Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change To Reduce Certain Order Exposure Times From Three Seconds to One Second, 31167-31169 [E8-12030]

Download as PDF Federal Register / Vol. 73, No. 105 / Friday, May 30, 2008 / Notices Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in the furtherance of the purposes of the Act. IV. Solicitation of Comments For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 J. Lynn Taylor, Assistant Secretary. [FR Doc. E8–12034 Filed 5–29–08; 8:45 am] Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–BSE–2008–30 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57849; File No. SR–CBOE– 2008–16] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change To Reduce Certain Order Exposure Times From Three Seconds to One Second May 22, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 • Send paper comments in triplicate notice is hereby given that on May 16, to Nancy M. Morris, Secretary, 2008, The Chicago Board Options Securities and Exchange Commission, Exchange, Incorporated (‘‘CBOE’’ or 100 F Street, NE., Washington, DC ‘‘Exchange’’) filed with the Securities 20549–1090. and Exchange Commission All submissions should refer to File (‘‘Commission’’) the proposed rule Number SR–BSE–2008–30. This file change as described in Items I, II, and number should be included on the III below, which Items have been subject line if e-mail is used. To help the substantially prepared by CBOE. The Commission process and review your Commission is publishing this notice to comments more efficiently, please use solicit comments on the proposed rule only one method. The Commission will change from interested persons. post all comments on the Commission’s Internet Web site (http://www.sec.gov/ I. Self-Regulatory Organization’s rules/sro.shtml). Copies of the Statement of the Terms of Substance of submission, all subsequent the Proposed Rule Change amendments, all written statements The Exchange proposes to reduce the with respect to the proposed rule order handling and exposure periods change that are filed with the contained in certain of its rules from Commission, and all written three seconds to one second. The text of communications relating to the the proposed rule change is available on proposed rule change between the the Exchange’s Web site (http:// Commission and any person, other than www.cboe.org/Legal), at CBOE’s those that may be withheld from the principal office, and at the public in accordance with the Commission’s Public Reference Room. provisions of 5 U.S.C. 552, will be II. Self-Regulatory Organization’s available for inspection and copying in Statement of the Purpose of, and the Commission’s Public Reference Statutory Basis for, the Proposed Rule Room, 100 F Street, NE., Washington, Change DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. In its filing with the Commission, Copies of such filing also will be CBOE included statements concerning available for inspection and copying at the purpose of, and basis for, the the principal office of the Exchange. All proposed rule change and discussed any comments received will be posted comments it received on the proposed without change; the Commission does rule change. The text of these statements not edit personal identifying may be examined at the places specified information from submissions. You in Item IV below. CBOE has prepared should submit only information that summaries, set forth in Sections A, B, you wish to make available publicly. All submissions should refer to File 14 17 CFR 200.30–3(a)(12). Number SR–BSE–2008–30 and should 1 15 U.S.C. 78s(b)(1). be submitted on or before June 20, 2008. 2 17 CFR 240.19b–4. sroberts on PROD1PC70 with NOTICES Paper Comments 16:52 May 29, 2008 Jkt 214001 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 BILLING CODE 8010–01–P 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: VerDate Aug<31>2005 31167 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 1. Purpose The purpose of the proposed rule change is to reduce the order handling and exposure periods contained in Rules 6.45A, Priority and Allocation of Equity Option Trades on the CBOE Hybrid System, 6.45B, Priority and Allocation of Trades in Index Options and Options on ETFs on the CBOE Hybrid System, 6.74A, Automated Improvement Mechanism (‘‘AIM’’), and 6.74B, Solicitation Auction Mechanism, from three seconds to one second. Rules 6.45A and 6.45B provide that an order entry firm may not execute an order it represents as agent with a facilitation or solicited order (referred to herein as ‘‘crossing orders’’) using the Hybrid Trading System (‘‘Hybrid’’) unless it first complies with the threesecond exposure requirement. Specifically, order entry firms may not execute a facilitation cross unless: (i) The agency order is first exposed on Hybrid for at least three seconds; (ii) the order entry firm has been bidding or offering for at least three seconds prior to receiving the agency order that is executable against such bid or offer; or (iii) the order entry firm proceeds in accordance with the floor-based open outcry crossing rules contained in CBOE Rule 6.74, Crossing Orders. Similarly, order entry firms may not execute an order they represent as agent against orders solicited from members and nonmember broker-dealers unless the agency order is first exposed on Hybrid for at least three seconds. During this three-second exposure period for crossing orders, other members may enter orders to trade against the exposed order. Under the proposal, these exposure periods would be reduced to one second.3 Rule 6.74A contains the requirements applicable to the execution of orders using AIM. AIM allows members to enter cross transactions on Hybrid. Currently, orders entered into AIM are exposed for a random time period determined by the system that is not less than three seconds and not more than five seconds, giving an opportunity 3 For Hybrid 3.0 classes, the exposure period is established on a class-by-class basis, provided the minimum exposure time must be at least three seconds and shall not exceed 30 seconds. See CBOE Rule 6.45B.03. The Exchange is proposing to reduce the minimum time from three seconds to one second. The 30-second parameter will remain unchanged. E:\FR\FM\30MYN1.SGM 30MYN1 31168 Federal Register / Vol. 73, No. 105 / Friday, May 30, 2008 / Notices sroberts on PROD1PC70 with NOTICES for additional trading interest to be entered before the orders are automatically executed. Under the proposal, the random exposure period for AIM would be reduced to one second. Rule 6.74B contains the requirements applicable to the execution of orders using the Solicitation Auction Mechanism (the ‘‘SAM Auction’’). The SAM Auction allows members to enter larger-sized cross transactions on Hybrid (i.e., orders of 500 contracts or more). Orders entered into the SAM Auction are currently exposed for a three second period, giving an opportunity for additional trading interest to be entered before the orders are automatically executed. Under the proposal, the exposure period for the SAM Auction would be reduced to one second. The Exchange notes that in adopting the various three-second order handling and exposure periods, it recognized that three seconds would not be long enough to allow human interaction with the orders (or RFQs, as applicable). Rather, market participants had become sufficiently automated that they could react to these orders electronically. In this context, CBOE believes it would be in all market participants’ best interest to minimize the exposure period to a time frame that continues to allow adequate time for market participants to electronically respond, as both the order being exposed and the participants responding are subject to market risk during the exposure period. In this respect, the Exchange states that its experience with the three-second exposure time period indicates that one second would provide an adequate response time.4 Most members wait 4 The Exchange has numerous market participants that have the capability and do opt to respond within a one-second exposure period on its Hybrid trading platform. In this regard, the Exchange notes that it has other Hybrid electronic exposure mechanisms for which timers set at or below one second provide for an adequate response time. For example, the exposure and allocation timers for the Exchange’s Hybrid Agency Liaison (‘‘HAL’’) mechanism are currently both set at 0.300 seconds, and numerous market participants can and do opt to respond to HAL exposure messages within this time frame. See CBOE Rule 6.14. HAL is a feature that provides automated order handling in designated classes for qualifying electronic orders that are not automatically executed. Qualifying orders that are received by HAL are electronically exposed immediately upon receipt for an exposure period of 0.300 seconds. If during the exposure period a Market-Maker or Qualifying Member commits to trade any portion of the order, the exposure period ends and the allocation period of 0.300 seconds will begin. At the conclusion of the allocation period the order is executed or, if no responses are received, processed in accordance with the procedures set forth in Rule 6.14. VerDate Aug<31>2005 16:52 May 29, 2008 Jkt 214001 until the end of the last second of the three second period before responding to exposed orders in order to minimize market risk. Accordingly, the Exchange does not believe it is necessary or beneficial to the orders being exposed to continue to subject them to market risk for a full three seconds. When approving the existing threesecond order handling and exposure periods, the Commission concluded that, in the electronic environment of Hybrid, reducing the exposure period to three seconds could facilitate the prompt execution of orders while providing participants in Hybrid with an adequate opportunity to compete for exposed bids and offers.5 Continuing on that same logic, CBOE believes that reducing its order handling and exposure periods from three seconds to one second will benefit market participants. Since members react to these orders electronically, and generally only opt to respond at the tail end of the three-second period in order to minimize market risk, CBOE believes that reducing the time periods to one second will continue to provide CBOE members with sufficient time to ensure effective interaction with orders.6 At the same time, CBOE believes that reducing the time periods to one second will allow it to provide investors and other market participants with more timely The Exchange believes that its experience with the HAL mechanism supports its view that one second is sufficient time for market participants to respond to CBOE’s AIM and SAM Auction mechanisms, which operate on the Hybrid trading system and employ the same type of mechanical messaging as the HAL mechanism. The Exchange also believes its experience with the HAL mechanism supports its view that one second is sufficient time for market participants to have an opportunity to enter orders to trade against an order exposed in the book before the order entry firm is permitted to enter a contra-side facilitation or solicited order. This is because market participants receive mechanically messaged information about book updates, and are able and do opt to automatically submit orders and quotes in response to those book updates on the Hybrid trading system in substantially the same manner as they would respond to a HAL message. The Exchange also notes that any delay or latency associated with submitting responses to an AIM or SAM Auction, or responding to a book update, would be the same as responding to HAL because all such responses are processed over the same network. 5 See, e.g., Securities Exchange Act Release No. 53567 (March 29, 2006), 71 FR 17529 (April 6, 2006) (SR–CBOE–2006–09) (order approving the reduction of the exposure period for crossing orders in Hybrid under Rules 6.45A and 6.45B from ten seconds to three seconds). 6 The Exchange believes that the proposed timeframe would give market participants sufficient time to respond, compete, and provide price improvement for orders. The Exchange also notes that electronic systems are readily available to, if not already in place for, CBOE members that allow them to respond in a meaningful way within the proposed timeframe. PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 executions, thereby reducing market risk. This shortened exposure period is fully consistent with the electronic nature of Hybrid. CBOE members have electronic systems available that would allow them to respond in a meaningful way within the proposed timeframe. It will continue to provide market participants with sufficient time to respond, compete, and provide price improvement for orders. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with Section 6(b) of the Act 7 in general and furthers the objectives of Section 6(b)(5) of the Act 8 in particular in that it is designed to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. In particular, the exchange believes that the proposed rule change will provide investors with more timely execution of their options orders, while ensuring that there is an adequate exposure of all crossing orders in the CBOE marketplace. 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 not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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 CBOE consents, the Commission will: (A) By order approve such proposed rule change, or 7 15 8 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). E:\FR\FM\30MYN1.SGM 30MYN1 Federal Register / Vol. 73, No. 105 / Friday, May 30, 2008 / Notices (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 (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2008–16 on the subject line. Paper Comments For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 J. Lynn Taylor, Assistant Secretary. [FR Doc. E8–12030 Filed 5–29–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57850; File No. SR–CBOE– 2006–105] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change, as Modified by Amendment No. 2, Regarding the Listing and Trading of Binary Options on Broad-Based Security Indexes May 22, 2008. I. Introduction • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. sroberts on PROD1PC70 with NOTICES On December 29, 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 All submissions should refer to File of 1934 (‘‘Act’’) 1 and Rule 19b–4 Number SR–CBOE–2008–16. This file thereunder,2 a proposed rule change to number should be included on the list and trade binary options on broadsubject line if e-mail is used. To help the based security indexes. The CBOE filed Commission process and review your Amendment Nos. 1 and 2 to the comments more efficiently, please use only one method. The Commission will proposal on September 6, 2007, and 3 post all comments on the Commission’s April 4, 2008, respectively. The proposed rule change, as modified by Internet Web site (http://www.sec.gov/ Amendment No. 2, was published for rules/sro.shtml). Copies of the comment in the Federal Register on submission, all subsequent April 17, 2008.4 The Commission amendments, all written statements received no comments regarding the with respect to the proposed rule proposal. This order approves the change that are filed with the proposed rule change, as amended. 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, 100 F Street, NE., Washington, DC 20549 on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the CBOE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CBOE–2008–16 and should be submitted on or before June 20, 2008. VerDate Aug<31>2005 16:52 May 29, 2008 Jkt 214001 II. Description of the Proposal A. Generally The CBOE proposes to list and trade certain cash-settled, European-style binary options on broad-based security indexes. At expiration, an option listed pursuant to this proposal would pay an exercise settlement amount equal to the exercise settlement value multiplied by the contract multiplier.5 Unlike a traditional option, a binary option will 9 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Amendment No. 2 replaces the original filing and Amendment No. 1 in their entirety. 4 See Securities Exchange Act Release No. 57642 (April 9, 2008), 73 FR 20985. 5 The exercise settlement value will be an amount determined by the CBOE on a class-by-class basis and will be equal to or between $10 or $1,000, unless otherwise adjusted pursuant to CBOE Rule 5.7. See CBOE Rule 22.1(e). 1 15 PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 31169 pay a fixed sum at expiration regardless of the magnitude of the difference between the settlement value and the option’s exercise price. A call binary index option would pay out if the settlement value of the underlying index were at or above the option’s exercise price at expiration, and a put binary index option would pay out if the underlying index were below the option’s exercise price at expiration.6 The Exchange is proposing to add a new series of rules to Chapter XXII of its rulebook (which is currently ‘‘reserved’’) relating to binary options. Trading of binary options would also be subject to Chapters I through XIX, XXIV, XXIVA, and XXIVB, as supplemented by the new rules of Chapter XXII. B. Listing Standards Under the proposal, the Exchange may from time to time approve for listing and trading on the Exchange binary option contracts on a broadbased index 7 which has been selected in accordance with CBOE Rule 24.2 and the Interpretations and Policies thereunder.8 After a particular binary option class has been approved for listing and trading on the Exchange, the Exchange may from time to time open for trading series of options on that class.9 The Exchange may add new series of options on the same class, as provided for in CBOE Rule 24.9 and the Interpretations and Policies thereunder. Additional series of the same binary option class may be opened for trading on the Exchange when the Exchange deems it necessary to maintain an orderly market or to meet customer demand.10 The maintenance listing standards for options on broad-based indexes set forth in CBOE Rule 24.2 and the Interpretations and Policies thereunder will be applicable to binary options on broad-based indexes.11 Binary options form a separate class from other options overlying the same broad-based index.12 Binary options traded on the Exchange will be designated as to expiration date, exercise price, exercise settlement amount, contract multiplier, and underlying broad-based index.13 Binary index options will be a.m.settled unless the traditional options on 6 See CBOE Rules 22.1(b) and (c). Rule 24.1(i)(1) defines a ‘‘broad-based index’’ as ‘‘an index designed to be representative of a stock market as a whole or of a range of companies in unrelated industries.’’ 8 See CBOE Rule 22.3(a). 9 See CBOE Rule 22.3(c). 10 See CBOE Rule 22.3(d). 11 See CBOE Rule 22.4. 12 See CBOE Rule 22.3(a). 13 See CBOE Rule 22.3(b). 7 CBOE E:\FR\FM\30MYN1.SGM 30MYN1

Agencies

[Federal Register Volume 73, Number 105 (Friday, May 30, 2008)]
[Notices]
[Pages 31167-31169]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-12030]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57849; File No. SR-CBOE-2008-16]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change To Reduce 
Certain Order Exposure Times From Three Seconds to One Second

May 22, 2008.
    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 May 16, 2008, 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 substantially 
prepared by CBOE. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to reduce the order handling and exposure 
periods contained in certain of its rules from three seconds to one 
second. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.cboe.org/Legal), at CBOE'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, 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. 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
    The purpose of the proposed rule change is to reduce the order 
handling and exposure periods contained in Rules 6.45A, Priority and 
Allocation of Equity Option Trades on the CBOE Hybrid System, 6.45B, 
Priority and Allocation of Trades in Index Options and Options on ETFs 
on the CBOE Hybrid System, 6.74A, Automated Improvement Mechanism 
(``AIM''), and 6.74B, Solicitation Auction Mechanism, from three 
seconds to one second.
    Rules 6.45A and 6.45B provide that an order entry firm may not 
execute an order it represents as agent with a facilitation or 
solicited order (referred to herein as ``crossing orders'') using the 
Hybrid Trading System (``Hybrid'') unless it first complies with the 
three-second exposure requirement. Specifically, order entry firms may 
not execute a facilitation cross unless: (i) The agency order is first 
exposed on Hybrid for at least three seconds; (ii) the order entry firm 
has been bidding or offering for at least three seconds prior to 
receiving the agency order that is executable against such bid or 
offer; or (iii) the order entry firm proceeds in accordance with the 
floor-based open outcry crossing rules contained in CBOE Rule 6.74, 
Crossing Orders. Similarly, order entry firms may not execute an order 
they represent as agent against orders solicited from members and non-
member broker-dealers unless the agency order is first exposed on 
Hybrid for at least three seconds. During this three-second exposure 
period for crossing orders, other members may enter orders to trade 
against the exposed order. Under the proposal, these exposure periods 
would be reduced to one second.\3\
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    \3\ For Hybrid 3.0 classes, the exposure period is established 
on a class-by-class basis, provided the minimum exposure time must 
be at least three seconds and shall not exceed 30 seconds. See CBOE 
Rule 6.45B.03. The Exchange is proposing to reduce the minimum time 
from three seconds to one second. The 30-second parameter will 
remain unchanged.
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    Rule 6.74A contains the requirements applicable to the execution of 
orders using AIM. AIM allows members to enter cross transactions on 
Hybrid. Currently, orders entered into AIM are exposed for a random 
time period determined by the system that is not less than three 
seconds and not more than five seconds, giving an opportunity

[[Page 31168]]

for additional trading interest to be entered before the orders are 
automatically executed. Under the proposal, the random exposure period 
for AIM would be reduced to one second.
    Rule 6.74B contains the requirements applicable to the execution of 
orders using the Solicitation Auction Mechanism (the ``SAM Auction''). 
The SAM Auction allows members to enter larger-sized cross transactions 
on Hybrid (i.e., orders of 500 contracts or more). Orders entered into 
the SAM Auction are currently exposed for a three second period, giving 
an opportunity for additional trading interest to be entered before the 
orders are automatically executed. Under the proposal, the exposure 
period for the SAM Auction would be reduced to one second.
    The Exchange notes that in adopting the various three-second order 
handling and exposure periods, it recognized that three seconds would 
not be long enough to allow human interaction with the orders (or RFQs, 
as applicable). Rather, market participants had become sufficiently 
automated that they could react to these orders electronically. In this 
context, CBOE believes it would be in all market participants' best 
interest to minimize the exposure period to a time frame that continues 
to allow adequate time for market participants to electronically 
respond, as both the order being exposed and the participants 
responding are subject to market risk during the exposure period. In 
this respect, the Exchange states that its experience with the three-
second exposure time period indicates that one second would provide an 
adequate response time.\4\ Most members wait until the end of the last 
second of the three second period before responding to exposed orders 
in order to minimize market risk. Accordingly, the Exchange does not 
believe it is necessary or beneficial to the orders being exposed to 
continue to subject them to market risk for a full three seconds.
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    \4\ The Exchange has numerous market participants that have the 
capability and do opt to respond within a one-second exposure period 
on its Hybrid trading platform. In this regard, the Exchange notes 
that it has other Hybrid electronic exposure mechanisms for which 
timers set at or below one second provide for an adequate response 
time. For example, the exposure and allocation timers for the 
Exchange's Hybrid Agency Liaison (``HAL'') mechanism are currently 
both set at 0.300 seconds, and numerous market participants can and 
do opt to respond to HAL exposure messages within this time frame. 
See CBOE Rule 6.14.
    HAL is a feature that provides automated order handling in 
designated classes for qualifying electronic orders that are not 
automatically executed. Qualifying orders that are received by HAL 
are electronically exposed immediately upon receipt for an exposure 
period of 0.300 seconds. If during the exposure period a Market-
Maker or Qualifying Member commits to trade any portion of the 
order, the exposure period ends and the allocation period of 0.300 
seconds will begin. At the conclusion of the allocation period the 
order is executed or, if no responses are received, processed in 
accordance with the procedures set forth in Rule 6.14.
    The Exchange believes that its experience with the HAL mechanism 
supports its view that one second is sufficient time for market 
participants to respond to CBOE's AIM and SAM Auction mechanisms, 
which operate on the Hybrid trading system and employ the same type 
of mechanical messaging as the HAL mechanism. The Exchange also 
believes its experience with the HAL mechanism supports its view 
that one second is sufficient time for market participants to have 
an opportunity to enter orders to trade against an order exposed in 
the book before the order entry firm is permitted to enter a contra-
side facilitation or solicited order. This is because market 
participants receive mechanically messaged information about book 
updates, and are able and do opt to automatically submit orders and 
quotes in response to those book updates on the Hybrid trading 
system in substantially the same manner as they would respond to a 
HAL message. The Exchange also notes that any delay or latency 
associated with submitting responses to an AIM or SAM Auction, or 
responding to a book update, would be the same as responding to HAL 
because all such responses are processed over the same network.
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    When approving the existing three-second order handling and 
exposure periods, the Commission concluded that, in the electronic 
environment of Hybrid, reducing the exposure period to three seconds 
could facilitate the prompt execution of orders while providing 
participants in Hybrid with an adequate opportunity to compete for 
exposed bids and offers.\5\ Continuing on that same logic, CBOE 
believes that reducing its order handling and exposure periods from 
three seconds to one second will benefit market participants. Since 
members react to these orders electronically, and generally only opt to 
respond at the tail end of the three-second period in order to minimize 
market risk, CBOE believes that reducing the time periods to one second 
will continue to provide CBOE members with sufficient time to ensure 
effective interaction with orders.\6\ At the same time, CBOE believes 
that reducing the time periods to one second will allow it to provide 
investors and other market participants with more timely executions, 
thereby reducing market risk.
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    \5\ See, e.g., Securities Exchange Act Release No. 53567 (March 
29, 2006), 71 FR 17529 (April 6, 2006) (SR-CBOE-2006-09) (order 
approving the reduction of the exposure period for crossing orders 
in Hybrid under Rules 6.45A and 6.45B from ten seconds to three 
seconds).
    \6\ The Exchange believes that the proposed timeframe would give 
market participants sufficient time to respond, compete, and provide 
price improvement for orders. The Exchange also notes that 
electronic systems are readily available to, if not already in place 
for, CBOE members that allow them to respond in a meaningful way 
within the proposed timeframe.
---------------------------------------------------------------------------

    This shortened exposure period is fully consistent with the 
electronic nature of Hybrid. CBOE members have electronic systems 
available that would allow them to respond in a meaningful way within 
the proposed timeframe. It will continue to provide market participants 
with sufficient time to respond, compete, and provide price improvement 
for orders.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \7\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \8\ in particular in that it is designed to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
In particular, the exchange believes that the proposed rule change will 
provide investors with more timely execution of their options orders, 
while ensuring that there is an adequate exposure of all crossing 
orders in the CBOE marketplace.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 not necessary or appropriate in furtherance of 
the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    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 CBOE consents, the Commission will:
    (A) By order approve such proposed rule change, or

[[Page 31169]]

    (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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2008-16 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-2008-16. 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 (http://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, 100 F Street, NE., 
Washington, DC 20549 on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the CBOE. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2008-16 and should be 
submitted on or before June 20, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
J. Lynn Taylor,
Assistant Secretary.
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    \9\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-12030 Filed 5-29-08; 8:45 am]
BILLING CODE 8010-01-P