Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto Relating to Multiple Representation Exception Procedures, 70810-70814 [E6-20621]
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Federal Register / Vol. 71, No. 234 / Wednesday, December 6, 2006 / Notices
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–Amex–2006–82 and should
be submitted on or before December 27,
2006.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–Amex–2006–
82), as amended by Amendments No. 1
and 2, be, and it hereby is, approved on
an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.35
Nancy M. Morris,
Secretary.
[FR Doc. E6–20657 Filed 12–5–06; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54827; File No. SR–CBOE–
2006–81]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Approving
Proposed Rule Change, as Modified by
Amendment No. 1 Thereto, Relating to
Minor Rule Violations in Connection
With Trade Reporting
PWALKER on PRODPC60 with NOTICES
November 29, 2006.
On October 4, 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 proposed rule change to
amend CBOE Rule 17.50, ‘‘Imposition of
Fines for Minor Rule Violations,’’ (the
‘‘MRVP’’), particularly the provisions of
CBOE Rule 17.50(g)(4), in order to: (a)
Increase the fines for failures to submit
trade information in accordance with
CBOE Rule 6.51, and (b) extend the
‘‘look-back’’ period for assessing such
rule violations. On October 17, 2006, the
Exchange filed Amendment No. 1 to the
proposed rule change. The proposed
rule change, as amended, was published
for comment in the Federal Register on
October 27, 2006.3 The Commission
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 54631
(October 20, 2006), 71 FR 63057.
1 15
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received no comments regarding the
proposal.
The Commission finds that the
proposal is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities exchange.4 In
particular, the Commission believes that
the proposal is consistent with Section
6(b)(5) of the Act,5 because a proposed
rule change that is reasonably designed
to require Exchange members to comply
with its trade reporting rules should
help protect investors and the public
interest.
The Commission also believes that
handling violations of trade reporting
rules pursuant to the MRVP is
consistent with Sections 6(b)(1) and
6(b)(6) of the Act,6 which require that
the rules of an exchange enforce
compliance with, and provide
appropriate discipline for, violations of
Commission and Exchange rules. In
addition, because existing CBOE Rule
17.50 provides procedural rights to a
person fined under the MRVP to contest
the fine and permits a hearing on the
matter, the Commission believes that
the MRVP, as amended by this proposal,
provides a fair procedure for the
disciplining of members and persons
associated with members, consistent
with Sections 6(b)(7) and 6(d)(1) of the
Act.7
Finally, the Commission finds that the
proposal is consistent with the public
interest, the protection of investors, or
otherwise in furtherance of the purposes
of the Act, as required by Rule 19d–
1(c)(2) under the Act,8 which governs
minor rule violation plans. The
Commission believes that the proposed
change to the MRVP should strengthen
the Exchange’s ability to carry out its
oversight and enforcement
responsibilities as a self-regulatory
organization in cases where full
disciplinary proceedings are unsuitable
in view of the minor nature of the
particular violation.
In approving this proposed rule
change, the Commission in no way
minimizes the importance of
compliance with CBOE rules and all
other rules subject to the imposition of
fines under the MRVP. The Commission
believes that the violation of any selfregulatory organization’s rules, as well
as Commission rules, is a serious matter.
However, the MRVP provides a
4 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
5 15 U.S.C. 78f(b)(5).
6 15 U.S.C. 78f(b)(1) and 78f(b)(6).
7 15 U.S.C. 78f(b)(7) and 78f(d)(1).
8 17 CFR 240.19d–1(c)(2).
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reasonable means of addressing rule
violations that do not rise to the level of
requiring formal disciplinary
proceedings, while providing greater
flexibility in handling certain violations.
The Commission expects that CBOE will
continue to conduct surveillance with
due diligence and make a determination
based on its findings, on a case-by-case
basis, whether a fine of more or less
than the recommended amount is
appropriate for a violation under the
MRVP or whether a violation requires
formal disciplinary action under CBOE
Rules 17.1–17.10.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 9 and Rule
19d–1(c)(2) under the Act,10 that the
proposed rule change (SR–CBOE–2006–
81), as amended, be, and hereby is,
approved and declared effective.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
Nancy M. Morris,
Secretary.
[FR Doc. 06–9544 Filed 12–5–06; 8:45am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54823; File No. SR–CBOE–
2005–111]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change and
Amendment No. 1 Thereto Relating to
Multiple Representation Exception
Procedures
November 28, 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 December
16, 2005, the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the CBOE. On October 17,
2006, the Exchange filed Amendment
No. 1 to the proposed rule change.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
9 15
U.S.C. 78s(b)(2).
CFR 240.19d–1(c)(2).
11 17 CFR 200.30–3(a)(12); 17 CFR 200.30–
3(a)(44).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 replaces and supersedes the
original filing in its entirety.
10 17
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Federal Register / Vol. 71, No. 234 / Wednesday, December 6, 2006 / Notices
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE proposes to amend CBOE Rule
6.55, ‘‘Multiple Representation
Prohibited,’’ to establish certain
exceptions to the rule requirements
prohibiting multiple representation by
Market-Makers and to update other
procedures in the rule that have become
outdated. The Exchange also proposes
to make a corresponding change to
CBOE Rule 6.74, ‘‘Crossing Orders.’’ The
text of the proposed rule change appears
below. Additions are italicized;
deletions are [bracketed].
Chicago Board Options Exchange,
Incorporated
PWALKER on PRODPC60 with NOTICES
Rules
Rule 6.55 Multiple Representation
Prohibited
(a) No member, for any account in
which the member has an interest or on
behalf of a customer, shall maintain
with more than one broker orders for the
purchase or sale of the same option
contract or other security, or the same
combination of option contracts or other
securities, with the knowledge that such
orders are for the account of the same
principal.
(b) Except in accordance with
procedures established by the
appropriate Procedure Committee or
with such Committee’s permission in
individual cases, no Market-Maker shall
enter or be present in a trading crowd
while a Floor Broker present in the
trading crowd is holding an order on
behalf of the Market-Maker’s individual
account or an order initiated by the
Market-Maker for an account in which
the Market-Maker has an interest.
* * * Interpretations and Policies:
.01 A Market-Maker may permissibly
enter a trading crowd in which a Floor
Broker is present who holds an order on
behalf of the Market-Maker’s individual
account or an order initiated by the
Market-Maker for an account in which
the Market-Maker has an interest if one
of the following [three] procedures is
followed:
(a) The Market-Maker makes the Floor
Broker aware of the Market-Maker’s
intention to enter the trading crowd and
the Floor Broker cancels the order[time
stamps the order ticket for the order and
writes the notation ‘‘Cancel’’ or ‘‘CXL’’
next to the time stamp]. If the MarketMaker wishes to re-enter the order upon
the Market-Maker’s exit from the trading
crowd, a new order must be entered
[Floor Broker must at that time again
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time stamp the order ticket and write
the notation ‘‘Reentry’’ or ‘‘RNTRY’’
next to such subsequent time stamp].
(b) The Market-Maker cancels the
order [by giving the Floor Broker a
written cancellation of the order which
is time-stamped by the Market-Maker
immediately] prior to [its transmission
to the Floor Broker]the Market-Maker’s
entry into the trading crowd. If the
Market-Maker wishes to re-enter the
order upon the Market-Maker’s exit
from the trading crowd, a new order
[ticket] must be [used]entered.
[(c) The Market-Maker cancels the
order by taking the order ticket for the
order back from the Floor Broker,
provided that the Market-Maker allows
the Floor Broker to retain a copy of the
order ticket (which copy the Floor
Broker must time-stamp at the time of
cancellation and retain for the Floor
Broker’s records). If the Market-Maker
wishes to re-enter the order upon the
Market-Maker’s exit from the trading
crowd, a new order ticket must be
used.].02 Exchange regulatory circulars
concerning joint accounts should be
consulted in connection with
procedures governing the simultaneous
presence in a trading crowd of
participants in and orders for the same
joint account.
.03 Subject to the requirements of
Rule 6.9 or 6.74, as applicable, a
Market-Maker may permissibly enter or
be present in a trading crowd in which
a Floor Broker is present who holds (a)
a solicited order on behalf of the
Market-Maker’s individual or joint
account or (b) a solicited order initiated
by the Market-Maker for an account in
which the Market-Maker has an interest,
provided that the Market-Maker makes
the Floor Broker aware of the MarketMaker’s intention to enter or to be
present in the trading crowd and the
Market-Maker refrains from trading inperson on the same trade as the original
order. It is the responsibility of the
Market-Maker utilizing these procedures
to ascertain whether solicited orders for
the Market-Maker’s joint account have
been entered in a trading crowd prior to
the Market-Maker trading the joint
account in-person.
.04 A Market-Maker may permissibly
enter or be present in a trading crowd
in which a Floor Broker is present who
holds an order on behalf of the MarketMaker’s individual account or an order
initiated by the Market-Maker for an
account in which the Market-Maker has
an interest, provided that the MarketMaker makes the Floor Broker aware of
the Market-Maker’s intention to enter or
to be present in the trading crowd and
the Market-Maker refrains from trading
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70811
in-person on the same trade as the order
being represented by the Floor Broker.
*
*
*
*
*
Rule 6.74 ‘‘Crossing’’ Orders
(a)–(f) No change.
* * * Interpretations and Policies:
.01—.06 No change.
.07 [A Floor Broker, pursuant to
paragraph (d) of this Rule, may not cross
an order that he is holding with an order
from a market-maker that is then in the
trading crowd.]Reserved.
.08 No change.
*
*
*
*
*
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
CBOE included statements concerning
the purpose of, and basis for, the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The CBOE has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Currently, CBOE Rule 6.55 provides
in relevant part that, except in
accordance with procedures established
by the appropriate Procedure Committee
or with such Procedure Committee’s
permission in individual cases, no
Market-Maker shall enter or be present
in a trading crowd while a Floor Broker
present in the trading crowd is holding
an order on behalf of the MarketMaker’s individual account or an order
initiated by the Market-Maker for an
account in which the Market-Maker has
an interest. As discussed below, this
principle against multiple
representation of a Market-Maker
account has also been extended to cover
joint account activity in certain
circumstances.
Exceptions to the multiple
presentation prohibition are noted in
the Interpretations and Policies to CBOE
Rule 6.55. For example, Interpretation
and Policy .01 provides procedures
under which a Market-Maker may enter
a trading crowd in which a Floor Broker
is present who holds an order on behalf
of the Market-Maker’s individual
account or an order initiated by the
Market-Maker for an account in which
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PWALKER on PRODPC60 with NOTICES
the Market-Maker has an interest.4 In
addition, Interpretation and Policy .02
advises CBOE members to consult
Exchange regulatory circulars for
procedures governing the simultaneous
presence in a trading crowd of
participants in and orders for the same
joint account.5 CBOE Rule 6.55, and the
exceptions thereto, are designed to
prevent persons such as Market-Makers
from being disproportionately
represented in the trading crowd.6
The Exchange is now proposing to
adopt additional exception procedures
for the handling of solicited orders, as
well as for the handling of a MarketMaker’s orders generally. These new
exception procedures are intended to be
in addition to, and not a limitation of,
the existing exception procedures
identified in CBOE Rule 6.55, its
Interpretations and Policies, and related
regulatory circulars concerning joint
accounts. In addition, the Exchange is
proposing to amend the text of
Interpretation and Policy .01 to CBOE
Rule 6.55, which has become outdated.
First, with respect to solicitations,
under the Exchange’s rules, a member
representing an order (the ‘‘original
order’’) may solicit customers, nonmember broker-dealers, members and
member firms, and Market-Makers to
transact in-person or by order with the
original order. When the solicitation
and crossing procedures in CBOE Rules
6.9, ‘‘Solicited Transactions,’’ 7 and
4 These procedures generally require the
cancellation of the order resting with the Floor
Broker upon the Market-Maker’s entry into the
trading crowd and allow the Market-Maker to reenter the order with the Floor Broker upon the
Market-Maker’s exit from the crowd.
5 Exchange Regulatory Circulars RG01–60 and
RG01–128 set forth Exchange procedures and
requirements for trading in joint accounts in equity
options, index options, and options on exchangetraded funds (‘‘ETFs’’). See Securities Exchange Act
Release No. 44152 (April 5, 2001), 66 FR 19262
(April 13, 2001) (order approving Regulatory
Circular RG01–60 governing joint account trading
in equity options) and Securities Exchange Act
Release No. 44433 (June 15, 2001), 66 FR 33589
(June 22, 2001) (order approving Regulatory
Circular RG01–128 governing joint account trading
in certain index options and options on ETFs).
6 An account using multiple orders or quotes
could be represented disproportionately because,
when an execution is divided among competing
brokers, an account using multiple orders or quotes
would receive a larger share of the execution than
an account using a single order or quote.
7 An original order and the solicited person or
order are subject to the procedures and priority
provisions of CBOE Rule 6.9, which generally
provide that a solicited person or order gains
priority over the trading crowd only if the terms of
the original order are disclosed to the crowd prior
to solicitation, the original order is continuously
represented, and the solicited person or order
betters the market and matches the original order
bid or offer. If these requirements are not satisfied,
non-solicited Market-Makers and Floor Brokers
with non-solicited discretionary orders in the
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6.74, ‘‘Crossing Orders’’,8 as applicable,
are read in conjunction with the current
multiple representation prohibitions of
CBOE Rule 6.55, the result is that a
Market-Maker present in the trading
crowd is generally able to represent a
solicited order in-person for his
individual account or for an account in
which he has an interest (including a
joint account). However, unless
otherwise excepted, a Market-Maker is
generally prohibited from being present
in the trading crowd at the same time a
Floor Broker is representing (i) a
solicited order on behalf of the MarketMaker’s individual account or a joint
account in which the Market-Maker is a
participant while the Market-Maker is
trading on behalf of that account, or (ii)
a solicited order initiated by the MarketMaker for an account in which he has
an interest, and is crossing that solicited
order pursuant to CBOE Rule 6.74(d).9
trading crowd have priority over the solicited
person or order.
8 CBOE Rule 6.74 describes the manner in which
a Floor Broker may cross orders, including
solicitation orders. Crossing procedures in the Rule
provide the solicited person or order generally with
priority over all other parties (other than public
customer orders) for a certain percentage of
contracts of the original order. For example,
paragraph (d) of CBOE Rule 6.74, which supercedes
the priority provisions of paragraph (d) of CBOE
Rule 6.9, provides procedures pursuant to which a
Floor Broker is entitled to cross 40% (or 20%, as
applicable) of an original order with a solicited
order (after public customer orders are satisfied).
9 Interpretation and Policy .07 to CBOE Rule 6.74
provides that a Floor Broker, pursuant to paragraph
(d), may not cross an order he is holding with an
order from a Market-Maker that is then present in
the trading crowd. The clarification was added to
CBOE Rule 6.74 because this type of multiple
representation had generally been prohibited by
CBOE Rule 6.55(b). See Securities Exchange Act
Release No. 44394 (June 6, 2001), 66 FR 31726 (June
12, 2001) (SR–CBOE–00–43) (order approving a rule
change that, among other things, adopted
Interpretation and Policy .07 to CBOE Rule 6.74).
Conversely, a Floor Broker can cross an order he is
holding with an order from a Market-Maker that is
not present in the trading crowd.
As discussed below, CBOE is proposing to
eliminate the restriction in CBOE Rule 6.74,
Interpretation and Policy .07 in light of the
revisions being proposed to CBOE Rule 6.55. In this
regard, the Exchange also notes that an exception
to this prohibition currently applies in the case of
joint accounts involving certain broad-based index
options and options on ETFs. In those classes, joint
account participants who are not trading in-person
in the crowd may enter orders for the joint account
with Floor Brokers even if other participants are
trading in their individual accounts or the same
joint account in-person. In such instances, there are
no restrictions on the other joint account
participants’ ability to be present in the trading
crowd or on the number of joint account
participants that may participate on the same trade.
Additionally, for equity options classes, it is
currently permissible for a joint account participant
to be trading in a crowd for his individual account
or acting as a Floor Broker for accounts unrelated
to his joint account while another participant of the
joint account enters a solicited order for the joint
account with other Floor Brokers. See Regulatory
Circulars RG01–60 and RG01–128.
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The Exchange believes that, if certain
procedures are followed to ensure that
a Market-Maker present in the trading
crowd is not disproportionately
represented, it is not necessary to limit
crossing transactions in this manner.
Therefore, the Exchange is proposing to
adopt Interpretation and Policy .03 to
CBOE Rule 6.55 to specify additional
procedures that would permit
representation of solicited orders when
a Market-Maker is present in the trading
crowd. These procedures will be
applicable for solicited orders
represented by a Floor Broker while the
Market-Maker is present in the crowd in
essentially three scenarios: first,
instances where the solicited order is for
the Market-Maker’s individual
account; 10 second, instances where the
solicited order is for the Market-Maker’s
joint account, whether initiated by the
Market-Maker or another joint account
participant; 11 and, third, instances
where the solicited order is initiated by
a Market-Maker for an account in which
he has an interest.12
The new procedures would provide
that a Market-Maker may permissibly
10 Only a Market-Maker may initiate an order for
his individual account, either in-person or by order
with a Floor Broker.
11 Depending on the circumstance, any joint
account participant can initiate an order for a joint
account, either in-person or by order with a Floor
Broker. The new procedure would therefore apply
to solicited orders that the Market-Maker in the
trading crowd initiates for the joint account himself
and to solicited orders that other joint account
participants initiate for the joint account. In this
regard, the Exchange notes that certain exception
procedures already exist that relate to instances
where one participant in a joint account is present
in the trading crowd while another participant is
trading in-person or by order. For example, in the
case of certain index options and options on ETFs,
joint accounts may be simultaneously represented
in a crowd by participants trading in-person for the
joint account. In addition, joint account participants
who are not trading in-person in a crowd may enter
orders for the joint account with Floor Brokers even
if other participants are trading the same joint
account in-person. See Regulatory Circular RG01–
128. In the case of equity options, currently a joint
account may be simultaneously represented in a
trading crowd only by participants trading inperson and orders for a joint account may not be
entered in a crowd where a participant of the joint
account is trading in-person for the joint account.
However, if no participant is trading in-person for
the joint account, orders may be entered via Floor
Broker so long as the same option series is not
represented by more than one Floor Broker. In
addition, when a Market-Maker is trading in a
crowd for his individual account or acting as a
Floor Broker for accounts unrelated to his joint
account, another participant of the joint account
may either trade in-person for the joint account or
enter orders for the joint account with other Floor
Brokers. See Regulatory Circular RG01–60.
12 The procedures in proposed Interpretation and
Policy .03 to CBOE Rule 6.55 relate only to the
‘‘solicited order’’ in a solicitation transaction.
Instances where a Market-Maker order is the
‘‘original order’’ in a solicitation transaction may
qualify for another one of the exception procedures
described in Interpretations and Policies .01, .02,
and proposed .04 of CBOE Rule 6.55.
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enter or be present in a trading crowd
in which a Floor Broker is present who
holds either a solicited order on behalf
of the Market-Maker’s individual or
joint account or a solicited order
initiated by the Market-Maker for an
account in which he has an interest,
provided that the Market-Maker advises
the Floor Broker of the Market-Maker’s
intention to enter or be present in the
trading crowd. The Market-Maker must
also refrain from trading in-person on
the same trade as the original order. In
the case of joint accounts, the proposal
also provides that it is the responsibility
of the Market-Maker to ascertain
whether solicited orders for his joint
account have been entered with a Floor
Broker in a trading crowd prior to the
Market-Maker trading for the joint
account in-person.
In light of the new procedures in
proposed Interpretation and Policy .03
to CBOE Rule 6.55, the Exchange is
proposing a corresponding amendment
to eliminate Interpretation and Policy
.07 to CBOE Rule 6.74.13 A
corresponding amendment to the text of
CBOE Rule 6.9 is not necessary.
On the one hand, the Exchange
believes these procedures will provide
members with additional flexibility in
determining how to handle crossing
transactions. The Exchange also believes
these changes will ensure that a MarketMaker in the trading crowd is not
disadvantaged when participating in
solicited trades compared to other
solicited persons that are not present in
the trading crowd, and will thus
promote liquidity in the marketplace by
encouraging the Market-Maker to be
present in the crowd. This is because a
Market-Maker will now be permitted to
have a solicited order represented by a
Floor Broker pursuant to CBOE Rule
6.74(d) while he is present in the
trading crowd if the required procedures
are followed.14 This would be
permissible whether the solicited order
is initiated by the Market-Maker himself
(in the case of an individual account or
an account in which he has an interest)
or the solicited order is initiated by
another joint account participant (in the
case of the Market-Maker’s joint
account(s)).
On the other hand, the changes are
also consistent with the purpose of
CBOE Rule 6.55 because the new
procedures would only allow a MarketMaker present in the trading crowd to
have a solicited order represented by a
13 See
supra note 9.
14 By comparison, unless another exception
procedure were applicable, the existing procedures
would require that the Market-Maker not be present
in the trading crowd to participate in a CBOE Rule
6.74(d) crossing transaction.
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Floor Broker if the requirements of
CBOE Rules 6.9 or 6.74, as applicable,
are satisfied and the Market-Maker
refrains from trading in-person on the
same trade as the original order. As a
result, the new procedures will continue
to ensure that a Market-Maker
participating in a solicitation (whether
in-person or by order) is not
disproportionately represented in the
trading crowd. For the foregoing
reasons, the Exchange believes the
proposed changes are reasonable and
appropriate, and should help CBOE
maintain a fair and orderly market.
As for the second aspect of this
proposal, the Exchange is also seeking
to adopt procedures for an exception
pertaining to the handling of orders
initiated by a Market-Maker. In
particular, these new procedures will
provide that a Market-Maker may
permissibly enter or be present in a
trading crowd in which a Floor Broker
is present who holds an order on behalf
of the Market-Maker’s individual
account or an order initiated by the
Market-Maker for an account in which
the Market-Maker has an interest
provided that the Market-Maker advises
the Floor Broker of the Market-Maker’s
intention to enter or be present. The
Market-Maker must also refrain from
trading in-person on the same trade as
the order being represented by the Floor
Broker.
In comparison to proposed
Interpretation and Policy .03 to CBOE
Rule 6.55 (which pertains to solicited
orders on behalf of a Market-Maker’s
individual or joint account, or solicited
orders initiated by a Market-Maker for
an account in which he has an interest),
the procedures in proposed
Interpretation and Policy .04 to CBOE
Rule 6.55 will be applicable only for
orders that the Market-Maker himself
has placed with the Floor Broker. These
procedures will not apply to instances
where a joint account participant other
than the Market-Maker present in the
crowd is initiating an order. Rather,
other joint account participants’ activity
via Floor Broker will continue to be
subject to CBOE Rule 6.55 and the
exception procedures as provided in
Interpretations and Policies .02 and
proposed .03 thereto.
As with the exception procedures for
solicited orders, these general
procedures for handling orders from a
Market-Maker that is then in the trading
crowd will provide members with
additional flexibility in executing
orders. By requiring that a MarketMaker’s presence be made known to the
Floor Broker and by prohibiting the
Market-Maker from trading in-person in
the same trade as the order
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
70813
represented,15 these procedures are
designed to prevent a Market-Maker
from being disproportionately
represented in the trading crowd and
have no detrimental effect on other
market participants. As such, the
Exchange believes that these changes
are consistent with the purpose of CBOE
Rule 6.55.
Finally, the Exchange is proposing to
make various revisions to the text of
CBOE Rule 6.55 to remove outdated
references to manual processes. In
particular, the Exchange is proposing to
delete references in Interpretation and
Policy .01 to CBOE Rule 6.55 relating to
time stamping and written notations on
order tickets. Due to technological
advancements, these processes are now
generally done electronically. In light of
these changes, the Exchange is
proposing to update this text by
consolidating and simplifying these
procedures. Whereas the procedures
currently describe three different ways
for a Market-Maker entering a trading
crowd to manually cancel an order
pending with a Floor Broker, the revised
procedures under the proposal simply
provide that a Market-Maker entering a
crowd may either request that the Floor
Broker cancel his order or the MarketMaker can cancel the order himself. If
the Market-Maker wishes to re-enter the
order upon his exit from the crowd, a
new order must be entered.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with Section
6(b) of the Act,16 in general, and furthers
the objectives of Section 6(b)(5) of the
Act,17 in particular, in that it should
promote just and equitable principles of
trade, serve to remove impediments to,
and perfect the mechanism of, a free and
open market and a national market
system, and protect investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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.
15 Because the Market-Maker would initiate such
orders himself, he would know at all times whether
a Floor Broker is concurrently representing an order
on his behalf.
16 15 U.S.C. 78f(b).
17 15 U.S.C. 78f(b)(5).
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70814
Federal Register / Vol. 71, No. 234 / Wednesday, December 6, 2006 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will:
(A) by order approve such proposed
rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of the filing also will be
available for inspection and copying at
the principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–CBOE–2005–111 and
should be submitted on or before
December 27, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.18
Nancy M. Morris,
Secretary.
[FR Doc. E6–20621 Filed 12–5–06; 8:45 am]
BILLING CODE 8011–01–P
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
PWALKER on PRODPC60 with NOTICES
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CBOE–2005–111 on the
subject line.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54831; File No. SR–CBOE–
2006–100]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to the
Appointment of CBSX DPMs
November 29, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
Paper Comments
notice is hereby given that on November
• Send paper comments in triplicate
27, 2006, the Chicago Board Options
to Nancy M. Morris, Secretary,
Exchange, Incorporated (‘‘Exchange’’ or
Securities and Exchange Commission,
‘‘CBOE’’) filed with the Securities and
100 F Street, NE, Washington, DC
Exchange Commission (‘‘Commission’’)
20549–1090.
the proposed rule change as described
All submissions should refer to File
in Items I and II below, which Items
Number SR–CBOE–2005–111. This file
have been substantially prepared by the
number should be included on the
Exchange. The Exchange has designated
subject line if e-mail is used. To help the this proposal as non-controversial under
Commission process and review your
Section 19(b)(3)(A)(iii) of the Act 3 and
comments more efficiently, please use
Rule 19b–4(f)(6) thereunder,4 which
only one method. The Commission will renders the proposed rule change
post all comments on the Commission’s effective upon filing with the
Internet Web site (https://www.sec.gov/
Commission. The Commission is
rules/sro.shtml). Copies of the
publishing this notice to solicit
submission, all subsequent
comments on the proposed rule change
amendments, all written statements
from interested persons.
with respect to the proposed rule
change that are filed with the
18 17 CFR 200.30–3(a)(12).
Commission, and all written
1 15 U.S.C. 78s(b)(1).
communications relating to the
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
proposed rule change between the
4 17 CFR 240.19b–4(f)(6).
Commission and any person, other than
VerDate Aug<31>2005
16:03 Dec 05, 2006
Jkt 211001
PO 00000
Frm 00081
Fmt 4703
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE proposes to adopt rules to
appoint CBOE Stock Exchange DPMs.
The text of the proposed rule change is
available on the Exchange’s Web site
(https://www.cboe.com), at the
Exchange’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In September 2006, the Commission
approved Exchange Chapters 50–55
governing the trading of non-option
securities on the Exchange.5 The
Exchange, via a separate rule filing, will
be proposing to further modify Chapters
50–55 in connection with the
establishment of the CBOE Stock
Exchange (‘‘CBSX’’). CBSX will be a
facility of the Exchange and will serve
as the Exchange’s vehicle for trading
non-option securities. CBSX is a
separate legal entity (a Delaware
Limited Liability Company) that is
owned by the Exchange and several
strategic partners. The Exchange
separately has submitted a rule filing
governing the allocation of securities to
CBSX DPMs,6 and will shortly submit a
rule filing proposing to establish CBSX
as a facility of the Exchange.
The purpose of this filing is to adopt
rules that will allow for the
appointment of CBSX DPMs. Any such
appointments would be contingent on
Commission approval of rules governing
CBSX DPM trading procedures and
obligations. The Exchange hopes to
5 See Securities Exchange Act Release No. 54422
(September 11, 2006), 71 FR 54537 (September 15,
2006) (‘‘STOC Approval Order’’) (approving SR–
CBOE–2004–21).
6 See Securities Exchange Act Release No. 54792
(November 20, 2006), 71 FR 68659 (November 27,
2006) (notice of filing of SR–CBOE–2006–96).
E:\FR\FM\06DEN1.SGM
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]]>Agencies
[Federal Register Volume 71, Number 234 (Wednesday, December 6, 2006)]
[Notices]
[Pages 70810-70814]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-20621]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54823; File No. SR-CBOE-2005-111]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change and Amendment
No. 1 Thereto Relating to Multiple Representation Exception Procedures
November 28, 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 December 16, 2005, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the CBOE.
On October 17, 2006, the Exchange filed Amendment No. 1 to the proposed
rule change.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule
[[Page 70811]]
change, as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaces and supersedes the original filing
in its entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to amend CBOE Rule 6.55, ``Multiple Representation
Prohibited,'' to establish certain exceptions to the rule requirements
prohibiting multiple representation by Market-Makers and to update
other procedures in the rule that have become outdated. The Exchange
also proposes to make a corresponding change to CBOE Rule 6.74,
``Crossing Orders.'' The text of the proposed rule change appears
below. Additions are italicized; deletions are [bracketed].
Chicago Board Options Exchange, Incorporated
Rules
Rule 6.55 Multiple Representation Prohibited
(a) No member, for any account in which the member has an interest
or on behalf of a customer, shall maintain with more than one broker
orders for the purchase or sale of the same option contract or other
security, or the same combination of option contracts or other
securities, with the knowledge that such orders are for the account of
the same principal.
(b) Except in accordance with procedures established by the
appropriate Procedure Committee or with such Committee's permission in
individual cases, no Market-Maker shall enter or be present in a
trading crowd while a Floor Broker present in the trading crowd is
holding an order on behalf of the Market-Maker's individual account or
an order initiated by the Market-Maker for an account in which the
Market-Maker has an interest.
* * * Interpretations and Policies:
.01 A Market-Maker may permissibly enter a trading crowd in which a
Floor Broker is present who holds an order on behalf of the Market-
Maker's individual account or an order initiated by the Market-Maker
for an account in which the Market-Maker has an interest if one of the
following [three] procedures is followed:
(a) The Market-Maker makes the Floor Broker aware of the Market-
Maker's intention to enter the trading crowd and the Floor Broker
cancels the order[time stamps the order ticket for the order and writes
the notation ``Cancel'' or ``CXL'' next to the time stamp]. If the
Market-Maker wishes to re-enter the order upon the Market-Maker's exit
from the trading crowd, a new order must be entered [Floor Broker must
at that time again time stamp the order ticket and write the notation
``Reentry'' or ``RNTRY'' next to such subsequent time stamp].
(b) The Market-Maker cancels the order [by giving the Floor Broker
a written cancellation of the order which is time-stamped by the
Market-Maker immediately] prior to [its transmission to the Floor
Broker]the Market-Maker's entry into the trading crowd. If the Market-
Maker wishes to re-enter the order upon the Market-Maker's exit from
the trading crowd, a new order [ticket] must be [used]entered.
[(c) The Market-Maker cancels the order by taking the order ticket
for the order back from the Floor Broker, provided that the Market-
Maker allows the Floor Broker to retain a copy of the order ticket
(which copy the Floor Broker must time-stamp at the time of
cancellation and retain for the Floor Broker's records). If the Market-
Maker wishes to re-enter the order upon the Market-Maker's exit from
the trading crowd, a new order ticket must be used.].02 Exchange
regulatory circulars concerning joint accounts should be consulted in
connection with procedures governing the simultaneous presence in a
trading crowd of participants in and orders for the same joint account.
.03 Subject to the requirements of Rule 6.9 or 6.74, as applicable,
a Market-Maker may permissibly enter or be present in a trading crowd
in which a Floor Broker is present who holds (a) a solicited order on
behalf of the Market-Maker's individual or joint account or (b) a
solicited order initiated by the Market-Maker for an account in which
the Market-Maker has an interest, provided that the Market-Maker makes
the Floor Broker aware of the Market-Maker's intention to enter or to
be present in the trading crowd and the Market-Maker refrains from
trading in-person on the same trade as the original order. It is the
responsibility of the Market-Maker utilizing these procedures to
ascertain whether solicited orders for the Market-Maker's joint account
have been entered in a trading crowd prior to the Market-Maker trading
the joint account in-person.
.04 A Market-Maker may permissibly enter or be present in a trading
crowd in which a Floor Broker is present who holds an order on behalf
of the Market-Maker's individual account or an order initiated by the
Market-Maker for an account in which the Market-Maker has an interest,
provided that the Market-Maker makes the Floor Broker aware of the
Market-Maker's intention to enter or to be present in the trading crowd
and the Market-Maker refrains from trading in-person on the same trade
as the order being represented by the Floor Broker.
* * * * *
Rule 6.74 ``Crossing'' Orders
(a)-(f) No change.
* * * Interpretations and Policies:
.01--.06 No change.
.07 [A Floor Broker, pursuant to paragraph (d) of this Rule, may
not cross an order that he is holding with an order from a market-maker
that is then in the trading crowd.]Reserved.
.08 No change.
* * * * *
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 CBOE included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The CBOE has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Currently, CBOE Rule 6.55 provides in relevant part that, except in
accordance with procedures established by the appropriate Procedure
Committee or with such Procedure Committee's permission in individual
cases, no Market-Maker shall enter or be present in a trading crowd
while a Floor Broker present in the trading crowd is holding an order
on behalf of the Market-Maker's individual account or an order
initiated by the Market-Maker for an account in which the Market-Maker
has an interest. As discussed below, this principle against multiple
representation of a Market-Maker account has also been extended to
cover joint account activity in certain circumstances.
Exceptions to the multiple presentation prohibition are noted in
the Interpretations and Policies to CBOE Rule 6.55. For example,
Interpretation and Policy .01 provides procedures under which a Market-
Maker may enter a trading crowd in which a Floor Broker is present who
holds an order on behalf of the Market-Maker's individual account or an
order initiated by the Market-Maker for an account in which
[[Page 70812]]
the Market-Maker has an interest.\4\ In addition, Interpretation and
Policy .02 advises CBOE members to consult Exchange regulatory
circulars for procedures governing the simultaneous presence in a
trading crowd of participants in and orders for the same joint
account.\5\ CBOE Rule 6.55, and the exceptions thereto, are designed to
prevent persons such as Market-Makers from being disproportionately
represented in the trading crowd.\6\
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\4\ These procedures generally require the cancellation of the
order resting with the Floor Broker upon the Market-Maker's entry
into the trading crowd and allow the Market-Maker to re-enter the
order with the Floor Broker upon the Market-Maker's exit from the
crowd.
\5\ Exchange Regulatory Circulars RG01-60 and RG01-128 set forth
Exchange procedures and requirements for trading in joint accounts
in equity options, index options, and options on exchange-traded
funds (``ETFs''). See Securities Exchange Act Release No. 44152
(April 5, 2001), 66 FR 19262 (April 13, 2001) (order approving
Regulatory Circular RG01-60 governing joint account trading in
equity options) and Securities Exchange Act Release No. 44433 (June
15, 2001), 66 FR 33589 (June 22, 2001) (order approving Regulatory
Circular RG01-128 governing joint account trading in certain index
options and options on ETFs).
\6\ An account using multiple orders or quotes could be
represented disproportionately because, when an execution is divided
among competing brokers, an account using multiple orders or quotes
would receive a larger share of the execution than an account using
a single order or quote.
---------------------------------------------------------------------------
The Exchange is now proposing to adopt additional exception
procedures for the handling of solicited orders, as well as for the
handling of a Market-Maker's orders generally. These new exception
procedures are intended to be in addition to, and not a limitation of,
the existing exception procedures identified in CBOE Rule 6.55, its
Interpretations and Policies, and related regulatory circulars
concerning joint accounts. In addition, the Exchange is proposing to
amend the text of Interpretation and Policy .01 to CBOE Rule 6.55,
which has become outdated.
First, with respect to solicitations, under the Exchange's rules, a
member representing an order (the ``original order'') may solicit
customers, non-member broker-dealers, members and member firms, and
Market-Makers to transact in-person or by order with the original
order. When the solicitation and crossing procedures in CBOE Rules 6.9,
``Solicited Transactions,'' \7\ and 6.74, ``Crossing Orders'',\8\ as
applicable, are read in conjunction with the current multiple
representation prohibitions of CBOE Rule 6.55, the result is that a
Market-Maker present in the trading crowd is generally able to
represent a solicited order in-person for his individual account or for
an account in which he has an interest (including a joint account).
However, unless otherwise excepted, a Market-Maker is generally
prohibited from being present in the trading crowd at the same time a
Floor Broker is representing (i) a solicited order on behalf of the
Market-Maker's individual account or a joint account in which the
Market-Maker is a participant while the Market-Maker is trading on
behalf of that account, or (ii) a solicited order initiated by the
Market-Maker for an account in which he has an interest, and is
crossing that solicited order pursuant to CBOE Rule 6.74(d).\9\
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\7\ An original order and the solicited person or order are
subject to the procedures and priority provisions of CBOE Rule 6.9,
which generally provide that a solicited person or order gains
priority over the trading crowd only if the terms of the original
order are disclosed to the crowd prior to solicitation, the original
order is continuously represented, and the solicited person or order
betters the market and matches the original order bid or offer. If
these requirements are not satisfied, non-solicited Market-Makers
and Floor Brokers with non-solicited discretionary orders in the
trading crowd have priority over the solicited person or order.
\8\ CBOE Rule 6.74 describes the manner in which a Floor Broker
may cross orders, including solicitation orders. Crossing procedures
in the Rule provide the solicited person or order generally with
priority over all other parties (other than public customer orders)
for a certain percentage of contracts of the original order. For
example, paragraph (d) of CBOE Rule 6.74, which supercedes the
priority provisions of paragraph (d) of CBOE Rule 6.9, provides
procedures pursuant to which a Floor Broker is entitled to cross 40%
(or 20%, as applicable) of an original order with a solicited order
(after public customer orders are satisfied).
\9\ Interpretation and Policy .07 to CBOE Rule 6.74 provides
that a Floor Broker, pursuant to paragraph (d), may not cross an
order he is holding with an order from a Market-Maker that is then
present in the trading crowd. The clarification was added to CBOE
Rule 6.74 because this type of multiple representation had generally
been prohibited by CBOE Rule 6.55(b). See Securities Exchange Act
Release No. 44394 (June 6, 2001), 66 FR 31726 (June 12, 2001) (SR-
CBOE-00-43) (order approving a rule change that, among other things,
adopted Interpretation and Policy .07 to CBOE Rule 6.74).
Conversely, a Floor Broker can cross an order he is holding with an
order from a Market-Maker that is not present in the trading crowd.
As discussed below, CBOE is proposing to eliminate the
restriction in CBOE Rule 6.74, Interpretation and Policy .07 in
light of the revisions being proposed to CBOE Rule 6.55. In this
regard, the Exchange also notes that an exception to this
prohibition currently applies in the case of joint accounts
involving certain broad-based index options and options on ETFs. In
those classes, joint account participants who are not trading in-
person in the crowd may enter orders for the joint account with
Floor Brokers even if other participants are trading in their
individual accounts or the same joint account in-person. In such
instances, there are no restrictions on the other joint account
participants' ability to be present in the trading crowd or on the
number of joint account participants that may participate on the
same trade. Additionally, for equity options classes, it is
currently permissible for a joint account participant to be trading
in a crowd for his individual account or acting as a Floor Broker
for accounts unrelated to his joint account while another
participant of the joint account enters a solicited order for the
joint account with other Floor Brokers. See Regulatory Circulars
RG01-60 and RG01-128.
---------------------------------------------------------------------------
The Exchange believes that, if certain procedures are followed to
ensure that a Market-Maker present in the trading crowd is not
disproportionately represented, it is not necessary to limit crossing
transactions in this manner. Therefore, the Exchange is proposing to
adopt Interpretation and Policy .03 to CBOE Rule 6.55 to specify
additional procedures that would permit representation of solicited
orders when a Market-Maker is present in the trading crowd. These
procedures will be applicable for solicited orders represented by a
Floor Broker while the Market-Maker is present in the crowd in
essentially three scenarios: first, instances where the solicited order
is for the Market-Maker's individual account; \10\ second, instances
where the solicited order is for the Market-Maker's joint account,
whether initiated by the Market-Maker or another joint account
participant; \11\ and, third, instances where the solicited order is
initiated by a Market-Maker for an account in which he has an
interest.\12\
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\10\ Only a Market-Maker may initiate an order for his
individual account, either in-person or by order with a Floor
Broker.
\11\ Depending on the circumstance, any joint account
participant can initiate an order for a joint account, either in-
person or by order with a Floor Broker. The new procedure would
therefore apply to solicited orders that the Market-Maker in the
trading crowd initiates for the joint account himself and to
solicited orders that other joint account participants initiate for
the joint account. In this regard, the Exchange notes that certain
exception procedures already exist that relate to instances where
one participant in a joint account is present in the trading crowd
while another participant is trading in-person or by order. For
example, in the case of certain index options and options on ETFs,
joint accounts may be simultaneously represented in a crowd by
participants trading in-person for the joint account. In addition,
joint account participants who are not trading in-person in a crowd
may enter orders for the joint account with Floor Brokers even if
other participants are trading the same joint account in-person. See
Regulatory Circular RG01-128. In the case of equity options,
currently a joint account may be simultaneously represented in a
trading crowd only by participants trading in-person and orders for
a joint account may not be entered in a crowd where a participant of
the joint account is trading in-person for the joint account.
However, if no participant is trading in-person for the joint
account, orders may be entered via Floor Broker so long as the same
option series is not represented by more than one Floor Broker. In
addition, when a Market-Maker is trading in a crowd for his
individual account or acting as a Floor Broker for accounts
unrelated to his joint account, another participant of the joint
account may either trade in-person for the joint account or enter
orders for the joint account with other Floor Brokers. See
Regulatory Circular RG01-60.
\12\ The procedures in proposed Interpretation and Policy .03 to
CBOE Rule 6.55 relate only to the ``solicited order'' in a
solicitation transaction. Instances where a Market-Maker order is
the ``original order'' in a solicitation transaction may qualify for
another one of the exception procedures described in Interpretations
and Policies .01, .02, and proposed .04 of CBOE Rule 6.55.
---------------------------------------------------------------------------
The new procedures would provide that a Market-Maker may
permissibly
[[Page 70813]]
enter or be present in a trading crowd in which a Floor Broker is
present who holds either a solicited order on behalf of the Market-
Maker's individual or joint account or a solicited order initiated by
the Market-Maker for an account in which he has an interest, provided
that the Market-Maker advises the Floor Broker of the Market-Maker's
intention to enter or be present in the trading crowd. The Market-Maker
must also refrain from trading in-person on the same trade as the
original order. In the case of joint accounts, the proposal also
provides that it is the responsibility of the Market-Maker to ascertain
whether solicited orders for his joint account have been entered with a
Floor Broker in a trading crowd prior to the Market-Maker trading for
the joint account in-person.
In light of the new procedures in proposed Interpretation and
Policy .03 to CBOE Rule 6.55, the Exchange is proposing a corresponding
amendment to eliminate Interpretation and Policy .07 to CBOE Rule
6.74.\13\ A corresponding amendment to the text of CBOE Rule 6.9 is not
necessary.
---------------------------------------------------------------------------
\13\ See supra note 9.
---------------------------------------------------------------------------
On the one hand, the Exchange believes these procedures will
provide members with additional flexibility in determining how to
handle crossing transactions. The Exchange also believes these changes
will ensure that a Market-Maker in the trading crowd is not
disadvantaged when participating in solicited trades compared to other
solicited persons that are not present in the trading crowd, and will
thus promote liquidity in the marketplace by encouraging the Market-
Maker to be present in the crowd. This is because a Market-Maker will
now be permitted to have a solicited order represented by a Floor
Broker pursuant to CBOE Rule 6.74(d) while he is present in the trading
crowd if the required procedures are followed.\14\ This would be
permissible whether the solicited order is initiated by the Market-
Maker himself (in the case of an individual account or an account in
which he has an interest) or the solicited order is initiated by
another joint account participant (in the case of the Market-Maker's
joint account(s)).
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\14\ By comparison, unless another exception procedure were
applicable, the existing procedures would require that the Market-
Maker not be present in the trading crowd to participate in a CBOE
Rule 6.74(d) crossing transaction.
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On the other hand, the changes are also consistent with the purpose
of CBOE Rule 6.55 because the new procedures would only allow a Market-
Maker present in the trading crowd to have a solicited order
represented by a Floor Broker if the requirements of CBOE Rules 6.9 or
6.74, as applicable, are satisfied and the Market-Maker refrains from
trading in-person on the same trade as the original order. As a result,
the new procedures will continue to ensure that a Market-Maker
participating in a solicitation (whether in-person or by order) is not
disproportionately represented in the trading crowd. For the foregoing
reasons, the Exchange believes the proposed changes are reasonable and
appropriate, and should help CBOE maintain a fair and orderly market.
As for the second aspect of this proposal, the Exchange is also
seeking to adopt procedures for an exception pertaining to the handling
of orders initiated by a Market-Maker. In particular, these new
procedures will provide that a Market-Maker may permissibly enter or be
present in a trading crowd in which a Floor Broker is present who holds
an order on behalf of the Market-Maker's individual account or an order
initiated by the Market-Maker for an account in which the Market-Maker
has an interest provided that the Market-Maker advises the Floor Broker
of the Market-Maker's intention to enter or be present. The Market-
Maker must also refrain from trading in-person on the same trade as the
order being represented by the Floor Broker.
In comparison to proposed Interpretation and Policy .03 to CBOE
Rule 6.55 (which pertains to solicited orders on behalf of a Market-
Maker's individual or joint account, or solicited orders initiated by a
Market-Maker for an account in which he has an interest), the
procedures in proposed Interpretation and Policy .04 to CBOE Rule 6.55
will be applicable only for orders that the Market-Maker himself has
placed with the Floor Broker. These procedures will not apply to
instances where a joint account participant other than the Market-Maker
present in the crowd is initiating an order. Rather, other joint
account participants' activity via Floor Broker will continue to be
subject to CBOE Rule 6.55 and the exception procedures as provided in
Interpretations and Policies .02 and proposed .03 thereto.
As with the exception procedures for solicited orders, these
general procedures for handling orders from a Market-Maker that is then
in the trading crowd will provide members with additional flexibility
in executing orders. By requiring that a Market-Maker's presence be
made known to the Floor Broker and by prohibiting the Market-Maker from
trading in-person in the same trade as the order represented,\15\ these
procedures are designed to prevent a Market-Maker from being
disproportionately represented in the trading crowd and have no
detrimental effect on other market participants. As such, the Exchange
believes that these changes are consistent with the purpose of CBOE
Rule 6.55.
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\15\ Because the Market-Maker would initiate such orders
himself, he would know at all times whether a Floor Broker is
concurrently representing an order on his behalf.
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Finally, the Exchange is proposing to make various revisions to the
text of CBOE Rule 6.55 to remove outdated references to manual
processes. In particular, the Exchange is proposing to delete
references in Interpretation and Policy .01 to CBOE Rule 6.55 relating
to time stamping and written notations on order tickets. Due to
technological advancements, these processes are now generally done
electronically. In light of these changes, the Exchange is proposing to
update this text by consolidating and simplifying these procedures.
Whereas the procedures currently describe three different ways for a
Market-Maker entering a trading crowd to manually cancel an order
pending with a Floor Broker, the revised procedures under the proposal
simply provide that a Market-Maker entering a crowd may either request
that the Floor Broker cancel his order or the Market-Maker can cancel
the order himself. If the Market-Maker wishes to re-enter the order
upon his exit from the crowd, a new order must be entered.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act,\16\ in general, and furthers the objectives of
Section 6(b)(5) of the Act,\17\ in particular, in that it should
promote just and equitable principles of trade, serve to remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system, and protect investors and the public
interest.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
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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.
[[Page 70814]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) by order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-CBOE-2005-111 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 20549-1090.
All submissions should refer to File Number SR-CBOE-2005-111. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-CBOE-2005-111 and should be submitted on or before
December 27, 2006.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
Nancy M. Morris,
Secretary.
[FR Doc. E6-20621 Filed 12-5-06; 8:45 am]
BILLING CODE 8011-01-P
