[Federal Register Volume 59, Number 220 (Wednesday, November 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28262]


[[Page Unknown]]

[Federal Register: November 16, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34917; File No. SR-CBOE-94-38]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to the 
Short Sale of Securities in the Nasdaq National Market.

November 7, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 25, 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 self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to amend the definition of ``designated Nasdaq 
National Market (``Nasdaq/NM'') security,'' contained in CBOE Rule 
15.10, to include all Nasdaq/NM securities underlying options classes 
for which an Exchange options market-maker holds an appointment 
pursuant to CBOE Rule 8.7. The Exchange also proposes to add 
Interpretation and Policies .02 and .03 to CBOE Rule 15.10, which in 
very limited circumstances expand the Nasdaq/NM securities which may 
qualify for the exemption provided in paragraph (c)(2) of the Rule; 
specifically, market-maker options transactions which facilitate an 
off-floor order, and market-maker transactions for nominees of the same 
market-maker organization.

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 Exchange is amending its Rule 15.10 to expand the definition of 
``designated Nasdaq/NM security'' to include all Nasdaq/NM securities 
which underlie the options classes for which a market-maker holds an 
appointment. In practice the CBOE has found the current definition, 
which limits designated Nasdaq/NM securities to no more than three (3) 
trading stations of a market-maker, to be unnecessarily restrictive.\2\ 
Although not identical, the expansion of the definition to include 
underlying Nasdaq/NM securities for all appointed options classes of a 
market-maker is consistent with the application of the exemption for 
options market-makers in other similar markets.\3\
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    \2\See letter from Michael J. Carusillo, General Partner, 
O'Connor & Associates, to Jeff Schroer, Vice President, Market 
Surveillance, CBOE, dated September 21, 1994.
    \3\See Securities Exchange Act Release No. 34632 (September 2, 
1994), 59 FR 46999. See also American Stock Exchange, Inc., Floor 
Members Circular 93-1255 (December 29, 1993).
    Currently, CBOE Rule 8.3(c) provides that a market-maker's 
appointment is limited to the options classes trading at no more 
than five (5) trading stations absent an exemption by the market 
Performance Committee. The Exchange intends to expand market-maker 
appointments in a subsequent rule filing.
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    Proposed Interpretation .02 to CBOE Rule 15.10 would permit an 
options market-maker, with prior notice to a Floor Official or Order 
Book Official, to facilitate an off-floor order and contemporaneously 
hedge the resulting options position with a short sale in applicable 
Nasdaq/NM securities as if such securities were designated securities 
under paragraph (c)(2) of the Rule. This treatment is consistent with 
the NASD's interpretation concerning the hedging of options 
facilitation transactions.\4\
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    \4\See letter from Richard G. Ketchum, Chief Operating Officer 
and Executive Vice President, NASD, to David A. Dami, First Vice 
President & Associate General Counsel, Global Derivatives, Paine 
Webber, Inc., dated September 13, 1994.
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    Proposed Interpretation .03 to CBOE Rule 15.10 would allow a 
nominee of a market-maker organization to effect short sales as bid 
test exempt in a Nasdaq/NM security which the market-maker nominee has 
not designated as qualifying for the exemption contained in paragraph 
(c)(2), provided that such security is a designated Nasdaq/NM security 
for another nominee of the market-maker organization and such other 
nominee is not also present or represented by a Floor Broker in the 
applicable trading station at the time of the bid test exempt sale. 
This interpretation will allow the market-maker organization the 
ability to manage effectively its obligations when nominees are absent 
from the trading floor due to illness, personal or other business, and 
is consistent with the intent of the exemption, in that the exemption 
continues to be limited to those Nasdaq/NM securities which are used to 
hedge options transactions in the primary classes in which the market-
maker organization makes markets.
    The CBOE believes that its proposal is consistent with and furthers 
the objectives of Section 6(b)(5) of the Act in that the rule change 
will promote maintenance of fair and orderly markets on the CBOE and 
will contribute to the protection of investors and the public interest.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    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

    Written comments on the proposed rule change were neither solicited 
nor received.

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 will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to File No. 
SR-CBOE-94-38 and should be submitted by December 7, 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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-28262 Filed 11-15-94; 8:45 am]
BILLING CODE 8010-01-M