Federal Register: January 7, 2008 (Volume 73, Number 4)
DOCID: fr07ja08-63 FR Doc E7-25651
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
DOCUMENT ID: [Release No. 34-57067; File No. SR-CBOE-2007-87]
NOTICE: NOTICES
DOCID: fr07ja08-63
ACTION: Self-Regulatory Organizations; Proposed Rule Changes:
SUBJECT CATEGORY:
Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend the Quoting Requirements Applicable to the Hybrid Opening System
DOCUMENT SUMMARY:
December 31, 2007.
On July 25, 2007, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b4
thereunder,\2\ a proposed rule change to amend its rule pertaining to
the Hybrid Opening System (``HOSS'') as well as related rules
pertaining to the obligations of designated primary marketmakers
(``DPMs''), electronic designated primary marketmakers (``eDPMs'')
and lead marketmakers (``LMMs'') during opening rotations. On November
19, 2007, CBOE filed Amendment No. 1 to the proposed rule change. The
proposed rule change, as amended, was published for comment in the
Federal Register on November 26, 2007.\3\ The Commission received no
comments on the proposal. This order approves the proposed rule change, as modified by Amendment No. 1 thereto.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ See Securities Exchange Act Release No. 56814 (November 19, 2007), 72 FR 66008 (``Notice'').
I. Description of the Proposal
HOSS is the Exchange's automated system for initiating trading at
the beginning of each trading day. The Exchange proposes to amend its
HOSS procedures contained in CBOE Rule 6.2B. Previously, for each
option class approved for trading, HOSS had been programmed to open an
option series only if the DPM or LMM, as applicable, for the particular
option class submitted a quote that complies with the legal quote width
requirements of paragraph (b)(iv) to CBOE Rule 8.7, Obligations of
MarketMakers. In 2005, the HOSS procedures were revised; currently,
HOSS is programmed to open an option series as long as any market
maker,\4\ not just the DPM or LMM, has submitted an opening quote that
complies with the legal width quote requirements of CBOE Rule
8.7(b)(iv).\5\ However, even though the procedures were changed to
permit HOSS to automatically open a series without a DPM's or LMM's
quote, DPMs (as well as eDPMs) and LMMs are still obligated under CBOE's rules to submit timely opening quotes.\6\
\4\ This could include a quote from a DPM, eDPM, LMM, Market Maker or Remote MarketMaker.
\5\ See Securities Exchange Act Release No. 52234 (August 10,
2005), 70 FR 48214 (August 16, 2005) (SRCBOE200540). Other
factors must also be satisfied for HOSS to open an options series.
For example, the opening price for the series must be within an
acceptable range and the opening trade cannot create a market order imbalance. See, e.g., CBOE Rule 6.2B(e)(ii)(iii).
\6\ Currently, DPMs, eDPMs, and LMMs are required to enter
opening quotes in accordance with CBOE Rule 6.2B in 100% of the
series of each appointed class; whereas, other MarketMakers and
Remote MarketMakers are permitted, but not obligated, to enter
opening quotes in accordance with CBOE Rule 6.2B. See current CBOE Rules 6.2B, 8.15A, Lead MarketMakers in Hybrid Classes
(subparagraph (b)(iv) of this rule has been interpreted by the
Exchange to require an LMM to enter opening quotes in 100% of the
series of each appointed class), 8.85, DPM Obligations, and 8.93, e DPM Obligations.
The proposed rule change modifies the HOSS procedures to allow the parameters to be configured so that an option series will open: (1) If at least one market maker has submitted an opening quote, which is how HOSS currently operates; or (2) only if a DPM or LMM, as applicable, has submitted an opening quote, which is how HOSS operated previously. Determinations on the particular configuration would be made on a classbyclass basis by the appropriate Exchange Procedure Committee and announced to the membership via Regulatory Circular.\7\ \7\ See Notice, supra note 3, 72 FR at 66008 (noting that the Exchange Procedure Committee might consider such things as ``trading in the underlying or related products, trading in the option on competing exchanges, how effectively opens have occurred in the past, liquidity and/or other factors.'').
In addition, the proposed rule change amends the opening quote
obligations of DPMs, eDPMs, and LMMs to require them to ensure a
timely initiation of an opening trading rotation of each allocated
class by entering opening quotes as necessary (i.e., when no other
market maker has entered an opening quote). This change would absolve
DPMs, eDPMs, and LMMs of their responsibility (under CBOE's current
rules) to enter opening quotes when another market maker has already entered an opening quote in a particular series.\8\
\8\ Under CBOE's proposed rules, DPMs, eDPMs, and LMMs would
still be permitted to enter opening quotes even if another market maker has already entered an opening quote.
II. Discussion and Commission Findings
The Commission has carefully reviewed the proposed rule change and finds that it is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\9\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\10\ which requires, among other things, that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. \9\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78f(b)(5).
The proposed rule change will afford the Exchange more flexibility
in the manner in which HOSS conducts opening rotations. The Commission
believes that allowing the appropriate Exchange Procedure Committee to determine on a classbyclass basis how
[[Page 1248]]
a particular series should open may allow CBOE to achieve more
competitive, efficient, and orderly openings, while allowing the
Exchange to provide sufficient liquidity at the open in particular classes.
While the Commission continues to believe that the quoting
obligations of LMMs, DPMs, and eDPMs are appropriate, given the
benefits (such as favorable margin treatment) that are provided to
market makers, the Commission also believes that it is reasonable for
CBOE to excuse them from submitting opening quotes in their assigned
series when at least one other market maker has already entered an
opening quote in that series. The Commission notes that if no other
market maker has entered an opening quote, the DPM and eDPM or LMM
would be responsible for ensuring that an opening quote is promptly
entered so that HOSS can automatically open the series. This proposal,
in conjunction with another recently approved proposed rule change,\11\ also should encourage LMMs, DPMs, and eDPMs to quote more
competitively during HOSS opening rotations.\12\
\11\ See Securities Exchange Act Release No. 56860 (November 29,
2007), 72 FR 68919 (December 6, 2007) (SRCBOE200759) (allowing
market makers to enter an opening quote for as low as one contract
if the underlying primary market disseminates less than a 1,000
share best bid or offer quote immediately prior to an option series opening).
\12\ Nothing in this proposal would affect a MarketMaker's
obligation to honor its firm quote obligations imposed by CBOE Rule 8.51.
III. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\13\ that the proposed rule change (SRCBOE200787), as modified by Amendment No. 1, be, and hereby is, approved.
\13\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\14\
\14\ 17 CFR 200.303(a)(12).
Nancy M. Morris,
Secretary.
[FR Doc. E725651 Filed 1408; 8:45 am]
BILLING CODE 801101P
SUMMARY:
Chicago Board Options Exchange, Inc.,
DOCUMENT BODY 2:
December 31, 2007.
On July 25, 2007, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b4
thereunder,\2\ a proposed rule change to amend its rule pertaining to
the Hybrid Opening System (``HOSS'') as well as related rules
pertaining to the obligations of designated primary marketmakers
(``DPMs''), electronic designated primary marketmakers (``eDPMs'')
and lead marketmakers (``LMMs'') during opening rotations. On November
19, 2007, CBOE filed Amendment No. 1 to the proposed rule change. The
proposed rule change, as amended, was published for comment in the
Federal Register on November 26, 2007.\3\ The Commission received no
comments on the proposal. This order approves the proposed rule change, as modified by Amendment No. 1 thereto.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ See Securities Exchange Act Release No. 56814 (November 19, 2007), 72 FR 66008 (``Notice'').
I. Description of the Proposal
HOSS is the Exchange's automated system for initiating trading at
the beginning of each trading day. The Exchange proposes to amend its
HOSS procedures contained in CBOE Rule 6.2B. Previously, for each
option class approved for trading, HOSS had been programmed to open an
option series only if the DPM or LMM, as applicable, for the particular
option class submitted a quote that complies with the legal quote width
requirements of paragraph (b)(iv) to CBOE Rule 8.7, Obligations of
MarketMakers. In 2005, the HOSS procedures were revised; currently,
HOSS is programmed to open an option series as long as any market
maker,\4\ not just the DPM or LMM, has submitted an opening quote that
complies with the legal width quote requirements of CBOE Rule
8.7(b)(iv).\5\ However, even though the procedures were changed to
permit HOSS to automatically open a series without a DPM's or LMM's
quote, DPMs (as well as eDPMs) and LMMs are still obligated under CBOE's rules to submit timely opening quotes.\6\
\4\ This could include a quote from a DPM, eDPM, LMM, Market Maker or Remote MarketMaker.
\5\ See Securities Exchange Act Release No. 52234 (August 10,
2005), 70 FR 48214 (August 16, 2005) (SRCBOE200540). Other
factors must also be satisfied for HOSS to open an options series.
For example, the opening price for the series must be within an
acceptable range and the opening trade cannot create a market order imbalance. See, e.g., CBOE Rule 6.2B(e)(ii)(iii).
\6\ Currently, DPMs, eDPMs, and LMMs are required to enter
opening quotes in accordance with CBOE Rule 6.2B in 100% of the
series of each appointed class; whereas, other MarketMakers and
Remote MarketMakers are permitted, but not obligated, to enter
opening quotes in accordance with CBOE Rule 6.2B. See current CBOE Rules 6.2B, 8.15A, Lead MarketMakers in Hybrid Classes
(subparagraph (b)(iv) of this rule has been interpreted by the
Exchange to require an LMM to enter opening quotes in 100% of the
series of each appointed class), 8.85, DPM Obligations, and 8.93, e DPM Obligations.
The proposed rule change modifies the HOSS procedures to allow the parameters to be configured so that an option series will open: (1) If at least one market maker has submitted an opening quote, which is how HOSS currently operates; or (2) only if a DPM or LMM, as applicable, has submitted an opening quote, which is how HOSS operated previously. Determinations on the particular configuration would be made on a classbyclass basis by the appropriate Exchange Procedure Committee and announced to the membership via Regulatory Circular.\7\ \7\ See Notice, supra note 3, 72 FR at 66008 (noting that the Exchange Procedure Committee might consider such things as ``trading in the underlying or related products, trading in the option on competing exchanges, how effectively opens have occurred in the past, liquidity and/or other factors.'').
In addition, the proposed rule change amends the opening quote
obligations of DPMs, eDPMs, and LMMs to require them to ensure a
timely initiation of an opening trading rotation of each allocated
class by entering opening quotes as necessary (i.e., when no other
market maker has entered an opening quote). This change would absolve
DPMs, eDPMs, and LMMs of their responsibility (under CBOE's current
rules) to enter opening quotes when another market maker has already entered an opening quote in a particular series.\8\
\8\ Under CBOE's proposed rules, DPMs, eDPMs, and LMMs would
still be permitted to enter opening quotes even if another market maker has already entered an opening quote.
II. Discussion and Commission Findings
The Commission has carefully reviewed the proposed rule change and finds that it is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\9\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\10\ which requires, among other things, that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. \9\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78f(b)(5).
The proposed rule change will afford the Exchange more flexibility
in the manner in which HOSS conducts opening rotations. The Commission
believes that allowing the appropriate Exchange Procedure Committee to determine on a classbyclass basis how
[[Page 1248]]
a particular series should open may allow CBOE to achieve more
competitive, efficient, and orderly openings, while allowing the
Exchange to provide sufficient liquidity at the open in particular classes.
While the Commission continues to believe that the quoting
obligations of LMMs, DPMs, and eDPMs are appropriate, given the
benefits (such as favorable margin treatment) that are provided to
market makers, the Commission also believes that it is reasonable for
CBOE to excuse them from submitting opening quotes in their assigned
series when at least one other market maker has already entered an
opening quote in that series. The Commission notes that if no other
market maker has entered an opening quote, the DPM and eDPM or LMM
would be responsible for ensuring that an opening quote is promptly
entered so that HOSS can automatically open the series. This proposal,
in conjunction with another recently approved proposed rule change,\11\ also should encourage LMMs, DPMs, and eDPMs to quote more
competitively during HOSS opening rotations.\12\
\11\ See Securities Exchange Act Release No. 56860 (November 29,
2007), 72 FR 68919 (December 6, 2007) (SRCBOE200759) (allowing
market makers to enter an opening quote for as low as one contract
if the underlying primary market disseminates less than a 1,000
share best bid or offer quote immediately prior to an option series opening).
\12\ Nothing in this proposal would affect a MarketMaker's
obligation to honor its firm quote obligations imposed by CBOE Rule 8.51.
III. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\13\ that the proposed rule change (SRCBOE200787), as modified by Amendment No. 1, be, and hereby is, approved.
\13\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\14\
\14\ 17 CFR 200.303(a)(12).
Nancy M. Morris,
Secretary.
[FR Doc. E725651 Filed 1408; 8:45 am]
BILLING CODE 801101P