
[Federal Register: October 5, 2009 (Volume 74, Number 191)]
[Notices]               
[Page 51208-51209]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05oc09-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60727; File No. SR-CBOE-2009-067]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Bid/Ask Differentials

September 28, 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 September 21, 2009, 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 proposes to amend its rules relating to bid/ask 
differentials. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.cboe.org/Legal), at the Office of the 
Secretary, CBOE 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    CBOE proposes to amend its rules pertaining to the bid/ask 
differential requirements. Currently, Rule 8.7(b)(iv) specifies the 
bid/ask differential requirements applicable to Market-Makers when 
bidding and offering in open outcry, during opening rotations and when 
quoting electronically on the Hybrid Trading System.\5\ With respect to 
bidding and offering in open outcry and during opening rotations, the 
requirements vary depending on the price of the bid. For example, Rule 
8.7(b)(iv)(A) states that the quote widths shall not be more than: 
$0.25 if the bid is less than $2; $0.40 where the bid is at least $2 
but does not exceed $5; $0.50 where the bid is more than $5 but does 
not exceed $10; $0.80 where the bid is more than $10 but does not 
exceed $20; and $1 where the bid is more than $20. With respect to 
electronic quoting on the Hybrid Trading System, the bid/ask 
differential requirement is $5. Rule 8.7(b)(iv) also provides that CBOE 
may establish quote width differences other than those set forth above 
for one or more option series. Some or all of these quote width 
differentials are also applicable to LMMs in Hybrid 3.0 classes (see 
Rule 8.15), LMMs in Hybrid classes (see Rule 8.15A), DPMs (see Rule 
8.85), and e-DPMs (see Rule 8.93), depending on the manner in which the 
market participant functions.
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    \5\ Pursuant to Rule 1.1(aaa), reference to Hybrid Trading 
System includes the Hybrid 3.0 Platform unless otherwise specified.
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    CBOE proposes to amend its rules to allow the Exchange to set the 
bid/ask differential requirements on a class by class basis, and delete 
from its rules the specific differentials identified in Rule 
8.7(b)(iv). CBOE would announce the bid/ask differentials to its 
members via circular. Although CBOE at this time does not anticipate 
materially changing the bid/ask differentials from their current 
levels, it believes that this change provides it with additional 
flexibility to tailor the bid/ask differential requirements to 
particular option classes and to take into consideration the market 
conditions and the trading and liquidity in a particular option class 
and its underlying security when setting the bid/ask differentials. 
Under its existing rules, CBOE from time to time grants bid/ask relief 
in various option classes based on market conditions and it has not 
experienced any negative effects from such actions. CBOE believes that 
the proposed rule change will allow CBOE to continue to set the bid/ask 
differentials at an appropriate level which may be different than the 
existing bid/ask differentials, rather than waiting for market 
participants to request bid/ask relief as it traditionally has been 
done. CBOE notes that the rules of the Nasdaq Options Market do not 
contain any bid/ask differential requirements, even though CBOE does 
not anticipate mimicking that market structure. Accordingly, CBOE 
believes that this proposed change is consistent with the Act.
    In connection with this proposal, CBOE proposes to make related 
changes to Rules 6.2B, 6.13, 6.25, 6.53C, 8.14, 8.15, 8.15A, 8.85, and 
8.93, which currently reference the bid/ask differentials in Rule 
8.7(b)(iv).
    Finally, CBOE proposes to amend Rule 8.93(iv) to state that an e-
DPM is obligated to assure that its market quotations comply with the 
minimum size requirements prescribed by CBOE, which minimum shall be at 
least one contract. Last year, CBOE amended its rules to allow the 
Exchange to set a minimum quotation size requirement for electronic and 
open outcry quotes on a class by class basis, provided the minimum set 
by the Exchange is at least one contract.\6\ In that filing, changes to 
Rule 8.93 were inadvertently omitted.
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    \6\ See Securities Exchange Act Release No. 58828 (October 21, 
2008), 73 FR 63749 (October 27, 2008), granting immediate 
effectiveness to SR-CBOE-2008-107.
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2. Statutory Basis
    The proposed rule change would permit the Exchange to set the bid/
ask differential requirements on a class by class basis. CBOE believes 
that this flexibility will enable the Exchange to tailor the bid/ask 
differential requirements to particular classes and to take into 
consideration the market conditions and the trading and liquidity

[[Page 51209]]

in a particular option class and its underlying security. Accordingly, 
the Exchange believes the proposed rule change is consistent with the 
Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations under the Act applicable to a national securities exchange 
and, in particular, the requirements of Section 6(b) of the Act.\7\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) Act \8\ requirements that the rules 
of an exchange be designed to promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts and, in general, to 
protect investors and the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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

    Because the forgoing rule change does not: (1) Significantly affect 
the protection of investors or the public interest; (2) impose any 
significant burden on competition; and (3) become operative for 30 days 
after the date of this filing, 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\ it 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 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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    \9\ The Exchange has fulfilled this requirement.
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 No. SR-CBOE-2009-067 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.

All submissions should refer to File No. SR-CBOE-2009-067. 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 changes 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 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 No. SR-CBOE-2009-067 and should be 
submitted on or before October 26, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-23852 Filed 10-2-09; 8:45 am]

BILLING CODE 8011-01-P
