March 25, 2005
Exchange
Bulletin
Volume 33, Number 12
The Constitution and Rules of the Chicago Board 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 by hard copy or e-mail 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 if applicable, 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 after the first complimentary copy may be obtained by submitting your name, firm
if any, 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 nonmembers.
For up-to-date Seat Market Quotes, call 312-786-7456 or 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 by sending an e-mail to
members@cboe.com or by phone at 312-786-7449.
Copyright © 2005 Chicago Board Options Exchange, Incorporated
SEAT MARKET QUOTES AS OF FRIDAY, MARCH 25, 2005
CLASS
CBOE/FULL
CBOT/FULL
BID
$400,000.00
$1,364,000.00
OFFER
$418,000.00
$1,425,000.00
LAST SALE AMOUNT
$415,000.00
$1,420,000.00
LAST SALE DATE
March 18, 2005
March 23, 2005
MEMBERSHIP SALES AND TRANSFERS
From
Opcor, Incorporated
To
EWT, LLC
Price/Transfer
$415,000.00
Date
3/18/2005
Page 2
March 25, 2005
Volume 33, Number 12
Chicago Board Options Exchange
MEMBERSHIP INFORMATION FOR 3/17/05 THROUGH 3/23/05
MEMBERSHIPAPPLICATIONS RECEIVED FOR
WHICH A POSTING PERIOD IS REQUIRED
Individual Membership Applicants
Date Posted
Bradley J. Hadraba, CBT Registered For
Sparta Group of Chicago LP
11876 Windings Trail Drive
Willow Springs, IL 60480
3/17/05
James P. McFadden, Nominee
Group One Trading, LP
440 S. LaSalle, Ste. 3232
Chicago, IL 60605
3/18/05
Michael Sinoway, Nominee
Group One Trading, LP
440 S. LaSalle - Suite 3232
Chicago, IL 60605
3/18/05
David R. Stec, Nominee
Group One Trading, LP
440 S. LaSalle St. - Suite 3232
Chicago, IL 60605
Date Posted
Optiver US, LLC
Marcel V. Klooss, Nominee
440 S. LaSalle, Suite 1121
Chicago, IL 60605
Optra Curacao NV – Member
Optiver Holding B.V. – Member
Bastiaan van Kempen - Manager
3/17/05
MEMBERSHIP LEASES
New Leases
Effective Date
Lessor:
Merrill Lynch Professional
Clearing Corp.
Lessee: Cutler Group, LP
Wyatt Unger, NOMINEE
Rate:
0.875%
Term: Monthly
3/17/05
3/18/05
Lessor: Burton F. Brooks
Lessee: Cutler Group, LP
Steven Lee, NOMINEE
Rate:
0.875%
Term: Monthly
3/17/05
Patrick R. Bruce, Lessee
200 Corbett Ave.
San Francisco, CA 94114
3/22/05
Lessor: KISAY 1, LP
Lessee: Samurai Trading, LLC
David Piotrowski, NOMINEE
Rate:
0.8281%
Term: Monthly
3/18/05
Steve H. Kats, Nominee
Bear Wagner Specialists LLC
14442 S. 87th Ave.
Orland Park, IL 60462
3/22/05
Lessor: Essex Radez, LLC
Lessee: Caesaron II Fund LP
Stephen L. Silberman, NOMINEE
Rate:
0.8281%
Term: Monthly
3/21/05
Franz F. Paul, Nominee
SLK-Hull Derivatives LLC
2124 N. Sedgewick St.
Chicago, IL 60614
3/23/05
3/22/05
Member Organization Applicants
Lessor: Paul D. Soderholm
Lessee: Hybrid Trading & Resources, LLC
Sean P. McKeough, NOMINEE
Rate:
0.875%
Term: Monthly
Date Posted
Terminated Leases
Termination Date
Lessor: Essex Radez, LLC
Lessee: Sparta Group Of Chicago, LP
Eric V. Ochotnicki (OZY), NOMINEE
3/17/05
Lessor:
3/17/05
Sydan LP
3/21/05
Daniel S. Curran, Nominee
440 S. LaSalle St., Suite 2301
Chicago, IL 60605
Curran Family Limited Partnership – Limited Partner
Daniel S. Curran – Managing General Partner
Carol S. Curran – Limited Partner
Daniel S. Curran – Limited Partner
Sydan LLC – General Partner
Daniel S. Curran - Manager
DND Trading, LLC
3/21/05
Daniel Thales, Nominee
60 Bacon Rd.
Old Westbury, NJ 11568
Daniel T. Thaler – Managing Member
Dina M. Rannazzi – Investing Memeber
Roepe Rosenfeld Trading, LLC
3/21/05
Caleb Roepe, Nominee
117 Garth Road - 3E
Scarsdale, NY 10583
Benjamin A. Rosenfeld – Managing Member
Jonathon E. Roepe – Managing Member
Andrew T. Roepe – Trading Member
Caleb G. Roepe – Trading Member
Daniel T. Thaler – Trading Member
Rebecca A. Roeper – Investing Member
Merrill Lynch Professional
Clearing Corp.
Lessee: TD Options, LLC
Sergio Padilla (SRG), NOMINEE
Lessor: Burton F. Brooks
3/17/05
Lessee: TD Options, LLC
Anthony T. Capobianco (ITO), NOMINEE
Lessor: TD Options, LLC
3/21/05
Lessee: Citigroup Global Markets Inc.
Patrick V. Gleason (PVG), NOMINEE
Lessor: Paul D. Soderholm
3/22/05
Lessee: Hybrid Trading & Resources, Inc.
Sean P. McKeough (MCQ), NOMINEE
Page 3
March 25, 2005
Volume 33, Number 12
Chicago Board Options Exchange
MEMBERSHIP TERMINATIONS
Effective Date
Individual Members
Nominee(s) / Inactive Nominee(s):
Termination Date
Michael N. Suarez (ILL)
Citadel Derivatives Group LLC
131 S. Dearborn St., 37th Floor
Chicago, IL 60603
3/17/05
Eric V. Ochotnicki (OZY)
Sparta Group Of Chicago, LP
440 S. LaSalle, Ste. 2101
Chicago, IL 60605
3/17/05
Alfred C. Pollock IV (LKE)
Cornerstone Partners
440 S. LaSalle - Ste. 2500
Chicago, IL 60605
3/21/05
Brandon S. Koress (BBK)
Cornerstone Partners
440 S. LaSalle - Ste. 1900
Chicago, IL 60605
3/22/05
Richard B. Leake (BRL)
KC-CO II LLC
10 S. LaSalle, Ste. 2300
Chicago, IL 60603
3/22/05
Gregory R. Tilly (GXT)
Susquehanna Investment Group
440 S. LaSalle - Ste. 1600
Chicago, IL 60605
3/23/05
James F. Hart (JFH)
Okoboji Options LLC
440 S. LaSalle St., Suite 1725
Chicago, IL 60605
3/23/05
Mike Moraitis (MYK)
Third Millennium Trading, LLC
440 S. LaSalle - Ste. 3100
Chicago, IL 60605
3/23/05
Douglas P. Underhill (DOG)
3/18/05
PFTC LLC
440 S. LaSalle Street - Suite 3100
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
David Piotrowski (SKI)
3/18/05
Samurai Trading, LLC
2709 E. 96th St.
Chicago, IL 60617
Type of Business to be Conducted: Market Maker/Floor Broker
Milan-Aleksandar Asanovic (MAA)
3/18/05
Timber Hill LLC
600 N. McClurg Court, Apt. 2901A
Chicago, IL 60611
Type of Business to be Conducted: Market Maker
Arthur K. Carrison (AKC)
3/21/05
LaBranche Structured Products LLC
440 S. LaSalle, 19th Fl.
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Brandon S. Koress (BBK)
3/21/05
Cornerstone Partners
440 S. LaSalle - Ste. 1900
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Christopher J. Hart (UFO)
3/23/05
Okoboji Options LLC
440 S. LaSalle, #1725
Chicago, IL 60605
Type of Business to be Conducted: Market Maker/Floor Broker
Member Organizations
Lessee(s):
Member Organizations
Lessee(s):
Termination Date
Hybrid Trading & Resources, Inc.
141 W Jackson #4020
Chicago, IL 60604
3/22/05
Lessor(s):
Termination Date
Opcor, Incorporated
N7211 Ridge Road
Plymouth, WI 53073
3/18/05
Effective Date
Samurai Trading, LLC
3/18/05
515 Madison Ave, 5th Fl.
New York, NY 10022
Type of Business to be Conducted: Market Maker/Floor Broker
Caesaron II Fund LP
3/21/05
9464 Beverly Crest Drive
Beverly Hills, CA 90210
Type of Business to be Conducted: Market Maker
Hybrid Trading & Resources, LLC
3/22/05
141 W. Jackson, Ste. 4020
Chicago, IL 60604
Type of Business to be Conducted: Floor Broker
Lessor(s):
Effective Date
3/18/05
EFFECTIVE MEMBERSHIPS
EWT, LLC
345 N. Maple Dr., Ste. 205
Beverly Hills, CA 90210
Individual Members
JOINT ACCOUNTS
Nominee(s) / Inactive Nominee(s):
Effective Date
Wyatt Unger (ERP)
3/17/05
Cutler Group, LP
2829 N. Lincoln - #4
Chicago, IL 60657
Type of Business to be Conducted: Market Maker
Steven Lee (STV)
3/17/05
Cutler Group, LP
440 S. LaSalle, Suite 1124
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
New Participants
Acronym
Effective Date
Douglas P. Underhill
QPT
3/18/05
Milan-Aleksandar Asanovic QTH
3/18/05
Milan-Aleksandar Asanovic QTI
3/18/05
Page 4
March 25, 2005
Volume 33, Number 12
Chicago Board Options Exchange
New Accounts
Acronym
Effective Date
Member Organizations
Benny Burgio
QLB
3/22/05
Arthur K. Carrison
QLB
3/22/05
Effective Date
Terminated Participants Acronym
Termination Date
LaBranche Structured Products LLC
3/21/05
From:
Lessor/ Member Organization Affiliated with a CBT
Registered For; Associated with a Market Maker
To:
Owner/Member Organization Affiliated with a CBT
Registered For; Associated with a Market Maker
Gregory R. Tilly
3/23/05
MEMBER ADDRESS CHANGES
QGS
CHANGES IN MEMBERSHIP STATUS
Individual Members
Effective Date
Individual Members
Brian J. Barrett
77 W. Wacker - Ste. 700
Chicago, IL 60601
3/21/05
Effective Date
George J. Lefils
3/18/05
From:
Nominee For X-Change Financial Access LLC; Floor
Broker
To:
Nominee For Robert C. Sheehan & Associates, LLC;
Floor Broker
Stephen L. Silberman
3/21/05
From:
Lessor
To:
Lessor/ Nominee For Caesaron II Fund LP; Market
Maker
Sean P. McKeough
3/22/05
From:
Nominee For Hybrid Trading & Resources, Inc.; Floor
Broker
To:
Nominee For Hybrid Trading & Resources, LLC; Floor
Broker
POSITION LIMIT CIRCULARS
Pursuant to Exchange Rule 4.11, the Exchange issued the below listed Position Limit Circulars on March 22, 2005. The complete circulars are available
from the Department of Market Regulation, in the data information bins on the 2nd Floor of the Exchange, and on the CBOE website at cboe.com under
the “Market Data” tab.
To receive regular updates of the position limit list via fax, contact Candice Nickrand at (312) 786-7730. Questions concerning position and exercise
limits may be directed to the Department of Market Regulation to Rich Pedraza at (312) 786-7077 or Tim Mac Donald at (312) 786-7706.
Position Limit Circular PL05-15
March 22, 2005
Fox Entertainment Group, Inc. (“FOX”) merger completed with
News Corporation
(See Research Circular #RS05-176 for details)
Effective Date March 22, 2005
RESEARCH CIRCULARS
The following Research Circulars were distributed between March 17 and March 23, 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 #RS05-165
March 17, 2005
The Scotts Company (“SMG/WOF/ORY”)
Name Change to: The Scotts Miracle-Gro Company
Effective Date: March 21, 2005
Research Circular #RS05-166
March 17, 2005
Varco International, Inc. (“VRC/adj. HKW”)
Determination of Cash-in-Lieu Amount
Research Circular #RS05-168
March 18, 2005
Retek Inc. (“RETK/QRD”)
Tender Offer AMENDED by Sapphire Expansion Corporation
Research Circular #RS05-171
March 21, 2005
Fox Entertainment Group, Inc. (“FOX”)
Pending Merger with News Corporation
Research Circular #RS05-176
March 21, 2005
Fox Entertainment Group, Inc. (“FOX”)
Merger COMPLETED with News Corporation
Research Circular #RS05-179
March 23, 2005
Peabody Energy Corporation (“BTU”)
2-for-1 Stock Split
Ex-Distribution Date: March 31, 2005
Research Circular #RS05-180
March 23, 2005
Harris Corporation (“HRS”)
2-for-1 Stock Split
Ex-Distribution Date: March 31, 2005
March 30, 2005
Volume RB16, Number 13
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
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-2004-75
Rule Filing Creating Remote Market-Making
On March 14, 2005, the SEC approved Rule Change File No. SR-CBOE-2004-75, which
filing amends CBOE Rules to allow Remote Market-Making (Securities Exchange Act Release No. 51366, 70 FR 13217 (March 18, 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 1.1
Definitions
(a) – (zz)
No change
(aaa) “Hybrid Trading System” refers to the Exchange’s trading platform that
allows individual Market-Makers to submit electronic quotes in their appointed
classes. “Hybrid 2.0 Platform” is an enhanced trading platform that allows remote
quoting by authorized categories of members. Classes authorized by the Exchange for trading on the Hybrid Trading System shall be referred to as Hybrid
Classes. Classes authorized by the Exchange for trading on the Hybrid 2.0 Platform shall be referred to as Hybrid 2.0 Classes.
Interpretations and Policies . . .
No change
*****
Rule 3.2
(a)
Qualifications and Membership Statuses of Individual
Members
No change
(b)
The individual membership statuses that are approved by the Membership Committee (along with the primary Exchange Rule that provides for such
approval if it is not Rule 3.9) include: (i) owner*; (ii) lessor*; (iii) lessee*; (iv) Chicago
Board of Trade exerciser*; (v) sole proprietor*; (vi) individual with a membership that
has been registered for a member organization*; (vii) nominee of a member organization*; (viii) Market-Maker (Rule 8.2); (ix) Floor Broker (Rule 6.71); (x) member
eligible to trade securities traded pursuant to Chapter XXX (Rule 30.2); (xi) Trust
Member (Rule 3.25); and (xii) Remote Market-Maker (“RMM”)(Rule 8.4). Those
individual membership statuses noted with an asterisk are also referred to in the
Rules as membership capacity statuses.
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2004-75 continued
(c)
Every individual member who is a lessee, a Chicago Board of Trade exerciser, or an owner (who is not a lessor) must have an authorized trading function.
An individual member is deemed to have an authorized trading function if the
member is approved by the Membership Committee to act as a Market-Maker,
Floor Broker, RMM, or nominee or person registered for an RMM or e-DPM organization.
Interpretations and Policies…
No change
*****
Rule 3.3
(a)
Qualifications and Membership Statuses of Member
Organizations
No change
(b) The member organization membership statuses that are approved by the Membership Committee (along with the primary Exchange Rule that provides for such
approval if it is not Rule 3.9) include: (i) owner*; (ii) lessor*; (iii) lessee*; (iv) member
organization for which an individual member has registered his or her membership*; (v) member organization approved to transact business with the public*
(Rule 9.1); (vi) Clearing Member; (vii) order service firm* (Rule 6.77); and (viii)
Remote Market-Maker (Rule 8.4). Those individual membership statuses noted
with an asterisk are also referred to in the Rules as membership capacity statuses.
(c) - (d)
No change
Interpretations and Policies…
No change
*****
Rule 3.8
Nominees and Members Who Register Their Memberships
For Member Organizations
(a) Each member organization that is the owner of a membership for which the
member organization will not be acting as a lessor and each member organization
that is a lessee of a membership shall be subject to the following provisions:
(i)
No change
(ii) if the member organization is the owner or lessee of more than one such membership, the organization must designate a different individual to be the nominee
for each of the memberships (subject to the exceptions set forth in Interpretations
and Policies .02 to this Rule);
(iii) - (v) No change
(b) – (g) No change
Interpretations and Policies…
RB2
March 30, 2005, Volume RB16, Number 13
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2004-75 continued
.01
No change
.02
The following are exceptions to the subparagraph (a)(ii) of this Rule: (i) A
member organization may designate one individual to be the nominee for all memberships utilized by the organization in an RMM capacity and in an e-DPM capacity
provided, however, that a member organization may not have more than one RMM
appointment in an option class (except to the extent provided in Rule 8.4(c)) and
may not have an RMM appointment in an option class in which the organization
serves as a DPM, e-DPM, or Market-Maker on the Exchange (except to the extent
provided in Rule 8.4(c)); (ii) An individual may act as a nominee of an organization
with respect to one membership utilized in an RMM capacity and a membership not
utilized in an RMM or e-DPM capacity in order to allow the nominee to use those
memberships to simultaneously trade as an in-crowd Market-Maker and in an RMM
capacity (but not in the same class), provided that the RMM trading activity of the
nominee is from a location other than the physical trading station for any of the
classes traded by the nominee in an RMM capacity.
*****
Rule 6.45A
Priority and Allocation of Trades for CBOE Hybrid System
Generally: The rules of priority and order allocation procedures set forth in this rule
shall apply only to option classes designated by the Exchange to be traded on the
CBOE Hybrid System. The term “market participant” as used throughout this rule
refers to a Market-Maker, an in-crowd DPM, an e-DPM, a Remote Market-Maker,
and a floor broker representing orders in the trading crowd. The term “in-crowd
market participant” only includes an in-crowd Market-Maker, in-crowd DPM, and
floor broker representing orders in the trading crowd.
(a) Allocation of Incoming Electronic Orders: The Exchange shall apply, for each
class of options, the following rules of trading priority.
(i) Ultimate Matching Algorithm (“UMA”): Under this method, a market participant
who enters a quotation or order and whose quote or order is represented by the
disseminated CBOE best bid or offer (“BBO”) shall be eligible to receive allocations
of incoming electronic orders for up to the size of its quote or order, in accordance
with the principles described below. As an initial matter, if the number of contracts
represented in the disseminated quote is less than the number of contracts in an
incoming electronic order(s), the incoming electronic order(s) shall only be entitled
to receive a number of contracts up to the size of the disseminated quote, in accordance with Rule 6.45A(a)(i)(B). The balance of the electronic order will be eligible to
be filled at the refreshed quote either electronically (in accordance with paragraph
(a)(i)(B) below) or manually (in accordance with Rule 6.45A(b)) and, as such, may
receive a split price execution.
(A) – (C)No change
(b) Allocation of Orders Represented in Open Outcry: The allocation of orders that
are represented in open outcry by floor brokers (including DPMs acting as agent
under 8.85(b)) shall be as described below in subparagraphs (b)(i) and (b)(ii). With
respect to subparagraph (b)(ii), the floor broker representing the order (including
DPMs acting as agent under 8.85(b)) shall determine the sequence in which bids
(offers) are made.
(i)
No change
(ii)
Allocation
March 30, 2005, Volume RB16, Number 13
RB3
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2004-75 continued
(A) The highest bid (lowest offer) shall have priority.
(B)
(1) If two or more bids (offers) represent the best price, one of which represents a book market participant, priority shall be afforded to the in-crowd
market participants in the sequence in which their bids (offers) were made.
Provided however that the first in-crowd market participant to respond shall
be entitled to 70% of the order. The second in-crowd market participant to
respond (if ascertainable) shall be entitled to 70% of the remainder of the
order (i.e., 70% of 30%). The balance of the order shall be apportioned equally
among the remaining in-crowd market participants bidding (offering) at the
same price and the book market participant (as defined in Rule 6.45A(b)(i)(B)
above). If it is not possible to determine the order in which in-crowd market
participants responded, the balance of the order shall be apportioned equally
among the remaining in-crowd market participants bidding (offering) at the
same price and, if applicable, the book market participant.
In the event an in-crowd market participant declines to accept any portion of
the available contracts, any remaining contracts shall be apportioned equally
among the other in-crowd market participants who bid (offered) at the best
price (including the book market participant, if applicable) at the time the
market was established until all contracts have been apportioned.
(2) No change
(iii)
No change
(iv)
Duration of Rule 6.45A(b): Unless otherwise extended, the effectiveness
of Rule 6.45A(b) terminates September 14, 2005.
(c) Interaction of Market Participant’s Quotes and/or Orders with Orders in
Electronic Book
Market participants, as defined in Rule 6.45A, may submit quotes or orders electronically to trade with orders in the electronic book. A floor broker market participant may only represent as agent customer orders or orders from unaffiliated
broker-dealers. When a market participant’s quote or order interacts with the order
in the book, a trade occurs, CBOE will disseminate a last sale report, and the size
of the book order will be decremented to reflect the execution. Allocation of the
book order shall be as follows:
(i) – (iv) No change
(d) – (e) No change
Interpretations and Policies . . .
No change
*****
Rule 6.73 Responsibilities of Floor Brokers
(a) – (c) No change
RB4
March 30, 2005, Volume RB16, Number 13
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2004-75 continued
(d) Market-Maker Orders. A Floor Broker holding an order for the account of a
Market-Maker or Specialist shall verbally identify the order as such in open outcry
prior to requesting a quote.
Interpretations and Policies . . .
No change
*****
Rule 8.1
Market-Maker Defined
A Market-Maker (“Market-Maker” or “market maker”) is an individual (either a member or nominee of a member organization) who is registered with the Exchange for
the purpose of making transactions as dealer-specialist on the Exchange in accordance with the provisions of this Chapter. Registered Market-Makers are designated as specialists on the Exchange for all purposes under the Securities Exchange Act of 1934 and the Rules and Regulations thereunder. Only transactions
that are effected in accordance with Interpretation and Policy .03 under Rule 8.7
shall count as Market-Maker transactions for the purposes of this Chapter and
Rules 3.1 and 12.3(f). The term Market-Maker includes Remote Market-Makers (as
defined in Rule 8.4).
*****
Rule 8.2
Registration of Market-Makers
(a) An applicant for registration as a Market-Maker shall file his application in writing
with the Membership Department on such form or forms as the Exchange may
prescribe. Applications shall be reviewed by the Membership Committee, which
shall consider an applicant’s ability as demonstrated by his passing a member’s
examination prescribed by the Exchange, and such other factors as the Committee
deems appropriate. After reviewing the application, the Committee shall either approve or disapprove the applicant’s registration as a Market-Maker.
(b) – (c) No change
*****
Rule 8.3
Appointment of Market-Makers
This Rule governs the appointment of Market-Makers other than Remote MarketMakers. Rule 8.4 governs the appointment of Remote Market-Makers.
(a) – (d) No change
*****
March 30, 2005, Volume RB16, Number 13
RB5
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2004-75 continued
Rule 8.3A
Maximum Number of Market Participants Quoting
Electronically per Product
With respect to products trading on the Hybrid Trading System or on the Hybrid 2.0
Platform, the Exchange will impose an upper limit on the aggregate number of
members that may quote electronically in each product (“Class Quoting Limit” or
“CQL”). (For purposes of this Rule, the term “product” refers to all options of the
same single underlying security/value.) Interpretations and Policies .01 specifies
the Class Quoting Limits for all products trading on Hybrid and the Hybrid 2.0
Platform.
When a CQL is established for each product, the following criteria govern which
members are entitled to quote electronically in that subject product. A MarketMaker (excluding an RMM and e-DPM) that is not eligible to quote electronically in
a product may quote in open outcry in that product.
(a)
Products Trading on the Hybrid 2.0 Platform as of January 6, 2005
and Products Trading on the Hybrid Trading System as of
January 6, 2005
The DPM and e-DPMs (if applicable) assigned to the product on January 6, 2005,
and Market-Makers who: (1) are in good standing with the Exchange; and (2) (i)
have transacted at least 80% of their Market-Maker contracts and transactions inperson in each of the three immediately preceding calendar months prior to January 6, 2005 in option products traded in the trading station; or (ii) were physically
present in the trading station acting in the capacity of a Market-Maker on January
6, 2005, are entitled to quote electronically in those products for as long as they
maintain an appointment in those products.
All other Market-Makers, RMMs, and approved e-DPMs that request the ability to
submit quotes electronically in the subject product will be entitled to quote electronically in that product in the order in which they so request provided the number
of members quoting electronically in the product does not exceed the CQL. When
the number of members in the product quoting electronically equals the CQL, all
other members requesting the ability to quote electronically in that product will be
wait-listed in the order in which they submitted the request.
The waiting list operates based on time priority. When the product can accommodate another electronic quoter (whether due to attrition or an increase in the CQL),
the member at the “top” of the list (i.e., the member that has been on the waiting
list the longest amount of time) has priority. Once a member is wait-listed, the
Exchange may not alter his/her position on the wait-list other than to improve
such position (i.e., the Exchange may not place other members ahead of a previously wait-listed member). If a wait-listed member is offered, yet refuses, the
ability to quote electronically in the subject product, the member will be removed
from that waiting list.
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(b) Products Added to the Hybrid 2.0 Platform After January 6, 2005: With
respect to a product that is added to the Hybrid 2.0 Platform after January 6, 2005,
the DPM and e-DPMs appointed to the product will be entitled to quote electronically. All Market-Makers quoting in the product prior to its addition to the Hybrid 2.0
Platform will be entitled to quote electronically provided that: (i) they have transacted at least 80% of their Market-Maker contracts and transactions in-person in
each of the three immediately preceding calendar months prior to the product being
added to the Hybrid 2.0 Platform in option products traded in the trading station; or
(ii) they were physically present in the trading station acting in the capacity of a
Market-Maker on the day prior to the product being added to the Hybrid 2.0 Platform. If at the time a product is added to the Hybrid 2.0 Platform the aggregate
number of DPMs, e-DPMs, and Market-Makers entitled to quote electronically in
the product exceeds the CQL, then the product will have an “increased CQL,” as
described in Interpretations and Policies .01(a). Reduction of any “increased CQL”
will be in accordance with the procedures described in Interpretations and Policies
.01(a).
All other members will be entitled to quote electronically in that product in the order
in which they so request provided the number of members quoting electronically in
the product does not exceed the CQL. When the number of members quoting
electronically in the product equals the CQL, all other members will be wait-listed in
the order in which they request the ability to quote electronically. The wait-list will
operate as described above in paragraph (a).
(c) Products Added to the Hybrid Trading System After January 6, 2005: With
respect to a new product that commences trading on the Hybrid Trading System
after January 6, 2005, the assigned DPM will be entitled to quote electronically.
Thereafter, all other members will be entitled to quote electronically in that product
in the order in which they so request provided the number of members quoting
electronically does not exceed the CQL. When the number of members quoting
electronically in the product equals the CQL, all other members will be wait-listed in
the order in which they request the ability to quote electronically. The wait-list will
operate as described above in paragraph (a).
Interpretations and Policies . . .
.01 Establishing the Class Quoting Limits:
(a) Products Trading on the Exchange as of January 6, 2005:
The CQL for all products trading on the Hybrid Trading System is twenty-five (25).
The CQLs for products trading on the Hybrid 2.0 Platform are as follows: 40 for the
20% most actively-traded products over the preceding quarter; 35 for the next 20%
most actively-traded products; 30 for the next 20% most actively-traded products;
and 25 for all other Hybrid 2.0 Platform products. (For purposes of this Rule, the
term “product” refers to all options of the same single underlying security/value.)
At the end of each calendar quarter, products will be assigned a different CQL
based on the revised trading volume statistics (“new CQL”). The following rules
apply to those products for which the new CQL decreases:
(i) If the number of members quoting electronically in the product on the last day of
the quarter equals or is less than the new CQL, then the previous CQL is reduced
immediately to the new CQL.
March 30, 2005, Volume RB16, Number 13
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(ii) If the number of members quoting electronically in the product on the last day
of the quarter is greater than the new CQL, then that product will have an “increased” CQL. The “increased” CQL will equal the number of members quoting
electronically in the product on the last day of the quarter. If a member changes
his/her appointment and ceases quoting electronically in that class, the “increased”
CQL will decrease by one until such time that the number of remaining members
quoting electronically in the product equals the new CQL. From that point forward,
the number of members quoting electronically in the product may not exceed the
new CQL.
(b) Products Not Traded on the Exchange as of January 6, 2005:
The CQL for all products newly-listed on the Exchange after January 6, 2005 will
be 25 until such time that the CQL increases in accordance with this Interpretations and Policies .01.
(c) Increasing the Class Quoting Limit in Exceptional Circumstances: When
exceptional circumstances warrant, the President of the Exchange (or in his absence his designee, who must be a Senior Vice President of the Exchange or
higher) may increase the CQL for an existing or new product. “Exceptional circumstances” refers to substantial trading volume, whether actual or expected
(e.g., in the case of a new product or a major news announcement). When the
CQL increases pursuant to the President exercising his authority in accordance
with this paragraph, members on the wait-list for that product (if applicable) have
first priority and remaining capacity will be filled on a time priority basis. Upon
cessation of the exceptional circumstances, the President (or his designee), in
his discretion, may determine to reduce the CQL, provided, however, that any
reduction must be undertaken in accordance with the procedure established in
paragraph .01(a)(ii) above with respect to lowering the “increased CQL.” Any actions taken by the President of the Exchange pursuant to this paragraph will be
submitted to the SEC in a rule filing pursuant to Section 19(b)(3)(A) of the Exchange Act.
(d) Announcements Regarding, or Changes to, Class Quoting Limits: The
Exchange will announce all changes regarding Class Quoting Limits to the membership via Information Circular. The Exchange may increase the CQL levels
established in paragraphs .01(a) and (b) by submitting to the SEC a rule filing
pursuant to Section 19(b)(3)(A) of the Exchange Act. The Exchange may decrease the CQL levels established above upon SEC approval of a rule filing submitted pursuant to Section 19(b)(2) of the Exchange Act.
*****
Rule 8.4
Remote Market-Makers
(a) Definition: A Remote Market-Maker (“RMM”) is an individual member or member organization registered with the Exchange that makes transactions as a dealerspecialist from a location other than the physical trading station for the subject
class. Transactions of RMMs that are executed on the Exchange are deemed
Market-Maker transactions for purposes of this Chapter and Rules 3.1 and 12.3(f).
(b) Registration and Approval of RMMs: The registration and approval of RMMs
shall be in accordance with Rule 8.2. An RMM shall retain its approval to act as
an RMM until the RMM requests the Exchange to relieve it of its approval to act
as an RMM and the Exchange grants such approval or until the Exchange terminates its approval to act as an RMM pursuant to Exchange Rules. An RMM may
not transfer its approval to act as an RMM unless approved by the Exchange.
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(c) Affiliation Limitations: Except as provided in subparagraphs (i) or (ii), an RMM
may not have an appointment as an RMM in any class in which it or its member
organization serves as DPM, e-DPM, RMM, or Market-Maker on CBOE.
(i) A CBOE Member or Member Firm operating as an RMM in a class may have, as
part of a pilot program until September 14, 2006, one Market-Maker affiliated with
the RMM organization trading in open outcry in any specific option class allocated
to the RMM, provided such Market-Maker trades on a separate membership.
(ii) A CBOE Member or Member Firm may have, as part of a pilot program until
March 14, 2006, multiple aggregation units operating as separate RMMs within the
same class provided:
(A) The member or member firm has a written plan of organization that
identifies each aggregation unit, specifies its trading objective(s), and supports its independent identity. The independence of aggregation units may
be evidenced by separate management structures, location, business
purpose, or separate profit-and-loss treatment within the member firm. Each
aggregation unit must maintain all trading activity of that aggregation unit
in a segregated account, which shall be reported to the Exchange as such.
(B) Each aggregation unit must operate independently of other aggregation
units of the member or member firm. Moreover, all traders in an aggregation unit may pursue only the trading objectives or strategy(ies) of that
aggregation unit and may not transmit or otherwise share information relating to those trading objectives or strategies to the member’s or member
firm’s other aggregation units. The member or member firm may have risk
management personnel outside of the RMM aggregation units view the
positions of the multiple RMMs within the entity and direct position adjustments for risk management purposes. However, such persons may not
transmit information to traders in an RMM aggregation unit about the trading strategies, objectives, or positions of another RMM aggregation unit.
Senior risk management personnel are prohibited from engaging in any of
the following activities with respect to the Aggregation Units for which they
oversee: (i) establishing quoting parameters for any trader including but
not limited to delta and volatility values; (ii) directing the submission of
specific quotes by any trader; or (iii) directing the timing of a trader’s trading
activities with anything other than general, nonspecific timeframes. Prior
to being approved in an RMM capacity, each member or member organization operating multiple Aggregation Units will be required to certify that it
is aware of these prohibitions, that it will comply with these prohibitions,
and that it will ensure continued compliance with these prohibitions.
(C) Individual traders are assigned to only one aggregation unit at any time.
March 30, 2005, Volume RB16, Number 13
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(D) The member or member firm as part of its compliance and/or internal
audit routines establishes and maintains surveillance and audit procedures that facilitate the review and surveillance programs of the firm and
CBOE to ensure the independent operation of the separate aggregation
units operating as RMMs. As part of these routines, the member or
member firm must retain written records of information concerning the
aggregation units, including, but not limited to, trading personnel, names
of personnel making trading decisions, unusual trading activities, disciplinary action resulting from a breach of the member or member firm’s
systems firewalls and information-sharing policies, and the transfer of
securities between the members or member firm’s aggregation units, which
information shall be promptly made available to the Exchange upon its
request. The member or member firm must promptly provide to the Exchange a written report at such time there is any material change with
respect to the aggregation units, at which point the Exchange will reexamine its status.
(d) Appointment of RMMs: An RMM may choose either a Physical Trading Crowd
or Virtual Trading Crowd appointment, as described below. For purposes of this
Rule, the term “product” refers to all options of the same single underlying security/value.
(i) Physical Trading Crowd (“PTC”) Appointment: A PTC appointment shall correspond to the location of a physical trading station on the floor of the CBOE. An
RMM’s PTC appointment confers the right to quote electronically (and not in open
outcry): 30 Hybrid 2.0 products traded in that specific trading station for each
Exchange membership it owns; or 20 Hybrid 2.0 products traded in that specific
trading station for each Exchange membership it leases.
(ii) Virtual Trading Crowd (“VTC”) Appointment: A VTC appointment confers the
right to quote electronically (and not in open outcry) an appropriate number of
products selected from “tiers” that have been structured according to trading volume statistics. Of the products included in the Hybrid 2.0 Platform, Tier A will
consist of the 20% most actively-traded products over the preceding three calendar months, Tier B will consist of the next 20% most actively-traded products,
etc., through Tier E, which will consist of the 20% least actively-traded products.
All products within a specific Tier will be assigned an “appointment cost” depending upon its Tier location. Each Tier A product will have an “appointment cost” of
.10, each Tier B product will be .0667, each Tier C product will be .05, each Tier D
product will be .04, and each Tier E product will be .033. An RMM as part of its
VTC appointment may select for each Exchange membership it owns or leases
any combination of Hybrid 2.0 products whose aggregate “appointment cost” does
not exceed 1.0. For example, an RMM could request six “A Tier” products (6x.10),
four “C Tier” products (4x.05), and five “D Tier” products (5x.04) to constitute its
VTC appointment.
The Exchange will rebalance the “tiers” once each calendar quarter, which may
result in additions or deletions to their composition. When a product changes
“tiers” it will be assigned the “appointment cost” of that tier. Upon rebalancing,
each RMM with a VTC appointment will be required to own or lease the appropriate number of Exchange memberships reflecting the revised “appointment costs”
of the products constituting its appointment.
An RMM may only change its appointment upon advance notification to the Exchange in a form and manner prescribed by the Exchange.
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Exchange memberships used to satisfy membership requirements to possess an
RMM PTC or VTC appointment may not be used for any other purpose while being
used in an RMM capacity, including being leased to another member or for trading
on the trading floor. For purposes of this Rule, an Exchange membership shall
include a transferable regular membership or a Chicago Board of Trade full membership that has effectively been exercised pursuant to Article Fifth(b) of the Certificate of Incorporation.
(e) The Exchange may suspend or terminate any appointment of an RMM in one or
more classes under this Rule whenever, in the Exchange’s judgment, the interests
of a fair and orderly market are best served by such action. An RMM may seek
review of any action taken by the Exchange pursuant to this Rule in accordance
with Chapter XIX.
(f) RMMs are subject to Rule 8.7.03A with respect to trading in appointed classes.
RMMs may not enter quotations in option classes that are not included within their
appointment. RMMs may submit orders in classes that are not included within their
appointment.
*****
Rule 8.7
(a)
Obligations of Market-Makers
No change
(b) Appointment. With respect to each class of option contracts for which he holds
an Appointment under Rule 8.3, a Market-Maker has a continuous obligation to
engage, to a reasonable degree under the existing circumstances, in dealings for
his own account when there exists, or it is reasonably anticipated that there will
exist, a lack of price continuity, a temporary disparity between the supply of and
demand for a particular option contract, or a temporary distortion of the price relationships between option contracts of the same class. Without limiting the foregoing, a Market-Maker is expected to perform the following activities in the course of
maintaining a fair and orderly market:
(i)
No change
(ii) To make markets which, absent changed market conditions, will be honored in
accordance with Rule 8.51, in all series of options classes in which the MarketMaker quotes. Each Market-Maker will communicate to the Exchange its bid and
offers in accordance with the requirements of Rule 11Ac1-1 under the Exchange
Act and the rules of the Exchange.
(iii) To update market quotations in response to changed market conditions in his/
her appointed options classes and to assure that any market quote it causes to be
disseminated is accurate.
A. Market-Makers who are physically present in their appointed trading
station may enter quotes and orders in the following manner: (a) by public
outcry in response to a request for a quote; or (b) in classes in which the
CBOE Hybrid Trading System is implemented, through an Exchange-approved electronic interface via an Exchange-approved quote generation
device.
B. RMMs may enter quotes and orders remotely (i.e., from outside of the
physical trading station for the subject class) through an Exchange-approved electronic interface. RMMs may not quote in open outcry.
March 30, 2005, Volume RB16, Number 13
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(iv)
No change
(c)
No change
(d) Market Making Obligations Applicable in Hybrid Classes
The following obligations in this paragraph (d) are only applicable to Market-Makers trading classes on the CBOE Hybrid System and only in those Hybrid classes.
As such, this paragraph has no applicability to non-Hybrid classes. This paragraph is not applicable to Remote Market-Makers, who instead will be subject to
the obligations imposed by Rule 8.7(e). Unless otherwise provided in this Rule,
Market-Makers trading classes on the Hybrid System remain subject to all obligations imposed by CBOE Rule 8.7. To the extent another obligation contained
elsewhere in Rule 8.7 is inconsistent with an obligation contained in paragraph (d)
of Rule 8.7 with respect to a class trading on Hybrid, this paragraph (d) shall
govern trading in the Hybrid class.
These requirements are applicable on a per class basis depending upon the percentage of volume a Market-Maker transacts electronically versus in open outcry.
With respect to making this determination, the Exchange will monitor MarketMakers’ trading activity every calendar quarter to determine whether they exceed
the thresholds established in this paragraph (d). If a Market-Maker exceeds the
threshold established below, the obligations contained in (d)(ii) will be effective the
next calendar quarter.
For a period of ninety (90) days commencing immediately after a class begins
trading on the Hybrid system, the provisions of paragraph (d)(i) shall govern trading in that class.
(i) – (ii)
No change
(e) Obligations of Remote Market-Makers (RMMs): The following obligations apply only to RMMs:
(i) RMMs must provide continuous two-sided, legal-width quotations in 60% of the
series of their appointed classes. The initial size of an RMM’s quote must be for at
least ten contracts (undecremented size). The Exchange may consider exceptions to this quoting requirement based on demonstrated legal or regulatory requirements or other mitigating circumstances (e.g., excused leaves of absence,
personal emergencies, or equipment problems).
If the underlying primary market disseminates a 100-share quote, an RMM’s
undecremented quote may be for as low as 1-contract (“1-up”), however, this
ability is expressly conditioned on the process being automated (i.e., an RMM
may not manually adjust its quotes to reflect 1-up sizes). Quotes must automatically return to at least 10-up when the underlying primary market no longer disseminates a 100-share quote. RMMs that have not automated this process may
not avail themselves of the relief provided herein. The ability to quote 1-up shall
operate on a pilot basis and shall terminate August 17, 2005.
(ii) An RMM may be called upon by an Exchange official designated by the Board
of Directors to submit a single quote or maintain continuous quotes in one or more
series of a class to which the RMM is appointed whenever, in the judgment of
such official, it is necessary to do so in the interest of maintaining a fair and
orderly market.
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(iii) All Exchange rules applicable to Market-Makers will also apply to RMMs unless
otherwise provided or unless the context clearly indicates otherwise. RMMs are not
considered trading crowd members, except as provided in Rule 8.60 (Evaluation of
Trading Crowd Performance) or unless the context clearly indicates otherwise.
(iv) The evaluation of RMM performance shall be pursuant to Rule 8.61.
(v) Failure by an RMM to engage in a course of dealings as specified above will
subject the RMM to disciplinary action or suspension or revocation of registration
by the Exchange in one or more of the option classes in which the RMM holds an
appointment.
(vi) RMMs shall maintain information barriers that are reasonably designed to
prevent the misuse of material, non-public information with any affiliates that may
conduct a brokerage business in option classes allocated to the RMM or that may
act as specialist or Market-Maker in any security underlying options allocated to
the RMM, and otherwise comply with the requirements of Rule 4.18 regarding the
misuse of material non-public information.
Interpretations and Policies . . .
.01 - .02 No change
.03 For purposes of Rule 8.7, the following percentage requirements apply to Market-Maker trading activity for each quarter of a calendar year, except for unusual
circumstances as determined by the appropriate Market Performance Committee.
The appropriate Market Performance Committee may assign a weighting factor
based on volume to one or more classes or series of option contracts in connection
with these requirements.
A.
No change
B. In-Person Requirements for Market-Makers (Other than Remote Market-Makers): Respecting the manner in which Market-Maker transactions may be executed,
a Market-Maker must execute in person, and not through the use of orders, at least
25 percent of his total transactions, provided, however, that for any calendar quarter in which a Market-Maker receives Market-Maker treatment for off-floor orders in
accordance with Rule 8.1, in addition to satisfying the requirements of paragraph A
of this Interpretation .03, the Market-Maker must execute in person, and not through
the use of orders, at least 80 percent of his total transactions. The off-floor orders
for which a Market-Maker receives Market-Maker treatment shall be subject to the
obligations of Rule 8.7(a) and in general shall be effected for the purpose of hedging, reducing risk of, rebalancing or liquidating open positions of the Market-Maker.
The appropriate Market Performance Committee may exempt one or more options
classes from this calculation.
.04 - .08 No change
.09 The obligations and duties of Market-Makers set forth in Rule 8.7 paragraphs
(a) and (b) apply to an in-crowd Market-Maker only when the in-crowd MarketMaker is present in the trading crowd and to an RMM only when the RMM is logged
on to the CBOE Hybrid 2.0 system. Market-Makers remain subject to Rule 7.5
while on the floor of the Exchange.
.10 - .13 No change
March 30, 2005, Volume RB16, Number 13
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SR-CBOE-2004-75 continued
*****
Rule 8.8
Restriction on Acting as Market-Maker and Floor Broker
No change
Interpretations and Policies . . .
.01 The word “station” means a location on the trading floor, at which classes of
option contracts are traded, which classes of options compose all or part of a
Market-Maker appointment. The word “station” is synonymous with the term “trading crowd.”
.02 - .03 No change
*****
Rule 8.61
Evaluation of Remote Market-Makers
a. Review: The appropriate Market Performance Committee (“MPC”) will periodically conduct an evaluation of Remote Market-Makers to determine whether they
have fulfilled performance standards relating to, among other things, quality of
markets, competition among Market-Makers, observance of ethical standards,
and administrative factors. The appropriate MPC may consider any relevant information including, but not limited to, the results of a Remote Market-Maker evaluation, trading data, a Remote Market-Maker’s regulatory history and such other
factors and data as may be pertinent in the circumstances.
b. Termination and other limitations. The appropriate MPC may terminate, place
conditions upon, or otherwise limit a member’s approval to act as an RMM on the
same basis that Market-Maker privileges may be terminated and/or conditioned
under Rules 8.60. If a member’s approval to act as an RMM is terminated, conditioned, or otherwise limited by the appropriate MPC pursuant to this Rule, the
member may seek review of that decision under Chapter XIX of the Rules.
SR-CBOE-2005-14
MNX and NDX Transaction Fees
On March 9, 2005, the SEC approved Rule Change File No. SR-CBOE-2005-14, which
filing amends certain transactions fees for options on the Mini-Nasdaq-100 Index (“MNX”)
and the Nasdaq 100 Index (“NDX”). Specifically, this filing reduces public customer transaction fees to $.15 per contract for transactions in MNX and NDX options (Securities
Exchange Act Release No. 51351, 70 FR 12917 (March 16, 2005)). Any questions regarding the rule change may be directed to Jaime Galvan, Legal Division, at 312-786-7058. The
text of the amended Fee Schedule is available from the Legal Division, or can be accessed online at www.cboe.com, under the “About CBOE” link.
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PROPOSED RULE CHANGE(S)
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, as amended (“the
Act”), and Rule 19b-4 thereunder, the Exchange has filed the following proposed rule change(s)
with the Securities and Exchange Commission (“SEC”). Copies of the rule change filing(s)
are available at www.cboe.com/legal/submittedsecfilings.aspx. Members may submit written comments to the Legal Division.
The effective date of a proposed rule change will be the date of approval by the SEC, unless
otherwise noted.
SR-CBOE-2005-26
Determination of Opening Prices for Securities Underlying
A.M.-Settled Index Options
On March 16, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-26, which
filing proposes to amend CBOE Rules relating to the determination of opening prices for
securities that underlie certain A.M.-settled index options traded on the Exchange. Any
questions regarding the proposed rule change may be directed to Jim Flynn, Legal Division,
at 312-786-7070. The text of the proposed rule amendments is set forth below. Proposed
new language is underlined. Proposed deleted language is [stricken out].
Rule 24.9 – Terms of Index Option Contracts
(a)
General
(1) – (3) No change.
(4)
A.M.-Settled Index Options. The last day of trading for A.M.-settled index
options shall be the business day preceding the last day of trading in the underlying
securities prior to expiration. The current index value at the expiration of an A.M.settled index option shall be determined, for all purposes under these rules and the
rules of the Clearing Corporation, on the last day of trading in the underlying securities prior to expiration, by reference to the reported level of such index as derived
from [first reported sale ] the opening [(opening)] prices of the underlying securities
on such day, except that in the event that the primary market for an underlying
security does not open for trading, halts trading prematurely, or otherwise experiences a disruption of normal trading on that day, or in the event that the primary
market for an underlying security is open for trading on that day, but that particular
security does not open for trading, halts trading prematurely, or otherwise experiences a disruption of normal trading on that day, the price of that security shall be
determined, for the purposes of calculating the current index value at expiration, as
set forth in Rule 24.7(e).
The following A.M.-settled index options are approved for trading on the Exchange:
(i) - (lxxiv)
No change.
(5)
Other Methods of Determining Exercise Settlement Value. Exercise settlement values for the following index options are determined as specified in this
paragraph:
(i)
March 30, 2005, Volume RB16, Number 13
No change.
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SR-CBOE-2005-56 continued
(ii)
[Nasdaq 100 Stock Index. The current index value at expiration shall be
determined, for all purposes under these Rules and the Rules of the
Clearing Corporation, on the last day of trading in the underlying securities prior to expiration. The current index value for such purposes shall
be calculated by the Nasdaq Stock Market, Inc. (“Nasdaq”) and reported
to the CBOE using the volume weighted prices (“VWPs”) of the securities underlying the Nasdaq-100 Index, which VWPs shall be calculated
according to the then current volume-weighted averaging methodology
developed by Nasdaq.
(iii) ] CBOE Volatility Indexes and CBOE Increased-Value Volatility Indexes.
The current index value at expiration shall be determined, for all purposes under
these Rules and the Rules of the Clearing Corporation, on the last day of trading in
the underlying securities prior to expiration. The current index value for such purposes shall be calculated by the Chicago Board Options Exchange as a Special
Opening Quotation (SOQ) of each respective Volatility or Increased-Value Volatility Index using the sequence of opening prices of the options that comprise each
Index. The opening price for any series in which there is no trade shall be the
average of that option’s bid price and ask price as determined at the opening of
trading.
(b) – (c) No change.
Interpretations and Policies:
.01 - .12 No change.
SR-CBOE-2005-21
Calculation of NBBO for Linkage
On March 16, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-21, which
filing proposes to amend CBOE Rules regarding the calculation of the National Best Bid/
Offer when another participant in the Intermarket Options Linkage has removed itself from
the Linkage. Any questions regarding the proposed rule change Linkage may be directed
to Angelo Evangelou, Legal Division, at 312-786-7464. The text of the proposed rule
amendments is set forth below. Proposed new language is underlined. Proposed deleted
language is [stricken out].
6.13 CBOE Hybrid System’s Automatic Execution Feature
(a)-(d)
No change.
(e) Removal of Unreliable Quotes
Under circumstances where two Floor Officials determine that quotes from one or
more particular markets in one or more classes of options are not reliable, the
Floor Officials may direct the senior person in charge of the Exchange’s Control
Room to exclude the unreliable quotes from the determination of the NBBO in the
particular option class(es).
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March 30, 2005, Volume RB16, Number 13
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SR-CBOE-2005-21 continued
(i) Two Floor Officials may determine quotes in one or more particular options classes
in a market are not reliable under any of the following circumstances:
(A) QUOTES NOT FIRM: A market’s quotes in a particular options class
are not firm based upon direct communication to the Exchange from the
market or the dissemination through OPRA of a message indicating that
disseminated quotes are not firm; or
(B) CONFIRMED QUOTE PROBLEMS: A market has directly communicated to the Exchange or otherwise confirmed that the market is experiencing systems or other problems affecting the reliability of its disseminated quotes. In all such cases, the situation will be documented by the
Exchange Control Room and reported to regulatory authorities at the appropriate market; or[.]
(C) WITHDRAWAL FROM LINKAGE: A market has ceased to accept orders through the Intermarket Options Linkage.
(ii) In all cases where floor officials exclude a market or any of its quotes from the
determination of the NBBO due to quote unreliability, the Exchange Control Room
will promptly notify the affected market of the action, continue to monitor the reliability of the excluded quotes in consultation with Floor Officials, and maintain
records showing the date, time, duration, and reasons for each such action, as well
as the identity of the Floor Officials who authorized the action. Any determination to
exclude a market or any of its quotes from the determination of the NBBO pursuant
to paragraph (e)(i) above will expire at the end of the trading day, or at such time as
the quotes are confirmed by the market to be reliable again —whichever occurs
first. Exclusion of a market or its quotes from the determination of the NBBO will be
reported to Exchange member firms.
March 30, 2005, Volume RB16, Number 13
RB17
Disciplinary
Decisions
At its meeting on March 9, 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. 04-0023 (Offer of Settlement, Decision issued March 14, 2005)
Mercury Trading, Inc. (“Mercury”), an Exchange Market-Maker organization and Peter
Najarian (“Najarian”), an associated person of Mercury who served as Mercury’s President
and Treasurer, were each censured and jointly and severally fined $5,000 for the following
conduct. During the approximate period from on or about March 20, 2003 through on or
about April 24, 2003, Najarian registered James Tobler (“Tobler”) with Athena Trading, LLC1
(“Athena”), as its crowd clerk and provided Tobler with a trading floor access badge. During
all relevant periods herein, neither Mercury nor Athena was registered with the Exchange
as an Order Service Firm. During the approximate period from on or about March 20, 2003
through on or about April 24, 2003, Mercury permitted a non-member organization to operate as an Order Service Firm on the Exchange, and Mercury and Najarian failed to supervise Tobler in connection with his activities in operating an Order Service Firm on the
Exchange trading floor for an organization that was not a member of the Exchange. (CBOE
Rules 4.1, 4.2, 6.20(b), 6.20(d))
File No. 04-0024 (Offer of Settlement, Decision issued March 14, 2005)
Terry Trading, LLC (“Terry Trading”) an Exchange member organization that maintains a
Joint Back Office Agreement2 (“JBO”) with its clearing firm and Randy S. Terry (“Terry”) a
nominee for Terry Trading acting as a Market-Maker, were each censured and jointly and
severally fined $7,500 for the following conduct. Terry, on behalf of Terry Trading, initiated
and entered numerous option orders that increased or established positions in his MarketMaker account from off of the Exchange trading floor, and failed to execute 80% of his
transactions in person, rather than through the use of orders, during the second quarter of
2003. (CBOE Rule 8.1 and RG00-52)
File No. 04-0030 (Offer of Settlement, Decision issued March 14, 2005)
Phillip J. Sylvester (“Sylvester”), a former Exchange member and Market-Maker, was
censured and fined $7,500 for the following conduct. On or about the close of business on
December 31, 2003, and on various days from on or about January 5, 2004 through January 26, 2004, Sylvester operated while his net capital was below the minimum requirement
of $100,000. (CBOE Rules 4.2, 13.1, 15.1, Section 15(c) of the Act and Rule 15c3-1
thereunder and Section 17(a) of the Act and Rules 17a-3 thereunder)
During all relevant periods, Mercury was the managing member of Athena Trading, LLC.
A Joint Back Office participant maintains a nominal ownership interest in its clearing firm. As a result
the clearing firm may finance the transactions of its JBO “owner” on a more beneficial margin basis
than required under Regulation T of the Board of Governors of the Federal Reserve System.
1
2
RB18
March 30, 2005, Volume RB16, Number 13