[Federal Register Volume 60, Number 8 (Thursday, January 12, 1995)]
[Notices]
[Pages 3012-3013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-717]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35192; File No. SR-CBOE-94-44]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to Market 
Maker Appointments

January 4, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 14, 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.

    \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 CBOE Rule 8.3(c) concerning the number 
of trading stations at which a single market maker's appointed classes 
of options are traded.

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 [[Page 3013]] 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 purpose of the proposed rule change is to revise CBOE Rule 
8.3(c) to give the Market Performance Committee (``MPC'') authority to 
designate the maximum number of trading stations at which a single 
market marker's appointed classes of options are traded, and to add 
Interpretation and Policy .02 to CBOE Rule 8.3 to state that the MPC 
has designated such maximum number as ten trading stations. CBOE Rule 
8.3 currently sets a five station upper limit on the maximum number of 
trading stations that may be covered by a single market maker's 
appointment.
    In light of the recent and anticipated increases in both the number 
of options classes traded on the Exchange and the number of trading 
stations on the floor, the Exchange has determined that it needs 
greater flexibility to increase this limit from time to time in order 
to be able to respond promptly to any need for greater market maker 
participation that may result from such expansion. By granting 
authority to fix this number to the MPC, which already has the 
authority to grant exceptions to the current five-station limit on a 
case-by case basis, the Exchange believes it will have achieved the 
flexibility it needs. When and if the MPC changes the limit from ten 
stations as it is here proposing, the new limit will be reflected in a 
revision to Interpretation and Policy .02 under the Rule filed under 
Section 19(b)(3)(A)(i) of the Act as a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of Rule 8.3.\2\

    \2\Although the CBOE has stated its desire to rely on section 
19(b)(3)(A) of the Act if it should seek to change the limit, the 
Commission has requested that the CBOE provide it with additional 
information to justify the appropriateness of such reliance.
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    The CBOE believes that the proposed increase in the current limit 
under Rule 8.3(c) from five to ten stations reflects that, in light of 
the expansion of the number of options classes traded in CBOE's 
marketplace and in the number of stations at which options are traded, 
a five-station limit is unduly restrictive and places CBOE's market 
makers at a competitive disadvantage in relation to options market 
makers on other exchanges. Currently, the five-station maximum limits 
an individual market maker's affirmative market making obligations to, 
at most, slightly more than 9% of the trading stations on the floor, or 
less than 25% of all CBOE classes. To assure adequate market maker 
coverage of all classes traded on the CBOE, enlargement of the current 
five station limit to ten stations is needed.
    In addition, CBOE believes that the importance of maintaining 
comparability among exchanges regarding the percentage of the classes 
traded in which a market maker may hold an appointment is not limited 
to general reasons of competitive fairness and equality. Comparability 
is also important because under the new short sale rule applicable to 
stocks traded in the Nasdaq market, the exception to the short sale 
rule for options market makers only applies to stocks underlying 
options in which the market maker holds an appointment. So long as CBOE 
market makers limited to holding appointments in less than 25% of the 
classes traded on the Exchange, CBOE's market makers will be at a 
competitive disadvantage in respect of their ability to hedge their 
options positions pursuant to the market maker exemption from the NASD 
short sale rule. CBOE recently filed a proposed rule change that would 
amend its Rule 15.10 by eliminating the provision that restricts the 
market maker exemption to Nasdaq National Market securities underlying 
options traded at no more than three stations. Instead, the market 
maker exemption would be available for all options classes to which a 
market maker holds an appointment.\3\

    \3\See Securities Exchange Act Release No. 34947 (November 7, 
1994), 59 FR 59262 (File No. SR-CBOE-94-38), proposing to amend CBOE 
Rule 15.10(c)(2)(ii)(B).
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    The proposed amendment is intended to enhance the ability of the 
Exchange to provide fair and orderly markets in options and to provide 
for competitive equality among exchanges, and therefore the Exchange 
believes that its proposal is consistent with the promotion of just and 
equitable principles of trade and the protection of investors and the 
public interest as required by Section 6(b)(5) of the Act.

(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, NW., 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-94-44 and should be submitted by February 2, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\

    \4\17 CFR 200.30-3)(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-717 Filed 1-11-95; 8:45 am]
BILLING CODE 8010-01-M