Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change To Adopt a Simple Auction Liaison System To Auction Qualifying Marketable Orders for Potential Price Improvement, 71565-71568 [E5-6656]
Download as PDF
<![CDATA[
Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Notices
application relates solely to the
withdrawal of the Security from listing
on BSE and shall not affect its obligation
to be registered under Section 12(b) of
the Act.4
Any interested person may, on or
before December 15, 2005 comment on
the facts bearing upon whether the
application has been made in
accordance with the rules of BSE, and
what terms, if any, should be imposed
by the Commission for the protection of
investors. All comment letters may be
submitted by either of the following
methods:
Electronic Comments
• Send an e-mail to rulecomments@sec.gov. Please include the
File Number 1–31816 or;
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number 1–31816. This file number
should be included on the subject line
if e-mail is used. To help us 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/delist.shtml).
Comments are also available for public
inspection and copying in the
Commission’s Public Reference Room.
All comments received will be posted
without change; we do not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
The Commission, based on the
information submitted to it, will issue
an order granting the application after
the date mentioned above, unless the
Commission determines to order a
hearing on the matter.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.5
Jonathan G. Katz,
Secretary.
[FR Doc. E5–6662 Filed 11–28–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 1–32657]
Issuer Delisting; Notice of Application
of Nabors Industries Ltd. To Withdraw
Its Common Shares, $.001 Par Value,
From Listing and Registration on the
American Stock Exchange LLC
November 22, 2005.
On November 3, 2005, Nabors
Industries Ltd., a Bermuda exempted
company (‘‘Issuer’’), filed an application
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 12(d) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
12d2–2(d) thereunder,2 to withdraw its
common shares, $.001 par value
(‘‘Security’’), from listing and
registration on the American Stock
Exchange LLC (‘‘Amex’’).
On the Board of Directors (‘‘Board’’) of
the Issuer unanimously approved a
resolution on May 6, 2005, to withdraw
the Security from listing on Amex and
to list the Security on the New York
Stock Exchange, Inc. (‘‘NYSE’’). The
Issuer stated that the Board’s reason to
withdraw the Security from Amex and
list the Security on NYSE was to avoid
direct and indirect costs and the
division of the market resulting from
dual listing on Amex and NYSE.
The Issuer stated in its application
that it has met the requirements of
Amex Rule 18 by complying with all
applicable laws in effect in Bermuda, in
which it is incorporated, and providing
written notice of withdrawal to Amex.
The Issuer’s application relates solely
to the withdrawal of the Security from
listing on Amex, and shall not affect its
continued listing on NYSE or its
obligation to be registered under Section
12(b) of the Act.3
Any interested person may, on or
before December 15, 2005, comment on
the facts bearing upon whether the
application has been made in
accordance with the rules of Amex, and
what terms, if any, should be imposed
by the Commission for the protection of
investors. All comment letters may be
submitted by either of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/delist.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include the
File Number 1–32657 or;
U.S.C. 78l(d).
CFR 240.12d2–2(d).
3 15 U.S.C. 781(b).
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number 1–32657. This file number
should be included on the subject line
if e-mail is used. To help us 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/delist.shtml).
Comments are also available for public
inspection and copying in the
Commission’s Public Reference Room.
All comments received will be posted
without change; we do not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
The Commission, based on the
information submitted to it, will issue
an order granting the application after
the date mentioned above, unless the
Commission determines to order a
hearing on the matter.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.4
Jonathan G. Katz,
Secretary.
[FR Doc. E5–6663 Filed 11–28–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52823; File No. SR–CBOE–
2005–90]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change To Adopt a
Simple Auction Liaison System To
Auction Qualifying Marketable Orders
for Potential Price Improvement
November 22, 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 October
26, 2005, the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
1 15
U.S.C. 78l(b).
5 17 CFR 200.30–3(a)(1).
VerDate Aug<31>2005
20:13 Nov 28, 2005
Jkt 208001
4 17
2 17
4 15
1 15
PO 00000
Frm 00107
Fmt 4703
CFR 200.30–3(a)(1).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
Sfmt 4703
71565
E:\FR\FM\29NON1.SGM
29NON1
71566
Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Notices
prepared by CBOE. 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
The Exchange proposes to amend its
rules to adopt a Simple Auction Liaison
(‘‘SAL’’) system to auction qualifying
inbound orders for potential price
improvement. Below is the text of the
proposed rule change. Proposed new
language is in italics.
Chicago Board Options Exchange,
Incorporated
Rules
*
*
*
*
*
Rule 6.13. CBOE Hybrid System’s
Automatic Execution Feature
(a) No change.
(b) Automatic Execution
(i) Eligibility: Orders eligible for
automatic execution through the CBOE
Hybrid System may be automatically
executed in accordance with the
provisions of this Rule or in accordance
with Rule 6.13A for classes that have
been designated for auction price
improvement. This section governs
automatic executions and split-price
automatic executions. The automatic
execution and allocation of orders or
quotes submitted by market participants
also is governed by Rules 6.45A(c) and
(d).
(ii)–(iv) No change.
(c)–(e) No change.
*
*
*
*
*
Rule 6.13A Simple Auction Liaison
(SAL)
This Rule governs the operation of the
SAL system. SAL is a feature within the
Hybrid System that auctions marketable
orders for price improvement over the
NBBO.
(a) SAL Eligibility. The Exchange,
with input from the appropriate Floor
Procedure Committee, shall designate
the eligible order size, eligible order
type, eligible order origin code (i.e.
public customer orders, non-market
maker broker-dealer orders, and market
maker broker-dealer orders), and classes
in which SAL shall be activated. For
such classes, SAL shall automatically
initiate an auction process for any order
that is eligible for automatic execution
by the Hybrid System pursuant to Rule
6.13 (‘‘Agency Order’’), except when the
Exchange’s disseminated quotation
contains one or more resting limit orders
and does not contain sufficient MarketMaker quotation size to satisfy the entire
Agency Order.
VerDate Aug<31>2005
20:13 Nov 28, 2005
Jkt 208001
(b) SAL Auction. Prior to commencing
the auction, SAL shall stop the Agency
Order at the NBBO against MarketMaker quotations displayed at the
NBBO on the opposite side of the
market as the Agency Order. SAL will
not allow such quotations to move to an
inferior price or size throughout the
duration of the auction. The auction
will last for a period of time not to
exceed two (2) seconds as determined
by the Exchange on a class-by-class
basis. Auction responses may be
submitted by Market-Makers with an
appointment in the relevant option class
and Members acting as agent for orders
resting at the top of the Exchange’s book
opposite the Agency Order. With respect
to responses, the following shall apply:
(i) Responses shall not be visible to
other auction participants and shall not
be disseminated to OPRA.
(ii) Responses may be submitted in
one-cent increments.
(iii) Multiple responses are allowed.
(iv) Responses may be cancelled.
(v) Responses cannot cross the
Exchange’s disseminated quotation on
the opposite side of the market.
(c) Allocation of Agency Orders.
Agency Orders may be executed at
multiple prices and shall be executed in
two rounds per price point as follows:
(i) First Round Allocation. The
Agency Order shall first be allocated at
the prevailing price (the ‘‘First
Allocation Round’’) between all parties
that represented the Exchange’s NBBO
quotation at the time the auction
commenced (‘‘Original Quoters’’) up to
the size of such quotation. During the
First Allocation Round, the following
shall apply:
(1) the Agency Order shall be
allocated pursuant to the matching
algorithm in effect for the class pursuant
to Rules 6.45A or 6.45B as appropriate;
(2) An Original Quoter may only
participate in a First Round Allocation
at each execution price up to its size at
the NBBO at the time the auction
commenced; and
(3) If the applicable matching
algorithm includes a participation
entitlement, then Market-Makers that
qualify for a participation entitlement at
the NBBO price will receive a
participation entitlement if they match
the executing auction price(s).
(ii) Second Allocation Round. If an
Agency Order is not fully executed
during the First Allocation Round at a
particular price point, then a Second
Allocation Round shall occur. During
this round, all responses received
during the auction at the prevailing
auction price that were not eligible for
the First Allocation Round shall
participate in accordance with the
PO 00000
Frm 00108
Fmt 4703
Sfmt 4703
matching algorithm in effect for the
class, and the size of such responses
shall be capped to the size of the
Agency Order for allocation purposes.
There shall be no participation right
during the Second Allocation Round.
(d) Early Termination of Auction. The
auction will terminate early under the
following circumstances:
(i) If the Hybrid System receives an
unrelated non-marketable limit order on
the opposite side of the market from the
Agency Order that improves any auction
responses, the unrelated order will trade
(after any responses that were priced
better than the unrelated order have
traded) to the fullest extent possible at
the midpoint of the best remaining
auction response and the unrelated
order’s limit price (rounded towards the
unrelated order’s limit price when
necessary).
(ii) If the Hybrid System receives an
unrelated market or marketable limit
order on the opposite side of the market
from the Agency Order, such unrelated
order will trade to the fullest extent
possible at the midpoint of the best
auction response and the NBBO on the
opposite side of the market from the
auction responses (rounded towards the
disseminated quote when necessary).
(iii) If the Hybrid System receives an
unrelated order on the same side of the
market as the Agency Order that is
marketable against the NBBO, then the
auction shall conclude and the Agency
Order shall trade against the prevailing
responses in accordance with
subparagraph (c) above.
(iv) Any time there is a quote lock on
the Exchange pursuant to Rule 6.45A(d).
(v) Any time a response matches the
Exchange’s disseminated quote on the
opposite side of the market from the
response.
. . . Interpretations and Policies
.01 A pattern or practice of
submitting unrelated orders that cause
an exposure period to conclude early
will be deemed conduct inconsistent
with just and equitable principles of
trade and a violation of Rule 4.1 and
other Exchange Rules.
.02 Disseminating information
regarding auctioned orders to third
parties will be deemed conduct
inconsistent with just and equitable
principles of trade and a violation of
Rule 4.1 and other Exchange Rules.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
CBOE included statements concerning
E:\FR\FM\29NON1.SGM
29NON1
Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Notices
the purpose of and basis for the
proposal and discussed any comments it
received on the proposal. The text of
these statements may be examined at
the places specified in Item IV below.
CBOE has prepared summaries, set forth
in sections A, B, and C below, of the
most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to implement SAL, a price
improvement auction system for
qualifying inbound orders. SAL is a
feature within CBOE’s Hybrid System
that auctions marketable orders for price
improvement over the National Best Bid
or Offer (‘‘NBBO’’). Thus, orders that
would otherwise be automatically
executed at CBOE’s NBBO market will
be exposed to a brief auction in penny
increments for potential price
improvement. SAL would not auction
an order if CBOE were not the NBBO
market at the time the order was
received. As proposed, the Exchange
would designate the eligible order size
(e.g., all orders under 100 contracts),
eligible order type (e.g., noncontingency orders), eligible order
origin code (e.g., public customer
orders, non-market maker broker-dealer
orders, and market maker broker-dealer
orders), and classes in which SAL shall
be activated.
For eligible classes, SAL shall
automatically initiate an auction process
for any qualifying order (‘‘Agency
Order’’) that is eligible for automatic
execution by the Hybrid System except
when the Exchange’s disseminated
quotation contains one or more resting
limit orders and does not contain
sufficient quotation size from CBOE
Market-Makers to satisfy the entire
Agency Order. The reason SAL requires
sufficient Market-Maker quote size in
the NBBO quote to initiate a SAL
auction is because SAL stops the
Agency Order against the Market-Maker
quotes. If CBOE’s NBBO price consisted
only of resting limit orders, SAL could
not stop the Agency Order against such
limit orders because the limit orders
might be cancelled prior to the
conclusion of the auction.
As mentioned above, SAL stops the
Agency Order at the NBBO against
Market-Maker quotations displayed at
the NBBO on the opposite side of the
market as the Agency Order. In
connection with this stop, SAL will not
allow such quotations to move to an
VerDate Aug<31>2005
20:13 Nov 28, 2005
Jkt 208001
inferior price or size throughout the
duration of the auction. The auction
will last for a period of time not to
exceed two (2) seconds as determined
by the Exchange. Auction responses
may be submitted by Market-Makers
with an appointment in the relevant
option class and by CBOE Members
acting as agent for orders resting at the
top of the Exchange’s book opposite the
Agency Order. With respect to
responses, the following shall apply: (i)
Responses shall not be visible to other
auction participants and shall not be
disseminated to the Options Price
Reporting Authority; (ii) responses may
be submitted in one-cent increments
(and not less than one-cent increments);
(iii) multiple responses are allowed; (iv)
responses may be cancelled prior to the
conclusion of the auction; and (v)
responses cannot cross the Exchange’s
disseminated quotation on the opposite
side of the market.
At the conclusion of the auction
period, the Agency Order will be
executed at the best auction response
prices and may be executed at multiple
prices if necessary. The allocation of the
execution of the Agency Order shall
occur in two rounds at each price point.
Participation in the first round (the
‘‘First Allocation Round’’) is limited to
those that constituted the Exchange’s
NBBO quote (on the side of the market
opposite the Agency Order) at the time
the SAL auction commenced (‘‘Original
Quoters’’). This is to encourage
aggressive quoting and reward those
that set the NBBO market. During the
First Allocation Round, the following
shall apply: (i) The Agency Order shall
be allocated pursuant to the matching
algorithm in effect for the class under
Rules 6.45A or 6.45B as appropriate; (ii)
Original Quoters may only participate in
a First Allocation Round at each
execution price up to their respective
size at the NBBO at the time the auction
commenced; and (iii) if the applicable
matching algorithm includes a
participation entitlement, then MarketMakers that qualified for a participation
entitlement at the NBBO price will
receive a participation entitlement in a
First Allocation Round if they match the
execution price for that round.
If an Agency Order is not fully
executed during the First Allocation
Round, then a second round (‘‘Second
Allocation Round’’) shall occur. During
this round, all responses received
during the auction at the execution
price of the immediately preceding First
Allocation Round that were not eligible
for that preceding round shall
participate in accordance with the
matching algorithm in effect for the
class. The size of such responses shall
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
71567
be limited to the size of the Agency
Order for allocation purposes. There is
no participation right during the Second
Allocation Round.
The following is an example of a SAL
auction: The CBOE market of 1.00–1.10
is the NBBO. The 1.10 offer is for 300
contracts and is comprised of MarketMaker A for 100 contracts, MarketMaker B for 100 contracts and MarketMaker C for 100 contracts. A qualifying
order is received to buy 100 contracts at
1.10. Instead of automatically executing
the order at 1.10, SAL will auction the
order. Assume the auction timer is set
to one second. At the conclusion of the
one-second auction, the following
responses were received: Market-Maker
A at 1.07 for 10 contracts and at 1.08 for
40 contracts; Market-Maker B at 1.08 for
40 contracts and at 1.09 for 100
contracts; and Market-Maker X at 1.07
for 10 contracts and at 1.08 for 100
contracts. The execution of the Agency
order will proceed as follows: 10
contracts get filled at 1.07 against
Market-Maker A, who is an Original
Quoter; 10 contracts get filled at 1.07
against Market-Maker X, who is not an
Original Quoter; and the remaining 80
contracts get filled against MarketMakers A and B (40 each) at 1.08.
Market-Maker X does not participate at
1.08 since it is not an Original Quoter.
The following situations will cause
the auction to conclude early. First, if
the Hybrid System receives an unrelated
non-marketable limit order on the
opposite side of the market from the
Agency Order that improves any auction
responses, the auction will conclude
and the unrelated order will trade (after
any responses that were priced better
than the unrelated order have traded) to
the fullest extent possible at the
midpoint of the best remaining auction
response and the unrelated order’s limit
price (rounded towards the unrelated
order’s limit price when necessary).
This will allow both the unrelated order
and the Agency Order to obtain price
improvement. Second, if the Hybrid
System receives an unrelated market or
marketable limit order on the opposite
side of the market from the Agency
Order, the auction will conclude and
the unrelated order will trade to the
fullest extent possible at the midpoint of
the best auction response and the NBBO
on the opposite side of the market from
the auction responses (rounded towards
the disseminated quote when
necessary). This also provides price
improvement to both orders. Third, if
the Hybrid System receives an unrelated
order on the same side of the market as
the Agency Order that is marketable
against the NBBO, then the auction will
conclude and the Agency Order will
E:\FR\FM\29NON1.SGM
29NON1
71568
Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Notices
trade against the responses at the
highest price points. Fourth, the auction
will conclude early any time there is a
quote lock on the Exchange pursuant to
Rule 6.45A(d). Fifth, the auction will
conclude early any time a response
matches the Exchange’s disseminated
quote on the opposite side of the market
from the response.
Lastly, the Exchange seeks to adopt
provisions providing that a pattern or
practice of submitting unrelated orders
that cause an auction to conclude early
and disseminating information
regarding such orders to third parties
will be deemed conduct inconsistent
with just and equitable principles of
trade and a violation of CBOE Rule 4.1
and, potentially, other Exchange Rules.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with section
6(b) of the Act 3 in general and furthers
the objectives of section 6(b)(5) 4 in
particular in that by swiftly providing
potential price improvement over the
NBBO to qualifying inbound orders, it
should promote just and equitable
principles of trade, serve to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and
protect investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
3 15
4 15
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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–2005–90 on the
subject line.
20:13 Nov 28, 2005
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52818; File No. SR–CBOE–
2005–91]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change and Amendment No. 1
Thereto Relating to Its Marketing Fee
Program
November 22, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
• Send paper comments in triplicate
notice is hereby given that on November
to Jonathan G. Katz, Secretary,
2, 2005, the Chicago Board Options
Securities and Exchange Commission,
Exchange, Incorporated (‘‘CBOE’’ or
100 F Street, NE., Washington, DC
‘‘Exchange’’) filed with the Securities
20549–9303. All submissions should
refer to File Number SR-CBOE–2005–90. and Exchange Commission
This file number should be included on (‘‘Commission’’) the proposed rule
the subject line if e-mail is used. To help change as described in Items I, II, and
III below, which Items have been
the Commission process and review
prepared by the Exchange. On
your comments more efficiently, please
November 17, 2005, the CBOE
use only one method. The Commission
submitted Amendment No. 1 to the
will post all comments on the
proposed rule change.3 The CBOE has
Commission’s Internet Web site (https://
designated this proposal as one
www.sec.gov/rules/sro.shtml). Copies of
changing a fee imposed by the CBOE
the submission, all subsequent
under Section 19(b)(3)(A)(ii) of the Act 4
amendments, all written statements
and Rule 19b–4(f)(2) thereunder,5 which
with respect to the proposed rule
renders the proposal, as amended,
change that are filed with the
effective upon filing with the
Commission, and all written
Commission. The Commission is
communications relating to the
publishing this notice to solicit
proposed rule change between the
comments on the proposed rule change,
Commission and any person, other than as amended, from interested persons.
those that may be withheld from the
I. Self-Regulatory Organization’s
public in accordance with the
Statement of the Terms of Substance of
provisions of 5 U.S.C. 552, will be
the Proposed Rule Change
available for inspection and copying in
The CBOE proposes to amend its Fees
the Commission’s Public Reference
Schedule and its marketing fee program
Room. Copies of the filing also will be
in a number of respects, including to
available for inspection and copying at
the principal office of CBOE. All
5 17 CFR 200.30–3(a)(12).
comments received will be posted
1 15 U.S.C. 78s(b)(1).
without change; the Commission does
2 17 CFR 240.19b–4.
3 Partial Amendment No. 1 (‘‘Amendment No.
not edit personal identifying
1’’): (1) Amended the effective date of the proposal
information from submissions. You
from November 1, 2005 to November 2, 2005; (2)
should submit only information that
amended the purpose section of the filing to clarify
you wish to make available publicly. All that the Preferred Market-Maker Program is a pilot
submissions should refer to File
program set to expire on June 2, 2006; (3) amended
Number SR-CBOE–2005–90 and should the rule text to specify that the marketing fee
program will expire on June 2, 2006, the date the
be submitted on or before December 20, Preferred Market-Maker Program is set to expire;
2005.
and (4) made a technical correction to a footnote.
Paper Comments
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
VerDate Aug<31>2005
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.5
Jonathan G. Katz,
Secretary.
[FR Doc. E5–6656 Filed 11–28–05; 8:45 am]
4 15
5 17
Jkt 208001
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
E:\FR\FM\29NON1.SGM
29NON1
]]>Agencies
[Federal Register Volume 70, Number 228 (Tuesday, November 29, 2005)]
[Notices]
[Pages 71565-71568]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6656]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52823; File No. SR-CBOE-2005-90]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change To Adopt a
Simple Auction Liaison System To Auction Qualifying Marketable Orders
for Potential Price Improvement
November 22, 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 October 26, 2005, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been
[[Page 71566]]
prepared by CBOE. 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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its rules to adopt a Simple Auction
Liaison (``SAL'') system to auction qualifying inbound orders for
potential price improvement. Below is the text of the proposed rule
change. Proposed new language is in italics.
Chicago Board Options Exchange, Incorporated
Rules
* * * * *
Rule 6.13. CBOE Hybrid System's Automatic Execution Feature
(a) No change.
(b) Automatic Execution
(i) Eligibility: Orders eligible for automatic execution through
the CBOE Hybrid System may be automatically executed in accordance with
the provisions of this Rule or in accordance with Rule 6.13A for
classes that have been designated for auction price improvement. This
section governs automatic executions and split-price automatic
executions. The automatic execution and allocation of orders or quotes
submitted by market participants also is governed by Rules 6.45A(c) and
(d).
(ii)-(iv) No change.
(c)-(e) No change.
* * * * *
Rule 6.13A Simple Auction Liaison (SAL)
This Rule governs the operation of the SAL system. SAL is a feature
within the Hybrid System that auctions marketable orders for price
improvement over the NBBO.
(a) SAL Eligibility. The Exchange, with input from the appropriate
Floor Procedure Committee, shall designate the eligible order size,
eligible order type, eligible order origin code (i.e. public customer
orders, non-market maker broker-dealer orders, and market maker broker-
dealer orders), and classes in which SAL shall be activated. For such
classes, SAL shall automatically initiate an auction process for any
order that is eligible for automatic execution by the Hybrid System
pursuant to Rule 6.13 (``Agency Order''), except when the Exchange's
disseminated quotation contains one or more resting limit orders and
does not contain sufficient Market-Maker quotation size to satisfy the
entire Agency Order.
(b) SAL Auction. Prior to commencing the auction, SAL shall stop
the Agency Order at the NBBO against Market-Maker quotations displayed
at the NBBO on the opposite side of the market as the Agency Order. SAL
will not allow such quotations to move to an inferior price or size
throughout the duration of the auction. The auction will last for a
period of time not to exceed two (2) seconds as determined by the
Exchange on a class-by-class basis. Auction responses may be submitted
by Market-Makers with an appointment in the relevant option class and
Members acting as agent for orders resting at the top of the Exchange's
book opposite the Agency Order. With respect to responses, the
following shall apply:
(i) Responses shall not be visible to other auction participants
and shall not be disseminated to OPRA.
(ii) Responses may be submitted in one-cent increments.
(iii) Multiple responses are allowed.
(iv) Responses may be cancelled.
(v) Responses cannot cross the Exchange's disseminated quotation on
the opposite side of the market.
(c) Allocation of Agency Orders. Agency Orders may be executed at
multiple prices and shall be executed in two rounds per price point as
follows:
(i) First Round Allocation. The Agency Order shall first be
allocated at the prevailing price (the ``First Allocation Round'')
between all parties that represented the Exchange's NBBO quotation at
the time the auction commenced (``Original Quoters'') up to the size of
such quotation. During the First Allocation Round, the following shall
apply:
(1) the Agency Order shall be allocated pursuant to the matching
algorithm in effect for the class pursuant to Rules 6.45A or 6.45B as
appropriate;
(2) An Original Quoter may only participate in a First Round
Allocation at each execution price up to its size at the NBBO at the
time the auction commenced; and
(3) If the applicable matching algorithm includes a participation
entitlement, then Market-Makers that qualify for a participation
entitlement at the NBBO price will receive a participation entitlement
if they match the executing auction price(s).
(ii) Second Allocation Round. If an Agency Order is not fully
executed during the First Allocation Round at a particular price point,
then a Second Allocation Round shall occur. During this round, all
responses received during the auction at the prevailing auction price
that were not eligible for the First Allocation Round shall participate
in accordance with the matching algorithm in effect for the class, and
the size of such responses shall be capped to the size of the Agency
Order for allocation purposes. There shall be no participation right
during the Second Allocation Round.
(d) Early Termination of Auction. The auction will terminate early
under the following circumstances:
(i) If the Hybrid System receives an unrelated non-marketable limit
order on the opposite side of the market from the Agency Order that
improves any auction responses, the unrelated order will trade (after
any responses that were priced better than the unrelated order have
traded) to the fullest extent possible at the midpoint of the best
remaining auction response and the unrelated order's limit price
(rounded towards the unrelated order's limit price when necessary).
(ii) If the Hybrid System receives an unrelated market or
marketable limit order on the opposite side of the market from the
Agency Order, such unrelated order will trade to the fullest extent
possible at the midpoint of the best auction response and the NBBO on
the opposite side of the market from the auction responses (rounded
towards the disseminated quote when necessary).
(iii) If the Hybrid System receives an unrelated order on the same
side of the market as the Agency Order that is marketable against the
NBBO, then the auction shall conclude and the Agency Order shall trade
against the prevailing responses in accordance with subparagraph (c)
above.
(iv) Any time there is a quote lock on the Exchange pursuant to
Rule 6.45A(d).
(v) Any time a response matches the Exchange's disseminated quote
on the opposite side of the market from the response.
. . . Interpretations and Policies
.01 A pattern or practice of submitting unrelated orders that cause
an exposure period to conclude early will be deemed conduct
inconsistent with just and equitable principles of trade and a
violation of Rule 4.1 and other Exchange Rules.
.02 Disseminating information regarding auctioned orders to third
parties will be deemed conduct inconsistent with just and equitable
principles of trade and a violation of Rule 4.1 and other Exchange
Rules.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, CBOE included statements
concerning
[[Page 71567]]
the purpose of and basis for the proposal and discussed any comments it
received on the proposal. The text of these statements may be examined
at the places specified in Item IV below. CBOE has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to implement SAL, a
price improvement auction system for qualifying inbound orders. SAL is
a feature within CBOE's Hybrid System that auctions marketable orders
for price improvement over the National Best Bid or Offer (``NBBO'').
Thus, orders that would otherwise be automatically executed at CBOE's
NBBO market will be exposed to a brief auction in penny increments for
potential price improvement. SAL would not auction an order if CBOE
were not the NBBO market at the time the order was received. As
proposed, the Exchange would designate the eligible order size (e.g.,
all orders under 100 contracts), eligible order type (e.g., non-
contingency orders), eligible order origin code (e.g., public customer
orders, non-market maker broker-dealer orders, and market maker broker-
dealer orders), and classes in which SAL shall be activated.
For eligible classes, SAL shall automatically initiate an auction
process for any qualifying order (``Agency Order'') that is eligible
for automatic execution by the Hybrid System except when the Exchange's
disseminated quotation contains one or more resting limit orders and
does not contain sufficient quotation size from CBOE Market-Makers to
satisfy the entire Agency Order. The reason SAL requires sufficient
Market-Maker quote size in the NBBO quote to initiate a SAL auction is
because SAL stops the Agency Order against the Market-Maker quotes. If
CBOE's NBBO price consisted only of resting limit orders, SAL could not
stop the Agency Order against such limit orders because the limit
orders might be cancelled prior to the conclusion of the auction.
As mentioned above, SAL stops the Agency Order at the NBBO against
Market-Maker quotations displayed at the NBBO on the opposite side of
the market as the Agency Order. In connection with this stop, SAL will
not allow such quotations to move to an inferior price or size
throughout the duration of the auction. The auction will last for a
period of time not to exceed two (2) seconds as determined by the
Exchange. Auction responses may be submitted by Market-Makers with an
appointment in the relevant option class and by CBOE Members acting as
agent for orders resting at the top of the Exchange's book opposite the
Agency Order. With respect to responses, the following shall apply: (i)
Responses shall not be visible to other auction participants and shall
not be disseminated to the Options Price Reporting Authority; (ii)
responses may be submitted in one-cent increments (and not less than
one-cent increments); (iii) multiple responses are allowed; (iv)
responses may be cancelled prior to the conclusion of the auction; and
(v) responses cannot cross the Exchange's disseminated quotation on the
opposite side of the market.
At the conclusion of the auction period, the Agency Order will be
executed at the best auction response prices and may be executed at
multiple prices if necessary. The allocation of the execution of the
Agency Order shall occur in two rounds at each price point.
Participation in the first round (the ``First Allocation Round'') is
limited to those that constituted the Exchange's NBBO quote (on the
side of the market opposite the Agency Order) at the time the SAL
auction commenced (``Original Quoters''). This is to encourage
aggressive quoting and reward those that set the NBBO market. During
the First Allocation Round, the following shall apply: (i) The Agency
Order shall be allocated pursuant to the matching algorithm in effect
for the class under Rules 6.45A or 6.45B as appropriate; (ii) Original
Quoters may only participate in a First Allocation Round at each
execution price up to their respective size at the NBBO at the time the
auction commenced; and (iii) if the applicable matching algorithm
includes a participation entitlement, then Market-Makers that qualified
for a participation entitlement at the NBBO price will receive a
participation entitlement in a First Allocation Round if they match the
execution price for that round.
If an Agency Order is not fully executed during the First
Allocation Round, then a second round (``Second Allocation Round'')
shall occur. During this round, all responses received during the
auction at the execution price of the immediately preceding First
Allocation Round that were not eligible for that preceding round shall
participate in accordance with the matching algorithm in effect for the
class. The size of such responses shall be limited to the size of the
Agency Order for allocation purposes. There is no participation right
during the Second Allocation Round.
The following is an example of a SAL auction: The CBOE market of
1.00-1.10 is the NBBO. The 1.10 offer is for 300 contracts and is
comprised of Market-Maker A for 100 contracts, Market-Maker B for 100
contracts and Market-Maker C for 100 contracts. A qualifying order is
received to buy 100 contracts at 1.10. Instead of automatically
executing the order at 1.10, SAL will auction the order. Assume the
auction timer is set to one second. At the conclusion of the one-second
auction, the following responses were received: Market-Maker A at 1.07
for 10 contracts and at 1.08 for 40 contracts; Market-Maker B at 1.08
for 40 contracts and at 1.09 for 100 contracts; and Market-Maker X at
1.07 for 10 contracts and at 1.08 for 100 contracts. The execution of
the Agency order will proceed as follows: 10 contracts get filled at
1.07 against Market-Maker A, who is an Original Quoter; 10 contracts
get filled at 1.07 against Market-Maker X, who is not an Original
Quoter; and the remaining 80 contracts get filled against Market-Makers
A and B (40 each) at 1.08. Market-Maker X does not participate at 1.08
since it is not an Original Quoter.
The following situations will cause the auction to conclude early.
First, if the Hybrid System receives an unrelated non-marketable limit
order on the opposite side of the market from the Agency Order that
improves any auction responses, the auction will conclude and the
unrelated order will trade (after any responses that were priced better
than the unrelated order have traded) to the fullest extent possible at
the midpoint of the best remaining auction response and the unrelated
order's limit price (rounded towards the unrelated order's limit price
when necessary). This will allow both the unrelated order and the
Agency Order to obtain price improvement. Second, if the Hybrid System
receives an unrelated market or marketable limit order on the opposite
side of the market from the Agency Order, the auction will conclude and
the unrelated order will trade to the fullest extent possible at the
midpoint of the best auction response and the NBBO on the opposite side
of the market from the auction responses (rounded towards the
disseminated quote when necessary). This also provides price
improvement to both orders. Third, if the Hybrid System receives an
unrelated order on the same side of the market as the Agency Order that
is marketable against the NBBO, then the auction will conclude and the
Agency Order will
[[Page 71568]]
trade against the responses at the highest price points. Fourth, the
auction will conclude early any time there is a quote lock on the
Exchange pursuant to Rule 6.45A(d). Fifth, the auction will conclude
early any time a response matches the Exchange's disseminated quote on
the opposite side of the market from the response.
Lastly, the Exchange seeks to adopt provisions providing that a
pattern or practice of submitting unrelated orders that cause an
auction to conclude early and disseminating information regarding such
orders to third parties will be deemed conduct inconsistent with just
and equitable principles of trade and a violation of CBOE Rule 4.1 and,
potentially, other Exchange Rules.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
section 6(b) of the Act \3\ in general and furthers the objectives of
section 6(b)(5) \4\ in particular in that by swiftly providing
potential price improvement over the NBBO to qualifying inbound orders,
it should promote just and equitable principles of trade, serve to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and protect investors and the
public interest.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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-2005-90 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303. All submissions should refer to File Number
SR-CBOE-2005-90. 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 the 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-2005-90 and should be
submitted on or before December 20, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
---------------------------------------------------------------------------
\5\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jonathan G. Katz,
Secretary.
[FR Doc. E5-6656 Filed 11-28-05; 8:45 am]
BILLING CODE 8010-01-P
