01-27888. Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Chicago Board Options Exchange, Incorporated To Establish Connectivity Fees for Use of Its New Screen-Based Trading System

October 31, 2001.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) ^[1] and Rule 19b-4 thereunder,^[2] notice hereby is given that on October 12, 2001, the Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On October 29, 2001, CBOE submitted Amendment No. 1 to the proposed rule change.^[3] 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

CBOE is proposing to establish connectivity fees in connection with the establishment of the Exchange's screen-based trading system, known as CBOE direct. The text of the proposed rule change is available at the principal office of the Exchange 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 Commission, CBOE included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received regarding the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. CBOE has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.

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

1. Purpose

CBOE is proposing to establish connectivity fees applicable to the Exchange's new screen-based trading system, CBOE direct.^[4] These charges relate to the hardware, software, and network costs associated with connecting to the new screen-based trading platform and would be applicable only to members desiring certain types of connectivity to CBOE direct. Order-sending firms would be able to route orders to CBOE direct via the new connectivity or via existing connections to CBOE's Order Routing System (which serves orders routed to the floor of the Exchange). Members, such as liquidity providers, desiring to connect to CBOE direct via the new connectivity would incur set-up charges based on the nature of the connection and the hardware selected. Such members would first choose from two available Application Programming Interfaces (“APIs”): (1) A “CMI” API, or (2) a “FIX” API. For members that desire a CMI API, additional hardware would be required. There would be three different hardware options available to these users involving different CBOE software and server combinations. Prices for each type are detailed in CBOE's fee schedule. A FIX API connection would involve a $500 charge if the user does not already have appropriate FIX connectivity. All of these set-up charges would be one-time charges.

Connectivity charges also would involve a monthly circuit charge. For members using a CBOE managed network, charges would be based on the bandwidth selected by the user as well as the user's distance from a network POP server. For a member using its own network, a lesser monthly charge would be applicable based on API/hardware configuration.

2. Statutory Basis

CBOE believes that the proposed rule change is consistent with section 6(b) of the Act ^[5] in general and section 6(b)(4) ^[6] in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among CBOE members.

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

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

C. 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.

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

CBOE represents that the proposed rule change establishes or changes a due, fee, or other charge imposed by the Exchange and, therefore, has become effective pursuant to section 19(B)(3)(A)(ii) of the Act ^[7] and subparagraph (f)(2) of Rule 19b-4 ^[8] thereunder. 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 in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

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, NE., Washington, DC 20549-0609. 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 at the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submission should refer to File No. SR-CBOE-2001-55 and should be submitted by November 28, 2001.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[9]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See Letter from Angelo Evangelou, CBOE, to Michael Gaw, Division of Market Regulation, Commission, dated October 25, 2001 (“Amendment No. 1”). The original filing set forth proposed fees for connectivity charges and excessive requests for quote (“RFQs”). In Amendment No. 1, CBOE withdrew the portion of the filing relating to RFQ fees and stated its intention to resubmit this portion in a separate filing.

4.  The Exchange anticipates that, initially, trading on CBOE direct will occur only during extended trading hours for a limited range of products. Separately, CBOE has filed a proposed rule change to adopt certain rules governing trading on CBOE direct. See File No. SR-CBOE-00-55.

5.  15 U.S.C. 78f(b).

6.  15 U.S.C. 78f(b)(4).

7.  15 U.S.C. 78s(b)(3)(A)(ii).

8.  17 CFR 240.19b-4(f)(2).

9.  17 CFR 200.30-3(a)(12).