[Federal Register Volume 59, Number 126 (Friday, July 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16040]


[[Page Unknown]]

[Federal Register: July 1, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34262; File No. SR-CBOE-94-17]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 to Proposed Rule Change by the Chicago Board 
Options Exchange, Inc. Relating to Firm Quote Responsibilities

June 27, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 7, 1994, the Chicago Board Options Exchange, Inc. (``CBOE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the CBOE. On June 17, 
1994, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change and Amendment No. 1 from interested 
persons.
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    \1\15 U.S.C. 78s(b)(1) (1982).
    \2\17 CFR 240.19b-4 (1993).
    \3\In Amendment No. 1, the CBOE states that the reference to 
``public customer orders'' in its proposal is synonymous with, and 
should be understood to mean, ``non-broker-dealer customer orders.'' 
See Letter from Dan W. Schneider, Schiff Hardin & Waite, to Thomas 
McManus, Division of Market Regulation, Commission, dated June 16, 
1994.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change.

    The Exchange is proposing to increase from 10 to 100 the firm quote 
contract size minimum applicable to Designated Primary Market Makers 
(``DPMs'') in classes of interest rate options for which Public 
Automated Routing System (``PAR'') workstations are available.
    The text of the proposed rule change is available at the Office of 
the Secretary, the 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 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to enhance depth and 
liquidity in the Exchange's market for interest rate options by 
requiring DPMs using PAR workstations to provide quotes that are firm 
for up to 100 contracts on non-broker-dealer customer orders. This 
quote size minimum, which is substantially higher than the 10-contract 
minimum otherwise applicable to DPMs under CBOE Rule 8.51 and 
previously-issued Regulatory Circulars, will be operative initially 
only in ``TBY'' (30-year bond) interest rate options, since this is the 
first class in which a PAR workstation will be assigned to the DPM.\4\ 
The Exchange expects that the 100-contract minimum will be extended 
gradually to other classes of interest rate options, as the use of PAR 
workstations expands to these classes.
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    \4\The applicability of CBOE Rule 8.51 to DPMs is provided for 
in Regulatory Circular 93-31 (May 7, 1993).
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    The Exchange believes that this change in DPM quote commitment 
levels will enhance depth and liquidity in the Exchange's markets in 
interest rate options. Currently, much of the trading in interest rate 
derivatives is done in markets where quoted or negotiated prices can be 
obtained in transaction sizes larger than is assured at the CBOE. By 
increasing the firm quote size minimum at the CBOE, the Exchange 
believes that this rule change should enable the Exchange to compete 
more effectively for order flow and trading activity in interest rate 
options.
    The Exchange also believes that the DPMs affected by the rule 
change will be able to meet the higher commitment levels without 
incurring undue financial risk because of the efficiencies available 
through the PAR workstations. A PAR workstation is a newly-developed, 
automated, computer-based workstation that provides users with the 
ability to enter or revise quotes, execute trades, transmit trade 
reports, and enter other data and commands at the touch of a screen, 
thereby eliminating the delay inherent in a keyboard-based system. This 
workstation will enable DPMs to change their published quotes almost 
instantaneously in response to changed market conditions, which in turn 
should permit them to manage the risk of quoting 100-contract markets.
    As indicated above, under this proposed rule change and in 
accordance with CBOE Rule 8.51, affected DPMs will be obligated to 
provide firm quotes for up to 100 contracts on non-broker-dealer 
customer orders only. As is the case with respect to any option traded 
on the Exchange, under CBOE Rules 8.51 and 6.6, the firm quote size 
minimum will not apply whenever a ``fast market'' is declared, and may 
be suspended for any class or series on a case by case basis as 
determined by the CBOE's Market Performance Committee.
    The CBOE believes that the proposed rule change will enhance market 
making efficiency in interest rate options. The CBOE further believes 
that the proposed rule change is consistent with Section 6(b) of the 
Act in general, and Section 6(b)(5) in particular, by providing rules 
that perfect the mechanisms of a free and open market and that protect 
investors and the public interest.

(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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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, N.W., Washington, D.C. 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 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. Copies of such filing also will be available for 
inspection and copying at the principal office of the CBOE. All 
submissions should refer to File No. SR-CBOE-94-17 and should be 
submitted by July 22, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\17 CFR 200.30-3(a)(12)(1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-16040 Filed 6-30-94; 8:45 am]
BILLING CODE 8010-01-M