Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of a Proposed Rule Change Related to Trades in Restricted Classes, 62577-62578 [E8-24971]
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Federal Register / Vol. 73, No. 204 / Tuesday, October 21, 2008 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58778; File No. SR–CBOE–
2008–90]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Granting Approval
of a Proposed Rule Change Related to
Trades in Restricted Classes
On August 29, 2008, 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 Rules 6.25 and 24.16
(collectively, the ‘‘Obvious Error Rules’’)
to permit the nullification of opening
transactions that do not satisfy the
requirement of CBOE Rule 5.4
(withdrawal of approval of underlying
security) and to clarify certain
provisions in CBOE Rule 5.4 and the
Obvious Error Rules. The proposed rule
change was published for comment in
the Federal Register on September 13,
2008.3 The Commission received no
comment letters on the proposal. This
order approves the proposed rule
change.
The Exchange proposes to amend the
Obvious Error Rules to permit the
nullification of opening transactions in
‘‘restricted series’’ that do not satisfy the
requirements of CBOE Rule 5.4.4
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 58460
(September 4, 2008), 73 FR 53060.
4 In relevant part, CBOE Rule 5.4 provides that,
whenever the Exchange determines that an
underlying security previously approved for
Exchange option transactions does not meet the
then current requirements for continuance of such
approval or for any other reason should no longer
be approved, the Exchange will not open for trading
any additional series of options of the class
covering that underlying security and therefore two
floor officials, in consultation with a designated
senior executive officer of the Exchange, may
prohibit any opening purchase transactions in
series of options of that class previously opened
(except that (i) opening transactions by MarketMakers executed to accommodate closing
transactions of other market participants and (ii)
opening transactions by CBOE member
organizations to facilitate the closing transactions of
public customers executed as crosses pursuant to
and in accordance with paragraph (b) or (d) of
CBOE Rule 6.74, Crossing Orders, may be
permitted), to the extent it deems such action
necessary or appropriate (such series are referred to
herein and in the proposed new text in CBOE Rules
6.25 and 24.16 as ‘‘restricted series’’); provided,
however, that where exceptional circumstances
have caused an underlying security not to comply
with the Exchange’s current approval maintenance
requirements, regarding number of publicly held
shares or publicly held principal amount, number
of shareholders, trading volume or market price the
mstockstill on PROD1PC66 with NOTICES
2 17
VerDate Aug<31>2005
17:06 Oct 20, 2008
Jkt 217001
Currently, when the Exchange makes a
determination that trading in a series is
restricted pursuant to CBOE Rule 5.4,
the Exchange notifies the membership
of that determination through issuance
of a regulatory circular. In addition, the
Exchange’s systems are programmed to
automatically restrict the entry of
electronic opening transactions.
However, opening orders entered in
open outcry are not systemically
prevented and, in addition, opening
market-maker activity is still permitted
both electronically and in open outcry.
As a result, it is possible that an opening
transaction that does not satisfy the
requirements of CBOE Rule 5.4 may
occur inadvertently. In order to address
these scenarios, the Exchange proposes
to permit the nullification of opening
transactions in CBOE Rule 5.4 restricted
series provided notification is received
by designated personnel in the
Exchange’s control room from any
member or person associated with a
member that believes it participated in
such transaction within the timeframes
prescribed in CBOE Rules 6.25(b)(1) and
24.16(b)(1). In addition, absent unusual
circumstances, designated personnel in
the control room (either on their own
motion or upon request of a member)
would initiate action within sixty (60)
minutes of such a transaction. Such
actions would be reviewed and
determinations rendered by the senior
official in the control room. Any
determinations rendered by the senior
official would be subject to the same
review procedures as determinations
rendered by Trading Officials.
The Exchange also proposes to permit
a member to initiate an Obvious Error
Rule action by contacting either a
Trading Official or designated personnel
in the control room. Under the current
rule, a member is only permitted to
contact Trading Officials to initiate such
action. Once either a Trading Official or
a control room designee is contacted, all
reviews and determinations will
continue to be rendered by Trading
Officials except that, as proposed
herein, actions to nullify an opening
trade in a restricted series will be
reviewed and determinations rendered
by the senior official in the control
room.
Lastly, the Exchange proposes to
clarify in the text of CBOE Rule 5.4 that
the restrictions on opening transactions
contained in the rule, as well as the
related exceptions, apply to both
opening purchases and opening sales in
Exchange, in the interest of maintaining a fair and
orderly market or for the protection of investors,
may determine to continue to open additional series
of option contracts of the class covering that
underlying security.
PO 00000
Frm 00117
Fmt 4703
Sfmt 4703
62577
restricted series. The Exchange notes
that its intention is that the restrictions,
and related exceptions, also apply to
opening sales; however, the current rule
text indicates that the restrictions are
applicable only to opening purchase
transactions. Proposed changes to the
rule text make this clear.
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange and, in particular, the
requirements of section 6(b) of the Act 5
and the rules and regulations
thereunder. Specifically, the
Commission finds that the proposal is
consistent with section 6(b)(5) of the
Act,6 in that the proposal is designed to
promote just and equitable principles of
trade, to prevent fraudulent and
manipulative acts, to remove
impediments to and to perfect the
mechanism for a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
The Commission notes that, in
approving proposals relating to
adjustment or nullification of trades
involving obvious errors, it has stated
that the determination of whether an
obvious error has occurred and the
process for reviewing such a
determination should be based on
specific and objective criteria and
subject to specific and objective
procedures.7 The Commission believes
that the CBOE’s proposal provides
specific and objective criteria for
determining when transactions in
restricted classes should be nullified.
Specifically, under the rule, opening
transactions that do not satisfy the
requirement of CBOE Rule 5.4 will be
nullified. Market participants will be on
notice that trading in a series is
restricted pursuant to CBOE Rule 5.4
through a regulatory circular. The
Commission also believes that other
proposed changes to the Obvious Error
Rules and Rule 5.4 are specific and
objective.
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,8 that the
proposed rule change (SR–CBOE–2008–
90) is hereby approved.
5 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
7 See, e.g., Securities Exchange Release Nos.
54228 (July 27, 2006), 71 FR 44066 (August 3, 2006)
(SR–CBOE–2006–14) (approving revisions to
CBOE’s Obvious Error Rule) and 48097 (June 26,
2003), 68 FR 39604 (July 2, 2003) (SR–CBOE–2003–
10) (approving revisions to CBOE’s Obvious Error
Rule).
8 15 U.S.C. 78s(b)(2).
6 15
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62578
Federal Register / Vol. 73, No. 204 / Tuesday, October 21, 2008 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–24971 Filed 10–20–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58757A; File No. SR–DTC–
2008–12]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing of Proposed Rule Change as
Amended To Increase Liquidity
Resources
October 14, 2008.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
August 26, 2008, The Depository Trust
Company (‘‘DTC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) and on September 9,
2008 and on September 30, 2008,
amended the proposed rule change as
described in Items I, II, and III below,
which items have been prepared
primarily by DTC. The Commission is
publishing this notice to solicit
comments on the proposed rule change
as amended from interested parties.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
DTC is seeking to increase its
liquidity resources to ensure that it has
sufficient liquidity to cover the failure
of a family of financially affiliated DTC
participants.
mstockstill on PROD1PC66 with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
DTC 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. DTC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.2
9 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 The Commission has modified the text of the
summaries prepared by DTC.
1 15
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17:06 Oct 20, 2008
Jkt 217001
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
The proposed rule change seeks to
increase the liquidity resources of DTC
to ensure it has sufficient liquidity to
cover the failure of a financial family of
affiliated DTC Participants (‘‘Affiliated
Family’’).3 An Affiliated Family means
a Participant that controls another
Participant or other Participants and
each Participant that is under the
control of the controlling Participant.
For purposes of this definition,
‘‘control’’ means the direct or indirect
ownership of more than 50% of the
voting securities or other voting
interests of any entity.4
To ensure that DTC is able to
complete its settlement obligations each
day in the event of a Participant’s
inability to settle with DTC, DTC
currently maintains liquidity resources
of $2.5 billion composed of a $600
million all-cash Participants Fund and a
committed line of credit in the amount
of $1.9 billion with a consortium of
banks. DTC’s committed line of credit
was recently increased from $1.4
billion. Given that financial firms have
become increasingly interdependent,
DTC recognizes that there is a
possibility of ‘‘contagion’’ among
several related Participants. Financial
problems at one Participant may impact
the stability of another related
Participant, potentially causing both to
fail simultaneously. Because of concerns
about this potential, DTC and its
regulators have agreed that DTC should
increase its available liquidity resources
so that DTC would be able to withstand
the failure of a financial family of
affiliated DTC Participants.5 In order to
address these concerns, DTC is
proposing to (i) increase by $700 million
the total cash deposits to DTC’s all-cash
Participants Fund, so that the aggregate
amount of the required cash deposits to
DTC’s Participant Fund and the
required preferred stock investments of
Participants would be increased to $1.3
billion from $600 million and (ii) limit
3 DTC currently has 332 Participants, most of
which are broker-dealers or banks with one
Participant account. Large integrated organizations,
however, typically have several ‘‘legal entities’’ that
each are DTC Participants (e.g., a bank custodian
entity and a separate securities firm entity).
4 Under this definition, DTC currently has 47
Affiliated Families.
5 The Commission is the primary federal regulator
of DTC as a clearing agency. DTC is also a limited
purpose trust company established under New York
Banking Law and a state member bank of the
Federal Reserve System. As such, the The Federal
Reserve Bank of New York (FRBNY) and the New
York State Department of Banking have regulatory
authority over DTC.
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
the aggregate maximum net debit cap 6
for any Affiliated Family to $3 billion.
The following variables are currently
used in the determination of each
Participant’s required Fund deposit:
(1) The six largest intra-day net debit
peaks for a Participant over a rolling 60business day period.
(2) Minimum Fund Deposit: $10,000.
(3) Fund Size: $600 Million.
DTC will continue to employ these
variables to calculate the first $600
million of the required $1.3 billion
Fund. The remaining $700 million will
be allocated proportionately among the
Affiliated Families whose aggregate net
debit caps per family exceed $2.3
billion.7 An Affiliated Family whose net
debit cap exceeds $2.3 billion would be
required to contribute a portion of the
remaining $700 million calculated by
dividing the amount by which the
Affiliated Family’s net debit cap
exceeds $2.3 billion by the sum of the
amount by which each Affiliated
Family’s net debit cap exceeds $2.3
billion.8 Once an Affiliated Family’s
additional Participant’s Fund
requirement has been established, DTC
will allocate this sum among the
Participants comprising the Affiliated
Family in proportion to each
Participant’s adjusted net debit cap.9
This algorithm will be systematically
used to calculate the allocations for the
Participants of Affiliated Families,
unless each of the Participants that
comprise an Affiliated Family provides
DTC with written instructions to
allocate the aggregate net debit cap
differently. While the Participants of an
6 DTC ensures that timely settlement can be
completed in the event of an inability to settle by
a Participant with the largest settlement obligation,
by setting limits (called net debit caps) for each
Participant. A Participant’s net debit is limited
throughout the processing day to a net debit cap
that is the lesser of four amounts: (1) An amount
based on the average of the three largest net debits
that the Participant incurred over a rolling 70
business day period, (2) an amount, if any,
determined by the Participant’s settling bank, (3) an
amount, if any, determined by DTC, or (4) $1.8
billion.
7 In accordance with its current practice, DTC
would continue to maintain a liquidity cushion of
$200 million between its largest net debit cap and
its liquidity resources (i.e., DTC’s current liquidity
of $2.5 billion minus the $200 liquidity cushion it
maintains).
8 DTC will adjust the net debit caps of the
Participants that comprise the Affiliated Families so
that the aggregate affiliated net debit cap does not
exceed $3 billion. Currently 18 Affiliate Families
consisting of 57 DTC Participants would be subject
to these Affiliated Family provisions. Thirteen
Affiliated Families would be required to reduce
their overall Net debit cap.
9 The proposed DTC Affiliated Family Algorithm
can be viewed on the Commission’s Web site at
https://www.sec.gov/rules/sro/dtc/2008/3458757.pdf and at DTC’s Web site at https://
www.dtcc.com/downloads/legal/rule_filings/2008/
dtc/2008-12.pdf.
E:\FR\FM\21OCN1.SGM
21OCN1
]]>Agencies
[Federal Register Volume 73, Number 204 (Tuesday, October 21, 2008)]
[Notices]
[Pages 62577-62578]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-24971]
[[Page 62577]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58778; File No. SR-CBOE-2008-90]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval of a Proposed Rule Change Related
to Trades in Restricted Classes
On August 29, 2008, 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 Rules 6.25 and
24.16 (collectively, the ``Obvious Error Rules'') to permit the
nullification of opening transactions that do not satisfy the
requirement of CBOE Rule 5.4 (withdrawal of approval of underlying
security) and to clarify certain provisions in CBOE Rule 5.4 and the
Obvious Error Rules. The proposed rule change was published for comment
in the Federal Register on September 13, 2008.\3\ The Commission
received no comment letters on the proposal. This order approves the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 58460 (September 4,
2008), 73 FR 53060.
---------------------------------------------------------------------------
The Exchange proposes to amend the Obvious Error Rules to permit
the nullification of opening transactions in ``restricted series'' that
do not satisfy the requirements of CBOE Rule 5.4.\4\ Currently, when
the Exchange makes a determination that trading in a series is
restricted pursuant to CBOE Rule 5.4, the Exchange notifies the
membership of that determination through issuance of a regulatory
circular. In addition, the Exchange's systems are programmed to
automatically restrict the entry of electronic opening transactions.
However, opening orders entered in open outcry are not systemically
prevented and, in addition, opening market-maker activity is still
permitted both electronically and in open outcry. As a result, it is
possible that an opening transaction that does not satisfy the
requirements of CBOE Rule 5.4 may occur inadvertently. In order to
address these scenarios, the Exchange proposes to permit the
nullification of opening transactions in CBOE Rule 5.4 restricted
series provided notification is received by designated personnel in the
Exchange's control room from any member or person associated with a
member that believes it participated in such transaction within the
timeframes prescribed in CBOE Rules 6.25(b)(1) and 24.16(b)(1). In
addition, absent unusual circumstances, designated personnel in the
control room (either on their own motion or upon request of a member)
would initiate action within sixty (60) minutes of such a transaction.
Such actions would be reviewed and determinations rendered by the
senior official in the control room. Any determinations rendered by the
senior official would be subject to the same review procedures as
determinations rendered by Trading Officials.
---------------------------------------------------------------------------
\4\ In relevant part, CBOE Rule 5.4 provides that, whenever the
Exchange determines that an underlying security previously approved
for Exchange option transactions does not meet the then current
requirements for continuance of such approval or for any other
reason should no longer be approved, the Exchange will not open for
trading any additional series of options of the class covering that
underlying security and therefore two floor officials, in
consultation with a designated senior executive officer of the
Exchange, may prohibit any opening purchase transactions in series
of options of that class previously opened (except that (i) opening
transactions by Market-Makers executed to accommodate closing
transactions of other market participants and (ii) opening
transactions by CBOE member organizations to facilitate the closing
transactions of public customers executed as crosses pursuant to and
in accordance with paragraph (b) or (d) of CBOE Rule 6.74, Crossing
Orders, may be permitted), to the extent it deems such action
necessary or appropriate (such series are referred to herein and in
the proposed new text in CBOE Rules 6.25 and 24.16 as ``restricted
series''); provided, however, that where exceptional circumstances
have caused an underlying security not to comply with the Exchange's
current approval maintenance requirements, regarding number of
publicly held shares or publicly held principal amount, number of
shareholders, trading volume or market price the Exchange, in the
interest of maintaining a fair and orderly market or for the
protection of investors, may determine to continue to open
additional series of option contracts of the class covering that
underlying security.
---------------------------------------------------------------------------
The Exchange also proposes to permit a member to initiate an
Obvious Error Rule action by contacting either a Trading Official or
designated personnel in the control room. Under the current rule, a
member is only permitted to contact Trading Officials to initiate such
action. Once either a Trading Official or a control room designee is
contacted, all reviews and determinations will continue to be rendered
by Trading Officials except that, as proposed herein, actions to
nullify an opening trade in a restricted series will be reviewed and
determinations rendered by the senior official in the control room.
Lastly, the Exchange proposes to clarify in the text of CBOE Rule
5.4 that the restrictions on opening transactions contained in the
rule, as well as the related exceptions, apply to both opening
purchases and opening sales in restricted series. The Exchange notes
that its intention is that the restrictions, and related exceptions,
also apply to opening sales; however, the current rule text indicates
that the restrictions are applicable only to opening purchase
transactions. Proposed changes to the rule text make this clear.
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, the requirements of section 6(b) of the Act \5\ and the
rules and regulations thereunder. Specifically, the Commission finds
that the proposal is consistent with section 6(b)(5) of the Act,\6\ in
that the proposal is designed to promote just and equitable principles
of trade, to prevent fraudulent and manipulative acts, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission notes that, in approving proposals relating to
adjustment or nullification of trades involving obvious errors, it has
stated that the determination of whether an obvious error has occurred
and the process for reviewing such a determination should be based on
specific and objective criteria and subject to specific and objective
procedures.\7\ The Commission believes that the CBOE's proposal
provides specific and objective criteria for determining when
transactions in restricted classes should be nullified. Specifically,
under the rule, opening transactions that do not satisfy the
requirement of CBOE Rule 5.4 will be nullified. Market participants
will be on notice that trading in a series is restricted pursuant to
CBOE Rule 5.4 through a regulatory circular. The Commission also
believes that other proposed changes to the Obvious Error Rules and
Rule 5.4 are specific and objective.
---------------------------------------------------------------------------
\7\ See, e.g., Securities Exchange Release Nos. 54228 (July 27,
2006), 71 FR 44066 (August 3, 2006) (SR-CBOE-2006-14) (approving
revisions to CBOE's Obvious Error Rule) and 48097 (June 26, 2003),
68 FR 39604 (July 2, 2003) (SR-CBOE-2003-10) (approving revisions to
CBOE's Obvious Error Rule).
---------------------------------------------------------------------------
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\8\ that the proposed rule change (SR-CBOE-2008-90) is hereby
approved.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78s(b)(2).
[[Page 62578]]
---------------------------------------------------------------------------
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-24971 Filed 10-20-08; 8:45 am]
BILLING CODE 8011-01-P
