September 2, 2005
Exchange
Bulletin
Volume 33, Number 35
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, SEPTEMBER 2, 2005
CLASS
BID
CBOE
$515,000.00
OFFER
LAST SALE AMOUNT
$650,000.00
LAST SALE DATE
$650,000.00
August 31, 2005
CBOT FULL MEMBERSHIP
CLASS
BID
With CBOE Exercise Right
OFFER
$2,000,000.00
$2,125,000.00
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 25, 2005
N/A
June 20, 2005
$104,000.00
August 17, 2005
CBOE MEMBERSHIP SALES AND TRANSFERS
From
AST Partners, LLC
To
EWT LLC
Price/Transfer
Date
$650,000.00
8/31/05
Page 2
September 2, 2005
Volume 33, Number 35
Chicago Board Options Exchange
Informational Circular IC05-110
Date:
August 30, 2005
To:
Membership
From:
Nominating Committee
Re:
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
Edward Tilly (Q)
Richard Tobin (N)
William Power (Q)
Robert Silverstein(Q)
James Boris (Q)
Carole Stone (Q)
Eugene Sunshine (Q)
Mark Zurack (Q)
Nominating Committee
Firm Member
Floor Member
Lessor Member
Peter Bottini (Q)
Dennis Carta (Q)
Richard Fuller (Q)
Jeffrey Kirsch (Q)
Public Member
Page 3
September 2, 2005
Volume 33, Number 35
Chicago Board Options Exchange
MEMBERSHIP INFORMATION FOR 8/25/05 THROUGH 8/31/05
MEMBERSHIP APPLICATIONS RECEIVED FOR
MEMBERSHIP LEASES
WHICH A POSTING PERIOD IS REQUIRED
Individual Membership Applicants
Date Posted
New Leases
Effective Date
Richard A. Kenna, CBT Registered for
Nomura Securities International Inc.
442 Colfax Avenue
Clarendon Hills, IL 60514
8/25/05
Lessor: John J. Roche
Lessee: SLK-Hull Derivatives LLC
Rate:
1.25%
Term: Monthly
8/25/05
8/26/05
Lessor: Herchel Portman
Lessee: Third Millennium Trading, LLC
Rate:
1.25%
Term: Monthly
8/30/05
Kevin J. Lee, Nominee
Wolverine Trading LLC
921 Piedmont Circle
Naperville, IL 60565
James W. Moore, Nominee
Wolverine Trading LLC
1048 N. Ashland
Chicago, IL 60622
8/26/05
Lessor: Stathis Family Limited
Partnership III
Lessee: Sallerson-Troob LLC
Michael R. Benson, NOMINEE
Rate:
$795.30
Term: 2 Days
Brian G. Hunt, Nominee
Ronin Capital, LLC
636 W. Oak St.
Chicago, IL 60610
8/26/05
Timothy M. Feuerborn, CBT Registered for 8/26/05
HGI, Inc.
2733 Cameron Ct.
Darien, IL 60561
8/30/05
Terminated Leases
Termination Date
Lessor: John J. Roche
Lessee: Goldman Sachs & Co.
8/25/05
Lessor: Stathis Family Limited
Partnership III
Lessee: DRO WST Trading LLC
Laura A. Potter (LRA), NOMINEE
8/30/05
Lessor: Herchel Portman
Lessee: Zydeco Trading LLC
8/30/05
Sloan M. Smith, Nominee
Botta Specialist, LLC
1141 Hinman Ave.
Evanston, IL 60202
8/26/05
Salih Sabri, Nominee
Jane Street Specialists, LLC
25 Broad Street – Apt. 17B
New York, NY 10004
8/26/05
Anne E. Walsh, Nominee
Wolverine Trading LLC
1728 N. Hudson Ave., Apt. 2
Chicago, IL 60614
8/26/05
Adam Persiani, CBT-RF
HGI, Inc.
22106 Princeton Circle
Frankfort, IL 60423
8/26/05
Ryan T. Mackelfresh, Nominee
Citigroup Derivatives Markets Inc.
21 W. Goethe, #4A
Chicago, IL 60610
8/29/05
CBT Registered For:
Termination Date
8/30/05
Member Organization Applicants
Date Posted
Brian R. Cappelletto (CAP)
BOG-Cappelletto, LLC
4864 N. Talman
Chicago, IL 60625
Stutland Equities LLC
Brian Stutland, Nominee
2501 N. Wayne Ave. - #16
Chicago, IL 60614
Brian Stutland - Manager
8/26/05
Nominee(s) / Inactive Nominee(s):
Termination Date
William S. Menden (WSM)
DRO WST Trading LLC
8912 W. Fairfield Lane
Tinley Park, IL 60477
8/29/05
Cy G. Hodgson (CYG)
Grace Trading LLC
440 S. LaSalle, Ste. 3100
Chicago, IL 60605
8/29/05
Jeffrey Haag (DEF)
TD Options, LLC
230 S. LaSalle, #688
Chicago, IL 60604
8/29/05
***Correction to Bulletin Dated August 12, 2005***
New Leases
Effective Date
Lessor: Fugue
Lessee: Jane Street Options LLC
Rate:
1.23%
Term: Monthly
8/10/05
Terminated Leases
Termination Date
Lessor: Fugue
Lessee: Cornerstone Trading LLC
8/10/05
MEMBERSHIP TERMINATIONS
Individual Members
Hilltop Trading, LLC
8/26/05
John B. McKnight, Nominee
440 S. LaSalle, Ste. 1822
Chicago, IL 60605
Geneva Derivatives Trading Corp. – Member
Gary R. Silverman – Owner
Daniel C. Williams – Owner
John B. McKnight - Member
Page 4
September 2, 2005
Volume 33, Number 35
Termination Date
Todd D. Raarup (WWF)
Citigroup Global Markets Inc.
111 W. Jackson - Ste. 10th Floor
Chicago, IL 60605
8/30/05
Laura A. Potter (LRA)
DRO WST Trading LLC
8312 Callista Dr.
Frankfort, IL 60423
8/30/05
Gabriel M. Zelwin (GMZ)
Grace Trading LLC
440 S. LaSalle - Ste. 3100
Chicago, IL 60605
8/30/05
Robert E. Beltz (RBL)
TD Options, LLC
230 S. LaSalle - Ste. 688
Chicago, IL 60604
8/30/05
Michael R. Benson (BEN)
Sallerson-Troob LLC
440 S. LaSalle, Suite 950
Chicago, IL 60605
8/31/05
Frank Hinrichs (FRA)
Saen Options USA Inc.
440 S. LaSalle, Ste. 1506
Chicago, IL 60605
8/31/05
Chicago Board Options Exchange
Effective Date
Joel J. Stone (SKR)
8/31/05
Sallerson-Troob LLC
1112 N. Dearborn
Chicago, IL 60610
Type of Business to be Conducted: Market Maker
Christopher J. Loughlin (LJC)
8/31/05
Wolverine Trading LLC
175 W. Jackson Blvd., #200
Chicago, IL 60604
Type of Business to be Conducted: Market Maker/ Floor Broker
JOINT ACCOUNTS
Member Organizations
New Participants
Acronym
Effective Date
Cy G. Hodgson
QDW
8/30/05
Christopher J. Loughlin
QOW
8/31/05
Christopher J. Loughlin
QWD
8/31/05
Christopher J. Loughlin
QWV
8/31/05
Christopher J. Loughlin
QYW
8/31/05
Terminated Participants Acronym
Termination Date
Jeffrey Haag
QCV
8/29/05
Jeffrey Haag
QHO
8/29/05
CBT Registered For:
Termination Date
Jeffrey Haag
QVL
8/29/05
BOG-Cappelletto, LLC
Brian Cappelletto
4864 N. Talman
Chicago, IL 60625
8/30/05
Cy G. Hodgson
QDW
8/29/05
Robert E. Beltz
QCV
8/30/05
Robert E. Beltz
QHO
8/30/05
Robert E. Beltz
QVL
8/30/05
Leon S. Cahn
QWR
8/30/05
David L. Seidman
QHJ
8/30/05
Christopher J. McHugh (CMQ)
8/30/05
RII Trading, LLC
641 Needlegrass Pkwy.
Antioch, IL 60002
Type of Business to be Conducted: Market Maker
Benjamin H. Szelag
QNX
8/30/05
Frank Hinrichs
QDH
8/31/05
Frank Hinrichs
QOS
8/31/05
Nominee(s) / Inactive Nominee(s):
Terminated Accounts
Acronym
Termination Date
Gabriel M. Zelwin (GMZ)
8/29/05
Grace Trading LLC
440 S. LaSalle - Ste. 3100
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Stephen W. Quan
QMK
8/26/05
Corey L. Fisher
QCR
8/30/05
Jordan Goldberg
QEK
8/30/05
Laura A. Potter (LRA)
8/29/05
DRO WST Trading LLC
8312 Callista Dr.
Frankfort, IL 60423
Type of Business to be Conducted: Market Maker/ Floor Broker
Kelly C. Luthringshausen QEK
8/30/05
Gary B. Patzik
QEK
8/30/05
David L. Seidman
QEK
8/30/05
Cy G. Hodgson (CYG)
8/30/05
Grace Trading LLC
440 S. LaSalle, Ste. 3100
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Kelly C. Luthringshausen QNK
8/30/05
Gary B. Patzik
QNK
8/30/05
Kelly C. Luthringshausen QSK
8/30/05
Michael R. Benson (BEN)
8/30/05
Sallerson-Troob LLC
440 S. LaSalle, Suite 950
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Gary B. Patzik
8/30/05
EFFECTIVE MEMBERSHIPS
Individual Members
CBT Registered For:
Effective Date
Effective Date
QSK
Page 5
September 2, 2005
Terminated Accounts
Acronym
Volume 33, Number 35
Chicago Board Options Exchange
Termination Date
Member Organizations
Kelly C. Luthringshausen QYK
8/30/05
Gary B. Patzik
QYK
8/30/05
James J. Baffa
QTK
8/30/05
Kelly C. Luthringshausen QTK
8/30/05
Goldman Sachs & Co.
8/25/05
From:
Lessor/ Owner/ Lessee/ Non-Member Customer
Business/ Member Organization Affiliated with a CBT
Registered For; Associated with a Market Maker/ Floor
Broker
To:
Owner/ Lessee/ Non-Member Customer Business/
Member Organization Affiliated with a CBT Registered
For; Associated with a Market Maker/ Floor Broker
CHANGES IN MEMBERSHIP STATUS
Individuals
Effective Date
Leon Cahn
From:
CBT-Individual; Market Maker
To:
CBT-Individual; Remote Market Maker
8/30/05
Effective Date
SKTY II, LLC
8/25/05
From:
Member Organization Affiliated with a CBT Registered
For; Associated with a Market Maker
To:
Member Organization Affiliated with a CBT Registered
For; Associated with a Remote Market Maker
MEMBER ADDRESS CHANGES
Individual Members
Effective Date
Gary P. Lahey
920 Ravenwood Way
Canton GA 30115
8/25/05
RESEARCH CIRCULARS
The following Research Circulars were distributed between August 29 and September 1, 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 #RS05-610
August 29, 2005
The May Department Stores Company
(“MAY/WJG/VUU”) Merger COMPLETED
with Federated Department Stores, Inc. (“FD/VFD/WDF”)
Research Circular #RS05-618
August 31, 2005
Pulte Homes, Inc. (“PHM/OPN/YHI”)
2-for-1 Stock Split
Ex-Distribution Date: September 2, 2005
Research Circular #RS05-612
August 30, 2005
Shopping.com Ltd. (“SHOP/QSK/VYZ”) Merger COMPLETED
with eBay Inc. (“EBAY/QXB/XBA/OYI/YEU”)
Research Circular #RS05-620
August 31, 2005
BJ Services Company (“BJS/VDL/YLL”)
2-for-1 Stock Split
Ex-Distribution Date: September 2, 2005
Research Circular #RS05-613
August 30, 2005
*****UPDATE*****UPDATE*****UPDATE*****
Premcor Inc. (“PCO/VJE/WJE”) Proposed Election Merger
with Valero Energy Corporation (“VLO/BLO/VHB/YGY”)
Research Circular #RS05-621
August 31, 2005
Accredo Health, Incorporated (“ACDO/adj. DYC/VIU/WQN”)
Determination of Cash-in-Lieu Amount
Research Circular #RS05-614
August 30, 2005
*****UPDATE*****UPDATE*****UPDATE*****
Storage Technology Corporation (“STK/VSK/WSK”)
Proposed Merger with Sun Microsystems, Inc.
(“SUN/VUN/WUD”)
Research Circular #RS05-622
August 31, 2005
Storage Technology Corporation (“STK/VSK/WSK”)
Merger COMPLETED with Sun Microsystems, Inc. (“SUN/
VUN/WUD”)
Research Circular #RS05-615
August 31, 2005
Retail HOLDRs Trust (“RTH”) Cash Distribution
Ex-Distribution Date: September 1, 2005
Research Circular #RS05-623
August 31, 2005
Premcor Inc. (“PCO/VJE/WJE”) Election Merger COMPLETED with Valero Energy Corporation (“VLO/BLO/VHB/
YGY”)
Research Circular #RS05-616
August 31, 2005
Wipro Limited (“WIT”)
2-for-1 ADS Split
Ex-Distribution Date: September 2, 2005
Research Circular #RS05-617
August 31, 2005
THQ Inc. (“THQI/QHI/VZO/YWJ”)
3-for-2 Stock Split
Ex-Distribution Date: September 2, 2005
Research Circular #RS05-624
September 1, 2005
*****UPDATE – REVISED ANTICIPATED MERGER COMPLETION
DATE***** Hibernia Corporation (“HIB”) Proposed Election
Merger with Capital One Financial Corporation
(“COF/OTF/YFN”)
September 7, 2005
Volume RB16, Number 36
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 RG05-71
To:
The Membership
From:
Division of Regulatory Services
Date:
August 31, 2005
Subject:
Broad-Based Index Portfolio Margin
Program for Certain Customers
Exchange
Contacts:
James Adams (312) 786-7718
KEY POINTS
•
On July 14, 2005, the Securities and Exchange Commission (the “SEC” or “Commission”) approved rule filings by the Chicago Board Options Exchange (the “CBOE”
or “Exchange”) and New York Stock Exchange that permit member organizations to
compute a margin requirement for broad-based index options and related exchange
traded funds of certain customers using a portfolio (risk-based) methodology.
•
With the exception of a broker-dealer customer or member of a national futures
exchange,1 a customer must have or establish, and maintain, equity of not less
than five million dollars across one or more accounts with the member organization
in order to open a portfolio margin and/or a cross-margin account (see 4th bullet
below). Member organizations may combine all accounts (including futures accounts) carried for the same customer in identical ownership name for the purpose
of meeting the minimum equity requirement.
•
Only the theoretical option prices supplied by The Options Clearing Corporation
(“OCC”) may be used by member organizations for computing gains and losses on
option positions used to produce the portfolio margin requirement. The customer
portfolio margin program utilizes the same framework now used by member organizations to compute risk-based capital charges (haircuts) and the data are obtained
from the OCC in the same manner.
•
For member organizations that are also futures commission merchants (“FCM”),2
the approved rules also provide for a separate customer cross-margin account in
which broad-based index futures and options on such futures can be combined
with corresponding securities index options and exchange traded funds, and for a
margin requirement to be computed by applying the portfolio margin methodology.
1
The five million dollar minimum account equity requirement does not apply to cross-margining of a member
of a national futures exchange provided the member is hedging its index futures / options positions with
securities index options.
2
In addition to being a FCM, member organizations must be a clearing member of a futures clearing organization or have an affiliate that is a clearing member of a futures clearing organization. If a member organization
has a customer omnibus relationship with another broker-dealer, that broker-dealer must meet the foregoing
requirements.
Regulatory Circulars
continued
Regulatory Circular RG05-71 continued
•
However, a cross-margin account must be carried as a securities account, and
until such time as relief is granted by the Commodity Futures Trading Commission
(“CFTC”), member organizations must comply with the customer protection requirements of both the SEC and CFTC in respect of futures and options on futures
carried in a customer cross-margin account.
•
Clearing members that wish to take advantage of customer portfolio margin and/or
cross-margin at the clearing house level should contact The Options Clearing Corporation.
DISCUSSION
The broad-based index portfolio margin program for certain customers is codified under
new Rule 12.4 – Portfolio Margin and Cross-Margin for Index Options.
The rule specifies which instruments are eligible for the portfolio margin and cross-margin
accounts, market ranges for computing the margin requirement, which persons are eligible
to participate, requirements for opening a portfolio margin or cross-margin account, the
manner in which a margin requirement is to be computed and actions required in the event
of a deficiency in the required margin or the required minimum account equity.
As noted above, a customer must have and maintain a minimum account equity in order to
be eligible for portfolio margining.
On or before the date of an initial transaction in a portfolio margin account, a customer
must be provided with a special written disclosure statement describing the nature and
risks of portfolio margining and cross-margining, and the customer must sign and return an
acknowledgement form. If a cross-margin account is opened, there is a separate
acknowledgement form that must also be returned.
Generally, the rules prohibit an underlying instrument (i.e., an exchange traded fund) from
being carried in a portfolio margin or cross-margin account, or futures / options on futures
from being carried in a cross-margin account, unless there is an offsetting position.
The portfolio margin requirement is both an initial and maintenance margin requirement.
Guarantees by any other account for purposes of margin requirements are not permitted.
There will be a minimum margin requirement of $.375 for each listed option contract and
related instrument multiplied by the contract or instrument’s multiplier, not to exceed the
market value in the case of long positions in listed options and options on futures contracts.
If at any time, the equity in a portfolio margin or cross-margin account is less than the
margin required, the member organization must obtain sufficient margin to cover the deficit
within one business day (T+1).
Member organizations are required under new Exchange Rule 13.5 – Customer Portfolio
Margin Accounts, to limit gross customer portfolio margin requirements, including margin
required in cross-margin accounts, to not more than 10 times net capital.
Member organizations are also required under new Exchange Rule 15.8A – Risk Analysis
of Portfolio Margin Accounts, to establish and maintain written procedures for assessing
and monitoring the potential risk to the member organization’s capital in connection with its
customer portfolio margin and cross-margin accounts.
A more detailed summary of the portfolio margin and cross-margin rules is available. A copy
may be requested from, and any questions concerning portfolio margin and cross-margin accounts should be directed to, James Adams at (312) 786–7718. The summary may also be
found at the following web site: www.cboe.com/Institutional/Margin.aspx#changes.
RB2
September 7, 2005, Volume RB16, Number 36
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-2005-61
Position Limit Pilot Program Extension
On August 15, 2005, the SEC approved Rule Change File No. SR-CBOE-2005-61, which
filing extends the current position limit pilot program through February 23, 2006. The position limit pilot program increases the standard position and exercise limits in all equity option
classes and in options on the Nasdaq-100 Index Tracking Stock. 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 4.11 - Position Limits
Rule 4.11. Except with the prior permission of the President or his designee, to be
confirmed in writing, no member shall make, for any account in which it has an
interest or for the account of any customer, an opening transaction on any exchange if the member has reason to believe that as a result of such transaction the
member or its customer would, acting alone or in concert with others, directly or
indirectly, (a) control an aggregate position in an option contract dealt in on the
Exchange in excess of 13,500 or 22,500 or 31,500 or 60,000 or 75,000 option
contracts (whether long or short), except that for a pilot program period of 6 months
(“Rule 4.11 Pilot Program Period”) from August 24, 2005 through February 23,
2006, the position limits shall be 25,000 or 50,000 or 75,000 or 200,000 or 250,000
option contracts (whether long or short), of the put type and the call type on the
same side of the market respecting the same underlying security, combining for
purposes of this position limit long positions in put options with short positions in
call options, and short positions in put options with long positions in call options, or
such other number of option contracts as may be fixed from time to time by the
Exchange as the position limit for one or more classes or series of options, or (b)
exceed the applicable position limit fixed from time to time by another exchange for
an option contract not dealt in on the Exchange, when the member is not a member
of the other exchange on which the transaction was effected. In addition, should a
member have reason to believe that a position in any account in which it has an
interest or for the account of any customer is in excess of the applicable limit, such
member shall promptly take the action necessary to bring the position into compliance. Reasonable notice shall be given of each new position limit fixed by the
Exchange, by publicly posting notice thereof. Limits shall be determined in the
manner described in Interpretations .02 and .04 below.
September 7, 2005, Volume RB16, Number 356
RB3
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-2005-65
Automated RFQ Auction Mechanism
On August 24, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-65, which
filing proposes to amend CBOE Rule 6.53C to provide for an automated RFQ auction
mechanism for incoming eligible complex orders and to make certain other revisions to the
existing complex order book rule text. 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 stricken-through].
Rule 6.53C.
Complex Orders on the Hybrid System
RULE 6.53C. (a) – (b) No change.
(c) Complex Order Book
(i) No change.
[(ii) Priority of Complex Orders in the COB: Orders from public customers
have priority over orders from non-public customers. Multiple public customer complex orders at the same price are accorded priority based on
time.]
[(iii)](ii) Execution of Complex Orders in the COB: Complex orders resting in the
COB may be executed without consideration to prices of the same complex orders that might be available on other exchanges. Complex orders resting in the
COB may trade in the following way:
(1) Orders and Quotes in the [Electronic Book (“E]Book[”)]: A complex
order in the COB will automatically execute against individual orders or
quotes residing in the [E]Book provided the complex order can be executed in full (or in a permissible ratio) by the orders and quotes in the
[E]Book.
(2) Orders in COB: Complex orders in the COB that are marketable
against each other will automatically execute. The allocation of a complex order within the COB shall be pursuant to the rules of trading priority
otherwise applicable to incoming electronic orders in the individual component legs.
(3) Market participants, as defined in CBOE Rule 6.45A or 6.45B, as
applicable, may submit orders or quotes to trade against orders in the
COB. The allocation of complex orders among market participants shall
be done pursuant to CBOE Rule 6.45A(c) or 6.45B(c), as applicable.
RB4
September 7, 2005, Volume RB16, Number 36
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-65 continued
[(iv)](iii) Complex orders in the COB may be designated as day orders or good-til-cancelled
orders. Only those complex orders with no more than four legs and having a ratio of one-tothree or lower, as determined by the appropriate Exchange committee, are eligible for placement into the COB.
(d) Process for Complex Order RFQ Auction: Prior to routing to the COB, eligible
incoming complex orders will be subject to an automated request for quotes process.
(i) For purposes of paragraph (d):
(A) “COA” is the automated complex order request for quotes (“RFQ”)
auction process.
(B) A “COA-eligible order” means an incoming complex order that, as
determined by the appropriate Exchange committee on a class-byclass basis, is eligible for a COA considering the order’s marketability
(defined as a number of ticks away from the current market), size and
complex order type, as defined in paragraph (a) above. All pronouncements regarding COA eligibility will be announced to the membership
via Regulatory Circular. Complex orders processed through a COA
may be executed without consideration to prices of the same complex
orders that might be available on other exchanges.
(C) The “Response Time Interval” means the period of time during
which responses to the RFQ may be entered.
(ii) Initiation of a COA: On receipt of a COA-eligible order, the Exchange
will send an RFQ message to market participants who have subscribed to
receive such RFQ messages (“RFQ Recipients”). The RFQ message will
identify the component series, the size of the COA-eligible order and any
contingencies, if applicable.
(iii) Bidding and Offering in Response to RFQs: RFQ Recipients may
submit responses to the RFQ message (“RFQ Responses”) during the
Response Time Interval.
(A) RFQ Response sizes will be capped at the size of the COAeligible order for allocation purposes.
(B) The appropriate Exchange committee will determine the length
of the Response Time Interval on a class-by-class basis; provided, however, that the duration shall not exceed three (3) seconds. All pronouncements regarding the Response Time Interval
will be announced to the membership via Regulatory Circular.
(iv) Processing of COA-Eligible Orders: At the expiration of the Response
Time Interval, COA-eligible orders will be allocated in accordance with
subparagraph (v) below or routed in accordance with subparagraph (vi)
below.
(v) Execution of COA-Eligible Orders: COA-eligible orders may be executed without consideration to prices of the same complex orders that
might be available on other exchanges. COA-eligible orders may trade in
the following way:
September 7, 2005, Volume RB16, Number 356
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Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-65 continued
(1) The individual orders and quotes residing in the Book shall have first
priority to trade against a COA-eligible order provided the COA-eligible
order can be executed in full (or in a permissible ratio) by the orders and
quotes in the Book. The allocation of a COA-eligible order against the
Book shall be consistent with the UMA allocation described in Exchange
Rules 6.45A or 6.45B, as applicable.
(2) Public customer complex orders resting in the COB and public customer complex orders that are received during the Response Time Interval shall, collectively, have second priority to trade against a COA-eligible order. The allocation of a COA-eligible order against the public customer complex orders resting in the COB shall be according to time priority.
(3) Non-public customer orders resting in the COB, non-public customer
orders that are received during the Response Time Interval and RFQ
responses shall, collectively, have third priority. The allocation of a COAeligible order against these opposing orders shall be consistent with the
CUMA allocation described in Exchange Rules 6.45A or 6.45B, as applicable.
(vi) Routing of COA-Eligible Orders: If a COA-eligible order cannot be filled in
whole or in a permissible ratio, the order will route to the COB.
(vii) Firm Quote Requirement for COA-Eligible Orders: The firm quote requirements of Exchange Rule 8.51 and SEC Rule 11Ac1-1 shall apply only to quotes
as they may exist at the end of the Response Time Interval. In addition, RFQ
Responses shall be firm only with respect to the COA-eligible order for which it is
submitted, provided that RFQ Responses that exceed the size of a COA-eligible
order are also eligible to trade with other incoming COA-eligible orders that are
received during the Response Time Interval. Any RFQ Responses not accepted
in whole or in a permissible ratio will expire at the end of the Response Time
Interval.
(viii) Handling of Related Complex Orders: Incoming complex orders that are
received prior to the expiration of the Request Response Interval for a COAeligible order (the “original COA”) will impact the original COA as follows:
(1) Incoming complex orders that are received prior to the expiration of
the Request Response Interval for the original COA that are on the opposite side of the market and are marketable against the starting price of
the original COA-eligible order will cause the original COA to end. The
operation of the original COA will not change other than the early termination thereof. For purposes of this Rule, the “starting price,” shall mean the
better of the original COA-eligible order’s limit price or the best price, on a
net debit or credit basis, that existed in the Book or COB at the beginning
of the Request Response Interval.
(2) Incoming COA-eligible orders that are received prior to the expiration
of the Request Response Interval for the original COA that are on the
same side of the market and at the same price or worse than the original
COA-eligible order will join the original COA. The operation of the original
COA will not change. The priority of the original COA-eligible order and
incoming COA-eligible order(s) shall be according to time priority.
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September 7, 2005, Volume RB16, Number 36
Rule Changes,
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Policies continued
SR-CBOE-2005-65 continued
(3) Incoming COA-eligible orders that are received prior to the expiration of
the Request Response Interval for the original COA that are on the same
side of the market and at a better price than the original COA-eligible order
will cause the original COA to end and a new COA to begin. The operation
of the original COA will not change other than the early termination thereof.
… Interpretations and Policies:
.01 - .02 No change.
SR-CBOE-2005-68
Definition of Firm Customer Quote Size
On August 29, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-68, which
filing proposes to amend CBOE’s rules governing the operation of Linkage by (i) amending
the definition of “Firm Customer Quote Size” to equal the full size of the receiving exchange’s
disseminated quotation; and (ii) eliminate a 15-second waiting period between the sending of
P/A 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
stricken-through].
Rule 6.80 — Definitions
Rule 6.80. The following terms shall have the meaning specified in the Rule solely
for the purpose of this Section E under Chapter VI:
(1)-(8) No change.
(9) “Firm Customer Quote Size” with respect to a P/A Order means the size of the
disseminated quotation of the Participant receiving the P/A Order. [the lesser of (a)
the number of option contracts that the Participant Exchange sending a P/A Order
guarantees it will automatically execute at its disseminated quotation in a series of
an Eligible Option Class for Customer orders entered directly for execution in that
market; or (b) the number of option contracts that the Participant Exchange receiving a P/A Order guarantees it will automatically execute at its disseminated quotation in a series of an Eligible Option Class for Customer orders entered directly for
execution in that market. The Firm Customer Quote Size will be at least 10 contracts for each series of an Eligible Option Class unless the receiving Participant
Exchange is disseminating a quotation of less than 10 contracts, in which case this
number may equal such quotation size.]
(10)-(21) No change.
*****
Rule 6.81 — Operation of the Linkage
Rule 6.81. By subscribing to the Plan, the Exchange has agreed to comply with,
and enforce compliance by its members with, the Plan. In this regard, the following
shall apply:
(a) No change.
(b) P/A Orders
September 7, 2005, Volume RB16, Number 356
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SR-CBOE-2005-68 continued
(1) Sending of P/A Orders for Sizes No Larger than the Firm Customer Quote
Size. A Market-Maker may send through the Linkage a P/A Order that is
equal to or less than the size of [for execution in the automatic execution
system of a Participant Exchange if the size of such P/A Order is no larger
than] the Firm Customer Quote Size for automatic execution, if available.
[Except as provided in subparagraph (b)(2)(ii) below, a Market-Maker may not
break up an order of a Customer that is larger than the Firm Customer Quote
Size into multiple P/A Orders, one or more of which is equal to or smaller than
the Firm Customer Quote Size, so that such orders could be represented as
multiple P/A Orders through the Linkage.]
(2) Sending of P/A Orders [for Sizes] Larger than the Firm Customer Quote
Size. If the size of a P/A Order is larger than the Firm Customer Quote Size,
a Market-Maker may send through the Linkage such P/A Order in one of two
ways:
(i) The Market-Maker may send a P/A Order representing the entire Customer order. If a receiving Participant Exchange’s disseminated quotation is equal to or better than the Reference Price when the P/A Order
arrives at that market, that exchange will execute the P/A Order at its
disseminated quotation for at least the Firm Customer Quote Size (an
automatic execution is not required if the P/A Order is larger than the
Firm Customer Quote Size). Within 15 seconds of receipt of such order,
the receiving Participant Exchange will inform the Market-Maker of the
amount of the order executed and the amount, if any, that was canceled.
(ii) Alternatively, the Market-Maker may send an initial P/A Order for the
Firm Customer Quote Size pursuant to subparagraph (b)(1) above. If one
or more of the Participant Exchanges that executed the P/A Order continues to disseminate the same quotation at the NBBO [15 seconds]
after reporting the execution of the initial P/A Order, the Market-Maker
may send an additional P/A Order to such Participant Exchanges. If
sent, such additional P/A Order must be for at least the lesser of:
(i) the size of the disseminated quotation;
(ii) 100 contracts; or
(iii) the entire remainder of the Customer order.
If the sending Participant Exchange initially sent P/A Orders to more than one
Participant Exchange for up to the Firm Customer Quote Size, the sending Participant Exchange may send additional P/A Orders to the same Participant Exchanges as long as such orders are, in the aggregate, for at least the lesser of 100
contracts or the entire remainder of the Customer Order; provided that the sending
Participant Exchange may limit the size of any single additional P/A Order to the
size of the Participant Exchange’s currently-disseminated quotation.
In any situation where a receiving Participant Exchange does not execute a P/A
Order in full, such exchange is required to move its quotation to a price inferior to
the Reference Price of the P/A Order.
(c)- (e) No change.
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