[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 

[[Page 18868]]
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