, 5094-5096 [E6-1166]
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5094
Federal Register / Vol. 71, No. 20 / Tuesday, January 31, 2006 / Notices
a merger arbitrage may also qualify for
the Strategy Fee Cap. The word
‘‘simultaneous’’ is also not included in
the new definition because the purchase
and sale transactions do not necessarily
need to be executed simultaneously.
The Exchange defines a short stock
interest spread for purposes of the
Strategy Fee Cap as a spread that uses
two deep in-the-money put options
followed by the exercise of the resulting
long position of the same class in order
to establish a short stock interest
arbitrage position. The Exchange
proposes to change ‘‘short stock interest
spread’’ to ‘‘short stock interest
strategy’’, and proposes to define a short
stock interest strategy as ‘‘transactions
done to achieve a short stock interest
arbitrage involving the purchase, sale
and exercise of in-the-money options of
the same class.’’ The words ‘‘spread’’
and ‘‘two’’ are not included in the new
definition so that transactions involving
only a single options series that are
done to achieve a short stock interest
arbitrage may also qualify for the
Strategy Fee Cap. The word ‘‘deep’’ is
not included in the new definition for
the same reasons it was removed from
the definition of dividend strategy. Also,
‘‘put’’ is not included in the new
definition because a short stock interest
strategy can be accomplished using
either calls or puts.
The Exchange proposes one
additional minor clarifying change to
footnote 13 of the Fees Schedule. The
Exchange proposes to clarify that the
$50,000 per month fee cap is ‘‘per
initiating member’’ as well as per
initiating firm, because the cap also
applies to individual members effecting
these strategies.
The Exchange believes that
accommodating these transactions by
keeping fees low will attract additional
liquidity to the Exchange.
hsrobinson on PROD1PC70 with NOTICES
2. Statutory Basis
The Exchange believes that its
proposal to amend its schedule of fees
is consistent with Section 6(b) of the
Act 6 in general, and furthers the
objectives of Section 6(b)(4) of the Act 7
in particular, in that it is an equitable
allocation of reasonable dues, fees, and
other charges among its members and
issuers and other persons using its
facilities.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
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 on the proposed rule
change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act 8 and
subparagraph (f)(2) of Rule 19b-4
thereunder 9 because it establishes or
changes a due, fee, or other charge. 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.
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–2006–07 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–CBOE–2006–07. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of 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–2006–07 and should
be submitted on or before February 21,
2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.10
Nancy M. Morris,
Secretary.
[FR Doc. E6–1165 Filed 1–30–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53167; File No. SR–CBOE–
2005–89]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Granting Approval
of a Proposed Rule Change and
Amendment No. 1 Thereto Relating to
the Adoption of a Hybrid Agency
Liaison System for Automated
Handling of Inbound Orders That Are
Not Automatically Executed
January 23, 2006.
On October 27, 2005, the Chicago
Board Options Exchange, Incorporated
(‘‘CBOE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
adopt a Hybrid Agency Liaison (‘‘HAL’’)
system for automated handling of
inbound orders for option classes
trading on CBOE’s Hybrid System
(‘‘Hybrid’’). On December 7, 2005, the
Exchange filed Amendment No. 1 to the
10 17
6 15
U.S.C. 78f(b).
7 15 U.S.C. 78f(b)(4).
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8 15
U.S.C. 78s(b)(3)(A)(ii).
9 17 CFR 240.19b–4(f)(2).
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 71, No. 20 / Tuesday, January 31, 2006 / Notices
proposed rule change.3 The proposed
rule change and Amendment No. 1 were
published for comment in the Federal
Register on December 15, 2005.4 No
comments were received regarding the
proposal, as amended. This order
approves the proposed rule change, as
amended.
hsrobinson on PROD1PC70 with NOTICES
I. Description of the Proposal
Hybrid currently provides electronic
executions on the Exchange for orders
that are marketable against the
Exchange’s quote when it represents the
National Best Bid or Offer (‘‘NBBO’’).
The entire process for those orders is
automated; however, many
electronically-received orders that are
not automatically executed upon receipt
by the Hybrid System (usually because
CBOE’s disseminated quote is not the
NBBO) are routed to a PAR terminal for
manual handling.5 In proposed CBOE
Rule 6.14, the Exchange proposes to
automate the handling process for
certain orders in designated classes that
would be routed to a PAR terminal
under the current rules—specifically,
market orders and limit orders that are
marketable against CBOE’s disseminated
quote while that quote is not the NBBO,
and limit orders that improve CBOE’s
disseminated quote (whether or not they
are marketable against the NBBO).
These orders would be electronically
exposed to all CBOE Market-Makers
appointed to the relevant option class as
well as to all members acting as agent
for orders at the top of the Exchange’s
book in the relevant option series
(‘‘Qualifying Members’’).6 Like open
outcry, this exposure and subsequent
allocation period 7 (together, the ‘‘HAL
auction’’ or ‘‘auction’’) would afford
crowd members an opportunity to
match the away NBBO price.8
3 Amendment No. 1 replaced the original filing in
its entirety.
4 See Securities Exchange Act Release No. 52928
(December 8, 2005), 70 FR 74388 (‘‘Notice’’).
5 See CBOE Rule 7.12, PAR Officials (setting forth
the rules for manual handling by the PAR Officials
of orders routed to PAR terminals).
6 Of course, eligible recipients of these messages
(CBOE Market-Makers and Qualifying Members)
may need to undertake some programming
modifications to receive and respond to these
messages. The Exchange will not require those
programming changes.
7 The allocation period affords Market-Makers
and Qualifying Members that were interested in
trading with an exposed order an opportunity to
participate in the execution of an order following
an exposure period. Each Market-Maker or
Qualifying Member that submits an order or quote
to trade with an order during the exposure or
allocation periods would be entitled to receive an
allocation of the order in accordance with the
allocation algorithm in effect for the options class
pursuant to CBOE Rule 6.45A or 6.45B. See
proposed CBOE Rule 6.14(c).
8 For a full description of the operation of the
proposed HAL auction, see Notice, supra note 4.
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If any portion of an exposed order
remains unexecuted at the end of a HAL
auction, then the remaining order would
be booked if it is a limit order that is not
marketable, or, if marketable, routed to
the Exchange showing the NBBO via the
options intermarket linkage. If the price
of the Linkage Order is no longer
available on any market, then HAL
would execute the remainder of the
order against the Exchange’s existing
quote provided such execution would
not result in a trade-through. However,
if the Exchange’s quote is inferior to the
Exchange’s best bid or offer at the time
the order was received by HAL
(‘‘Exchange Initial BBO’’), then the order
would be executed against the MarketMakers that constituted the Exchange
Initial BBO at a price equal to the
Exchange Initial BBO.
In addition, the proposal provides for
early termination of an auction in
certain cases-for instance, when the
Hybrid System receives an unrelated
order on the opposite side of the market
from the exposed order that could trade
against the exposed order at the
prevailing NBBO price; when the
Hybrid System receives an unrelated
order on the same side of the market as
the exposed order that is priced equal to
or better than the exposed order; or, in
the case of exposure of an order that is
marketable against the Exchange Initial
BBO, when a Market-Maker whose
quote is part of the Exchange Initial
BBO attempts to move its quote to an
inferior price.9 In this last case, the
auction would terminate and the
Exchange would not permit any MarketMaker quotes to move to an inferior
price until the exposed order was routed
through the Linkage or, if a superior
price is no longer available on another
exchange, executed at the Exchange
Initial BBO against the Market-Makers
that constituted the Exchange Initial
BBO.10
II. Discussion
The Commission finds that the
proposed rule change, as amended, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.11 In particular, the
Commission believes that the proposal
is consistent with the requirements of
Section 6(b)(5) of the Act, which
9 For a full discussion of the auction termination
provisions in proposed CBOE Rule 6.14(d) and (e),
see Notice, supra note 4.
10 See proposed CBOE Rule 6.14(d)(iii) and
(e)(iii).
11 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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5095
requires, among other things, that the
rules of a national securities exchange
be designed to 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.12
The Exchange noted in its proposal
that the proposed Hybrid Agency
Liaison system would be an
improvement over open outcry auctions
because HAL, an automated process,
would reduce the duration of the
auction to three seconds or less.13 In
addition, customer order protections
built into proposed CBOE Rule 6.14
(such as, most significantly, the
guarantee that the customer order will
receive an execution at the Exchange
Initial BBO if no better price is available
when the auction ends or is
terminated) 14 should guarantee that any
order that is the subject of a HAL
auction will be executed at a price at
least as good as the price disseminated
by the Exchange at the time the order
was received by HAL.15 Thus, the HAL
auction provisions should ensure both
that orders that are ineligible for
automatic execution under the CBOE’s
rules because the CBOE is not at the
NBBO are handled electronically rather
than manually, and that CBOE MarketMakers honor their disseminated
quotes, regardless of whether an auction
has been initiated.
In addition, the Commission notes
that the Exchange proposes to
incorporate into its proposed rule
provisions that would provide that a
pattern or practice of submitting
unrelated orders that cause an exposure
period to conclude early and the
dissemination of information regarding
exposed 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 other
Exchange rules.16 The Commission
believes that these provisions will
require the CBOE to surveil for, and
hopefully help to limit, any potential
‘‘gaming’’ of the HAL system.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,17 that the
proposed rule change (File No. SR–
12 15
U.S.C. 78f(b)(5).
proposed Rule 6.14(b) limits the total
exposure and allocation time to three seconds.
14 See proposed CBOE Rule 6.14(b)(i), (b)(ii),
(d)(iii), and (e)(iii).
15 See proposed CBOE Rule 6.14(b)(i) and (ii).
16 See proposed CBOE Rule 6.14, Interpretations
and Policies .01 and .02.
17 15 U.S.C. 78s(b)(2).
13 CBOE’s
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Federal Register / Vol. 71, No. 20 / Tuesday, January 31, 2006 / Notices
CBOE–2005–89), as amended, is
approved.
proposed_rule_changes.asp) and at the
Commission’s Public Reference Room.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.18
Nancy M. Morris,
Secretary.
[FR Doc. E6–1166 Filed 1–30–06; 8:45 am]
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
ISE included statements concerning the
purpose of, and basis for, the proposed
rule change 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. The Exchange has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53173; File No. SR–ISE–
2006–03]
Self-Regulatory Organizations;
International Securities Exchange, Inc.;
Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Relating to Fee Changes for
Transactions in Options on Three
Narrow-Based Indexes
January 24, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 5,
2006, the International Securities
Exchange, Inc. (‘‘ISE’’ 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 prepared by the ISE. The ISE
has designated this proposal as one
establishing or changing a due, fee, or
other charge imposed by a selfregulatory organization pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(2) thereunder,4 which
renders the proposal effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
hsrobinson on PROD1PC70 with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE proposes to amend its
Schedule of Fees to establish fees for
transactions in options on three narrowbased indexes: the ISE–B&S Water Index
(‘‘HHO’’), the ISE–CCM Alternative
Energy Index (‘‘POW’’) and the ISE–
CCM Nanotechnology Index (‘‘TNY’’).
The text of the proposed rule change is
available at the Exchange, at the
Exchange’s Web site https://
www.iseoptions.com/legal/
18 17
CFR 200.30–3(a)(12).
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)(2).
1 15
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange is proposing to adopt
an execution fee and a comparison fee
for all transactions in options on HHO,
POW and TNY.5 These fees will be
charged only to Exchange members. The
amount of the execution fee and
comparison fee for products covered by
this filing shall be $0.15 and $0.03,
respectively, for all Public Customer
and Firm Proprietary orders. The
amount of the execution fee and
comparison fee for all Market Maker
orders shall be equal to the execution
fee and comparison fee currently
charged by the Exchange for Market
Maker transactions in equity options.6
The Exchange believes the proposed
rule change will further its goal of
introducing new products to the
marketplace that are competitively
priced.
Additionally, the Exchange has
entered into separate development
agreements with Cronus Capital Markets
and Boenning & Scattergood, Inc., in
connection with the development,
listing and trading of options on POW
and TNY and HHO, respectively. As
with certain other licensed options, the
Exchange is adopting a fee of $0.05 per
contract for trading in these options to
defray the licensing costs. The Exchange
believes charging the participants that
trade this instrument is the most
5 The Exchange states that the HHO, POW and
TNY meet the standards of ISE Rule 2002(b), which
allows the Exchange to begin trading these products
by filing Form 19b–4(e) at least five business days
after commencement of trading these new products
pursuant to Rule 19b–4(e) of the Act, 17 CFR
240.19b–4(e).
6 The execution fee is currently between $.21 and
$.12 per contract side, depending on the Exchange
Average Daily Volume, and the comparison fee is
currently $.03 per contract side.
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equitable means of recovering the costs
of the license. However, because of
competitive pressures in the industry,
the Exchange proposes to exclude
Public Customer Orders 7 from this
surcharge fee. Accordingly, this
surcharge fee will only be charged to
Exchange members with respect to nonPublic Customer Orders (e.g., Market
Maker and Firm Proprietary orders) and
shall apply to Linkage Orders 8 under a
pilot program that is set to expire on
July 31, 2006.9 Further, since options on
HHO, POW and TNY are not multiplylisted, the Payment for Order Flow fee
shall not apply.
2. Statutory Basis
The Exchange states that the basis
under the Act for this proposed rule
change is the requirement under Section
6(b)(4) 10 that an exchange have an
equitable allocation of reasonable dues,
fees and other charges among its
members and other persons using its
facilities.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes that the
proposed rule change will not 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
The Exchange has neither solicited
nor received comments on the proposed
rule change. The ISE has not received
any unsolicited written comments from
members or other interested parties.
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)(ii) of the Act,11 and
paragraph (f)(2) of Rule 19b–4
thereunder 12 because it establishes or
changes a due, fee, or other charge. At
any time within 60 days of the filing of
the proposed rule change, the
7 Public Customer Order is defined in Exchange
Rule 100(a)(33) as an order for the account of a
Public Customer. Public Customer is defined in
Exchange Rule 100(a)(32) as a person that is not a
broker or dealer in securities.
8 See Exchange Rule 1900.
9 See Securities Exchange Act Release No. 52168
(July 29, 2005), 70 FR 45454–01 (August 5, 2005),
SR–ISE–2005–32 (extending the expiration date for
this pilot program from July 31, 2005 to July 31,
2006).
10 15 U.S.C. 78f(b)(4).
11 15 U.S.C. 78s(b)(3)(A)(ii).
12 17 CFR 240.19b–4(f)(2).
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]]>Agencies
[Federal Register Volume 71, Number 20 (Tuesday, January 31, 2006)]
[Notices]
[Pages 5094-5096]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-1166]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53167; File No. SR-CBOE-2005-89]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval of a Proposed Rule Change and
Amendment No. 1 Thereto Relating to the Adoption of a Hybrid Agency
Liaison System for Automated Handling of Inbound Orders That Are
Not Automatically Executed
January 23, 2006.
On October 27, 2005, the Chicago Board Options Exchange,
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt a Hybrid Agency Liaison
(``HAL'') system for automated handling of inbound orders for option
classes trading on CBOE's Hybrid System (``Hybrid''). On December 7,
2005, the Exchange filed Amendment No. 1 to the
[[Page 5095]]
proposed rule change.\3\ The proposed rule change and Amendment No. 1
were published for comment in the Federal Register on December 15,
2005.\4\ No comments were received regarding the proposal, as amended.
This order approves the proposed rule change, as amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaced the original filing in its
entirety.
\4\ See Securities Exchange Act Release No. 52928 (December 8,
2005), 70 FR 74388 (``Notice'').
---------------------------------------------------------------------------
I. Description of the Proposal
Hybrid currently provides electronic executions on the Exchange for
orders that are marketable against the Exchange's quote when it
represents the National Best Bid or Offer (``NBBO''). The entire
process for those orders is automated; however, many electronically-
received orders that are not automatically executed upon receipt by the
Hybrid System (usually because CBOE's disseminated quote is not the
NBBO) are routed to a PAR terminal for manual handling.\5\ In proposed
CBOE Rule 6.14, the Exchange proposes to automate the handling process
for certain orders in designated classes that would be routed to a PAR
terminal under the current rules--specifically, market orders and limit
orders that are marketable against CBOE's disseminated quote while that
quote is not the NBBO, and limit orders that improve CBOE's
disseminated quote (whether or not they are marketable against the
NBBO). These orders would be electronically exposed to all CBOE Market-
Makers appointed to the relevant option class as well as to all members
acting as agent for orders at the top of the Exchange's book in the
relevant option series (``Qualifying Members'').\6\ Like open outcry,
this exposure and subsequent allocation period \7\ (together, the ``HAL
auction'' or ``auction'') would afford crowd members an opportunity to
match the away NBBO price.\8\
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\5\ See CBOE Rule 7.12, PAR Officials (setting forth the rules
for manual handling by the PAR Officials of orders routed to PAR
terminals).
\6\ Of course, eligible recipients of these messages (CBOE
Market-Makers and Qualifying Members) may need to undertake some
programming modifications to receive and respond to these messages.
The Exchange will not require those programming changes.
\7\ The allocation period affords Market-Makers and Qualifying
Members that were interested in trading with an exposed order an
opportunity to participate in the execution of an order following an
exposure period. Each Market-Maker or Qualifying Member that submits
an order or quote to trade with an order during the exposure or
allocation periods would be entitled to receive an allocation of the
order in accordance with the allocation algorithm in effect for the
options class pursuant to CBOE Rule 6.45A or 6.45B. See proposed
CBOE Rule 6.14(c).
\8\ For a full description of the operation of the proposed HAL
auction, see Notice, supra note 4.
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If any portion of an exposed order remains unexecuted at the end of
a HAL auction, then the remaining order would be booked if it is a
limit order that is not marketable, or, if marketable, routed to the
Exchange showing the NBBO via the options intermarket linkage. If the
price of the Linkage Order is no longer available on any market, then
HAL would execute the remainder of the order against the Exchange's
existing quote provided such execution would not result in a trade-
through. However, if the Exchange's quote is inferior to the Exchange's
best bid or offer at the time the order was received by HAL (``Exchange
Initial BBO''), then the order would be executed against the Market-
Makers that constituted the Exchange Initial BBO at a price equal to
the Exchange Initial BBO.
In addition, the proposal provides for early termination of an
auction in certain cases-for instance, when the Hybrid System receives
an unrelated order on the opposite side of the market from the exposed
order that could trade against the exposed order at the prevailing NBBO
price; when the Hybrid System receives an unrelated order on the same
side of the market as the exposed order that is priced equal to or
better than the exposed order; or, in the case of exposure of an order
that is marketable against the Exchange Initial BBO, when a Market-
Maker whose quote is part of the Exchange Initial BBO attempts to move
its quote to an inferior price.\9\ In this last case, the auction would
terminate and the Exchange would not permit any Market-Maker quotes to
move to an inferior price until the exposed order was routed through
the Linkage or, if a superior price is no longer available on another
exchange, executed at the Exchange Initial BBO against the Market-
Makers that constituted the Exchange Initial BBO.\10\
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\9\ For a full discussion of the auction termination provisions
in proposed CBOE Rule 6.14(d) and (e), see Notice, supra note 4.
\10\ See proposed CBOE Rule 6.14(d)(iii) and (e)(iii).
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II. Discussion
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\11\ In particular, the Commission believes that the proposal
is consistent with the requirements of Section 6(b)(5) of the Act,
which requires, among other things, that the rules of a national
securities exchange be designed to 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.\12\
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\11\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78f(b)(5).
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The Exchange noted in its proposal that the proposed Hybrid Agency
Liaison system would be an improvement over open outcry auctions
because HAL, an automated process, would reduce the duration of the
auction to three seconds or less.\13\ In addition, customer order
protections built into proposed CBOE Rule 6.14 (such as, most
significantly, the guarantee that the customer order will receive an
execution at the Exchange Initial BBO if no better price is available
when the auction ends or is terminated) \14\ should guarantee that any
order that is the subject of a HAL auction will be executed at a price
at least as good as the price disseminated by the Exchange at the time
the order was received by HAL.\15\ Thus, the HAL auction provisions
should ensure both that orders that are ineligible for automatic
execution under the CBOE's rules because the CBOE is not at the NBBO
are handled electronically rather than manually, and that CBOE Market-
Makers honor their disseminated quotes, regardless of whether an
auction has been initiated.
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\13\ CBOE's proposed Rule 6.14(b) limits the total exposure and
allocation time to three seconds.
\14\ See proposed CBOE Rule 6.14(b)(i), (b)(ii), (d)(iii), and
(e)(iii).
\15\ See proposed CBOE Rule 6.14(b)(i) and (ii).
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In addition, the Commission notes that the Exchange proposes to
incorporate into its proposed rule provisions that would provide that a
pattern or practice of submitting unrelated orders that cause an
exposure period to conclude early and the dissemination of information
regarding exposed 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 other Exchange rules.\16\ The Commission
believes that these provisions will require the CBOE to surveil for,
and hopefully help to limit, any potential ``gaming'' of the HAL
system.
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\16\ See proposed CBOE Rule 6.14, Interpretations and Policies
.01 and .02.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (File No. SR-
[[Page 5096]]
CBOE-2005-89), as amended, is approved.
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\17\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-1166 Filed 1-30-06; 8:45 am]
BILLING CODE 8010-01-P
