
[Federal Register: May 22, 2008 (Volume 73, Number 100)]
[Notices]               
[Page 29796-29797]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22my08-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57816; File No. SR-CBOE-2008-41]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change Relating to the 
Automated Improvement Auction

May 14, 2008.
    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 April 15, 2008, Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to allow orders for less than 50 contracts to 
be entered into the Automated Improvement Mechanism (``AIM'') at a 
price that matches the national best bid or offer (``NBBO''). The text 
of the proposed rule change is available at the Exchange, on the 
Exchange's Web site (http://www.cboe.org/Legal), and in 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 Exchange 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 these 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 aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In order to provide additional opportunities for price improvement, 
the Exchange proposes to expand the application of its electronic AIM 
auction process. Under the AIM auction process, a member that 
represents agency orders may submit an order it represents as agent 
(``Agency Order'') along with a second order (a principal order or a 
solicited order for the same amount as the Agency Order) into the AIM 
auction where other participants can compete with the submitting 
member's second order to execute against the Agency Order. A member 
(the ``Initiating Member'') may initiate the AIM auction process 
provided certain requirements are met. These requirements include a 
condition that the Initiating Member stop the entire Agency Order as 
principal or with a solicited order at the following price: (i) If the 
Agency Order is for 50 contracts or more, at the better of the NBBO or 
the Agency Order's limit price (if the order is a limit order); and 
(ii) if the Agency Order is for less than 50 contracts, at the better 
of (A) the NBBO price improved by one minimum price improvement 
increment, which increment shall be determined by the Exchange but may 
not be smaller than one cent; or (B) the Agency Order's limit price (if 
the order is a limit order).
    The Exchange is now proposing to modify this condition with respect 
to the stop price for orders of less than 50 contracts. Under the 
proposed rule change, such orders would be stopped at the better of the 
NBBO or the Agency Order's limit price (if the order is a limit order). 
Thus, orders for less than 50 contracts would be treated the same as 
orders for 50 contracts or more for purposes of the AIM stop price 
requirement. The Exchange believes this is a reasonable modification 
designed to provide additional flexibility for members to obtain 
executions on behalf of their customers while continuing to provide a 
meaningful, competitive auction. The Exchange believes this expansion 
of AIM would have the added benefit of providing members with an 
alternative method of achieving an execution at the NBBO for their 
customers without having to pay taker fees that may be associated with 
routing an order to another market in those scenarios where CBOE's best 
bid or offer is inferior to the NBBO.\3\
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    \3\ Several options exchanges have adopted a fee structure in 
which firms receive a rebate for the execution of orders resting in 
the limit order book (i.e., posting liquidity) and pay a fee for the 
execution of orders that trade against liquidity resting on the 
limit order book (i.e., taking liquidity). Taker fees currently 
range up to $0.45 per contract and are charged without consideration 
of the order origin category, including public customer orders. In 
contrast, CBOE does not generally charge a fee for the execution of 
public customer orders. The effective price paid by a customer 
purchasing an option can be considerably higher on an exchange that 
charges a taker fee. For example, a customer that enters a 
marketable limit order to buy 10 contracts for $0.10 would pay $100 
on CBOE and $104.50 if executed on an exchange that charges a $0.45 
taker fee (an effective 4.5% increase). Because orders cannot be 
executed at prices inferior to the NBBO, members are effectively 
forced to pay taker fees when an exchange with a taker fee structure 
is at the NBBO and the members' orders are directly routed to such 
an exchange or indirectly routed to such an exchange through the 
Intermarket Options Linkage (where the fees are passed through).

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[[Page 29797]]

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\4\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\5\ in particular, in that it is designed 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. 
In particular, the Exchange believes that the proposed rule change will 
provide additional opportunities for price improvement and guaranteed 
executions at a price at least as good as the NBBO. Additionally, it 
will allow members to avoid paying taker fees.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2008-41 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-2008-41. 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 on official business 
days between the hours of 10 a.m. and 3 p.m. 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-2008-41 and should be submitted on or before June 12, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-11419 Filed 5-21-08; 8:45 am]

BILLING CODE 8010-01-P
