[Federal Register Volume 60, Number 100 (Wednesday, May 24, 1995)]
[Notices]
[Pages 27575-27577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12693]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35725; File No. SR-CBOE-95-15]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Relating to Telephones at the S&P 100 Index Option 
Trading Post on the Floor of the Exchange

May 17, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 12, 
1995, 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 Exchange. 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 CBOE proposes to treat as a rule of the Exchange the conditions 
governing the use of member-owned and Exchange-owned telephones located 
at the S&P 100 Index option (``OEX'') trading post on the floor of the 
Exchange. The text of the proposed rule change is available at the 
Office of the Secretary, the 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 CBOE 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 apply the policy 
currently governing the use of telephones at [[Page 27576]] equity 
option trading posts\1\ to the member-owned or Exchange-owned 
telephones at the OEX trading post on the floor of the Exchange. With 
the exception of the prohibition on the use of telephone at the OEX 
trading posts to receive incoming calls, the Exchange represents that 
the telephone policy described below is substantively identical to the 
policy approved by the Commission for the use of telephones at equity 
option trading posts on the floor of the CBOE.\2\

    \1\ See Securities Exchange Act Release No. 33701 (March 2, 
1994), 59 FR 113336 (March 10, 1994).
    \2\ Id.
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    Exchange Rule 6.23 prohibits members from establishing or 
maintaining any telephone or other wire communications between their 
offices and the Exchange floor, and it authorizes the Exchange to 
direct the discontinuance of any communication facility terminating on 
the Exchange floor. Pursuant to Rule 6.23, the Exchange is instituting 
this policy for use at the OEX trading post. The Exchange believes that 
the proposed rule change will allow market-makers to obtain and 
transmit information more efficiently which may result in benefits to 
investors by improving the execution of orders.
    The proposed rule change also imposes user fees on members who are 
approved to use Exchange-installed telephones located at the OEX 
trading post. This action is being taken pursuant to CBOE Rule. 2.22, 
which permits the Exchange to impose fees on members for the use of 
Exchange facilities or for any services or privileges granted by the 
Exchange.
    As with the use of telephones at the equity trading posts, the 
Exchange has determined to file this policy for the use of telephones 
at the OEX trading post and make it a formal rule of the Exchange. 
Accordingly, the Exchange undertakes that it will surveil for 
violations of the policy and that members will be subject to formal 
disciplinary proceedings for violations of the policy. The conditions 
imposed by the Exchange's policy include:
    1. The telephones may not be used to receive orders, although 
quotes that have been publicly disseminated pursuant to CBOE Rule 6.43 
may be provided.
    2. Members may give their clerks their PIN access code. Although 
both members and clerks may use the telephones, members will have 
priority. Each member will be responsible for all calls made using that 
Member's PIN access code.
    3. Headsets will not be permitted on the telephones in the OEX post 
pit. Portable or cellular telephones also will not be permitted.
    4. Clerks will not be permitted to establish a base of operations 
utilizing telephones at the OEX post.
    5. Members and their clerks using the telephones consent to the 
Exchange requiring that any telephone or line be subject to tape 
recording.
    6. The telephones will be used for voice service only. Data 
services (PC's, fax, etc.) will remain subject to Exchange consent 
under a separate program.
    7. Incoming calls are not permitted on the telephones at the OEX 
post. There will be no restrictions on where a Member may call.
    Upon the approval of these conditions as rules of the Exchange, the 
Exchange will publish a Regulatory Circular, substantially in the form 
filed by the CBOE with the Commission, in order to inform members that 
these conditions are rules, and that violations may lead to 
disciplinary proceedings.
    By restricting floor telephones to hard-wired devices only and not 
allowing cellular, portable, or headset telephones, the Exchange 
believes it will better be able to monitor and control telephone usage 
on the floor. In addition, the Exchange believes that currently 
available technology would not permit a large number of portable or 
cellular telephones to be used in the environment of the trading floor 
without significant deterioration or interruption of service.
    As with the use of telephones at the equity trading posts, the 
Exchange intends to police compliance with these conditions by means of 
its customary floor surveillance procedures, including reliance on 
surveillance by floor officials and Exchange employees. In addition, 
the Exchange has in place a surveillance sharing agreement with the 
Chicago Mercantile Exchange (``CME'') whereby transaction information 
is continually made available to the CBOE regarding futures transaction 
activity by CBOE members that is above certain defined parameters. In 
addition, the Exchange also receives surveillance information through 
its participation in the Intermarket Surveillance Group (``ISG'').\3\

    \3\ The ISG was formed on July 14, 1983 to, among other things, 
coordinate more effectively surveillance and investigative 
information sharing arrangements in the stock and options markets. 
See Intermarket Surveillance Group Agreement, July 14, 1983. The 
most recent amendment to the ISG Agreement, which incorporates the 
original agreement and all amendments made thereafter, was signed by 
ISG members on January 29, 1990. See Second Amendment to the 
Intermarket Surveillance Group Agreement, January 29, 1990. The 
members of the ISG are: the American Stock Exchange, Inc.; the 
Boston Stock Exchange, Inc.; the CBOE; the Chicago Stock Exchange, 
Inc.; the National Association of Securities Dealers, Inc. 
(``NASD''); the New York Stock Exchange, Inc.; the Pacific Stock 
Exchange, Inc.; and the Philadelphia Stock Exchange, Inc. Because of 
potential opportunities for trading abuses involving stock index 
futures, stock options, and the underlying stock and the need for 
greater sharing of surveillance information for these potential 
intermarket trading abuses, the major stock index futures exchanges 
(e.g., the Chicago Mercantile Exchange and the Chicago Board of 
Trade) joined the ISG as affiliate members in 1990.
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    Because the telephone policy does not restrict where a member may 
call, the telephones may be used to place orders in equity of futures 
markets,\4\ which raises the possibility of orders being entered based 
on non-public information. Because the S&P 100 index, on which OEX 
options are based, is a capitalization-weighted index of 100 different 
``blue chip'' stocks, however, the Exchange believes that non-public 
information is not likely to be significant in predicting future 
changes in the value of the OEX. In any event, the Exchange believes 
that the surveillance procedures it has in place will detect and deter 
any attempts at manipulation through the using of OEX options.

    \4\ This telephone policy also allows members to use the floor 
telephones located at the OEX trading post for the purpose of 
providing quotations on OEX options. In use telephones for this 
purpose, the CBOE represents that members may only provide 
quotations that have been publicly disseminated pursuant to CBOE 
Rule 6.43.
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    The fees the Exchange will charge for the use of the telephones 
will generally be the same as those charged for the use of telephones 
at the equity option trading posts. Specifically, local calls over 
Exchange telephones will be charged at 10 cents per minute. Long 
distance calls over Exchange telephones will be charged at a rate 25% 
greater than the Exchange's direct costs. In addition, the Exchange 
will charge a $5 monthly fee for the use of the telephones located at 
the OEX trading post.
    The CBOE believes that the proposed rule change is consistent with 
Section 6(b) of the Act, in general, and furthers the objectives of 
Section 6(b)(5) of the Act, in particular, in that the proposal is 
designed to improve communications to and from the Exchange's trading 
floor in a manner that prevents fraudulent and manipulative acts and 
practices, promotes just and equitable principles of trade, perfects 
the mechanism of a free and open market, and protects investors and the 
public interest.
    In addition, the Exchange believes the proposed rule change with 
respect to [[Page 27577]] the fees to be charged by the CBOE in 
connection with the telephones located at the OEX trading post is 
consistent with Section 6(b)(4) of the Act in that it is designed to 
provide for the equitable allocation of reasonable dues, fees, and 
charges among CBOE members.

(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 on competition; 
(3) does not become operative for 30 days from May 12, 1995, the date 
on which it was filed, and the Exchange provided the Commission with 
written notice of its intent to file the proposed rule change at least 
five days prior to the filing date, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act and Rule 19b-4(e)(6) thereunder.\5\

    \5\ 17 CFR 240.19b-4(e)(6) (1994).
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    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.

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. Sec. 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 File No. SR-CBOE-95-15 and should be 
submitted by June 14, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\

    \6\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12693 Filed 5-23-95; 8:45 am]
BILLING CODE 8010-01-M