70 FR 166 pgs. 51101-51102 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval to Proposed Rule Change Relating to DPM Obligations for Maintaining Backup Autoquote Systems
Type: NOTICEVolume: 70Number: 166Pages: 51101 - 51102
Docket number: [Release No. 34-52319; File No. SR-CBOE-2005-28]
FR document: [FR Doc. E5-4712 Filed 8-26-05; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52319; File No. SR-CBOE-2005-28]
Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval to Proposed Rule Change Relating to DPM Obligations for Maintaining Backup Autoquote Systems
August 23, 2005.
On April 1, 2005, the Chicago Board Options Exchange, Incorporated ("CBOE" or "Exchange") filed with the Securities and Exchange Commission ("Commission"), pursuant to Section 19(b)(1)1of the Securities Exchange Act of 1934 ("Act") and Rule 19b-4 thereunder,2a proposed rule change to amend Rules 8.85(a)(xi) and (xii) to remove the requirement that Designated Primary Market-Makers ("DPMs") maintain a back-up quoting system for Hybrid and non-Hybrid option classes. The Exchange proposes a corresponding amendment to its Minor Rule Plan to remove references to Rules 8.85(a)(xi) and 8.85(a)(xii). The proposed rule change was published for comment in the Federal Register on July 22, 2005.3The Commission received no comments on the proposal. This order approves the proposed rule change.
Footnotes:
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 See Securities Exchange Act Release No. 52044 (July 15, 2005), 70 FR 42397 ("Notice").
The Commission finds that the proposed rule change is consistent with the requirements of Section 6 of the Act,4applicable to a national securities exchange.5In particular, the Commission believes that the proposal is consistent with Sections 6(b)(5) and 6(b)(7) of the Act,6which require, among other things, that an exchange have rules designed to promote just and equitable principles of trade, protect investors and the public interest, and enhance the effectiveness and fairness of the Exchange's disciplinary procedures. The Commission believes that CBOE's proposed rule changes should help to improve the efficiency of CBOE's market by eliminating unnecessary costs now borne by the Exchange's DPMs relating to the maintenance of back-up quotation systems.
Footnotes:
4 See 15 U.S.C. 78f.
5 In approving this proposed rule change, the Commission has considered its impact onefficiency, competition and capital formation. 15 U.S.C. 78c(f).
6 15 U.S.C. 78f(b)(5) and 78f(b)(7).
As set forth in the Notice, CBOE Rules 8.85(a)(xi) and (xii) both impose an obligation on DPMs to maintain independent backup autoquote systems that can be employed in the event that a DPM's proprietary autoquote system should fail or be otherwise unavailable. Rule 8.85(a)(xi) governs non-CBOE Hybrid System ("non-Hybrid") classes, while Rule 8.85(a)(xii) governs CBOE Hybrid System ("Hybrid") classes.
With regard to CBOE Rule 8.85(a)(xi), the Commission notes that the Exchange has converted all of its DPM option classes to the CBOE Hybrid System. Thus, because non-Hybrid option classes no longer exist, CBOE Rule 8.85(a)(xi) has no applicability. Its repeal will have no impact on market participants.
As regards CBOE Rule 8.85(a)(xii), which requires DPMs to maintain an independent backup autoquote system that it may employ in the event its proprietary autoquote system fails, the Commission believes that the CBOE has made a reasonable determination that the backup obligation is no longer necessary. The Commission has no basis at this time to disagree with the CBOE's assessment that the recent adoption and implementation of the electronic DPM ("e-DPM") program7on the Exchange should provide a more appropriate and cost effective safeguard against a DPM's inability to generate quotes in such option classes. Pursuant to the Exchange's rules governing the program, CBOE may allocate an option class that is already allocated to a DPM to one or more e-DPMs.8Such e-DPMs provide competing quotations accessible by CBOE market participants.
Footnotes:
7 See Exchange Act Release Nos. 49577 (April 19, 2004), 69 FR 22576 (April 26, 2004) (order approving the process for approving e-DPMs on the Exchange); 50003 (July 12, 2004), 69 FR 25647 (July 19, 2004) (order approving e-DPM trading rules).
8 See CBOE Rules 8.92 and 8.93.
Thus, the Commission believes that, given the CBOE's current trading environment, the exchange has made a reasonable determination that the requirement to maintain a backup quotation system is unnecessary and unduly burdensome on DPMs. The proposed rule changes appear to be reasonably designed to help to put DPMs on a more equal competitive footing other market participants, including electronic DPMs, which do not have a backup quotation system maintenance requirement. Moreover, the Commission notes that deletion of the backup autoquote rules would not affect a DPM's separate obligation to provide continuous market quotations for each of its allocated classes and respective series.9
Footnotes:
9 See CBOE Rule 8.85(a)(i).
Finally, the Commission approves CBOE's proposal to remove references to Rules 8.85(a)(xi) and 8.85(a)(xii) in its Minor Rule Violations Plan.10
Footnotes:
10 See CBOE Rule 17.50(g)(10).
It is therefore ordered , pursuant to Section 19(b)(2) of the Act,11that the proposed rule change (SR-CBOE-2005-28) be, and hereby is, approved.
Footnotes:
11 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.12
Footnotes:
12 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4712 Filed 8-26-05; 8:45 am]
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