Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)  and Rule 19b-4 thereunder, notice is hereby given that on June 11, 2002, the Chicago Board Options Exchange, Inc. (“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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The CBOE proposes to amend CBOE Rule 8.95 (“Allocation of Securities and Location of Trading Crowds and DPMs”) to extend, from six months to one year, the time in which the appropriate Allocation Committee may reallocate a security if the trading crowd or Designated Primary Market-Maker (“DPM”) to which the security had been allocated fails to adhere to any market performance commitments made by the trading crowd or DPM in connection with receiving the allocation. The text of the proposed rule change is available at the CBOE and at the Commission.
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
CBOE Rule 8.95(c) currently provides that during the first six months following the allocation of a security to a trading crowd or DPM, the appropriate Allocation Committee may remove the allocation and reallocate the security, if the trading crowd or DPM fails to adhere to any market performance commitments made by the trading crowd or DPM in connection with receiving the allocation. CBOE now proposes to amend CBOE Rule 8.95(c) to extend the initial review period from six months to one year under which the appropriate Allocation Committee may exercise this authority.
According to CBOE, the appropriate Allocation Committee typically requests that trading crowds and DPMs make market performance commitments as part of their applications to receive allocations of particular securities. These commitments may relate to pledges to keep bid-ask spreads within a particular width, or pledges to make every effort possible to become the exchange of choice in a particular option class, as measured during the initial months of trading by consistently achieving a certain market share if the class is listed on more than one options exchange. CBOE Rule 8.95(c) permits the appropriate Allocation Committee to remove an allocation if these commitments are not met, thus giving trading crowds and DPMs an incentive to abide by these commitments.
CBOE believes that extending the initial review period from six months to one year is appropriate because it will provide the appropriate Allocation Committee additional time to evaluate whether a particular DPM or trading crowd has adhered to any market performance commitments it made in connection with being allocated the security.
Following this initial review period after an allocation is made, CBOE notes that all the responsibility for monitoring market performance with respect to that security is vested in the appropriate Market Performance Committee or MTS Appointments Committee, which continually evaluate trading crowd and DPM market performance, as applicable, and are authorized pursuant to CBOE Rule 8.60, CBOE Rule 8.90, and other Exchange Rules to take remedial action for failure to satisfy minimum market performance standards.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with and furthers the objectives of section 6(b)(5) of the Act  in that it is designed to remove impediments to a free and open market and protecting 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 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 publication of this notice in the Federal Register or Start Printed Page 47585within 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 such filing will also be available for inspection and copying at the principal office of the Exchange.
All submissions should refer to File No. SR-CBOE-2002-32 and should be submitted by August 9, 2002.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to the delegated authority.
Margaret H. McFarland,
[FR Doc. 02-18220 Filed 7-18-02; 8:45 am]
BILLING CODE 8010-01-P