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Self-Regulatory Organizations; Order Granting Approval of a Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Board Options Exchange, Inc. Relating to the Time and Manner in Which the Allocation Committee May Reallocate a Security

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Start Preamble September 5, 2002.

On June 11, 2002, the Chicago Board Options Exchange, Inc. (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act Start Printed Page 57859of 1934 (“Act”) [1] and Rule 19b-4 thereunder,[2] a proposed rule change 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 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. Notice of the proposed rule change appeared in the Federal Register on July 19, 2002.[3] The Commission received no comments on the proposed rule change. On August 28, 2002, the CBOE filed an amendment to the proposed rule change.[4] This order approves the proposed rule change, as amended.

The Commission finds that the proposed rule change is consistent with the requirements of section 6 of the Act [5] in general, and the rules and regulations thereunder.[6] In particular, the Commission believes that the proposal is consistent with section 6(b)(5) of the Act,[7] which requires, among other things, that an exchange's rule be designed to promote just and equitable principles of trade, and in general, to protect investors and the public interest. The Commission believes that CBOE's proposal to extend the initial review period from six months to one year should give the Allocation Committee a sufficient amount of time to monitor the trading patterns of DPMs and trading crowds while considering other relevant factors such as current market conditions, and if necessary, reallocate a security if the DPM or trading crowd fails to adhere to any market performance commitments in connection with receiving the allocation.[8]

It is therefore ordered, pursuant to section 19(b)(2) of the Act,[9] that the proposed rule change (SR-CBOE-2002-32), as amended, is approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to the delegated authority.[10]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  See Securities Exchange Act Release No. 46183 (July 11, 2002), 67 FR 47584.

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4.  See letter to Lisa N. Jones, Attorney, Division of Market Regulation, Commission, from Patrick Sexton, Assistant General Counsel, Legal Division, CBOE (“Amendment No. 1”). Amendment No. 1 corrects an inadvertently deleted word (“and”) in the proposed rule text. This is a technical amendment and therefore is not subject to notice and comment.

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6.  In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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8.  The CBOE noted that market performance 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.

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[FR Doc. 02-23236 Filed 9-11-02; 8:45 am]