[Federal Register Volume 59, Number 7 (Tuesday, January 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-623]
[[Page Unknown]]
[Federal Register: January 11, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33427; File No. SR-CBOE-93-53]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Chicago
Board Options Exchange, Inc. Relating to the Designated Reporting
Authority for Interest Rate Options
January 5, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November
24, 1993, the Chicago Board Options Exchange, Inc. (``CBOE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the CBOE. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to designate in its rules the entities that
report to the Exchange the current values and the exercise settlement
values of the interest rate measures underlying the interest rate
options listed for trading on the Exchange. The text of the proposed
rule change is available at the Office of the Secretary, CBOE, and at
the Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the CBOE included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The CBOE has prepared summaries, set forth in sections
(A), (B), and (C) below, of the most significant aspects of such
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
The purpose of the proposal is to specify the entities that the
CBOE has designated to report the current values and the closing
exercise settlement values of interest rate measures underlying CBOE's
interest rate options. The CBOE believes that the proposed amendment
also conforms the procedures currently employed for determining current
values and closing exercise settlement values of its short-term
interest rate options (``IRX'')\1\ with those procedures recently
approved by the Commission for the listing and trading on the Exchange
of options based on the yields of specified U.S. Treasury notes and
bonds (``Long-Term Measures'').\2\
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\1\The Exchange also currently lists and trades a long-term
interest rate option which is based on composite yields of the most
recently auctioned seven- and ten-year treasury notes and 30-year
Treasury bonds (``LTX''). The Exchange has represented, however,
that since the Treasury plans to cease issuing seven-year notes, the
Exchange will not issue any new series of LTX contracts. See
Securities Exchange Act Release No. 33106 (October 26, 1993), 58 FR
58358 (November 1, 1993) (``Exchange Act Release No. 33106'').
\2\Id.
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As amended, new Interpretation .01 to Rule 23.1 lists Telerate Inc.
as the designated reporting authority of current values used for intra-
day options pricing purposes and the Federal Reserve Bank of New York
(``FRBNY'') as the designated reporting authority of spot yields used
for calculating the exercise settlement values of interest rate
options.\3\ The Commission recently approved those designations in
connection with the listing and trading of Long-Term Measures.\4\ The
proposal makes those designations applicable to all interest rate
options traded on the Exchange.
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\3\The spot yield is determined each business day by reference
to the price and interest rate of the underlying Treasury security.
Customarily, each time the Treasury issues a new note or bond, the
new note or bond will become the reference instrument within its
issue type. Substitution of the new issue as the reference
instrument takes effect on the day following the Treasury's new
issue auction. Occasionally, the most recently auctioned issue will
not be the longest maturity, and in that circumstance, no
substitution will occur.
\4\See Exchange Act Release No. 33106, supra note 1.
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In addition, the proposed amendment to Rule 23.1 specifies that the
Exchange will use a backup polling procedure to establish applicable
underlying values for exercise settlement purposes on those occasions
on the last trading day prior to expiration of the interest rate option
contracts that the FRBNY does not generate the required spot yields.\5\
This polling procedure will be uniform for all interest rate options
traded on the Exchange.
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\5\Under this polling procedure, the CBOE's computer will
randomly draw the names of ten primary government bond dealers from
a list of 16 dealers. Each of the ten dealers will be asked to
provide a bid and ask quotation for each relevant Treasury security.
A series of checks will be conducted on each set of quotes to ensure
the integrity of the process. If a quote is rejected, another dealer
will be randomly selected from CBOE's list of government bond
dealers to provide the necessary quotations. Once ten acceptable
quotes have been obtained, the midpoint of each bid-ask quotation is
determined and the midpoints are then averaged to compute the
closing yield for the issue. Id.
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The CBOE believes that the proposed rule change is consistent with
section 6(b) of the Act in general and furthers the objectives of
section 6(b)(5) of the Act in particular in that it is designed to
promote just and equitable principles of trade, to enhance cooperation
and coordination with persons engaged in facilitating transactions in
securities, and to protect investors.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the proposed rule change will impose
a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, the requirements of section 6(b)(5).\6\ Specifically, the
Commission finds, as it did in approving these same pricing procedures
for the Long-Term Measures, that the CBOE proposal has been adequately
designed to guard against unreliable or manipulated quotas.\7\ The CBOE
has been obtaining quotes from Telerate for intra-day pricing of its
interest rate options without generating any concern with respect to
unreliable or manipulated quotes. In this regard, the proposal merely
codifies the Exchange's intra-day pricing procedures currently in
effect and which have previously been approved by the SEC for use with
all of the Exchange's interest rate options.\8\
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\6\15 U.S.C. 78f(b)(5) (1988).
\7\See Exchange Act Release No. 33106, supra note 1.
\8\See Exchange Act Release No. 33106, supra note 1; Securities
Exchange Act Release No. 26938 (June 15, 1989), 54 FR 26285 (order
approving the listing and trading of IRX and LTX option contracts).
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With respect to the CBOE's reliance on FRBNY spot yield quotes and
the backup polling procedure when those quotes are unavailable, the
Commission finds as it did in approving the Long-Term Measures, that
these procedures are more reliable than the polling procedures
currently employed for purposes of determining closing settlement
values for the IRX and the LTX option contracts.\9\ Therefore, the
Commission believes it is appropriate to codify these procedures,
making them applicable to all of the Exchange's interest rate options.
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\9\See Exchange Act Release No. 33106, supra note 1.
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register in order to permit the
Exchange to begin implementing these procedures with respect to the IRX
contracts as soon as possible in order to minimize any investor
confusion that could arise from having varying procedures for
determining closing settlement values for different interest rate
option contracts. Additionally, the Commission notes that no comments
were received prior to approval when these procedures were published
for comment in the Federal Register with respect to the Long-Term
Measures. Accordingly, the Commission believes it is consistent with
sections 6(b)(5) and 19(b)(2) of the Act to approve the proposed rule
change on an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commisasion's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the CBOE. All
submissions should refer to File No. SR-CBOE-93-53 and should be
submitted by February 1, 1994.
It is therefore ordered, pursuant to section 19(b)(2) of the
Act\10\ that the proposed rule change (SR-CBOE-93-53) is hereby
approved.
\10\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\17 CFR 200.30-3(a)(12) (1992).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-623 Filed 1-10-94; 8:45 am]
BILLING CODE 8010-01-M