February 25, 2005
Exchange
Bulletin
Volume 33, Number 8
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 25, 2005
CLASS
CBOE/FULL
CBOT/FULL
BID
$300,000.00
$1,302,500.00
OFFER
$325,000.00
$1,400,000.00
LAST SALE AMOUNT
$325,000.00
$1,350,000.00
LAST SALE DATE
February 22, 2005
February 23, 2005
MEMBERSHIP SALES AND TRANSFERS
From
Larkspur Securities, Inc.
To
LaBranche Structured Products LLC
Price/Transfer
$325,000.00
Date
2/22/05
Page 2
February 25, 2005
Volume 33, Number 8
Chicago Board Options Exchange
MEMBERSHIP INFORMATION FOR 2/17/05 THROUGH 2/23/05
MEMBERSHIP LEASES
MEMBERSHIP TERMINATIONS
New Leases
Effective Date
Lessor: Stephens Options
Lessee: KATL Group, LLC
Matthew Andrews, NOMINEE
Rate:
0.8609%
Term: Monthly
2/17/05
Lessor: Edward T. Tilly
Lessee: KATL Group, LLC
Edward T. Tilly, NOMINEE
Rate:
0.8609%
Term: Monthly
2/17/05
Lessor: William B. Edmiston
Lessee: KATL Group, LLC
Andrew Keene, NOMINEE
Rate:
0.8609%
Term: Monthly
2/18/05
Lessor: Charles A. Moore
Lessee: Thor Trading, LLC
Mark M. Thorsen, NOMINEE
Rate:
0.875%
Term: Monthly
2/22/05
Lessor: Frank R. Oakley
Lessee: Sallerson-Troob LLC
Damon M. Fawcett, NOMINEE
Rate:
0.75%
Term: Monthly
2/22/05
Individual Members
CBT Registered For:
Termination Date
Jonathan S. Grabill (JSG)
Heard Trading, LLC
440 S. LaSalle - Ste. 2500
Chicago, IL 60605
2/18/05
Aaron M. Gilfand (AMG)
Blue Capital Group LLC
1829 N. Wilmot Ave.
Chicago, IL 60647
2/22/05
Heath H. Gerdes (HTH)
Bear Wagner Specialists LLC
440 S. LaSalle, #2101
Chicago, IL 60605
2/22/05
Cem A. Karsan (JEM)
Bear Wagner Specialists LLC
440 S. LaSalle, Ste. 2101
Chicago, IL 60605
2/22/05
Nominee(s) / Inactive Nominee(s):
Termination Date
Lessor: Richard E. Sims
2/22/05
Lessee: Monadnock Capital Management, LP
Kevin J. Thomas, NOMINEE
Rate:
0.625%
Term: Monthly
Matthew S. Heyn (HEY)
TJM Investments, LLC
11211 S. Western Ave., #Rear
Chicago, IL 60643-4115
2/17/05
Lessor: Prudential Equity Group, LLC
Lessee: Blue Capital Group LLC
George M. Fushi, NOMINEE
Rate:
0.8609%
Term: Monthly
2/22/05
Alfredo D. Milera (FDO)
Consolidated Trading, LLC
440 S. LaSalle St., #3100
Chicago, IL 60605
2/18/05
Lessor: Mont R. Wickham
Lessee: Cutler Group, LP
Scott A. Updike, NOMINEE
Rate:
0.875%
Term: Monthly
2/23/05
Jerry E. Diegel (DGL)
Goldman Sachs & Co.
440 S. LaSalle, 3rd Fl.
Chicago, IL 60605
2/22/05
Lessor: Dorothy Bennett
Lessee: CTC LLC
Andrew B. Levin, NOMINEE
Rate:
0.8609%
Term: Monthly
2/23/05
Stephen J. Climo (CMO)
Goldman Sachs & Co.
440 S. LaSalle, 3rd Fl.
Chicago, IL 60605
2/22/05
Terminated Leases
Termination Date
2/22/05
Lessor: Edward T. Tilly
Lessee: BOTTA Capital Management LLC
2/17/05
Robert J. Pelon (MSU)
JT Limited Partnership
5737 N. Winthrop - #2
Chicago, IL 60660
Lessor: Charles A. Moore
Lessee: Mark M. Thorsen (MKT)
2/22/05
2/22/05
Lessor: Richard E. Sims
Lessee: Kevin J. Thomas (KTO)
2/22/05
Michael S. Cunningham (HYA)
Bear Wagner Specialists LLC
40 Wall Street - 45th Fl.
New York, NY 10005
Erwin Aguinaldo (ERA)
Cutler Group, LP
440 S. LaSalle – Suite 1124
Chicago, IL 60605
2/23/05
Edward P. McFadden III (EDM)
Citigroup Derivatives Markets Inc.
330 Malden Avenue
LaGrange Park, IL 60526
2/23/05
Adam J. Zechman (AZK)
Citigroup Derivatives Markets Inc.
111 W. Jackson Blvd., 10th Floor
Chicago, IL 60605
2/23/05
Lessor: Frank R. Oakley
2/22/05
Lessee: Fawcett Trading, LLC
Damon M. Fawcett (DMN), NOMINEE
Lessor: Mont R. Wickham
Lessee: Mongoose Trading LLC
Scott A. Updike (SDE), NOMINEE
2/23/05
Page 3
February 25, 2005
Volume 33, Number 8
Member Organizations
Chicago Board Options Exchange
Member Organizations
CBT Registered For:
Termination Date
Lessee(s):
Heard Trading, LLC
Joseph D. Heard
1818 Market Street - 18th Fl.
Philadelpia, PA 19103
2/18/05
KATL Group, LLC
2/17/05
440 S. LaSalle, Suite 1600
Chicago, IL 60605
Type of Business to be Conducted: Market Maker / Floor Broker
Lessee(s):
Termination Date
Fawcett Trading, LLC
440 S. LaSalle, Ste. 950
Chicago, IL 60605
2/22/05
Thor Trading, LLC
2/22/05
537 W. Fullerton Pkwy.
Chicago, IL 60614
Type of Business to be Conducted: Market Maker
Mongoose Trading LLC
440 S. LaSalle 25th Fl.
Chicago, IL 60605
2/23/05
Effective Date
Monadnock Capital Management, LP
2/22/05
1900 Market Street, Suite 616
Philadelphia, PA 19103
Type of Business to be Conducted: Market Maker
EFFECTIVE MEMBERSHIPS
JOINT ACCOUNTS
Individual Members
New Participants
Acronym
Effective Date
Gregory R. Tilly
QGS
2/17/05
Matthew Andrews (MTA)
2/17/05
KATL Group, LLC
440 S. LaSalle, Suite 1600
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
David R. Melam
QZT
2/17/05
Sean W. Haggerty
QFS
2/17/05
Scott N. Stoliar
QWZ
2/17/05
Eric J. Wiejak (HPY)
2/17/05
TJM Investments, LLC
303 W. Madison, Ste. 400
Chicago, IL 60606
Type of Business to be Conducted: Floor Broker
Paul E. Rodriguez
QMJ
2/18/05
Spencer D. Worley
QVA
2/18/05
Ryan P. Price
QCI
2/22/05
Andrew Keene (AXK)
2/18/05
KATL Group, LLC
1517 N. Hudson, #2
Chicago, IL 60610
Type of Business to be Conducted: Market Maker
Ryan P. Price
QCO
2/22/05
David J. Thompson
QOJ
2/22/05
George M. Fushi
QOJ
2/22/05
Ryan P. Price (RYP)
2/22/05
Consolidated Trading, LLC
440 S. LaSalle Street - Suite 3100
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Andrew B. Levin
QGQ
2/23/05
Andrew B. Levin
QXY
2/23/05
New Accounts
Acronym
Effective Date
David J. Thompson (MTE)
2/22/05
Blue Capital Group LLC
401 S. LaSalle, #700
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Ian T. Farnung
QIP
2/22/05
Paul E. Rodriguez
QIP
2/22/05
Terminated Participants Acronym
Termination Date
George M. Fushi (GMF)
2/22/05
Blue Capital Group LLC
401 S. LaSalle, Ste. 700
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Dennis M. Wetzel
QTH
2/17/05
Dennis M. Wetzel
QTI
2/17/05
Gregory R. Tilly
QEW
2/18/05
Erwin Aguinaldo (ERA)
2/22/05
Cutler Group, LP
440 S. LaSalle – Suite 1124
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Gregory R. Tilly
QFS
2/18/05
Gregory R. Tilly
QIS
2/18/05
Gregory R. Tilly
QJY
2/18/05
Andrew B. Levin (SKE)
2/23/05
CTC LLC
141 W. Jackson Blvd., 8th Floor
Chicago, IL 60604
Type of Business to be Conducted: Market Maker / Floor Broker
Gregory R. Tilly
QLO
2/18/05
Gregory R. Tilly
QMD
2/18/05
Gregory R. Tilly
QMP
2/18/05
Nominee(s) / Inactive Nominee(s):
Effective Date
Page 4
February 25, 2005
Volume 33, Number 8
Terminated Participants Acronym
Termination Date
Gregory R. Tilly
QNA
2/18/05
Gregory R. Tilly
QNY
2/18/05
Gregory R. Tilly
QPN
2/18/05
Gregory R. Tilly
QPO
2/18/05
Gregory R. Tilly
QUT
2/18/05
Gregory R. Tilly
QVA
2/18/05
Alfredo D. Milera
QCC
2/18/05
Alfredo D. Milera
QCO
2/18/05
Alfredo D. Milera
QRI
2/18/05
Gregory R. Tilly
QYH
2/18/05
Gregory R. Tilly
QYS
2/18/05
Gregory R. Tilly
QSM
2/18/05
Jerry E. Diegel
QKG
2/22/05
Jerry E. Diegel
QZQ
2/22/05
Stephen J. Climo
QKG
2/22/05
Stephen J. Climo
QZQ
2/22/05
Robert J. Pelon
QJL
2/22/05
Aaron M. Gilfand
QOJ
2/22/05
Michael S. Cunningham
QBW
2/22/05
Michael S. Cunningham
QWS
2/22/05
Cem A. Karsan
QWS
2/22/05
Heath H. Gerdes
QWS
2/22/05
Edward P. McFadden III
QCM
2/23/05
Edward P. McFadden III
QKD
2/23/05
Edward P. McFadden III
QNT
2/23/05
Edward P. McFadden III
QPZ
2/23/05
Edward P. McFadden III
QUN
2/23/05
Adam J. Zechman
QCM
2/23/05
Adam J. Zechman
QCX
2/23/05
Adam J. Zechman
QKD
2/23/05
Adam J. Zechman
QNT
2/23/05
Adam J. Zechman
QPZ
2/23/05
Adam J. Zechman
QUN
2/23/05
Chicago Board Options Exchange
CHANGES IN MEMBERSHIP STATUS
Individual Members
Effective Date
Edward T. Tilly
2/17/05
From:
Lessor
To:
Lessor/ Nominee For KATL Group, LLC; Market Maker /
Floor Broker
Mark M. Thorsen
2/22/05
From:
Lessee; Market Maker
To:
Nominee For Thor Trading, LLC; Market Maker
Damon M. Fawcett
2/22/05
From:
Nominee For Fawcett Trading, LLC; Market Maker
To:
Nominee For Sallerson-Troob LLC; Market Maker
Kevin J. Thomas
2/22/05
From:
Lessee; Market Maker
To:
Nominee For Monadnock Capital Management, LP;
Market Maker
Mark Sebastian
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Patrick M. Baker
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Christopher Barer
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
L. Michael De Fonso
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
John L. Bertolero
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
John A. Kinahan
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Lauren DeLuca
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Benjamin R. Londergan
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Steven M. Lockwood
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Marc C. Messina
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Page 5
February 25, 2005
Volume 33, Number 8
Effective Date
Dominic J. Salvino
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Erik M. Scheier
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Lawrence Spieldenner
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Matthew G. Ziol
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
James P. Rouzan
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Brian Eggener
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Michael Palmer
2/22/05
From:
Nominee For Group One Trading, LP; Market Maker
To:
Nominee For Group One Trading, LP; Market Maker /
Floor Broker
Chicago Board Options Exchange
Member Organizations
Effective Date
LaBranche Structured Products LLC
2/23/05
From:
Member Organization Affiliated with a CBT Registered
For; Associated with a Market Maker
To:
Lessor / Member Organization Affiliated with a CBT
Registered For; Associated with a Market Maker
TJM Investments, LLC
2/23/05
From:
Lessee / Non-Member Customer Business / Member
Organization Affiliated with a CBT Registered For;
Associated with a Floor Broker
To:
Lessee / Non-Member Customer Business / Order
Service Firm / Member Organization Affiliated with a
CBT Registered For; Associated with a Floor Broker
Bear Wagner Specialists LLC
2/22/05
From:
Owner / Lessee / Member Organization Affiliated with a
CBT Registered For; Associated with a Market Maker
To:
Owner / Lessee; Associated with a Market Maker
Blue Capital Group LLC
2/22/05
From:
Owner / Lessee / Member Organization Affiliated with a
CBT Registered For; Associated with a Market Maker
To:
Owner / Lessee; Associated with a Market Maker
MEMBER ADDRESS CHANGES
Member Organizations
Effective Date
Gelber Securities, LLC
141 W. Jackson, 2150 Annex
Chicago, IL 60604
2/23/05
Scott A. Updike
2/23/05
From:
Nominee For Mongoose Trading LLC; Market Maker
To:
Nominee For Cutler Group, LP; Market Maker
RESEARCH CIRCULARS
The following Research Circulars were distributed between February 22 and February 24, 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 #RS05-110
February 22, 2005
Apple Computer, Inc. (“AAPL/AAQ/QAA/WAA/YHC/VAA/OBR”)
2-for-1 Stock Split
Ex-Distribution Date: February 28, 2005
Research Circular #RS05-112
February 22, 2005
Hewitt Associates, Inc. Class A (“HEW & adj. EJV”)
Partial Self Tender Offer
Research Circular #RS05-114
February 23, 2005
AT&T Corp. (“T/WT/VT”) Proposed Merger
with SBC Communications Inc. (“SBC/WFE/VFE”)
Research Circular #RS05-116
February 24, 2005
Select Medical Corporation (“SEM”) Merger
COMPLETED with EGL Holding Company
March 2, 2005
Regulatory
Bulletin
Volume RB16, Number 9
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 RG05-19
Date:
February 17, 2005
To:
Members and Member Firms
From:
Market Operations Department
Re:
Restrictions Lifted on Transactions in
Hollywood Entertainment Corporation (HWQ)
The Nasdaq has retracted a statement announcing that Hollywood Entertainment Corporation, (HLYW/HWQ), would be delisted from the Nasdaq National Market System effective
Thursday, February 17, 2005.
As of February 17, 2005 no restrictions are in place on the CBOE in existing series of HWQ
options.
Regulatory Circular RG05-20
Date:
February 17, 2005
To:
Members and Member Organizations
From:
Division of Regulatory Services
Subject:
Regulation SHO (Short Sales)
•
SEC No-Action Letter Concerning Marking of Orders
•
Market-Makers That Perform Their Own Locates
Exchange
Contacts:
Robert Gardner
James Adams
(312) 786-7937
(312) 786-7718
This Regulatory Circular supplements two previous Regulatory Circulars concerning Regulation SHO1 (RG04-113 and RG04-127). These Regulatory Circulars may be found on the
CBOE website at:
http://www.cboe.org/publish/RegCir/RG04-113.pdf
http://www.cboe.org/publish/RegCir/RG04-127.pdf.
Reg. SHO is described in Exchange Act Release No. 34-50103 (July 28, 2004), 69 FR 48008 (August 6,
2004). An online copy can be found at: www.sec.gov/rules/final/34-50103.htm.
1
Regulatory Circulars
continued
Regulatory Circular RG05-20 continued
KEY POINTS
•
The Securities and Exchange Commission (“SEC”) has issued a noaction letter concerning the Regulation SHO requirement to mark a short
sale order “short exempt” when the seller is relying on an exemption from
a price test. The letter provides that the SEC will not recommend enforcement action if such short sale orders are marked “short” rather than
“short exempt.”
•
The no-action relief applies only to specific price test exemptions granted
by the SEC. These specific exemptions are listed in an appendix to the
SEC’s no-action letter.
•
The stocks included in a pilot established by the SEC to allow short
sales of such stocks without regard to any price test are not covered by
the no-action letter. Therefore, unless and until the SEC provides specific relief, short sales of pilot stocks must be marked “short exempt.”
The pilot is set to commence on May 2, 2005.
•
Based on the letter, short sales of exchange traded funds (ETFs) that
have been granted an exemption from a price test can be marked “short”
rather than “short exempt.” Market centers generally process short sales
of such ETFs without regard to price test restrictions on an automated
basis. Therefore, such orders can continue to be marked “short” and
processed, as they have been, without regard to any price test.
•
An after-hours crossing session is another example of a situation in which
an exemption from, or modification of, a short sale price test may apply.
Short sales during such sessions are generally processed by market
centers without regard to, or under modified, price test restrictions on an
automated basis, and can continue to be marked “short” and processed,
as they have been.
•
The no-action letter requires that short sales eligible for the relief must be
marked “short” and may not be marked “long.” Additionally, the requirement to use the “short exempt” designation remains in force for other
situations involving reliance on an exception from a short sale price test.
•
A copy of the SEC’s no-action letter may be found on its website at: http:/
/www.sec.gov/divisions/marketreg/mr-noaction/sia010305.htm.
•
A short sale by a Market-Maker is not exempt from Regulation SHO’s
locate2 requirement when the subject security is a threshold security and
the Market-Maker has a fail to deliver in the security that has lasted for
13 settlement days (10 business days from settlement date).
•
In the event that a Market-Maker performs its own locate, the MarketMaker must record in writing the date that the locate was accomplished;
the name of the stock and the number of shares located; the length of
time for which the locate is valid and the name of the person from whom
the locate was obtained. Such records must be maintained for a period
of not less than three years, the first two years in an easily accessible
place.
Questions concerning Regulation SHO may be directed to Robert Gardner, (312) 7867937, or James Adams, (312) 786-7718, in the Exchange’s Department of Financial and
Sales Practice Compliance.
The word “locate” here means the Regulation SHO requirement to ensure prior to entering a short sale
order that the security being sold short has been borrowed or a bona-fide arrangement has been made
to borrow the security.
2
RB2
March 2, 2005, Volume RB16, Number 9
Regulatory Circulars
continued
Regulatory Circular RG05-21
Date:
February 17, 2005
To:
CBOE Members and Member firms
From: Trading Operations
Re:
DPM Allocation on N-Second Book (Quote Trigger) Trades
The SEC recently approved a rule change that would eliminate the DPM participation entitlement for Hybrid book trades. Beginning Tuesday, February 22, 2005, DPMs no longer will
receive a participation entitlement in trades executed against resting book orders in Hybrid
classes. Instead, DPMs will be included in the CUMA allocation.
If you have any questions, please contact Anthony Montesano at 312-786-7365 or Carole
Zylius at 312-786-7174.
Regulatory Circular RG05-22
Date:
February 18, 2005
To:
All Exchange Members
From: Equity Option Procedure Committee
Index Floor Procedure Committee
SPX Floor Procedure Committee
Re:
Instant Messaging and E-mail Policies
The Equity Option Procedure Committee and the Index Floor Procedure Committee have
approved the use of instant messaging by member organizations via their proprietary handheld terminals and other proprietary computer and communications systems located in the
trading crowds for the following classes:
Equity Options: All classes
Indexes:
QQQ, MNX and NDX
The Index Floor Procedure Committee will determine whether to allow instant messaging in
other index crowds over which it has jurisdiction on a class-by-class basis. E-mail is currently permitted in equity option trading crowds and index trading crowds. With respect to the
SPX, members must obtain the approval of the SPX Floor Procedure Committee prior to
using E-mail and instant messaging in the SPX trading crowd. The SPX Floor Procedure
Committee will consider requests to use E-mail and instant messaging on a case-by-case
basis. Please note that orders may not be received via instant messaging and E-mail in any
trading crowds.
Members are reminded that the use of a system to send instant messages and E-mail shall
at all times conform to all applicable laws, rules, policies and procedures of the Securities
and Exchange Commission and the Exchange in force at that time and to the provisions of
the Exchange’s Communication/Computer System Application and Agreement (“Agreement”).
In particular, members and member organizations must maintain a record of any E-mail,
instant message, or any other type of internet communication relating to the member’s
business that the member would ordinarily be required to maintain and preserve pursuant to
SEC Rules 17a-3 and 17a-4. Please see Regulatory Circular RG04-111 for more information
on record retention requirements.
March 2, 2005, Volume RB16, Number 9
RB3
Regulatory Circulars
continued
Regulatory Circular RG05-22 continued
Any member or firm who desires to obtain approval to install or use a computer or communication system for instant messaging or E-mail must complete an Agreement and submit
the completed Agreement to the Exchange. Agreements may be obtained from the Telecommunications Service Center located on the fourth floor of the Exchange. Please
contact 786-7611 for further assistance.
Any questions regarding this circular may be directed to Joanne Heenan-Hustad at (312)
786-7786.
Supersedes RG97-75
Regulatory Circular RG05-23
To:
Members
From: Legal Division
Date:
February 22, 2005
Re:
New Obvious Error Rule for Equities
Effective immediately, CBOE is implementing a revised obvious error rule applicable to equity options transactions only. The revised obvious error rule now incorporates a provision for obvious errors involving an erroneous quote in an underlying security. This Regulatory Circular summarizes this revised provision of obvious error
rule, which also is attached. In determining whether the obvious error rule has any application to their equity option transactions, members are advised to review and rely upon the
full text of Rule 6.25 and not this summary.
Erroneous Quote in Underlying: Electronic trades (this provision has no applicability to
trades executed in open outcry) resulting from an erroneous quote in the underlying security may be adjusted or nullified above. An erroneous quote occurs when the underlying
security has a width of at least $1.00 and has a width at least five times greater than the
average quote width for such underlying security on the primary market (as defined in Rule
1.1(v)) during the time period encompassing two minutes before and after the dissemination of such quote. Transactions between CBOE MMs will be adjusted (Theoretical Price
plus penalty) as set forth in paragraph (a)(1) of Rule 6.25. Other transactions will be
nullified.
For more information, please contact Trading Floor Liaisons, Floor Officials, Andrew Spiwak
at (312) 786-7483, or Steve Youhn at (312) 786-7416
Rule 6.25
Nullification and Adjustment of Equity Options Transactions
This Rule governs the nullification and adjustment of transactions involving equity options.
Rule 24.16 governs the nullification and adjustment of transactions involving index options
and options on ETFs and HOLDRs. Paragraphs (a)(1) and (2) of this Rule have no applicability to trades executed in open outcry.
(a) Trades Subject to Review
A member or person associated with a member may have a trade adjusted or nullified if, in
addition to satisfying the procedural requirements of paragraph (b) below, one of the following conditions is satisfied:
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March 2, 2005, Volume RB16, Number 9
Regulatory Circulars
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Regulatory Circular RG05-23 continued
(1) Obvious Price Error: An obvious pricing error occurs when the execution price
of an electronic transaction is above or below the Theoretical Price for the series by
an amount equal to at least the amount shown below:
Theoretical Price
Below $2
$2 to $5
Above $5 to $10
Above $10 to $20
Above $20
MinimumAmount
$0.25
$0.40
$0.50
$0.80
$1.00
Definition of Theoretical Price. For purposes of this Rule only, the Theoretical Price of an
option series is, for series traded on at least one other options exchange, the last bid price
with respect to an erroneous sell transaction and the last offer price with respect to an
erroneous buy transaction, just prior to the trade, disseminated by the competing options
exchange that has the most liquidity in that option class in the previous two calendar months.
If there are no quotes for comparison, designated Trading Officials will determine the Theoretical Price. For transactions occurring as part of the Rapid Opening System (“ROS trades”)
or Hybrid Opening System (“HOSS”), Theoretical Price shall be the first quote after the
transaction(s) in question that does not reflect the erroneous transaction(s).
Price Adjustment or Nullification: Obvious Pricing Errors will be adjusted or nullified in
accordance with the following:
Transactions Between CBOE Market-Makers: Where both parties to the transaction are CBOE Market-Makers, the execution price of the transaction will be adjusted by Trading Officials to the prices provided in Paragraphs (A) and (B) below,
minus (plus) an adjustment penalty (“adjustment penalty”), unless both parties agree
to adjust the transaction to a different price or agree to bust the trade within fifteen
(15) minutes of being notified by Trading Officials of the Obvious Error.
A. Erroneous buy transactions will be adjusted to their Theoretical Price
plus an adjustment penalty of either $.15 if the Theoretical Price is under
$3 or $.30 if the Theoretical Price is at or above $3.
B. Erroneous sell transactions will be adjusted to their Theoretical Price
minus an adjustment penalty of either $.15 if the Theoretical Price is under
$3 or $.30 if the Theoretical Price is at or above $3.
Transactions Involving at least one non-CBOE Market-Maker: Where one
of the parties to the transaction is not a CBOE Market-Maker, the transactions
will be nullified by Trading Officials unless both parties agree to an adjustment
price for the transaction within thirty (30) minutes of being notified by Trading
Officials of the Obvious Error.
(2) No Bid Series: Electronic transactions in series quoted no bid at a nickel (i.e.,
$0.05 offer) will be nullified provided at least one strike price below (for calls) or
above (for puts) in the same options class was quoted no bid at a nickel at the time
of execution.
(3) Verifiable Disruptions or Malfunctions of Exchange Systems: Electronic or
open outcry transactions arising out of a “verifiable disruption or malfunction” in the
use or operation of any Exchange automated quotation, dissemination, execution,
or communication system will either be nullified or adjusted by Trading Officials.
Transactions that qualify for price adjustment will be adjusted to Theoretical Price,
as defined in paragraph (a)(1) above.
March 2, 2005, Volume RB16, Number 9
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Regulatory Circular RG05-23 continued
(4) Erroneous Print in Underlying: A trade resulting from an erroneous print
disseminated by the underlying market which is later cancelled or corrected by
that underlying market may be nullified. In order to be nullified, however, the trade
must be the result of an erroneous print that is higher or lower than the average
trade in the underlying security during a two-minute period before and after the
erroneous print by an amount at least five times greater than the average quote
width for such underlying security during the same period.
For purposes of this Rule, the average trade in the underlying security shall be
determined by adding the prices of each trade during the four minute time period
referenced above (excluding the trade in question) and dividing by the number of
trades during such time period (excluding the trade in question). For purposes of
this Rule, the average quote width shall be determined by adding the quote widths
of each separate quote during the four minute time period referenced above (excluding the quote in question) and dividing by the number of quotes during such
time period (excluding the quote in question).
(5) Erroneous Quote in Underlying: Electronic trades (this provision has no
applicability to trades executed in open outcry) resulting from an erroneous quote
in the underlying security may be adjusted or nullified as set forth in paragraph
(a)(1) above. An erroneous quote occurs when the underlying security has a width
of at least $1.00 and has a width at least five times greater than the average quote
width for such underlying security on the primary market (as defined in Rule 1.1(v))
during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of this Rule, the average quote width shall be
determined by adding the quote widths of each separate quote during the four
minute time period referenced above (excluding the quote in question) and dividing by the number of quotes during such time period (excluding the quote in
question).
(b) Procedures for Reviewing Transactions
(1) Notification: Any member or person associated with a member that believes
it participated in a transaction that may be adjusted or nullified in accordance with
paragraph (a) must notify any Trading Official promptly but not later than fifteen
(15) minutes after the execution in question. Absent unusual circumstances,
Trading Officials shall not grant relief under this Rule unless notification is made
within the prescribed time periods.
In the absence of unusual circumstances, Trading Officials (either on their own
motion or upon request of a member) must initiate action pursuant to paragraph
(a)(3) above within sixty (60) minutes of the occurrence of the verifiable disruption
or malfunction. When Trading Officials take action pursuant to paragraph (a)(3),
the members involved in the transaction(s) shall receive verbal notification as
soon as is practicable.
(2) Review and Determination: Once a party to a transaction has applied to a
Trading Official for review, the transaction shall be reviewed and a determination
rendered, unless both parties to the transaction agree to withdraw the application
for review prior to the time a decision is rendered.
Absent unusual circumstances (e.g., a large number of disputed transactions
arising out of the same incident), Trading Officials must render a determination
within sixty (60) minutes of receiving notification pursuant to paragraph (b)(1)
above. Trading Officials shall promptly provide verbal notification of a determination to the members involved in the disputed transaction and to the control room.
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March 2, 2005, Volume RB16, Number 9
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Regulatory Circular RG05-23 continued
(c) Obvious Error Panel
(i) Composition. An Obvious Error Panel will be comprised of at least one (1)
Trading Floor Liaison (TFL) and four (4) Exchange members. Fifty percent of the
number of Exchange members on the Obvious Error Panel must be directly engaged in market making activity and fifty percent of the number of Exchange members on the Obvious Error Panel must act in the capacity of a non-DPM floor broker.
The Exchange members shall be representatives from any of the following Committees: Equity Options Procedure Committee, Equity Market Performance Committee, and Floor Officials Committee.
(ii) Scope of Review. If a party affected by a determination made under this Rule
so requests within the time permitted in paragraph (b), an Obvious Error Panel will
review decisions made by the Trading Officials under this Rule, including whether
an obvious error occurred, whether the correct Theoretical Price was used, and
whether the correct adjustment was made at the correct price. A party may also
request that the Obvious Error Panel provide relief as required in this Rule in cases
where the party failed to provide the notification required in paragraph (b) and the
Trading Officials declined to grant an extension, but unusual circumstances must
merit special consideration.
(iii) Procedure for Requesting Review. A request for review must be made in
writing within thirty (30) minutes after a party receives verbal notification of a final
determination by the Trading Officials under this Rule, except that if notification is
made after 2:30 p.m. Central Time (“CT”), either party has until 8:30 a.m. CT the
next trading day to request review. The Obvious Error Panel shall review the facts
and render a decision on the day of the transaction, or the next trade day in the
case where a request is properly made the next trade day.
(iv) Panel Decision. The Obvious Error Panel may overturn or modify an action
taken by the Trading Officials under this Rule upon agreement by a majority of the
Panel representatives. All determinations by the Obvious Error Panel may be appealed in accordance with paragraph (d) of this rule.
(d) Review by the Appeals Committee
A member affected by a determination made under this rule may appeal such determination to the Appeals Committee, in accordance with Chapter XIX of the Exchange’s
rules. For purposes of this Rule, a member must be aggrieved as described in Rule
19.1. Notwithstanding any provision in Rule 19.2 to the contrary, a request for review
must be made in writing (in a form and manner prescribed by the Exchange) no later
than the close of trading on the next trade date after the member receives verbal notification of such determination by Trading Officials.
(e) Negotiated Trade Nullification
A trade may be nullified if the parties to the trade agree to the nullification. When all
parties to a trade have agreed to a trade nullification one party must promptly disseminate cancellation information in OPRA format.
March 2, 2005, Volume RB16, Number 9
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Regulatory Circulars
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Regulatory Circular RG05-23 continued
Interpretations and Policies…..
.01 Applicability: Trading Officials may also allow for the execution of ROS trades
(and assign those trades to participating ROS Market-Makers) that were not executed
on the opening but that should have been executed had ROS opened the series at the
non-erroneous quote. The Exchange will endeavor to notify its members as soon as
practicable after the correction of an erroneous print and will indicate that this may
result in the adjustment of trades executed pursuant to ROS. The only trades that will
be adjusted are those that were executed on the opening or those that should have
executed on the opening. All adjustments will be made during the day when the correction of the erroneous print occurred.
.02 Trading Officials: The term “Trading Officials” means two Exchange members
designated as Floor Officials and one member of the Exchange’s trading floor liaison
(TFL) staff.
.03 Definitions: For purposes of this Rule, an “erroneous sell transaction” is one in
which the price received by the person selling the option is erroneously low, and an
“erroneous buy transaction” is one in which the price paid by the person purchasing the
option is erroneously high.
Regulatory Circular RG05-24
To:
Members and Member Firms
From: Equity Options Procedure Committee
Date:
February 23, 2005
Re:
Changes to Order Routing Parameters and Autobook Timer
The Equity Options Procedure Committee (EOPC) has determined that the following changes
to order routing parameters and the Autobook timer will be effective at the opening of
trading on February 24, 2005, in all equity option classes:
Order Routing Changes: All non-marketable ORS orders with C, F, and B origin, unless
otherwise directed by the entering firm, will route directly to the book, bypassing PAR.
Autobook: For any book-eligible orders that route to PAR, the Autobook timer will be
reduced from the current length of 5-seconds to 1-second. An order will not auto-book if…
•
•
•
•
The order contains an “X” in the first position of the CORRESpondent
field. At the direction of the client, member firm staff may enter the “X” in
the CORRESpondent field on the BERS template to prevent auto-booking.
The order is entered from FBW using the <CROWD/NO BOOK> destination.
The order contains any contingency.
The order has a non-customer origin.
General questions regarding this matter may be directed to Anthony Montesano at (312)
786-7365 or any member of the Committee.
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March 2, 2005, Volume RB16, Number 9
Regulatory Circulars
continued
Regulatory Circular RG05-25
Date:
February 23, 2005
To:
Members and Member Firms
From: Market Operations Department
Re:
Restrictions on Transactions in
Winn-Dixie (WIN)
The New York Stock Exchange suspended trading of Winn-Dixie Stores Inc. (WIN) following
the grocer’s bankruptcy filing Monday night. In a press release Tuesday, the stock exchange
said it had been notified that Winn-Dixie plans to trade on the OTC Bulletin Board. The NYSE
said it has applied to the Securities and Exchange Commission to delist the company’s
shares.
Winn-Dixie released a statement Tuesday morning, just after midnight, saying it had filed for
Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of
New York.
As of February 23, 2005 trading on CBOE in existing series of WIN options will be subject to
the following restrictions. Only closing transactions may be effected in any series of WIN
options except for (i) opening transactions by Market-Makers executed to accommodate
closing transactions of other market participants and (ii) opening transactions by CBOE
member organizations to facilitate the closing transactions of public customers executed as
crosses pursuant to and in accordance with CBOE Rule 6.74(b) or (d).
The execution of opening transactions in WIN options, except as permitted above, and/or
the misrepresentation as to whether an order is opening or closing, will constitute a violation
of CBOE rules, and may result in disciplinary action. Member organizations should ensure
that they have appropriate procedures in place to prevent their customers from entering
opening orders in this restricted option class.
There are no restrictions in place with respect to the exercise of WIN options. The provisions
of this circular apply to any options on Winn-Dixie traded on CBOE.
Any questions regarding this circular may directed to Kerry Winters at (312) 786-7312 or
Joanne Heenan-Hustad at (312) 786-7786.
Rule Changes,
Interpretations
and Policies
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-2005-12
Obvious Error Rule
On February 10, 2005, the SEC approved Rule Change File No. SR-CBOE-2005-12, which
filing amends CBOE’s obvious error rule contained in Exchange Rule 6.25 – Nullification and
Adjustment of Equity Options Transactions, to adopt an erroneous quote provision and to
make two minor grammatical changes to Exchange Rule 24.16 – Nullification and Adjustment of Index Option Transactions. (Securities Exchange Act Release No. 51189, 70 FR
8119 (February 17, 2005)). Any questions regarding the rule change may be directed to
Andy Spiwak, Legal Division, at 312-786-7483. The text of the amended rules is set forth
below. New language is italicized.
March 2, 2005, Volume RB16, Number 9
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Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-12 continued
Rule 6.25
Nullification and Adjustment of Equity Options Transactions
This Rule governs the nullification and adjustment of transactions involving equity
options. Rule 24.16 governs the nullification and adjustment of transactions involving index options and options on ETFs and HOLDRs. Paragraphs (a)(1), and
(2) of this Rule have no applicability to trades executed in open outcry.
(a) Trades Subject to Review
A member or person associated with a member may have a trade adjusted or
nullified if, in addition to satisfying the procedural requirements of paragraph (b)
below, one of the following conditions is satisfied:
(1) – (4) No change
(5) Erroneous Quote in Underlying: Electronic trades (this provision has no
applicability to trades executed in open outcry) resulting from an erroneous quote
in the underlying security may be adjusted or nullified as set forth in paragraph
(a)(1) above. An erroneous quote occurs when the underlying security has a width
of at least $1.00 and has a width at least five times greater than the average quote
width for such underlying security on the primary market (as defined in Rule 1.1(v))
during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of this Rule, the average quote width shall be
determined by adding the quote widths of each separate quote during the four
minute time period referenced above (excluding the quote in question) and dividing by the number of quotes during such time period (excluding the quote in
question).
(b) – (e) No change
Interpretations and Policies…
No change
*****
Rule 24.16
Nullification and Adjustment of Index Option Transactions
(a) Trades Subject to Review
(1) – (7) No change
(b) Procedures for Reviewing Transactions
(1) Notification: Any member or person associated with a member that believes
it participated in a transaction that may be adjusted or nullified in accordance with
paragraph (a) must notify any Trading Official promptly but not later than fifteen
(15) minutes after the execution in question. For transactions occurring after 2:45
p.m. (CT), notification must be provided promptly but not later than fifteen (15)
minutes after the close of trading of that security on CBOE. Absent unusual
circumstances, Trading Officials shall not grant relief under this Rule unless notification is made within the prescribed time periods.
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March 2, 2005, Volume RB16, Number 9
Rule Changes,
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SR-CBOE-2005-12 continued
In the absence of unusual circumstances, Trading Officials (either on their own
motion or upon request of a member) must initiate action pursuant to paragraph
(a)(3) above within sixty (60) minutes of the occurrence of the verifiable disruption
or malfunction. When Trading Officials take action pursuant to paragraph (a)(3), the
members involved in the transaction(s) shall receive verbal notification as soon as
is practicable.
(2)
No change
(c) Adjustments
Unless otherwise specified in Rule 24.16(a)(1)-(6), transactions will be adjusted
provided the adjusted price does not violate the customer’s limit price. Otherwise,
the transaction will be nullified. With respect to Rule 24.16(a)(1)-(5), the price to
which a transaction shall be adjusted shall be the National Best Bid (Offer) immediately following the erroneous transaction with respect to a sell (buy) order entered
on the Exchange. For ROS or HOSS transactions, the price to which a transaction
shall be adjusted shall be based on the first non-erroneous quote after the erroneous transaction on CBOE. With respect to Rule 24.16(a)(6), the transaction shall be
adjusted to a price that is $0.10 under parity.
(d) -(e)
No change
Interpretations and Policies…..
No change
SR-CBOE-2004-72
SizeQuote Mechanism
On February 15, 2005, the SEC approved Rule Change File No. SR-CBOE-2004-72, which
filing sets forth a one-year pilot program to adopt a SizeQuote mechanism for the execution
of large-sized orders in open outcry. (Securities Exchange Act Release No. 51205, 70 FR
8647 (February 22, 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 6.74
“Crossing Orders”
(a) – (e)
No change
(f)
Open Outcry “SizeQuote” Mechanism
(i) SizeQuotes Generally: The SizeQuote Mechanism is a process by which a floor
broker (“FB”) may execute and facilitate large-sized orders in open outcry. Floor
brokers must be willing to facilitate the entire size of the order for which they request SizeQuotes (the “SizeQuote Order”). The appropriate Market Performance
Committee shall determine the classes in which the SizeQuote Mechanism shall
apply. The SizeQuote Mechanism will operate as a pilot program which expires
[insert date one year from date of approval].
(A)
Eligible Order Size: The appropriate MPC shall establish the eligible order
size however such size shall not be less than 250 contracts.
(B)
In-crowd Market Participants: The term “in-crowd market participants”
(“ICMPs”) shall be as defined in CBOE Rule 6.45A.
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Rule Changes,
Interpretations and
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SR-CBOE-2004-72 continued
(C)
Public Customer Priority: Public customer orders in the electronic book
have priority to trade with a SizeQuote order over any ICMP providing a SizeQuote
response at the same price as the order in the electronic book.
(D)
DPM Participation Rights: The DPM participation entitlement shall not
apply to SizeQuote transactions.
(E)
FBs may not execute a SizeQuote order at a price inferior to the national
best bid or offer (“NBBO.”) Unless a SizeQuote request is properly canceled in
accordance with paragraph (iv), a FB is obligated to execute the entire SizeQuote
order at a price that is not inferior to the NBBO in situations where there are no
SizeQuote responses received or where such responses are inferior to the NBBO.
(ii) SizeQuote Procedure: Upon request by a FB for a SizeQuote, ICMPs may
respond with indications of the price and size at which they would be willing to
trade with a SizeQuote order. After the conclusion of time during which interested
ICMPs have been given the opportunity to provide their indications, the FB must
execute the SizeQuote order with ICMPs and/or with a firm facilitation order in
accordance with the following procedures:
(A)
Executing the Order at ICMP’s Best Price: ICMPs that provided SizeQuote
responses at the highest bid or lowest offer (“best price”) have priority to trade with
the SizeQuote Order at that best price. Allocation of the order among ICMPs shall
be prorata, up to the size of each ICMP’s SizeQuote response. The FB must
trade at the best price any contracts remaining in the original SizeQuote Order
that were not executed by ICMPs providing SizeQuote responses.
(B)
Executing the Order at a Price that Improves upon ICMP’s Price by One
Minimum Increment: ICMPs that provided SizeQuote responses at the best price
(“eligible ICMPs”) have priority to trade with the SizeQuote Order at a price equal
to one trading increment better than the best price (“improved best price”). Allocation of the order among eligible ICMPs at the improved best price shall be prorata,
up to the size of each eligible ICMP’s SizeQuote response. The FB must trade at
the improved best price any contracts remaining in the original SizeQuote Order
that were not executed by eligible ICMPs.
(C)
Trading at a Price that Improves upon ICMP’s Price by More than One
Minimum Increment: A FB may execute the entire SizeQuote Order at a price two
trading increments better than the best price communicated by the ICMPs in their
responses to the SizeQuote request.
(iii) Definition of Trading Increments: Permissible trading increments are $0.05 for
options quoted below $3.00 and $0.10 for all others. In classes in which bid-ask
relief is granted pursuant to CBOE Rule 8.7(b)(iv), the permissible trading increments shall also increase by the corresponding amount. For example, if a series
trading above $3.00 has double-width bid-ask relief, the permissible trading increment for purposes of this rule shall be $0.20.
RB12
March 2, 2005, Volume RB16, Number 9
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2004-72 continued
(iv) It will be a violation of a FB’s duty of best execution to its customer if it were to
cancel a SizeQuote Order to avoid execution of the order at a better price. The
availability of the SizeQuote Mechanism does not alter a FB’s best execution duty
to get the best price for its customer. A SizeQuote request can be canceled prior to
the receipt by the FB of responses to the SizeQuote request. Once the FB receives a response to the SizeQuote request, if he/she were to cancel the order and
then subsequently attempt to execute the order at an inferior price to the previous
SizeQuote response, there would be a presumption that the FB did so to avoid
execution of its customer order in whole or in part by others at the better price.
Interpretations and Policies. . . .
No change
March 2, 2005, Volume RB16, Number 9
RB13