[Federal Register Volume 60, Number 30 (Tuesday, February 14, 1995)]
[Notices]
[Pages 8433-8434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3618]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35345; File No. SR-CBOE-94-54]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange Relating to Firm Quote 
Responsibilities

February 8, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, 15 U.S.C. 78(b)(1), notice is hereby given that on January 4, 
1995, the Chicago Board Options Exchange, Incorporated (``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. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

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

    The Exchange proposes to expand the applicability of the firm quote 
rule to include two-part orders in equity options, in which the 
component series are on opposite sides of the market and in a one-to-
one ratio. The text of the proposed rule change is available at the 
Office of the Secretary, 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 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 Exchange has prepared summaries, set forth in 
sections (A), (B), and (C) below, of the most significant parts 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 expand the 
applicability of Rule 8.51 to certain two part equity orders and thus, 
to attempt to ensure the ability of public customers to execute defined 
risk strategies, such as spreads and straddles, at the disseminated 
market quotes.
    CBOE Rule 8.51 places the responsibility on the trading crowd to 
ensure that non-broker-dealer customer orders are sold or bought, up to 
ten contracts, at the quoted offer or bid, respectively. This ``firm 
quote'' or ``ten-up'' requirement is meant to provide confidence that 
the displayed quotes may be relied upon by the investing public and to 
ensure that public customer orders will be executed at those quotes.
    From its inception the rule was intended to apply to, and has been 
interpreted to apply only to, single part orders, i.e., either a buy 
order or a sell order for a particular option series. The Exchange has 
determined, however, that public customers would be served better if 
the interpretation were expanded to included a requirement to provide a 
ten-up market in two-part equity option orders in which the components 
of the order are on opposite sides of the market and in a one-to-one 
ration to each other. The expansion in the interpretation of this rule 
would make it possible for public customers to execute both sides of a 
defined risk strategy, such as a spread or a straddle, at the 
disseminated prices. This rule change, then, should help the Exchange 
compete more effectively for public customer order flow and trading 
activity.
    The Exchange does not believe this rule change would be burdensome 
to market-makers because, under the current interpretation, the market-
makers would be required to satisfy the ten-up requirement as to each 
leg of a spread or straddle if each was placed as a separate order. 
This rule change would merely ensure that these two components may be 
done at the same time, as one order, and at the same prevailing market 
quotes. The Exchange believes, however, that it is inappropriate, under 
any circumstances, to extend the firm-quote treatment to multi-part 
orders with all parts on the same side of the market as this would 
effectively impose the burden on options market-makers of making 
markets in the underlying security. For example, a position in a long 
call and a short put is economically equivalent to being long the 
underlying stock; and thus, requiring a trading crowd to provide firm 
quote treatment to an order for this position would essentially be 
requiring the option market-makers to act as market-makers in the 
underlying security. [[Page 8434]] 
    Under Rule 8.51, the firm quote size minimum will not apply 
whenever a ``fast market'' is declared under rule 6.6, and may be 
suspended for any class or series on a case by case basis as determined 
by the Market Performance Committee.
    CBOE believes the proposed rule change will contribute to a market 
that will instill an increasing customer confidence and ability to 
transact business in an increasingly efficient manner. CBOE believes 
the proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Exchange Act'') in general and 
furthers the objectives of 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

    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

    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, 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. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of CBOE. All 
submissions should refer to the file number in the caption above and 
should be submitted by March 7, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to the delegated authority.\1\

    \1\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-3618 Filed 2-13-95; 8:45 am]
BILLING CODE 8010-01-M