[Federal Register Volume 59, Number 249 (Thursday, December 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-32093]


[[Page Unknown]]

[Federal Register: December 29, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35137; File No. SR-CBOE-94-40]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Incorporated Relating to 
Certain Settlement and Margin Deposit Time Frames

December 22, 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 November 7, 1994, the Chicago Board Options Exchange, Incorporated 
(``CBOE'') 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 primarily by the CBOE. 
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. Sec. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to reduce the settlement period for transactions 
in certain securities and shorten certain time frames respecting 
customer margin requirements. One approved, these changes would become 
effective at the same time as Commission rule 15c6-1.\3\
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    \3\On October 6, 1993, the Commission adopted Rule 15c6-1 which 
establishes three business days after the trade date as the standard 
settlement cycle for most securities transactions. Securities 
Exchange Act Release No. 33023 (October 7, 1993), 58 FR 52891. The 
rule becomes effective June 7, 1995. Securities Exchange Act Release 
No. 34952 (November 9, 1994), 59 FR 59137.
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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 amend those CBOE 
rules that reflect a five business day settlement period for 
transactions in securities other than options, including stocks and 
warrants, or that specify customer margin deposit time frames based on 
a five business day settlement cycle. The CBOE represents that the 
proposed changes conform CBOE's rules to Commission rule 15c6-1 under 
the Act, which will establish a three business day settlement period 
for transactions in most types of securities.\4\ These changes in 
CBOE's rules will become effective concurrently with similar rule 
changes of other national securities exchanges in accordance with Rule 
15c6-1.\5\
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    \4\Id.
    \5\The CBOE represents that CBOE members will be notified by 
circular in Spring 1995 of the settlement conversion schedule 
established by the National Securities Clearing Corporation. Under 
that schedule, June 2nd will be the last trading day with five 
business day settlement. Monday, June 5th, and Tuesday, June 6th, 
will be trading days with four business day settlement. All regular-
way trades executed on or after June 7th will settle three business 
days following the trade date. As a result, there will be two double 
settlement days--one on June 9th for trades executed on June 2nd and 
5th and one on June 12th for trades executed on June 6th and 7th.
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    The proposal will amend Chapter XXX (Stocks, Warrants and Other 
Securities) and Chapter XXXI (Approval of Securities for Original 
Listing) to reflect a three business day settlement cycle. The proposal 
will amend Rules 30.12, 30.31, and 31.40 to change references from 
``five business days'' to ``three business days'' as the settlement 
time frame for regular way transactions. Rules 30.12 and 30.31 also 
will be amended to provide that seller's option trades may not settle 
in less than four business days rather than six business days. Rule 
30.31 also will be amended to provide that bids and offers in rights to 
subscribe shall be made only for next day settlement on the second and 
third full business days, rather than the second, third, fourth, and 
fifth business days, preceding the final day for subscription. Rule 
30.34, covering the trading of warrants, will be amended to change all 
references to five business days to three business days. In addition, 
the CBOE also proposes to amend a related provision in CBOE Rule 12.3, 
covering margin requirements, that is based on a five business day 
settlement cycle to reflect a three business day cycle.
    Rules 30.32, 31.22, and 31.42 require amendment to provisions 
setting forth ex-rights or ex-dividend dates (i.e., the dates when 
stocks trade without rights or dividends). All references to 
transactions in stocks being ex-dividend or ex-rights on the fourth 
business day preceding the record date will be changed to the second 
business day preceding the record date. For transactions when the 
record date occurs on a day other than a business day, the stock will 
be traded ex-dividend or ex-rights on the third preceding business day 
rather than on the fifth preceding business day.
    Four rules dealing with customer margin requirements also will 
require amendment. Rules 21.25, 23.13, 24.11, and 30.51 contain 
requirements that depend on the seven day margin deposit time Frame 
currently set forth in Regulation T.\6\ In view of Rule 15c6-1, 
however, the Board of Governors of the Federal Reserve System has 
reduced the time limit in Section 220.4(c) of Regulation T within which 
a customer margin call must be satisfied. Under the amendment to 
Regulation T, the new time limit is ``the number of business days in 
the standard securities settlement cycle in the United States * * * 
plus two business days.''\7\ Once Rule 15c6-1 of the Act becomes 
effective, most customer margin calls will have to be met in five 
business days. Accordingly, the margin deposit time frames set forth in 
CBOE rules also are proposed to be reduced to five business days.
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    \6\12 CFR 220.1-.19.
    \7\See Federal Reserve System Release, Docket No. R-0840 
(October 18, 1994), 59 FR 53565 (October 25, 1994).
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    The CBOE believes that the proposed rule change is consistent with 
section 6 of the Act in general and Section 6(b)(5) of the Act\8\ in 
particular in that it is designed to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities by enabling the CBOE to enforce compliance by its members 
with its Rules, the rules of the Commission, and the rules of the Board 
of Governors of the Federal Reserve System.
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    \8\15 U.S.C. Sec. 78f(B)(5) (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change will impose 
any inappropriate 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 thirty-five 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 ninety 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 CBOE 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 CBOE. All 
submissions should refer to File No. SR-CBOE-94-40 and should be 
submitted by January 19, 1995.

    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. 94-32093 Filed 12-28-94; 8:45 am]
BILLING CODE 8010-01-M