
[Federal Register: July 20, 2009 (Volume 74, Number 137)]
[Notices]               
[Page 35215-35217]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20jy09-85]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60295; File No. SR-CBOE-2009-049]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to Market-Maker Guidelines

July 13, 2009.
    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 9, 2009, 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.
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    \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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend Rule 8.7, Obligations of Market-
Makers, to: (i) Eliminate the provision providing for bids (offers) to 
be no more than $1 lower (higher) than the last preceding transaction 
plus or minus the aggregate change in the last sale price of the 
underlying, and (ii) amend the provision pertaining to trades that are 
more than $0.25 below parity. 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.

[[Page 35216]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule 8.7, in part, provides that Market-Makers are expected 
ordinarily, except in unusual market conditions, not to bid more than 
$1 lower or offer more than $1 higher than the last preceding 
transaction price for the particular option contract plus or minus the 
aggregate change in the last sale price of the underlying security 
since the time of the last preceding transaction for the particular 
option contract (the ``one point'' rule). In addition, Market-Makers 
are expected ordinarily, except in usual market conditions, to refrain 
from purchasing a call option or a put option at a price more than 
$0.25 below parity. In the case of calls, parity is measured by the bid 
in the underlying security, and in the case of puts, parity is measured 
by the offer in the underlying security (the ``parity'' rule).
    First, the Exchange is proposing to eliminate the one point rule. 
The one point rule was originally adopted as a guideline in 1987.\5\ 
Since that time, various market changes have rendered the rule obsolete 
and unnecessary. For example, Market-Makers now stream electronic 
quotes and are subject to various electronic quotation requirements, 
including bid/ask quote width requirements contained elsewhere in Rule 
8.7. In addition, the options intermarket linkage plan was adopted and 
contains trade-through and locked/crossed market requirements (e.g., 
Rules 6.83 and 6.84). The Exchange has also adopted an obvious error 
rule that contains provisions on erroneous pricing errors (e.g., Rule 
6.25) and has in place certain price check parameters that will not 
permit the automatic execution of certain orders if the execution would 
take place outside an acceptable price range (e.g., Rule 6.13(b)(v)).
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    \5\ See Securities Exchange Act Release No. 24040 (January 30, 
1987), 52 FR 4070 (February 9, 1987) (SR-CBOE-86-34).
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    Second, at this time the Exchange is proposing to retain the parity 
rule (which was also adopted in 1987) \6\ as a guideline but to modify 
it to provide that an amount larger than $0.25 may be appropriate 
considering the particular market conditions (not just unusual market 
conditions as the rule currently states). The text is also being 
revised to provide that the $0.25 guideline may be increased, or the 
parity rule waived, by the Exchange on a series-by-series basis. The 
Exchange believes that revising the $0.25 parity rule in this manner 
modernizes the guideline to reflect market changes (including those 
discussed above) and will provide more flexibility to take into 
consideration the particular trading in a security, including but not 
limited to the underlying market price, market conditions, and 
applicable minimum bid/ask width requirements for a given options 
series.
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    \6\ Id.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \7\ and the rules and regulations thereunder and, in 
particular, the requirements of Section 6(b) of the Act.\8\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \9\ requirements that the rules of 
an exchange be designed to promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest, because it will eliminate the outdated one point 
rule and update the parity rule to incorporate more flexibility and 
recognize changing market conditions.
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    \7\ 15 U.S.C. 78s(b)(1).
    \8\ 15 U.S.C. 78f(b).
    \9\ 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

    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,\10\ the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
thereunder.\12\ At any time within 60 days of the filing of such 
proposed rule change, the Commission may summarily abrogate such rule 
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.
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    \10\ The Exchange has fulfilled this requirement.
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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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-2009-049 on the subject line.

Paper Comments

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


[[Page 35217]]


All submissions should refer to File Number SR-CBOE-2009-049. 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 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-2009-049 and should be 
submitted on or before August 10, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
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    \13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-17134 Filed 7-17-09; 8:45 am]

BILLING CODE 8010-01-P
