
[Federal Register: August 15, 2008 (Volume 73, Number 159)]
[Notices]               
[Page 47986-47988]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15au08-97]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58326; File No. SR-CBOE-2008-82]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend Its Rules Related to the Hybrid Agency Liaison and 
the Complex Order RFQ Auction

August 7, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 31, 2008, the Chicago Board Options Exchange, Incorporated 
( ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
Exchange. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify Rule 6.14, Hybrid Agency Liaison 
(HAL), so that the order eligibility requirements mirror the 
requirements for the Exchange's Rule 6.13A, Simple Auction Liaison 
(SAL). The Exchange also proposes a similar modification to Rule 
6.53C(d), Process for Complex Order RFR Auction (``COA''), so that the 
Exchange may determine eligible complex order type and eligible complex 
order origin code for COA on a class-by-class basis. The text of the 
proposed rule change is available on the Exchange's Web site (http://
www.cboe.org/Legal), at the Exchange's Office of the Secretary and at 
the Commission.

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 self-regulatory organization 
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 those 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 parts of such statements.

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

1. Purpose
    HAL and COA are features within CBOE's Hybrid System. In classes 
where HAL and/or COA are activated, eligible orders are electronically 
exposed for an exposure period. During the applicable exposure period, 
the orders that are subject to exposure are eligible to receive a 
better price. At the conclusion of the HAL or COA process, as 
applicable, the order is then allocated or, to the extent not executed, 
booked or routed as described in the relevant rules.
    HAL exposes eligible simple orders for price improvement. For HAL, 
an eligible order is currently an order in an option class designated 
by the Exchange that is (i) a market order or limit order that is 
marketable against the Exchange's disseminated quotation while that 
quotation is not at the national best bid or offer (``NBBO''); (ii) a 
limit order that would improve the Exchange's disseminated quotation 
and

[[Page 47987]]

is marketable against quotations disseminated by other exchanges 
participating in the Intermarket Options Linkage (``Linkage''); and 
(iii) for Hybrid 3.0 classes, a limit order that would improve the 
Exchange's disseminated quotation except when the disseminated 
quotation is represented by a manual quote. To have more flexibility 
and so that there is consistency in our rules, we are proposing to 
change these HAL order eligibility provisions to mirror the order 
eligibility provisions of SAL, which is a feature within CBOE's Hybrid 
System that auctions eligible marketable orders for price improvement 
over the NBBO. Specifically, we are proposing to modify the HAL order 
eligibility parameters to provide that, in addition to designating the 
eligible option classes, the Exchange may designate the eligible order 
size, eligible order type and eligible order origin code (i.e., public 
customer orders, non-Market Maker broker-dealer orders, and Market 
Maker broker dealer orders) for each class. The proposal would not, 
however, permit the Exchange to discriminate among individual market 
participants of the same type (e.g., permit certain market-maker orders 
but not others to be eligible for the HAL auction). Any changes to the 
HAL eligibility parameters determined by the Exchange would be 
announced to the membership via Regulatory Circular.
    Thus, an order would be eligible for a HAL auction if it meets 
these designated criteria and (i) is marketable against the Exchange's 
disseminated quotation while that quotation is not at the NBBO; (ii) 
would improve the Exchange's disseminated quotation and is marketable 
against quotations disseminated by other exchanges participating in 
Linkage; and (iii) for Hybrid 3.0 classes, would improve the Exchange's 
disseminated quotation except when the disseminated quotation is 
represented by a manual quote. All other provisions of the HAL rule 
would apply unchanged. In this regard, the Exchange notes that orders 
that are not eligible for a HAL auction would continue to be treated 
the same as orders that are not eligible today. In Hybrid 3.0 classes, 
such orders would be booked (or, if not eligible for book entry, routed 
to PAR, BART or the order entry firm's booth printer). For all other 
Hybrid classes, the Exchange would initiate the linkage process to 
attempt to obtain an NBBO fill for the order from an away market or 
book the order if it is not marketable. Also, if the Exchange 
determines that immediate-or-cancel (``IOC'') orders are not eligible 
for HAL, such orders would be automatically cancelled to the extent 
they are not immediately executed against the Exchange's existing 
quotes.
    COA exposes eligible complex orders for price improvement. For COA, 
an eligible complex order is currently a complex order that, as 
determined by the Exchange on a class-by-class basis, is eligible for 
COA considering the order's marketability (defined as a number of ticks 
away from the current market, size, and complex order type as defined 
in paragraph (a) of Rule 6.53C.\5\ With respect to COA, we are seeking 
to make some cross-reference updates related to how a ``COA-eligible 
order'' is defined. First, we are seeking to modify the definition to 
provide that the eligible complex order type determined by the Exchange 
may also be as defined in paragraph (b) of Rule 6.53C.\6\ The proposed 
change modifies the definition so that the Exchange can determine 
whether FOK, IOC, AON and GTC complex orders are eligible for COA 
auctions. Second, we are seeking to modify the definition to provide 
that the Exchange may determine the complex order origin types that are 
eligible for COA by adding a cross-reference to subparagraph (c)(i) of 
the Rule (i.e., non-broker-dealer public customers, broker-dealers that 
are not Market-Makers or specialists on an options exchange, and/or 
Market-Makers or specialists on an options exchange). The proposal 
would not, however, permit the Exchange to discriminate among 
individual market participants of the same type (e.g., permit certain 
market-maker orders but not others to be eligible for the COA auction). 
The proposed change modifies the definition so that the Exchange can 
make determinations on eligible complex order origin type with respect 
to both orders into the complex order book and into COA. These 
modifications are also consistent with Rule 6.13A, which currently 
allows the Exchange to determine which simple orders are eligible for 
SAL based on order type and origin code. Any changes to the COA-
eligible order parameters determined by the Exchange would be announced 
to the membership via Regulatory Circular. All other provisions of the 
COA rule would apply unchanged.
---------------------------------------------------------------------------

    \5\ Paragraph (a) defines a complex order to include a spread 
order, straddle order, strangle order, combination order, ratio 
order, butterfly spread order, box/roll spread order, collar orders 
and risk reversals and stock-option orders.
    \6\ Paragraph (b) defines the types of complex orders that may 
be entered as fill-or-kill (``FOK''), IOC, all-or-none (``AON'') or 
good-'til-cancelled (``GTC'').
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \7\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \8\ 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 change would 
provide more flexibility in our HAL and COA rules that is consistent 
with parallel provisions in the existing SAL rule.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange neither solicited nor received comments on the 
proposal.

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

    Because the foregoing rule does not (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, provided that the self-regulatory organization 
has given the Commission written notice of its intent to file the 
proposed rule change at least five business days prior to the date of 
filing of the proposed rule change or such shorter time as designated 
by the Commission,\9\ the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\ At any time within 60 days of the filing of such 
proposed rule change, the Commission may summarily abrogate such rule

[[Page 47988]]

change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \9\ The Exchange has fulfilled this requirement.
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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-2008-82 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, Station Place, 100 F Street, NE., Washington, 
DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2008-82. 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, 100 F Street, NE., 
Washington, DC 20549, 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 Exchange. 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 publicly available. All 
submissions should refer to File Number SR-CBOE-2008-82 and should be 
submitted on or before September 5, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18894 Filed 8-14-08; 8:45 am]

BILLING CODE 8010-01-P
