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Notice

Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Appointment Costs of Certain Hybrid 2.0 Classes

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Start Preamble October 23, 2006.

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 October 12, 2006, the Chicago Board Options Exchange, Incorporated (“Exchange” or “CBOE”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a “non-controversial” proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act [3] and Rule 19b-4(f)(6) thereunder.[4] 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 Rules relating to the “appointment costs” of certain Hybrid 2.0 Classes. The text of the proposed rule change is available on the Exchange's Web site (http://www.cboe.com), at the CBOE's Office of the Secretary, 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, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed Start Printed Page 63371any comments it received on the proposed rule change. The text of those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change

1. Purpose

The purpose of this rule change is to amend CBOE Rules 8.3 and 8.4 relating to the “appointment costs” of certain Hybrid 2.0 Classes. CBOE Rules 8.3 and 8.4 provide that Market-Makers and Remote Market-Makers (“RMMs”), respectively, can create a Virtual Trading Crowd (“VTC”) Appointment, which confers the right to quote electronically in a certain number of products selected from various “Tiers.” Currently, there are five Tiers (Tiers A, B, C, D, and E) that are structured according to trading volume statistics, an “AA” Tier which consists of options on the CBOE Volatility Index (VIX), and an “A+” Tier which consists of two option classes—options on Standard & Poor's Depositary Receipts (SPY) and options on the Nasdaq-100 Index Tracking Stock (QQQQ).

CBOE Rules 8.3 and 8.4 assign “appointment costs” to Hybrid 2.0 Classes based on the Tier in which they are located, and a Market-Maker and an RMM may select for each Exchange membership it owns or leases any combination of products trading on the Hybrid 2.0 Platform [5] whose aggregate “appointment cost” does not exceed 1.0.[6]

CBOE proposes to make the following changes to the Tiers. First, CBOE proposes to amend the composition of Tier E such that it includes Hybrid 2.0 Classes 571 to 999. Currently, Tier E is composed of all remaining Hybrid 2.0 Classes that are not ranked among the top 570 Hybrid 2.0 Classes in terms of volume. CBOE intends to maintain the current appointment cost of .01 for Tier E classes. Second, CBOE proposes to create a new Tier F composed of all remaining Hybrid 2.0 Classes with an appointment cost of .001.

CBOE believes that amending the composition of Tier E and creating a new Tier F with an appointment cost of .001 will effectively lower a Market-Maker's and RMM's cost to access CBOE's marketplace and receive an appointment in multiple Hybrid 2.0 Classes. Moreover, these revised appointment costs are more competitive with the access costs at other options exchanges to hold an appointment as a market-maker in multiple option classes.

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations under the Act applicable to a national securities exchange and, in particular, the requirements of Section 6(b) of the Act.[7] Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) [8] requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and, in general, to protect 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 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 neither solicited nor received comments on the proposal.

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

Because the foregoing rule does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, provided that the self-regulatory organization has given the Commission written notice of its intent to file the proposed rule change prior to the date of filing of the proposed rule change or such shorter time as designated by the Commission, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act [9] and Rule 19b-4(f)(6) thereunder.[10]

At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

Under Rule 19b-4(f)(6)(iii) of the Act,[11] the proposal does not become operative for 30 days after the date of its filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. The Exchange has requested that the Commission accelerate the 30-day operative date. The Commission, consistent with the protection of investors and the public interest, has determined to accelerate the 30-day operative date to enable the Exchange to implement the changes to the Tiers in connection with its quarterly rebalancing of the Tiers.[12]

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

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-2006-82. 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 Start Printed Page 63372change 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 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-2006-82 and should be submitted on or before November 20, 2006.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.13

Nancy M. Morris,

Secretary.

End Signature End Preamble

Footnotes

3.  15 U.S.C. 78s(b)(3)(A)(iii).

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5.  CBOE Rule 1.1(aaa) defines Hybrid Trading System and Hybrid 2.0 Platform.

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6.  These Tiers are also utilized for purposes of determining DPM and e-DPM membership ownership requirements as provided in CBOE Rules 8.85 and 8.92, respectively.

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11.  17 CFR 240.19b-4(f)(6)(iii).

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12.  For purposes only of accelerating the 30-day operative period for this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. E6-18082 Filed 10-27-06; 8:45 am]

BILLING CODE 8011-01-P