February 18, 2005
Volume 33, Number 7
Exchange
Bulletin
The Constitution and Rules of the Chicago Options Exchange, Incorporated (“Exchange”), in certain specific instances, require
the Exchange to provide notice to the Exchange membership. To satisfy this requirement, a complimentary copy of the Exchange Bulletin, including the Regulatory Bulletin, is delivered to all effective members on a weekly basis.
CBOE members are encouraged to receive the Exchange and Regulatory Bulletin and Information Circulars via e-mail. E-mail
subscriptions may be obtained by submitting your name, firm, mailing address, e-mail address, and phone number, to
members@cboe.com, or, by contacting the Membership Department by phone, at 312-786-7449. There is no charge for e-mail
delivery of the Exchange and Regulatory Bulletin or for Information Circulars. If you do sign up for e-mail delivery, please
remember to inform the Membership Department of e-mail address changes.
Additional subscriptions for hard copy delivery may be obtained by submitting your name, firm, mailing address, e-mail address and telephone number to: Chicago Board Options Exchange, Accounting Department, 400 South LaSalle, Chicago, Illinois 60605, Attention: Bulletin Subscriptions. The cost of an annual subscription (July 1 through June 30) is $200.00 ($100.00
after January 1), payable in advance. The Exchange reserves the right to limit subscriptions by non-members.
For up-to-date Seat Market Quotes, refer to CBOE.com and click “Seat Market Information” under the “About CBOE” tab. For
access to the CBOE Member Web Site, please also notify the Membership Department using the contact information above.
Copyright © 2004 Chicago Board Options Exchange, Incorporated
SEAT MARKET QUOTES AS OF FRIDAY, FEBRUARY 18, 2005
CLASS
CBOE/FULL
CBOT/FULL
BID
$325,000.00
$1,250,000.00
OFFER
$335,000.00
$1,350,000.00
LAST SALE AMOUNT
$320,000.00
$1,275,000.00
LAST SALE DATE
February 2, 2005
February 16, 2005
Page 2
February 18, 2005
Volume 33, Number 7
Chicago Board Options Exchange
MEMBERSHIP INFORMATION FOR 2/10/05 THROUGH 2/16/05
Termination Date
MEMBERSHIPAPPLICATIONS RECEIVED FOR
WHICH A POSTING PERIOD IS REQUIRED
Member Organization Applicants
Date Posted
Samurai Trading, LLC
2/15/05
Andrew Bruce, Nominee
515 Madison Avenue, 5th Floor
New York, NY 10022
Christopher J. Carroll – Managing Member
Hardcastle Trading USA LLC
Brent E. Hippert, Nominee
1 Barker Avenue, 4th Floor
White Plains, NY 10601
Hardcastle Trading AG – Shareholder
HT Holdings Limited – Shareholder
Brian J. Thomson – Shareholder
1302296 Ontario Inc. – Shareholder
Brent E. Hippert – President/CCO
Brian J. Thomson - Chairman
2/15/05
Lessor: Susquehanna Investment Group
2/15/05
Lessee: Sallerson-Troob LLC
Robert J. Wasserman (HAD), NOMINEE
Lessor: Stephens Options
2/15/05
Lessee: Goldman Sachs Execution & Clearing LP
Nicholas L. Marovich (NIC), NOMINEE
Lessor: Stephens Options
Lessee: McTigue Trading LLC
William S. Persky (WSP), NOMINEE
2/16/05
Lessor: Michael S. Vanes
Lessee: Sparta Group Of Chicago, LP
Frank A. Hirsch (FAH), NOMINEE
2/16/05
MEMBERSHIP TERMINATIONS
Individual Members
CBT Registered For:
Termination Date
2/10/05
New Leases
Effective Date
Mark S. Malter (MLT)
G-Bar Limited Partnership
1830 Lincoln Ave.
Northbrook, IL 60062
Lessor: Peter C. Lutz
Lessee: K & S Trading, LP
John S. Barnes, NOMINEE
Rate:
$1,500
Term: 11 Days
2/11/05
Nominee(s) / Inactive Nominee(s):
Termination Date
2/10/05
Lessor: KISAY 1, LP
Lessee: Kc-Co II LLC
Martin J. Wendell, NOMINEE
Rate:
0.8609%
Term: Monthly
2/11/05
John F. Connors (JCN)
Cutler Group, LP
440 S. LaSalle, Suite 1124
Chicago, IL 60605
2/11/05
Lessor: Henry P. Gosiene
Lessee: HGI, Inc.
Timothy Cody, NOMINEE
Rate:
0.875%
Term: Monthly
2/14/05
Mark L. Elafros (ELA)
TD Options, LLC
230 S. LaSalle, Suite 688
Chicago, IL 60604
Martin J. Wendell (WEN)
KC-Co. II LLC
10 S. LaSalle, Suite 2300
Chicago, IL 60603
2/14/05
2/14/05
MEMBERSHIP LEASES
Lessor: Stephens Options
2/14/05
Lessee: Goldman Sachs Execution & Clearing LP
Nicholas L. Marovich, NOMINEE
Rate:
$131.25
Term: 1 Day
Lessor: Stephens Options
Lessee: McTigue Trading LLC
William S. Persky, NOMINEE
Rate:
$131.25
Term: 1 Day
2/15/05
Andrew Keene (AXK)
BOTTA Capital Management LLC
1517 N. Hudson, #2
Chicago, IL 60610
2/15/05
Lessor: Susquehanna Investment Group
Lessee: Sunset Securities LLC
Brian Huddleston, NOMINEE
Rate:
0.875%
Term: Monthly
2/15/05
Nicholas L. Marovich (NIC)
Goldman Sachs Execution & Clearing, LP
440 S. LaSalle, Suite 1700
Chicago, IL 60605
2/16/05
Lessor: SLK-Hull Derivatives LLC
Lessee: Dowd Broker Group, Inc.
Milan Radjenovich, NOMINEE
Rate:
0.8609%
Term: Monthly
2/16/05
William S. Persky (WSP)
McTigue Trading LLC
442 W. Wellington, #525
Chicago, IL 60657
2/16/05
Lessor: Michael S. Vanes
Lessee: Frank A. Hirsch
Rate:
0.75%
Term: Monthly
2/16/05
Jonathan S. Okman (OKE)
SLK-Hull Derivatives LLC
440 S. LaSalle, 17th Floor
Chicago, IL 60605
Terminated Leases
Termination Date
Lessor: Botta Specialist, LLC
Lessee: BOTTA Capital Management LLC
Mark Wolicki (IKI), NOMINEE
2/15/05
Page 3
February 18, 2005
Volume 33, Number 7
EFFECTIVE MEMBERSHIPS
Individual Members
Nominee(s) / Inactive Nominee(s):
Effective Date
L. Scott Dennison (DSN)
2/11/05
TD Options, LLC
230 S. LaSalle - Ste. 688
Chicago, IL 60604
Type of Business to be Conducted: Market Maker/ Floor Broker
Martin J. Wendell (WEN)
2/11/05
KC-Co. II LLC
10 S. LaSalle St., Ste. 2300
Chicago, IL 60603
Type of Business to be Conducted: Market Maker
William H. Murphy IV (MRF)
2/14/05
KC-Co. II LLC
10 S. LaSalle, Ste. 2300
Chicago, IL 60603
Type of Business to be Conducted: Market Maker
Timothy Cody (CDY)
2/14/05
HGI, Inc.
141 W. Jackson, Ste. 1520
Chicago, IL 60604
Type of Business to be Conducted: Market Maker
Nicholas L. Marovich (NIC)
2/14/05
Goldman Sachs Execution & Clearing, LP
440 S. Lasalle - Ste. 1700
Chicago, IL 60605
Type of Business to be Conducted: Floor Broker
William S. Persky (WSP)
2/15/05
McTigue Trading LLC
442 W. Wellington - #525
Chicago, IL 60657
Type of Business to be Conducted: Market Maker/ Floor Broker
Brian Huddleston (HUD)
2/15/05
Sunset Securities LLC
440 S. LaSalle, Ste. 1900
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
JOINT ACCOUNTS
Chicago Board Options Exchange
New Participants
Acronym
Effective Date
Daniel P. Koutris
QNT
2/11/05
Daniel P. Koutris
QUN
2/11/05
Martin J. Wendell
QII
2/14/05
Martin J. Wendell
QQD
2/14/05
Martin J. Wendell
QUK
2/14/05
Andrew Keene
QBL
2/14/05
Andrew Keene
QEK
2/14/05
Andrew Keene
QUZ
2/14/05
Robert J. Wasserman
QCR
2/15/05
Robert J. Wasserman
QXS
2/15/05
Edward T. Tilly
QBJ
2/16/05
Edward T. Tilly
QBL
2/16/05
Edward T. Tilly
QBU
2/16/05
Edward T. Tilly
QBV
2/16/05
Edward T. Tilly
QBY
2/16/05
Edward T. Tilly
QHF
2/16/05
Edward T. Tilly
QLX
2/16/05
Edward T. Tilly
QLZ
2/16/05
Edward T. Tilly
QUZ
2/16/05
Edward T. Tilly
QWA
2/16/05
Edward T. Tilly
QYX
2/16/05
Edward T. Tilly
QYZ
2/16/05
Edward T. Tilly
QBN
2/16/05
Jonathan S. Okman
QLL
2/16/05
Jonathan S. Okman
QCA
2/16/05
New Participants
Acronym
Effective Date
Jonathan S. Okman
QIA
2/16/05
Martin J. Wendell
QII
2/11/05
Terminated Accounts
Acronym
Termination Date
Martin J. Wendell
QQD
2/11/05
Steven A. Rydberg
QRX
2/15/05
Martin J. Wendell
QUK
2/11/05
Roy M. Briggs
QRX
2/15/05
William H. Murphy IV
QII
2/14/05
Kevin C. Applehoff
QRX
2/15/05
William H. Murphy IV
QQD
2/14/05
Michael E. Stodden
QRX
2/15/05
William H. Murphy IV
QVK
2/14/05
Joseph S. Nelkin
QRX
2/15/05
Eric G. Lewis
QCP
2/16/05
Anthony M. Pape
QRX
2/15/05
Harry E. Schayer
QCP
2/16/05
Raymond F. Hurley
QRX
2/15/05
Terminated Participants Acronym
Termination Date
Miguel Rosales
QRX
2/15/05
Daniel P. Koutris
QCM
2/11/05
Matthew H. Witt
QRX
2/15/05
Daniel P. Koutris
QKD
2/11/05
John J. Kaminsky
QRX
2/15/05
Carolyn Matuga
QRX
2/15/05
Page 4
February 18, 2005
Volume 33, Number 7
Chicago Board Options Exchange
Terminated Accounts
Acronym
Termination Date
Gavin B. Rowe
QRX
2/15/05
Patrick M. Seguin
QRX
2/15/05
John F. Burnside
QRX
2/15/05
Harry J. Kasprzyk
QRX
2/15/05
Phillip J. Kunze
QRX
2/15/05
Joseph D. Mueller
QRX
2/15/05
Sergio Padilla
QRX
2/15/05
David Rodriguez
QRX
2/15/05
Tom G. Sideris
QRX
2/15/05
Trevor J. Vernier
QRX
2/15/05
Alan Wong
QRX
2/15/05
Edmund J. Zarek
QRX
2/15/05
Edward T. Tilly
2/16/05
From:
Lessor/ Nominee For BOTTA Capital Management
LLC; Market Maker/ Floor Broker
To:
Lessor
Kevin C. Applehoff
QWJ
2/15/05
Member Organizations
Carolyn Matuga
QWJ
2/15/05
Joseph D. Mueller
QWJ
2/15/05
Gavin B. Rowe
QWJ
2/15/05
McTigue Trading LLC
2/16/05
From:
Lessee/ Member Organization Affiliated with a CBT
Registered For; Associated with a Market Maker/ Floor
Broker
To:
Member Organization Affiliated with a CBT Registered
For; Associated with a Market Maker
Patrick M. Seguin
QWJ
2/15/05
Roy M. Briggs
QWJ
2/15/05
John F. Burnside
QWJ
2/15/05
Raymond F. Hurley
QWJ
2/15/05
John J. Kaminsky
QWJ
2/15/05
Harry J. Kasprzyk
QWJ
2/15/05
Phillip J. Kunze
QWJ
2/15/05
Joseph S. Nelkin
QWJ
2/15/05
Sergio Padilla
QWJ
2/15/05
Anthony M. Pape
QWJ
2/15/05
David Rodriguez
QWJ
2/15/05
Miguel Rosales
QWJ
2/15/05
Steven A. Rydberg
QWJ
2/15/05
HGI, Inc.
2/14/05
From:
Member Organization Affiliated with a CBT Registered
For; Associated with a Market Maker/ Floor Broker
To:
Lessee/ Member Organization Affiliated with a CBT
Registered For; Associated with a Market Maker/ Floor
Broker
Tom G. Sideris
QWJ
2/15/05
MEMBER ADDRESS CHANGES
Michael E. Stodden
QWJ
2/15/05
Individual Members
Effective Date
Trevor J. Vernier
QWJ
2/15/05
QWJ
2/15/05
Gavin M. Lowrey
440 S. LaSalle Street, 17th Floor
Chicago, IL 60605
2/10/05
Matthew H. Witt
Alan Wong
QWJ
2/15/05
QWJ
2/15/05
Michael J. Smollen
440 S. LaSalle Street, 17th Floor
Chicago, IL 60605
2/10/05
Edmund J. Zarek
Kelly C. Luthringshausen
QME
2/16/05
QET
2/16/05
Jayme A. Demes
440 S. LaSalle Street, 17th Floor
Chicago, IL 60605
2/10/05
Edward T. Tilly
CHANGES IN MEMBERSHIP STATUS
Individual Members
Effective Date
Daniel P. Koutris
2/11/05
From:
Nominee For Citigroup Derivatives Markets Inc.; Market
Maker/Floor Broker
To:
Nominee For Citigroup Global Markets Inc.; Floor
Broker
Robert J. Wasserman
2/15/05
From:
Lessor/ Nominee For Sallerson-Troob LLC; Market
Maker
To:
Lessor
Frank A. Hirsch
2/16/05
From:
Nominee For Sparta Group Of Chicago, L.P.; Market
Maker
To:
Lessee; Market Maker
Effective Date
McTigue Trading LLC
2/15/05
From:
Member Organization Affiliated with a CBT Registered
For; Associated with a Market Maker
To:
Lessee/Member Organization Affiliated with a CBT
Registered For; Associated with a Market Maker/Floor
Broker
Sunset Securities LLC
2/15/05
From:
Member Organization Affiliated with a CBT Registered
For; Associated with a Market Maker
To:
Lessee; Associated with a Market Maker
Botta Specialist, LLC
2/15/05
From:
Lessor/ Lessee; Associated with a Market Maker/ Floor
Broker
To:
Lessor/ Owner/ Lessee; Associated with a Market
Maker/ Floor Broker
Page 5
February 18, 2005
Volume 33, Number 7
Chicago Board Options Exchange
Effective Date
Effective Date
Jonathan M. Costello
440 S. LaSalle Street, 17th Floor
Chicago, IL 60605
2/10/05
Jonathan S. Okman
440 S. LaSalle Street, 17th Floor
Chicago, IL 60605
2/10/05
Timothy M. Sommerfield
440 S. LaSalle Street, 17th Floor
Chicago, IL 60605
2/10/05
Michael Benz
440 S. LaSalle Street, 17th Floor
Chicago, IL 60605
2/10/05
John H. Waterfield III
440 S. LaSalle Street, 17th Floor
Chicago, IL 60605
2/10/05
Steven R. Rosen
85 Broad Street
New York, NY 10005
2/10/05
Member Organizations
Effective Date
SLK-Hull Derivatives LLC
85 Broad Street
New York, NY 10005
2/10/05
RESEARCH CIRCULARS
The following Research Circulars were distributed between February 10 and February 17, 2005. If you wish to read the entire document, please
refer to the CBOE website at www.cboe.com and click on the “Trading Tools” Tab. New listings and series information is also available in the
Trading Tools section of the website. For questions regarding information discussed in a Research Circular, please call The Options Clearing
Corporation at 1-888-OPTIONS.
Research Circular #RS05-100
February 10, 2005
Goldcorp Inc. (“GG”)
Exchange Offer EXTENDED by Glamis Gold Ltd. (“GLG”)
Research Circular #RS05-102
February 11, 2005
Fox Entertainment Group, Inc. (“FOX”)
Exchange Offer FURTHER EXTENDED by News Corporation
Research Circular #RS05-109
February 17, 2005
Chordiant Software, Inc. (“CHRD/CQO/WUA”)
Underlying Symbol Change to “CHRDE”
Effective Date: February 17, 2005
February 23, 2005
Volume RB16, Number 8
Regulatory
Bulletin
The Constitution and Rules of the Chicago Board Options Exchange, Incorporated
(“Exchange”), in certain specific instances, require the Exchange to provide notice to the membership. The weekly Regulatory Bulletin is delivered to all effective members to satisfy this
requirement.
Copyright © 2004 Chicago Board Options Exchange, Incorporated
Regulatory
Circulars
Regulatory Circular RG05-17
To:
CBOE Members
From: Regulatory Services Division
Date:
February 11, 2005
Re:
Autobook
Autobook is an enhancement to the DPM’s PAR workstation that will automatically facilitate
the entry of eligible customer limit orders into the limit order book at the end of a configurable
period of time provided such limit orders have not previously been addressed manually by
the DPM.
The appropriate floor procedure committee will be responsible for establishing the Autobook
timer in all classes under that Committee’s jurisdiction, and the timer may not exceed the
30-second customer limit order display requirement. The Equity Floor Procedure Committee
has set the timer to :05 seconds.
Activation/Deactivation. A DPM must maintain and keep Autobook active on the DPM PAR
workstation at all times. A DPM may only deactivate Autobook provided Floor Official approval is obtained. The DPM must obtain such approval no later than three minutes after
deactivation. If the DPM does not receive approval within three minutes after deactivation,
the Exchange will view the matter as a regulatory issue. Floor officials will grant approval
only in instances when there is an unusual influx of orders, movement of the underlying that
would result in gap pricing or other unusual circumstances where automatic display of
orders would not result in diligent handling.
Deactivating Autobook in contravention of Exchange Rules may result in disciplinary action
by the Business Conduct Committee under Chapter XVII of the Rules.
Any questions regarding Autobook may be directed to Tim MacDonald at (312) 786-7706 or
John Kissane at (312) 786-8107.
(Replaces RG03-30)
Regulatory Circulars
continued
Regulatory Circular RG05-18
To:
Members and Member Firms
From: Index Floor Procedure Committee
Equity Options Procedure Committee
Date:
February 11, 2005
Re:
Changes to Split-Price Priority Rule for Orders for at least 100 Contracts
Effective immediately for orders of at least 100 contracts, a member who buys (sells) at
least 50 contracts at a particular price shall have priority over all others, including the limit
order book, in purchasing (selling) up to an equivalent number of contracts of the same
order at the next lower (higher) price. For orders less than 100 contracts, orders in the book
still have priority. The revised rule language is below.
Example: Market is $1.00 – 1.20, 100-up, which is all customer interest in the book. Floor
broker enters crowd with order to buy 200. Market-Maker (MM) A is alone in responding
“Sell 100 at $1.15 and 100 at $1.20 for a net price of $1.175.” Because MM A improved the
quoted price by offering at $1.15, he has priority over all orders in the book at 1.20 for 100
contracts.
The minimum order size is 100 contracts. New Interpretations and Policies .01 reminds
floor brokers of their obligation to ensure compliance with Section 11(a) of the Exchange
Act. Questions regarding this rule may be addressed to any member of IFPC or EOPC or
Steve Youhn in the Legal Division at (312) 786-7416.
Rule 6.47. Priority on Split-Price Transactions Occurring in Open Outcry
(a) Purchase or sale priority. If a member purchases (sells) one or more option contracts of
a particular series at a particular price or prices, he shall, at the next lower (higher) price at
which a member other than the Board Broker or Order Book Official is bidding (offering),
have priority in purchasing (selling) up to the equivalent number of option contracts of the
same series that he purchased (sold) at the higher (lower) price or prices, but only if his bid
(offer) is made promptly and the purchase (sale) so effected represents the opposite side
of a transaction with the same order or offer (bid) as the earlier purchase or purchases (sale
or sales). This paragraph only applies to transactions effected in open outcry.
(b) Purchase or sale priority for orders of 100 contracts or more. If a member purchases
(sells) fifty or more option contracts of a particular series at a particular price or prices, he
shall, at the next lower (higher) price have priority in purchasing (selling) up to the equivalent number of option contracts of the same series that he purchased (sold) at the higher
(lower) price or prices, but only if his bid (offer) is made promptly and the purchase (sale) so
effected represents the opposite side of a transaction with the same order or offer (bid) as
the earlier purchase or purchases (sale or sales). The appropriate Exchange committee
may increase the “minimum qualifying order size” above 100 contracts for all products
under its jurisdiction. Announcements regarding changes to the minimum qualifying order
size shall be made via Regulatory Circular. This paragraph only applies to transactions
effected in open outcry.
(c) Two or more members entitled to priority. If the bids or offers of two or more members
are both entitled to priority in accordance with paragraph (a) or paragraph (b), it shall be
afforded them insofar as practicable, on a pro-rata basis.
Interpretations and Policies…..
RB2
February 23, 2005, Volume RB16, Number 8
Regulatory Circulars
continued
Rule Changes,
Interpretations
and Policies
Regulatory Circular RG05-18 continued
.01 Floor brokers are able to achieve split-price priority in accordance with paragraphs (a)
and (b) above. Provided, however, that a floor broker who bids (offers) on behalf of a nonMarket-Maker CBOE member broker-dealer (“CBOE member BD”) must ensure that the
CBOE member BD qualifies for an exemption from Section 11(a)(1) of the Exchange Act or
that the transaction satisfies the requirements of Exchange Act Rule 11a2-2(T), otherwise
the floor broker must yield priority to orders for the accounts of non-members.
APPROVED RULE CHANGES
The Securities and Exchange Commission (“SEC”) has approved the following change(s) to
Exchange Rules pursuant to Section 19(b) of the Securities Exchange Act of 1934, as
amended (“the Act”). Copies are available on the CBOE public website at www.cboe.com/
legal/effectivefiling.aspx.
The effective date of the rule change is the date of approval unless otherwise noted.
SR-CBOE-2004-67
Split-Price Priority Rule Change
On February 8, 2005, the SEC approved Rule Change File No. SR-CBOE-2004-67, which
filing creates a limited exception to allow a member with an order for at least 100 contracts
and who buys (sells) at least 50 contracts at a particular price to have priority over all others
in purchasing (selling) up to an equivalent number of contracts of the same order at the next
lower (higher) price (Securities Exchange Act Release No. 51148, 70 FR 7783 (February 15,
2005)). Any questions regarding the rule change may be directed to Steve Youhn, Legal
Division, at 312-786-7416. The text of the amended rules is set forth below. New language
is italicized.
Rule 6.47. Priority on Split-Price Transactions Occurring in Open Outcry
(a) Purchase or sale priority. If a member purchases (sells) one or more option
contracts of a particular series at a particular price or prices, he shall, at the next
lower (higher) price at which a member other than the Board Broker or Order Book
Official is bidding (offering), have priority in purchasing (selling) up to the equivalent
number of option contracts of the same series that he purchased (sold) at the
higher (lower) price or prices, but only if his bid (offer) is made promptly and the
purchase (sale) so effected represents the opposite side of a transaction with the
same order or offer (bid) as the earlier purchase or purchases (sale or sales). This
paragraph only applies to transactions effected in open outcry.
(b) Purchase or sale priority for orders of 100 contracts or more. If a member
purchases (sells) fifty or more option contracts of a particular series at a particular
price or prices, he shall, at the next lower (higher) price have priority in purchasing
(selling) up to the equivalent number (or a reasonably larger number) of option
contracts of the same series that he purchased (sold) at the higher (lower) price or
prices, but only if his bid (offer) is made promptly and the purchase (sale) so effected represents the opposite side of a transaction with the same order or offer
(bid) as the earlier purchase or purchases (sale or sales). The appropriate Exchange
committee may increase the “minimum qualifying order size” above 100 contracts
for all products under its jurisdiction. Announcements regarding changes to the
minimum qualifying order size shall be made via Regulatory Circular. This paragraph only applies to transactions effected in open outcry.
(c) Two or more members entitled to priority. If the bids or offers of two or more
members are both entitled to priority in accordance with paragraph (a) or paragraph
(b), it shall be afforded them insofar as practicable, on a pro-rata basis.
February 23, 2005, Volume RB16, Number 8
RB3
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2004-78 continued
Interpretations and Policies…..
.01 Floor brokers are able to achieve split-price priority in accordance with paragraphs (a) and (b) above. Provided, however, that a floor broker who bids (offers)
on behalf of a non-Market-Maker CBOE member broker-dealer (“CBOE member
BD”) must ensure that the CBOE member BD qualifies for an exemption from
Section 11(a)(1) of the Exchange Act or that the transaction satisfies the requirements of Exchange Act Rule 11a2-2(T), otherwise the floor broker must yield
priority to orders in the electronic book.
SR-CBOE-2004-85
DPM Agency Obligations
On February 9, 2005, the SEC approved Rule Change File No. SR-CBOE-2004-85, which
filing requires DPMs to accord priority to all customer orders, not just public customer
orders, that the DPM represents as agent over the DPM’s principal transactions, unless
the customer who placed the order has consented to not being accorded such priority
(Securities Exchange Act Release No. 51173, 70 FR 7981 (February 16, 2005)). Any
questions regarding the rule change may be directed to Angelo Evangelou, Legal Division,
at 312-786-7464. The text of the amended rules is set forth below. New language is
italicized.
Rule 8.85 DPM Obligations
(a)
No change.
(b)
Agency Transactions. Each DPM shall fulfill all of the obligations of a
Floor Broker (to the extent that the DPM acts as a Floor Broker) and of an Order
Book Official under the Rules, and shall satisfy each of the following requirements, in respect of each of the securities allocated to the DPM:
(i)-(ii)
No change.
(iii) accord priority to any customer order which the DPM represents as
agent over the DPM’s principal transactions, unless the customer who
placed the order has consented to not being accorded such priority;
(iv)-(vii) No change.
(c)-(e)
No change.
…Interpretations and Policies:
.01-.02 No change.
RB4
.03
Reserved.
.04
No change.
February 23, 2005, Volume RB16, Number 8
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-15
DPM Participation Entitlement
On February 7, 2005, the SEC approved Rule Change File No. SR-CBOE-2005-15, which
filing allows the Exchange to establish a lower DPM participation entitlement for certain
qualifying products (Securities Exchange Act Release No. 51147, 70 FR 7783 (February 15,
2005)). Any questions regarding the rule change may be directed to Angelo Evangelou,
Legal Division, at 312-786-7464. The text of the amended rules is set forth below. New
language is italicized.
Rule 8.87 Participation Entitlements of DPMs and e-DPMs
(a) Subject to the review of the Board of Directors, the MTS Committee may establish from time to time a participation entitlement formula that is applicable to all
DPMs.
(b) The participation entitlement for DPMs and e-DPMs (as defined in Rule 8.92)
shall operate as follows:
(1) Generally.
(i) To be entitled to a participation entitlement, the DPM/e-DPM must be
quoting at the best bid/offer on the Exchange.
(ii) A DPM/e-DPM may not be allocated a total quantity greater than the
quantity that the DPM/e-DPM is quoting at the best bid/offer on the Exchange.
(iii) The participation entitlement is based on the number of contracts remaining after all public customer orders in the book at the best bid/offer on
the Exchange have been satisfied.
(2) Participation Rates applicable to DPM Complex. The collective DPM/e-DPM
participation entitlement shall be: 50% when there is one Market-Maker also quoting at the best bid/offer on the Exchange; 40% when there are two Market-Makers
also quoting at the best bid/offer on the Exchange; and, 30% when there are three
or more Market-Makers also quoting at the best bid/offer on the Exchange.
(3) Allocation of Participation Entitlement Between DPMs and e-DPMs. The participation entitlement shall be as follows: If the DPM and one or more e-DPMs are
quoting at the best bid/offer on the Exchange, the e-DPM participation entitlement
shall be one-half (50%) of the total DPM/e-DPM entitlement and shall be divided
equally by the number of e-DPMs quoting at the best bid/offer on the Exchange.
The remaining half shall be allocated to the DPM. If the DPM is not quoting at the
best bid/offer on the Exchange and one or more e-DPMs are quoting at the best bid/
offer on the Exchange, then the e-DPMs shall be allocated the entire participation
entitlement (divided equally between them). If no e-DPMs are quoting at the best
bid/offer on the Exchange and the DPM is quoting at the best bid/offer on the
Exchange, then the DPM shall be allocated the entire participation entitlement. If
only the DPM and/or e-DPMs are quoting at the best bid/offer on the Exchange
(with no Market-Makers at that price), the participation entitlement shall not be
applicable and the allocation procedures under Rule 6.45A shall apply.
…Interpretations and Policies:
.01
Notwithstanding subparagraph (b)(2) above, the Exchange may establish
a lower DPM Complex Participation Rate on a product-by-product basis for newlylisted products or products that are being allocated to a DPM trading crowd for the
first time. Notification of such lower participation rate shall be provided to members
through a Regulatory Circular.
February 23, 2005, Volume RB16, Number 8
RB5
Disciplinary
Decisions
At its meeting on February 2, 2005, the Business Conduct Committee (“BCC”) resolved
the following disciplinary matters by accepting three Offers of Settlement in which the
respondents consented to stipulations of facts and findings as detailed below without
admitting or denying that Exchange Rules had been violated.
File No. 04-0026 (Offer of Settlement, Decision issued February 10, 2005)
RCI Limited Partnership (“RCI”), an Exchange Market-Maker organization, was censured
and fined $5,000 for the following conduct. During all relevant periods herein, Section 17f2 of the Exchange Act required that every member of a national securities exchange,
broker, dealer, registered transfer agent and registered clearing agency require its partners,
directors, officers and employees to be fingerprinted if they are engaged in the sale of
securities, or have regular access to the securities, monies and the original books and
records relating to the securities, or have supervisory responsibility over persons engaging
in the aforementioned activities. RCI failed to obtain Civil Applicant Responses (“CARs”)
for all of its associated persons. In addition, RCI failed to respond timely to at least two
written regulatory requests related to its CARs.1 (CBOE Rules 4.2 – Adherence to Law;
15.1 - Maintenance, Retention and Furnishing of Books, Records and Other Information;
17.2(b)- Complaint and Investigation: Requirement to Furnish Information; Section 17(a) of
the Securities Exchange Act of 1934 as amended (the “Act”) and Rules 17a-3 – Records to
be Made by Certain Brokers and Dealers; 17a-4 – Records to be Preserved by Certain
Brokers and Dealers; and Section 17(f) and Rule 17f-2 – Fingerprinting of Securities Industry Personnel.)
File No. 04-0033 (Offer of Settlement, Decision issued February 10, 2005)
Alex Friedman (“Friedman”), a former Registered Representative (“RR”) of Prudential Securities Inc. (“PSI”), an Exchange member organization, at PSI’s Doylestown, Pennsylvania
branch office, was censured and barred two consecutive years from Exchange membership and from association with any Exchange member or member organization for the
following conduct. Friedman effected numerous options transactions in a public customer
account, which were excessive in size and frequency and exposed the customer to potential stock assignment costs beyond their financial capabilities. Also, Friedman effected
numerous stock and options transactions in various public customers accounts, with each
customers’ prior verbal discretionary authorization, but without their prior written authorization and PSI’s written approval. In addition, Friedman marked numerous order tickets as
‘unsolicited’ in various public customers accounts, when such orders were for solicited
orders and the order tickets should have been marked as ‘solicited’. (CBOE Rules 4.1 Just and Equitable Principles of Trade and 9.10(a) - Discretionary Accounts Authorization
and Approval Required.)
File No. 04-0035 (Offer of Settlement, Decision issued February 10, 2005)
Newtonian Trading, LLC (“Newtonian”), an Exchange Market-Maker organization and James
Lee (“Lee”), a Managing Member and Risk Manager of Newtonian2, were each censured
and jointly and severally fined $7,500 for the following conduct. Lee and Newtonian on
various days directed Robert Hutchison (“Hutchison”) and Robert Konecki (“Konecki”) not
to access the CBOE trading floor. As a result, Hutchison and Konecki initiated numerous
orders on behalf of Newtonian, resulting in numerous opening transactions that increased
or established positions in either the QDA or QIW Market-Maker joint account while they
were not present on the trading floor. In addition, Lee and Newtonian failed to adequately
supervise Konecki and Hutchison by failing to ensure that the subject opening transactions cleared into a non-Market-Maker account(s). (CBOE Rules 4.1—Fair and Orderly
Markets, 4.2—Adherence to Law, 8.1—Market-Maker Defined, 8.7 and Interpretation and
Policy .03(B) thereunder, and Regulatory Circular RG00-52—Market-Maker Use of Orders/
Floor Broker Representation of Orders.)
1
On August 10, 2004, RCI provided to the Exchange the requested information.
Lee was also the direct Supervisor of Robert Konecki and Robert Hutchison, who were both registered to
conduct business on the Exchange as Market-Makers and nominees of Newtonian.
2
RB6
February 23, 2005, Volume RB16, Number 8