Federal Register, Volume 59 Issue 86 (Thursday, May 5, 1994)

[Federal Register Volume 59, Number 86 (Thursday, May 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10749]


[[Page Unknown]]

[Federal Register: May 5, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33972); File No. SR-CBOE-94-03]

 

Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to Trading 
Floor Booth Policy and Fee Changes

April 28, 1994.
    On February 2, 1994, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') submitted to the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19B-4 
thereunder,\2\ a proposed rule change to set forth formally the 
Exchange's current policy (``Policy'') regarding the rental of booths 
on the CBOE trading floor, and to amend its current Fee Schedule as it 
pertains to Facility Fees for the rental of Exchange trading floor 
booths.
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    \1\15 U.S.C. 78s(b)(1) (1982).
    \2\17 CFR 240.19b-4 (1993).
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    The proposed rule change was published for comment in the Federal 
Register on March 16, 1994.\3\ No comments were received on the 
proposed rule change. This order approves the proposal.
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    \3\See Securities Exchange Act Release No. 33745 (March 9, 
1994), 59 FR 12388 (March 16, 1994).
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    The purpose of the proposed rule change is to memorialize for 
distribution to the CBOE membership the Exchange's policy regarding the 
rental and use of booth space on the CBOE trading floor by member 
organizations. The CBOE included with its filing, solely for 
informational purposes, a sample ``Trading Floor Booth Rental 
Agreement'' that would be executed between the Exchange and the member 
organizations regarding the leasing of trading floor booths. In 
addition, in connection with the Exchange's elimination of a practice 
known as ``joint leasing,'' the Exchange has proposed to amend the 
existing fee structure regarding the rental of trading floor booths.
    The CBOE currently has certain space located on its trading floor 
which it makes available for rental to qualified member organizations. 
These ``booths'' are located at various locations on the trading floor 
adjacent to the trading ``pits'' or ``crowds'' where the actual CBOE 
trading activity takes place. The booths generally are used by member 
organizations to perform various functions in support of their CBOE 
trading activities. Over the years, the CBOE has developed certain 
policies and practices with regard to the rental and use of these 
trading floor booths by member organizations. The Exchange has 
determined that it would benefit both the CBOE and the membership to 
memorialize the Exchange's current policies for distribution to the 
members.
    The Policy addresses several issues pertaining to booth rental, 
including eligibility requirements, allocation and assignment, and 
booth usage and rental terms. Specifically, the Policy sets forth the 
four broad categories of member organizations that, in accordance with 
current policy, may rent booth space on the floor. These four types of 
eligible members are: (1) Members of The Options Clearing Corporation 
(``OCC'') that conduct a retail customer business; (2) members of OCC 
that clear CBOE market-maker and/or floor broker trades; (3) members 
that operate a public customer and/or broker business in options and 
meet any financial requirements established at any time by the 
Exchange; and (4) members that are stock execution service firms 
approved by the Exchange in accordance with CBOE Rule 6.77.\4\ These 
categories were formulated in order to accommodate member organizations 
with the greatest need for working space in close proximity to CBOE 
trading activity, and they encompass almost all major types of CBOE 
member organizations. Market-maker organizations, the only major 
category of member organization that cannot obtain a booth under the 
Policy, customarily obtain booth space through their clearing firms.
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    \4\A stock execution service is a regular member organization 
that is registered with the Exchange for the purpose of providing 
stock execution services to market-makers on the floor of the 
Exchange. CBOE Rule 6.77.
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    To account for the possibility that in the future demand for booth 
space may exceed availability, the Policy states that the Facilities 
Committee of the CBOE may establish guidelines with respect to the 
allocation and assignment of trading floor booths to CBOE member 
organizations, based upon trading volume, business need, product 
support, and other reasonable criteria.\5\ The CBOE currently has no 
such guidelines in effect, and does not anticipate the creation of such 
guidelines in the foreseeable future.
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    \5\Prior to implementing such guidelines, the Exchange 
represents that it will consult with Commission staff to determine 
whether such guidelines would have to be filed with the Commission 
as a rule change and be approved pursuant to Section 19(b) of the 
Act. Telephone conversation between Dan Schneider, Schiff Hardin & 
Waite, Joanne Moffic-Silver, CBOE, and Mary Gilhooly, CBOE, and 
Thomas N. McManus, Division of Market Regulation, SEC, on April 26, 
1994.
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    The Policy also sets forth the requirement that all member 
organizations renting booths execute a lease agreement with the 
Exchange, which agreement sets forth the contractual terms governing 
the rental and use of booths by member organizations. Although the 
Exchange in the past has used a standard form agreement regarding booth 
rental, that agreement is brief and contains little detail regarding 
the nature of the contractual relationship between the parties. Any 
lease agreement executed pursuant to the new Policy would set forth 
specifically the details of the parties' contractual relationship 
regarding rental and use of the booths as they have been established by 
custom and usage in the past.
    Finally, the Exchange proposes to eliminate the practice of joint 
leasing, and to amend the fee structure to account for this change. 
Previously, the Exchange has permitted two different member 
organizations to occupy jointly a single trading floor booth and to 
share the costs associated therewith, believing that such joint leasing 
would provide a less costly method for smaller member organizations to 
obtain access to multiple locations adjacent to the trading floor. 
However, the Exchange states that joint leasing has been used by non-
transaction-producing members solely to reduce their booth fees and not 
to facilitate trading activity. Accordingly, the Exchange has 
determined to eliminate joint leasing and replace it with a variable 
fee arrangement which the Exchange anticipates will soften the economic 
impact on smaller member organizations that the elimination of joint 
leasing might otherwise have caused. Pursuant to the amended fee 
schedule, variable booth fees have been reduced in two respects: (1) 
The $1,250 per booth variable monthly fee has been eliminated for the 
second booth leased by a member organization; and (2) the $1,250 per 
booth variable month fee for a third booth has been reduced by 50 
percent to $625. The initial booth rental, and all additional booths 
beyond the third booth, continue to be subject to the full variable 
fee.
    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, with the requirements of Section 6(b)(5).\6\ Specifically, 
the purpose of the proposal is to memorialize existing Exchange 
policies regarding the rental of trading floor booths to member 
organizations, including the delineation of eligible lessees and the 
requirement that members enter into a formal lease agreement.\7\ The 
Policy does not represent a change to current Exchange policies, except 
the elimination of the CBOE's current policy to permit joint leasing. 
In this regard, the Exchange states that the purpose behind joint 
leasing was ultimately to provide small member organizations less 
costly access to multiple locations adjacent to the trading floor. The 
Exchange proposes to eliminate this practice because it believes that 
non-transaction producing member organizations have exploited joint 
leasing solely to reduce their booth fees and not to facilitate trading 
activity.
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    \6\15 U.S.C. Sec. 78f(b)(5) (1982).
    \7\Although the Exchange included in its filing a sample lease 
agreement, the Commission by this order is approving only the 
general requirement referenced in the Policy that a lease agreement 
be executed between the Exchange and its member organizations. The 
Commission is taking no position on, and by this order is not 
approving, the substance of the aforementioned sample lease 
agreement.
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    The Commission believes that the Exchange's codification of its 
existing policy, and the elimination of joint leasing in favor of a 
variable fee arrangement, is a reasonable exercise of the CBOE's right 
to determine how it wants to administer its floor booth space. In this 
regard, the Commission notes that existing joint lessees will continue 
to have access, as individual lessees, to booth space under the revised 
Policy. Moreover, the variable fee structure should help to eliminate 
some of the economic impact of the revised Policy on existing joint 
lessees. Accordingly, the Commission finds the proposal to be 
consistent with the Act, in that it promotes just and equitable 
principles of trade and removes impediments to and perfects the 
mechanism of a free and open market.
    It is therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-CBOE-94-03) is 
approved.
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    \8\15 U.S.C. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-10749 Filed 5-4-94; 8:45 am]
BILLING CODE 8010-01-M