[Federal Register Volume 60, Number 8 (Thursday, January 12, 1995)]
[Notices]
[Pages 3008-3012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-483]



-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35190; File No. SR-CBOE-94-50]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Partial Accelerated Approval of a Proposed Rule Change and 
Amendment No. 1 to the Proposed Rule Change by the Chicago Board 
Options Exchange, Inc., Relating to As-Of-Add Submissions

January 3, 1995.
    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 December 1, 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 and 
II below, which Items have been prepared by the Exchange. The Exchange 
subsequently filed Amendment No. 1 to the proposed rule change on 
December 23, 1994.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons. As discussed below, the Commission has also granted 
accelerated approval to a portion of the proposal.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991).
    \3\In Amendment No. 1 to the proposal, the Exchange proposes to 
change the fine schedule as proposed under CBOE Rule 17.50(g) in two 
ways. First, as amended, a fine will be assessed whenever the as-of-
add (as defined herein) submissions of an individual member or a 
clearing member equals or exceeds 300% of that member's maximum 
nominal as-of-add rate for two, rather than three, consecutive 
months. Second, fines will be imposed with reference to a rolling 
12-month period, rather than within a calendar year. In Amendment 
No. 1, the Exchange also requests accelerated approval of the 
proposed rule change. See Letter from Dan Schneider, Schiff Hardin & 
Waite, to Sharon Lawson, Assistant Director, Office of Market 
Supervision (``OMS''), Division of Market Regulation (``Division''), 
Commission, dated December 21, 1994 (``Amendment No. 1'').
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to: (1) Amend CBOE Rule 2.26 so as to place a 
ceiling on the monthly fees members pay for submitting trade 
information under Exchange Rule 6.51\4\ after the trade date (each an 
``as-of-add'') on more than a stated maximum percentage of their 
monthly trades and to enable the Exchange to suspend the rule in 
exigent circumstances; and (2) amend CBOE Rule 17.50(g) to include a 
fine schedule [[Page 3009]] for substantial and repeated failures to 
submit trade data on the trade date. The Exchange also proposes that 
the as-of-add fee pilot program (``Pilot Program''), as proposed to be 
amended herein, be made permanent. The text of the proposed rule change 
is available at the Office of the Secretary, CBOE, and at the 
Commission.

    \4\Among other things, Rule 6.51 requires that each transaction 
be immediately reported to the Exchange in a form and manner 
prescribed by the Exchange. See Rule 6.51(a).
---------------------------------------------------------------------------

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 Exchange 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 the as-of-add 
fee Pilot Program in three ways and to have the Pilot Program, as 
amended, made permanent. The proposed changes would: (1) Place a 
ceiling on the monthly as-of-add fee to be paid under Rule 2.26; (2) 
establish a fine schedule under Rule 17.50(g) for substantial and 
repeated failures to submit trade data on the trade data; and (3) 
incorporate into Rule 2.26 provisions like those currently included in 
Rule 2.30(g) (``Fee for Delayed Submission of Trade Information'') that 
would authorize the Exchange to suspend Rule 2.26 (and thereby waive 
the fees that would otherwise be due) in exigent circumstances. The 
Exchange believes these amendments to the Pilot Program are fully 
responsive to the concerns the Commission has previously identified 
with respect to the Pilot Program.\5\

    \5\See Securities Exchange Act Release Nos. 32999 (October 1, 
1993), 58 FR 53003 (October 13, 1993) (Order approving the as-of-add 
fee Pilot Program on a six-month pilot basis), 33855 (April 4, 
1994), 59 FR 17128 (April 11, 1994) (order extending the Pilot 
Program until September 30, 1994), and 34783 (October 3, 1994), 59 
FR 51459 (October 11, 1994) (order extending the Pilot Program until 
December 31, 1994) (``Pilot Extension Approval Order'').
---------------------------------------------------------------------------

    Under the Pilot Program in its present form, the fee, if any, to an 
individual member is $10.00 for each as-of-add submitted during a given 
month in excess of the percentage of such submissions considered 
``nominal'' under paragraph (a) of Rule 2.26.\6\ The fee to any 
clearing firm under paragraph (b) of that rule is $3.00 for each as-of-
add submitted in excess of the ``nominal'' percentage.\7\ In addition, 
any member assessed an as-of-add fee may request verification from the 
Exchange pursuant to Part B of Chapter XIX of CBOE's Rules and may 
appeal the fee assessment pursuant to Part A thereof.

    \6\The current ``nominal'' maximum allowable monthly number of 
as of adds for individual members is 2.4% of an individual member's 
monthly trades.
    \7\The current ``nominal'' maximum allowable monthly number of 
as of adds for clearing members is 1.2% of clearing members' monthly 
trades.
---------------------------------------------------------------------------

    The CBOE believes that the as-of-add fees assessed pursuant to the 
Pilot Program recognize that late trade submissions impose special 
processing costs on the Exchange and require significant effort by 
clearing firms and executing brokers to check and resolve late trade 
reports. The Exchange represents that late trade submissions are 
especially likely to burden the Exchange's operations during periods of 
high volume and heightened volatility, when added stress is least 
tolerable, thereby adding financial risk to members during these 
already difficult periods.
    The as-of-add fees, according to the Exchange, respond to these 
problems in two ways. First, the as-of-add fees help to reimburse the 
Exchange for the administrative burdens and costs of processing post-
trade date submissions, and impose the obligation to make such 
reimbursement on those members who account for an inordinate number of 
as-of-add submissions and who are thus most responsible for these added 
costs in the first place (i.e., individual members).
    Second, the Pilot Program creates what the Exchange believes to be 
reasonable economic incentives for members to submit trade data on the 
trade date, thereby relieving the Exchange and Exchange members of high 
levels of special handling associated with processing as-of-adds. The 
Exchange continues to believe, for the reasons set forth in previous 
filings and supplemental correspondence,\8\ that the particular fees 
included in the Pilot Program are equitably allocated among individual 
members and clearing member organizations.

    \8\See supra note 5 and infra note 10.
---------------------------------------------------------------------------

    In the last extension of the Pilot Program, the Commission approved 
the proposed rule change as a fair and equitable allocation of 
reasonable fees, but asked the Exchange, in connection with any request 
to make the Pilot Program permanent, to consider ways to incorporate 
the Pilot Program into Exchange Rule 17.50(g), under which the Exchange 
imposes fines for minor rule violations (``Minor Rule Plan'').\9\ The 
Commission also required the CBOE to submit a report setting forth 
particular statistics about the Pilot Program.\10\

    \9\See Pilot Extension Approval Order, supra note 5. In the 
Pilot Extension Approval Order the Commission stated that it would 
not be inclined to grant a further extension of the as-of-add fee 
Pilot Program until the concerns of the Commission expressed therein 
had been addressed by the CBOE. Id.
    \10\See Letter from Joanne Moffic-Silver, Associate General 
Counsel, CBOE, to Sharon Lawson, Assistant Director, OMS, Division, 
Commission, dated November 29, 1994 (``Pilot Report'').
---------------------------------------------------------------------------

    The first proposed amendment to Rule 2.26 would place a cap on the 
monthly fee that any individual member or clearing firm would pay under 
that rule. The monthly fee to individual members under Rule 2.26(a) 
would be capped at $500.00, and the monthly fee to clearing firms under 
Rule 2.26(b) would be capped at $1,000.00. The Exchange believes that 
the caps, when set at the levels proposed, will enable the Exchange to 
recover its costs for as-of-add processing while ensuring that no 
individual member or clearing member organization pays an 
inappropriately high, or punitive, fee.\11\ In addition, although the 
proposed cap levels are different for individual members as compared to 
clearing firms, the Exchange believes that the structure and size of 
the fee caps are equitable and appropriate. Clearing firms pay, on 
average, substantially higher aggregate as-of-add fees than do 
individual members, and the fee cap to clearing firms accordingly, in 
the Exchange's opinion, should be set at a higher level.

    \11\The CBOE notes that the use of fee caps will limit the 
incentive effect of the Pilot Program, but that result will, in its 
opinion, be offset in part by the introduction of the proposed fine 
schedule under Rule 17.50(g).
---------------------------------------------------------------------------

    The second proposed amendment to Rule 2.26 would incorporate in a 
new paragraph (d), provisions authorizing the Clearing Procedures 
Committee, with the approval of the President of the Exchange, or his 
designee, to suspend application of the rule, and thereby waive the 
assessment of as-of-add fees, for periods no greater than seven 
calendar days, plus extensions, whenever unusual circumstances so 
dictate. This new paragraph corresponds to the similar suspension 
provisions contained in Rule 2.30(g).\12\ In the proposal, as in Rule 
2.30(g), the term ``unusual circumstances'' refers to 
[[Page 3010]] circumstances that affect the ability of a significant 
number of members to submit trade information on time. Any such 
suspension of the rule must be in writing and must be published by the 
Exchange for distribution to the membership.

    \12\Rule 2.30 provides for fees to be assessed against market 
makers and clearing members for failing to submit trade information 
required by Rule 6.51 within two hours after execution of a trade.
---------------------------------------------------------------------------

    The Exchange anticipates that this authority would be used very 
infrequently. The Exchange represents that it has invoked Rule 2.30 
suspensions only once a year, on average, since the rule was adopted in 
1991. In every case, the CBOE represents that the suspensions have 
occurred on a day when there was both extraordinary volume and a 
trading surge at the end of the day. Therefore, according to the 
Exchange, it is likely that any suspension under proposed Rule 2.26 
would ordinarily be matched with a suspension under Rule 2.30.
    The third proposed change to the Pilot Program would add a fine 
schedule to CBOE Rule 17.50(g) for substantial and repeated failures to 
file trade data on the trade date, in contravention of Rule 6.51. As 
proposed, any member who exceeds the as-of-add rate considered nominal 
under Rule 2.26\13\ by three times or more for two consecutive months 
would be subject to a fine of $250 for the first offense, $500 for the 
second offense, and $1,000 for each offense thereafter occurring during 
any 12-month period.\14\ Fines under this proposal would therefore 
currently be triggered for an individual member whenever that member's 
as-of-add submissions equal or exceed 7.2% of total trade submissions 
in each of two consecutive months, while fines to clearing firms would 
be triggered whenever a clearing member's as-of-add submissions equal 
or exceed 3.6% of total trade submissions for each of two consecutive 
months.\15\ The fines imposed pursuant to Rule 17.50(g) would be in 
addition to any fees due under Rule 2.26 and would serve to penalize 
those members who submit the greatest number of excessive as-of-add 
trades.

    \13\See supra notes 6 and 7.
    \14\See Amendment No. 1, supra note 3. These fines would be 
assessed on a rolling basis. For example, an individual member who 
is cited for a first offense for a minor rule violation for 
exceeding the nominal allowable number of as-of-adds by three or 
more times during each of December and January would be fined for a 
second offense if that member again exceeds the allowable number of 
as-of-adds by three or more times during February. Telephone 
conversation between Dan Schneider, Schiff Hardin & Waite, and Brad 
Ritter, Senior Counsel, OMS, Division, Commission, on December 8, 
1994.
    \15\See supra  notes 6 and 7.
---------------------------------------------------------------------------

    The Exchange believes that the proposed fines would fairly and 
effectively supplement the fees assessed under Rule 2.26, by providing 
a clear sanction in those circumstances in which discipline is clearly 
appropriate. As structured, fines would be imposed when late 
submissions by a particular member or members reflect a pronounced 
pattern of persistent and excessive use of as-of-adds. Absent such a 
pattern, the Exchange believes, that the assessment of fees is 
sufficient and that fines should ordinarily not be imposed. Of course, 
in any circumstance in which a member's use of as-of-adds suggests that 
it may be appropriate to impose more severe disciplinary sanctions than 
would be provided for under Rule 17.50(g), the member would be subject 
to investigation and discipline in accordance with Chapter XVII.\16\

    \16\The CBOE has agreed to issue a Regulatory Circular to 
members describing the portions of the proposal approved herein, 
describing the portion of the proposal to incorporate the Pilot 
Program into the Minor Rule Plan, emphasizing that serious instances 
or extended periods of late submissions will be subject to 
investigation and possible disciplinary action notwithstanding Rule 
17.50(g), and highlighting that all members assessed a fee pursuant 
to the Pilot Program may submit a request for verification and may 
appeal the fees assessed pursuant to Chapter XIX of the CBOE Rules.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act, in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\17\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons facilitating transactions in securities, to 
remove impediments to and perfect the mechanism of a free and open 
market, and to protect investors and the public interest.

    \17\15 U.S.C. 78f(b)(5) (1988).
---------------------------------------------------------------------------

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

    The Exchange 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

    The Exchange has requested that the proposed rule change be given 
accelerated effectiveness pursuant to Section 19(b)(2)\18\ of the 
Act.\19\

    \18\15 U.S.C. 78s(b)(2) (1988).
    \19\See Amendment No. 1, supra note 3.
---------------------------------------------------------------------------

    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).\20\ Specifically, the 
Commission finds, as it did in originally approving the Pilot Program 
and the subsequent extensions,\21\ that imposing fees on members who 
submit as-of-adds for more than a prescribed percentage of transactions 
in any month is likely to: (1) Offset the carrying costs incurred by 
the Exchange and Exchange members as a result of these post-trade date 
submissions; (2) make trade comparisons on the CBOE more efficient in 
terms of the time and expense involved in trade processing; and (3) 
reduce the risk exposure to investors and Exchange clearing members. 
Additionally, the Commission continues to believe that the Pilot 
Program does not raise any due process concerns because of the 
availability of the verification and appeals processes pursuant to 
Chapter XIX of CBOE's rules.\22\

    \20\15 U.S.C. 78f(b)(5) (1988).
    \21\See supra note 5.
    \22\Id.
---------------------------------------------------------------------------

    The Commission believes that the proposed caps on the monthly as-
of-add fees that can be assessed against members adequately addresses 
one of the concerns previously noted by the Commission of assessing 
inordinately high, or punitive, monthly ``fees'' for violations of 
Exchange rules.\23\ By placing the proposed caps on the maximum monthly 
as-of-add fees, the Commission believes that it is appropriate for the 
Exchange to continue to classify these assessments as fees, rather than 
requiring the Exchange to institute disciplinary proceedings and to 
assess fines against members each time they submit as-of-adds in 
violation of Exchange rules.\24\ Additionally, the proposal to 
incorporate the Pilot Program into the Minor Rule Plan under Rule 17.50 
further minimizes the Commission's concerns about classifying these 
assessments as fees rather than fines.\25\ The proposal 
[[Page 3011]] ensures that at some objective level, members will be 
cited for violating Exchange Rule 6.51\26\ In connection with as-of-add 
submissions. The Commission believes that the prospect of being fined 
for a rule infraction, particularly where the as-of-adds reflect a 
significant pattern of abuse in violation of the requirements of Rule 
6.51, will act as a further incentive for encouraging exchange members 
to reduce their as-of-add submissions.

    \23\Id.
    \24\The Commission notes that its findings herein are limited to 
as-of-add submissions. For violations of other Exchange rules, it 
may be inappropriate to allow the Exchange to assess fees to 
encourage compliance rather than instituting disciplinary 
proceedings against members for such violations.
    \25\The Commission notes that although the proposal to 
incorporate the Pilot Program into the Minor Rule Plan is consistent 
with the Commission's prior suggestions regarding the Pilot Program, 
for the reasons discussed below, this portion of the proposed rule 
change is being published for comment and is not being approved by 
the Commission on an accelerated basis herein with the remainder of 
the proposal.
    \26\See supra note 4.
---------------------------------------------------------------------------

    Furthermore, the Commission does not believe that the fact that the 
proposed monthly cap as-of-add fees is higher for clearing members 
($1000) than for individual members ($500) raises significant 
regulatory concerns. In its present form, the Pilot Program 
distinguishes between clearing members and individual members in two 
respects. First, the monthly allowable percentage of as-of-adds is 
higher for individual members than for clearing members.\27\ Second, 
the per-trade fee amount assessed against individual members ($10) is 
higher than that assessed against clearing members ($3). Because the 
average fee assessed against clearing members during the period between 
October 1, 1993, and September 30, 1994, ($307.51) was higher than the 
average fee assessed against individual members ($104.50),\28\ the 
Commission does not disagree with the Exchange's determination that it 
is reasonable for the monthly cap applicable to clearing members to be 
higher than the cap applicable to individual members. Moreover, even 
though the Exchange represents that most as-of-adds are the result of 
late submission by individual members rather than by clearing members, 
the Commission believes that clearing members have some ability to 
encourage individual members to reduce their number of as-of-adds, for 
example, by charging fees to individual members who regularly submit 
as-of-adds to the clearing member for processing. Additionally, 
assuming that the portion of the proposal to incorporate violations of 
Rule 2.26 into the Minor Rule Plan is ultimately approved,\29\ the 
Commission notes that it will be possible for individual members who 
submit a significant number of as-of-adds in relation to their total 
number of monthly trades to be fined for violating the Minor Rule Plan 
without reaching the cap on fees pursuant to Rule 2.26. Finally, the 
fines proposed for violating the Minor Rule Plan for as-of-add 
submissions are the same for individual members and for clearing 
members. Even with the lower monthly cap on fees, therefore, the 
Commission believes that the proposal provides significant incentives 
for individual members to reduce their as-of-add submissions. As a 
result, the Commission believes that the difference between the cap 
levels for individual members and clearing members is reasonable and 
consistent with the Act.

    \27\See supra notes 6 and 7.
    \28\See Pilot Report, supra note 10.
    \29\See supra note 25.
---------------------------------------------------------------------------

    The Commission also notes that in prior extensions of the Pilot 
Program, the Commission expressed concern over the Exchange's inability 
to determine, without examining each individual trade, whether 
particular as-of-adds are submitted due to the fault of an individual 
member or that member's clearing firm.\30\ As a result, in determining 
whether a member has exceeded its stated monthly percentage of 
allowable as-of-adds, each as-of-add processed by a clearing member is 
counted against both the clearing member and the individual member who 
executed the transaction. For several reasons, however, the Commission 
now believes that this does not prevent a finding that the Pilot 
Program is consistent with the Act. First, data gathered by the 
Exchange from the first year of operation of the Pilot Program support 
the Exchange's representation that most as-of-adds are the result of 
late submissions by individual members, not clearing firms. From 
October 1, 1993, through September 31, 1994, there were 463 assessments 
of fees against individual members pursuant to the Pilot Program but 
only 13 such assessments against clearing members.\31\ Second, during 
that same period, only one individual member requested verification of 
the fee assessed by the Exchange and that member did not appeal the 
assessment upon receipt of verification from the Exchange.\32\ Finally, 
the Commission has not received any comment concerning the Pilot 
Program, in general, or this aspect of the Pilot Program, in 
particular. As a result, the Commission does not believe that 
individual members are being damaged as a result of the CBOE's 
inability to efficiently identify the party actually responsible for 
each as-of-add, especially given that members may request verification 
of, and may appeal, any as-of-add fee assessed by the Exchange.

    \30\See supra note 5.
    \31\See Pilot Report, supra note 10.
    \32\Id.
---------------------------------------------------------------------------

    Finally, the Commission believes that the proposal to add paragraph 
(d) to Rule 2.26 concerning waivers of the as-of-add fees in unusual 
circumstances is also consistent with the Act. Proposed paragraph (d) 
substantively mirrors paragraph (g) of Rule 2.30, which was previously 
approved by the Commission. Rule 2.30 is similar to Rule 2.26 in that 
both rules are concerned with the late submission of trade data.\33\ As 
a result, the Commission believes that if Rule 2.30 can be waived in 
the event of exigent circumstances, a similar provision should also 
apply to Rule 2.26. The Commission believes that when unusual 
circumstances exist that affect the ability of a significant number of 
members to submit trade information to the Exchange in a timely manner 
it may not be appropriate to assess fees, and possibly fines (assuming 
the amendment to the Minor Rule Plan discussed herein is ultimately 
approved as adopted), against individual members and clearing members. 
The Commission expects the CBOE to use its power to waive as-of-add 
fees only in highly unusual circumstances. In addition, while the CBOE 
has indicated that the power to waive as-of-add fees will usually be 
used in conjunction with the similar power in Rule 2.30, the Commission 
expects the CBOE to examine each situation on its merits to determine 
whether just Rule 2.30 or both Rules 2.26 and 2.30 should be waived in 
a particular situation.\34\

    \33\See supra note 12.
    \34\For example, situations could arise for which it may be 
appropriate for the Exchange to waive Rule 2.30, but if the unusual 
circumstances last only a few hours, it may be inappropriate to 
conclude that trade data could not be submitted by most members on 
the same day that the trades occur. In such a situation, the 
Commission believes that it would not be appropriate for the 
Exchange to also waive Rule 2.26.
---------------------------------------------------------------------------

    The Commission finds good cause for approving the following 
portions of the proposed rule change and Amendment No. 1 thereto prior 
to the thirtieth day after the date of publication of notice of filing 
thereof in the Federal Register: (1) The request for permanent approval 
of the Pilot Program; (2) the proposal to impose caps on the monthly 
fee that can be assessed against members; and (3) the portion adopting 
paragraph (d) to Rule 2.26 to allow the Exchange to waive application 
of the rule in unusual circumstances.
    First, granting permanent approval of the Pilot Program will permit 
the Pilot Program to remain in effect without 
[[Page 3012]] interruption. For the reasons discussed above and in 
prior orders concerning the Pilot Program,\35\ the Commission believes 
that reducing the number of as-of-adds submitted to the Exchange may 
benefit investors by reducing the Exchange's processing costs, making 
the CBOE more efficient in terms of the time involved in trade 
processing, and reducing risk exposure to investors and Exchange member 
firms. Additionally, the Exchange has represented that no problems have 
arisen and no formal complaints have been received by the Exchange 
concerning the Pilot Program since its implementation.\36\ Accordingly, 
the Commission believes it is consistent with Sections 6(b)(5) and 
19(b)(2) of the Act to approve, on an accelerated basis, that portion 
of the proposed rule change requesting permanent approval of the Pilot 
Program.

    \35\See supra note 5.
    \36\See Pilot Report, supra note 10.
---------------------------------------------------------------------------

    For the reasons discussed above, the Commission also believes that 
it is appropriate to accelerate approval of the proposal to impose caps 
on the monthly as-of-add fees assessed against members. The Commission 
believes that this portion of the proposal addresses a significant 
concern that the Commission previously raised regarding the Pilot 
Program by ensuring that members are not assessed fees that are 
inordinately high, or punitive.\37\ The Commission continues to believe 
that it is inappropriate for the CBOE to promote and enforce compliance 
with Exchange rules solely through the assessment of fees. Further, 
this proposal is a limitation on the existing Pilot Program, which has 
no upper limit on the monthly fee that can be assessed. As a result, 
because the Commission has not received comment on the existing Pilot 
Program, the Commission believes it is appropriate to approve this 
aspect of the proposal on an accelerated basis.

    \37\See supra note 5.
---------------------------------------------------------------------------

    With regard to proposed paragraph (d) to Rule 2.26, the Commission 
believes that this amendment will promote uniformity between Rule 2.26 
and existing Rule 2.30. The logic for waiving application of Rule 2.30 
in the existence of unusual circumstances also applies to Rule 2.26, 
i.e., if circumstances prevent a significant number of members from 
processing trade information, it generally may be inappropriate to 
assess fees against those members for violating Rules 2.26 and 2.30. 
Accordingly, the Commission believes it is appropriate to approve this 
portion of the proposal on an accelerated basis in order to promote 
uniformity between the Exchange's rules and thus minimize potential 
confusion, and to avoid inconsistent results where for the same set of 
``unusual circumstances,'' the Exchange is able to waive application of 
Rule 2.30 but not Rule 2.26.\38\

    \38\See supra note 34 and accompanying text.
---------------------------------------------------------------------------

    At this time the Commission is not approving that portion of the 
proposed rule change that would incorporate the Pilot Program into the 
Minor Rule Plan. Although the Commission believes that this portion of 
the proposal addresses suggestions previously noted by the Commission 
concerning the Pilot Program, the Commission believes that prior to 
approval, Exchange members should be given adequate notice of, and an 
opportunity to comment on, proposals that could subject them to 
disciplinary sanctions. As a result, the Commission expects the 
Exchange to distribute to its members notice of the rule change as 
approved herein and notice of the proposal to incorporate the Pilot 
Program into the Minor Rule Plan.\39\ Moreover, the Exchange's request 
for accelerated approval of the proposal was for the sole purpose of 
avoiding procedural and accounting problems that would result from a 
lapse in the Pilot Program.\40\ The Commission believes this concern 
has been adequately addressed by accelerating permanent approval of the 
Pilot Program

    \39\See supra note 16.
    \40\See Amendment No. 1, supra note 3.
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing proposed rule change and Amendment 
No. 1 thereto. 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-94-50 and should be submitted by January 31, 1995.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act\41\ that the following portions of the proposed rule change (SR-
CBOE-94-50), are approved: (1) The amendments to CBOE Rule 2.26 placing 
a ceiling on the monthly as-of-add fees that can be assessed against 
individual members and clearing members, and allowing the Exchange to 
suspend the rule in exigent circumstances; and (2) permanent approval 
of the Pilot Program.

    \41\15 U.S.C. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\42\

    \42\17 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-483 Filed 1-11-95; 8:45 am]
BILLING CODE 8010-01-M