least one minimum trading increment.\4\
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    \4\ Currently, for example, if a complex order spread market is 
quoted on a net debit/credit basis at $0.90 to $1.10 and there are 
orders represented in the public customer limit order book in the 
individual series at each of the respective prices, the complex 
order may only be executed with another member at a net price of 
$0.95 to $1.05. Under the proposed revisions, a complex order may be 
executed at a net price of $0.91 to $1.09, permitting price 
improvement at net prices ranging from $0.91-$0.94 and $1.06-$1.09.
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III. Discussion

    The Commission finds that the proposed rule change 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 finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\6\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market, 
and, in general, to protect investors and the public interest.
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    \5\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that it is beneficial for orders in the 
same securities directed to an exchange to interact with each other, as 
such interaction promotes efficient exchange trading and protects 
investors by assuring that orders are executed pursuant to a single set 
of priority rules that are consistently and fairly applied. The 
Commission notes that CBOE maintains a complex order book (``COB'') to 
facilitate more automated handling of complex orders traded on the 
Hybrid System by permitting market participants to place complex orders 
at net debit/credit prices on a central limit order book.\7\ In 
addition, market participants may choose to enter complex orders into 
the complex order auction (``COA'') for potential price improvement via 
the automated request for responses process.\8\ The Commission believes 
that the proposed rule change to modify the Exchange's priority 
provisions for complex orders is appropriate in this circumstance in 
light of the price competition for complex orders driven by the COB and 
the availability of the COA. The Commission believes that the proposal 
could enhance the orderly execution of complex orders on the CBOE and 
could provide new opportunities for price improvement. The Commission 
believes that these benefits outweigh the minimal impact on the 
efficient interaction of public customer orders in

[[Page 18019]]

individual series. Finally, the Commission believes the proposed 
modification of the priority rules for complex orders is consistent 
with the Act.
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    \7\ See Securities Exchange Act Release No. 51271 (February 28, 
2005), 70 FR 10712 (March 4, 2005).
    \8\ See Securities Exchange Act Release No. 54135 (July 12, 
2006), 71 FR 41287 (July 20, 2006). In addition, the Commission 
notes that the legs of a COA-eligible order may be executed in $0.01 
increments, regardless of the minimum quoting increments that 
otherwise would apply to the individual legs of the order. See CBOE 
Rule 6.53C(d)(v). CBOE rules also allow complex orders routed to or 
resting in the COB to be expressed and executed in $0.01 increments, 
thereby providing additional price points at which complex orders 
could be executed. See CBOE Rule 6.53C(c)(ii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-CBOE-2008-03) be, and it 
hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-6787 Filed 4-1-08; 8:45 am]

BILLING CODE 8011-01-P
