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, Incorporated (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On September 3, 2002 the Exchange filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The proposed rule change consists of amendments to CBOE Rules 8.85(a)(xi) and Rule 17.50 to require members to use and maintain CBOE's AutoQuote System as a back-up quoting system. The text of the proposed rule change and Amendment No. 1 are available at the Exchange 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 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
The Exchange seeks to adopt new Rule 8.85(a)(xi) which would state that, with respect to a Designated Primary Market-Maker (“DPM”) trading station utilizing a proprietary autoquote system, such DPM is obligated to assure that the CBOE AutoQuote system is maintained as a back-up at all times during market hours. The Exchange also proposes to add subparagraph (g)(10) to CBOE Rule 17.50—Imposition of Fines for Minor Rule Violations, to incorporate in its Minor Rule Violation Plan (“Plan”) violations of new Rule 8.85(a)(xi).
The CBOE AutoQuote system is provided by CBOE for use by its members and is available at every post on CBOE's options trading floor. It is available to assist DPMs and/or market makers (for trading crowds not operating under the DPM system) in automatically updating market quotations for the multitude of options series traded at any given trading station. The parameters of the AutoQuote system can be customized by CBOE traders in several areas including volatility, dividend, and what is used to represent the price of the underlying. To that end, CBOE Rule 8.85(a)(x) requires DPMs to determine a formula for generating automatically updated market quotations. Start Printed Page 62085
While many DPMs utilize CBOE's AutoQuote system, some DPMs have opted to use non-CBOE proprietary automated quotation updating systems. CBOE has allowed members to employ proprietary autoquote systems provided such systems are approved by the Exchange's appropriate Floor Procedure Committee. The failure of a proprietary autoquote system could result in CBOE's inability to open for an entire group of listed option classes for a brief or sometimes lengthy time period. Thus, CBOE has strongly encouraged, and now seeks to require, that members have CBOE's AutoQuote system ready as a back-up should a proprietary system fail. CBOE believes failure to comply with the proposed requirement should be subject to sanction under the Exchange's Plan on a trading station by trading station basis.
Determining a violation would be objective in nature and very suitable for inclusion in the Plan. Still, because a DPM could be in violation for one minute or four hours, violations can vary greatly in terms of the impact on CBOE's marketplace. Therefore, the Exchange believes it is appropriate to allow for summary fines under the plan that could range from $100 to $2500 for first time violations and from $100 to $5000 (the minimum and maximum allowable under the Plan) for a limited number of subsequent violations. For egregious violations, including those that severely impact the trading of option classes on CBOE for an extended period of time, the Modified Trading System Appointments Committee (the committee charged with DPM supervision) would have the discretion to refer the matter to the CBOE Business Conduct Committee instead of handling the violation under the Plan. Further, in no event would more than three violations by the same DPM in any twelve-month period be handled under the Plan. CBOE floor officials would be responsible for issuing summary fines under the proposed rule. Lastly, because different trading stations operated by the same DPM organization can operate and maintain autoquote systems differently, the Exchange believes it is appropriate for the summary fines to be handled on a trading station by trading station basis.
2. Statutory Basis
Because the proposed rule change will refine and enhance the Exchange's Minor Rule Violation Plan to make it more efficient and effective, the proposed rule change is consistent with section 6(b) of the Act, in general, and furthers the objectives of Sections 6(b)(5)  and 6(b)(7)  in particular, in that it is designed to promote just and equitable principles of trade, to protect investors and the public interest, and enhances the effectiveness and fairness of the Exchange's disciplinary procedures.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on 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 self-regulatory organization consents, the Commission will:
A. By order approve the proposed rule change, or
B. Institute proceedings to determine whether the proposed rule change and Amendment No. 1 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, as amended, 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 and Amendment No. 1 that are filed with the Commission, and all written communications relating to the proposed rule change and Amendment No. 1 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-2002-30 and should be submitted by October 24, 2002.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
3. See letter from Angelou Evangelou, Senior Attorney, CBOE, to Katherine England, Assistant Director, Division of Market Regulation, Commission, dated August 30, 2002.Back to Citation
[FR Doc. 02-25163 Filed 10-2-02; 8:45 am]
BILLING CODE 8010-01-P