August 19, 2005
Exchange
Bulletin
Volume 33, Number 33
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 (January 1 through
December 31) is $200.00 ($100.00 after July 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, AUGUST 19, 2005
CLASS
BID
CBOE
$650,000.00
OFFER
LAST SALE AMOUNT
$730,000.00
LAST SALE DATE
$700,000.00
August 17, 2005
CBOT FULL MEMBERSHIP
CLASS
BID
With CBOE Exercise Right
OFFER
$2,050,000.00
$2,200,000.00
Without CBOE Exercise Right
$0.00
$0.00
CBOE Exercise Right
$0.00
$100,000.00
LAST SALE AMOUNT
LAST SALE DATE
$2,050,000.00
August 18, 2005
N/A
June 20, 2005
$104,000.00
August 17, 2005
CBOE MEMBERSHIP SALES AND TRANSFERS
From
SLK-Hull Derivatives LLC
To
Gabriel Inc.
Price/Transfer
$700,000.00
Date
8/17/05
Page 2
August 19, 2005
Volume 33, Number 33
Chicago Board Options Exchange
Informational Circular IC05-101
August 16, 2005
Persons Who Have Submitted Their Names to Be Considered for Nomination to Board of Directors and
Nominating Committee
For each annual election, the Nominating Committee selects nominees to fill expiring terms on the Board of Directors and
Nominating Committee. To date, the individuals listed below have submitted their names to the Nominating Committee to be considered
for nomination to fill these positions for the 2005 annual election.
A candidate is required to satisfy the qualification criteria for the applicable position at the time of the Nominating Committee
slating meeting (currently scheduled for September 29, 2005) in order to be considered for nomination. Any candidate that does not
currently satisfy the qualification criteria may take steps to qualify before that time. A notation is included below after the name of each
candidate indicating whether that candidate currently satisfies the applicable qualification criteria (denoted with a Q), does not currently
satisfy the applicable qualification criteria (denoted with an N), or is being reviewed to determine whether or not the candidate currently
satisfies the applicable qualification criteria (denoted with an R).
Board of Directors
Floor Director
Lessor Director
Public Director
William Power (Q) James Boris (Q)
Eugene Sunshine (Q)
Mark Zurack (Q)
Nominating Committee
Firm Member
Floor Member
Lessor Member
Jeffrey Kirsch (Q)
Public Member
Page 3
August 19, 2005
Volume 33, Number 33
Chicago Board Options Exchange
MEMBERSHIP INFORMATION FOR 8/11/05 THROUGH 8/17/05
MEMBERSHIPAPPLICATIONS RECEIVED FOR
WHICH A POSTING PERIOD IS REQUIRED
Individual Membership Applicants
Date Posted
Scott D. Spears, Nominee
Wachovia Securities, LLC
2805 Chapelwood Lane
Richmond, VA 23233
8/11/05
Karl D. Fruecht, CBT Registered For
HSBC Securities (USA) Inc.
455 Shady Lane
Barrington, IL 60010
8/11/05
MEMBERSHIP LEASES
New Leases
Effective Date
Lessor: Michael P. Held
Lessee: Jane Street Options, LLC
Rate:
1.25%
Term: Monthly
8/12/05
Lessor: Anthony D. Partipilo
Lessee: G-Bar Limited Partnership
Michael A. Favia, NOMINEE
Rate:
1.25%
Term: Monthly
8/15/05
Lessor: TRO Trading Group LLC
Lessee: Jane Street Options, LLC
Rate:
1.25%
Term: Monthly
8/16/05
Lessor: Robert E. Goldberg
Lessee: Jane Street Options, LLC
Rate:
1.25%
Term: Monthly
8/16/05
Lessor: Brandt Equities, LLC
Lessee: SLK-Hull Derivatives LLC
Rate:
1.25%
Term: Monthly
8/17/05
Terminated Leases
Termination Date
Lessor: Michael P. Held
Lessee: Archelon LLC
David J. Masino (MSO), NOMINEE
8/12/05
Lessor: Anthony D. Partipilo
Lessee: Ronin Capital, LLC
8/15/05
Lessor: Robert E. Goldberg
Lessee: Blue Capital Group LLC
8/16/05
Lessor: TRO Trading Group LLC
Lessee: Blue Capital Group LLC
8/16/05
Lessor: Brandt Equities, LLC
Lessee: Archelon LLC
Patrick C. Schiltz (SCP), NOMINEE
8/17/05
Nominee(s) / Inactive Nominee(s):
Termination Date
Dylan F. Tuttle (TBY)
Timber Hill LLC
209 S. LaSalle - 10th Floor
Chicago, IL 60604
8/11/05
Bryan T. Tobin (TBZ)
Timber Hill LLC
209 S. LaSalle - 10th Floor
Chicago, IL 60604
8/11/05
Kristen Hansen (KTN)
Timber Hill LLC
209 S. LaSalle - 10th Floor
Chicago, IL 60604
8/11/05
Marc C. Messina (FLY)
Group One Trading, LP
440 S. LaSalle - Ste. 3232
Chicago, IL 60605
8/11/05
Jonathan A. Jacobs (JXJ)
Zydeco Trading LLC
440 S. LaSalle, Ste. 960
Chicago, IL 60605
8/12/05
Patrick C. Schiltz (SCP)
Archelon LLC
200 S. Wacker Dr., Suite 2400
Chicago, IL 60606
8/17/05
EFFECTIVE MEMBERSHIPS
Individual Members
CBT Registered For:
Effective Date
Martin L. Dim (MLD)
8/11/05
Prospect Trading LLC
221 E. Walton St., Apt. #20 W
Chicago, IL 60611
Type of Business to be Conducted: Market Maker
Basilios T. Papanastoy (BTP)
8/11/05
440 S. LaSalle - Ste. 720A
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Nominee(s) / Inactive Nominee(s):
Effective Date
Joshua David Aling (IMJ)
8/12/05
Citadel Derivatives Group LLC
131 S. Dearborn
Chicago, IL 60603
Type of Business to be Conducted: Market Maker
Andrew Robert Elwell (LWL)
8/12/05
Citadel Derivatives Group LLC
131 S. Dearborn Street
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
MEMBERSHIP TERMINATIONS
Individual Members
CBT Registered For:
Termination Date
Michael F. Tobin (TBN)
Citadel Derivatives Group LLC
131 S. Dearborn, 37th Floor
Chicago, IL 60603
8/15/05
Erwin Aguinaldo (ERA)
8/15/05
Cutler Group, LP
440 S. LaSalle, Ste. 3400
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Michael A. Favia (FVA)
8/15/05
G-Bar Limited Partnership
8211 W. Catherine Ave.
Chicago, IL 60656
Type of Business to be Conducted: Market Maker
Page 4
August 19, 2005
Volume 33, Number 33
JOINT ACCOUNTS
Chicago Board Options Exchange
CHANGES IN MEMBERSHIP STATUS
New Participants
Acronym
Effective Date
Individual Members
Martin L. Dim
QGR
8/11/05
Martin L. Dim
QPV
8/11/05
Basilios T. Papanastoy
QGR
8/11/05
Patrick M. Seguin
8/15/05
From:
Nominee For TD Professional Execution Inc.; Market
Maker/Floor Broker
To:
Nominee For TD Options, LLC; Market Maker/Floor
Broker
Basilios T. Papanastoy
QPV
8/11/05
Patrick W. Wagoner
QLO
8/12/05
Terminated Participants Acronym
Termination Date
Dylan F. Tuttle
QTH
8/11/05
Kristen Hansen
QTH
8/11/05
Bryan T. Tobin
QTH
8/11/05
Bryan T. Tobin
QTI
8/11/05
Bryan T. Tobin
QTO
8/11/05
Marc C. Messina
QGO
8/11/05
Marc C. Messina
QIQ
8/11/05
Marc C. Messina
QOP
8/11/05
Jonathan A. Jacobs
QKX
8/12/05
Jonathan A. Jacobs
QZK
8/12/05
Patrick C. Schiltz
QAR
8/17/05
Patrick C. Schiltz
QKA
8/17/05
Patrick C. Schiltz
QQT
8/17/05
Effective Date
Patrick M. Seguin
8/16/05
From:
Nominee For TD Options, LLC; Market Maker/Floor
Broker
To:
Nominee For TD Professional Execution Inc.; Market
Maker/Floor Broker
MEMBER ADDRESS CHANGES
Individual Members
Effective Date
Charles J. Peres
7550 N. 16th St., Apt. 6238
Phoenix, AZ 85020
8/11/05
Charles T. Weiler Jr.
571 Farrington Ct.
Buffalo Grove, IL 60089
8/11/05
Member Organizations
Effective Date
General Options Limited Partnership
7550 N. 16th St., #6238
Phoenix, AZ 85020
8/11/05
POSITION LIMIT CIRCULARS
Pursuant to Exchange Rule 4.11, the Exchange issued the below listed Position Limit Circulars between August 16 and August 19, 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 Dan Earner at (312) 786-7059 or Tim Mac Donald at (312) 786-7706.
POSITION LIMIT CIRCULAR PL05-38
August 16, 2005
Nextel Communications, Inc. (“NXTL/FQC/VFU/WFU”) merger
completed with S-N Merger Corp., a wholly owned subsidiary
of Sprint Corporation (“FON/VN/WO”)
Effective Date August 15, 2005
POSITION LIMIT CIRCULAR PL05-39
August 19, 2005
Accredo Health, Incorporated (“ACDO/DZU/VQZ/YQU”) merger
completed with Raptor Merger Sub, Inc., a wholly owned subsidiary of Medco Health Solutions, Inc.
(“MHS/VQM/YXM”)
Effective Date August 19, 2005
Page 5
August 19, 2005
Volume 33, Number 33
Chicago Board Options Exchange
RESEARCH CIRCULARS
The following Research Circulars were distributed between August 12 and August 18, 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 #RS05-574
Research Circular #RS05-584
August 12, 2005
August 16, 2005
Mercury Interactive Corporation (“MERQ/RQB/VRD/YQR”)
*****UPDATE–FINALDETERMINATION OF CONTRACT DELIVERABLE*****
Underlying Symbol Change to “MERQE”
Nextel Communications, Inc. (“NXTL/adj. NXS/OYO/YYP”)
Effective Date: August 15, 2005
Merger COMPLETED
with Sprint Corporation (“FON/VN/WO”)
Research Circular #RS05-575
August 12, 2005
Research Circular #RS05-587
Western Wireless Corporation (“WWCA/adj. WWZ/VWZ/YXC”)
August 17, 2005
Determination of Cash-in-Lieu Amount
*****UPDATE – FINAL DISTRIBUTION RATIO*****
Fortune Brands, Inc. (“FO”)
Research Circular #RS05-576
Distribution of Shares of
August 12, 2005
ACCO Brands Corporation (“ABD”)
*****UPDATE*****UPDATE*****UPDATE*****
Ex-Distribution Date: August 17, 2005
Sprint Corporation (“FON”)
Name, Stock and Option Symbol Change to
Research Circular #RS05-591
Sprint Nextel Corporation (“S”)
August 17, 2005
Effective Date: August 15, 2005
Petroleum Development Corporation (“PETD/PHQ”)
Underlying Symbol Change to “PETDE”
Research Circular #RS05-577
Effective Date: August 18, 2005
August 12, 2005
Nextel Communications, Inc. (“NXTL/FQC/VFU/WFU”)
Research Circular #RS05-592
Merger COMPLETED
August 17, 2005
with Sprint Corporation (“FON/VN/WO”)
SVB Financial Group (“SIVB/SQU/OVF/WVW”)
Underlying Symbol Change to “SIVBE”
Research Circular #RS05-579
Effective Date: August 18, 2005
August 12, 2005
Smith International, Inc. (“SII/VID/WIQ”)
Research Circular #RS05-593
2-for-1 Stock Split
August 17, 2005
Ex-Distribution Date: August 25, 2005
Telecom HOLDRs Trust (“TTH”) Cash Distribution
Ex-Distribution Date: August 19, 2005
Research Circular #RS05-580
August 12, 2005
Research Circular #RS05-594
H&R Block, Inc. (“HRB/OCY/WMV”)
August 17, 2005
2-for-1 Stock Split
Wireless HOLDRs Trust (“WMH & adj. WDW”) Cash Distribution
Ex-Distribution Date: August 23, 2005
Ex-Distribution Date: August 19, 2005
Research Circular #RS05-581
August 12, 2005
*****UPDATE–PRELIMINARY DETERMINATION OF CONTRACT
DELIVERABLE*****
Nextel Communications, Inc. (“NXTL/adj. NXS/OYO/YYP”)
Merger COMPLETED
with Sprint Corporation (“FON/VN/WO”)
Research Circular #RS05-582
August 15, 2005
Photon Dynamics, Inc. (“PHTNE/PDU/OPU/UDZ”)
Underlying Symbol Change to: PHTN
Effective Date: August 16, 2005
Research Circular #RS05-583
August 17, 2005
Southern Union Company (“SUG”)
5% Stock Dividend
Ex-Distribution Date: August 18, 2005
Research Circular #RS05-595
August 18, 2005
Taiwan Semiconductor Manufacturing Company Ltd.
(“TSM/OFO/WBB &
adj. TJH/OXU/YQZ/WOW/VWK”)
Determination of Cash-in-Lieu Amounts
Research Circular #RS05-596
August 18, 2005
Accredo Health, Incorporated (“ACDO/DZU/VQZ/YQU”)
Merger COMPLETED
with Medco Health Solutions, Inc. (“MHS/VQM/YXM”)
August 24, 2005
Volume RB16, Number 34
Regulatory
Bulletin
The Constitution and Rules of the Chicago Board Options Exchange, Incorporated
(“Exchange”), in certain specific instances, require the Exchange to provide notice to the membership. The weekly Regulatory Bulletin is delivered to all effective members to satisfy this
requirement.
Copyright © 2004 Chicago Board Options Exchange, Incorporated
Regulatory
Circulars
Regulatory Circular RG05-68
Date:
August 15, 2005
From: Market Operations Department
Re:
Restrictions on Transactions in
Lakes Entertainment, Inc. (LACOE/QWL)
On the opening of business on August 10, 2005, Lakes Entertainment (QWL) was delisted
from the Nasdaq.
As of August 10, 2005, trading on CBOE in existing series of QWL options were subject to
the following restrictions. Only closing transactions may be effected in any series of QWL
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 QWL 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 QWL options. The provisions of this circular apply to any options on QWL 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 CHANGE(S)
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-2005-40
HOSS Opening Quote
On August 10, 2005, the SEC approved Rule Change File No. SR-CBOE-2005-40, which
proposes to allow the Hybrid Opening System (“HOSS”) to open an options series as long
as any market participant, not just the DPM, has submitted an opening quote that complies
with the legal width quote requirements. Any questions regarding the rule change may be
directed to James Flynn, Legal Division, at 312-786-7070. The text of the amended rules is
set forth below. New language is italicized.
Rule 6.2B. Hybrid Opening System (“HOSS”)
(a)
No change.
(b) After the Opening Notice is sent, the System will calculate and provide the
Expected Opening Price (“EOP”) and expected opening size (“EOS”) given the
current resting orders during the EOP Period (“EOP Period”). The appropriate FPC
will establish the duration of the EOP Period on a class basis at between five and
sixty seconds. The EOP, which will be calculated and disseminated to market
participants every few seconds, is the price at which the greatest number of orders in the Book are expected to trade. After the Opening Notice is sent, quotes
and orders may be submitted without restriction. An EOP may only be calculated
if: (i) there are market orders in the Book, or the Book is crossed (highest bid is
higher than the lowest offer) or locked (highest bid equals lowest offer), and (ii) at
least one quote is present and complies with the legal width quote requirements of
Rule 8.7(b)(iv).
(c) - (d) No change.
(e) The System will not open a series if one of the following conditions is met:
(i)There is no quote present in the series that complies with the legal width
quote requirements of Rule 8.7(b)(iv);
(ii) The opening price is not within an acceptable range (as determined by the
appropriate FPC and announced to the membership via Regulatory Circular)
compared to the lowest quote offer and the highest quote bid; or
(iii)
(f) – (i)
RB2
No change.
No change.
August 24, 2005, Volume RB16, Number 34
Rule Changes,
Interpretations and
Policies continued
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-2005-60
Automated Improvement Mechanism (AIM) for Crossing
Orders
On August 4, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-60, which
filing proposes to adopt an Automated Improvement Mechanism (“AIM”) for crossing orders.
Any questions regarding the rule change 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 [bracketed and strickenthrough].
Rule 6.45A.
Priority and Allocation of Equity Option Trades on the CBOE
Hybrid System
Generally. The rules of priority and order allocation procedures set forth in this rule
shall apply only to equity option classes designated by the Exchange to be traded
on the CBOE Hybrid System and has no applicability to index option and options on
ETF classes. 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)-(c)
No change.
(d) Quotes Interacting with Quotes
(i) In the event that a Market-Maker’s disseminated quotes interact with the
disseminated quote(s) of other Market-Makers, resulting in the dissemination
of a “locked” quote (e.g., $1.00 bid - 1.00 offer), the following shall occur:
(A) The Exchange will disseminate the locked market and both quotes will
be deemed “firm” disseminated market quotes.
(B) The Market-Makers whose quotes are locked will receive a quote update notification advising that their quotes are locked.
(C) When the market locks, a [one-second] “counting period” will begin
during which Market-Makers whose quotes are locked may eliminate the
locked market. The duration of the counting period shall be set by the
Exchange but may not exceed one-second. There shall be no counting
period if at the time of the lock, an auction is in progress pursuant to Rule
6.74A.
August 24, 2005, Volume RB16, Number 34
RB3
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-60 continued
Provided, however, that in accordance with subparagraph (A) above a MarketMaker will be obligated to execute customer and broker-dealer orders eligible for
automatic execution pursuant to Rule 6.13 at his disseminated quote in accordance with Rule 8.51. If at the end of the [one-second] counting period the quotes
remain locked, the locked quotes will automatically execute against each other in
accordance with the allocation algorithm described above in Rule 6.45A(a).
(e)
No change.
…Interpretations and Policies:
.01 - .02.
No change.
*****
Rule 6.74A
Automated Improvement Mechanism (“AIM”)
Notwithstanding the provisions of Rule 6.74, a member that represents agency
orders may electronically execute an order it represents as agent (“Agency Order”) against principal interest or against a solicited order provided it submits the
Agency Order for electronic execution into the AIM auction (“Auction”) pursuant to
this Rule.
(a) Auction Eligibility Requirements. A member (the “Initiating Member”) may
initiate an Auction provided all of the following are met:
(1) the Agency Order is within the designated Auction order eligibility size
parameters as such size parameters are determined by the appropriate
Floor Procedure Committee;
(2) if the Agency Order is for 50 contracts or more, the Initiating Member
must stop the entire Agency Order as principal or with a solicited order at
the better of the NBBO or the Agency Order’s limit price (if the order is a
limit order);
(3) if the Agency Order is for less than 50 contracts, the Initiating Member must stop the entire Agency Order as principal or with a solicited
order at the better of (A) the NBBO price improved by one minimum price
improvement increment, which increment shall be determined by the
Exchange but may not be smaller than one cent; or (B) the Agency Order’s
limit price (if the order is a limit order); and
(4) at least three (3) Market-Makers are quoting in the relevant series.
(b) Auction Process. Only one Auction may be ongoing at any given time in a
series and Auctions in the same series may not queue or overlap in any manner.
The Auction may not be canceled and shall proceed as follows:
(1) Auction Period and Request for Responses (RFRs).
RB4
August 24, 2005, Volume RB16, Number 34
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-60 continued
(A) To initiate the Auction, the Initiating Member must mark the
Agency Order for Auction processing, and specify (i) a single
price at which it seeks to cross the Agency Order (with principal
interest or a solicited order) (a “single-price submission”), or (ii)
that it is willing to automatically match as principal the price and
size of all Auction responses (“auto-match”) in which case the
Agency Order will be stopped at the NBBO (if 50 contracts or
greater) or one cent/one minimum increment better than the NBBO
(if less than 50 contracts).
(B) When the Exchange receives a properly designated Agency
Order for Auction processing, a Request for Responses (“RFR”)
detailing the side and size of the order will be sent to all members
that have elected to receive RFRs.
(C) The RFR will last for a random time period that shall not be
less than 3 seconds and shall not exceed 5 seconds.
(D) Each Market-Maker quoting in the relevant option class may
submit responses to the RFR (specifying prices and sizes). Such
responses cannot cross the disseminated Exchange quote on
the opposite side of the market.
(E) Floor Brokers may submit responses to the RFR (specifying
prices and sizes) only on behalf of orders resting at the top of the
Exchange’s book (resting at the BBO) opposite the Agency Order.
Such responses cannot cross the disseminated Exchange quote
on the opposite side of the market, and may not exceed the size
of the booked order being represented.
(F) RFR responses shall not be visible to other Auction participants, and shall not be disseminated to OPRA.
(G) The minimum price increment for RFR responses and for an
Initiating Member’s single price submission shall not be smaller
than the minimum price improvement increment established pursuant to subparagraph (a)(3) above.
(H) An RFR response size at any given price point may not exceed the size of the Agency Order.
(I) RFR responses may be modified or cancelled.
(2) Conclusion of Auction. The Auction shall conclude at the sooner of (A)
through (D) below with the Agency Order executing pursuant to paragraph
(3) below.
(A) The end of the RFR period;
(B) Upon receipt by the Hybrid System of an unrelated order (in
the same series as the Agency Order) that is marketable against
either the Exchange’s disseminated quote (when such quote is
the NBBO) or the RFR responses;
August 24, 2005, Volume RB16, Number 34
RB5
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-60 continued
(C) Upon receipt by the Hybrid System of an unrelated limit order (in the same series as the Agency Order and on the opposite
side of the market as the Agency Order) that improves any RFR
response; or
(D) Any time an RFR response matches the Exchange’s disseminated quote on the opposite side of the market.
(3) Order Allocation. At the conclusion of the Auction, the Agency Order
will be allocated at the best price(s) pursuant to the matching algorithm in
effect for the class subject to the following:
(A) Such best prices may include non-Auction quotes and orders.
(B) Public customer orders in the book shall have priority.
(C) No participation entitlement shall apply to orders executed
pursuant to this Rule.
(D) If an unrelated market order on the opposite side of the market as the Agency Order was received during the Auction and
ended the Auction, such unrelated market order shall trade against
the Agency Order at the midpoint of the best RFR response and
the NBBO on the other side of the market (rounded towards the
disseminated quote when necessary).
(E) If an unrelated limit order on the opposite side of the market
as the Agency Order was received during the Auction and ended
the Auction, such unrelated limit order shall trade against the
Agency Order at the midpoint of the best RFR response and the
unrelated order’s limit price (rounded towards the unrelated order’s
limit price when necessary).
(F) If the best price equals the Initiating Member’s single-price
submission, the Initiating Member’s single-price submission shall
be allocated the greater of one contract or 40% of the order.
However, if only one Market-Maker matches the Initiating
Member’s single price submission then the Initiating Member
shall be allocated 50% of the order.
(G) If the Initiating Member selected the auto-match option of
the Auction, the Initiating Member shall be allocated its full size
at each price point until a price point is reached where the balance of the order can be fully executed. At such price point, the
Initiating Member shall be allocated the greater of one contract
or 40% of the remainder of the order.
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August 24, 2005, Volume RB16, Number 34
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-60 continued
(H) If the Auction does not result in price improvement over the
Exchange’s disseminated price at the time the Auction began,
resting unchanged quotes or orders that were disseminated at the
best price before the Auction began shall have priority after any
public customer order priority and the Initiating Member’s priority
(40%) have been satisfied. Any unexecuted balance on the
Agency Order shall be allocated to RFR responses provided that
those RFR responses will be capped to the size of the unexecuted balance and that the Initiating Member may not participate on any such balance unless the Agency Order would otherwise go unfilled.
(I) If the final Auction price locks a customer order in the book on
the same side of the market as the Agency Order, then, unless
there is sufficient size in the Auction responses to execute both
the Agency Order and the booked customer order (in which case
they will both execute at the final Auction price), the Agency Order will execute against the RFR responses at one minimum RFR
response increment worse than the final Auction price against the
Auction participants that submitted the final Auction price and
any balance shall trade against the customer order in the book at
such order’s limit price.
If an unexecuted balance remains on the Auction responses after
the Agency Order has been executed and such balance could
trade against any unrelated order(s) that caused the Auction to
conclude, then the RFR balance will trade against the unrelated
order(s).
…Interpretations and Policies:
.01 The Auction may be used only where there is a genuine intention to
execute a bona fide transaction.
.02 A pattern or practice of submitting unrelated orders that cause an Auction to conclude before the end of the RFR period may be deemed conduct
inconsistent with just and equitable principles of trade and a violation of
Rule 4.1 and other Exchange Rules.
.03 Initially, and for at least a Pilot Period expiring on July 18, 2006, there
will be no minimum size requirement for orders to be eligible for the Auction. During this Pilot Period, the Exchange will submit certain data, periodically as required by the Commission, to provide supporting evidence
that, among other things, there is meaningful competition for all size orders and that there is an active and liquid market functioning on the Exchange outside of the Auction mechanism. Any data which is submitted to
the Commission will be provided on a confidential basis.
.04 Any solicited orders submitted by the Initiating Member to trade against
the Agency Order may not be for the account of a Market-Maker assigned
to the option class.
.05 Any determinations made by the Exchange pursuant to this Rule such
as eligible order size parameters and the minimum price increment for
RFR responses shall be communicated in a Regulatory Circular.
August 24, 2005, Volume RB16, Number 34
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Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-60 continued
.06 In situations where a Market-Maker quote interacts (locks) with another Market-Maker quote pursuant to Rule 6.45A(d) during an AIM auction, the lock price shall not be available to the Agency Order.
SR-CBOE-2005-63
Adjustment Provision for Transactions Resulting from
Obvious Errors
On August 4, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-63, which
filing proposes to amend Exchange Rule 6.25 to provide for an adjustment provision for
transactions resulting from obvious errors between a non-broker-dealer customer and CBOE
Market-Maker(s), as well as transactions between a non-broker-dealer customer and at
least one non-CBOE Market-Maker(s). Any questions regarding the rule change may be
directed to Andrew Spiwak, Legal Division, at 312-786-7483. The text of the proposed rule
amendments is set forth below. Proposed new language is underlined. Proposed deleted
language is [bracketed and stricken-through].
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) 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:
RB8
Theoretical
Price
Minimum
Amount
Below $2
$0.25
$2 to $5
$0.40
Above $5 to $10
$0.50
Above $10 to $20
$0.80
Above $20
$1.00
August 24, 2005, Volume RB16, Number 34
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-63 continued
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 (i), (ii), (iii) or (iv) below or any combination thereof [the
following]:
(i) 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.
(ii) Transactions Between a non-broker-dealer Customer and CBOE MarketMaker(s): After the fifteen minute notification period as described in (b)(1) below
and until 3:30 P.M. on the subject trade date, where parties to the transaction are a
non-broker-dealer Customer and CBOE Market-Maker(s), the non-broker-dealer
Customer may request review of the subject transaction, and the execution price of
the transaction will be adjusted (provided the adjustment does not violate the
customer’s limit price) by Trading Officials to the prices provided in Paragraphs (A)
and (B) above, without the 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. The option
contract quantity of any adjustment shall not exceed the disseminated size by the
competing options exchange that has the most liquidity in that option class in the
previous two calendar months. In the event a non-CBOE Market-Maker is also
party to the transaction, the adjustment procedures described below shall apply.
(iii) Transactions Between a non-broker-dealer Customer and at least one nonCBOE Market-Maker(s): After the fifteen minute notification period as described in
(b)(1) below and until 3:30 P.M. on the subject trade date, where parties to the
transaction are a non-broker-dealer Customer and a non-CBOE Market-Maker(s),
the non-broker-dealer Customer may request review of the subject transaction and,
the execution price of the transaction will be adjusted (provided the adjustment
does not violate non-CBOE Market-Maker’s limit price) by Trading Officials to the
prices provided in Paragraphs (A) and (B) above, without the 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. The adjustment price shall not exceed the non-CBOE Market-Maker’s
limit price. The option contract quantity of any adjustment shall not exceed the
disseminated size by the competing options exchange that has the most liquidity in
that option class in the previous two calendar months.
August 24, 2005, Volume RB16, Number 34
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Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-63 continued
(iv) Transactions Involving at least one non-CBOE Market-Maker: Where one
of the parties to the transaction is not a CBOE Market-Maker, and Paragraphs (a)
(1) (i),(ii), or (iii) above do not apply 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)-(5)
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, except for the
time frame set forth in Paragraphs (a) (1)(ii) or (a) (1)(iii). 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)
(c)-(e)
No change.
No change.
Interpretations and Policies….
.01-.03
RB10
No change.
August 24, 2005, Volume RB16, Number 34