[Federal Register Volume 60, Number 71 (Thursday, April 13, 1995)]
[Notices]
[Pages 18867-18869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9147]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35579; File No. SR-CBOE-95-17]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Board Options
Exchange, Incorporated Relating to its Retail Automatic Execution
System for Transactions in SPX Options
April 7, 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 March 30, 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
Exchange. The Exchange subsequently filed Amendment No. 1 to the
proposed rule change on April 3, 1995.\3\ 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).
\2\17 CFR 240.19b-4 (1991).
\3\In Amendment No. 1, the CBOE states that the reference to
Rule 24.17 in the original filing (see infra note 4 and accompanying
text) was intended to be a reference to Rule 24.16, and amends the
proposal accordingly. In addition, Amendment No. 1 defines the term
``brief interval,'' as used to describe the allowable period during
which RAES participants can leave the trading floor. See infra note
7 and accompanying text. See also Letter from Timothy Thompson,
Attorney, CBOE, to John Ayanian, Attorney, Office of Market
Supervision (``OMS''), Division of Market Regulation (``Division''),
Commission, dated March 31, 1995. (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to amend its rules respecting use of the
CBOE's Retail Automatic Execution System (``RAES'') for transactions in
Standard & Poor's 500 Index (``SPX'') options by individual members,
joint account participants and nominees of member organizations having
multiple nominees. The text of the proposed rule change is available at
the Office of the Secretary, the Exchange, 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. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Section (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 Rule 24.16
(``RAES Eligibility in SPX'') in respect of use of RAES by individual
members, joint account participants, and market-maker/nominees
associated with member organizations. The amendments would incorporate
into Rule 24.16, provisions respecting individual member use of RAES
and provisions respecting joint account and member organization use of
RAES (the ``group account'' provisions) presently contained in its
rules respecting use of RAES for transactions in Standard & Poor's 100
Index (``OEX'') options.\4\ Currently, Rule 24.16 contains fewer
provisions regulating individual members' eligibility to use RAES for
SPX options than is the case under rule 24.17 for use of RAES for OEX
options. Similarly, Rule 24.16 contains only one provision addressing
RAES eligibility for member organizations having multiple market-maker/
nominees, while Rule 24.17 contains numerous provisions respecting use
of RAES by participants in both types of group
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accounts. The OEX RAES provisions have worked well, and the Exchange
accordingly believes that the substance of all the OEX provisions
should now be incorporated into the SPX RAES rules.
\4\See CBOE Rule 24.17 (``RAES Eligibility in OEX'').
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The proposed rule change would incorporate, in the introductory
clause to paragraph (a) of Rule 24.16, the provisions contained in
subparagraph (a)(i) of Rule 24.17, which, among other things, requires
individual market makers to sign the RAES Participation Agreement and
complete the RAES instructional program before they may use RAES. The
proposed rule change also would incorporate in paragraph (a) of Rule
24.16 the preconditions to use of RAES that are contained in
subparagraph (a)(v) of Rule 24.17, including the requirement that
individual members be engaged at CBOE principally as market makers and
that they execute at least 75% of their options contracts in SPX and at
least 75% of their trades in SPX options in person.
CBOE also proposes to add new paragraphs (c) and (d) to Rule
24.16.\5\ Paragraph (c) would establish preconditions to initial use of
RAES by joint account participants and would impose minimum SPX trading
activity standards on joint account market markers on RAES. Paragraph
(c) would also includes log-on and log-off requirements for each joint
account market maker, as well as procedures for obtaining relief from
those requirements, and would grant the SPX Floor Procedures Committee
authority to restrict or condition a joint account member's
participation in RAES.\6\ In turn, paragraph (d) would contain
provisions, similar to those in proposed paragraph (c), respecting
access to RAES by market makers associated with member organizations
having multiple nominees.
\5\ See Amendment No. 1, supra note 3.
\6\ In this regard, references in current Rule 24.16 to the
Market Performance Committee would be replaced by references to the
SPX Floor Procedures Committee, which, as a more product-specific
committee, would henceforth have authority under Rule 24.16.
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All the foregoing changes would, in general, conform SPX RAES
requirements to the corresponding OEX RAES requirements.\7\ Several
differences, however, would remain.
\7\ The changes also would clarify that all participants in a
joint account may use the joint account for trading on RAES in all
series of SPX options, and to that end would delete a contrary
provision in paragraph (a) of the current Rule 24.16. In connection
with approval of this rule change, the Exchange will issue a
regulatory circular amending Regulatory Circular 92-47, to clarify
that more than one joint account member may participate on behalf of
the joint account on any joint account transaction in SPX options,
whether or not executed on RAES. This clarification will unify the
treatment of SPX joint account trades with the treatment accorded
such trades in OEX options.
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Under the proposed SPX rules, a member who has logged onto RAES
must log off RAES whenever he leaves the trading crowd unless the
departure is for ``a brief interval.''\8\ THe OEX RAES rules do not
currently contain the ``brief interval'' exception, though the Exchange
anticipates filing an amendment to Rule 24.17 that would establish such
an exception for OEX RAES market makers.
\8\ The Exchange agrees to restrict the term ``brief interval''
to a period no longer than 10-15 minutes. The purpose for the brief
interval is to give members time to attend to their personal needs.
In addition, the Exchange expects the trading crowd and the Order
Book Official (``OBO'') for a particular trading post to police
compliance with the brief interval exception. OBOs will be
instructed to log off a member from RAES if he has been absent from
a trading crowd for more than a brief interval. See Amendment No. 1,
supra note 3.
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In addition to the foregoing changes in RAES eligibility and use
requirements, the proposed rule change would establish group account
size limit standards. A new paragraph (e) would authorize the SPX Floor
Procedures Committee to set such a limit at a number not to exceed
33\1/3\ percent of the prior quarter's average number of RAES
participants. This approach contrasts somewhat with the OEX RAES
provisions, which permit a group account to include as many as 50
participants, or 25 percent of the prior quarter's average, whichever
is smaller.
The Exchange believes that the proposed differences in approach and
applicable percentage limit are appropriate to SPX RAES for several
reasons. First, the Exchange anticipates that this rule change will
make SPX participation more attractive to members, which should lead to
higher RAES participation levels. Increases in participation levels may
be substantial and may well occur at unpredictable rates. In such a
context, a specific numerical limit would be an impediment to efficient
administration of the rule. The Exchange believes that any specific
number it selects at this time would, at a later date, likely be either
artificially high (triggering the application of the percentage limit)
or inappropriately low (requiring periodic rule change filings as
participation levels rise). Accordingly, the Exchange proposes to adopt
only a percentage limit for RAES use in SPX options, at least until the
projected SPX RAES growth rates appear to stabilize.
Second, the SPX trading crowd is considerably smaller at present
than the OEX trading crowd. About 20 participants, on average, use SPX
RAES on any given day, whereas about 150 participants use OEX RAES.
Were the proposed rule to use the 25 percent limit that exists in the
current OEX RAES rule, no more than twelve members could participate in
one joint account. The Exchange believes, however, that a larger joint
account base should be encouraged in order to increase SPX RAES
participation levels.
The Exchange believes that the proposed 33\1/3\ percent limit would
enable expansion in the use of RAES without permitting undue
concentration of trading interest. Although in theory the 33\1/3\
percent limit would allow all SPX RAES participants to join one of the
three accounts (rather than one of four as is permitted in OEX), that
degree of consolidation on SPX RAES is unlikely. Moreover, were it to
occur and generate adverse effects, the SPX Floor Procedures Committee
would have authority under proposed paragraph (e) to reduce the
applicable group size limit.
Finally, the proposed rule change includes a new paragraph (h) that
would incorporate in the SPX RAES rules the fee schedule included in
the OEX RAES Rule 24.17 for failure to adhere to the various RAES log-
on and log-off requirements. The provisions of proposed paragraph (h)
match those in the OEX RAES Rule 24.17.
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), in particular, in that it is designed to promote just
and equitable principles of trade, to foster cooperation with persons
engaged in facilitating and clearing transactions in securities, and to
protect investors and the public interest.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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
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
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden of competition;
(3) was provided to the Commission for its
[[Page 18869]]
review at least five days prior to the filing date; and (4) does not
become operative for 30 days from April 3, 1995,\9\ the rule change
proposal has become effective pursuant to Section 19(b)(3)(A) of the
Act and Rule 19b-4(e)(6) thereunder. In particular, the Commission
believes the proposal would qualify as a ``noncontroversial filing'' in
that the proposed standards do not significantly affect the protection
of investors or the public interest and do not impose any significant
burden on competition. At any time within 60 days of the filing of the
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
\9\Because the Exchange filed Amendment No. 1 subsequent to the
original filing date, the 30-day period commences on the filing date
of Amendment No. 1.
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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, DC 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 at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the CBOE. All
submissions should refer to SR-CBOE-95-17 and should be submitted by
May 4, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
\10\17 CFR 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-9147 Filed 4-12-95; 8:45 am]
BILLING CODE 8010-01-M