Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Board Options Exchange, Inc. To Amend its Obvious Error Rule, 8119-8121 [E5-656]

Download as PDF Federal Register / Vol. 70, No. 32 / Thursday, February 17, 2005 / Notices not and will not own any facilities directly. W.E. Power directly owns a 100 percent interest in Project Company. C. Project Company Applicants state that Project Company, a Wisconsin limited liability company, was formed specifically to develop, construct and own a 100 percent interest in the Port Washington Units. In addition, Project Company will develop, construct and own a 100 percent interest in certain transmission facilities necessary to interconnect the Port Washington Units with the ATC transmission grid. III. Proposed Transaction Applicants request authorization for Project Company to acquire the Port Washington Units and the associated transmission facilities necessary to interconnect the units with the ATC transmission grid (‘‘Transaction’’). Upon completion of construction and the satisfaction of certain conditions precedent, including the successful testing of the units, Project Company will lease the Port Washington Units to Wisconsin Electric under the terms of 25-year facility leases, one for each unit (‘‘Facility Leases’’), and certain other related contractual arrangements (‘‘Lease Transaction’’). Applicants state that once the Port Washington Units are operational, control of the appurtenant transmission facilities will be transferred to ATC. Applicants propose to implement the Lease Transaction using a ‘‘leased generation’’ structure specifically authorized under Wisconsin’s ‘‘Leased Generation Law.’’ 2 Applicants state that this law establishes a new regulatory framework under which nonutility affiliates may develop, construct and own large-scale dedicated generating facilities within the state of Wisconsin and lease those facilities to their regulated, franchised public utility affiliates. The legislative intent behind the Leased Generation Law is to ‘‘provide an incentive for utility holding companies to continue to provide generation services for the affiliate utility’s native load customers.’’ 3 To that end, Applicants state that the statute specifically permits a public utility company to acquire generating resources by leasing them from an affiliate as an alternative to the public 2 See 2001 Wis. Legis. Serv. 16, § 3008mc (West) (codified as Wis. Stat. § 196.52(9)(a)(3)(2002)). 3 See Approval of Affiliated Interest Transactions Between W.E. Power; Wisconsin Elec. Power Co.; and Wisconsin Energy Corp., PSCW Docket Nos. 05–AE–109, 05–CE–117, 137–CE–104, and 6650– CG–211 (December 19, 2002) (‘‘PSCW Order’’) VerDate jul<14>2003 14:41 Feb 16, 2005 Jkt 205001 utility company constructing the generating facilities itself. The Leased Generation Law allows a public utility company to build generation indirectly through an affiliate. The Leased Generation Law is limited to leases between a public utility company and an affiliated entity; it does not apply to leases between a public utility company and third parties. Once the lease provisions become effective, Wisconsin Electric will make fixed monthly lease payments to Project Company for the terms of the Facility Leases. In return, Wisconsin Electric will have the right to possess and operate the Port Washington Units. The Port Washington Units will be integrated with, and operated as part of, Wisconsin Electric’s existing regulated generation fleet. Wisconsin Electric will be responsible for all operations, maintenance, and fuel costs for the Port Washington Units. Applicants state that neither Project Company nor its immediate parent, W.E. Power, will operate or control the Port Washington Units or associated transmission facilities. At the end of the terms of the Facility Leases, Wisconsin Electric may, at its option, renew each Facility Lease for a renewal term determined under the terms of the Facility Lease, buy each Port Washington Unit outright from Project Company or return the units to Project Company in good condition. Wisconsin Energy requests an order affirming that, following the Transaction, it will continue to be exempt under section 3(a)(1) of the Act and W.E. Power will become and exempt intermediate holding company under section 3(a)(1) of the Act. For the Commission by the Division of Investment Management, pursuant to delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. 05–3057 Filed 2–16–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–51189; File No. SR–CBOE– 2005–12] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Board Options Exchange, Inc. To Amend its Obvious Error Rule February 10, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 8119 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 26, 2005, the Chicago Board Options Exchange, Inc. (‘‘CBOE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The proposed rule change has been filed by CBOE as a ‘‘non-controversial’’ proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 On February 9, 2005, CBOE submitted Amendment No. 1 to the proposed rule change.5 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change CBOE proposes to amend its obvious error rule, CBOE Rule 6.25 (Nullification and Adjustment of Equity Options Transactions) to adopt an erroneous quote provision. The Exchange also proposes to make two minor grammatical changes to CBOE Rule 24.16 (Nullification and Adjustment of Index Option Transactions). Additions are italicized. Deletions are bracketed. * * * * * Rule 6.25 Nullification and Adjustment of Equity Options Transactions * * * * * (a) Trades Subject to Review * * * * * (1)–(4) No Change. (5) Erroneous Quote in Underlying: Electronic trades (this provision has no applicability to trades executed in open outcry) resulting from an erroneous quote in the underlying security may be adjusted or nullified as set forth in paragraph (a)(1) above. An erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security on the primary market (as defined in Rule 1.1(v)) during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of this Rule, the average quote width shall be determined by adding the quote widths of each separate quote 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 5 Amendment No. 1 made technical corrections to the proposed rule text. 2 17 E:\FR\FM\17FEN1.SGM 17FEN1 8120 Federal Register / Vol. 70, No. 32 / Thursday, February 17, 2005 / Notices during the four minute time period referenced above (excluding the quote in question) and dividing by the number of quotes during such time period (excluding the quote in question). (b)–(e) No Change. Interpretations and Policies * * * No change. * * * * * (d)–(e) No Change Interpretations and Policies * * * .01–.02 No Change * * * * * Rule 24.16 Nullification and Adjustment of Index Option Transactions In its filing with the Commission, the Exchange 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 these 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) Trades Subject to Review * * * * * (1)—(7) No Change. (b) Procedures for Reviewing Transactions (1) Notification: Any member or person associated with a member that believes it participated in a transaction that may be adjusted or nullified in accordance with paragraph (a) must notify any Trading Official promptly but not later than fifteen (15) minutes after the execution in question. For transactions occurring after 2:45 p.m. (CT[CST]), notification must be provided promptly but not later than fifteen (15) minutes after the close of trading of that security on CBOE. Absent unusual circumstances, Trading Officials shall not grant relief under this Rule unless notification is made within the prescribed time periods. In the absence of unusual circumstances, Trading Officials (either on their own motion or upon request of a member) must initiate action pursuant to paragraph (a)(3) above within sixty (60) minutes of the occurrence of the verifiable disruption or malfunction. When Trading Officials take action pursuant to paragraph (a)(3), the members involved in the transaction(s) shall receive verbal notification as soon as is practicable. (2) No Change (c) Adjustments Unless otherwise specified in Rule 24.16(a)(1)–(6), transactions will be adjusted provided the adjusted price does not violate the customer’s limit price. Otherwise, the transaction will be nullified. With respect to Rule 24.16(a)(1)–(5), the price to which a transaction shall be adjusted shall be the National Best Bid (Offer) immediately following the erroneous transaction with respect to a sell (buy) order entered on the Exchange. For ROS or HOSS transactions, the price to which a transaction shall be adjusted shall be based on the first non-erroneous quote after the erroneous transaction on CBOE. With respect to Rule 24.16(a)(6), the transaction shall be adjusted to a price that is $0.10 under parity. VerDate jul<14>2003 14:41 Feb 16, 2005 Jkt 205001 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange’s obvious error rule, CBOE Rule 6.25,6 establishes guidelines for the adjustment and nullification of transactions in equity options.7 Under the Rule, four types of transactions may qualify as obvious errors and hence be adjusted or nullified: (1) Obvious price errors; (2) transactions in series quoted no bid at a nickel; (3) transactions resulting from verifiable disruptions of Exchange systems; and (4) transactions resulting from an erroneous print in the underlying market. The purpose of this proposed rule change is to re-insert in CBOE Rule 6.25 a fifth type of qualifying transactions resulting from erroneous quotes in the underlying security. This provision previously existed in CBOE Rule 6.25.8 In SR– CBOE–2004–83, the Exchange proposed to delete the ‘‘erroneous quote in the underlying’’ provision from CBOE Rule 6.25. However, since the implementation of the changes set forth in SR–CBOE–2004–83, the Exchange has experienced several instances involving erroneous quotes in the underlying security, and therefore, believes that it is necessary to amend CBOE Rule 6.25 to again provide for this objective obvious error provision for erroneous quotes in the underlying security. 6 See Securities Exchange Act Release No. 50880 (December 17, 2004), 69 FR 77790 (December 28, 2004) (File No. SR–CBOE–2004–83). 7 CBOE Rule 24.16 governs obvious errors for transactions in index options and options on ETFs. 8 See Securities Exchange Act Release No. 48827 (November 24, 2003), 68 FR 67498 (December 2, 2003) (approving File No. SR–CBOE–2001–04). PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 In this regard, electronic trades resulting from an erroneous quote in the underlying security may be adjusted or nullified.9 An erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security on the primary market, as defined in CBOE Rule 1.1(v), during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of this proposed rule provision, the average quote width shall be determined by adding the quote widths of each separate quote during the four-minute time period referenced above (excluding the quote in question) and dividing by the number of quotes during such time period (excluding the quote in question). CBOE notes that this provision operates in the same manner as provisions contained in CBOE Rules 24.16 and 43.5(b)(4). The Exchange also proposes to make two grammatical changes to CBOE Rule 24.16. The first would clarify the reference to Central Time as (CT), rather than (CST) in paragraph (b)(1) of CBOE Rule 24.16. The second grammatical change would add the word ‘‘rule’’ to paragraph (c) of CBOE Rule 24.16. 2. Statutory Basis CBOE represents that the filing provides an objective guideline for the nullification or adjustment of transactions executed at clearly erroneous prices. For this reason, the Exchange believes the proposed rule change is consistent with 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.10 Specifically, the Exchange believes the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act 11 that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and practices and, in general, to protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any 9 Transactions qualifying for price adjustment (i.e., transactions between two CBOE MarketMakers) will be adjusted in accordance with CBOE Rule 6.25(a)(1). Transactions not qualifying for price adjustment (i.e., transactions involving a nonCBOE Market-Maker) will be nullified. 10 15 U.S.C. 78(f)(b). 11 15 U.S.C. 78(f)(b)(5). E:\FR\FM\17FEN1.SGM 17FEN1 Federal Register / Vol. 70, No. 32 / Thursday, February 17, 2005 / Notices burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange 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. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change (1) does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) by its terms, does not become operative until 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. Furthermore, the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change. Consequently, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and Rule 19b–4(f)(6) thereunder.13 The Exchange has requested that the Commission waive the 30-day operative delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission notes that the proposal to amend CBOE Rule 6.25 by adding a provision relating to erroneous quotes in the underlying market is substantially similar to provisions contained in CBOE Rules 24.16(a)(5) and 43.5 and to a provision that was previously contained in CBOE Rule 6.25. Thus, the Commission does not believe that the proposed rule change raises any new issues. For these reasons, the Commission designates the proposal to be effective and operative upon filing with the Commission.14 At any time within 60 days of the filing of this 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, 12 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 14 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 13 17 VerDate jul<14>2003 14:41 Feb 16, 2005 Jkt 205001 or otherwise in furtherance of the purposes of the Act. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2005–12 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549–0609. All submissions should refer to File Number SR–CBOE–2005–12. 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 (https://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 Section, 450 Fifth Street, NW., Washington, DC 20549. 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 Number SR–CBOE– 2005–12 and should be submitted on or before March 10, 2005. PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 8121 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.15 Margaret H. McFarland, Deputy Secretary. [FR Doc. E5–656 Filed 2–16–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–51174; File No. SR–NSCC– 2003–22] Self-Regulatory Organizations; National Securities Clearing Corporation; Order Granting Approval of a Proposed Rule Change To Amend the Standards of Financial Responsibility Required of Mutual Fund and Insurance Services Applicants and Members that Are Banks, Trust Companies, or BrokerDealers February 9, 2005. I. Introduction On November 10, 2003, the National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) and on November 29, 2004, amended proposed rule change File No. SR– NSCC–2003–22 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’).1 Notice of the proposed rule change was published in the Federal Register on December 13, 2004.2 No comment letters were received. For the reasons discussed below, the Commission is now granting approval of the proposed rule change. II. Description The proposed rule change amends Addendum B, ‘‘Standards of Financial Responsibility and Operational Capability,’’ and Addendum I, ‘‘Standards of Financial Responsibility and Operational Capability For Fund Members,’’ of NSCC’s Rules and Procedures to enhance the standards of financial responsibility required of applicants and members that are banks, trust companies, and broker-dealers using or applying to use NSCC’s nonguaranteed services as Mutual Fund/ Insurance Services Members under Rule 2 and Fund Members under Rule 51.3 Addendum B establishes financial criteria applicable to Mutual Fund/ Insurance Services Members and 15 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 50797 (December 6, 2004), 69 FR 72238. 3 Mutual Fund Services and Insurance Processing Services are non-guaranteed services. 1 15 E:\FR\FM\17FEN1.SGM 17FEN1

Agencies

[Federal Register Volume 70, Number 32 (Thursday, February 17, 2005)]
[Notices]
[Pages 8119-8121]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-656]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51189; File No. SR-CBOE-2005-12]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Chicago Board Options Exchange, Inc. To Amend its Obvious Error 
Rule

February 10, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 26, 2005, the Chicago Board Options Exchange, Inc. (``CBOE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The proposed 
rule change has been filed by CBOE as a ``non-controversial'' proposed 
rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ On February 9, 2005, CBOE submitted 
Amendment No. 1 to the proposed rule change.\5\ 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).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ Amendment No. 1 made technical corrections to the proposed 
rule text.
---------------------------------------------------------------------------

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

    CBOE proposes to amend its obvious error rule, CBOE Rule 6.25 
(Nullification and Adjustment of Equity Options Transactions) to adopt 
an erroneous quote provision. The Exchange also proposes to make two 
minor grammatical changes to CBOE Rule 24.16 (Nullification and 
Adjustment of Index Option Transactions). Additions are italicized. 
Deletions are bracketed.
* * * * *

Rule 6.25 Nullification and Adjustment of Equity Options Transactions

* * * * *
    (a) Trades Subject to Review
* * * * *
    (1)-(4) No Change.
    (5) Erroneous Quote in Underlying: Electronic trades (this 
provision has no applicability to trades executed in open outcry) 
resulting from an erroneous quote in the underlying security may be 
adjusted or nullified as set forth in paragraph (a)(1) above. An 
erroneous quote occurs when the underlying security has a width of at 
least $1.00 and has a width at least five times greater than the 
average quote width for such underlying security on the primary market 
(as defined in Rule 1.1(v)) during the time period encompassing two 
minutes before and after the dissemination of such quote. For purposes 
of this Rule, the average quote width shall be determined by adding the 
quote widths of each separate quote

[[Page 8120]]

during the four minute time period referenced above (excluding the 
quote in question) and dividing by the number of quotes during such 
time period (excluding the quote in question).
    (b)-(e) No Change.
    Interpretations and Policies * * *
    No change.
* * * * *

Rule 24.16 Nullification and Adjustment of Index Option Transactions

* * * * *
    (a) Trades Subject to Review
* * * * *
    (1)--(7) No Change.
    (b) Procedures for Reviewing Transactions
    (1) Notification: Any member or person associated with a member 
that believes it participated in a transaction that may be adjusted or 
nullified in accordance with paragraph (a) must notify any Trading 
Official promptly but not later than fifteen (15) minutes after the 
execution in question. For transactions occurring after 2:45 p.m. 
(CT[CST]), notification must be provided promptly but not later than 
fifteen (15) minutes after the close of trading of that security on 
CBOE. Absent unusual circumstances, Trading Officials shall not grant 
relief under this Rule unless notification is made within the 
prescribed time periods. In the absence of unusual circumstances, 
Trading Officials (either on their own motion or upon request of a 
member) must initiate action pursuant to paragraph (a)(3) above within 
sixty (60) minutes of the occurrence of the verifiable disruption or 
malfunction. When Trading Officials take action pursuant to paragraph 
(a)(3), the members involved in the transaction(s) shall receive verbal 
notification as soon as is practicable.
    (2) No Change
    (c) Adjustments
    Unless otherwise specified in Rule 24.16(a)(1)-(6), transactions 
will be adjusted provided the adjusted price does not violate the 
customer's limit price. Otherwise, the transaction will be nullified. 
With respect to Rule 24.16(a)(1)-(5), the price to which a transaction 
shall be adjusted shall be the National Best Bid (Offer) immediately 
following the erroneous transaction with respect to a sell (buy) order 
entered on the Exchange. For ROS or HOSS transactions, the price to 
which a transaction shall be adjusted shall be based on the first non-
erroneous quote after the erroneous transaction on CBOE. With respect 
to Rule 24.16(a)(6), the transaction shall be adjusted to a price that 
is $0.10 under parity.
    (d)-(e) No Change
    Interpretations and Policies * * *
    .01-.02 No Change
* * * * *

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 Exchange 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 these 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
    The Exchange's obvious error rule, CBOE Rule 6.25,\6\ establishes 
guidelines for the adjustment and nullification of transactions in 
equity options.\7\ Under the Rule, four types of transactions may 
qualify as obvious errors and hence be adjusted or nullified: (1) 
Obvious price errors; (2) transactions in series quoted no bid at a 
nickel; (3) transactions resulting from verifiable disruptions of 
Exchange systems; and (4) transactions resulting from an erroneous 
print in the underlying market. The purpose of this proposed rule 
change is to re-insert in CBOE Rule 6.25 a fifth type of qualifying 
transactions resulting from erroneous quotes in the underlying 
security. This provision previously existed in CBOE Rule 6.25.\8\ In 
SR-CBOE-2004-83, the Exchange proposed to delete the ``erroneous quote 
in the underlying'' provision from CBOE Rule 6.25. However, since the 
implementation of the changes set forth in SR-CBOE-2004-83, the 
Exchange has experienced several instances involving erroneous quotes 
in the underlying security, and therefore, believes that it is 
necessary to amend CBOE Rule 6.25 to again provide for this objective 
obvious error provision for erroneous quotes in the underlying 
security.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 50880 (December 17, 
2004), 69 FR 77790 (December 28, 2004) (File No. SR-CBOE-2004-83).
    \7\ CBOE Rule 24.16 governs obvious errors for transactions in 
index options and options on ETFs.
    \8\ See Securities Exchange Act Release No. 48827 (November 24, 
2003), 68 FR 67498 (December 2, 2003) (approving File No. SR-CBOE-
2001-04).
---------------------------------------------------------------------------

    In this regard, electronic trades resulting from an erroneous quote 
in the underlying security may be adjusted or nullified.\9\ An 
erroneous quote occurs when the underlying security has a width of at 
least $1.00 and has a width at least five times greater than the 
average quote width for such underlying security on the primary market, 
as defined in CBOE Rule 1.1(v), during the time period encompassing two 
minutes before and after the dissemination of such quote. For purposes 
of this proposed rule provision, the average quote width shall be 
determined by adding the quote widths of each separate quote during the 
four-minute time period referenced above (excluding the quote in 
question) and dividing by the number of quotes during such time period 
(excluding the quote in question). CBOE notes that this provision 
operates in the same manner as provisions contained in CBOE Rules 24.16 
and 43.5(b)(4).
---------------------------------------------------------------------------

    \9\ Transactions qualifying for price adjustment (i.e., 
transactions between two CBOE Market-Makers) will be adjusted in 
accordance with CBOE Rule 6.25(a)(1). Transactions not qualifying 
for price adjustment (i.e., transactions involving a non-CBOE 
Market-Maker) will be nullified.
---------------------------------------------------------------------------

    The Exchange also proposes to make two grammatical changes to CBOE 
Rule 24.16. The first would clarify the reference to Central Time as 
(CT), rather than (CST) in paragraph (b)(1) of CBOE Rule 24.16. The 
second grammatical change would add the word ``rule'' to paragraph (c) 
of CBOE Rule 24.16.
2. Statutory Basis
    CBOE represents that the filing provides an objective guideline for 
the nullification or adjustment of transactions executed at clearly 
erroneous prices. For this reason, the Exchange believes the proposed 
rule change is consistent with 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.\10\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act \11\ 
that the rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts and 
practices and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78(f)(b).
    \11\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any

[[Page 8121]]

burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange 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.

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

    The foregoing proposed rule change (1) does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) by its terms, 
does not become operative until 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. 
Furthermore, the Exchange provided the Commission with written notice 
of its intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change. 
Consequently, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) 
thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. The Commission notes that the proposal to amend CBOE 
Rule 6.25 by adding a provision relating to erroneous quotes in the 
underlying market is substantially similar to provisions contained in 
CBOE Rules 24.16(a)(5) and 43.5 and to a provision that was previously 
contained in CBOE Rule 6.25. Thus, the Commission does not believe that 
the proposed rule change raises any new issues. For these reasons, the 
Commission designates the proposal to be effective and operative upon 
filing with the Commission.\14\
---------------------------------------------------------------------------

    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of this 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.

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 (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2005-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-CBOE-2005-12. 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 (https://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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. 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 Number SR-CBOE-2005-12 
and should be submitted on or before March 10, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-656 Filed 2-16-05; 8:45 am]
BILLING CODE 8010-01-P
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