Federal Register: November 23, 2001 (Volume 66, Number 226)
DOCID: FR Doc 01-29254
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
DOCUMENT ID: [Release No. 34-45067; File No. SR-CBOE-2001-56]
NOTICE: NOTICES
ACTION: Self-regulatory organizations; proposed rule changes:
SUBJECT CATEGORY:
Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Change by the Chicago Board Options Exchange, Inc. Relating to Firm Disseminated Market Quotes
DOCUMENT SUMMARY:
November 16, 2001.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b4 thereunder,\2\ notice is hereby given that
on October 22, 2001, the Chicago Board Options Exchange, Inc. (``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 CBOE.
The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and to
[[Page 58767]]
grant accelerated approval to the proposed rule change.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
I. SelfRegulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The CBOE proposes to amend CBOE Rule 8.51, Firm Disseminated Market
Quotes, to address customer limit orders. Below is the text of the proposed rule change. Additions are italicized.
Rule 9.51 Firm Disseminated Market Quotes
(a)(b) no change
(c) Firm Quote Size
(1) no change
(2) The firm quote requirement size for nonbrokerdealer orders
shall be the size that the Exchange periodically publishes along with
the quotes disseminated to vendors. In the event the Exchange has not
published a size along with its quotes for a particular series, then
the firm quote requirement size for nonbrokerdealer orders shall be
that size published by the Exchange in a different manner (e.g., on its
website). The Exchange also will publish separately the firm quote
requirement size for brokerdealer orders. In the case of brokerdealer
orders, if the size for a particular series disseminated along with the
quotes is less than the size published for brokerdealer orders, then
the firm quote requirement for brokerdealer orders shall be the size published along with the quotes.
(a) When the disseminated quote represents a customer limit order
in EBook, the firm quote requirement for nonbrokerdealer orders shall
be the greater of the size of the customer limit order or a size
predetermined by the appropriate FPC. When the disseminated quote
represents both a customer limit order in EBook and the trading crowd's
quote, the firm quote requirement for nonbrokerdealer orders shall be
the aggregate size of the customer limit order and the size that the
Exchange periodically publishes for that particular series. * * * * *
II. SelfRegulatory 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. SelfRegulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
1. Purpose
On November 17, 2001, the Commission amended rule 11Ac11 under the
Act (``Quote Rule'') \3\ to require options exchanges to publish firm
quotes. The amended Quote Rule requires options exchanges to either:
(1) comply with the Quote Rule as it applies in the equity markets and
collect from their members and make available to vendors the size
associated with each quotation; or (2) establish by rule and
periodically publish the quotation size for which their members'
quotations are firm. On March 30, 2001, the Exchange submitted a
proposal to amend CBOE rule 8.51, Firm Disseminated Market quotes, to
conform to the requirements of the Quote Rule. The Commission approved
this proposal initially on a pilot basis on April 2, 2001\4\ and,
subsequently, on a permanent basis on June 2, 2001.\5\ This filing
amends CBOE rule 8.51 to codify the Exchange's firm quote treatment of customer limit orders.
\3\ 17 CFR 240.11Ac11. See Exchange Act Release No. 43591 (Nov. 17, 2000), 65 FR 75439 (Dec. 1, 2000).
\4\ See Exchange Act Release No. 44145 (April 2, 2001), 66 FR
18662 (April 10, 2001) (approving SRCBOE200115 on a pilot basis.
\5\ See Exchange Act Release No. 44383 (June 2, 2001), 66 FR
30959 (June 8, 2001) (approving SRCBOE200115 on a permanent basis.
CBOE does not currently have the systems capability to decrement actual quotation size to reflect executions except when the quotation size represents an order in EBook. For this reason, when Autoquote or a manual quote establishes the best price on the Exchange, the Exchange's firm quote requirement for nonbrokerdealer orders is the size that the Exchange periodically publishes on its website and along with the bidask quotes disseminated to vendors.\6\
\6\ See CBOE rule 8.51(c)(2).
When a customer limit order in EBook establishes the best bid or
offer, however, CBOE complies with the Quote Rule in a different
manner.\7\ As discussed above, CBOE systems are able to decrement
disseminated size for executions when the disseminated size represents
a booked order. For this reason, when a customer limit order in EBook
establishes the best bid or offer, CBOE disseminates the actual size of
the booked limit order. In this instance, the Exchange must be firm for
the greater of its disseminated size or a number predetermined by the
appropriate floor procedure committee (``FPC''). The effect of this
provision is twofold. First, it ensures that the Exchange will be firm
for at least the size of the disseminated booked order. Second, it also
allows the appropriate FPC to establish a higher firm quote size
guarantee when a booked order is the prevailing price. For example, in
conjunction with Automated Book Price Splitprice, if the equity floor
procedure committee establishes a book price commitment quantity of ten
contracts, it could correspondingly establish the minimum firm quote
size guarantee at ten contracts. Thus, the Exchange would be firm for
either the size of the booked order or ten contracts, whichever is
greater. In no event would the firm quote size be smaller than the
actual size of the disseminated booked order. The size of the minimum
firm quote guarantee would be published on the CBOE Web site.
\7\ Book Market Indicators are disseminated to Options Price
Reporting Authority (``OPRA'') when the book bid, offer, or both
improve, or equal the Designated Primary Market Marker/Crowd (``DPM/
Crowd'') quote. If the Book Bid improves or equals the DPM/Crowd market bid, then the Book Market Indicator ``B'' will be
disseminated with the quote to OPRA. If the Book Offer improves or
matches the DPM/Crowd market offer, then the Book Market Indicator
``O'' is disseminated with the quote. If the Book Bid and Offer
improves or equals the DPM/Crowd market, then the Book Market Indicator ``C'' is disseminated with the quote.
When a customer limit order in EBook matches the best bid or offer
of the trading crowd, the size disseminated to OPRA, as well as the
firm quote requirement, is the aggregate of the booked order and the
size that the Exchange periodically publishes. For example, if in a
particular series EBook contains an order for eleven contracts and the
firm quote size as published on the Exchange's Web site is 50
contracts, then the disseminated size as well as the firm quote size
would be 61 contracts for that series. When trades execute against the
booked order, however, the disseminated size would decrement. When
executions extinguish the booked order, the firm quote requirement
would be the size that the Exchange periodically publishes on its Web
site and along with the bidask quotes disseminated to vendors.\8\ To
codify the firm quote rules pertaining to customer limit orders, the
Exchange proposes to add section (c)(2)(a) to CBOE Rule 8.51.
\8\ Using the above example, an execution of 12 contracts (which
would extinguish the booked order of 11 contracts) would result in a
new firm quote requirement, which would be the size (i.e., 50 contracts) that appears on the CBOE Web site.
[[Page 58768]]
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with and furthers the objectives of section 6 of the Act in general,
and in particular, with section 6(b)(5),\9\ in that it is designed to
perfect the mechanisms of a free and open market and a national market
system, protect investors and the public interest, and promote just and
equitable principles of trade by increasing transparency and by
providing the market place with more information upon which to base order routing decisions.
\9\ 15 U.S.C. 78f(b)(5).
B. SelfRegulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the proposed rule change will impose any burden on competition.
C. SelfRegulatory 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
Pursuant to section 19(b)(2) of the Act,\10\ the Exchange requests
accelerated effectiveness of this rule filing. The Exchange believes
that acceleration will enable it to continue uninterrupted its
compliance with the Quote Rule. Moreover, the CBOE believes that
acceleration will enable it to provide greater liquidity guarantees to
customers when customer limit orders match the best bid or offer of the
trading crowd. For these reasons, the Exchange believes it is both
appropriate and in the public interest of investors for the Commission to accelerate the effective date of this filing.
\10\ 15 U.S.C. 78s(b)(2).
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 205490609.
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 also will be
available for inspection and copying at the principal office of the
CBOE. All submissions should refer to File No. SRCBOE200156 and should be submitted by December 14, 2001.
V. Commission Findings and Order Granting Accelerated Approval of the Proposed Rule Change
After careful consideration, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange,\11\ and, in particular, section 6(b)(5) of the Act \12\ in that the proposed rule change has been designed to remove impediments to and to perfect the mechamism of a free and open market and a national market system, while also protecting investors and the public interest. Specifically, the Commission believes that by disseminating the size of customer limit orders and providing a firm quote at a guaranteed size equal to the aggregate of a customer limit order and the crowd guarantee at the same price, the proposed rule change should provide increased transparency to the benefit of market participants that trade listed options. \11\ In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78f(b)(5).
The Commission finds good cause, consistent with section 19(b)(2) of the Act,\13\ for granting the Exchange's request for approval of the proposed rule change prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. The Commission believes that granting accelerated approval to the proposed rule change should allow the CBOE to continue its compliance with the Quote Rule without interruption or delay.
\13\ 15 U.S.C. 78s(b)(2).
It is therefore ordered, pursuant to section 19(b)(2) of the Act,\14\ that the Exchange's proposed rule change (File No. SRCBOE 200156) is approved on an accelerated basis.
\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\15\
\15\ 17 CFR 200.303(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 0129254 Filed 112101; 8:45 am]
BILLING CODE 801001M
SUMMARY:
Chicago Board Options Exchange, Inc.,
DOCUMENT BODY 2:
November 16, 2001.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b4 thereunder,\2\ notice is hereby given that
on October 22, 2001, the Chicago Board Options Exchange, Inc. (``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 CBOE.
The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and to
[[Page 58767]]
grant accelerated approval to the proposed rule change.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
I. SelfRegulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The CBOE proposes to amend CBOE Rule 8.51, Firm Disseminated Market
Quotes, to address customer limit orders. Below is the text of the proposed rule change. Additions are italicized.
Rule 9.51 Firm Disseminated Market Quotes
(a)(b) no change
(c) Firm Quote Size
(1) no change
(2) The firm quote requirement size for nonbrokerdealer orders
shall be the size that the Exchange periodically publishes along with
the quotes disseminated to vendors. In the event the Exchange has not
published a size along with its quotes for a particular series, then
the firm quote requirement size for nonbrokerdealer orders shall be
that size published by the Exchange in a different manner (e.g., on its
website). The Exchange also will publish separately the firm quote
requirement size for brokerdealer orders. In the case of brokerdealer
orders, if the size for a particular series disseminated along with the
quotes is less than the size published for brokerdealer orders, then
the firm quote requirement for brokerdealer orders shall be the size published along with the quotes.
(a) When the disseminated quote represents a customer limit order
in EBook, the firm quote requirement for nonbrokerdealer orders shall
be the greater of the size of the customer limit order or a size
predetermined by the appropriate FPC. When the disseminated quote
represents both a customer limit order in EBook and the trading crowd's
quote, the firm quote requirement for nonbrokerdealer orders shall be
the aggregate size of the customer limit order and the size that the
Exchange periodically publishes for that particular series. * * * * *
II. SelfRegulatory 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. SelfRegulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
1. Purpose
On November 17, 2001, the Commission amended rule 11Ac11 under the
Act (``Quote Rule'') \3\ to require options exchanges to publish firm
quotes. The amended Quote Rule requires options exchanges to either:
(1) comply with the Quote Rule as it applies in the equity markets and
collect from their members and make available to vendors the size
associated with each quotation; or (2) establish by rule and
periodically publish the quotation size for which their members'
quotations are firm. On March 30, 2001, the Exchange submitted a
proposal to amend CBOE rule 8.51, Firm Disseminated Market quotes, to
conform to the requirements of the Quote Rule. The Commission approved
this proposal initially on a pilot basis on April 2, 2001\4\ and,
subsequently, on a permanent basis on June 2, 2001.\5\ This filing
amends CBOE rule 8.51 to codify the Exchange's firm quote treatment of customer limit orders.
\3\ 17 CFR 240.11Ac11. See Exchange Act Release No. 43591 (Nov. 17, 2000), 65 FR 75439 (Dec. 1, 2000).
\4\ See Exchange Act Release No. 44145 (April 2, 2001), 66 FR
18662 (April 10, 2001) (approving SRCBOE200115 on a pilot basis.
\5\ See Exchange Act Release No. 44383 (June 2, 2001), 66 FR
30959 (June 8, 2001) (approving SRCBOE200115 on a permanent basis.
CBOE does not currently have the systems capability to decrement actual quotation size to reflect executions except when the quotation size represents an order in EBook. For this reason, when Autoquote or a manual quote establishes the best price on the Exchange, the Exchange's firm quote requirement for nonbrokerdealer orders is the size that the Exchange periodically publishes on its website and along with the bidask quotes disseminated to vendors.\6\
\6\ See CBOE rule 8.51(c)(2).
When a customer limit order in EBook establishes the best bid or
offer, however, CBOE complies with the Quote Rule in a different
manner.\7\ As discussed above, CBOE systems are able to decrement
disseminated size for executions when the disseminated size represents
a booked order. For this reason, when a customer limit order in EBook
establishes the best bid or offer, CBOE disseminates the actual size of
the booked limit order. In this instance, the Exchange must be firm for
the greater of its disseminated size or a number predetermined by the
appropriate floor procedure committee (``FPC''). The effect of this
provision is twofold. First, it ensures that the Exchange will be firm
for at least the size of the disseminated booked order. Second, it also
allows the appropriate FPC to establish a higher firm quote size
guarantee when a booked order is the prevailing price. For example, in
conjunction with Automated Book Price Splitprice, if the equity floor
procedure committee establishes a book price commitment quantity of ten
contracts, it could correspondingly establish the minimum firm quote
size guarantee at ten contracts. Thus, the Exchange would be firm for
either the size of the booked order or ten contracts, whichever is
greater. In no event would the firm quote size be smaller than the
actual size of the disseminated booked order. The size of the minimum
firm quote guarantee would be published on the CBOE Web site.
\7\ Book Market Indicators are disseminated to Options Price
Reporting Authority (``OPRA'') when the book bid, offer, or both
improve, or equal the Designated Primary Market Marker/Crowd (``DPM/
Crowd'') quote. If the Book Bid improves or equals the DPM/Crowd market bid, then the Book Market Indicator ``B'' will be
disseminated with the quote to OPRA. If the Book Offer improves or
matches the DPM/Crowd market offer, then the Book Market Indicator
``O'' is disseminated with the quote. If the Book Bid and Offer
improves or equals the DPM/Crowd market, then the Book Market Indicator ``C'' is disseminated with the quote.
When a customer limit order in EBook matches the best bid or offer
of the trading crowd, the size disseminated to OPRA, as well as the
firm quote requirement, is the aggregate of the booked order and the
size that the Exchange periodically publishes. For example, if in a
particular series EBook contains an order for eleven contracts and the
firm quote size as published on the Exchange's Web site is 50
contracts, then the disseminated size as well as the firm quote size
would be 61 contracts for that series. When trades execute against the
booked order, however, the disseminated size would decrement. When
executions extinguish the booked order, the firm quote requirement
would be the size that the Exchange periodically publishes on its Web
site and along with the bidask quotes disseminated to vendors.\8\ To
codify the firm quote rules pertaining to customer limit orders, the
Exchange proposes to add section (c)(2)(a) to CBOE Rule 8.51.
\8\ Using the above example, an execution of 12 contracts (which
would extinguish the booked order of 11 contracts) would result in a
new firm quote requirement, which would be the size (i.e., 50 contracts) that appears on the CBOE Web site.
[[Page 58768]]
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with and furthers the objectives of section 6 of the Act in general,
and in particular, with section 6(b)(5),\9\ in that it is designed to
perfect the mechanisms of a free and open market and a national market
system, protect investors and the public interest, and promote just and
equitable principles of trade by increasing transparency and by
providing the market place with more information upon which to base order routing decisions.
\9\ 15 U.S.C. 78f(b)(5).
B. SelfRegulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the proposed rule change will impose any burden on competition.
C. SelfRegulatory 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
Pursuant to section 19(b)(2) of the Act,\10\ the Exchange requests
accelerated effectiveness of this rule filing. The Exchange believes
that acceleration will enable it to continue uninterrupted its
compliance with the Quote Rule. Moreover, the CBOE believes that
acceleration will enable it to provide greater liquidity guarantees to
customers when customer limit orders match the best bid or offer of the
trading crowd. For these reasons, the Exchange believes it is both
appropriate and in the public interest of investors for the Commission to accelerate the effective date of this filing.
\10\ 15 U.S.C. 78s(b)(2).
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 205490609.
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 also will be
available for inspection and copying at the principal office of the
CBOE. All submissions should refer to File No. SRCBOE200156 and should be submitted by December 14, 2001.
V. Commission Findings and Order Granting Accelerated Approval of the Proposed Rule Change
After careful consideration, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange,\11\ and, in particular, section 6(b)(5) of the Act \12\ in that the proposed rule change has been designed to remove impediments to and to perfect the mechamism of a free and open market and a national market system, while also protecting investors and the public interest. Specifically, the Commission believes that by disseminating the size of customer limit orders and providing a firm quote at a guaranteed size equal to the aggregate of a customer limit order and the crowd guarantee at the same price, the proposed rule change should provide increased transparency to the benefit of market participants that trade listed options. \11\ In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78f(b)(5).
The Commission finds good cause, consistent with section 19(b)(2) of the Act,\13\ for granting the Exchange's request for approval of the proposed rule change prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. The Commission believes that granting accelerated approval to the proposed rule change should allow the CBOE to continue its compliance with the Quote Rule without interruption or delay.
\13\ 15 U.S.C. 78s(b)(2).
It is therefore ordered, pursuant to section 19(b)(2) of the Act,\14\ that the Exchange's proposed rule change (File No. SRCBOE 200156) is approved on an accelerated basis.
\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\15\
\15\ 17 CFR 200.303(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 0129254 Filed 112101; 8:45 am]
BILLING CODE 801001M