Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change and Amendment Nos. 1, 2, and 3 and Notice of Filing and Order Granting Accelerated Approval to Amendment Nos. 4 and 5 Relating to Back-Up Trading Arrangements, 30160-30164 [E5-2634]
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30160
Federal Register / Vol. 70, No. 100 / Wednesday, May 25, 2005 / Notices
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–2005–35 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–2005–35. 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
Room. 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–2005–35 and should
be submitted on or before June 15, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.14
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–2603 Filed 5–24–05; 8:45 am]
BILLING CODE 8010–01–P
14 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51717; File No. SR–CBOE–
2004–59]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Approving
Proposed Rule Change and
Amendment Nos. 1, 2, and 3 and
Notice of Filing and Order Granting
Accelerated Approval to Amendment
Nos. 4 and 5 Relating to Back-Up
Trading Arrangements
May 19, 2005.
I. Introduction
On August 27, 2004, the Chicago
Board Options Exchange, Incorporated
(‘‘CBOE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
establish rules covering emergency
procedures for CBOE members and
back-up trading arrangements in the
event that the Exchange’s main facility
is unavailable. On October 21, 2004, the
Exchange amended its proposal.3 On
October 26, 2004, the Exchange further
amended its proposal.4 On March 23,
2005, the Exchange submitted a third
amendment.5 The proposed rule change,
as amended, was published for notice
and comment in the Federal Register on
April 14, 2005.6 The Commission
received no comment letters regarding
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See letter from Jaime Galvan, Attorney, CBOE,
to Nancy Sanow, Assistant Director, Division of
Market Regulation (‘‘Division’’), Commission, dated
October 20, 2004 (‘‘Amendment No. 1’’). In
Amendment No. 1, the Exchange modified the text
of proposed CBOE Rule 6.16 and made certain other
clarifying changes to the original submission.
Amendment No. 1 replaced CBOE’s original filing
in its entirety.
4 See letter from Jaime Galvan, Attorney, CBOE,
to Brian Trackman, Special Counsel, Division,
Commission, dated October 25, 2004 (‘‘Amendment
No. 2’’). In Amendment No. 2, the Exchange
corrected typographical errors in the proposed rule
text.
5 See Amendment No. 3, dated March 23, 2005
(‘‘Amendment No. 3’’). In Amendment No. 3, the
Exchange modified portions of the proposed rule
text and corresponding sections of the Form 19b–
4 describing the rule proposal. Amendment No. 3
replaces CBOE’s previously amended filing in its
entirety. CBOE also submitted with its Amendment
No. 3 a copy of the back-up trading agreement it has
negotiated with the Philadelphia Stock Exchange
(‘‘Phlx’’) as Exhibit 3.A to its Form 19b–4, together
with a copy of a first amendment to the agreement
as Exhibit 3.B. These exhibits are available for
viewing on the Commission’s Web site,
www.sec.gov/rules/sro.shtml, and at the Exchange
and the Commission.
6 See Securities Exchange Act Release No. 51510
(April 8, 2005), 70 FR 19812 (‘‘Notice’’).
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2 17
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the proposed rule change. On May 11,
2005, CBOE submitted a clarifying
amendment.7 On May 16, 2005, CBOE
submitted an additional clarifying
amendment.8 This order approves the
proposed rule change, as modified by
Amendment Nos. 1, 2 and 3.
Simultaneously, the Commission
provides notice of filing of Amendment
Nos. 4 and 5 and grants accelerated
approval of Amendment Nos. 4 and 5.
II. Description of Proposal
CBOE proposes to adopt new rules
that will facilitate the CBOE entering
into arrangements with one or more
other exchanges that would provide
back-up trading facilities for CBOE
listed options at another exchange if
CBOE’s facility becomes disabled and
trading is prevented for an extended
period of time, and similarly provide
trading facilities at CBOE for another
exchange to trade its listed options if
that exchange’s facility becomes
disabled. The Exchange also proposes
an amendment to its Fee Schedule
relative to the fees that shall apply to
transactions in the options of a Disabled
Exchange effected on a Back-up
Exchange. Additionally, the Exchange
proposes to adopt a new Rule 6.17,
which addresses Exchange procedures
under emergency conditions and is
similar to rules that have been adopted
by other exchanges. Finally, the rule
proposal will replace and supersede
current CBOE Rule 3.22, which the
Exchange adopted following the events
of September 11, 2001.
A. Rule 6.16—Back-Up Trading
Arrangements
a. Background
As set forth in the Notice, the
Exchange proposes to adopt new CBOE
Rule 6.16, Back-Up Trading
Arrangements, which will facilitate the
CBOE entering into arrangements with
one or more other exchanges (each a
‘‘Back-up Exchange’’) to permit CBOE
and its members to use a portion of a
Back-up Exchange’s facilities to conduct
the trading of CBOE exclusively listed
options 9 in the event of a Disabling
7 See Amendment No. 4, dated May 11, 2005
(‘‘Amendment No. 4’’). In Amendment No. 4, the
Exchange made one minor correction to the rule
text in Section (d)(2) of proposed CBOE Rule 6.16
to state that any arbitration relating to trading of
CBOE exclusively listed options on the facility of
CBOE at the Back-up Exchange will be conducted
in accordance with the rules of the Back-up
Exchange, unless otherwise agreed by the parties.
8 See Amendment No. 5, dated May 16, 2005
(‘‘Amendment No. 5’’). In Amendment No. 5, the
Exchange changed the number of the footnote it
proposes to add to its Fee Schedule from 17 to 16.
9 For purposes of proposed CBOE Rule 6.16, the
term ‘‘exclusively listed option’’ means an option
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Federal Register / Vol. 70, No. 100 / Wednesday, May 25, 2005 / Notices
Event, and similarly will permit the
CBOE to provide trading facilities at
CBOE for another exchange’s
exclusively listed options if that
exchange (a ‘‘Disabled Exchange’’) is
prevented from trading due to a
Disabling Event.
Proposed Rule 6.16 would also permit
the CBOE to enter into arrangements
with a Back-up Exchange to provide for
the listing and trading of CBOE singly
listed options 10 by the Back-up
Exchange if CBOE’s facility becomes
disabled, and conversely provide for the
listing and trading by CBOE of the
singly listed options of a Disabled
Exchange.11
b. If CBOE Is the Disabled Exchange
Section (a) of proposed Rule 6.16
describes the back-up trading
arrangements that would apply if CBOE
were the Disabled Exchange. Under
proposed paragraph (a)(1)(B), the facility
of the Back-up Exchange used by CBOE
to trade some or all of CBOE’s
exclusively listed options will be
deemed to be a facility of CBOE, and
such option classes shall trade as
listings of CBOE.
Since the trading of CBOE exclusively
listed options will be conducted using
the systems of the Back-up Exchange,
proposed paragraph (a)(1)(C) provides
that the trading of CBOE exclusively
listed options on CBOE’s facility at the
Back-up Exchange shall be conducted in
accordance with the rules of the Backup Exchange, except that (i) such
trading shall be subject to CBOE rules
that is listed exclusively by an exchange (because
the exchange has an exclusive license to use, or has
proprietary rights in, the interest underlying the
option).
10 For purposes of proposed Rule 6.16, the term
‘‘singly listed option’’ means an option that is not
an ‘‘exclusively listed option’’ but that is listed by
an exchange and not by any other national
securities exchange.
11 In its proposal, CBOE stated that the back-up
trading arrangements contemplated by proposed
Rule 6.16 represent the Exchange’s immediate plan
to ensure that CBOE’s exclusively listed and singly
listed options will have a trading venue if a
catastrophe renders its primary facility inaccessible
or inoperable. The Exchange noted that, in
September 2003, it had entered into separate
Memoranda of Understanding with the American
Stock Exchange LLC (‘‘Amex’’), Pacific Exchange
(‘‘PCX’’) and Philadelphia Stock Exchange (‘‘Phlx’’)
to memorialize their mutual understanding to work
together to develop bi-lateral back-up trading
arrangements in the event that trading is prevented
at one of the exchanges. Since then, the Exchange
has been working with each of these exchanges to
put in place written agreements outlining essential
commercial terms with respect to the arrangements
as well as operational plans that describe the
operational and logistical aspects of the
arrangements. At present, CBOE and Phlx have
signed an agreement relative to back-up trading
arrangements and are in the process of completing
the operational plan for those arrangements. See
supra note 5.
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17:52 May 24, 2005
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with respect to doing business with the
public, margin requirements, net capital
requirements, listing requirements and
position limits, (ii) CBOE members that
are trading on CBOE’s facility at the
Back-up Exchange (not including
members of the Back-up Exchange who
become temporary members of CBOE
pursuant to paragraph (a)(1)(F)) will be
subject to CBOE rules governing or
applying to the maintenance of a
person’s or a firm’s status as a member
of CBOE, and (iii) CBOE Rule 8.87.01
may be utilized to establish a lower
DPM participation rate applicable to
trading on CBOE’s facility on the Backup Exchange than the rate that is
applicable under the rules of the Backup Exchange if agreed to by CBOE and
the Back-up Exchange. In addition,
CBOE and the Back-up Exchange may
agree that other CBOE rules will apply
to such trading. The Back-up Exchange
rules that govern trading on CBOE’s
facility at the Back-up Exchange shall be
deemed to be CBOE rules for purposes
of such trading.
Proposed paragraph (a)(1)(D) reflects
that the Back-up Exchange has agreed to
perform the related regulatory functions
with respect to trading of CBOE
exclusively listed options on CBOE’s
facility at the Back-up Exchange, in each
case except as CBOE and the Back-up
Exchange may specifically agree
otherwise. The Back-up Exchange and
CBOE will coordinate with each other
regarding surveillance and enforcement
respecting such trading. CBOE shall
retain the ultimate legal responsibility
for the performance of its self-regulatory
obligations with respect to CBOE’s
facility at the Back-up Exchange.
Under proposed paragraph (a)(1)(E),
CBOE shall have the right to designate
its members that will be authorized to
trade CBOE exclusively listed options
on CBOE’s facility at the Back-up
Exchange and, if applicable, its
member(s) that will be a Lead MarketMaker (‘‘LMM’’) or Designated Primary
Market-Maker (‘‘DPM’’) in those
options. If the Back-up Exchange is
unable to accommodate all CBOE
members that desire to trade on CBOE’s
facility at the Back-up Exchange, CBOE
may determine which members shall be
eligible to trade at that facility by
considering factors such as whether the
member is a DPM or LMM in the
applicable product(s), the number of
contracts traded by the member in the
applicable product(s), market
performance, and other factors relating
to a member’s contribution to the
market in the applicable product(s).
Under proposed paragraph (a)(1)(F),
members of the Back-up Exchange shall
not be authorized to trade in any CBOE
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30161
exclusively listed options, except that (i)
CBOE may deputize willing floor
brokers of the Back-up Exchange as
temporary CBOE members to permit
them to execute orders as brokers in
CBOE exclusively listed options traded
on CBOE’s facility at the Back-up
Exchange,12 and (ii) the Back-up
Exchange has agreed that it will, at the
instruction of CBOE, select members of
the Back-up Exchange that are willing to
be deputized by CBOE as temporary
CBOE members authorized to trade
CBOE exclusively listed options on
CBOE’s facility at the Back-up Exchange
for such period of time following a
Disabling Event as CBOE determines to
be appropriate, and CBOE may deputize
such members of the Back-up Exchange
as temporary CBOE members for that
purpose. The second of the foregoing
exceptions would permit members of
the Back-up Exchange to trade CBOE
exclusively listed options on the CBOE
facility on the Back-up Exchange if, for
example, circumstances surrounding a
Disabling Event result in CBOE
members being delayed in arriving at
the Back-up Exchange in time for
prompt resumption of trading.
Section (a)(2) of the proposed rule
provides for the continued trading of
CBOE singly listed options at a Back-up
Exchange in the event of a Disabling
Event at CBOE. Proposed paragraph
(a)(2)(B) provides that CBOE may enter
into arrangements with a Back-up
Exchange under which the Back-up
Exchange will agree, in the event of a
Disabling Event, to list for trading
option classes that are then singly listed
only by CBOE. Such option classes
would trade on the Back-up Exchange as
listings of the Back-up Exchange and in
accordance with the rules of the Backup Exchange. Under proposed
paragraph (a)(2)(C), any such options
class listed by the Back-up Exchange
that does not satisfy the standard listing
and maintenance criteria of the Back-up
Exchange will be subject, upon listing
by the Back-up Exchange, to delisting
(and, thus, restrictions on opening new
series, and engaging in opening
transactions in those series with open
interest, as may be provided in the rules
of the Back-up Exchange).
CBOE singly listed option classes
would be traded by members of the
Back-up Exchange and by CBOE
members selected by CBOE to the extent
the Back-up Exchange can accommodate
CBOE members in the capacity of
temporary members of the Back-up
12 The exchanges that acted as Back-up Exchanges
in the emergency situations noted above also
deputized its floor brokers in this manner. See infra
note 16.
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Federal Register / Vol. 70, No. 100 / Wednesday, May 25, 2005 / Notices
Exchange. If the Back-up Exchange is
unable to accommodate all CBOE
members that desire to trade CBOE
singly listed options at the Back-up
Exchange, CBOE may determine which
members shall be eligible to trade such
options at the Back-up Exchange by
considering the same factors used to
determine which CBOE members are
eligible to trade CBOE exclusively listed
options at the CBOE facility at the Backup Exchange.
Proposed Section (a)(3) provides that
CBOE may enter into arrangements with
a Back-up Exchange to permit CBOE
members to conduct trading on a Backup Exchange of some or all of CBOE’s
multiply listed options in the event of
a Disabling Event. While continued
trading of multiply listed options upon
the occurrence of a Disabling Event is
not likely to be as great a concern as the
continued trading of exclusively and
singly listed options, CBOE nonetheless
believes a provision for multiply listed
options should be included in the rule
so that the exchanges involved will have
the option to permit members of the
Disabled Exchange to trade multiply
listed options on the Back-up Exchange.
Such options shall trade as a listing of
the Back-up Exchange and in
accordance with the rules of the Backup Exchange.
c. If CBOE Is the Back-Up Exchange
Section (b) of proposed Rule 6.16
describes the back-up trading
arrangements that would apply if CBOE
were the Back-up Exchange. In general,
the provisions in Section (b) are the
converse of the provisions in Section
(a). With respect to the exclusively
listed options of the Disabled Exchange,
the facility of CBOE used by the
Disabled Exchange to trade some or all
of the Disabled Exchange’s exclusively
listed options will be deemed to be a
facility of the Disabled Exchange, and
such option classes shall trade as
listings of the Disabled Exchange.
Trading of the Disabled Exchange’s
exclusively listed options on the
Disabled Exchange’s facility at CBOE
shall be conducted in accordance with
CBOE rules, except that (i) such trading
shall be subject to the Disabled
Exchange’s rules with respect to doing
business with the public, margin
requirements, net capital requirements,
listing requirements and position limits,
and (ii) members of the Disabled
Exchange that are trading on the
Disabled Exchange’s facility at CBOE
(not including CBOE members who
become temporary members of the
Disabled Exchange pursuant to
paragraph (b)(1)(D)) will be subject to
the rules of the Disabled Exchange
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17:52 May 24, 2005
Jkt 205001
governing or applying to the
maintenance of a person’s or a firm’s
status as a member of the Disabled
Exchange. In addition, the Disabled
Exchange and CBOE may agree that
other Disabled Exchange rules will
apply to such trading.
CBOE will perform the related
regulatory functions with respect to
such trading, in each case except as the
Disabled Exchange and CBOE may
specifically agree otherwise. Proposed
paragraph (b)(1)(C) reflects that the
Disabled Exchange has agreed to retain
the ultimate legal responsibility for the
performance of its self-regulatory
obligations with respect to the Disabled
Exchange’s facility at CBOE.
Sections (b)(2) and (b)(3) describe the
arrangements applicable to trading of
the Disabled Exchange’s singly and
multiply listed options at CBOE, and are
the converse of Sections (a)(2) and
(a)(3). One difference is in paragraph
(b)(2)(A), which includes a provision
that would permit CBOE to allocate
singly listed option classes of the
Disabled Exchange to a CBOE DPM in
advance of a Disabling Event, without
utilizing the allocation process under
CBOE Rule 8.95, to enable CBOE to
quickly list such option classes upon
the occurrence of a Disabling Event.
d. Member Obligations
Section (c) describes the obligations of
members and member organizations
with respect to the trading by
‘‘temporary members’’ on the facilities
of another exchange pursuant to Rule
6.16. Section (c)(1) sets forth the
obligations applicable to members of a
Back-up Exchange who act in the
capacity of temporary members of the
Disabled Exchange on the facility of the
Disabled Exchange at the Back-up
Exchange.
Section (c)(1) provides that a
temporary member of the Disabled
Exchange shall be subject to, and
obligated to comply with, the rules that
govern the operation of the facility of
the Disabled Exchange at the Back-up
Exchange. This would include the rules
of the Disabled Exchange to the extent
applicable during the period of such
trading, including the rules of the
Disabled Exchange limiting its liability
for the use of its facilities that apply to
members of the Disabled Exchange.
Additionally, (i) such temporary
member shall be deemed to have
satisfied, and the Disabled Exchange has
agreed to waive specific compliance
with, rules governing or applying to the
maintenance of a person’s or a firm’s
status as a member of the Disabled
Exchange, including all dues, fees and
charges imposed generally upon
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Fmt 4703
Sfmt 4703
members of the Disabled Exchange
based on their status as such, (ii) such
temporary member shall have none of
the rights of a member of the Disabled
Exchange except the right to conduct
business on the facility of the Disabled
Exchange at the Back-up Exchange to
the extent described in the Rule, (iii) the
member organization associated with
such temporary member, if any, shall be
responsible for all obligations arising
out of that temporary member’s
activities on or relating to the Disabled
Exchange, and (iv) the Clearing Member
of such temporary member shall
guarantee and clear the transactions of
such temporary member on the Disabled
Exchange.
Section (c)(2) sets forth the obligations
applicable to members of a Disabled
Exchange who act in the capacity of
temporary members of the Back-up
Exchange for the purpose of trading
singly and multiply listed options of the
Disabled Exchange. Such temporary
members shall be subject to, and
obligated to comply with, the rules of
the Back-up Exchange that are
applicable to the Back-up Exchange’s
own members, including the rules of the
Back-up Exchange limiting its liability
for the use of its facilities that apply to
members of the Back-up Exchange.
Temporary members of the Back-up
Exchange have the same obligations as
those set forth in Section (c)(1) that
apply to temporary members of the
Disabled Exchange, except that, in
addition, temporary members of the
Back-up Exchange shall only be
permitted (i) to act in those capacities
on the Back-up Exchange that are
authorized by the Back-up Exchange
and that are comparable to capacities in
which the temporary member has been
authorized to act on the Disabled
Exchange, and (ii) to trade in those
option classes in which the temporary
member is authorized to trade on the
Disabled Exchange.
e. Member Proceedings
As noted above, proposed CBOE Rule
6.16 provides that the rules of the Backup Exchange shall apply to the trading
of the singly and multiply listed options
of the Disabled Exchange traded on the
Back-up Exchange’s facilities, and (with
certain limited exceptions) the trading
of exclusively listed options of the
Disabled Exchange traded on the facility
of the Disabled Exchange at the Back-up
Exchange. The proposed rule
contemplates that the Back-up Exchange
has agreed to perform the related
regulatory functions with respect to
such trading (except as the Back-up
Exchange and the Disabled Exchange
may specifically agree otherwise).
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Federal Register / Vol. 70, No. 100 / Wednesday, May 25, 2005 / Notices
Section (d) of proposed Rule 6.16
provides that if a Back-up Exchange
initiates an enforcement proceeding
with respect to the trading during a
back-up period of singly or multiply
listed options of the Disabled Exchange
by a temporary member of the Back-up
Exchange or exclusively listed options
of the Disabled Exchange by a member
of the Disabled Exchange (other than a
member of the Back-up Exchange who
is a temporary member of the Disabled
Exchange), and such proceeding is in
process upon the conclusion of the
back-up period, the Back-up Exchange
may transfer responsibility for such
proceeding to the Disabled Exchange
following the conclusion of the back-up
period. This approach to the exercise of
enforcement jurisdiction is also
consistent with past precedent.
With respect to arbitration
jurisdiction, proposed Section (d)
provides that arbitration of any disputes
with respect to any trading during a
back-up period of singly or multiply
listed options of the Disabled Exchange
or of exclusively listed options of the
Disabled Exchange on the Disabled
Exchange’s facility at the Back-up
Exchange will be conducted in
accordance with the rules of the Backup Exchange, unless the parties to an
arbitration agree that it shall be
conducted in accordance with the rules
of the Disabled Exchange.
f. Member Preparations
To ensure that members are prepared
to implement CBOE’s back-up trading
arrangements, proposed Section (e) of
proposed CBOE Rule 6.16 requires
CBOE members to take appropriate
actions as instructed by CBOE to
accommodate CBOE’s back-up trading
arrangements with other exchanges and
CBOE’s own back-up trading
arrangements.
g. Interpretations and Policies
Proposed Interpretation and Policy
.01 to CBOE Rule 6.16 clarifies that to
the extent the rule text provides that
another exchange will take certain
action, it is reflecting what that
exchange has agreed to do by
contractual agreement with CBOE, but
Rule 6.16 itself is not binding on the
other exchange.
B. Fee Schedule
The Exchange proposes to add a
footnote to its Fee Schedule to inform
its members regarding what fees will
apply to transactions in the listed
options of a Disabled Exchange effected
on a Back-up Exchange under CBOE
Rule 6.16. The footnote provides that if
CBOE is the Disabled Exchange, the
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17:52 May 24, 2005
Jkt 205001
Back-up Exchange has agreed to apply
the per contract and per contract side
fees in the CBOE fee schedule to
transactions in CBOE exclusively listed
options traded on the CBOE facility on
the Back-up Exchange.13 If any other
CBOE listed options are traded on the
Back-up Exchange (such as CBOE singly
listed options that are listed by the
Back-up Exchange) pursuant to CBOE
Rule 6.16, the fee schedule of the Backup Exchange shall apply to such trades.
The footnote contains a second
paragraph stating the converse if CBOE
is the Back-up Exchange under its Rule
6.16.
C. Proposed Rule 6.17—Authority To
Take Action Under Emergency
Conditions
The Exchange proposes to adopt a
general emergency rule in proposed
CBOE Rule 6.17. Although not directly
related to the implementation of the
back-up trading arrangements, the
Exchange believes that it is appropriate
to adopt such a rule in conjunction with
implementing the back-up trading
arrangements. Currently, there is no
Exchange rule that grants specific
authority in an emergency to any person
or persons to take all actions necessary
or appropriate for the maintenance of a
fair and orderly market or the protection
of investors. Authority to take actions
affecting trading or the operation of
CBOE systems is currently granted to
the Board of Directors, floor officials
and other individuals under several
Exchange rules (e.g., CBOE Rules 4.16,
6.3, 6.6 and 24.7).
III. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
After careful consideration, the
Commission finds that CBOE’s proposed
rule change is consistent with the
requirements of the Exchange Act and
the rules and regulations thereunder,
applicable to a national securities
exchange.14 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,15 which requires that
the rules of an exchange, among other
things, foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities,
remove impediments to and perfect the
13 When Phlx Dell options relocated to Annex in
June 1998, Phlx fees applied to transactions in Dell
options on the Amex. See infra note 16.
14 In approving this proposal, the Commission has
considered its impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
15 15 U.S.C. 78f(b)(5).
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30163
mechanism of a free and open market
and a national market system and, in
general, serve to protect investors and
the public interest.
In light of the heightened security
risks to the financial markets since the
September 11, 2001 attacks on the
World Trade Centers in New York City,
the Commission has encouraged and
worked with the national securities
exchanges to develop contingency
plans, emergency procedures, and backup trading arrangements in order to
minimize the potential disruption and
market impact that a future Disabling
Event could cause. The present rule
change proposal is a direct response to
that effort.
The Commission believes that CBOE’s
proposed rule changes are reasonably
designed to address the key elements
necessary to mitigate the effects of a
Disabling Event affecting the Exchange,
minimize the impact of such an event
on market participants, and help ensure
that a liquid and orderly marketplace for
securities listed and traded on CBOE
will continue to exist. Specifically, the
back-up trading arrangements
contemplated by proposed CBOE Rule
6.16 are designed to provide a trading
venue for the Exchange’s exclusively
listed and, to the extent feasible, its
singly listed options in the event that a
catastrophe required the Exchange’s
primary facility to be closed for an
extended period.16 The proposed rule
also provides authority for CBOE to
provide a back-up trading venue should
another exchange be affected by a
Disabling Event.
CBOE also proposes a new Rule 6.17
granting authority to take action under
emergency conditions to the Chairman,
President or such other person or
persons as may be designated by the
Board. The proposed rule text closely
tracks that of other exchanges.17 The
Commission finds that proposed CBOE
Rule 6.17 is consistent with the Act and
should enable key actions to be taken by
Exchange representatives in the event of
a Disabling Event.
The Commission likewise finds that
the proposed change to the Exchange’s
Fee Schedule is consistent with the Act.
By affirming that CBOE and, by mutual
16 The Commission notes that it has approved the
basic approach set forth in the proposal of deeming
a portion of the Back-up Exchange’s facilities to be
a facility of the Disabled Exchange. See Securities
Exchange Act Release No. 27365 (October 19, 1989),
54 FR 43511 (October 25, 1989) (approving trading
of options listed on the Pacific Stock Exchange at
other exchanges in wake of earthquake); Securities
Exchange Act Release No. 40088 (June 12, 1998), 63
FR 33426 (June 18, 1998) (approving trading of Dell
options listed on Phlx at Amex on a temporary
basis).
17 See, e.g., New York Stock Exchange Rule 51.
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Federal Register / Vol. 70, No. 100 / Wednesday, May 25, 2005 / Notices
agreement, the Back-up Exchange will
apply the per contract and per contract
side fees normally applicable to
exclusively listed options under the
Disabled Exchange’s fee schedule, the
Commission believes that the proposed
rule change appears to be reasonably
designed to minimize the disruption
associated with back-up trading of such
options. The proposal also clarifies that,
with regard to singly listed and multiply
listed options, the fees charged shall be
those set forth in the Back-up Exchange
fee schedule where trading occurs at a
Back-up Exchange, or, where trading
occurs at CBOE, the CBOE fee schedule.
The Commission finds good cause,
consistent with Sections 6(b)(5) and
19(b) of the Act,18 to approve the
proposal prior to the thirtieth day after
the date of publication of notice of filing
thereof in the Federal Register.
Amendment No. 4 simply corrects a
reference to ‘‘Back-up Exchange’’ in
Section (d)(2) of CBOE Rule 6.16.
Likewise, Amendment No. 5 changes
the number of the footnote CBOE
proposes to add to its Fee Schedule
from 17 to 16 to avoid a gap in the
numbering of the notes. Because
Amendment Nos. 4 and 5 propose
minor corrections to the rule text that
are consistent with the clear intent of
the proposal, the Commission finds that
it is appropriate to approve Amendment
Nos. 4 and 5 on an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning Amendment Nos.
4 and 5, including whether each of these
amendments 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–2004–59 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–2004–59. 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 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–
2004–59 and should be submitted on or
before June 15, 2005.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,19 that the
proposed rule change (SR–CBOE–2004–
59), as amended by Amendment Nos. 1,
2 and 3, is hereby approved, and that
Amendment Nos. 4 and 5 to the
proposed rule change are approved on
an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.20
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–2634 Filed 5–24–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
17:52 May 24, 2005
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Increased
Class Quoting Limits in AAPL, GOOG,
MNX, QQQQ
1. Purpose
The Commission approved the
Exchange’s Remote Market-Maker
(‘‘RMM’’) program (‘‘Program’’) on
March 14, 2005.5 CBOE Rule 8.3A,
Maximum Number of Market
Participants Quoting Electronically per
May 19, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
20 17
Jkt 205001
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 aspects of such
statements.
[Release No. 34–51720; File No. SR–CBOE–
2005–33]
U.S.C. 78f(b)(5) and 78s(b).
VerDate jul<14>2003
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The CBOE proposes to increase the
class quoting limits in a select number
of active options classes. The text of the
proposed rule change is available on the
Exchange’s Web site (https://
www.cboe.com), the Office of the
Secretary, CBOE and at the Commission.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
19 15
18 15
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 21,
2005, 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. The CBOE has
designated this proposal as one
constituting a stated policy, practice, or
interpretation with respect to the
meaning, administration, or
enforcement of an existing rule under
Section 19(b)(3)(A)(i) of the Act,3 and
Rule 19b–4(f)(1) 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 persons.
PO 00000
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00109
Fmt 4703
Sfmt 4703
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(i).
4 17 CFR 240.19b–4(f)(1).
5 See Securities Exchange Act Release No. 51366
(March 14, 2005), 70 FR 13217 (March 18, 2005).
2 17
E:\FR\FM\25MYN1.SGM
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Agencies
[Federal Register Volume 70, Number 100 (Wednesday, May 25, 2005)]
[Notices]
[Pages 30160-30164]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-2634]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51717; File No. SR-CBOE-2004-59]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Approving Proposed Rule Change and Amendment Nos.
1, 2, and 3 and Notice of Filing and Order Granting Accelerated
Approval to Amendment Nos. 4 and 5 Relating to Back-Up Trading
Arrangements
May 19, 2005.
I. Introduction
On August 27, 2004, the Chicago Board Options Exchange,
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to establish rules covering
emergency procedures for CBOE members and back-up trading arrangements
in the event that the Exchange's main facility is unavailable. On
October 21, 2004, the Exchange amended its proposal.\3\ On October 26,
2004, the Exchange further amended its proposal.\4\ On March 23, 2005,
the Exchange submitted a third amendment.\5\ The proposed rule change,
as amended, was published for notice and comment in the Federal
Register on April 14, 2005.\6\ The Commission received no comment
letters regarding the proposed rule change. On May 11, 2005, CBOE
submitted a clarifying amendment.\7\ On May 16, 2005, CBOE submitted an
additional clarifying amendment.\8\ This order approves the proposed
rule change, as modified by Amendment Nos. 1, 2 and 3. Simultaneously,
the Commission provides notice of filing of Amendment Nos. 4 and 5 and
grants accelerated approval of Amendment Nos. 4 and 5.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Jaime Galvan, Attorney, CBOE, to Nancy
Sanow, Assistant Director, Division of Market Regulation
(``Division''), Commission, dated October 20, 2004 (``Amendment No.
1''). In Amendment No. 1, the Exchange modified the text of proposed
CBOE Rule 6.16 and made certain other clarifying changes to the
original submission. Amendment No. 1 replaced CBOE's original filing
in its entirety.
\4\ See letter from Jaime Galvan, Attorney, CBOE, to Brian
Trackman, Special Counsel, Division, Commission, dated October 25,
2004 (``Amendment No. 2''). In Amendment No. 2, the Exchange
corrected typographical errors in the proposed rule text.
\5\ See Amendment No. 3, dated March 23, 2005 (``Amendment No.
3''). In Amendment No. 3, the Exchange modified portions of the
proposed rule text and corresponding sections of the Form 19b-4
describing the rule proposal. Amendment No. 3 replaces CBOE's
previously amended filing in its entirety. CBOE also submitted with
its Amendment No. 3 a copy of the back-up trading agreement it has
negotiated with the Philadelphia Stock Exchange (``Phlx'') as
Exhibit 3.A to its Form 19b-4, together with a copy of a first
amendment to the agreement as Exhibit 3.B. These exhibits are
available for viewing on the Commission's Web site, www.sec.gov/
rules/sro.shtml, and at the Exchange and the Commission.
\6\ See Securities Exchange Act Release No. 51510 (April 8,
2005), 70 FR 19812 (``Notice'').
\7\ See Amendment No. 4, dated May 11, 2005 (``Amendment No.
4''). In Amendment No. 4, the Exchange made one minor correction to
the rule text in Section (d)(2) of proposed CBOE Rule 6.16 to state
that any arbitration relating to trading of CBOE exclusively listed
options on the facility of CBOE at the Back-up Exchange will be
conducted in accordance with the rules of the Back-up Exchange,
unless otherwise agreed by the parties.
\8\ See Amendment No. 5, dated May 16, 2005 (``Amendment No.
5''). In Amendment No. 5, the Exchange changed the number of the
footnote it proposes to add to its Fee Schedule from 17 to 16.
---------------------------------------------------------------------------
II. Description of Proposal
CBOE proposes to adopt new rules that will facilitate the CBOE
entering into arrangements with one or more other exchanges that would
provide back-up trading facilities for CBOE listed options at another
exchange if CBOE's facility becomes disabled and trading is prevented
for an extended period of time, and similarly provide trading
facilities at CBOE for another exchange to trade its listed options if
that exchange's facility becomes disabled. The Exchange also proposes
an amendment to its Fee Schedule relative to the fees that shall apply
to transactions in the options of a Disabled Exchange effected on a
Back-up Exchange. Additionally, the Exchange proposes to adopt a new
Rule 6.17, which addresses Exchange procedures under emergency
conditions and is similar to rules that have been adopted by other
exchanges. Finally, the rule proposal will replace and supersede
current CBOE Rule 3.22, which the Exchange adopted following the events
of September 11, 2001.
A. Rule 6.16--Back-Up Trading Arrangements
a. Background
As set forth in the Notice, the Exchange proposes to adopt new CBOE
Rule 6.16, Back-Up Trading Arrangements, which will facilitate the CBOE
entering into arrangements with one or more other exchanges (each a
``Back-up Exchange'') to permit CBOE and its members to use a portion
of a Back-up Exchange's facilities to conduct the trading of CBOE
exclusively listed options \9\ in the event of a Disabling
[[Page 30161]]
Event, and similarly will permit the CBOE to provide trading facilities
at CBOE for another exchange's exclusively listed options if that
exchange (a ``Disabled Exchange'') is prevented from trading due to a
Disabling Event.
---------------------------------------------------------------------------
\9\ For purposes of proposed CBOE Rule 6.16, the term
``exclusively listed option'' means an option that is listed
exclusively by an exchange (because the exchange has an exclusive
license to use, or has proprietary rights in, the interest
underlying the option).
---------------------------------------------------------------------------
Proposed Rule 6.16 would also permit the CBOE to enter into
arrangements with a Back-up Exchange to provide for the listing and
trading of CBOE singly listed options \10\ by the Back-up Exchange if
CBOE's facility becomes disabled, and conversely provide for the
listing and trading by CBOE of the singly listed options of a Disabled
Exchange.\11\
---------------------------------------------------------------------------
\10\ For purposes of proposed Rule 6.16, the term ``singly
listed option'' means an option that is not an ``exclusively listed
option'' but that is listed by an exchange and not by any other
national securities exchange.
\11\ In its proposal, CBOE stated that the back-up trading
arrangements contemplated by proposed Rule 6.16 represent the
Exchange's immediate plan to ensure that CBOE's exclusively listed
and singly listed options will have a trading venue if a catastrophe
renders its primary facility inaccessible or inoperable. The
Exchange noted that, in September 2003, it had entered into separate
Memoranda of Understanding with the American Stock Exchange LLC
(``Amex''), Pacific Exchange (``PCX'') and Philadelphia Stock
Exchange (``Phlx'') to memorialize their mutual understanding to
work together to develop bi-lateral back-up trading arrangements in
the event that trading is prevented at one of the exchanges. Since
then, the Exchange has been working with each of these exchanges to
put in place written agreements outlining essential commercial terms
with respect to the arrangements as well as operational plans that
describe the operational and logistical aspects of the arrangements.
At present, CBOE and Phlx have signed an agreement relative to back-
up trading arrangements and are in the process of completing the
operational plan for those arrangements. See supra note 5.
---------------------------------------------------------------------------
b. If CBOE Is the Disabled Exchange
Section (a) of proposed Rule 6.16 describes the back-up trading
arrangements that would apply if CBOE were the Disabled Exchange. Under
proposed paragraph (a)(1)(B), the facility of the Back-up Exchange used
by CBOE to trade some or all of CBOE's exclusively listed options will
be deemed to be a facility of CBOE, and such option classes shall trade
as listings of CBOE.
Since the trading of CBOE exclusively listed options will be
conducted using the systems of the Back-up Exchange, proposed paragraph
(a)(1)(C) provides that the trading of CBOE exclusively listed options
on CBOE's facility at the Back-up Exchange shall be conducted in
accordance with the rules of the Back-up Exchange, except that (i) such
trading shall be subject to CBOE rules with respect to doing business
with the public, margin requirements, net capital requirements, listing
requirements and position limits, (ii) CBOE members that are trading on
CBOE's facility at the Back-up Exchange (not including members of the
Back-up Exchange who become temporary members of CBOE pursuant to
paragraph (a)(1)(F)) will be subject to CBOE rules governing or
applying to the maintenance of a person's or a firm's status as a
member of CBOE, and (iii) CBOE Rule 8.87.01 may be utilized to
establish a lower DPM participation rate applicable to trading on
CBOE's facility on the Back-up Exchange than the rate that is
applicable under the rules of the Back-up Exchange if agreed to by CBOE
and the Back-up Exchange. In addition, CBOE and the Back-up Exchange
may agree that other CBOE rules will apply to such trading. The Back-up
Exchange rules that govern trading on CBOE's facility at the Back-up
Exchange shall be deemed to be CBOE rules for purposes of such trading.
Proposed paragraph (a)(1)(D) reflects that the Back-up Exchange has
agreed to perform the related regulatory functions with respect to
trading of CBOE exclusively listed options on CBOE's facility at the
Back-up Exchange, in each case except as CBOE and the Back-up Exchange
may specifically agree otherwise. The Back-up Exchange and CBOE will
coordinate with each other regarding surveillance and enforcement
respecting such trading. CBOE shall retain the ultimate legal
responsibility for the performance of its self-regulatory obligations
with respect to CBOE's facility at the Back-up Exchange.
Under proposed paragraph (a)(1)(E), CBOE shall have the right to
designate its members that will be authorized to trade CBOE exclusively
listed options on CBOE's facility at the Back-up Exchange and, if
applicable, its member(s) that will be a Lead Market-Maker (``LMM'') or
Designated Primary Market-Maker (``DPM'') in those options. If the
Back-up Exchange is unable to accommodate all CBOE members that desire
to trade on CBOE's facility at the Back-up Exchange, CBOE may determine
which members shall be eligible to trade at that facility by
considering factors such as whether the member is a DPM or LMM in the
applicable product(s), the number of contracts traded by the member in
the applicable product(s), market performance, and other factors
relating to a member's contribution to the market in the applicable
product(s).
Under proposed paragraph (a)(1)(F), members of the Back-up Exchange
shall not be authorized to trade in any CBOE exclusively listed
options, except that (i) CBOE may deputize willing floor brokers of the
Back-up Exchange as temporary CBOE members to permit them to execute
orders as brokers in CBOE exclusively listed options traded on CBOE's
facility at the Back-up Exchange,\12\ and (ii) the Back-up Exchange has
agreed that it will, at the instruction of CBOE, select members of the
Back-up Exchange that are willing to be deputized by CBOE as temporary
CBOE members authorized to trade CBOE exclusively listed options on
CBOE's facility at the Back-up Exchange for such period of time
following a Disabling Event as CBOE determines to be appropriate, and
CBOE may deputize such members of the Back-up Exchange as temporary
CBOE members for that purpose. The second of the foregoing exceptions
would permit members of the Back-up Exchange to trade CBOE exclusively
listed options on the CBOE facility on the Back-up Exchange if, for
example, circumstances surrounding a Disabling Event result in CBOE
members being delayed in arriving at the Back-up Exchange in time for
prompt resumption of trading.
---------------------------------------------------------------------------
\12\ The exchanges that acted as Back-up Exchanges in the
emergency situations noted above also deputized its floor brokers in
this manner. See infra note 16.
---------------------------------------------------------------------------
Section (a)(2) of the proposed rule provides for the continued
trading of CBOE singly listed options at a Back-up Exchange in the
event of a Disabling Event at CBOE. Proposed paragraph (a)(2)(B)
provides that CBOE may enter into arrangements with a Back-up Exchange
under which the Back-up Exchange will agree, in the event of a
Disabling Event, to list for trading option classes that are then
singly listed only by CBOE. Such option classes would trade on the
Back-up Exchange as listings of the Back-up Exchange and in accordance
with the rules of the Back-up Exchange. Under proposed paragraph
(a)(2)(C), any such options class listed by the Back-up Exchange that
does not satisfy the standard listing and maintenance criteria of the
Back-up Exchange will be subject, upon listing by the Back-up Exchange,
to delisting (and, thus, restrictions on opening new series, and
engaging in opening transactions in those series with open interest, as
may be provided in the rules of the Back-up Exchange).
CBOE singly listed option classes would be traded by members of the
Back-up Exchange and by CBOE members selected by CBOE to the extent the
Back-up Exchange can accommodate CBOE members in the capacity of
temporary members of the Back-up
[[Page 30162]]
Exchange. If the Back-up Exchange is unable to accommodate all CBOE
members that desire to trade CBOE singly listed options at the Back-up
Exchange, CBOE may determine which members shall be eligible to trade
such options at the Back-up Exchange by considering the same factors
used to determine which CBOE members are eligible to trade CBOE
exclusively listed options at the CBOE facility at the Back-up
Exchange.
Proposed Section (a)(3) provides that CBOE may enter into
arrangements with a Back-up Exchange to permit CBOE members to conduct
trading on a Back-up Exchange of some or all of CBOE's multiply listed
options in the event of a Disabling Event. While continued trading of
multiply listed options upon the occurrence of a Disabling Event is not
likely to be as great a concern as the continued trading of exclusively
and singly listed options, CBOE nonetheless believes a provision for
multiply listed options should be included in the rule so that the
exchanges involved will have the option to permit members of the
Disabled Exchange to trade multiply listed options on the Back-up
Exchange. Such options shall trade as a listing of the Back-up Exchange
and in accordance with the rules of the Back-up Exchange.
c. If CBOE Is the Back-Up Exchange
Section (b) of proposed Rule 6.16 describes the back-up trading
arrangements that would apply if CBOE were the Back-up Exchange. In
general, the provisions in Section (b) are the converse of the
provisions in Section (a). With respect to the exclusively listed
options of the Disabled Exchange, the facility of CBOE used by the
Disabled Exchange to trade some or all of the Disabled Exchange's
exclusively listed options will be deemed to be a facility of the
Disabled Exchange, and such option classes shall trade as listings of
the Disabled Exchange. Trading of the Disabled Exchange's exclusively
listed options on the Disabled Exchange's facility at CBOE shall be
conducted in accordance with CBOE rules, except that (i) such trading
shall be subject to the Disabled Exchange's rules with respect to doing
business with the public, margin requirements, net capital
requirements, listing requirements and position limits, and (ii)
members of the Disabled Exchange that are trading on the Disabled
Exchange's facility at CBOE (not including CBOE members who become
temporary members of the Disabled Exchange pursuant to paragraph
(b)(1)(D)) will be subject to the rules of the Disabled Exchange
governing or applying to the maintenance of a person's or a firm's
status as a member of the Disabled Exchange. In addition, the Disabled
Exchange and CBOE may agree that other Disabled Exchange rules will
apply to such trading.
CBOE will perform the related regulatory functions with respect to
such trading, in each case except as the Disabled Exchange and CBOE may
specifically agree otherwise. Proposed paragraph (b)(1)(C) reflects
that the Disabled Exchange has agreed to retain the ultimate legal
responsibility for the performance of its self-regulatory obligations
with respect to the Disabled Exchange's facility at CBOE.
Sections (b)(2) and (b)(3) describe the arrangements applicable to
trading of the Disabled Exchange's singly and multiply listed options
at CBOE, and are the converse of Sections (a)(2) and (a)(3). One
difference is in paragraph (b)(2)(A), which includes a provision that
would permit CBOE to allocate singly listed option classes of the
Disabled Exchange to a CBOE DPM in advance of a Disabling Event,
without utilizing the allocation process under CBOE Rule 8.95, to
enable CBOE to quickly list such option classes upon the occurrence of
a Disabling Event.
d. Member Obligations
Section (c) describes the obligations of members and member
organizations with respect to the trading by ``temporary members'' on
the facilities of another exchange pursuant to Rule 6.16. Section
(c)(1) sets forth the obligations applicable to members of a Back-up
Exchange who act in the capacity of temporary members of the Disabled
Exchange on the facility of the Disabled Exchange at the Back-up
Exchange.
Section (c)(1) provides that a temporary member of the Disabled
Exchange shall be subject to, and obligated to comply with, the rules
that govern the operation of the facility of the Disabled Exchange at
the Back-up Exchange. This would include the rules of the Disabled
Exchange to the extent applicable during the period of such trading,
including the rules of the Disabled Exchange limiting its liability for
the use of its facilities that apply to members of the Disabled
Exchange. Additionally, (i) such temporary member shall be deemed to
have satisfied, and the Disabled Exchange has agreed to waive specific
compliance with, rules governing or applying to the maintenance of a
person's or a firm's status as a member of the Disabled Exchange,
including all dues, fees and charges imposed generally upon members of
the Disabled Exchange based on their status as such, (ii) such
temporary member shall have none of the rights of a member of the
Disabled Exchange except the right to conduct business on the facility
of the Disabled Exchange at the Back-up Exchange to the extent
described in the Rule, (iii) the member organization associated with
such temporary member, if any, shall be responsible for all obligations
arising out of that temporary member's activities on or relating to the
Disabled Exchange, and (iv) the Clearing Member of such temporary
member shall guarantee and clear the transactions of such temporary
member on the Disabled Exchange.
Section (c)(2) sets forth the obligations applicable to members of
a Disabled Exchange who act in the capacity of temporary members of the
Back-up Exchange for the purpose of trading singly and multiply listed
options of the Disabled Exchange. Such temporary members shall be
subject to, and obligated to comply with, the rules of the Back-up
Exchange that are applicable to the Back-up Exchange's own members,
including the rules of the Back-up Exchange limiting its liability for
the use of its facilities that apply to members of the Back-up
Exchange. Temporary members of the Back-up Exchange have the same
obligations as those set forth in Section (c)(1) that apply to
temporary members of the Disabled Exchange, except that, in addition,
temporary members of the Back-up Exchange shall only be permitted (i)
to act in those capacities on the Back-up Exchange that are authorized
by the Back-up Exchange and that are comparable to capacities in which
the temporary member has been authorized to act on the Disabled
Exchange, and (ii) to trade in those option classes in which the
temporary member is authorized to trade on the Disabled Exchange.
e. Member Proceedings
As noted above, proposed CBOE Rule 6.16 provides that the rules of
the Back-up Exchange shall apply to the trading of the singly and
multiply listed options of the Disabled Exchange traded on the Back-up
Exchange's facilities, and (with certain limited exceptions) the
trading of exclusively listed options of the Disabled Exchange traded
on the facility of the Disabled Exchange at the Back-up Exchange. The
proposed rule contemplates that the Back-up Exchange has agreed to
perform the related regulatory functions with respect to such trading
(except as the Back-up Exchange and the Disabled Exchange may
specifically agree otherwise).
[[Page 30163]]
Section (d) of proposed Rule 6.16 provides that if a Back-up
Exchange initiates an enforcement proceeding with respect to the
trading during a back-up period of singly or multiply listed options of
the Disabled Exchange by a temporary member of the Back-up Exchange or
exclusively listed options of the Disabled Exchange by a member of the
Disabled Exchange (other than a member of the Back-up Exchange who is a
temporary member of the Disabled Exchange), and such proceeding is in
process upon the conclusion of the back-up period, the Back-up Exchange
may transfer responsibility for such proceeding to the Disabled
Exchange following the conclusion of the back-up period. This approach
to the exercise of enforcement jurisdiction is also consistent with
past precedent.
With respect to arbitration jurisdiction, proposed Section (d)
provides that arbitration of any disputes with respect to any trading
during a back-up period of singly or multiply listed options of the
Disabled Exchange or of exclusively listed options of the Disabled
Exchange on the Disabled Exchange's facility at the Back-up Exchange
will be conducted in accordance with the rules of the Back-up Exchange,
unless the parties to an arbitration agree that it shall be conducted
in accordance with the rules of the Disabled Exchange.
f. Member Preparations
To ensure that members are prepared to implement CBOE's back-up
trading arrangements, proposed Section (e) of proposed CBOE Rule 6.16
requires CBOE members to take appropriate actions as instructed by CBOE
to accommodate CBOE's back-up trading arrangements with other exchanges
and CBOE's own back-up trading arrangements.
g. Interpretations and Policies
Proposed Interpretation and Policy .01 to CBOE Rule 6.16 clarifies
that to the extent the rule text provides that another exchange will
take certain action, it is reflecting what that exchange has agreed to
do by contractual agreement with CBOE, but Rule 6.16 itself is not
binding on the other exchange.
B. Fee Schedule
The Exchange proposes to add a footnote to its Fee Schedule to
inform its members regarding what fees will apply to transactions in
the listed options of a Disabled Exchange effected on a Back-up
Exchange under CBOE Rule 6.16. The footnote provides that if CBOE is
the Disabled Exchange, the Back-up Exchange has agreed to apply the per
contract and per contract side fees in the CBOE fee schedule to
transactions in CBOE exclusively listed options traded on the CBOE
facility on the Back-up Exchange.\13\ If any other CBOE listed options
are traded on the Back-up Exchange (such as CBOE singly listed options
that are listed by the Back-up Exchange) pursuant to CBOE Rule 6.16,
the fee schedule of the Back-up Exchange shall apply to such trades.
The footnote contains a second paragraph stating the converse if CBOE
is the Back-up Exchange under its Rule 6.16.
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\13\ When Phlx Dell options relocated to Annex in June 1998,
Phlx fees applied to transactions in Dell options on the Amex. See
infra note 16.
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C. Proposed Rule 6.17--Authority To Take Action Under Emergency
Conditions
The Exchange proposes to adopt a general emergency rule in proposed
CBOE Rule 6.17. Although not directly related to the implementation of
the back-up trading arrangements, the Exchange believes that it is
appropriate to adopt such a rule in conjunction with implementing the
back-up trading arrangements. Currently, there is no Exchange rule that
grants specific authority in an emergency to any person or persons to
take all actions necessary or appropriate for the maintenance of a fair
and orderly market or the protection of investors. Authority to take
actions affecting trading or the operation of CBOE systems is currently
granted to the Board of Directors, floor officials and other
individuals under several Exchange rules (e.g., CBOE Rules 4.16, 6.3,
6.6 and 24.7).
III. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
After careful consideration, the Commission finds that CBOE's
proposed rule change is consistent with the requirements of the
Exchange Act and the rules and regulations thereunder, applicable to a
national securities exchange.\14\ In particular, the Commission finds
that the proposed rule change is consistent with Section 6(b)(5) of the
Act,\15\ which requires that the rules of an exchange, among other
things, foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, serve to protect investors and the public
interest.
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\14\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
\15\ 15 U.S.C. 78f(b)(5).
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In light of the heightened security risks to the financial markets
since the September 11, 2001 attacks on the World Trade Centers in New
York City, the Commission has encouraged and worked with the national
securities exchanges to develop contingency plans, emergency
procedures, and back-up trading arrangements in order to minimize the
potential disruption and market impact that a future Disabling Event
could cause. The present rule change proposal is a direct response to
that effort.
The Commission believes that CBOE's proposed rule changes are
reasonably designed to address the key elements necessary to mitigate
the effects of a Disabling Event affecting the Exchange, minimize the
impact of such an event on market participants, and help ensure that a
liquid and orderly marketplace for securities listed and traded on CBOE
will continue to exist. Specifically, the back-up trading arrangements
contemplated by proposed CBOE Rule 6.16 are designed to provide a
trading venue for the Exchange's exclusively listed and, to the extent
feasible, its singly listed options in the event that a catastrophe
required the Exchange's primary facility to be closed for an extended
period.\16\ The proposed rule also provides authority for CBOE to
provide a back-up trading venue should another exchange be affected by
a Disabling Event.
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\16\ The Commission notes that it has approved the basic
approach set forth in the proposal of deeming a portion of the Back-
up Exchange's facilities to be a facility of the Disabled Exchange.
See Securities Exchange Act Release No. 27365 (October 19, 1989), 54
FR 43511 (October 25, 1989) (approving trading of options listed on
the Pacific Stock Exchange at other exchanges in wake of
earthquake); Securities Exchange Act Release No. 40088 (June 12,
1998), 63 FR 33426 (June 18, 1998) (approving trading of Dell
options listed on Phlx at Amex on a temporary basis).
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CBOE also proposes a new Rule 6.17 granting authority to take
action under emergency conditions to the Chairman, President or such
other person or persons as may be designated by the Board. The proposed
rule text closely tracks that of other exchanges.\17\ The Commission
finds that proposed CBOE Rule 6.17 is consistent with the Act and
should enable key actions to be taken by Exchange representatives in
the event of a Disabling Event.
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\17\ See, e.g., New York Stock Exchange Rule 51.
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The Commission likewise finds that the proposed change to the
Exchange's Fee Schedule is consistent with the Act. By affirming that
CBOE and, by mutual
[[Page 30164]]
agreement, the Back-up Exchange will apply the per contract and per
contract side fees normally applicable to exclusively listed options
under the Disabled Exchange's fee schedule, the Commission believes
that the proposed rule change appears to be reasonably designed to
minimize the disruption associated with back-up trading of such
options. The proposal also clarifies that, with regard to singly listed
and multiply listed options, the fees charged shall be those set forth
in the Back-up Exchange fee schedule where trading occurs at a Back-up
Exchange, or, where trading occurs at CBOE, the CBOE fee schedule.
The Commission finds good cause, consistent with Sections 6(b)(5)
and 19(b) of the Act,\18\ to approve the proposal prior to the
thirtieth day after the date of publication of notice of filing thereof
in the Federal Register. Amendment No. 4 simply corrects a reference to
``Back-up Exchange'' in Section (d)(2) of CBOE Rule 6.16. Likewise,
Amendment No. 5 changes the number of the footnote CBOE proposes to add
to its Fee Schedule from 17 to 16 to avoid a gap in the numbering of
the notes. Because Amendment Nos. 4 and 5 propose minor corrections to
the rule text that are consistent with the clear intent of the
proposal, the Commission finds that it is appropriate to approve
Amendment Nos. 4 and 5 on an accelerated basis.
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\18\ 15 U.S.C. 78f(b)(5) and 78s(b).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment Nos. 4 and 5, including whether each of
these amendments 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-2004-59 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-2004-59. 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 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-2004-59 and should be submitted on or before June 15, 2005.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-CBOE-2004-59), as amended by
Amendment Nos. 1, 2 and 3, is hereby approved, and that Amendment Nos.
4 and 5 to the proposed rule change are approved on an accelerated
basis.
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\19\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2634 Filed 5-24-05; 8:45 am]
BILLING CODE 8010-01-P