00-31681. Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Board Options Exchange, Inc., Permitting the Implementation of the Exchange's Rapid Opening ...

December 4, 2000.

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 October 5, 2000, 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 Exchange.^[3] The Commission is publishing this notice to solicit comments on the proposed rule change, as amended.

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

The Exchange proposes to adopt Interpretation .01 to its Rapid Opening System (“ROS”) rule (CBOE Rule 6.2A), amend its Lead Market-Maker (“LMM”) and Supplemental Market-Maker (“SMM”) (CBOE Rule 8.15), and amend Interpretation 0.02 to its index option trading rotation rule (CBOE Rule 24.13) to clarify that LMMs and SMMs may employ the Exchange's ROS in conducting rotations in options on the S&P 100 Index (“OES”). The text of the proposed rule change is available at the Office of the Secretary, the Exchange, and at the Commission.

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

In its filing with the Commission, the Exchange 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 Exchange 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

In February 1999, the Exchange implemented a Rapid Opening System (“ROS”) that has facilitated the expedited openings of options classes on the Exchange.^[4] since that time, ROS has been used in a number of equity option trading crowds to open options classes within seconds of the opening of the underlying security. The Exchange believes that by entering into open trading more quickly using ROS, customer orders have been addressed in open trading in a timelier manner.

Openings in OEX, however, have been conducted for many years by the use of LMMs, who are appointed pursuant to the terms of CBOE Rule 8.15, and who open the various series of OEX pursuant to the terms of Interpretation .02 to CBOE Rule 24.13.^[5] The LMM system was put in place to allow for speedier openings in the OEX crowd and to make particular market-makers responsible for opening quotes. While the LMM system has been successful in speeding up the opening process in the OEX trading crowd, the openings still may not be completed for a number of minutes, particularly on days of extreme market conditions. Consequently, the CBOE Index Floor Procedure Committee, pursuant to its authority under CBOE Rule 24.13 to direct the manner of the opening rotations, has determined to require the LMMs to employ ROS to open OEX.^[6] The CBOE Index Floor Procedure Committee expects to see the same benefits that have been experienced in the equity option trading crowds that have been using ROS for the past on and a half years, namely, entry into open trading within seconds of the opening bell.

When the Exchange adopted ROS, it intended for the system to be used at any trading location on the floor, whether in an equity option trading crown or an index option trading crowd. The rules governing ROS did not specifically address to what extent ROS was to be used in connection with the LMM system that was operating in the OEX trading crowd. The CBOE, however, represents that the ROS system was not meant to supplant the LMM system, which has added accountability to the openings in OEX. The CBOE believes that, at the option of the appropriate CBOE Floor Procedure Committee, ROS would be used as a tool by the LMM to facilitate openings. With the proposed rule change, the CBOE will thus clarify that the LMMs may use ROS to conduct the opening rotation in OEX. To the extent that market-makers want to participate in the opening of a series in which they do not hold LMM or SMM appointments, they will continue to be able to transmit written non-cancelable proprietary and market-makers orders to the LMM in the appropriate zone ten minutes prior to the opening of trading, pursuant to the terms of Interpretation .02 to CBOE Rule 24.13.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act ^[7] in general and further the objectives of section 6(b)(5); ^[8] in particular in that it is designed to promote just and equitable principles of trade and to protect investors and the public interest.

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

The CBOE does not believe that the proposed rule change will impose any burden on competition that is 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

The CBOE has neither solicited nor received comments on the proposed rule change.

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

The foregoing rule change constitutes a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule of the Exchange and, therefore, has become effective pursuant to section 19(b)(3)(A) of the Act ^[9] and Rule 19b-4(f)(1) ^[10] 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 or appropriate 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, as amended, is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., 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 submissions should refer to File No. SR-CBOE-00-34 and should be submitted by January 3, 2001.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[11]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  The CBOE filed its proposed rule change on August 3, 2000. On October 5, 2000, however, the CBOE filed Amendment No. 1, which clarified that the proposed rule change will be effective only as long as ROS is approved for use by the Commission. See Letter from Timothy Thompson, Assistant General Counsel and Vice President, CBOE, to Susie Cho, Attorney, Division of Market Regulation (“Division”), Commission (October 5, 2000).

4.  The ROS pilot program was first approved by the Commission in February 1999. See Securities Exchange Act Release No. 41033 (February 9, 1999), 64 FR 8156 (February 18, 1999). The ROS pilot has been extended through September 2001. See Securities Exchange Act Release No. 43395 (September 29, 2000), 65 FR 60706 (October 12, 2000).

5.  The rules governing opening rotations in OEX were approved by the Commission on March 31, 1988. See Securities and Exchange Act Release No. 25545 (March 31, 1988), 53 FR 11720 (April 8, 1988).

6.  Previously, only those open classes that employed the Exchange's AutoQuote system were able to use ROS. See Securities Exchange Act Release No. 41033 (February 9, 1999), 64 FR 8156 (February 18, 1999). The OEX does not employ the Exchange's AutoQuote; however, the CBOE represents that ROS can now accommodate inputs from systems other than the Exchange's AutoQuote. Telephone conversation between Timothy Thompson, Assistant General Counsel and Vice President, CBOE, and Susie Cho, Attorney, Division, SEC, September 11, 2000. For purposes of CBOE Rule 6.2A, the term “AutoQuote” means either the Exchange's AutoQuote system or a proprietary autoquote system operated by a member of the trading crown. See Securities Exchange Act Release No. 43667 (December 4, 2000).

7.  15 U.S.C. 78f(b).

8.  15 U.S.C. 78f(b)(5).

9.  15 U.S.C. 78s(b)(3)(A).

10.  17 CFR 240.19b-4(f)(1).

11.  17 CFR 200.30-3(a)(12).