[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