Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change and Amendment No. 1 Thereto Regarding DPM and e-DPM Membership Ownership Requirements and the Ultimate Matching Algorithm, 53148-53150 [E6-14855]
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53148
Federal Register / Vol. 71, No. 174 / Friday, September 8, 2006 / Notices
believe that the Exchange’s proposal
raises any novel regulatory issues.
Therefore, the Commission finds good
cause, consistent with Section 19(b)(2)
of the Act,33 to approve the proposed
rule change, as amended, on an
accelerated basis.
BSE also proposes to amend its rules
to provide for the listing of the NDX and
MNX (one tenth value of the NDX),
including long term index options based
upon the full value of the Nasdaq 100
Index (‘‘NDX Leaps’’) and one-tenth
value (‘‘MNX Leaps’’). These indexes
are cash settled, European style options
based on the full and one-tenth value of
the Nasdaq 100, a stock calculated and
maintained by the Nasdaq stock market.
The BSE is also amending its rules to
provide for the listing of the RUT and
RUT LEAPS.
The Commission notes that it
previously approved the listing and
trading of options on the NDX and MNX
on other exchanges.34 The Commission
also notes that it has previously
approved the listing and trading of the
RUT on other exchanges.35 The
Commission is presently not aware of
any regulatory issues that should cause
it to revisit that earlier finding or
preclude the trading of such options on
the BSE.
In approving the proposal, the
Commission has specifically relied on
the following representations made by
the BSE:
1. The BSE will notify the
Commission’s Division of Market
Regulation immediately if Nasdaq
ceases to maintain or calculate the
Nasdaq 100 Index (or one-tenth Nasdaq
100 value), or if these Nasdaq 100 Index
values are not disseminated every 15
seconds by a widely available source
during the time the index options trade
on BOX. The BSE will notify the
Commission’s Division of Market
Regulation immediately if the Frank
Russell Company ceases to maintain or
calculate the Russell 2000 Index, or if
the Russell 2000 Index value is not
disseminated every 15 seconds by a
widely available source during the time
the index options trade on BOX. If such
Indexes cease to be maintained or
calculated, or if the Index values are not
33 15
U.S.C. 78s(b)(2).
on the MNX and NDX are currently
listed and trading on the Amex, the CBOE and the
ISE. See Securities Exchange Act Release Nos.
51884 (June 20, 2005), 70 FR 36973 (June 27, 2005)
(SR–Amex–2005–038); 33166 (November 8, 1993),
58 FR 60710 (November 17, 1993) (SR–CBOE–93–
42); and 51121 (February 1, 2005), 70 FR 6476
(February 7, 2005) (SR–ISE–2005–01).
35 See Securities Exchange Act Release Nos.
51619 (April 27, 2005), 70 FR 22947 (May 3, 2005)
(SR–ISE–2005–09) and 31382 (October 30, 1992), 57
FR 52802 (November 5, 1992) (SR–CBOE–92–02).
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disseminated every 15 seconds by a
widely available source, the BSE will
not list any additional series for trading
and will limit all transactions in such
option to closing transactions for the
purpose of maintaining a fair and
orderly market and protecting investors.
2. The BSE has an adequate
surveillance program in place for index
options traded on the Nasdaq 100 Index
and the Russell 2000 Index.
3. The additional quote and message
traffic that will be generated by listing
and trading the NDX, MNX, NDX
LEAPS, MNX LEAPS, the RUT and the
RUT LEAPS will not exceed the BSE’s
current message capacity allocated by
the Independent System Capacity
Advisor.
The Commission further notes that in
approving this proposal, it relied on the
BSE’s discussion of how Nasdaq and the
Frank Russell Company currently
calculates the respective indexes. If the
manner in which Nasdaq or the Frank
Russell Company calculates the indexes
were to change substantially, the
approval might no longer be consistent
with the Act and might no longer be
effective.
With respect to the NDX, the MNX,
and the RUT, the Commission believes
that the position limits for these index
options and the hedge exemption for
such position limits are reasonable and
consistent with the Act. The
Commission previously has found
identical provisions for NDX and MNX
options to be consistent with the Act.36
The Commission finds good cause for
approving this proposal before the
thirtieth day after the publication of the
notice thereof in the Federal Register.
Because options on the NDX, MNX, and
the RUT already trade on other
exchanges, accelerating approval of the
BSE’s proposal should benefit investors
by creating, without due delay,
additional competition in the market for
these options.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,37 that the
proposed rule change (SR–BSE–2005–
11), as amended, is approved on an
accelerated basis.
36 See e.g., Securities Exchange Act Release No.
44156 (April 6, 2001), 66 FR 19261 (April 13, 2001)
(SR–CBOE–00–14) (order approving a proposed rule
change by CBOE to increase position limits and
exercise limits for Nasdaq 100 Index options,
expand the Index hedge exemption, and eliminate
the near-term position limits).
37 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.38
Nancy M. Morris,
Secretary.
[FR Doc. E6–14878 Filed 9–7–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54395; File No. SR–
CBOE–2006–58]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Approving a
Proposed Rule Change and
Amendment No. 1 Thereto Regarding
DPM and e-DPM Membership
Ownership Requirements and the
Ultimate Matching Algorithm
August 31, 2006.
I. Introduction
On June 14, 2006, 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 proposal to change
membership ownership requirements.
The CBOE filed Amendment No. 1 to
the proposed rule change on July 18,
2006,3 which proposed to change
certain aspects of the Ultimate Matching
Algorithm (‘‘UMA’’). The proposed rule
change was published for comment in
the Federal Register on August 1, 2006.4
The Commission received no comments
on the proposal, as amended. This order
approves the proposed rule change, as
amended.
II. Description of the Proposal
CBOE Rules 8.85 and 8.92 require that
a DPM organization and e-DPM
organization, respectively, own a certain
number of Exchange memberships.
Specifically, with respect to DPM
organizations, CBOE Rule 8.85 requires
that each DPM organization own one
Exchange membership for each trading
location at which the organization
serves as a DPM. CBOE Rule 8.92
requires that until July 12, 2007, each eDPM organization is required to own
one Exchange membership for every 30
products allocated to the e-DPM, or
38 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 replaced and superseded the
original filing in its entirety.
4 See Securities Exchange Act Release No. 54216
(July 26, 2006), 71 FR 35471.
1 15
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lease one Exchange membership for
every 20 products allocated to the eDPM.5
CBOE proposes to modify these
membership ownership requirements in
connection with the Exchange’s
determination to apply a specific
‘‘appointment cost’’ to each options
class allocated to a DPM organization or
an e-DPM organization. With respect to
DPM organizations, CBOE Rule 8.85, as
proposed to be amended, would require
that each DPM organization own one
Exchange membership, and own or
lease such additional Exchange
memberships as may be necessary based
on the aggregate ‘‘appointment cost’’ for
the classes allocated to the DPM
organization. Each membership owned
or leased by the DPM organization
would have an appointment credit of
1.0. The appointment costs for the
Hybrid 2.0 Option Classes and the NonHybrid Classes allocated to the DPM
organization would be the same as the
appointment costs set forth in CBOE
Rule 8.3. The appointment cost for
Hybrid Option Classes would be .01 per
class.
For example, if the DPM organization
has been allocated such number of
options classes that its aggregate
appointment cost is 1.6, the DPM
organization would be required to own
at least one Exchange membership, and
own or lease one additional Exchange
membership. As it currently does for
purposes of Remote Market Maker
(‘‘RMMs’’) and Market-Maker
appointments, the Exchange would
rebalance the ‘‘tiers’’ set forth in
proposed CBOE Rule 8.3(c)(i), excluding
the ‘‘AA’’ and ‘‘A+’’ tiers, once each
calendar quarter, which could result in
additions or deletions to their
composition. When a class changes
‘‘tiers’’ it would be assigned the
‘‘appointment cost’’ of that tier. Upon
rebalancing, each DPM organization
would be required to own or lease the
appropriate number of Exchange
memberships reflecting the revised
‘‘appointment costs’’ of the classes that
have been allocated to it. CBOE Rule
8.85 also would provide that a DPM
organization is required to own or lease
the appropriate number of Exchange
memberships at the time a new options
class allocated to it pursuant to CBOE
Rule 8.95 begins trading.
Additionally, because member
organizations may be approved and
function in a number of capacities at
CBOE, including as a DPM organization,
e-DPM organization, and as an RMM,
5 After July 12, 2007, each e-DPM organization is
required to own one Exchange membership for
every 30 products allocated to the e-DPM.
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19:38 Sep 07, 2006
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CBOE proposes to allow the DPM
organization to use any excess
membership capacity in its capacity as
an RMM or e-DPM. Specifically, in the
event the member organization
approved as the DPM organization is
also approved to act as an RMM and/or
e-DPM, and has excess membership
capacity above the aggregate
appointment cost for the classes
allocated to it as the DPM, the member
organization would be permitted to
utilize the excess membership capacity
to quote electronically in an appropriate
number of Hybrid 2.0 Classes in the
capacity of an RMM and not trade in
open outcry, or to quote electronically
in the Hybrid 2.0 Classes in which it is
appointed an e-DPM. For example, if the
DPM organization has been allocated
such number of option classes that its
aggregate appointment cost is 1.6, the
member organization could request an
appointment as an RMM in any
combination of Hybrid 2.0 Classes
whose aggregate ‘‘appointment cost’’
does not exceed .40. The member
organization would not function as a
DPM in any of these additional classes.
In the event the member organization
utilizes any excess membership capacity
to quote electronically in some
additional Hybrid 2.0 Classes as an
RMM or e-DPM, it would be required to
comply with the provisions of CBOE
Rules 8.4(c) and Rule 8.93(vii),
respectively. CBOE is also proposing
similar changes to CBOE Rule 8.92, to
apply to e-DPM organizations.
Finally, CBOE proposes to amend the
provisions of CBOE Rules 6.45A for
DPMs and 6.45B for DPMs and LMMs,
which provide that a DPM or LMM
utilizing more than one membership in
the trading crowd where a class is
traded would count as two market
participants for purposes of Component
A of UMA. Under the proposal, a DPM
(or LMM) would be required to
exclusively use the portion of a
membership(s) representing one-half the
total appointment cost of the classes
allocated to the DPM (or, in which the
LMM has been appointed) at a
particular trading station in order to
count as two market participants, and
not for any other purpose.
For example, if a DPM’s appointment
cost is 2.2 for the classes allocated to it
at a particular trading station, pursuant
to proposed amendments to CBOE Rule
8.85(e), the DPM would be required to
own one membership and own or lease
two additional memberships. In
addition, the DPM would be permitted
to choose to count as two market
participants for purposes of Component
A of the Algorithm if the DPM
exclusively utilizes 1.1 (one-half of 2.2)
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Sfmt 4703
53149
of the membership(s) it owns or leases
in order to count as two market
participants, and not utilize the 1.1 of
the memberships for any other purpose.
In this example, to comply with the
membership ownership requirements
and to count as two market participants
for purposes of Component A, the DPM
would be required to own one
membership, and own or lease three
additional memberships to satisfy its
total cost of 3.3 (2.2 + 1.1).
In amending CBOE Rules 6.45A and
6.45B, CBOE proposes to make it
optional for a DPM (or LMM) to choose
whether to exclusively use the portion
of its membership(s) representing onehalf the total appointment cost of the
classes allocated to the DPM at a
particular trading station in order to
count as two market participants, or,
instead, to use the excess membership
capacity to quote electronically in
Hybrid 2.0 Classes.
III. 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 and, in particular,
the requirements of Section 6 of the
Act 6 and the rules and regulations
thereunder.7 The Commission
specifically finds that the proposed rule
change is consistent with Section 6(b)(5)
of the Act 8 in that it is designed to
promote just and equitable principles of
trade, to remove impediments and to
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest. The
Commission believes that the proposal
to apply the appointment cost structure
that currently governs RMMs and
Market Makers to DPMs and e-DPMs is
reasonable. The Commission notes that
there will continue to be a DPM
allocated to each equity options class.
Moreover, permitting DPMs and e-DPMs
to use any excess membership capacity
to trade options classes as RMM or
DPM/e-DPM should enable them to
more efficiently use their seats. Finally,
the Commission believes that in light of
the proposed changes to the
appointment cost structure, the
proposed changes to UMA, and the
circumstances under which a DPM or
6 15
U.S.C. 78f.
approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
8 15 U.S.C. 78f(b)(5).
7 In
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53150
Federal Register / Vol. 71, No. 174 / Friday, September 8, 2006 / Notices
LMM may count as two market
participants, are consistent with the Act.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.10
Nancy M. Morris,
Secretary.
[FR Doc. E6–14855 Filed 9–7–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54385; File No. SR–
NYSEArca–2006–49]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change to Extend the Exchange’s
Standard Position and Exercise Limit
Pilot Program
August 30, 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 August
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,9 that the
proposed rule change (SR–CBOE–2006–
58), as amended, is approved.
18, 2006, the NYSE Arca, Inc. (‘‘NYSE
Arca’’ or ‘‘Exchange’’) 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. The Exchange has
filed the proposal as a ‘‘noncontroversial’’ rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b–4(f)(6) thereunder,4 which renders
it effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
NYSE Arca proposes to amend its
rules to extend the time period in NYSE
Arca Rule 6.8(a), which covers the
position limit and exercise limits pilot
program for equity option contracts and
options on the Nasdaq-100 Tracking
Stock (‘‘QQQQ’’) (‘‘Pilot Program’’). The
text of the proposed rule change is
available on the NYSE Arca’s Web site
(https://www.nysearca.com), at NYSE
Arca’s principal office, and at the
Commission’s Public Reference Room.
1. Purpose
In its filing with the Commission,
NYSE Arca 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. NYSE
Arca has prepared summaries, set forth
in Sections A, B, and C below, of the
most significant aspects of such
statements.
The purpose of this proposal is to
extend the period for the Exchange’s
Pilot Program relating to standard
position and exercise limits for equity
option contracts and for options on
QQQQs until March 1, 2007.5
Specifically, the Pilot Program increased
the applicable position and exercise
limits for equity options and options on
the QQQQ in accordance with the
following levels:
Current equity option contract limit 6
Pilot Program equity option contract limit
13,500
22,500
31,500
60,000
75,000
25,000
50,000
75,000
200,000
250,000
Current QQQQ Option Contract Limit
Pilot Program QQQQ Option Contract Limit
300,000
900,000
The Exchange believes that extending
the Pilot Program until March 1, 2007 is
warranted due to the positive feedback
from OTP Holders and for the reasons
cited in the original rule filing that
proposed the Pilot Program.7 The
Exchange has not encountered any
problems or difficulties relating to the
Pilot Program since its inception. For
these reasons, the Exchange requests
that the Commission extend the Pilot
Program until March 1, 2007.
sroberts on PROD1PC70 with NOTICES
9 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
5 The Pilot Program, which was effective upon
filing on February 25, 2005 and subsequently
10 17
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19:38 Sep 07, 2006
Jkt 208001
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder and, in particular, the
requirements of Section 6(b) of the Act.8
Specifically, the Exchange believes the
proposed rule change is consistent with
Section 6(b)(5) of the Act 9 that requires
that the rules of an exchange be
designed to promote just and equitable
principles of trade, to prevent
fraudulent and manipulative acts, to
extended twice, is set to expire on September 1,
2006. See Securities Exchange Act Release No.
51286 (March 1, 2005), 70 FR 11297 (March 8,
2005) (notice of filing and immediate effectiveness
of File No. SR–PCX–2003–55, as amended) (‘‘Pilot
Program Notice’’). See also Securities Exchange Act
Release Nos. 53350 (February 22, 2006), 71 FR
10582 (March 1, 2006) (notice of filing and
PO 00000
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Sfmt 4703
remove impediments to and perfect the
mechanism for a free and open market
and a national market system, and, 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.
immediate effectiveness of File No. SR–PCX–2006–
08); and 52263 (August 15, 2005), 70 FR 49003
(August 22, 2005) (notice of filing and immediate
effectiveness of File No. SR–PCX–2005–95).
6 Except when the Pilot Program is in effect.
7 See Pilot Program Notice, supra note 5.
8 15 U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(5).
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]]>Agencies
[Federal Register Volume 71, Number 174 (Friday, September 8, 2006)]
[Notices]
[Pages 53148-53150]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-14855]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54395; File No. SR-CBOE-2006-58]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Approving a Proposed Rule Change and Amendment No.
1 Thereto Regarding DPM and e-DPM Membership Ownership Requirements and
the Ultimate Matching Algorithm
August 31, 2006.
I. Introduction
On June 14, 2006, 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 proposal to change membership ownership requirements.
The CBOE filed Amendment No. 1 to the proposed rule change on July 18,
2006,\3\ which proposed to change certain aspects of the Ultimate
Matching Algorithm (``UMA''). The proposed rule change was published
for comment in the Federal Register on August 1, 2006.\4\ The
Commission received no comments on 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 and superseded the original filing
in its entirety.
\4\ See Securities Exchange Act Release No. 54216 (July 26,
2006), 71 FR 35471.
---------------------------------------------------------------------------
II. Description of the Proposal
CBOE Rules 8.85 and 8.92 require that a DPM organization and e-DPM
organization, respectively, own a certain number of Exchange
memberships. Specifically, with respect to DPM organizations, CBOE Rule
8.85 requires that each DPM organization own one Exchange membership
for each trading location at which the organization serves as a DPM.
CBOE Rule 8.92 requires that until July 12, 2007, each e-DPM
organization is required to own one Exchange membership for every 30
products allocated to the e-DPM, or
[[Page 53149]]
lease one Exchange membership for every 20 products allocated to the e-
DPM.\5\
---------------------------------------------------------------------------
\5\ After July 12, 2007, each e-DPM organization is required to
own one Exchange membership for every 30 products allocated to the
e-DPM.
---------------------------------------------------------------------------
CBOE proposes to modify these membership ownership requirements in
connection with the Exchange's determination to apply a specific
``appointment cost'' to each options class allocated to a DPM
organization or an e-DPM organization. With respect to DPM
organizations, CBOE Rule 8.85, as proposed to be amended, would require
that each DPM organization own one Exchange membership, and own or
lease such additional Exchange memberships as may be necessary based on
the aggregate ``appointment cost'' for the classes allocated to the DPM
organization. Each membership owned or leased by the DPM organization
would have an appointment credit of 1.0. The appointment costs for the
Hybrid 2.0 Option Classes and the Non-Hybrid Classes allocated to the
DPM organization would be the same as the appointment costs set forth
in CBOE Rule 8.3. The appointment cost for Hybrid Option Classes would
be .01 per class.
For example, if the DPM organization has been allocated such number
of options classes that its aggregate appointment cost is 1.6, the DPM
organization would be required to own at least one Exchange membership,
and own or lease one additional Exchange membership. As it currently
does for purposes of Remote Market Maker (``RMMs'') and Market-Maker
appointments, the Exchange would rebalance the ``tiers'' set forth in
proposed CBOE Rule 8.3(c)(i), excluding the ``AA'' and ``A+'' tiers,
once each calendar quarter, which could result in additions or
deletions to their composition. When a class changes ``tiers'' it would
be assigned the ``appointment cost'' of that tier. Upon rebalancing,
each DPM organization would be required to own or lease the appropriate
number of Exchange memberships reflecting the revised ``appointment
costs'' of the classes that have been allocated to it. CBOE Rule 8.85
also would provide that a DPM organization is required to own or lease
the appropriate number of Exchange memberships at the time a new
options class allocated to it pursuant to CBOE Rule 8.95 begins
trading.
Additionally, because member organizations may be approved and
function in a number of capacities at CBOE, including as a DPM
organization, e-DPM organization, and as an RMM, CBOE proposes to allow
the DPM organization to use any excess membership capacity in its
capacity as an RMM or e-DPM. Specifically, in the event the member
organization approved as the DPM organization is also approved to act
as an RMM and/or e-DPM, and has excess membership capacity above the
aggregate appointment cost for the classes allocated to it as the DPM,
the member organization would be permitted to utilize the excess
membership capacity to quote electronically in an appropriate number of
Hybrid 2.0 Classes in the capacity of an RMM and not trade in open
outcry, or to quote electronically in the Hybrid 2.0 Classes in which
it is appointed an e-DPM. For example, if the DPM organization has been
allocated such number of option classes that its aggregate appointment
cost is 1.6, the member organization could request an appointment as an
RMM in any combination of Hybrid 2.0 Classes whose aggregate
``appointment cost'' does not exceed .40. The member organization would
not function as a DPM in any of these additional classes. In the event
the member organization utilizes any excess membership capacity to
quote electronically in some additional Hybrid 2.0 Classes as an RMM or
e-DPM, it would be required to comply with the provisions of CBOE Rules
8.4(c) and Rule 8.93(vii), respectively. CBOE is also proposing similar
changes to CBOE Rule 8.92, to apply to e-DPM organizations.
Finally, CBOE proposes to amend the provisions of CBOE Rules 6.45A
for DPMs and 6.45B for DPMs and LMMs, which provide that a DPM or LMM
utilizing more than one membership in the trading crowd where a class
is traded would count as two market participants for purposes of
Component A of UMA. Under the proposal, a DPM (or LMM) would be
required to exclusively use the portion of a membership(s) representing
one-half the total appointment cost of the classes allocated to the DPM
(or, in which the LMM has been appointed) at a particular trading
station in order to count as two market participants, and not for any
other purpose.
For example, if a DPM's appointment cost is 2.2 for the classes
allocated to it at a particular trading station, pursuant to proposed
amendments to CBOE Rule 8.85(e), the DPM would be required to own one
membership and own or lease two additional memberships. In addition,
the DPM would be permitted to choose to count as two market
participants for purposes of Component A of the Algorithm if the DPM
exclusively utilizes 1.1 (one-half of 2.2) of the membership(s) it owns
or leases in order to count as two market participants, and not utilize
the 1.1 of the memberships for any other purpose. In this example, to
comply with the membership ownership requirements and to count as two
market participants for purposes of Component A, the DPM would be
required to own one membership, and own or lease three additional
memberships to satisfy its total cost of 3.3 (2.2 + 1.1).
In amending CBOE Rules 6.45A and 6.45B, CBOE proposes to make it
optional for a DPM (or LMM) to choose whether to exclusively use the
portion of its membership(s) representing one-half the total
appointment cost of the classes allocated to the DPM at a particular
trading station in order to count as two market participants, or,
instead, to use the excess membership capacity to quote electronically
in Hybrid 2.0 Classes.
III. 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
and, in particular, the requirements of Section 6 of the Act \6\ and
the rules and regulations thereunder.\7\ The Commission specifically
finds that the proposed rule change is consistent with Section 6(b)(5)
of the Act \8\ in that it is designed to promote just and equitable
principles of trade, to remove impediments and to perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. The Commission
believes that the proposal to apply the appointment cost structure that
currently governs RMMs and Market Makers to DPMs and e-DPMs is
reasonable. The Commission notes that there will continue to be a DPM
allocated to each equity options class. Moreover, permitting DPMs and
e-DPMs to use any excess membership capacity to trade options classes
as RMM or DPM/e-DPM should enable them to more efficiently use their
seats. Finally, the Commission believes that in light of the proposed
changes to the appointment cost structure, the proposed changes to UMA,
and the circumstances under which a DPM or
[[Page 53150]]
LMM may count as two market participants, are consistent with the Act.
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\6\ 15 U.S.C. 78f.
\7\ In approving this proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (SR-CBOE-2006-58), as amended, is
approved.
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\9\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-14855 Filed 9-7-06; 8:45 am]
BILLING CODE 8010-01-P
