November 4, 2005
Exchange
Bulletin
Volume 33, Number 44
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, NOVEMBER 4, 2005
CLASS
BID
CBOE
$675,000.00
OFFER
LAST SALE AMOUNT
$790,000.00
LAST SALE DATE
$725,000.00
November 2, 2005
CBOT FULL MEMBERSHIP
CLASS
BID
OFFER
LAST SALE AMOUNT
LAST SALE DATE
With CBOE Exercise Right
$2,700,000.00
$2,900,000.00
$2,900,000.00
November 3, 2005
Without CBOE Exercise Right
$2,400,000.00
$3,300,000.00
$2,850,000.00
October 24, 2005
$90,000.00
$90,000.00
October 28, 2005
CBOE Exercise Right
$30,000.00
CBOE MEMBERSHIP SALES AND TRANSFERS
From
John T. Lundy
SLK-Hull Derivatives, LLC
SLK-Hull Derivatives, LLC
SLK-Hull Derivatives, LLC
To
Sentinel Capital Management LLC
Peak6 Capital Management LLC
Peak6 Capital Management LLC
Peak6 Capital Management LLC
Price/Transfer
Transfer
$725,000.00
$725,000.00
$725,000.00
Date
11/1/05
11/2/05
11/2/05
11/2/05
Page 2
November 4, 2005
Volume 33, Number 44
Chicago Board Options Exchange
DPM APPOINTMENT TRANSFER PROPOSAL – October 31, 2005
This notice is given in accordance with the procedures utilized by the MTS Committee under CBOE Rule 8.89 in considering DPM
appointment transfer proposals. Under Rule 8.89, the MTS Committee posts notice of any proposal by a DPM involving greater than a
nominal transfer of interest in the DPM’s organization. During the posting period, members may submit to the MTS Committee written
comments and/or written alternative proposals. Following the posting period, the MTS Committee will determine what action to take
regarding the proposal based on the factors enumerated in Rule 8.89 and the accompanying guidelines issued by the Board of
Directors. The MTS Committee has not yet made any determination regarding whether to approve or disapprove the proposal described
below, and the posting of the proposal does not imply that the MTS Committee has reached a particular determination with respect to
the proposal.
The MTS Committee has received a proposal from Botta Capital Management, LLC (“BCM”), a member organization, and Botta Specialists, LLC (“BSP”) and Susquehanna Investment Group (“SIG”), both member organizations approved to operate as DPMs, regarding a
transfer of a BSP DPM appointment, which is located at Post 2, Station 9.
Under the proposal, the BSP DPM located at Post 2, Station 9 will be transferred to SIG, who will be responsible for the management and
operation of the DPM. The respective ownership structures of BSP and SIG will not change as a result of this proposed transfer.
Any written comments and/or alternative written proposals must be received by the MTS Committee, in care of Daniel
Hustad, Business Development Division (312-786-7715), on or before November 11, 2005. Unless otherwise requested,
any written comments and/or alternative written proposals will be made available for review by the membership. For
additional information regarding this posting, please contact Daniel Hustad at the number provided above.
MEMBERSHIP INFORMATION FOR 10/27/05 THROUGH 11/2/05
MEMBERSHIP APPLICATIONS RECEIVED FOR
***Correction to Bulletin Dated 10/28/05***
WHICH A POSTING PERIOD IS REQUIRED
Individual Membership Applicants
Date Posted
Michael P. Maloney, CBT-RF
HSBC Securities (USA) Inc.
10840 S. Lawndale
Chicago, IL 60655
10/27/05
Jeffrey J. Kutchin, Lessor
2051 Burr Oak Lane
Highland Park, IL 60035
11/2/05
Member Organization Applicants
Date Posted
Caldwell Financial Ltd.
150 King Street West, Suite 1702
PO Box 46
Toronto, ONT, CANADA M5H-1J9
Thomas S. Caldwell – Chairman/CEO
11/2/05
Caldwell Advantage LP
450 Park Avenue, Suite 1900
New York, NY 10022
Thomas S. Caldwell – Manager
Brendan T.N. Caldwell – Manager
J. Dennis Freeman – Manager
Angela T. Stripe - Manager
11/2/05
BKS Capital Management LLC
900 North Shore Drive
Lake Bluff, IL 60044
Timothy C. Boyd – Managing Member
Timothy G. Keller – Managing Member
John M. Streibich – Managing Member
10/28/05
Seko II LLC
6125 W. Howard St.
Niles, IL 60068
Bernard J. Siegel – President
Fred Kornick – Vice President
10/27/05
Christopher Trading LLC
Eric V. Ochotnicki, CBT Registered For
2058 Madrillon Rd.
Vienna, VA 22182
Kermit Zieg – Managing Member
Eric V. Ochotnicki - Member
10/27/05
Member Organization Applicants
Date Posted
AOS, Inc.
Jonathan M. Birch, Nominee
311 S. Wacker, Suite 1525
Chicago, IL 60606
Gary M. DeWeese – CCO/CFO/FINOP
Biljana Kljajic – CROP/SROP
Jere T. Wickert - President
10/26/05
MEMBERSHIP LEASES
New Leases
Effective Date
Lessor: William A. Rosen
Lessee: Sallerson-Troob LLC
Mark Wolicki, NOMINEE
Rate:
1.125%
Term: Monthly
11/1/05
Lessor: Berton Rubin
Lessee: Citadel Derivatives Group LLC
Robert B. Duddy, NOMINEE
Rate:
1.125%
Term: Monthly
11/1/05
Lessor: John R. Power
Lessee: LiquidPoint, LLC
R. Kevin Lawless, NOMINEE
Rate:
1.212%
Term: Monthly
11/1/05
Lessor: Sentinel Capital Management LLC 11/1/05
Lessee: SLK-Hull Derivatives LLC
Rate:
1.212%
Term: Monthly
Lessor: Arlene Weinstein
Lessee: Holland Trading House, LLC
Rate:
1.212%
Term: Monthly
11/1/05
Lessor: RBC Dain Rauscher Inc.
11/1/05
Lessee: Compass Professional Services LLC
Richard L. Graziadei Jr., NOMINEE
Rate:
1.212%
Term: Monthly
Lessor: George D. Hinchcliff
Lessee: Cassidy Trading LLC
Cassidy McTigue, NOMINEE
Rate:
$4,500
Term: Monthly
11/2/05
Page 3
November 4, 2005
Volume 33, Number 44
Terminated Leases
Termination Date
Lessor: John T. Lundy
Lessee: SLK-Hull Derivatives LLC
11/1/05
Lessor: RBC Dain Rauscher Inc.
Lessee: Equitec Proprietary Markets, LLC
11/1/05
Lessor: Arlene Weinstein
Lessee: Wellington Capital Markets, LLC
Keir S. Collins (KIR), NOMINEE
11/1/05
Lessor:
Merrill Lynch, Pierce,
Fenner & Smith, Inc.
Lessee: TD Options, LLC
11/1/05
Lessor: Henry S. Traum
Lessee: Wellington Capital Markets, LLC
Jeffrey D. Miksta (JMX), NOMINEE
11/1/05
Lessor: S & S Options
11/1/05
Lessee: Citigroup Derivatives Markets Inc.
Lessor: Seats Exchange Inc.
Lessee: Susquehanna Investment Group
Jeffrey D. Ream (REA), NOMINEE
11/1/05
Lessor: S & S Options
Lessee: Susquehanna Investment Group
Andrew D. Little (LTL), NOMINEE
11/1/05
Chicago Board Options Exchange
Termination Date
Timothy S. Miller (TUP)
Pacific Trading Group, LLC
440 S. LaSalle, Suite 752
Chicago, IL 60605
10/31/05
David A. Green Jr. (DVE)
Equitec Proprietary Markets, LLC
111 W. Jackson, 20th floor
Chicago, IL 60604
10/31/05
James D. Wackrow (WAC)
Joh Options Inc.
36 W. Crystal
Lombard, IL 60148
11/1/05
Jeffrey J. Tangel (JJT)
Sallerson-Troob LLC
440 S. Lasalle - 3100
Chicago, IL 60605
11/1/05
John W. Lee (JWL)
Pacific Trading Group, LLC
440 S. LaSalle, Suite 752
Chicago, IL 60605
11/1/05
Andrew S. Troob (ATT)
Sallerson-Troob LLC
440 S. Lasalle-Ste. 950
Chicago, IL 60605
11/2/05
Lessor: Essex Radez, LLC
11/1/05
Lessee: Caesaron II Fund LP
Stephen L. Silberman (SIL), NOMINEE
Member Organizations
Lessee(s):
Termination Date
Lessor: Elliott N. Mirman
11/1/05
Lessee: Sallerson-Troob LLC
Daniel M. Overmyer (DNL), NOMINEE
Caesaron II Fund LP
9464 Beverly Crest Drive
Beverly Hills, CA 90210
11/1/05
Lessor: UBS Securities, LLC
11/1/05
Lessee: Joh Options Inc.
Michael J. Krischel (WIG), NOMINEE
EFFECTIVE MEMBERSHIPS
Lessor: Burton P. Bilfeld
11/1/05
Lessee: Jump Trading LLC
Robert D. Regan Jr. (BBY), NOMINEE
Nominee(s) / Inactive Nominee(s):
Lessor: Berton Rubin
Lessee: Sallerson-Troob LLC
Mark Wolicki (IKI), NOMINEE
11/1/05
Lessor: James P. Butler
Lessee: LiquidPoint, LLC
R. Kevin Lawless (KLA), NOMINEE
11/1/05
Michael R. Moore (CBY)
10/28/05
Ronin Capital, LLC
PO Box 14558
Chicago, IL 60614
Type of Business to be Conducted: Market Maker
Individual Members
Andrew W. Smyth Jr. (DWS)
Sparta Group Of Chicago, LP
2941 N. Broadway St. - Apt. #3
Chicago, IL 60657
Type of Business to be Conducted: Market Maker
MEMBERSHIP TERMINATIONS
Individual Members
Nominee(s) / Inactive Nominee(s):
Termination Date
Kevin E. Barth (BTH)
Samuelson/Smith
440 S. LaSalle, Ste., #1124
Chicago, IL 60605
10/27/05
Benjamin H. Szelag (SLG)
Andrie Trading LLC
440 S. LaSalle St., 19th Flr.
Chicago, IL 60605
10/28/05
Michael A. Favia (FVA)
G-Bar Limited Partnership
8211 W. Catherine Ave.
Chicago, IL 60656
10/28/05
Effective Date
10/31/05
Jeffrey J. Tangel (JJT)
10/31/05
Sallerson-Troob LLC
440 S. Lasalle - 3100
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
John W. Lee (JWL)
Pacific Trading Group, LLC
440 S. LaSalle, Suite 752
Chicago, IL 60605
Type of Business to be Conducted: Floor Broker
10/31/05
Timothy S. Miller (TUP)
11/1/05
Pacific Trading Group, LLC
440 S. LaSalle, Suite 752
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Page 4
November 4, 2005
Volume 33, Number 44
Chicago Board Options Exchange
Effective Date
CHANGES IN MEMBERSHIP STATUS
Andrew S. Troob (ATT)
11/1/05
Sallerson-Troob LLC
440 S. Lasalle-Ste. 950
Chicago, IL 60605
Type of Business to be Conducted: Market Maker/ Floor Broker
Cassidy McTigue (MCT)
11/2/05
Cassidy Trading LLC
440 S. LaSalle, Suite 2101
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Member Organizations
CBT Registered For:
Effective Date
Stutland Equities LLC
11/1/05
2501 N. Wayne Ave. - #16
Chicago, IL 60614
Type of Business to be Conducted: Market Maker/ Remote Market
Maker
Lessee(s):
Effective Date
Cassidy Trading LLC
11/2/05
440 S. LaSalle, Ste. 2101A
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Lessor(s):
Effective Date
Sentinel Capital Management LLC
440 S. LaSalle - Suite 713
Chicago, IL 60605
Type of Business to be Conducted:
11/1/05
JOINT ACCOUNTS
New Participants
Acronym
Effective Date
Andrew W. Smyth Jr.
QZO
10/31/05
Timothy S. Miller
QFN
11/1/05
Terminated Participants
Acronym
Termination Date
Kevin E. Barth
QGC
10/27/05
Benjamin H. Szelag
QDD
10/28/05
Benjamin H. Szelag
QDX
10/28/05
Benjamin H. Szelag
QND
10/28/05
Benjamin H. Szelag
QNZ
10/28/05
Timothy S. Miller
QFN
10/31/05
Patrick J. Burke
QBK
11/1/05
Individual Members
Effective Date
Kevin J. Lee
10/28/05
From:
Nominee For Wolverine Trading LLC; Market Maker/ Floor
Broker
To:
CBT Registered For Wolverine Trading LLC; Market
Maker/ Floor Broker
Garrett E. Graber
10/28/05
From:
CBT Registered For Andrie Trading LLC; Market Maker
To:
Nominee For Andrie Trading LLC; Market Maker
Robert D. Regan Jr.
11/1/05
From:
Nominee For Jump Trading LLC; Market Maker
To:
CBT Registered For Jump Trading LLC; Market Maker
Patrick J. Burke
11/1/05
From:
CBT Registered For Vintage Capital LLC; Market Maker
To:
Nominee For Merrill Lynch, Pierce, Fenner & Smith, Inc.;
Floor Broker
Keir S. Collins
11/1/05
From:
Nominee For Wellington Capital Markets, LLC; Market
Maker
To:
CBT Registered For Wellington Capital Markets, LLC;
Market Maker
Jeffrey D. Miksta
11/1/05
From:
Nominee For Wellington Capital Markets, LLC; Market
Maker
To:
CBT Registered For Wellington Capital Markets, LLC;
Market Maker
Thomas K. Genereux
11/1/05
From:
Nominee For Susquehanna Investment Group; Market
Maker/ Floor Broker
To:
CBT Registered For Susquehanna Investment Group;
Market Maker/ Floor Broker
Brian S. Stutland
11/1/05
From:
Lessor/ CBT Exerciser; Market Maker/ Remote Market
Maker
To:
Lessor/ CBT Registered For Stutland Equities LLC;
Market Maker
Stephen L. Silberman
11/1/05
From:
Lessor/ Nominee For Caesaron II Fund LP; Market Maker
To:
Lessor
Member Organizations
Effective Date
Jump Trading LLC
11/1/05
From:
Lessee; Associated with a Market Maker
To:
CBT Registered For; Associated with a Market Maker/
Floor Broker
Pacific Trading Group LLC
10/31/05
From:
Lessee; Associated with a Market Maker
To:
Lessee; Associated with a Market Maker/ Floor Broker
Page 5
November 4, 2005
Volume 33, Number 44
Chicago Board Options Exchange
RESEARCH CIRCULARS
The following Research Circulars were distributed between October 28 and November 2, 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 #RS05-768
October 28, 2005
Cadence Design Systems, Inc. (“CDN/OJN/YRV”)
Change in Marketplace and Underlying
Symbol Change to “CDNS”
Effective Date: October 31, 2005
Research Circular #RS05-769
October 28, 2005
StreetTRACKS Dow Jones Global Titans Index Fund (“DGT”)
Name Change to: streetTRACKS DJ Global Titans ETF
Effective Date: October 31, 2005
Research Circular #RS05-770
November 1, 2005
PacifiCare Health Systems, Inc. (“PHS/VHZ/WHZ”) Proposed
Merger with UnitedHealth Group Incorporated (“UNH”)
Research Circular #RS05-772
November 1, 2005
Precision Drilling Corporation (“PDS/ZCD/LPB”) Proposed
Plan Of Arrangement
Research Circular #RS05-773
November 2, 2005
*****UPDATE*****UPDATE*****UPDATE*****
Precision Drilling Corporation (“PDS/ZCD/LPB”) Proposed
Plan Of Arrangement
Research Circular #RS05-776
November 3, 2005
DHB Industries, Inc. (DHB/ZBH/LBE)
2007/2008 LEAPS®
Research Circular #RS05-777
November 2, 2005
Nabors Industries, Inc. (“NBR/VRB/WRB”)
To Move To and Begin Trading on the NYSE
Effective Date: November 3, 2005
November 9, 2005
Volume RB16, Number 45
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 RG05-99
To:
Membership
From: Regulatory Division
Trading Operations
Date:
November 1, 2005
Re:
Market-Maker “I” Orders
Pursuant to Exchange Rule 6.13(b)(i)(C)(iii), the Floor Procedure Committees previously
determined to shorten to 5 seconds (from 15-seconds) the period required between entry of
multiple Market-Maker orders (including non-CBOE market-maker orders) on the same side
of the market in an option class for an account or accounts of the same beneficial owner
using the Hybrid System.
In response to questions from members, the Exchange wishes to make clear that MarketMaker “I” orders, or one-sided quotes, are not subject to the above 5-second limitation.
Please contact Tim MacDonald at (312) 786-7706, or Anthony Montesano at (312) 786-7365
with any questions regarding this circular.
Regulatory Circular RG05-100
Date:
November 1, 2005
To:
The Membership
From:
Financial Planning Committee
Subject:
Fee Reductions for November 2005
CBOE has averaged approximately 1,665,000 contracts per day (CPD) during the period
July 2004 through October 2005.
Per the Prospective Fee Reduction Program, MarketMaker and DPM transaction fees and
floor brokerage fees will be reduced by 25% per contract from standard rates during November 2005 (October 2005 discounts were also 25%).
Regulatory Circulars
continued
Regulatory Circular RG05-100 continued
Fee
Standard
Rate
Equities Market-Maker Trans. Fee
22 cents
Equities DPM Trans. Fee
12 cents
QQQQ, SPY, DIA, DJX & Indexes
24 cents (1)
Market- Maker/DPM Trans. Fee
Mini-SPX (XSP) Market-Maker Trans. Fee
15 cents
Floor Brokerage Fee
4 cents
Floor Brokerage Fee - Mini-SPX (XSP)
4 cents
Nov. ‘05
Rate
16.5 cents
9 cents
18 cents (1)
waived until 2/1/06
3 cents
waived until 2/1/06
(1) Above rates exclude a 10 cents license fee surcharge for the following products:
•
Dow Jones indexes, excluding DJX and DIA
•
Mini Nasdaq 100 (MNX)
•
Nasdaq 100 (NDX)
•
Russell 2000 cash-settled index (RUT)
Please call Ermer Love (312-786-7032) if you have any questions.
Regulatory Circular RG05-101
Date:
November 1, 2005
To:
Members and Member Organizations
From: Legal Division
Department of Market Regulation
Re:
Position and Exercise Limits
On October 21, 2005, the Securities and Exchange Commission (“SEC”) approved a CBOE
rule change to eliminate position and exercise limits for options and FLEX options on the
NASDAQ 100 Index (“NDX Options”). This rule change is now effective. Please note that
certain members or member organizations that maintain NDX Option positions shall be
subject to the reporting requirements and the margin and clearing firm requirements under
Interpretation and Policy .03 and .04 to CBOE Rule 24.4, and Rule 24A.7(b), respectively.
For information regarding this rule change, refer to CBOE rule change SR-CBOE-2005-41
and the SEC order approving this rule change, which are both posted on the Exchange
website at http://www.cboe.org/Legal/filings.aspx.
Any questions concerning this Regulatory Circular should be directed to Tim MacDonald at
(312) 786-7706 or Jim Flynn at (312) 786-7070.
RB2
November 9, 2005, Volume RB16, Number 45
Regulatory Circulars
continued
Regulatory Circular RG05-102
To:
Members and Member Firms - Compliance Departments
From: Regulatory Services Division/Legal Division
Re:
Compliance with Section 11(a) of the Securities Exchange Act of 1934
and the Rules Thereunder
Date:
November 2, 2005
This circular provides members with information on compliance with Section 11(a)(1)
of the Securities Exchange Act of 1934 (“Exchange Act”) which concerns proprietary trading
on the Exchange by Exchange members. While Section 11(a)(1) has not changed since the
Exchange previously issued Regulatory Circular RG94-11 (Feb. 1, 1994) explaining the operation and application of Section 11(a)(1), this circular updates and supplements the information provided in RG94-11.
As an initial matter, please note that Market-Makers effecting transactions in a
market-making capacity are generally exempt from the restrictions of Section 11(a)(1).
Further, members that submit proprietary orders from off the floor and obtain executions through an unaffiliated executing broker may also qualify for an exemption
known as the “Effect vs. Execute” Rule (described in greater detail below). Accordingly, this circular may be of primary interest to member firms that submit proprietary
orders to CBOE for execution through an affiliated broker.
Section 11(a)(1) Generally
Section 11(a)(1) of the Exchange Act restricts securities transactions of a member
of any national securities exchange effected on that exchange for (i) the member’s own
account, (ii) the account of a person associated with the member, or (iii) an account over
which the member or a person associated with the member exercises discretion (collectively, “covered accounts”) unless a specific exemption is available, such as transactions
by broker dealers acting in the capacity of a Market-Maker and other exemptions described
below.
Statutory Exemptions from Section 11(a)(1)
As mentioned above, there are several exemptions to Section 11(a)(1). These
include transactions by a dealer acting in the capacity of a Market-Maker (such as a DPM,
e-DPM, RMM, LMM or Market-Maker on CBOE), any bona fide hedge transaction, or any
bona fide arbitrage transaction. 1 The SEC may also establish rules that provide exemptive
relief from the restrictions of Section 11(a)(1). Thus, while CBOE Market-Maker transactions generally qualify for an exemption from Section 11(a)(1), non-Market-Maker members
must qualify pursuant to one of the other exemptions.
“(G) Order” Exemption
Section 11(a)(1)(G) exempts from the prohibitions of Section 11(a) transactions
effected for a member’s own account if the member obtains more than 50% of its gross
revenue from eligible sources identified in the subparagraph (which generally includes underwriting, selling securities to customers, and acting as a broker), the member discloses to
any member to whom the order is transmitted that the order is a proprietary order (a socalled “G” order), and the member clearly discloses to the trading crowd that the order is a G
order. 2 A G order must yield to any non-member order.
1
The SEC has provided very specific guidance as to the meaning of bona fide hedge and bona fide arbitrage.
Members may wish to consult Securities Exchange Act Release No. 15533 (Jan. 29, 1979) for further
guidance as to SEC interpretations of bona fide hedge and bona fide arbitrage.
2
For a further explanation of (G) orders generally, see Regulatory Circular RG94-11.
November 9, 2005, Volume RB16, Number 45
RB3
Regulatory Circulars
continued
Regulatory Circular RG05-102 continued
Members intending to rely on the “G” exemption must file with the Exchange
financial information indicating that more than 50% of their gross revenue for the prior year
was received from eligible sources, as set forth above, and must mark each order to be
effected in reliance on the exemption as a “G order.”
Rule 11a2-2(T): The “Effect vs. Execute” Exemptive Rule
The SEC also has adopted rules that provide an exemption in certain situations
from the Section 11(a) prohibitions. One of the most frequently-used exemptions, Rule
11a2-2(T), the so-called “effect vs. execute” rule, enables members to effect transactions
for covered accounts by using another member, acting as broker, to execute the transaction on the Exchange (or through the use of the Exchange’s facilities), provided that:
1.
the executing broker is not an associated person of the initiating member;
2.
the covered account order must be transmitted from off the exchange
floor;
3.
neither the initiating member nor any associated person of the initiating
member participates in execution of the order after the covered account
order has been transmitted for execution from off the floor (referred to
below as the “non-participation requirement”); and
4.
if the transaction is being effected for an account over which the initiating
member or an associated person of that member exercises investment
discretion, neither the initiating member nor any associated person may
retain any compensation in connection with effecting the transaction unless express written consent to such retention has been obtained from
the person or persons authorized to transact business for the managed
account in the manner provided in the rule.
Thus, a member (not acting in a market-making capacity) could submit an order from off
the floor to an unaffiliated broker for representation on the floor and use the effect versus
execute exemption (assuming the other conditions of the rule are satisfied). In contrast, if
the member submitted the order to its “house” broker on the trading floor, the restrictions of
Section 11a would apply and a different exemption would be necessary.
*
*
*
Members seeking further information as to the application of Section 11(a) or any of the
exemptions from the prohibitions of that section should contact Angelo Evangelou, Legal
Division, at (312) 786-7464.
RB4
November 9, 2005, Volume RB16, Number 45
Regulatory Circulars
continued
Regulatory Circular RG05-103
T0:
Members and Member Firms - Compliance Departments
From: Regulatory Services Division/Legal Division
Re:
Extension of Rule 6.45A(b) and Applicability of Section 11(a)(1)
Date:
November 2, 2005
A proposed rule change to extend the duration of paragraph (b) of Rule 6.45A,
Priority and Allocation of Equity Option Trades on the CBOE Hybrid System, through December 14, 2005 has become effective (see Release 34-52423; SR-CBOE-2005-76). Paragraph (b), which would have otherwise expired on September 14, 2005, relates to the allocation of orders represented in open outcry. This is merely an extension of the duration of the
effectiveness of paragraph (b), no other changes are being made at this time.
In order to effect proprietary transactions on the floor of the Exchange, in addition to
complying with the requirements of CBOE Rule 6.45A(b), members are also required to
comply with the requirements of Section 11(a)(1) of the Securities Exchange Act of 1934
(the “Exchange Act”), 15 U.S.C. 78k(a)(1), or qualify for an exemption. Section 11(a)(1) of
the Exchange Act restricts securities transactions of a member of any national securities
exchange effected on that exchange for (i) the member’s own account, (ii) the account of a
person associated with the member, or (iii) an account over which the member or a person
associated with the member exercises discretion, unless a specific exemption is available.
Members seeking further information as to the application of Section 11(a)(1) or
any of the exemptions from the prohibitions of that section should refer to Regulatory Circulars
RG05-102, or contact Angelo Evangelou, Legal Division, at (312) 786-7464.
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-2005-41
Elimination of Position Limits on NDX Options
On October 21, 2005, the SEC approved Rule Change File No. SR-CBOE-2005-41, which
filing eliminates position and exercise limits on NDX options. Any questions regarding the
rule change may be directed to Jim Flynn, Legal Division, at 312-786-7070. The text of the
amended rules is set forth below. New language is italicized.
Rule 24.4. Position Limits for Broad-Based Index Options
(a) In determining compliance with Rule 4.11, there shall be no position limit for
broad-based index option contracts on the DJX, OEX, NDX, and SPX classes. All
other broad-based index option contracts shall be subject to a contract limitation
fixed by the Exchange, which shall not be larger than the limits provided in the chart
below.
November 9, 2005, Volume RB16, Number 45
RB5
Rule Changes,
Interpretations and
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SR-CBOE-2005-41 continued
BROAD-BASED INDEX
OPTION TYPE
STANDARD LIMIT
(on the same side of the market)
RESTRICTIONS
Nasdaq 100 Index (1/10th) (MNX)
Russell 2000 Index (1/10th)
750,000
500,000
Dow Jones Equity REIT Index
Russell 2000 Index (1/5th)
250,000 contracts
250,000 contracts
None
no more than
300,000 near term
None
no more than
150,000 near term
Lipper Analytical/Salomon
75,000 contracts
no more than
50,000 near-term
S&P 500/Barra Growth or Value3
6,000 contracts in the aggregate
no more than
21,500 near-term
S&P SmallCap 600
GSTI Composite
100,000 contracts
no more than
60,000 near-term
Bros. Growth Fund Index
Lipper Analytical/Salomon Bros.
Growth and Income Fund Index
Russell 2000
50,000 contracts
Russell 1000
Russell 1000 Growth
Russell 1000 Value
Russell 2000 Growth
Russell 2000 Value
Russell 3000
Russell 3000 Growth
Russell 3000 Value
Russell Midcap
Russell Midcap Growth
Russell Midcap Value
Russell Top 200 Index
Russell Top 200 Growth Index
Russell Top 200 Value Index
Mexico 30 Index
Germany 25
Morgan Stanley Multinational Company Index
CBOE Euro 25 Index
CBOE Asian 25 Index
no more than
30,000 near-term
Reduced Value NYSE Composite
45,000 contracts
Other broad-based index
25,000 contracts
no more than
25,000 near-term
no more than
15,000 near-term
(b) – (d) No Change.
. . . Interpretations and Policies:
.01
Broad-based Index Hedge Exemption
The broad-based index hedge exemption is in addition to the standard limit and
other exemptions available under Exchange rules, interpretations and policies.
The following procedures and criteria must be satisfied to qualify for a broadbased index hedge exemption.
(a) – (d) No Change.
(e)
Positions in broad-based index options that are traded on the Exchange
are exempt from the standard limits to the extent specified below.
RB6
November 9, 2005, Volume RB16, Number 45
Rule Changes,
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SR-CBOE-2005-41 continued
BROAD-BASED INDEX
OPTION TYPE
BROAD-BASED INDEX HEDGE EXEMPTION
(is in addition to standard limit)
Nasdaq 100 Stock Index (1/10th value) (MNX)
Russell 2000 Index (1/10th)
Russell 2000 Index (1/5th)
S&P 500/Barra Growth or Value
other broad-based index
1,500,000 contracts
750,000 contracts
375,000 contracts
65,000 contracts
75,000 contracts
(f) – (h)
No Change.
.02
No Change.
.03
Reporting Requirement
Each member (other than CBOE Market-Makers) or member organization that maintains a broad-based index option position on the same side of the market in excess
of 100,000 contracts for OEX, NDX, or SPX and 1 million contracts for DJX, for its
own account or for the account of a customer, shall report information as to whether
the positions are hedged and provide documentation as to how such contracts are
hedged, in the manner and form required by the Department of Market Regulation.
The Exchange may specify other reporting requirements of this interpretation as
well as the limit at which the reporting requirement may be triggered.
.04 Margin and Clearing Firm Requirements
Whenever the Exchange determines, based on a report by the Department of Market Regulation or otherwise, that additional margin is warranted in light of the risks
associated with an under-hedged SPX, OEX, NDX, or DJX option position, the
Exchange may consider imposing additional margin upon the account maintaining
such under-hedged position pursuant to its authority under Exchange Rule 12.10.
Additionally, it should be noted that the clearing firm carrying the account will be
subject to capital charges under SEC Rule 15c3-1 to the extent of any margin
deficiency resulting from the higher margin requirements.
*****
Rule 24.5 – Exercise Limits
Rule 24.5. In determining compliance with Rule 4.12, exercise limits for index
option contracts shall be equivalent to the position limits prescribed for option contracts with the nearest expiration date in Rule 24.4 or 24.4A. There shall be no
exercise limits for broad-based index options on DJX, OEX, NDX or SPX.
... Interpretations and Policies:
.01 - .03 No Change.
*****
Rule 24A.7 – Position Limits for FLEX Narrow-Based Index Options; Reporting Requirements for Flex Broad-Based Index Options and Flex Equity Options
Rule 24A.7. (a) Flex Narrow-Based Index Options
(i) – (ii) No Change.
November 9, 2005, Volume RB16, Number 45
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SR-CBOE-2005-41 continued
(b)
FLEX Broad-Based Index Options. There shall be no position limits for
FLEX DJX, OEX, NDX or SPX option contracts. However, each member (other
than CBOE Market-Makers) or member organization that maintains a FLEX broadbased index option position on the same side of the market in excess of 100,000
contracts for OEX, NDX or SPX and 1 million contracts for DJX, for its own
account or for the account of a customer, shall report information as to whether
the positions are hedged and provide documentation as to how such contracts are
hedged, in the manner and form prescribed by the Department of Market Regulation. The Exchange may specify other reporting requirements of this interpretation
as well as the limit at which the reporting requirement may be triggered. In addition, whenever the Exchange determines, based on a report by the Department of
Market Regulation or otherwise, that additional margin is warranted in light of the
risks associated with an under-hedged FLEX DJX, OEX, NDX or SPX option
position, the Exchange may consider imposing additional margin upon the account maintaining such under-hedged position, pursuant to its authority under
Exchange Rule 12.10. Additionally, it should be noted that the clearing firm carrying the account will be subject to capital charges under SEC Rule 15c3-1 to the
extent of any margin deficiency resulting from the higher margin requirements.
(c) – (d) No Change.
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-2005-89
Hybrid Agency Liaison System
On October 26, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-89, which
filing proposes to adopt a Hybrid Agency Liaison (“HAL”) system for automated handling of
inbound 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
[stricken out].
Rule 6.14
Hybrid Agency Liaison (HAL)
This Rule governs the operation of the Hybrid Agency Liaison (“HAL”) system.
HAL is a feature within the Hybrid System that provides automated order handling
in designated Hybrid option classes for qualifying electronic orders that are not
automatically executed by the Hybrid System.
(a) HAL Eligibility. The Exchange, with input from the appropriate Floor Procedure
Committee, shall designate the classes in which HAL shall be activated. For
such classes, HAL shall automatically process upon receipt, as set forth in subparagraph (b) below, market and limit orders under the following circumstances:
(i) market orders or limit orders that are marketable against the Exchange’s
disseminated quotation while that quotation is not the NBBO;
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November 9, 2005, Volume RB16, Number 45
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SR-CBOE-2005-89 continued
(ii) limit orders that would improve the Exchange’s disseminated quotation
and that are marketable against quotations disseminated by other exchanges
that are participants in the Intermarket Options Linkage; and
(iii) limit orders that would improve the Exchange’s disseminated quotation.
(b) HAL Order Handling. Orders that are received by HAL pursuant to subparagraph
(a) above shall immediately upon receipt be electronically exposed to all MarketMakers appointed to the relevant option class as well as all members acting as
agent for orders at the top of the Exchange’s book (“Qualifying Members”) in the
relevant option series. The exposure shall be for a period of time determined by the
Exchange on a class-by-class basis, with input from the appropriate Floor Procedure Committee, which period of time shall not exceed 1.5 seconds. If during the
exposure period, a Market-Maker or Qualifying Member (on behalf of the order it is
representing) commits to trade with any portion of the order, then the exposure
period shall end and an allocation period shall commence. The allocation period
shall be a period of time determined by the Exchange on a class-by-class basis,
with input from the appropriate Floor Procedure Committee, which period of time,
when combined with the designated exposure period time (as opposed to an exposure period that is terminated early), shall not exceed a total of three (3) seconds.
Allocation of the order shall be pursuant to subparagraph (c) below. If no responses
are received during the exposure period or if there remains an unexecuted portion
of an order at the conclusion of the allocation period, then the order (the “Remaining
Order”) shall be processed as follows:
(i) if the Remaining Order is for the account of a public customer and is
marketable against another exchange that is a participant in the Intermarket
Options Linkage, then HAL shall route a P/A Order on behalf of the Remaining Order through the Linkage and any resulting execution of the P/A
Order shall be allocated to the Remaining Order. If the P/A Order cannot
be transmitted from the Exchange because the price of the P/A Order (or
a better price) is no longer available on any market, then HAL shall, pursuant to normal order allocation processing, execute the Remaining Order
against the Exchange’s quote (provided such execution would not cause a
trade-through) or, if the Exchange’s quote is inferior to the Exchange’s
BBO at the time the order was received by HAL (“Exchange Initial BBO”),
against the Market-Makers that constituted the Exchange Initial BBO at a
price equal to the Exchange Initial BBO;
(ii) if the Remaining Order is marketable against another exchange that is
a participant in the Intermarket Options Linkage but is not for the account
of a public customer, then HAL, when the system is enabled, shall route a
Principal Order on behalf of the Remaining Order through the Linkage and
any resulting execution of the Principal Order shall be allocated to the
Remaining Order. If the Principal Order cannot be transmitted from the
Exchange because the price of the Principal Order (or a better price) is no
longer available on any market, then HAL shall, pursuant to normal order
allocation processing, execute the Remaining Order against the Exchange’s
quote (provided such execution would not cause a trade-through) or, if the
Exchange’s quote is inferior to the Exchange Initial BBO, against the Market-Makers that constituted the Exchange Initial BBO at a price equal to
the Exchange Initial BBO. Until the HAL system is enabled to route Principal Orders, the Remaining Order shall route to PAR;
(iii) if the Remaining Order is not marketable (either on the Exchange or
another exchange) it shall be entered into the Hybrid book for dissemination.
November 9, 2005, Volume RB16, Number 45
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Rule Changes,
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SR-CBOE-2005-89 continued
(c) Allocation of Exposed Orders. Each Market-Maker or Qualifying Member that
submits an order or quote to trade with an order during the exposure or allocation
periods shall be entitled to receive an allocation of the order in accordance with
the allocation algorithm in effect for the option class pursuant to Rule 6.45A or
6.45B. There is no participation entitlement applicable to exposed orders, and
response sizes are limited to the size of the exposed order for allocation purposes.
(d) Early Termination of Exposure Period. In addition to the receipt of a response
to trade any portion of the exposed order, the exposure period will also terminate
early under the following circumstances:
(i) If during the exposure period the Exchange receives an unrelated order on the opposite side of the market from the exposed order that could
trade against the exposed order at the prevailing NBBO price, then the
orders will trade. However, the exposure period shall not terminate if a
quantity remains on the exposed order after such trade;
(ii) If during the exposure period the Exchange receives an unrelated
order on the same side of the market as the exposed order that is priced
equal to or better than the exposed order, then the exposure period shall
terminate and the exposed order shall be processed in accordance with
subparagraph (b) (i), (ii) or (iii), as appropriate;
(iii) If during the exposure of an order that is marketable against the Exchange Initial BBO, a Market-Maker attempts to move its quote to a price
that is inferior to the Exchange Initial BBO, then the exposure period shall
terminate and the exposed order shall be processed in accordance with
subparagraph (b) (i) or (ii), as appropriate.
…Interpretations and Policies:
.01
A pattern or practice of submitting unrelated orders that cause an exposure period to conclude early will be deemed conduct inconsistent with just and
equitable principles of trade and a violation of Rule 4.1 and other Exchange Rules.
.02
Disseminating information regarding exposed orders to third parties will
be deemed conduct inconsistent with just and equitable principles of trade and a
violation of Rule 4.1 and other Exchange Rules.
*****
SR-CBOE-2005-90
RB10
Simple Auction Liaison System
November 9, 2005, Volume RB16, Number 45
Rule Changes,
Interpretations and
Policies continued
On October 26, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-90, which
filing proposes to adopt a Simple Auction Liaison (“SAL”) system to auction qualifying inbound orders for potential price improvement. 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 [stricken out].
Rule 6.13. CBOE Hybrid System’s Automatic Execution Feature
(a) No change.
(b) Automatic Execution
(i) Eligibility: Orders eligible for automatic execution through the CBOE Hybrid
System may be automatically executed in accordance with the provisions of
this Rule or in accordance with Rule 6.13A for classes that have been designated for auction price improvement. This section governs automatic executions and split-price automatic executions. The automatic execution and allocation of orders or quotes submitted by market participants also is governed
by Rules 6.45A(c) and (d).
(ii) -(iv) No change.
(c)- (e) No change.
*****
Rule 6.13A
Simple Auction Liaison (SAL)
This Rule governs the operation of the SAL system. SAL is a feature within the
Hybrid System that auctions marketable orders for price improvement over the
NBBO.
(a) SAL Eligibility. The Exchange, with input from the appropriate Floor Procedure
Committee, shall designate the eligible order size, eligible order type, eligible order
origin code (i.e. public customer orders, non-market maker broker-dealer orders,
and market maker broker-dealer orders), and classes in which SAL shall be activated. For such classes, SAL shall automatically initiate an auction process for
any order that is eligible for automatic execution by the Hybrid System pursuant to
Rule 6.13 (“Agency Order”), except when the Exchange’s disseminated quotation
contains one or more resting limit orders and does not contain sufficient MarketMaker quotation size to satisfy the entire Agency Order.
(b) SAL Auction. Prior to commencing the auction, SAL shall stop the Agency
Order at the NBBO against Market-Maker quotations displayed at the NBBO on the
opposite side of the market as the Agency Order. SAL will not allow such quotations to move to an inferior price or size throughout the duration of the auction. The
auction will last for a period of time not to exceed two (2) seconds as determined by
the Exchange on a class-by-class basis. Auction responses may be submitted by
Market-Makers with an appointment in the relevant option class and Members
acting as agent for orders resting at the top of the Exchange’s book opposite the
Agency Order. With respect to responses, the following shall apply:
(i) Responses shall not be visible to other auction participants and shall
not be disseminated to OPRA.
November 9, 2005, Volume RB16, Number 45
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Rule Changes,
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Policies continued
SR-CBOE-2005-89 continued
(ii) Responses may be submitted in one-cent increments.
(iii) Multiple responses are allowed.
(iv) Responses may be cancelled.
(v) Responses cannot cross the Exchange’s disseminated quotation on
the opposite side of the market.
(c) Allocation of Agency Orders. Agency Orders may be executed at multiple
prices and shall be executed in two rounds per price point as follows:
(i) First Round Allocation. The Agency Order shall first be allocated at the
prevailing price (the “First Allocation Round”) between all parties that
represented the Exchange’s NBBO quotation at the time the auction commenced (“Original Quoters”) up to the size of such quotation. During the
First Allocation Round, the following shall apply:
(1) the Agency Order shall be allocated pursuant to the matching
algorithm in effect for the class pursuant to Rules 6.45A or 6.45B as
appropriate;
(2) An Original Quoter may only participate in a First Round Allocation at each execution price up to its size at the NBBO at the time
the auction commenced; and
(3) If the applicable matching algorithm includes a participation entitlement, then Market-Makers that qualify for a participation entitlement at the NBBO price will receive a participation entitlement if
they match the executing auction price(s).
(ii) Second Allocation Round. If an Agency Order is not fully executed
during the First Allocation Round at a particular price point, then a Second Allocation Round shall occur. During this round, all responses received during the auction at the prevailing auction price that were not
eligible for the First Allocation Round shall participate in accordance with
the matching algorithm in effect for the class, and the size of such responses shall be capped to the size of the Agency Order for allocation
purposes. There shall be no participation right during the Second Allocation Round.
(d) Early Termination of Auction. The auction will terminate early under the following circumstances:
(i) If the Hybrid System receives an unrelated non-marketable limit order
on the opposite side of the market from the Agency Order that improves
any auction responses, the unrelated order will trade (after any responses
that were priced better than the unrelated order have traded) to the fullest
extent possible at the midpoint of the best remaining auction response
and the unrelated order’s limit price (rounded towards the unrelated order’s
limit price when necessary).
(ii) If the Hybrid System receives an unrelated market or marketable limit
order on the opposite side of the market from the Agency Order, such
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November 9, 2005, Volume RB16, Number 45
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-89 continued
unrelated order will trade to the fullest extent possible at the midpoint of
the best auction response and the NBBO on the opposite side of the market from the auction responses (rounded towards the disseminated quote
when necessary).
(iii) If the Hybrid System receives an unrelated order on the same side of
the market as the Agency Order that is marketable against the NBBO,
then the auction shall conclude and the Agency Order shall trade against
the prevailing responses in accordance with subparagraph (c) above.
(iv) Any time there is a quote lock on the Exchange pursuant to Rule
6.45A(d).
(v) Any time a response matches the Exchange’s disseminated quote on
the opposite side of the market from the response.
…Interpretations and Policies:
.01
A pattern or practice of submitting unrelated orders that cause an exposure period to conclude early will be deemed conduct inconsistent with just and
equitable principles of trade and a violation of Rule 4.1 and other Exchange Rules.
.02
Disseminating information regarding auctioned orders to third parties will
be deemed conduct inconsistent with just and equitable principles of trade and a
violation of Rule 4.1 and other Exchange Rules.
Disciplinary
Decisions
At its meeting on October 19, 2005, the Business Conduct Committee (“BCC”) resolved the
following disciplinary matters by accepting one Letter of Consent and thirteen Offers of
Settlement in which the subject and respondents consented to stipulations of facts and
findings as detailed below without admitting or denying that Exchange Rules had been
violated.
File No. 05-0040 (Letter of Consent, Decision issued October 25, 2005)
Pyramid Trading, LP (“Pyramid Trading”), an Exchange Market-Maker organization, was
censured and fined $10,000 for the following conduct. On March 11, 2005, Pyramid Trading
operated with net capital below the minimum required amount of $100,000. (CBOE Rules
4.2 – Adherence to Law; 13.1 – Minimum Requirements; and Section 15(c) of the Securities
Exchange Act of 1934, as amended (the “Act”) and Rule 15c3-1 - Net Capital thereunder)
File No. 05-0043 (Offer of Settlement, Decision issued October 25, 2005)
Brooks Christian Taylor (“Taylor”), an Exchange Market-Maker member, was censured and
fined $2,500 for the following conduct. Taylor failed to file a timely FOCUS Report for
calendar year 2004. In addition, Taylor impeded and delayed the Exchange’s investigation
by failing to respond to at least three regulatory requests related to his 2004 year-end
FOCUS Report. In accepting this Offer of Settlement, the BCC considered certain mitigating factors, including the fact that although Taylor may not have received actual notice of the
requests for Taylor to file his 2004 year-end FOCUS Report, Taylor did receive constructive
notice of such requests, in that the requests were mailed to Taylor’s address designated for
correspondence in his Exchange membership file. (CBOE Rules 4.2 – Adherence to Law;
15.5 – Financial Reports; and 17.2(b)- Complaint and Investigation: Requirement to Furnish
Information; and Section 17(a) of the Securities Exchange Act of 1934, as amended (the
“Act”) and Rule 17a-10 - Report on Income and Expenses thereunder)
November 9, 2005, Volume RB16, Number 45
RB13
Disciplinary Decisions
continued
File No. 05-0034 (Offer of Settlement, Decision issued October 25, 2005)
Electronic Brokerage Systems, LLC (“EBS”), an Exchange Market-Maker organization
and broker/dealer, was censured and fined $10,000 for the following conduct. EBS failed
to: (i) maintain records to evidence its AML training of all appropriate EBS employees, (ii)
file a Report of Foreign Bank and Financial Accounts Form (“FBAR”) disclosing EBS’s
interest in a Canadian brokerage account, (iii) evidence in its books and records that its
electronic mail and instant messages were being retained in a non-rewriteable form, and
(iv) provide an undertaking from the third-party vendor that provides the off-site storage of
the retained electronic mail and instant messages. (CBOE Rules 4.2 - Adherence to Law;
4.20 – Anti-Money Laundering Compliance Program; 15.1 – Maintenance, Retention and
Furnishing of Books, Records and Other Information; Section 17(a) of the Securities Exchange Act of 1934, as amended (“the Act”) and Rule 17a-4 – Records to be Preserved by
Certain Members, Brokers and Dealer, thereunder)
File No. 05-0006 (Offer of Settlement, Decision issued October 25, 2005)
Third Millennium Trading, LLC (“Third Millennium”), an Exchange Market-Maker organization was censured, fined $30,000, and ordered to conduct an undertaking whereby Third
Millennium shall compute its net capital each day for 45 consecutive business days upon
issuance of the Decision, and submit its capital computation to the Exchange’s Member
Firm Regulation Department no later than 8:00 am (central time). On May 10, 2004, Third
Millennium operated below its minimum net capital requirement of $100,000. (CBOE Rules
4.2 - Adherence to Law; and 13.1 - Minimum Requirements; and Section 15(c) of the
Securities Exchange Act of 1934, as amended (the “Act”) and Rule 15c3-1 - Net Capital
thereunder)
Consolidated File Nos. 04-0020 and 04-0022 (Offer of Settlement, Decision issued October 25, 2005)
Christian Tiriolo (“Tiriolo”), was censured and fined $10,000 for the following conduct. Tiriolo
failed to adequately perform his duties as Optiver Derivatives Trading USA, LLC’s (“Optiver”)
FINOP by failing to detect charges to Optiver’s net capital computation, failing to adequately monitor the Firm’s net capital and failing to notify the Exchange of the Firm’s
capital deficiencies in a timely manner. As a result, Optiver operated below its minimum
net capital requirement. In addition, Tiriolo failed to adequately perform his duties as
Optiver’s FINOP, in that Tiriolo failed to ensure that an annual audit was conducted on
behalf of Optiver and that the audited financial statements of Optiver were submitted to the
Exchange and the Securities and Exchange Commission in a timely manner. (CBOE Rule
4.2 - Adherence to Law)
File No. 05-0005 (Offer of Settlement, Decision issued October 25, 2005)
Zephyr Trading, LLC (“Zephyr”), an Exchange Market-Maker organization, was censured,
fined $15,000, and ordered to conduct an undertaking whereby Zephyr shall compute its
net capital each day for 45 consecutive business days upon issuance of the Decision, and
submit its capital computation to the Exchange’s Member Firm Regulation Department no
later than 8:00 am (central time). From June 1, 2004 through August 10, 2004, on various
dates, Zephyr operated below its minimum net capital requirement of $100,000. (CBOE
Rules 4.2 - Adherence to Law; 13.1 - Minimum Requirements; 15.1 - Maintenance, Retention and Furnishing of Books, Records and Other Information; Section 15(c) of the Securities Exchange Act of 1934, as amended (the “Act”) and Rule 15c3-1 - Net Capital thereunder; Section 17(a) of the Act and Rules 17a-3 - Records to be Made by Certain Exchange
Members, Brokers and Dealers and 17a-5 – Reports to be Made by Certain Broker and
Dealers thereunder)
RB14
November 9, 2005, Volume RB16, Number 45
Disciplinary Decisions
continued
File No. 05-0031 (Offer of Settlement, Decision issued October 25, 2005)
Joseph Ianiro (“Ianiro”), an Exchange Lessor member and broker/dealer, was censured and
fined $2,500 for the following conduct. Ianiro failed to file his Anti-Money Laundering (“AML”)
Compliance Program with the Exchange by December 13, 2004. As a result, Ianiro impeded
and delayed the Exchange’s investigation of this matter. In accepting this Offer of Settlement, the BCC considered certain mitigating factors, including the fact that although Ianiro
may not have received actual notice of the letters requesting Ianiro to file the required AML
Compliance Program with the Exchange, Ianiro received constructive notice of such letters,
in that the letters were sent to Ianiro’s address designated for correspondence in his Exchange membership file. (CBOE Rules 4.20 – Anti-Money Laundering Compliance Program;
15.1 – Furnishing of Books, Records and Other Information; and 17.2(b)- Complaint and
Investigation: Requirement to Furnish Information)
File No. 05-0029 (Offer of Settlement, Decision issued October 25, 2005)
Wellington Capital Markets, LLC (“Wellington”), a registered CBT Exerciser and broker/dealer,
was censured and fined $2,500 for the following conduct. Wellington failed to file its AML
Compliance Program with the Exchange by December 13, 2004. As a result, Wellington
impeded and delayed the Exchange’s investigation of this matter. In accepting this Offer of
Settlement, the BCC considered certain mitigating factors, including the fact that although
Wellington may not have received actual notice of the letters requesting Wellington to file
the required AML Compliance Program with the Exchange, Wellington received constructive
notice of such letters, in that the letters were sent to Wellington’s address designated for
correspondence in its Exchange membership file. (CBOE Rules 4.20 – Anti-Money Laundering Compliance Program; 15.1 – Furnishing of Books, Records and Other Information; and
17.2(b)- Complaint and Investigation: Requirement to Furnish Information)
File No. 05-0026 (Offer of Settlement, Decision issued October 25, 2005)
Andrie Trading, LLC (“Andrie”), a registered CBT Exerciser and broker/dealer, was censured
and fined $2,500 for the following conduct. Andrie failed to file its AML Compliance Program
with the Exchange by December 13, 2004. As a result, Andrie impeded and delayed the
Exchange’s investigation of this matter. In accepting this Offer of Settlement, the BCC
considered certain mitigating factors, including the fact that although Andrie may not have
received actual notice of the letters requesting Andrie to file the required AML Compliance
Program with the Exchange, Andrie received constructive notice of such letters, in that the
letters were sent to Andrie’s address designated for correspondence in its Exchange membership file. (CBOE Rules 4.20 – Anti-Money Laundering Compliance Program; 15.1 – Furnishing of Books, Records and Other Information; and 17.2(b)- Complaint and Investigation:
Requirement to Furnish Information)
File No. 05-0023 (Offer of Settlement, Decision issued October 25, 2005)
Frederick Gahl (“Gahl”), an Exchange Market-Maker member and broker/dealer, was censured and fined $2,500 for the following conduct. Gahl failed to file his Anti-Money Laundering (“AML”) Compliance Program with the Exchange by December 13, 2004. As a result,
Gahl impeded and delayed the Exchange’s investigation of this matter. In accepting this
Offer of Settlement, the BCC considered certain mitigating factors, including the fact that
although Gahl may not have received actual notice of the letters requesting Gahl to file the
required AML Compliance Program with the Exchange, Gahl received constructive notice of
such letters, in that the letters were sent to Gahl’s address designated for correspondence in
his Exchange membership file. (CBOE Rules 4.20 – Anti-Money Laundering Compliance
Program; 15.1 – Furnishing of Books, Records and Other Information; and 17.2(b)- Complaint and Investigation: Requirement to Furnish Information)
November 9, 2005, Volume RB16, Number 45
RB15
Disciplinary Decisions
continued
File No. 05-0022 (Offer of Settlement, Decision issued October 25, 2005)
Armquest, LP (“Armquest”), a registered CBT Exerciser and broker/dealer, was censured
and fined $2,500 for the following conduct. Armquest failed to file its AML Compliance
Program with the Exchange by December 13, 2004. As a result, Armquest impeded and
delayed the Exchange’s investigation of this matter. In accepting this Offer of Settlement,
the BCC considered certain mitigating factors, including the fact that although Armquest
may not have received actual notice of the letters requesting Armquest to file the required
AML Compliance Program with the Exchange, Armquest received constructive notice of
such letters, in that the letters were sent to Armquest’s address designated for correspondence in its Exchange membership file. (CBOE Rules 4.20 – Anti-Money Laundering Compliance Program; 15.1 – Furnishing of Books, Records and Other Information; and 17.2(b)Complaint and Investigation: Requirement to Furnish Information)
File No. 05-0014 (Offer of Settlement, Decision issued October 25, 2005)
Anthony Battista (“Battista”), an Exchange Market-Maker member and broker/dealer, was
censured and fined $2,500 for the following conduct. Battista failed to file his Anti-Money
Laundering (“AML”) Compliance Program with the Exchange by December 13, 2004. As a
result, Battista impeded and delayed the Exchange’s investigation of this matter. In accepting this Offer of Settlement, the BCC considered certain mitigating factors, including
the fact that although Battista may not have received actual notice of the letters requesting
Battista to file the required AML Compliance Program with the Exchange, Battista received constructive notice of such letters, in that the letters were sent to Battista’s address designated for correspondence in his Exchange membership file. (CBOE Rules 4.20
– Anti-Money Laundering Compliance Program; 15.1 – Furnishing of Books, Records and
Other Information; and 17.2(b)- Complaint and Investigation: Requirement to Furnish Information)
File No. 05-0009 (Offer of Settlement, Decision issued October 25, 2005)
David Carman (“Carman”), an Exchange Lessor member and broker/dealer, was censured
and fined $2,500 for the following conduct. Carman failed to file his Anti-Money Laundering
(“AML”) Compliance Program with the Exchange by December 13, 2004. As a result,
Carman impeded and delayed the Exchange’s investigation of this matter. In accepting
this Offer of Settlement, the BCC considered certain mitigating factors, including the fact
that although Carman may not have received actual notice of the letters requesting Carman
to file the required AML Compliance Program with the Exchange, Carman received constructive notice of such letters, in that the letters were sent to Carman’s address designated for correspondence in his Exchange membership file. (CBOE Rules 4.20 – AntiMoney Laundering Compliance Program; 15.1 – Furnishing of Books, Records and Other
Information; and 17.2(b)- Complaint and Investigation: Requirement to Furnish Information)
File No. 05-0008 (Offer of Settlement, Decision issued October 25, 2005)
Mark Proskine (“Proskine”), an Exchange Lessor member and broker/dealer, was censured and fined $2,500 for the following conduct. Proskine failed to file his Anti-Money
Laundering (“AML”) Compliance Program with the Exchange by December 13, 2004. As a
result, Proskine impeded and delayed the Exchange’s investigation of this matter. In
accepting this Offer of Settlement, the BCC considered certain mitigating factors, including the fact that although Proskine may not have received actual notice of the letters
requesting Proskine to file the required AML Compliance Program with the Exchange,
Proskine received constructive notice of such letters, in that the letters were sent to
Proskine’s address designated for correspondence in his Exchange membership file. (CBOE
Rules 4.20 – Anti-Money Laundering Compliance Program; 15.1 – Furnishing of Books,
Records and Other Information; and 17.2(b)- Complaint and Investigation: Requirement to
Furnish Information)
RB16
November 9, 2005, Volume RB16, Number 45