Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Obligations of Designated Primary Market Makers During the Implementation of the PAR Official Program, 72867-72870 [E5-6986]
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Federal Register / Vol. 70, No. 234 / Wednesday, December 7, 2005 / Notices
Dated: December 2, 2005
Jonathan G. Katz,
Secretary.
[FR Doc. 05–23783 Filed 12–5–05; 10:51 pm]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52860; File No. SR–CBOE–
2005–100]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Obligations of
Designated Primary Market Makers
During the Implementation of the PAR
Official Program
November 30, 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 November
22, 2005, the Chicago Board Options
Exchange, Incorporated (‘‘Exchange’’ or
‘‘CBOE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the Exchange.
CBOE has designated this proposal as
non-controversial under section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder,4 which renders
the proposed rule change effective upon
filing with the Commission. 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 issue a
regulatory circular that will subject
certain Designated Primary Market
Makers (‘‘DPMs’’) to obligations that
were removed upon the approval of the
Exchange’s PAR Official proposal.5 The
text of the proposed regulatory circular
is attached hereto as Exhibit A.
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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
5 See infra note 6 and accompanying text.
2 17
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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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On November 18, 2005, the
Commission approved CBOE’s proposal
to remove a DPM’s obligation to execute
orders as an agent, including as a floor
broker, in its allocated securities on the
Exchange in any trading station and to
allow the Exchange to appoint an
Exchange employee or independent
contractor (‘‘PAR Official’’) to assume
many of the functions and obligations
that DPMs previously held (‘‘PAR
Official proposal’’).6 A specific
provision of rules approved in
connection with the PAR Official
proposal gives the Exchange up to
ninety days to implement the PAR
Official proposal.7 Because this ninetyday implementation provision could
mean that some DPMs will continue to
be required to represent orders as agents
in their allocated securities, those DPMs
must still be subject to the same
obligations that governed DPM
operations prior to the approval of the
PAR Official proposal. As such, the
Exchange has incorporated those
obligations into a regulatory circular
that will govern the operations of those
DPMs that were not immediately
included in the PAR Official conversion
as of November 18, 2005. These rules
and obligations, as provided in the
regulatory circular attached hereto as
Exhibit A, were adopted directly from
the now-former DPM rules.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
section 6(b) 8 of the Act in general, and
furthers the objectives of section
6(b)(5) 9 in particular, in that it is
designed to promote just and equitable
principles of trade, to prevent
fraudulent and manipulative acts, and,
6 See Securities Exchange Act Release No. 52798
(November 18, 2005), 70 FR 71344 (November 28,
2005).
7 See Interpretation and Policy .01 to CBOE Rule
7.12.
8 15 U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(5).
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in general, to 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 will 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
The foregoing proposed rule change
has become effective pursuant to section
19(b)(3)(A) of the Act 10 and Rule 19b–
4(f)(6) thereunder 11 because the
proposed rule change does not (i)
significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; or (iii) become operative
for 30 days from the date on which it
was filed, or such shorter time as the
Commission may designate. In addition,
the Exchange provided the Commission
with written notice of its intent to file
the proposed rule change, along with a
brief description and text of the
proposed rule change, at least five
business days prior to the date of the
filing of the proposed rule change as
required by Rule 19b–4(f)(6).12
Pursuant to Rule 19b–4(f)(6)(iii) under
the Act,13 the proposal does not become
operative until 30 days after the date of
its filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay so that the
proposed rule change becomes effective
immediately. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest. The
Commission notes that granting this
waiver will ensure that DPMs not
immediately subject to the new rules
approved recently in connection with
the PAR Official proposal will continue
to be subject to appropriate regulation.
Therefore, the Commission has
determined to waive the 30-day delay
10 15
11 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
12 Id.
13 17
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CFR 240.19b–4(f)(6)(iii).
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Federal Register / Vol. 70, No. 234 / Wednesday, December 7, 2005 / Notices
and to allow the proposed rule change
to become operative immediately.14
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.15
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:
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–2005–100 and
should be submitted on or before
December 28, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.16
Jonathan G. Katz,
Secretary.
Exhibit A—Chicago Board Options
Exchange, Incorporated Regulatory
Circular RG05–xx
Date: November 18, 2005.
To: Members and Member Firms.
From: Legal Division; Regulatory
Electronic Comments
Division; Trading Operations Division
• Use the Commission’s Internet
Re: DPM Obligations Until the
comment form (https://www.sec.gov/
Implementation of the PAR Official
rules/sro.shtml); or
Program
• Send an e-mail to ruleOn November 18, 2005, the Securities
comments@sec.gov. Please include File
and Exchange Commission (‘‘SEC’’)
No. SR–CBOE–2005–100 on the subject
approved a CBOE rule change, SR–
line.
CBOE–2005–46 (‘‘rule change’’ or ‘‘PAR
Paper Comments
Official rule change’’), that, among other
things, (1) prohibits a DPM from
• Send paper comments in triplicate
executing orders as an agent or Floor
to Jonathan G. Katz, Secretary,
Broker in its allocated option classes
Securities and Exchange Commission,
and (2) eliminates the authority of a
100 F Street, NE., Washington, DC
DPM to act in any other way as a Floor
20549–9303.
Broker in those classes.17 Rule 8.8 and
All submissions should refer to File
Rule 8.85(b) now prevent a DPM from
Number SR–CBOE–2005–100. This file
representing or executing orders for
number should be included on the
subject line if e-mail is used. To help the other persons in the DPM’s assigned
option classes. Once the rule change
Commission process and review your
goes into effect in a particular options
comments more efficiently, please use
only one method. The Commission will class, the DPM assigned to that option
class will lose the ability to take custody
post all comments on the Commissions
of or handle orders for other persons in
Internet Web site (https://www.sec.gov/
that option class, including through
rules/sro.shtml). Copies of the
operation of the PAR terminal. The rule
submission, all subsequent
change authorizes the Exchange to
amendments, all written statements
assign to an Exchange employee or
with respect to the proposed rule
subcontractor known as a PAR Official,
change that are filed with the
the responsibility, among other things,
Commission, and all written
to operate the PAR workstation for
communications relating to the
designated option classes, to maintain
proposed rule change between the
Commission and any person, other than the book in those classes, to represent
orders to be sent via Intermarket Option
those that may be withheld from the
Linkage in those classes, and to effect
public in accordance with the
executions of agency orders placed with
provisions of 5 U.S.C. 552, will be
the PAR Official in those classes.
available for inspection and copying in
The rule change allows the Exchange
the Commission’s Public Reference
Room. Copies of such filing also will be to put PAR Officials in place in DPM
trading crowds during a 90-day period
available for inspection and copying at
after the SEC approves the rule change.
the principal office of the CBOE. All
This provision is intended to insure a
comments received will be posted
smooth roll-out of the PAR Official
14 For purposes only of waiving the operative
delay of this proposal, the Commission notes that
it has considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
15 15 U.S.C. 78s(b)(3)(C).
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13:01 Dec 06, 2005
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16 17
CFR 200.30–3(a)(12).
refer to the rule change and the SEC
order approving the rule change, which both can be
found on the Exchange’s Web site at https://
www.cboe.org/Legal/filings.aspx.
17 Please
PO 00000
Frm 00091
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program. Therefore, until a PAR Official
is put in place in a particular DPM
trading crowd during this 90-day
transition period, the DPM in that
trading crowd will continue to be
responsible to operate the PAR
workstation and will continue to be
subject to the same agency obligations
as set forth under former Rule 8.85(b)
and to other obligations applicable to
DPMs under current and former
Exchange rules. These rules and
regulations are provided below:
*
*
*
*
*
DPM Obligations
(a) General Obligations. Each DPM
shall fulfill all of the obligations of a
Floor Broker or Order Book Official (to
the extent that the DPM acts as a Floor
Broker) under the Rules, and shall
satisfy each of the requirements
contained in this paragraph, in respect
of each of the securities allocated to the
DPM. To the extent that there is any
inconsistency between the specific
obligations of a DPM set forth in
subparagraphs (b) through (i) of this
Rule and the general obligations of a
Floor Broker or of an Order Book
Official under the Rules, subparagraphs
(b) through (i) of this Rule shall govern.
(b) Display Obligation. Each DPM
shall display immediately the full price
and size of any customer limit order that
improves the price or increases the size
of the best disseminated CBOE quote.
‘‘Immediately’’ means, under normal
market conditions, as soon as
practicable but no later than 30-seconds
after receipt (‘‘30-second standard’’) by
the DPM. The term ‘‘customer limit
order’’ means an order to buy or sell a
listed option at a specified price that is
not for the account of either a broker or
dealer; provided, however, that the term
customer limit order shall include an
order transmitted by a broker or dealer
on behalf of a customer. The following
are exempt from the Display Obligation
as set forth under this provision:
(A) An order executed upon receipt;
(B) An order where the customer who
placed it requests that it not be
displayed, and upon receipt of the
order, the DPM announces in public
outcry the information concerning the
order that would be displayed if the
order were subject to being displayed;
(C) An order for which immediately
upon receipt a related order for the
principal account of a DPM reflecting
the terms of the customer order is
routed to another options exchange that
is a participant in the Intermarket
Options Linkage Plan;
(D) The following orders as defined in
Rule 6.53: contingency orders; Onecancels-the-other orders; all or none
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Federal Register / Vol. 70, No. 234 / Wednesday, December 7, 2005 / Notices
orders; fill or kill orders; immediate or
cancel orders; complex orders (e.g.,
spreads, straddles, combinations); and
stock-option orders;
(E) Orders received before or during a
trading rotation (as defined in Rule 6.2,
6.2A, and 6.2B), including Opening
Rotation Orders as defined in Rule
6.53(l), are exempt from the 30-second
standard, however, they must be
displayed immediately upon conclusion
of the applicable rotation; and
(F) Large Sized Orders: Orders for
more than 100 contracts, unless the
customer placing such order requests
that the order be displayed.
(c) A DPM shall not remove from the
public order book any order placed in
the book unless (A) the order is
canceled, expires, or is executed or (B)
the DPM returns the order to the
member that placed the order with the
DPM in response to a request from that
member to return the order;
(d) A DPM shall accord priority to any
customer order which the DPM
represents as agent over the DPM’s
principal transactions, unless the
customer who placed the order has
consented to not being accorded such
priority;
(e) A DPM shall not charge any
brokerage commission with respect to:
(1) The execution of any portion of an
order for which the DPM has acted as
both agent and principal, unless the
customer who placed the order has
consented to paying a brokerage
commission to the DPM with respect to
the DPM’s execution of the order while
acting as both agent and principal; or
(2) Any portion of an order for which
the DPM was not the executing floor
broker, including any portion of the
order that is automatically executed
through an Exchange system; or
(3) Any portion of an order that is
automatically cancelled, or;
(4) Any portion of an order that is not
executed and not cancelled.
(f) A DPM shall act as a Floor Broker
to the extent required by the MTS
Committee.
(g) A DPM shall not represent
discretionary orders as a Floor Broker or
otherwise.
(h) Autobook Pilot. A DPM shall
maintain and keep active on the DPM’s
PAR workstation at all times the
automated limit order display facility
(‘‘Autobook’’) provided by the
Exchange. The appropriate Exchange
Floor Procedure Committee will
determine the Autobook timer in all
classes under that Committee’s
jurisdiction. A DPM may deactivate
Autobook as to a class or classes
provided that Floor Official approval is
obtained. The DPM must obtain such
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13:01 Dec 06, 2005
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approval no later than three minutes
after deactivation.
(i) The Exchange may make personnel
available to assist a DPM in the DPM’s
performance of the obligations of an
Order Book Official, for which the
Exchange may charge the DPM a
reasonable fee.
*
*
*
*
*
RAES Operations
DPMs will still be responsible for
non-automated handling of orders
routed to the PAR workstation pursuant
to Rule 6.8(d)(vi) and Interpretation and
Policy .02(b) of Rule 6.8.
*
*
*
*
*
Priority of Bids and Offers and Priority
of Allocation of Trades
DPMs shall be required to comply
with those provisions of Rule 6.45,
6.45A, and 6.45B, that are now assigned
to PAR Officials.
*
*
*
*
*
Timing of Firm Quote Obligations in a
DPM Trading Crowd With Respect to
Firm Disseminated Market Quotes
In Non-Hybrid classes, for purposes of
determining when the firm quote
obligations under Rule 8.51 attach in
respect of orders received at a PAR
workstation in a DPM trading crowd
and how the exemptions to that
obligation provided in paragraph (e) of
that Rule apply, the responsible broker
or dealer shall be deemed to receive an
order, and an order shall be deemed to
be presented to the responsible broker
or dealer, at the time the order is
received on the DPM’s PAR workstation.
In Hybrid classes, for purposes of
determining when the firm quote
obligations under Rule 8.51 attach with
respect to orders received at a PAR
workstation in a DPM trading crowd
and how the exemptions to that
obligation provided in paragraph (e) of
that rule apply, the responsible broker
or dealer shall be deemed to receive an
order, and an order shall be deemed
presented to the responsible broker or
dealer:
(i) At the time the order is announced
to the trading crowd with respect to
each responsible broker or dealer that is
not the DPM for the class; and
(ii) At the time the order is received
on PAR with respect to the DPM as the
responsible broker or dealer.
As such, firm quote obligations for an
order received on a PAR workstation
may attach at two separate times for
different responsible broker or dealers:
at the time of receipt with respect to the
DPM as a responsible broker or dealer
and at the time of announcement with
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72869
respect to non-DPM members of the
trading crowd as responsible brokers or
dealers.
*
*
*
*
*
Linkage Rules
Only with respect to any DPM
continuing to represent and execute
orders as agent pursuant to this
Regulatory Circular, Rule 6.80
(‘‘Definitions’’) paragraph (12)(i) shall
read as follows:
‘‘Principal Acting as Agent (‘P/A’)
Order,’’ which is an order for the
principal account of a Market-Maker (or
equivalent entity on another Participant
Exchange that is authorized to represent
Customer orders) reflecting the terms of
a related unexecuted Customer order for
which the Market-Maker is acting as
agent.
*
*
*
*
*
DPM Designees
The DPM must continue to maintain
the requisite number of approved DPM
Designees, as defined under Rule 8.81.
Additionally, these DPM Designees
must continue to be registered as a Floor
Broker pursuant to Rule 6.71. A DPM
Designee also shall continue to be
restricted from trading as a Floor Broker
in securities allocated to the DPM
unless acting on behalf of the DPM in
its capacity as a DPM.
Finally, when acting on behalf of a
DPM in its capacity as a DPM, the DPM
Designee is exempt from the provisions
of Rule 8.8 (‘‘Restriction on Acting as
Market-Maker and Floor Broker’’). (See
former Rule 8.81(e)).
*
*
*
*
*
Rule 17.50. Imposition of Fines for
Minor Rule Violations
DPMs shall be subject to a fine for
failure to promptly book and display
limit orders that would improve the
disseminated quote or for failure to use
due diligence in the execution of orders
for which the DPM maintains an agency
obligation.
*
*
*
*
*
Summary
After the rule change has been
approved and until the end of the 90day trading period, neither a DPM
assigned to a trading crowd nor the
Exchange shall be subject to the
provisions of the rule change with
respect to the operation of that trading
crowd until a PAR Official has been
assigned to that trading crowd.
Questions pertaining to this
Regulatory Circular should be directed
to Jim Flynn at (312) 786–7070; Doug
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Federal Register / Vol. 70, No. 234 / Wednesday, December 7, 2005 / Notices
Beck at (312) 786–7959; or John
Johnston at (312) 786–7303.
Expedited Resolution 002bn, Intended
effective date: 1 January 2006.
[FR Doc. E5–6986 Filed 12–6–05; 8:45 am]
Renee V. Wright,
Program Manager, Docket Operations,
Federal Register Liaison.
[FR Doc. E5–6988 Filed 12–6–05; 8:45 am]
BILLING CODE 8010–01–P
DEPARTMENT OF TRANSPORTATION
Office of the Secretary
DEPARTMENT OF TRANSPORTATION
Aviation Proceedings, Agreements
Filed the Week Ending November 18,
2005
Office of the Secretary
The following Agreements were filed
with the Department of Transportation
under the Sections 412 and 414 of the
Federal Aviation Act, as amended (49
U.S.C. 1382 and 1384) and procedures
governing proceedings to enforce these
provisions. Answers may be filed within
21 days after the filing of the
application.
Docket Number: OST–2005–23066.
Date Filed: November 15, 2005.
Parties: Members of the International
Air Transport Association.
Subject: TC31 North and Central
Pacific, Bangkok, 24 October–1
November 2005, TC3-Central, South
America Resolution 002bq, Intended
effective date: 15 December 2005.
Docket Number: OST–2005–23067.
Date Filed: November 15, 2005.
Parties: Members of the International
Air Transport Association.
Subject: TC31 North and Central
Pacific, Bangkok, 24 October–1
November 2005, Korea (Rep. Of),
Malaysia—USA, Expedited Resolution
002na, Intended effective date: 15
December 2005.
Docket Number: OST–2005–23068.
Date Filed: November 15, 2005.
Parties: Members of the International
Air Transport Association.
Subject: TC3 (except Japan)-North
America, Caribbean), (except between
Korea (Rep. of), Malaysia-USA),
Expedited Resolution 002bi, Intended
effective date: 15 December 2005.
Docket Number: OST–2005–23069.
Date Filed: November 15, 2005.
Parties: Members of the International
Air Transport Association.
Subject: TC31 North and Central
Pacific, Bangkok, 21 September–1
November 2005, TC3-Central, South
America Expedited Resolution,
Intended effective date: 1 January 2006.
Docket Number: OST–2005–23070.
Date Filed: November 15, 2005.
Parties: Members of the International
Air Transport Association.
Subject: TC3 (except Japan)-North
America, Caribbean), (except between
Korea (Rep. of), Malaysia-USA),
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13:01 Dec 06, 2005
BILLING CODE 4910–62–P
Jkt 208001
The following Applications for
Certificates of Public Convenience and
Necessity and Foreign Air Carrier
Permits were filed under subpart B
(formerly subpart Q) of the Department
of Transportation’s Procedural
Regulations (See 14 CFR 301.201 et.
seq.). The due date for Answers,
Conforming Applications, or Motions to
Modify Scope are set forth below for
each application. Following the Answer
period DOT may process the application
by expedited procedures. Such
procedures may consist of the adoption
of a show-cause order, a tentative order,
or in appropriate cases a final order
without further proceedings.
Docket Number: OST–2005–22882.
Date Filed: November 14, 2005.
Due Date for Answers, Conforming
Applications, or Motion to Modify
Scope: December 5, 2005.
Description: Amendment No. 1 of
Gazpromavia Aviation Company Ltd.
amending its application for a foreign
air carrier permit to extend its requested
authority to permit it to engage in
passenger, combination and all-cargo
charter service between the Russian
Federation and the United States.
Docket Number: OST–2005–23086.
Date Filed: November 17, 2005.
Due Date for Answers, Conforming
Applications, or Motion to Modify
Scope: December 8, 2005.
Description: Application of Aguadilla
Airline Services, Inc. requesting
authority to conduct scheduled
passenger operations as a commuter air
carrier.
Docket Number: OST–2001–8910.
Date Filed: November 17, 2005.
Due Date for Answers, Conforming
Applications, or Motion to Modify
Scope: December 8, 2005.
Description: Application of
Continental Airlines, Inc. requesting
renewal of its Route 805 certificate
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Renee V. Wright,
Program Manager, Docket Operations,
Federal Register Liaison.
[FR Doc. E5–6989 Filed 12–6–05; 8:45 am]
BILLING CODE 4910–62–P
Notice of Applications for Certificates
of Public Convenience and Necessity
and Foreign Air Carrier Permits Filed
Under Subpart B (Formerly Subpart Q)
During the Week Ending November 18,
2005
PO 00000
authorizing Continental to provide
scheduled foreign air transportation of
persons, property and mail between
New York/Newark, NJ, and Cali and
Medellin, Colombia and to integrate this
authority with other authority held by
Continental.
DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
Environmental Impact Statement:
Sullivan County, TN
Federal Highway
Administration (FHWA), DOT.
ACTION: Notice of intent
AGENCY:
SUMMARY: The FHWA is issuing this
notice to advise the public that an
environmental impact statement will be
prepared for the proposed extension of
SR–357 in Sullivan County, Tennessee.
FOR FURTHER INFORMATION CONTACT: Mr.
Walter Boyd, P.E., Field Operations
Team Leader, Federal Highway
Administration, Tennessee Division,
640 Grassmere Park Road, Suite 112,
Nashville, Tennessee 37211, Telephone:
(615) 781–5774.
SUPPLEMENTARY INFORMATION: The
FHWA, in cooperation with the
Tennessee Department of
Transportation, will prepare an
environmental impact statement (EIS)
on a proposal to provide an extension to
SR–357 in Sullivan County, Tennessee.
The proposed project would involve the
extension of SR–357 from existing SR–
357 west of the Tri-Cities Airport to the
U.S. 11E/19W–U.S. 19E intersection
near Bluff City, Tennessee.
The proposed project is considered
necessary to provide for the existing and
projected traffic demand on the
surrounding transportation network.
The proposed project is anticipated to
provide a multi-lane facility with the
number of lanes and access control to be
determined depending on forecasted
traffic volumes. The EIS will discuss
environmental, social, and economic
impacts associated with the
development of the proposed action.
Letters describing the proposed action
and soliciting comments will be sent to
appropriate Federal, State, and local
agencies, and to private organizations
and citizens who have previously
expressed or are known to have interest
in this proposal. Public meetings will be
held in the vicinity of the project
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]]>Agencies
[Federal Register Volume 70, Number 234 (Wednesday, December 7, 2005)]
[Notices]
[Pages 72867-72870]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6986]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52860; File No. SR-CBOE-2005-100]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to Obligations of Designated Primary Market Makers
During the Implementation of the PAR Official Program
November 30, 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 November 22, 2005, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
CBOE has designated this proposal as non-controversial under section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\
which renders the proposed rule change effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to issue a regulatory circular that will
subject certain Designated Primary Market Makers (``DPMs'') to
obligations that were removed upon the approval of the Exchange's PAR
Official proposal.\5\ The text of the proposed regulatory circular is
attached hereto as Exhibit A.
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\5\ See infra note 6 and accompanying text.
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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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On November 18, 2005, the Commission approved CBOE's proposal to
remove a DPM's obligation to execute orders as an agent, including as a
floor broker, in its allocated securities on the Exchange in any
trading station and to allow the Exchange to appoint an Exchange
employee or independent contractor (``PAR Official'') to assume many of
the functions and obligations that DPMs previously held (``PAR Official
proposal'').\6\ A specific provision of rules approved in connection
with the PAR Official proposal gives the Exchange up to ninety days to
implement the PAR Official proposal.\7\ Because this ninety-day
implementation provision could mean that some DPMs will continue to be
required to represent orders as agents in their allocated securities,
those DPMs must still be subject to the same obligations that governed
DPM operations prior to the approval of the PAR Official proposal. As
such, the Exchange has incorporated those obligations into a regulatory
circular that will govern the operations of those DPMs that were not
immediately included in the PAR Official conversion as of November 18,
2005. These rules and obligations, as provided in the regulatory
circular attached hereto as Exhibit A, were adopted directly from the
now-former DPM rules.
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\6\ See Securities Exchange Act Release No. 52798 (November 18,
2005), 70 FR 71344 (November 28, 2005).
\7\ See Interpretation and Policy .01 to CBOE Rule 7.12.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) \8\ of the Act in general, and furthers the
objectives of section 6(b)(5) \9\ in particular, in that it is designed
to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, and, in general, to protect investors
and the public interest.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change has become effective pursuant to
section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) thereunder
\11\ because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; or (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate. In addition, the Exchange provided the
Commission with written notice of its intent to file the proposed rule
change, along with a brief description and text of the proposed rule
change, at least five business days prior to the date of the filing of
the proposed rule change as required by Rule 19b-4(f)(6).\12\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
\12\ Id.
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Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\13\ the proposal
does not become operative until 30 days after the date of its filing,
or such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest. The Exchange has
requested that the Commission waive the 30-day operative delay so that
the proposed rule change becomes effective immediately. The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest. The Commission notes
that granting this waiver will ensure that DPMs not immediately subject
to the new rules approved recently in connection with the PAR Official
proposal will continue to be subject to appropriate regulation.
Therefore, the Commission has determined to waive the 30-day delay
[[Page 72868]]
and to allow the proposed rule change to become operative
immediately.\14\
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\13\ 17 CFR 240.19b-4(f)(6)(iii).
\14\ For purposes only of waiving the operative delay of this
proposal, the Commission notes that it has considered the proposed
rule's impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.\15\
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\15\ 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-CBOE-2005-100 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-2005-100. 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 Commissions 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-2005-100 and should be submitted on or before
December 28, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
Exhibit A--Chicago Board Options Exchange, Incorporated Regulatory
Circular RG05-xx
Date: November 18, 2005.
To: Members and Member Firms.
From: Legal Division; Regulatory Division; Trading Operations
Division
Re: DPM Obligations Until the Implementation of the PAR Official
Program
On November 18, 2005, the Securities and Exchange Commission
(``SEC'') approved a CBOE rule change, SR-CBOE-2005-46 (``rule change''
or ``PAR Official rule change''), that, among other things, (1)
prohibits a DPM from executing orders as an agent or Floor Broker in
its allocated option classes and (2) eliminates the authority of a DPM
to act in any other way as a Floor Broker in those classes.\17\ Rule
8.8 and Rule 8.85(b) now prevent a DPM from representing or executing
orders for other persons in the DPM's assigned option classes. Once the
rule change goes into effect in a particular options class, the DPM
assigned to that option class will lose the ability to take custody of
or handle orders for other persons in that option class, including
through operation of the PAR terminal. The rule change authorizes the
Exchange to assign to an Exchange employee or subcontractor known as a
PAR Official, the responsibility, among other things, to operate the
PAR workstation for designated option classes, to maintain the book in
those classes, to represent orders to be sent via Intermarket Option
Linkage in those classes, and to effect executions of agency orders
placed with the PAR Official in those classes.
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\17\ Please refer to the rule change and the SEC order approving
the rule change, which both can be found on the Exchange's Web site
at https://www.cboe.org/Legal/filings.aspx.
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The rule change allows the Exchange to put PAR Officials in place
in DPM trading crowds during a 90-day period after the SEC approves the
rule change. This provision is intended to insure a smooth roll-out of
the PAR Official program. Therefore, until a PAR Official is put in
place in a particular DPM trading crowd during this 90-day transition
period, the DPM in that trading crowd will continue to be responsible
to operate the PAR workstation and will continue to be subject to the
same agency obligations as set forth under former Rule 8.85(b) and to
other obligations applicable to DPMs under current and former Exchange
rules. These rules and regulations are provided below:
* * * * *
DPM Obligations
(a) General Obligations. Each DPM shall fulfill all of the
obligations of a Floor Broker or Order Book Official (to the extent
that the DPM acts as a Floor Broker) under the Rules, and shall satisfy
each of the requirements contained in this paragraph, in respect of
each of the securities allocated to the DPM. To the extent that there
is any inconsistency between the specific obligations of a DPM set
forth in subparagraphs (b) through (i) of this Rule and the general
obligations of a Floor Broker or of an Order Book Official under the
Rules, subparagraphs (b) through (i) of this Rule shall govern.
(b) Display Obligation. Each DPM shall display immediately the full
price and size of any customer limit order that improves the price or
increases the size of the best disseminated CBOE quote. ``Immediately''
means, under normal market conditions, as soon as practicable but no
later than 30-seconds after receipt (``30-second standard'') by the
DPM. The term ``customer limit order'' means an order to buy or sell a
listed option at a specified price that is not for the account of
either a broker or dealer; provided, however, that the term customer
limit order shall include an order transmitted by a broker or dealer on
behalf of a customer. The following are exempt from the Display
Obligation as set forth under this provision:
(A) An order executed upon receipt;
(B) An order where the customer who placed it requests that it not
be displayed, and upon receipt of the order, the DPM announces in
public outcry the information concerning the order that would be
displayed if the order were subject to being displayed;
(C) An order for which immediately upon receipt a related order for
the principal account of a DPM reflecting the terms of the customer
order is routed to another options exchange that is a participant in
the Intermarket Options Linkage Plan;
(D) The following orders as defined in Rule 6.53: contingency
orders; One-cancels-the-other orders; all or none
[[Page 72869]]
orders; fill or kill orders; immediate or cancel orders; complex orders
(e.g., spreads, straddles, combinations); and stock-option orders;
(E) Orders received before or during a trading rotation (as defined
in Rule 6.2, 6.2A, and 6.2B), including Opening Rotation Orders as
defined in Rule 6.53(l), are exempt from the 30-second standard,
however, they must be displayed immediately upon conclusion of the
applicable rotation; and
(F) Large Sized Orders: Orders for more than 100 contracts, unless
the customer placing such order requests that the order be displayed.
(c) A DPM shall not remove from the public order book any order
placed in the book unless (A) the order is canceled, expires, or is
executed or (B) the DPM returns the order to the member that placed the
order with the DPM in response to a request from that member to return
the order;
(d) A DPM shall accord priority to any customer order which the DPM
represents as agent over the DPM's principal transactions, unless the
customer who placed the order has consented to not being accorded such
priority;
(e) A DPM shall not charge any brokerage commission with respect
to:
(1) The execution of any portion of an order for which the DPM has
acted as both agent and principal, unless the customer who placed the
order has consented to paying a brokerage commission to the DPM with
respect to the DPM's execution of the order while acting as both agent
and principal; or
(2) Any portion of an order for which the DPM was not the executing
floor broker, including any portion of the order that is automatically
executed through an Exchange system; or
(3) Any portion of an order that is automatically cancelled, or;
(4) Any portion of an order that is not executed and not cancelled.
(f) A DPM shall act as a Floor Broker to the extent required by the
MTS Committee.
(g) A DPM shall not represent discretionary orders as a Floor
Broker or otherwise.
(h) Autobook Pilot. A DPM shall maintain and keep active on the
DPM's PAR workstation at all times the automated limit order display
facility (``Autobook'') provided by the Exchange. The appropriate
Exchange Floor Procedure Committee will determine the Autobook timer in
all classes under that Committee's jurisdiction. A DPM may deactivate
Autobook as to a class or classes provided that Floor Official approval
is obtained. The DPM must obtain such approval no later than three
minutes after deactivation.
(i) The Exchange may make personnel available to assist a DPM in
the DPM's performance of the obligations of an Order Book Official, for
which the Exchange may charge the DPM a reasonable fee.
* * * * *
RAES Operations
DPMs will still be responsible for non-automated handling of orders
routed to the PAR workstation pursuant to Rule 6.8(d)(vi) and
Interpretation and Policy .02(b) of Rule 6.8.
* * * * *
Priority of Bids and Offers and Priority of Allocation of Trades
DPMs shall be required to comply with those provisions of Rule
6.45, 6.45A, and 6.45B, that are now assigned to PAR Officials.
* * * * *
Timing of Firm Quote Obligations in a DPM Trading Crowd With Respect to
Firm Disseminated Market Quotes
In Non-Hybrid classes, for purposes of determining when the firm
quote obligations under Rule 8.51 attach in respect of orders received
at a PAR workstation in a DPM trading crowd and how the exemptions to
that obligation provided in paragraph (e) of that Rule apply, the
responsible broker or dealer shall be deemed to receive an order, and
an order shall be deemed to be presented to the responsible broker or
dealer, at the time the order is received on the DPM's PAR workstation.
In Hybrid classes, for purposes of determining when the firm quote
obligations under Rule 8.51 attach with respect to orders received at a
PAR workstation in a DPM trading crowd and how the exemptions to that
obligation provided in paragraph (e) of that rule apply, the
responsible broker or dealer shall be deemed to receive an order, and
an order shall be deemed presented to the responsible broker or dealer:
(i) At the time the order is announced to the trading crowd with
respect to each responsible broker or dealer that is not the DPM for
the class; and
(ii) At the time the order is received on PAR with respect to the
DPM as the responsible broker or dealer.
As such, firm quote obligations for an order received on a PAR
workstation may attach at two separate times for different responsible
broker or dealers: at the time of receipt with respect to the DPM as a
responsible broker or dealer and at the time of announcement with
respect to non-DPM members of the trading crowd as responsible brokers
or dealers.
* * * * *
Linkage Rules
Only with respect to any DPM continuing to represent and execute
orders as agent pursuant to this Regulatory Circular, Rule 6.80
(``Definitions'') paragraph (12)(i) shall read as follows:
``Principal Acting as Agent (`P/A') Order,'' which is an order for
the principal account of a Market-Maker (or equivalent entity on
another Participant Exchange that is authorized to represent Customer
orders) reflecting the terms of a related unexecuted Customer order for
which the Market-Maker is acting as agent.
* * * * *
DPM Designees
The DPM must continue to maintain the requisite number of approved
DPM Designees, as defined under Rule 8.81. Additionally, these DPM
Designees must continue to be registered as a Floor Broker pursuant to
Rule 6.71. A DPM Designee also shall continue to be restricted from
trading as a Floor Broker in securities allocated to the DPM unless
acting on behalf of the DPM in its capacity as a DPM.
Finally, when acting on behalf of a DPM in its capacity as a DPM,
the DPM Designee is exempt from the provisions of Rule 8.8
(``Restriction on Acting as Market-Maker and Floor Broker''). (See
former Rule 8.81(e)).
* * * * *
Rule 17.50. Imposition of Fines for Minor Rule Violations
DPMs shall be subject to a fine for failure to promptly book and
display limit orders that would improve the disseminated quote or for
failure to use due diligence in the execution of orders for which the
DPM maintains an agency obligation.
* * * * *
Summary
After the rule change has been approved and until the end of the
90-day trading period, neither a DPM assigned to a trading crowd nor
the Exchange shall be subject to the provisions of the rule change with
respect to the operation of that trading crowd until a PAR Official has
been assigned to that trading crowd.
Questions pertaining to this Regulatory Circular should be directed
to Jim Flynn at (312) 786-7070; Doug
[[Page 72870]]
Beck at (312) 786-7959; or John Johnston at (312) 786-7303.
[FR Doc. E5-6986 Filed 12-6-05; 8:45 am]
BILLING CODE 8010-01-P
