[Federal Register Volume 59, Number 18 (Thursday, January 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1677]
[[Page Unknown]]
[Federal Register: January 27, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33494; File No. SR-CBOE-93-41]
Self-Regulatory Organizations; Filing and Order Granting
Accelerated Approval of Proposed Rule Change by the Chicago Board
Options Exchange, Inc., Relating to Opening Transactions in Exchange-
Traded Options and Duties of Designated Primary Market Makers
January 19, 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
September 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 self-
regulatory organization. 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
Currently, Interpretation and Policy .01 to CBOE Rule 6.2,
``Trading Rotations,'' provides that the opening transaction in each
class of options traded on the Exchange shall be held promptly
following the opening transaction in the underlying security on the
principal exchange where the security is traded. The rules of the other
options exchanges allow opening rotations to commence following the
opening of the underlying security.\1\ In order to conform its rules to
the rules of the other options exchanges, the CBOE proposes to amend
Interpretation and Policy .01(a) to state that the opening rotation in
each class of options shall be held promptly following the opening of
the underlying security on the principal market where the security is
traded. Under proposed paragraph (d) to Commentary .01, an underlying
security shall be deemed to have opened on the principal market where
it is traded if the market has (i) reported a transaction in the
underlying security or (ii) disseminated opening quotations for the
underlying security and not given an indication of a delayed opening,
whichever first occurs. In addition, the CBOE proposes to amend
Interpretation and Policy .01 to provide that any member appointed as a
Designated Primary Market-Maker (``DPM'') shall participate in opening
rotations to the same extent as an Order Book Official (``OBO'').
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\1\See American Stock Exchange (``Amex'') Rule 918(a)(1); New
York Stock Exchange (``NYSE'') Rule 717(a); Pacific Stock Exchange
(``PSE'') Rule 6.64, Commentary .01; and Philadelphia Stock Exchange
(``PHLX'') Rule 1047, Commentary .01.
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The text of the proposal 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 self-regulatory organization
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 self-regulatory organization
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
Statutory Basis for, the Proposed Rule Change
The CBOE proposes to amend Exchange Rule 6.2, Interpretation and
Policy .01 to allow opening rotations in Exchange-listed options to
commence upon the earlier of the following events: (i) the report of an
opening transaction in the underlying security on the primary market,
or (ii) the dissemination of opening quotations by such market. In
addition, the CBOE proposes to amend Interpretation and Policy .01 to
provide specifically that a DPM shall participate in opening rotations
to the same extent as an OBO.
Currently, CBOE Rule 6.62, Interpretation and Policy .01 provides
that the opening rotation in each class of option contracts traded on
the CBOE will commence promptly following the opening transaction in
the underlying security. The rules of the other options exchanges
provide that opening rotations will commence following the opening of
the underlying security.\2\ The CBOE states that the other options
exchanges interpret their rules to permit the commencement of opening
rotations upon the earlier of either a reported transaction in the
underlying security or a reported market quote for the security,
provided that the primary market has not given any indication of a
delayed opening. The CBOE's proposal is designed to conform the
commencement of opening rotations at the CBOE to that of the other
options exchanges, thereby alleviating the risk of inter-market pricing
disparities.
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\2\See note 1, supra.
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In addition, the proposal modifies Interpretation and Policy .01 to
provide specifically that any member appointed as a DPM shall
participate in opening rotations to the same extent as an OBO. The CBOE
believes that this amendment states expressly what is implied by
paragraph (c) of CBOE Rule 8.80, ``Modified Trading System,'' which
provides, in part, that when acting as an OBO in appointed options
classes, the DPM shall fulfill all obligations associated with the
OBO's functions.
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), in particular, in that it is designed to clarify the
meaning of existing CBOE rules and to conform the CBOE's rules to the
rules of the other options exchanges, thereby contributing to a fair
and orderly market.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the proposed rule change will impose
any 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 CBOE has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act. The
CBOE states that the proposal is intended to minimize the risk of
pricing disparities at the opening of trading on the Exchange. With the
expansion of multiple trading of options as provided in Rule 19c-5 of
the Act, the CBOE believes it is imperative that the CBOE conform the
commencement of its opening rotations to the procedures of the other
options exchanges. In addition, the CBOE states that its proposal
raises no new regulatory concerns because the Exchange is adopting
procedures that have been adopted previously by the other options
exchanges.
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) thereunder\3\ in that
the proposal is designed to remove impediments to and perfect the
mechanism of a free and open market by conforming the CBOE's opening
procedures to those of the other options exchanges. Specifically, the
CBOE's proposal will allow the Exchange to commence opening rotations
upon the earlier of either a reported transaction in the underlying
security or a reported market quote for the security (provided that the
primary market has not indicated a delayed opening), rather than
waiting for an opening transaction in the underlying security, as
required currently under CBOE Rule 6.2, Interpretation and Policy
.01.\4\
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\3\15 U.S.C. 78f(b)(5) (1982).
\4\The CBOE states that only quotations disseminated at the
opening on a trading day will be deemed to have opened the market in
an underlying security. Stale quotations disseminated on a prior
trading day will not be deemed to have opened the market in an
underlying security. See Letter from Michael L. Meyer, Schiff Hardin
& Waite, to Richard Zack, Branch Chief, Options Branch, Division of
Market Regulation, Commission, dated January 14, 1994.
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The Commission believes that the proposed rule change should help
to alleviate the risk of pricing disparities among the options
exchanges and should allow the CBOE to compete effectively with the
other options exchanges for order flow.
In addition, by allowing the CBOE to commence opening rotations
after the opening of the underlying security on the primary market
where it is traded, the Commission believes that the proposal should
decrease the time required to obtain opening market quotations and
should allow free trading to commence as quickly as possible after the
opening. As the Commission has noted in the past, expedited free
trading will allow market makers to engage in hedging strategies as
soon as possible after the opening and will result in the prompt
execution of customer orders.\5\
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\5\See Securities Exchange Act Release No. 29652 (September 4,
1991), 56 FR 46454 (order approving File No. SR-CBOE-91-29).
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The Commission also believes that the proposal clarifies
Interpretation and Policy .01 and CBOE Rule 8.80(c) by providing
specifically that a DPM shall participate in opening rotations to the
same extent as an OBO, thereby eliminating potential confusion
concerning the obligations of a DPM during opening rotations.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice thereof in the Federal Register because the proposal amends the
CBOE's rules to conform the CBOE's opening rotations to the procedures
used on the other options exchanges. The Commission does not believe
that the CBOE's proposal raise new regulatory issues. In addition, the
Commission finds good cause for approving the CBOE's amendment
regarding the obligations of DPMs under CBOE Rule 6.2, Interpretation
and Policy .01 because the amendment clarifies the existing obligations
of DPMs under CBOE Rule 8.80.
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 at the
Commission'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 above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by February 17,
1994.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\6\ that the proposed rule change (File No. SR-CBOE-93-41), is
approved.
\6\15 U.S.C. 78s(b)(2) (1982).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1677 Filed 1-26-94; 8:45 am]
BILLING CODE 8010-01-M