01-14737. Self-Regulatory Organizations; Chicago Board Options Exchange, Inc.; Order Granting Approval and Notice of Filing and Order Granting Accelerated Approval to Amendment Nos. 1 and 2 to Proposed Rule Change Relating to Participation Rights in ...

June 6, 2001.

I. Introduction

On august 29, 2000, the Chicago Board Options Exchange, Inc.(“CBOE”) 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 19b-4 thereunder,^[2] a proposed rule change to amend CBOE Rule 6.74(d), which currently entitles a floor broker representing a member firm to cross a certain percentage of each customer order the firm sends to the floor against another order on behalf of the same firm.

The proposed rule change would: (a) Make clear that Rule 6.74(d) includes the situation where a floor broker is seeking to cross a solicited order against the original customer order; and (b) expand Rule 6.74(d) to allow the floor broker representing the original customer order to solicit the order to trade against it even if that floor broker is not a nominee of the originating firm.

The proposed rule change was published for comment in the Federal Register on November 21, 2000.^[3] The Commission received no comments on the proposal. The CBOE filed Amendment Nos. 1 and 2 to the proposed rule change with the Commission on February 12, 2001, and May 23, 2001, respectively.^[4] This order approves the proposed rule change, accelerates approval of Amendment Nos. 1 and 2, and solicits comments from interested persons on those amendments.

II. Discussion

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange ^[5] and, in particular, the requirements of section 6 of the Act ^[6] and the rules and regulations thereunder. The Commission finds specifically that the proposed rule change, as amended, is consistent with section 6(b)(5) of the Act ^[7] because it establishes the ability of firms and floor brokers to solicit orders to supply the contra side for customer orders in a manner that matches or improves the price available from the crowd while conforming to the principles and limitations set forth by the Commission in its original approval of Rule 6.74(d) concerning participation rights in crossing transactions.^[8]

Amendment No. 1 to the proposed rule change would add Interpretation .07 to Rule 6.74 to make clear that a floor broker may not cross an order that he is holding with an order from a market maker that is then in the trading crowd. Amendment No. 2 would clarify that the proposed change to CBOE Rule 6.74 is intended to supersede the provisions of paragraph (d) of CBOE Rule 6.9, “Solicited Transactions,” when the conditions specified in CBOE Rule 6.74 are met. The Commission finds that Amendment Nos. 1 and 2 are appropriate clarifications of the proposed rule change and are consistent with section 6(b)(5) of the Act. In addition, because these amendments clarify the intent of the proposed rule change and thereby strengthen the proposal, the Commission finds good cause for approving their provisions prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register.

III. Solicitation of Comment

Interested persons are invited to submit written data, views, and arguments concerning Amendment Nos. 1 and 2, including whether these amendments are 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 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 in the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the CBOE. All submissions should refer to File No. SR-CBOE-00-43 and should be submitted by July 3, 2001.

IV. Conclusion

For the reasons discussed above, the Commission finds that the proposal, as amended, is consistent with the Act and the rules and regulations thereunder.

It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act,^[9] that the proposed rule change (File No. SR-CBOE-00-43), as amended, be, and hereby it is, approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[10]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See Securities Exchange Act Release No. 43537 (November 9, 2000), 65 FR 69977.

4.  The substance of Amendment Nos. 1 and 2 is discussed below.

5.  In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

6.  15 U.S.C. 78f.

7.  15 U.S.C. 78f(b)(5).

8.  See Securities Exchange Act Release No. 42835 (May 26, 2000), 65 FR 35683 (June 5, 2000).

9.  15 U.S.C. 78s(b)(2).

10.  17 CFR 200.30-3(a)(12).