
[Federal Register: May 19, 2010 (Volume 75, Number 96)]
[Notices]               
[Page 28086-28088]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my10-115]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62095; File No. SR-CBOE-2010-042]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Suspension of Seat Market

May 13, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on May 6, 2010, the Chicago Board Options 
Exchange, Incorporated (``CBOE'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'' or ``SEC'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the CBOE. CBOE has filed the proposal 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(3) thereunder,\4\ which renders the proposal effective upon filing 
with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested parties.
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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)(3).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to amend its rules governing the sale and transfer of 
Exchange memberships by adding new Interpretation and Policy .02 to 
Rule 3.14. The rule proposal is available on the Exchange's Web site 
(http://www.cboe.org/legal), at the Exchange's Office of the Secretary, 
at the Commission's Public Reference Room, and on the Commission's Web 
site at http://www.sec.gov.

[[Page 28087]]

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

    In its filing with the Commission, CBOE 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
    The purpose of the proposed rule change is to provide for a fair 
and orderly market in shares of common stock of CBOE Holdings, Inc. 
(``CBOE Holdings Common Stock'') in the unique circumstances presented 
during the brief period, anticipated to be three business days, between 
the commencement of the initial public offering of such shares and the 
effectiveness of the demutualization of the Exchange. The timetable for 
the demutualization of the Exchange and the public offering of CBOE 
Holdings Common Stock is such that, although the demutualization 
transaction will have been approved in a vote of the Exchange 
membership prior to the commencement of the public offering, the 
demutualization will not become effective until just prior to the 
closing of the public offering, which is expected to occur three 
business days after the commencement of the offering. This timetable 
avoids having to address difficult administrative issues that would 
otherwise arise on account of the need to issue special ``Class A'' and 
``Class B'' shares of CBOE Holdings Common Stock to Exchange membership 
owners and to participants in the settlement of the ``Exercise Right'' 
litigation, respectively, upon the effectiveness of the 
demutualization. Upon the closing of the public offering, both of these 
special share Classes will be converted into the same classes of shares 
of CBOE Holding Common Stock. By essentially eliminating the time 
interval between the effectiveness of the demutualization and the 
closing of the public offering, the Exchange is able to avoid difficult 
issues that would otherwise have to be addressed as a result of having 
both Class A and Class B shares of CBOE Holdings Common Stock 
outstanding prior to just before the closing of the public offering.
    As is customary in underwritten public offerings, immediately upon 
the commencement of the public offering of shares of CBOE Holdings 
common stock the shares will begin to be traded on a when-issued basis 
on the exchange where the shares are listed. However, because the 
effectiveness of the demutualization will not occur until just before 
the closing of the public offering for the reason explained above, 
Exchange memberships will continue to be outstanding concurrently with 
the when-issued trading of the same class of shares into which they 
will ultimately be converted. It is essential to the orderliness of the 
public offering of shares of CBOE Holdings Common Stock and consistent 
with the ability of the underwriters to engage in stabilization 
transactions in those shares under Rule 104 of Regulation M under the 
Securities Exchange Act of 1934,\5\ that while there is when-issued 
trading in shares of CBOE Holdings Common Stock in the listed market 
for these shares, there must not be an alternative market in the same 
class of shares or in interests that are equivalent to those shares. If 
there were to continue to be a market for Exchange memberships during 
this brief period, it would amount to an alternative market for the 
class of shares being offered, since upon the effectiveness of the 
demutualization all outstanding Exchange memberships will be converted 
into shares of CBOE Holdings Common Stock. The Exchange believes that 
such a seat market would be outside of the scope of Regulation M \6\ 
and the underwriters' ability to stabilize the price of the shares 
being offered. Accordingly, the existence of such an alternative market 
would jeopardize the orderliness of the public offering. For this 
reason, the Exchange believes that it is necessary to suspend the 
operation of the Exchange's seat market during this brief period. A 
rule change is needed to accomplish this suspension, since it is for a 
longer period than the Board of Directors is authorized to declare 
under existing Interpretation and Policy .01 under Exchange Rule 3.14.
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    \5\ 17 CFR 242.104.
    \6\ 17 CFR 242.104.
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    There should be no adverse consequences to Exchange members as a 
result of suspending the CBOE seat market for a brief, three-day 
period. Before the public offering commences, and as a condition of the 
offering, the demutualization of the Exchange will have been approved 
by a vote of the Exchange membership, although as explained above the 
demutualization will not become effective until after the public 
offering has been completed and just prior to its closing. During this 
period, the ownership interests in the Exchange will, for all practical 
purposes, be represented by the shares of CBOE Holdings common stock 
into which memberships will be converted in accordance with the terms 
and upon the effectiveness of the demutualization, which will have been 
approved by CBOE's membership. Once this happens, Exchange memberships 
will cease to exist and the purchase and sale of Exchange memberships 
will no longer be possible. Thus the effect of the proposed rule change 
is simply to accelerate the termination of the seat market by three 
days prior to the time it would have ended in any event.
    In the unlikely event that the demutualization, having been 
approved by the membership, does not become effective as anticipated, 
the public offering will not close and Exchange memberships will remain 
outstanding. In that event, the seat market will once again resume 
operation, subject only to the authority of the Board to delay its 
resumption for no more than one business day under existing 
Interpretation and Policy .01 of Rule 3.14, if the Board determines 
that under the circumstances such a delay is needed in the interest of 
a fair and orderly market in memberships.
2. Statutory Basis
    By providing for a fair and orderly public offering of shares of 
CBOE Holdings Common Stock and eliminating any possibility that the 
market in Exchange memberships could be used to manipulate the when-
issued market in such shares, 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) \8\ in particular, in that it would 
prevent fraudulent and manipulative acts and practices, would promote 
just and equitable principles of trade and would 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 that is not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 28088]]

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) of the Act \9\ and subparagraph (f)(3) of Rule 19b-4 
thereunder.\10\ At any time within 60 days of the filing of the 
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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(3).
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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-2010-042 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 Number SR-CBOE-2010-042. 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 Web site viewing and 
printing 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-2010-042 and should be 
submitted on or before June 9, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-11944 Filed 5-18-10; 8:45 am]
BILLING CODE 8010-01-P

