[Federal Register Volume 59, Number 107 (Monday, June 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13606]


[[Page Unknown]]

[Federal Register: June 6, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34126; File No. SR-CBOE-93-47]

 

Self-Regulatory Organizations; Order Approving and Notice of 
Filing and Order Granting Accelerated Approval of Amendment No. 1 to a 
Proposed Rule Change by the Chicago Board Options Exchange, Inc., 
Relating to Temporary Suspensions of Trading in Options

May 27, 1994.
    On October 20, 1993, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 
thereunder,\2\ filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') a proposed rule change to provide limited 
authority to Post Directors, Order Book Officials (``OBOs''), and under 
certain circumstances, Designated Primary Market-Makers (``DPMs''), to 
suspend trading in a class of options for a limited period of time. 
Notice of the proposal appeared in the Federal Register on November 9, 
1993.\3\ No comment letters were received on the proposed rule change. 
On April 11, 1994, the CBOE filed Amendment No. 1 to the proposed rule 
change.\4\ This order approves the Exchange's proposal, as amended.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1992).
    \3\See Securities Exchange Act Release No. 33131 (November 2, 
1993), 58 FR 59500 (November 9, 1993).
    \4\Amendment No. 1: (1) Clarifies that only one five minute 
suspension of trading is authorized pursuant to the proposal; (2) 
defines who is a ``Post Director;'' and (3) deletes the DPM as one 
of the persons authorized to impose a temporary suspension of 
trading. See Letter from Michael L. Meyer, Schiff Hardin & Waite, to 
Michael Walinskas, Branch Chief, Office of Derivatives and Equity 
Oversight, Division of Market Regulation, Commission, dated April 8, 
1994 (``Amendment No. 1'').
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    The CBOE proposes to amend Rule 6.3 (``Trading Halts'') to 
authorize, with respect to a particular class of options, the Post 
Director\5\ or OBO to suspend trading in the options class for a period 
of time not to exceed five minutes whenever trading in the underlying 
security is halted. This limited authority may be exercised only if the 
trading halt in the underlying security is evidenced by an ``ST'' 
symbol (for an exchange-listed security) or an ``H'' (for a National 
Market security traded through the NASDAQ system) appearing on the 
class display screen that displays current market information for the 
underlying security, or if such trading halt is otherwise verified by 
the senior person in charge of the Exchange's Control Room. The 
proposed rule change applies only in the circumstance where there has 
been a trading halt in an underlying security, and has no application 
to ``circuit breaker'' trading halts under Rule 6.3A.
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    \5\A Post Director is an Exchange employee at a trading post 
whose function is to assist the OBO and the DPM at each station at 
the post. Id.
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    Concurrently with any suspension of trading pursuant to the 
proposed rule change, the responsible Post Director or OBO shall turn 
off the Retail Automatic Execution System applicable to the affected 
options class or classes. Additionally, the Post Director or OBO shall 
disseminate the designation 998-999 on the Exchange's quote reporting 
system, which indicates the option is not trading on the CBOE.
    Prior to the expiration of any temporary suspension imposed 
pursuant to the proposed rule change, the responsible Post Director or 
OBO is required to notify two Floor Officials in order to obtain a 
determination by them whether a trading halt in the effected options 
class should be declared under Rule 6.3(a). If the two Floor Officials 
determine not to halt trading, immediately following such determination 
it shall be announced to the crowd and trading (or a rotation in the 
option) shall in no event resume more than five minutes after the 
temporary suspension of trading was implemented. The Post Director or 
OBO may only invoke a single five minute suspension of trading pursuant 
to the proposed rule change.\6\
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    \6\Id.
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    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),\7\ in that it is 
designed to protect the mechanism of a free and open market and to 
protect investors and the public interest. Specifically, the Commission 
finds that the proposal will protect investors and the public interest 
by enabling Post Directors and OBOs to temporarily suspend options 
trading promptly in response to verified trading halts in underlying 
securities. Pursuant to the current version of Rule 6.3(a), Floor 
Officials have the authority to halt trading in any options class for a 
period not in excess of two consecutive business days if trading in the 
underlying security has been halted in the primary market. The proposed 
rule change, therefore, merely bridges the gap that currently exists 
between the time that trading in an underlying security is halted and 
the time it takes for the Floor Officials to impose a trading halt in 
the related options class pursuant to their authority under Rule 
6.3(a). Additionally, a temporary trading suspension pursuant to the 
proposed rule change can only be invoked once during a single 
occurrence of a halt in trading in the underlying security. If two 
Floor Officials determine not to institute a trading halt pursuant to 
Rule 6.3(a), or if a decision is not made by two Floor Officials within 
the five minute period, trading in the options class will immediately 
resume and will continue unless two Floor Officials subsequently 
independently decide to invoke a trading halt pursuant to Rule 6.3(a). 
Accordingly, the Commission finds that the proposed rule change 
protects investors and the public interest by providing a means for an 
immediate trading halt in those circumstances where Floor Officials 
would be likely to impose a trading halt pursuant to Rule 6.3(a). 
Moreover, because the conditions under which the five minute halt can 
be invoked are specific and objective, the Commission does not expect 
that the rule change will increase the likelihood of abuse in the 
implementation of trading halts.
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    \7\15 U.S.C. 78f(b)(5) (1988).
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    The Commission finds good cause for approving Amendment No. 1 prior 
to the thirtieth day after the date of publication of notice of filing 
thereof in the Federal Register. Specifically, Amendment No. 1 removes 
the DPM as one of the persons authorized to impose a temporary 
suspension of trading. Because the DPM performs market making 
functions, in addition to having the responsibilities of an OBO, the 
Commission believes it would be inappropriate for a DPM to be able to 
suspend trading in a class of options for any period of time. Amendment 
No. 1 also makes certain clarifications to the proposed rule language. 
The Commission believes that these clarifications will minimize any 
potential for confusion as to the application of the rule. As a result, 
the Commission believes that good cause exists for approving Amendment 
No. 1 on an accelerated basis.
    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1. 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 SR-CBOE-93-47 and should be submitted by June 27, 1994.
    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-CBOE-93-47) is 
approved.

    \8\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.\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. 94-13606 Filed 6-3-94; 8:45 am]
BILLING CODE 8010-01-M