Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of a Proposed Rule Change and Amendments Nos. 1 and 2 Thereto Relating to the Nullification and Adjustment of Equity Options Transactions, 36139-36141 [E6-9935]
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Federal Register / Vol. 71, No. 121 / Friday, June 23, 2006 / Notices
issues of interest pertaining to the
regulation of NRC-regulated fuel cycle
facilities.
The seminar will be held in Rockville,
Maryland, at the Universities of
Maryland at the Shady Grove Campus
Auditorium and will be open to the
public. Fuel Cycle licensees and other
interested parties were previously
notified of the possibility of this
meeting in a letter from Robert Pierson,
dated November 28, 2005, (ADAMS
accession number ML053220226). In
that letter, Mr. Pierson also solicited
topics of discussion and volunteer
speakers for the meeting. We are
expecting that NRC staff, licensees and
certificate holders, and other interested
parties and stakeholders will be making
presentations on varying subjects of
interest, with opportunity for followup
discussion on each subject.
The proposed items of discussion are
listed below; however, the NRC is
seeking additional speakers to discuss
topics of a broad nature, relative to the
nuclear fuel cycle. If you would like an
opportunity to discuss an issue, or to
offer an additional topic of discussion,
please contact the staff member listed
below.
II. Currently Proposed Topics of
Discussion
III. Dates and Location
Universities of Maryland at the Shady
Grove Campus Auditorium, 9630
Gudelsky Drive, Rockville, MD 20850.
Dates: August 30, 2006, 9 a.m.–4:30
p.m.; August 31, 2006, 9 a.m.–12 p.m.
jlentini on PROD1PC65 with NOTICES
IV. Contact
James Smith, Project Manager, Office
of Nuclear Material Safety and
Safeguards, Division of Fuel Cycle
Safety and Safeguards, Special Projects
Branch, Mail Stop: T8F42, 301–415–
6459, Fax: 301–415–5370, e-mail:
jas4@nrc.gov.
17:22 Jun 22, 2006
Jkt 208001
The document related to this action is
available electronically at the NRC’s
Electronic Reading Room at https://
www.nrc.gov/reading-rm/adams.html.
From this site, you can access the NRC’s
Agencywide Documents Access and
Management System (ADAMS), which
provides text and image files of NRC’s
public documents. The ADAMS
ascension number for the document
related to this notice is provided in the
following table. If you do not have
access to ADAMS or if there are
problems in accessing the document
located in ADAMS, contact the NRC
Public Document Room (PDR) Reference
staff at 1–800–397–4209, 301–415–4737,
or by e-mail to pdr@nrc.gov.
Dated at Rockville, Maryland, this 15th day
of June 2006.
For the Nuclear Regulatory Commission.
Dennis C. Morey,
Acting Chief, Technical Support Section,
Special Projects Branch, Division of Fuel
Cycle Safety and Safeguards, Office of
Nuclear Material Safety and Safeguards.
[FR Doc. E6–9923 Filed 6–22–06; 8:45 am]
notify the claimant of the overpayment
and to recover the amount owed. The
collection obtains information needed to
allow for repayment by the claimant by
credit card, in addition to the customary
form of payment by check or money
order.
Additional Information or Comments
Copies of the forms and supporting
documents can be obtained from
Charles Mierzwa, the agency clearance
officer (312–751–3363) or
Charles.Mierzwa@rrb.gov.
Comments regarding the information
collection should be addressed to
Ronald J. Hodapp, Railroad Retirement
Board, 844 North Rush Street, Chicago,
Illinois 60611–2092 or
Ronald.Hodapp@rrb.gov and to the
OMB Desk Officer for the RRB, at the
Office of Management and Budget,
Room 10230, New Executive Office
Building, Washington, DC 20503.
Charles Mierzwa,
Clearance Officer.
[FR Doc. E6–9953 Filed 6–22–06; 8:45 am]
BILLING CODE 7905–01–P
BILLING CODE 7590–01–P
RAILROAD RETIREMENT BOARD
10 CFR Part 70, Subpart H
Implementation Issues.
Databases and Items Relied on for
Safety (IROFS) Tracking Systems.
Boundaries of IROFS.
Impact of Increased Use of Nuclear
Energy in Domestic Electricity
Generation.
IAEA Safety Documents Related to
Fuel Cycle Facilities.
Status Report of Current NRC Fuel
Cycle Related Initiatives.
360-Degree Feedback From the
Industry and Public of Issues of Interest
Pertaining to the Regulation of NRCRegulated Fuel Cycle Facilities.
Overview and Experience Under the
NRC’s New Hearing Process by Fuel
Cycle Applicants and Licensees.
VerDate Aug<31>2005
V. Further Information
36139
SECURITIES AND EXCHANGE
COMMISSION
Agency Forms Submitted for OMB
Review
[Release No. 34–54004; File No. SR–CBOE–
2005–63]
Summary: In accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. chapter 35), the Railroad
Retirement Board (RRB) has submitted
the following proposal(s) for the
collection of information to the Office of
Management and Budget for review and
approval.
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Granting Approval
of a Proposed Rule Change and
Amendments Nos. 1 and 2 Thereto
Relating to the Nullification and
Adjustment of Equity Options
Transactions
Summary of Proposal(s)
June 16, 2006.
(1) Collection title: Repayment of
Debt.
(2) Form(s) submitted: G–421f.
(3) OMB Number: 3220–0169.
(4) Expiration date of current OMB
clearance: 8/31/2006.
(5) Type of request: Extension of a
currently approved collection.
(6) Respondents: Individuals or
households.
(7) Estimated annual number of
respondents: 300.
(8) Total annual responses: 300.
(9) Total annual reporting hours: 25.
(10) Collection description: Section 2
of the Railroad Retirement Act provides
for payment of annuities to retired or
disabled railroad employees, their
spouses, and eligible survivors. When
the RRB determines that an
overpayment of RRA benefits has
occurred, it initiates prompt action to
I. Introduction
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
On August 12, 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
provide for an adjustment provision for
transactions during opening rotation
resulting from obvious errors between a
non-broker-dealer customer and CBOE
Market-Maker(s), as well as transactions
during opening rotation between a nonbroker-dealer customer and at least one
non-CBOE Market-Maker. On October
28, 2005, the CBOE submitted
Amendment No. 1 to the proposed rule
1 15
2 17
E:\FR\FM\23JNN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
23JNN1
36140
Federal Register / Vol. 71, No. 121 / Friday, June 23, 2006 / Notices
change.3 On April 7, 2006, the CBOE
submitted Amendment No. 2 to the
proposed rule change.4 The proposed
rule change and Amendments No. 1 and
2 were published for comment in the
Federal Register on April 26, 2006.5
The Commission received one comment
letter on the proposal.6 This order
approves the proposed rule change, as
amended.
jlentini on PROD1PC65 with NOTICES
II. Description of the Proposed Rule
Change
The CBOE proposes to revise CBOE
Rule 6.25, the Exchange’s obvious error
rule. Under the proposal, non-brokerdealer customers would be permitted to
request review for adjustment of an
opening rotation transaction from
Trading Officials until 3:30 p.m. Central
Time (‘‘CT’’) on the day that the
transaction occurred.7 According to the
Exchange, the purpose of the proposal is
to protect non-broker-dealer customers
from obvious errors during the opening
rotation when they do not discover the
error within 15 minutes of the execution
of the transaction. The proposed rule
change, however, would not affect the
procedure set forth in CBOE Rule
6.25(b)(1), which permits a non-brokerdealer customer to request within 15
minutes of an obvious error transaction
to have the transaction nullified by
Trading Officials, unless both parties
agree to an adjustment price within 30
minutes of being notified by Trading
Officials of the obvious error.
For transactions during opening
rotation between a non-broker-dealer
customer and a CBOE Market-Maker,
after 15 minutes have elapsed since the
trade involving the obvious error
occurred, but before 3:30 p.m. CT on the
same trading day, the non-broker-dealer
customer would be able to request an
obvious error review. In determining the
extent of any adjustment of the
transaction, the Trading Officials would
look to the competing exchange with the
most liquidity in the option class for the
two preceding months. The transaction
would be adjusted to the competing
3 Amendment No. 1 replaced the original filing in
its entirety.
4 Amendment No. 2 clarified and revised the
example set forth in the purpose section of the
filing.
5 Securities Exchange Act Release No. 53672
(April 18, 2006), 71 FR 24767 (April 26, 2006).
6 See letter to Jonathan G. Katz, Secretary,
Commission, from Matthew B. Hinerfeld, Managing
Director and Deputy General Counsel, Citadel
Investment Group, L.L.C. on behalf of Citadel
Derivatives Group LLC (collectively ‘‘Citadel’’)
dated May 17, 2006 (‘‘Citadel Letter’’).
7 The term ‘‘Trading Officials’’ means two
Exchange members designated as Floor Officials
and one member of the Exchange’s trading floor
liaison staff. See Interpretations and Policies .02 of
CBOE Rule 6.25.
VerDate Aug<31>2005
17:22 Jun 22, 2006
Jkt 208001
exchange’s disseminated price at the
time the trade occurred (provided the
adjustment does not violate the nonbroker-dealer customer’s limit price),
but only up to the number of contracts
that the competing exchange was
displaying as its disseminated size at
the time the trade occurred.
For transactions during opening
rotation between a non-broker-dealer
and at least one non-CBOE MarketMaker, which could include (but is not
limited to) an away specialist, an
upstairs firm, or another non-brokerdealer customer, after the 15-minute
notification period has passed, but
before 3:30 p.m. CT on the same trading
day, the non-broker-dealer customer
would be able to request an obvious
error review. In determining the extent
of any adjustment to the transaction, the
Trading Officials would look to the
competing exchange with the most
liquidity in the options class for the two
preceding calendar months. The
transaction would be adjusted to the
competing exchange’s disseminated
price at the time the trade occurred, but
it would not be adjusted beyond the
non-CBOE Market-Maker’s limit price,
and not for a size greater than the
disseminated size of the competing
exchange.
III. Discussion
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange 8 and, in particular, the
requirements of section 6(b) of the Act 9
and the rules and regulations
thereunder. Specifically, the
Commission finds that the proposal is
consistent with section 6(b)(5) of the
Act,10 in that the proposal promotes just
and equitable principles of trade,
removes impediments to and perfects
the mechanism of a free and open
market and a national market system,
and protects investors and the public
interest.
The Commission considers that in
most circumstances trades that are
executed between parties should be
honored. On rare occasions, the price of
the executed trade indicates an
‘‘obvious error’’ may exist, suggesting
that it is unrealistic to expect that the
parties to the trade had come to a
meeting of the minds regarding the
terms of the transaction. In the
8 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).
9 15 U.S.C. 78f(b).
10 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
Commission’s view, the determination
of whether an ‘‘obvious error’’ has
occurred should be based on specific
and objective criteria and subject to
specific and objective procedures.
CBOE’s proposal would permit a nonbroker-dealer customer, whose order
was executed during CBOE’s opening
rotation but who did not discover that
its transaction may have involved an
obvious error within 15 minutes of its
execution, to request an obvious error
review for adjustment of the transaction
from Trading Officials until 3:30 p.m.
CT on the date of the transaction. The
Commission believes that permitting
non-broker-dealer customers to request
an obvious error review until 3:30 p.m.
CT on the day of the transaction would
give those customers a reasonable
amount of time to discover an obvious
error transaction that occurred during
an opening rotation and to request an
obvious error review.
The Commission also believes that
CBOE’s proposal with respect to the
price to which a transaction will be
adjusted is consistent with the Act.
Under the Exchange’s proposal, an
obvious error transaction during an
opening rotation involving a nonbroker-dealer customer would be
adjusted to the Theoretical Price
(provided that it does not violate the
customer’s limit price). The Theoretical
Price of an option series is, for securities
traded on at least one other options
exchange, the last bid price with respect
to an erroneous sell transaction and the
last offer price with respect to an
erroneous buy transaction, just prior to
the trade, disseminated by the
competing options exchange that has
the most liquidity in that option class in
the previous two calendar months. The
Commission believes that this basis for
determining Theoretical Price is
consistent with the Linkage Plan, which
requires the options exchanges to avoid
trading through better prices available
on all exchanges, not just the exchange
that has the most liquidity, because the
Linkage Plan does not apply to
transactions effected during opening
rotations.
The Commission has carefully
considered the comments raised in the
Citadel Letter.11 The Citadel Letter
stated that the proposed rule change
effectively would require CBOE Market
Makers retroactively to trade during the
opening rotation at prices at which they
were not quoting and at which they did
not want to trade. Citadel indicated that
the price protections offered by the
Linkage Plan do not apply to
transactions during opening rotation.
11 See
E:\FR\FM\23JNN1.SGM
Citadel Letter, supra note 6.
23JNN1
Federal Register / Vol. 71, No. 121 / Friday, June 23, 2006 / Notices
Citadel noted that, as a result, there is
a risk that orders executed on one
exchange as part of the opening rotation
could receive a different price if
executed as part of the opening rotation
on another exchange. Citadel asserted
that no ‘‘obvious error’’ is involved and
that the proposal is an inappropriate
punitive measure because the market
maker has not done anything wrong.
Citadel also stated that the proposal
creates an irrational distinction between
those customer orders that get the
benefit of the adjustment and those that
do not.
The Exchange countered that its
obvious error rule currently applies to
transactions occurring as part of the
opening rotation and provides for the
adjustment of market maker to market
maker transactions to prices that the
market maker may not have been
quoting at the opening.12 The Exchange
also noted that its obvious error rule
currently provides for differing
treatment with respect to obvious errors
depending on the nature of the order
and the parties involved. According to
the Exchange, the proposed rule change
is consonant with its obvious error rule,
which currently addresses an error at
the opening, adjustment of an opening
transaction, and differing treatment of
customers and market makers.
The Commission believes that the
Citadel Letter does not raise any issues
that would preclude approval of the
proposed rule change. In the
Commission’s view, the proposed rule
change strikes a reasonable balance by
affording non-broker-dealer customers
the opportunity to seek review of an
opening rotation transaction until 3:30
CT on the day of the transaction, if the
transaction occurred at a price that
satisfies the threshold set forth in the
Exchange’s obvious error rule, while at
the same time limiting the size and
amount of any such adjustment.
IV. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,13 that the
proposed rule change (SR–CBOE–2005–
63), as amended, is approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.14
Nancy M. Morris,
Secretary.
[FR Doc. E6–9935 Filed 6–22–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54003; File No. SR–NASD–
2006–056]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change and Amendment No. 1 To
Establish a Package of Real-Time and
Near-Real-Time Data Products Called
the Market Analytics Data Package
June 16, 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 April 24,
2006, the National Association of
Securities Dealers, Inc. (‘‘NASD’’),
through its subsidiary, The Nasdaq
Stock Market, Inc. (‘‘Nasdaq’’), 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 Nasdaq. On June
8, 2006, Nasdaq filed Amendment No. 1.
Nasdaq has designated the proposed
rule change as constituting a ‘‘noncontroversial’’ rule change pursuant to
section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) 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, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to establish a
package of real-time and near-real-time
data products that provide a new level
of transparency to trading activity on
Nasdaq trading systems to interested
14 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 240.19–b4(f)(6). Nasdaq gave the
Commission written notice of its intent to file the
proposed rule change on March 24, 2006. For
purposes of calculating the 60-day abrogation
period, the Commission considers the period to
have commenced on June 8, 2006, the day Nasdaq
filed Amendment No. 1.
jlentini on PROD1PC65 with NOTICES
1 15
12 Telephone conference among Andrew Spiwak,
Director, Legal Division, and Chief Enforcement
Attorney, Jennifer Lamie, Managing Senior
Attorney, and Nancy Sanow, Assistant Director,
Division of Market Regulation, Commission on June
13, 2006.
13 15 U.S.C. 78f(b)(2).
VerDate Aug<31>2005
17:22 Jun 22, 2006
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PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
36141
subscribers on a purely voluntary basis.
The text of the proposed rule change is
available at NASD, at the Commission,
and at https://www.nasdaq.com/about/
RuleFilings/Filings2006.stm.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq 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. Nasdaq 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
Nasdaq proposes to establish a
package of real-time and near-real-time
data products that provide a new level
of transparency to trading activity on
Nasdaq trading systems to interested
subscribers on a purely voluntary basis.
The Market Analytics Data Package will
consist of one or more of the following
products:
Market Velocity—Market Velocity is
akin to the audible noise and visible
activity that traders use on a physical
trading floor to detect changes in market
direction, momentum, or liquidity.
Nasdaq measures the frequency and size
of orders submitted to the trading
system, including under certain
conditions shares not visible in the
quote montage. Market Velocity can be
expressed as a number of shares, for
example, the current number of shares
in market and aggressive limit orders
that have arrived in the Nasdaq Market
Center execution system. Market
Velocity can also be expressed as a ratio
of the current number of shares relative
to what is expected in each stock for
that time of day. Market Velocity may
also be expressed as an alert when the
underlying data exceeds a threshold.
Market Forces—Market Forces uses
the same order and share volume
information used in Market Velocity,
but categorizes the orders by whether
they are buys or sells. Market Forces
provides an indication of market
direction and is expressed as a number
of shares or a percentage of shares in
buy versus sell orders. Market Forces
may also be expressed as an alert when
the underlying data exceeds a threshold.
E:\FR\FM\23JNN1.SGM
23JNN1
]]>Agencies
[Federal Register Volume 71, Number 121 (Friday, June 23, 2006)]
[Notices]
[Pages 36139-36141]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-9935]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54004; File No. SR-CBOE-2005-63]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval of a Proposed Rule Change and
Amendments Nos. 1 and 2 Thereto Relating to the Nullification and
Adjustment of Equity Options Transactions
June 16, 2006.
I. Introduction
On August 12, 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 provide for an adjustment
provision for transactions during opening rotation resulting from
obvious errors between a non-broker-dealer customer and CBOE Market-
Maker(s), as well as transactions during opening rotation between a
non-broker-dealer customer and at least one non-CBOE Market-Maker. On
October 28, 2005, the CBOE submitted Amendment No. 1 to the proposed
rule
[[Page 36140]]
change.\3\ On April 7, 2006, the CBOE submitted Amendment No. 2 to the
proposed rule change.\4\ The proposed rule change and Amendments No. 1
and 2 were published for comment in the Federal Register on April 26,
2006.\5\ The Commission received one comment letter on the proposal.\6\
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\ Amendment No. 2 clarified and revised the example set forth
in the purpose section of the filing.
\5\ Securities Exchange Act Release No. 53672 (April 18, 2006),
71 FR 24767 (April 26, 2006).
\6\ See letter to Jonathan G. Katz, Secretary, Commission, from
Matthew B. Hinerfeld, Managing Director and Deputy General Counsel,
Citadel Investment Group, L.L.C. on behalf of Citadel Derivatives
Group LLC (collectively ``Citadel'') dated May 17, 2006 (``Citadel
Letter'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The CBOE proposes to revise CBOE Rule 6.25, the Exchange's obvious
error rule. Under the proposal, non-broker-dealer customers would be
permitted to request review for adjustment of an opening rotation
transaction from Trading Officials until 3:30 p.m. Central Time
(``CT'') on the day that the transaction occurred.\7\ According to the
Exchange, the purpose of the proposal is to protect non-broker-dealer
customers from obvious errors during the opening rotation when they do
not discover the error within 15 minutes of the execution of the
transaction. The proposed rule change, however, would not affect the
procedure set forth in CBOE Rule 6.25(b)(1), which permits a non-
broker-dealer customer to request within 15 minutes of an obvious error
transaction to have the transaction nullified by Trading Officials,
unless both parties agree to an adjustment price within 30 minutes of
being notified by Trading Officials of the obvious error.
---------------------------------------------------------------------------
\7\ The term ``Trading Officials'' means two Exchange members
designated as Floor Officials and one member of the Exchange's
trading floor liaison staff. See Interpretations and Policies .02 of
CBOE Rule 6.25.
---------------------------------------------------------------------------
For transactions during opening rotation between a non-broker-
dealer customer and a CBOE Market-Maker, after 15 minutes have elapsed
since the trade involving the obvious error occurred, but before 3:30
p.m. CT on the same trading day, the non-broker-dealer customer would
be able to request an obvious error review. In determining the extent
of any adjustment of the transaction, the Trading Officials would look
to the competing exchange with the most liquidity in the option class
for the two preceding months. The transaction would be adjusted to the
competing exchange's disseminated price at the time the trade occurred
(provided the adjustment does not violate the non-broker-dealer
customer's limit price), but only up to the number of contracts that
the competing exchange was displaying as its disseminated size at the
time the trade occurred.
For transactions during opening rotation between a non-broker-
dealer and at least one non-CBOE Market-Maker, which could include (but
is not limited to) an away specialist, an upstairs firm, or another
non-broker-dealer customer, after the 15-minute notification period has
passed, but before 3:30 p.m. CT on the same trading day, the non-
broker-dealer customer would be able to request an obvious error
review. In determining the extent of any adjustment to the transaction,
the Trading Officials would look to the competing exchange with the
most liquidity in the options class for the two preceding calendar
months. The transaction would be adjusted to the competing exchange's
disseminated price at the time the trade occurred, but it would not be
adjusted beyond the non-CBOE Market-Maker's limit price, and not for a
size greater than the disseminated size of the competing exchange.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange \8\ and, in
particular, the requirements of section 6(b) of the Act \9\ and the
rules and regulations thereunder. Specifically, the Commission finds
that the proposal is consistent with section 6(b)(5) of the Act,\10\ in
that the proposal promotes just and equitable principles of trade,
removes impediments to and perfects the mechanism of a free and open
market and a national market system, and protects investors and the
public interest.
---------------------------------------------------------------------------
\8\ 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).
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission considers that in most circumstances trades that are
executed between parties should be honored. On rare occasions, the
price of the executed trade indicates an ``obvious error'' may exist,
suggesting that it is unrealistic to expect that the parties to the
trade had come to a meeting of the minds regarding the terms of the
transaction. In the Commission's view, the determination of whether an
``obvious error'' has occurred should be based on specific and
objective criteria and subject to specific and objective procedures.
CBOE's proposal would permit a non-broker-dealer customer, whose order
was executed during CBOE's opening rotation but who did not discover
that its transaction may have involved an obvious error within 15
minutes of its execution, to request an obvious error review for
adjustment of the transaction from Trading Officials until 3:30 p.m. CT
on the date of the transaction. The Commission believes that permitting
non-broker-dealer customers to request an obvious error review until
3:30 p.m. CT on the day of the transaction would give those customers a
reasonable amount of time to discover an obvious error transaction that
occurred during an opening rotation and to request an obvious error
review.
The Commission also believes that CBOE's proposal with respect to
the price to which a transaction will be adjusted is consistent with
the Act. Under the Exchange's proposal, an obvious error transaction
during an opening rotation involving a non-broker-dealer customer would
be adjusted to the Theoretical Price (provided that it does not violate
the customer's limit price). The Theoretical Price of an option series
is, for securities traded on at least one other options exchange, the
last bid price with respect to an erroneous sell transaction and the
last offer price with respect to an erroneous buy transaction, just
prior to the trade, disseminated by the competing options exchange that
has the most liquidity in that option class in the previous two
calendar months. The Commission believes that this basis for
determining Theoretical Price is consistent with the Linkage Plan,
which requires the options exchanges to avoid trading through better
prices available on all exchanges, not just the exchange that has the
most liquidity, because the Linkage Plan does not apply to transactions
effected during opening rotations.
The Commission has carefully considered the comments raised in the
Citadel Letter.\11\ The Citadel Letter stated that the proposed rule
change effectively would require CBOE Market Makers retroactively to
trade during the opening rotation at prices at which they were not
quoting and at which they did not want to trade. Citadel indicated that
the price protections offered by the Linkage Plan do not apply to
transactions during opening rotation.
[[Page 36141]]
Citadel noted that, as a result, there is a risk that orders executed
on one exchange as part of the opening rotation could receive a
different price if executed as part of the opening rotation on another
exchange. Citadel asserted that no ``obvious error'' is involved and
that the proposal is an inappropriate punitive measure because the
market maker has not done anything wrong. Citadel also stated that the
proposal creates an irrational distinction between those customer
orders that get the benefit of the adjustment and those that do not.
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\11\ See Citadel Letter, supra note 6.
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The Exchange countered that its obvious error rule currently
applies to transactions occurring as part of the opening rotation and
provides for the adjustment of market maker to market maker
transactions to prices that the market maker may not have been quoting
at the opening.\12\ The Exchange also noted that its obvious error rule
currently provides for differing treatment with respect to obvious
errors depending on the nature of the order and the parties involved.
According to the Exchange, the proposed rule change is consonant with
its obvious error rule, which currently addresses an error at the
opening, adjustment of an opening transaction, and differing treatment
of customers and market makers.
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\12\ Telephone conference among Andrew Spiwak, Director, Legal
Division, and Chief Enforcement Attorney, Jennifer Lamie, Managing
Senior Attorney, and Nancy Sanow, Assistant Director, Division of
Market Regulation, Commission on June 13, 2006.
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The Commission believes that the Citadel Letter does not raise any
issues that would preclude approval of the proposed rule change. In the
Commission's view, the proposed rule change strikes a reasonable
balance by affording non-broker-dealer customers the opportunity to
seek review of an opening rotation transaction until 3:30 CT on the day
of the transaction, if the transaction occurred at a price that
satisfies the threshold set forth in the Exchange's obvious error rule,
while at the same time limiting the size and amount of any such
adjustment.
IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-CBOE-2005-63), as amended,
is approved.
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\13\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
Nancy M. Morris,
Secretary.
[FR Doc. E6-9935 Filed 6-22-06; 8:45 am]
BILLING CODE 8010-01-P
