regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.,

[Federal Register: August 29, 2002 (Volume 67, Number 168)]

[Notices]

[Page 55443-55444]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr29au02-127]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46397; File No. SR-CBOE-2002-44]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Incorporated To Amend its Rules To Eliminate the ``Book Indicator''

August 21, 2002.

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 August 19, 2002, the Chicago Board Options Exchange, Incorporated (``CBOE'' or ``Exchange'') filedwith the Securities and Exchange Commission (``Commission'' or ``SEC'') 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.

\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

1. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

   The Exchange proposes to amend its rules to eliminate the ``Book Indicator.''

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

   In its filing with the Commission, 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.

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

      1. Purpose

      The Exchange is proposing to eliminate the ``Book Indicator.'' This indicator is affixed to the CBOE disseminated quotation when an order in the Exchange's book represents the best bid or offer on the Exchange. It alerts brokers and the public that the bid, offer or both are being generated by orders in the book, not by market-maker quotes. The Book Indicator was adopted as part of the Exchange's initiative to provide split-price Retail Automatic Execution System (``RAES'') executions for incoming customer orders when the prevailing best bid (offer) is generated by an existing customer order in the CBOE book.\3\ At the time split-price execution functionality was adopted, CBOE's disseminated quote did not display size. Thus, the Book Indicator served to alert customers that an RAES eligible order might not be executed in its entirety at CBOE's displayed price. For example, if the RAES limit was 50 contracts, and the best bid was a customer order in the book for 3 contracts, an incoming RAES order to sell 40 contracts would only be entitled to the book price for 3 contracts. However, because a customer would not know that the CBOE best bid was a booked order, the customer might expect his 40 contract order to execute in its entirety at the bid disseminated by CBOE. The Book Indicator alerted the customer that he might receive a split-price execution.

      \3\ See Securities Exchange Act Release No. 43932 (February 6, 2001), 66 FR 10332 (February 14, 2001).

      Now that CBOE disseminates quotes with size, it no longer needs the Book Indicator. Today, in the above example, CBOE's disseminated bid would contain a size of 3 contracts. Thus, the customer would know that an RAES sell order would receive only 3 contracts at the disseminated bid price. This obviates the need for the Book Indicator; therefore CBOE proposes to eliminate it. 2. Statutory Basis

      The Exchange believes the proposed rule change is consistent with Section 6(b) of the Act \4\ in general and furthers the objectives of Section 6(b)(5) \5\ in particular in that it should promote just and equitable principles of trade, serve to remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest.

      \4\ 15 U.S.C. 78f(b).

      \5\ 15 U.S.C. 78f(b)(5).

   2. Self-Regulatory Organization's Statement on Burden on Competition

      This proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

   3. Self-Regulatory 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.

3. 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 such proposed rule change, or

   (B) Institute proceedings to determine whether the proposed rule change should be disapproved.

4. 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 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filedwith 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 will also be available for inspection and copying at the principal office of CBOE. All submissions should refer to the File No. SR-CBOE-2002-44 and should be submitted by September 19, 2002.

   [[Page 55444]]

   For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\6\

   \6\ 17 CFR 200.30-3(a)(12).

   Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 02-22098Filed8-28-02; 8:45 am]

   BILLING CODE 8010-01-U