
[Federal Register: July 10, 2008 (Volume 73, Number 133)]
[Notices]               
[Page 39747-39748]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10jy08-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58088; File No. SR-CBOE-2008-16]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval of Proposed Rule Change To Reduce 
Certain Order Exposure Times From Three Seconds to One Second

July 2, 2008.

I. Introduction

    On May 16, 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 to reduce certain order exposure 
times from three seconds to one second. The proposed rule change was 
published for comment in the Federal Register on May 30, 2008.\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)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57849 (May 22, 
2008), 73 FR 31167 (May 30, 2008).
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II. Description of the Proposal

    The Exchange proposes to reduce the order handling and exposure 
periods contained in Rules 6.45A, Priority and Allocation of Equity 
Option Trades on the CBOE Hybrid System, 6.45B, Priority and Allocation 
of Trades in Index Options and Options on ETFs on the CBOE Hybrid 
System, 6.74A, Automated Improvement Mechanism (``AIM''), and 6.74B, 
Solicitation Auction Mechanism, from three seconds to one second.
    Rules 6.45A and 6.45B provide that an order entry firm may not 
execute an order it represents as agent with a facilitation or 
solicited order (referred to herein as ``crossing orders'') using the 
Hybrid Trading System (``Hybrid'') unless it first complies with the 
three-second exposure requirement. Specifically, order entry firms may 
not execute a facilitation cross unless: (i)

[[Page 39748]]

The agency order is first exposed on Hybrid for at least three seconds; 
(ii) the order entry firm has been bidding or offering for at least 
three seconds prior to receiving the agency order that is executable 
against such bid or offer; or (iii) the order entry firm proceeds in 
accordance with the floor-based open outcry crossing rules contained in 
CBOE Rule 6.74, Crossing Orders. Similarly, order entry firms may not 
execute an order they represent as agent against orders solicited from 
members and non-member broker-dealers unless the agency order is first 
exposed on Hybrid for at least three seconds. During this three-second 
exposure period for crossing orders, other members may enter orders to 
trade against the exposed order. CBOE proposes to reduce these exposure 
periods to one second.
    Rule 6.74A provides that orders entered into AIM must be exposed 
for a random time period that is not less than three seconds and not 
more than five seconds, to provide an opportunity for additional 
trading interest to be entered before the orders are automatically 
executed. Rule 6.74B provides that orders entered into the Solicitation 
Auction Mechanism (the ``SAM Auction'') must be exposed for a three 
second period, also to provide an opportunity for additional trading 
interest to be entered before the orders are automatically executed. 
CBOE proposes to reduce the exposure period for AIM and the exposure 
period for the SAM Auction to one second.

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.\4\ In particular, the Commission finds that the proposed rule 
change is consistent with section 6(b)(5) of the Act,\5\ 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. The 
Commission also finds that the proposed rule change is consistent with 
section 6(b)(8) of the Act,\6\ which requires that the rules of an 
exchange not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \4\ 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).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that, in the electronic environment of 
Hybrid, reducing each of the exposure periods from three seconds to one 
second could facilitate the prompt execution of orders, while 
continuing to provide participants in Hybrid with an opportunity to 
compete for exposed bids and offers. According to the Exchange, 
numerous CBOE market participants have the capability to and do opt to 
respond within a one-second exposure period on its Hybrid trading 
platform. Specifically, the Exchange noted that the exposure and 
allocation timers for the Exchange's Hybrid Agency Liaison (``HAL'') 
mechanism, which employs the same type of mechanical messaging as the 
AIM and SAM Auction mechanisms, are currently both set at 0.300 seconds 
and numerous market participants can and do opt to respond to HAL 
exposure messages within this time frame. The Exchange also noted that 
market participants receive mechanically messaged information about 
book updates, and are able to and do opt to automatically submit orders 
and quotes in response to those book updates on the Hybrid trading 
system, in substantially the same manner as they would respond to a HAL 
message. Accordingly, the Commission believes that it is consistent 
with the Act for these order exposure times to be reduced from three 
seconds to one second.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-CBOE-2008-16) be, and hereby 
is, approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-15628 Filed 7-9-08; 8:45 am]

BILLING CODE 8010-01-P
