[Federal Register Volume 60, Number 109 (Wednesday, June 7, 1995)]
[Notices]
[Pages 30127-30131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13900]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35789; File No. SR-CBOE-95-05]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Changes and Notice of Filing and Order Granting Accelerated Approval of 
Amendment Nos. 1, 2, and 3 to the Proposed Rule Changes by the Chicago 
Board Options Exchange, Incorporated, Relating to Trading Halts, 
Trading Suspensions, the Re-opening of Trading after a Trading Halt or 
Suspension, and the Suspension of the Retail Automatic Execution System

May 31, 1995.

I. Introduction

    On January 18, 1995, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange''), filed proposed rule changes 
with the Securities and Exchange Commission (``SEC'' or 
``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4\2\ thereunder, to: (1) 
Codify the Exchange's existing practice regarding the factors 
considered and circumstances under which the Exchange could decide to 
halt or suspend trading in its markets; (2) establish procedures for 
the resumption of trading after a halt or suspension is lifted; and (3) 
grant the senior person in charge of the CBOE Control Room the 
authority to turn off the Retail Automatic Execution System (``RAES'') 
if the Control Room receives a credible indication that trading has 
stopped in the underlying stock. The Exchange filed Amendment No. 1 to 
the proposal on February 21, 1995,\3\ Amendment No. 2 to the proposal 
on May 10, 1995,\4\ and Amendment No. 3 to the proposal on May 31, 
1995.\5\

    \1\15 U.S.C. 78s(b)(1).
    \2\17 CFR 240.19b-4.
    \3\Amendment No. 1 proposes to delete the reference to Rule 6.3A 
in paragraph (c) of Rule 24.7, because the rule change proposes the 
deletion of Rule 6.3A in its entirety. See Letter from Michael 
Meyer, Schiff, Hardin & Waite, to John Ayanian, Attorney, Office of 
Market Supervision (``OMS''), Division of Market Regulation 
(``Market Regulation''), Commission, dated February 17, 1995. 
(``Amendment No. 1''.)
    \4\Amendment No. 2 proposes to amend Interpretation .05 to CBOE 
Rule 6.3 to indicate that the senior person in the Control Room may 
rely on a verified report from the CBOE trading crowd as a credible 
indication of a trading halt or suspension in the primary market of 
an underlying security.
    CBOE also proposes to clarify that its proposed rescission of 
CBOE Rule 6.3A is intended to encompass the two Interpretations and 
Policies previously adopted for that rule. See Letter from Michael 
Meyer, Schiff, Hardin & Waite, to John Ayanian, Attorney, Market 
Regulation, OMS, Commission, dated May 10, 1995. (``Amendment No. 
2''.)
    \5\Amendment No. 3 proposes to amend Regulatory Circular RG93-58 
to indicate that two Floor Officials may permit trading to continue 
for more than 15 minutes after a failure of last sale and/or 
quotation dissemination from either the Exchange or the Options 
Price Reporting Authority (``OPRA'') only with the concurrence of a 
senior Exchange official. See Letter from Michael Meyer, Schiff, 
Hardin & Waite, to John Ayanian, Attorney, Market Regulation, OMS, 
Commission, dated May 31, 1995. (``Amendment No. 3''.)
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    Notice of the proposal was published for comment and appeared in 
the Federal Register on February 27, 1995.\6\ No comment letters were 
received on the proposed rule changes. This order approves the 
Exchange's proposal, as amended.

    \6\See Securities Exchange Act Release No. 35397 (February 21, 
1995), 60 FR 10621 (February 27, 1995).
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II. Description of the Proposal

    The CBOE proposes to amend its rules and Regulatory Circulars RG94-
17 (``Inter-Exchange Procedures in Volatile Markets'') and RG93-58 
(formerly RG92-40 (``Trading Halt Policy'') to codify existing 
practices regarding the factors the Exchange considers in deciding 
whether to halt or suspend trading and the circumstances under which 
trading is generally halted or suspended by the Exchange. The CBOE also 
proposes to establish procedures for the resumption of trading after a 
halt or suspension is lifted, and to grant the senior person in charge 
of the Control Room the authority to turn off RAES\7\ for a particular 
stock option if the Control Room receives a credible indication that 
trading in the underlying stock has been halted.

    \7\RAES automatically executes public customer market and 
marketable orders of a certain size against participating market 
makers in the CBOE trading crowd at the best bid or offer reflected 
in the CBOE quotation system. A more detailed description of RAES is 
provided in Securities Exchange Act Release No. 22015 (May 6, 1985), 
50 FR 19832 (May 10, 1985).
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A. Status of Rotation as Factor Considered in Halt or Suspension

    Specifically, the CBOE proposes to amend Rules 6.3(a), 6.4(a) and 
24.7(a) to include the status of the trading rotation\8\ as a factor 
that may be considered in a decision whether to halt or suspend 
trading. Although not presently explicit in the CBOE rules, the 
Exchange states that its current practice includes consideration of the 
rotation status in deciding whether to halt or suspend trading. An 
explicit statement would notify members and the public that, when 
deciding whether to halt trading, Floor Officials may consider the 
extent to which the rotation has been completed and other factors 
regarding the status of the rotation. When deciding whether to suspend 
trading, the Board of Directors similarly would be able to consider the 
extent to which the rotation is complete and other factors regarding 
the status of the rotation.

    \8\A ``trading rotation'' is a series of very brief time periods 
during which bids, offers, and transactions in only a single, 
specific option contract can be made. See CBOE Rule 6.2.
B. Regulatory Halt or Suspension

    CBOE further proposes to add Interpretation .04 to Rule 6.3 and 
Interpretation .01 to Rule 6.4 to reflect the current CBOE practice 
that, in general, trading in a stock option will be halted when a 
regulatory halt in the underlying stock has occurred in the primary 
market for that stock. Pursuant to Rule 6.3, any two Floor Officials 
may halt trading in any security in the interests of a fair and orderly 
market for a period not in excess of two consecutive business days. 
Similarly, the proposal reflects the current CBOE practice that, in 
general, trading in a stock option will be suspended when a regulatory 
suspension in the underlying stock has occurred in the primary market 
for that stock. In the case of a regulatory suspension, the Board of 
Directors is authorized under Rule 6.4 to suspend trading in any 
security in the interests of a fair and orderly market for an 
indefinite period.
    Rules 6.3 and 6.4 list factors considered in deciding whether to 
halt or suspend trading. While the factors listed are considered in 
deciding whether to halt trading, when a regulatory halt in the 
underlying stock has been declared in the primary market, generally the 
Exchange will halt or suspend trading in the overlying stock option. 
The Exchange believes that the close relationship between the 
underlying stock and the pricing of stock options overlying that 
security typically justify such a result. When a regulatory halt is 
declared in the underlying stock, it often is because some news is 
pending regarding the [[Page 30128]] underlying stock and the primary 
market wants to allow time for the dissemination of such news. For the 
same reason, the CBOE believes it generally is appropriate in that 
circumstance to halt trading in the overlying stock option.
    CBOE also proposes to amend Rules 6.3(a)(iii) and 6.4(a)(ii) to 
clarify that these rules are only applicable to non-option securities. 
Securities other than options include, for example, securities traded 
at CBOE that are subject to Chapter 30 of the CBOE Rules. Securities 
presently subject to Chapter 30 include stock, warrants (which term 
includes currency and index warrants except as otherwise expressly 
provided or as the context otherwise requires), UIT interests, and such 
other securities instruments and contracts as the Board of Directors 
may from time to time declare subject to Chapter 30. The Exchange 
believes the changes are necessary to clarify that Rules 6.3(a)(iii) 
and 6.4(a)(ii) do not apply to stock options or any other options 
traded at CBOE, but only to securities traded at CBOE other than 
options.

C. Circuit Breaker Halts and Subsequent Reopening Rotations

    The proposal also would rescind Rule 6.3A, which provides for a 
trading halt in all equity and index options when there has been a 
floor-wide New York Stock Exchange (``NYSE'') halt or suspension as a 
result of activation of circuit breakers on the NYSE. The CBOE believes 
that this rule is unnecessary because the only circumstances under 
which Rule 6.3A could apply are situations that Rule 6.3B already 
expressly governs. Presently, there are only two circuit breakers that 
lead to a New York Stock Exchange floor-wide halt; when there has been 
a decline in the Dow Jones Industrial Average of 250 or more points 
below the previous day's closing value, and when on the same day there 
is a cumulative decline of 400 or more points from the previous day's 
closing value. Rule 6.3B already governs trading halts under both of 
these circumstances. Under Rule 6.3B, the mandatory circuit breaker 
halt would terminate automatically after the expiration of the 
applicable one hour or two hour time period.
    The proposal would eliminate the requirements contained in Rule 
6.3A that, prior to a reopening rotation, (i) an additional 
determination must be made that a halt or suspension is not in effect 
in the primary market where the underlying security for each class of 
options is traded; (ii) a determination must be made, in the case of 
index options, that a halt or suspension is not in effect in the 
primary market of the securities constituting 50% or more of the index 
value; and (iii) two Floor Officials, in consultation with a designated 
senior executive officer, must conclude in their judgment that the 
interests of a fair and orderly market are served by a resumption of 
trading. The effect of this proposal is that after a circuit breaker 
halt, trading would resume automatically unless the Exchange 
affirmatively acted to declare a further halt or suspension pursuant to 
other rules, such as Rules 6.3, 6.4 or 24.7.
    CBOE believes that trading should generally resume after a circuit 
breaker halt, subject only to the rules regarding trading halts and 
suspensions. Pursuant to Rules 6.3, 6.4 and 24.7, a halt or suspension 
in the underlying security (to which Rule 6.3A refers) are among the 
factors considered in the decision to suspend or halt trading, but 
these factors do not necessarily require a halt or suspension nor limit 
the Exchange's ability to exercise judgment in these circumstances. 
CBOE believes that the interests of a fair and orderly market are 
better served when the rules allow Exchange officials the discretion to 
evaluate market conditions and circumstances and to exercise their 
judgment as to when to halt or suspend trading, without the 
restrictions on the exercise of that judgment that are contained in 
Rule 6.3A.
    The rescission of Rule 6.3A also removes the current requirement 
that, if trading is halted due to activation of circuit breakers, 
reopening rotations shall be held. Rule 6.3A makes a reopening rotation 
mandatory and prevents Exchange officials from reopening without a 
rotation. CBOE believes the interests of a fair and orderly market are 
better served when the rules allow Exchange officials the discretion to 
evaluate market conditions and circumstances and to exercise their 
judgment as to whether to reopen with or without a rotation.
    Procedures regarding reopening rotations after a halt triggered by 
circuit breakers will be added by amending Rule 6.3B, Interpretation 
.02. The amended Interpretation .02 would require a reopening rotation 
unless two Floor Officials, or an Order Book Official acting on 
authorization from a senior Exchange official, conclude it is 
appropriate under the circumstances to employ a different method of 
reopening, including but not limited to, no rotation, an abbreviated 
rotation, or a variation in the manner of the rotation. The senior 
Exchange official could authorize the order Book Officials to deviate 
from normal reopening rotation procedures by making a general 
announcement to all Order Book Officials. The CBOE believes it is 
reasonable to presume that a reopening rotation will be held after a 
circuit breaker halt because, after a floorwide halt, it is physically 
difficult to have two Floor Officials available at each trading post to 
make a decision regarding the resumption of trading. The Exchange 
believes that the presumption allows for a universal treatment of the 
reopening after a circuit breaker halt, yet still permits appropriate 
Exchange officials to exercise judgment to deviate from this presumed 
course of action when a different method of reopening is appropriate.
D. Corresponding Amendments to Regulatory Circulars

1. Regulatory Circular RG94-17
    The Exchange also proposes to amend Regulatory Circular RG94-17, 
which addresses inter-exchange procedures in volatile markets, to make 
the content of the circular consistent with the proposed amended 
Interpretation .02 to Rule 6.3B. Regulatory Circular RG94-17 discusses 
the CBOE's procedures during a halt in options trading due to a DJIA 
drop of 250 or more points below the previous day's closing trading 
value, or a cumulative drop of 400 points in the DJIA on the same day. 
Pursuant to the proposed change to Interpretation .02 to Rule 6.3B, 
after the expiration of the one or two hour period set forth in Rule 
6.3B, a reopening rotation would be held in each class of options 
unless two Floor Officials (or an Order Book Official acting upon 
authorization from a senior Exchange official) conclude a different 
method of reopening is appropriate. Additionally, Regulatory Circular 
RG95-17 would be amended to delete the requirements contained in Rule 
6.3A that, before reopening after a circuit breaker halt, the Exchange 
must verify that (1) there is no halt or suspension in effect in the 
primary market where the underlying stock is traded and (2) with 
respect to an index option, there is no halt or suspension in the 
primary market of the securities constituting 50% of the index.
2. Regulatory Circular RG93-58
    The CBOE further proposes to amend Regulatory Circular RG93-58, 
which addresses trading halt policy for options on individual equity 
securities, to make the circular consistent with the proposed amendment 
to Rule 6.3.\9\ Regulatory Circular RG93-58 would be further amended to 
state that it does not address the Exchange's trading halt 
[[Page 30129]] policy when a halt has been declared as a result of the 
operation of a circuit breaker pursuant to Rule 6.3B, due to a 250 or 
400 point intra-day drop in the DJIA.

    \9\Regulatory Circular RG93-58 is a reprint of Regulatory 
Circular RG92-40, dated July 8, 1992.
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    Consistent with Rule 6.3, Regulatory Circular RG93-58 would be 
amended to provide that two Floor Officials may exercise judgment 
regarding trading halts without the concurrence of a senior Exchange 
staff official. Presently, Rule 6.3 provides that a decision regarding 
whether to halt trading may be made by any ``two Floor Officials.'' 
This amendment would make the guidelines in Regulatory Circular RG93-58 
consistent with the Rule 6.3. The Exchange believes that Floor 
Officials need to be able to exercise their judgment without obtaining 
the concurrence of a senior Exchange staff official because it may be 
physically difficult for a senior Exchange staff official to be present 
at all trading posts during circumstances where a trading halt may be 
simultaneously necessary in multiple options classes.
    Regulatory Circular RG93-58 provides Floor Officials with non-
mandatory guidelines to assist them in their decision regarding a 
trading halt. Pursuant to Rule 6.3, ``[a]ny two Floor Officials may 
halt trading in any security in the interests of a fair and orderly 
market.'' Rule 6.3 permits Floor Officials to exercise judgment and 
discretion in deciding whether to halt trading. The language of rule 
6.3 is discretionary and does not require that Floor Officials declare 
a trading halt. The proposed amendments to Regulatory Circular RG93-58 
delete language that would limit Floor Official's discretion by 
imposing mandatory criteria.
    The proposal would further amend Regulatory Circular RG93-58 to 
reflect the CBOE's general practice, as set forth in the proposed 
interpretation to Rule 6.3, to halt trading in an overlying stock 
option when a regulatory halt in the underlying stock has been declared 
in the primary market for that stock.
    Regulatory Circular RG93-58 would be further amended to delete the 
requirement that, in connection with a halt due to no last sale and/or 
quotation dissemination either by the Exchange or the Options Price 
Reporting Authority (``OPRA''),\10\ trading may only resume 15 minutes 
after notification to the news wire services. The guidelines provide 
that the news wire services will be notified of the dissemination 
difficulty.

    \10\OPRA is a National Market System Plan approved by the 
Commission pursuant to Section 11A of the Act and Rule 11Aa3-2. 
Securities Exchange Act Release No. 17638 (March 18, 1981).
    OPRA provides for the collection and dissemination of last sale 
and quotation information on options that are traded on the five 
exchanges participating in the plan. The exchanges include the CBOE, 
the Philadelphia Stock Exchange, the American Stock Exchange, the 
Pacific Stock Exchange, and the New York Stock Exchange.
    The OPRA plan was implemented in response to directives of the 
SEC that provisions be made for the consolidated reporting of 
transactions in eligible options contracts listed and traded on 
national securities exchanges.
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    However, under such circumstances, since trading presumably would 
have been proceeding in other markets, it is important for the options 
market to resume trading as soon as practical after the dissemination 
difficulty which led to the halt is no longer present. CBOE believes 
that waiting 15 minutes to resume trading would be inordinately long 
and may be contrary to the interests of a fair and orderly market. 
Nonetheless, the proposed amendments would specifically state CBOE's 
general practice to notify member firms and news wire services before 
the resumption of trading.
    The language in paragraph one of Regulatory Circular RG93-58 would 
be further amended to clarify that there is a preference, but not a 
requirement, to halt trading if two Floor Officials believe that the 
dissemination problem will last more than 15 minutes. Additionally, the 
language would be amended to limit the discretion of the Floor 
Officials by requiring the concurrence of a senior Exchange official if 
two Floor Officials want to permit trading to continue for more than 15 
minutes after a failure of last sale and/or quotation dissemination. 
The language would be further amended to clarify that, if the two Floor 
Officials believe that the dissemination problem will be resolved 
within the next 15 minutes, then there is no preference for a halt--
even if that expectation proves to be incorrect. The present language 
would be further amended to clarify that trading ordinarily will 
continue if two Floor Officials believe it is likely the dissemination 
problem will be resolved in less than 15 minutes. The present language 
appears to require trading to continue under such circumstances. Again, 
the Exchange believes these guidelines should not limit Floor 
Officials' discretion, since Rule 6.3 provides for discretion in such 
circumstances. If a systems problem prevented CBOE or OPRA from 
disseminating CBOE's last sale or quote data, this would be an unusual 
market condition and, pursuant to Rule 6.3, two Floor Officials may 
halt trading.
    The CBOE proposes to delete the requirement in paragraph four of 
Regulatory Circular RG93-58 that, in connection with a primary market 
floor-wide trading halt not subject to Rule 6.3B, and despite the 
determination by two Floor Officials that sufficient markets will 
support trading other than at the primary market, trading may resume 
only upon a one hour notification to the news wire services. Again, 
since trading of the underlying stock is continuing at an exchange 
other than the primary exchange, the CBOE believes that waiting one 
hour to resume options trading at the CBOE could be inordinately long 
and might be contrary to the interests of a fair and orderly market. 
Instead, paragraphs one and six of Regulatory Circular RG93-58 would be 
amended so that the guidelines for the resumption of trading would be 
consistent with Rule 6.3(b), which provides that trading in a security 
that has been the subject of a halt may resume upon a determination by 
two Floor Officials that the conditions which led to the halt are no 
longer present, or that the interests of a fair and orderly market are 
best served by a resumption of trading. However, the proposed 
amendments would specifically state CBOE's general practice to notify 
member firms and news wire services before the resumption of trading.

E. RAES

    Finally, the proposal would add Interpretation .05 to Rule 6.3 to 
grant authority to the senior person then in charge of the Exchange's 
Control Room to turn off RAES with respect to a stock option if that 
senior person confirms that the Control Room has received a credible 
indication (including, but not limited to, a verified report from the 
trading crowd)\11\ that trading in the underlying stock has been halted 
or suspended. After exercising such authority, that senior person would 
[[Page 30130]] need to immediately seek confirmation of this decision 
from two Floor Officials. The purpose of this interpretation is to 
prevent orders from being placed on RAES during the interval after the 
trading in the underlying stock has been halted or suspended but before 
two Floor Officials have declared a trading halt pursuant to Rule 
6.3(a) or before a Post Director or Order Book Official has suspended 
trading pursuant to Interpretation .01 to Rule 6.3. The CBOE believes 
this provision is necessary because, if trading in a stock is halted 
due to pending news, the effect of the news may be anticipated and, 
while Floor Officials are being called to a post to decide whether to 
halt trading, orders could still be placed on RAES. Under the current 
Interpretations to Rule 6.3, the Post Director or Order Book Official 
must turn off RAES concurrently with any suspension of trading. If an 
``ST'' symbol (for an exchange listed security) or an ``H'' symbol (for 
a security traded primarily in the over-the-counter market) is 
displayed on the Class Display Screen that displays current market 
information for the underlying security, the Order Book Official or 
Post Director may suspend trading in the related equity option for a 
period not to exceed five minutes and concurrently shall turn off RAES 
for the affected options class or classes.\12\ The Control Room, 
however, may receive information that trading has stopped in the 
underlying stock before the Post Director or Order Book Official sees 
the ``ST'' symbol or ``H'' symbol on the Class Display Screen for the 
underlying stock. Consequently, the CBOE believes it is important for 
the Control Room to have authority to turn off RAES without being 
required to wait for the Post Director or Order Book Official to act, 
or in a circumstance where the senior person in charge of the Control 
Room confirms that the Control Room has received a credible indication 
that trading in the underlying stock has been halted or suspended.

    \11\CBOE represents that if information of a trading halt or 
suspension comes from the trading crowd or from a source other than 
authoritative information in the Control Room, the senior person in 
charge of the Control Room would first attempt to independently 
verify the information before turning off RAES. To verify the 
existence of a trading halt or suspension, the senior person in 
charge of the Control Room would seek to identify and obtain 
authoritative information in the Control Room, including (1) the 
quote of the underlying security being pulled from the Class Display 
Screen, (2) an ST or H appearing on the Class Display Screen via the 
Consolidated Tape, (3) a print-out in the Control Room confirming 
the halt or suspension of trading in the underlying security, and 
(4) notification of the trading halt or suspension via the ``Hoot 
and Holler'' system. The Hoot and Holler system is a voice linkage 
between all of the exchanges and the Commission. Telephone 
conversation between Edward Joyce, Executive Vice President, CBOE, 
and John Ayanian, Attorney, OMS, Market Regulation, Commission, on 
February 16, 1995.
    \12\See Securities Exchange Act Release No. 34126 (May 27, 
1994), 59 FR 29309 (June 6, 1994) (Approval Order giving the Order 
Book Officials or the Post Director the authority to suspend 
trading, and to turn off RAES for the affected options class or 
class whenever trading in the underlying security is halted).
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    The proposal provides that the Post Director, Order Book Official, 
or their representative will re-start RAES after the trading halt or 
suspension has ceased. This would be consistent with Rules 6.8(f) and 
24.15(f), which provide that each day RAES is available, a Post 
Director or his representative will start RAES.
III. Commission Finding and Conclusions

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange. In particular, 
the Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act\13\ which requires, among other things, that 
the rules of an exchange be designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market and a national market system, while protecting 
investors and the public interest.

    \13\15 U.S.C. 78f(b)(15).
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    Specifically, the Commission believes it is appropriate to amend 
Rules 6.3(a), 6.4(a) and 24.7(a) to include the status of the trading 
rotation as a factor that may be considered in a decision whether to 
halt or suspend trading. The Commission notes that there may be 
circumstances in which it could be in the interest of a fair and 
orderly market to complete a rotation before calling a halt or 
suspension in trading. For example, CBOE officials may want to consider 
the status of a trading rotation in the event of extreme market 
volatility or a pending news announcement. Allowing Floor Officials, in 
the case of a trading halt, and the Board of Directors, in the case of 
a suspension of trading, to evaluate the status of the rotation in 
determining whether to halt or suspend trading may contribute to their 
evaluation of how best to maintain a fair and orderly market.
    The Commission further believes that it is appropriate to add 
Interpretation .04 to Rule 6.3 and Interpretation .01 to Rule 6.4 to 
state that, in general, trading in a stock option will be halted or 
suspended when a regulatory halt or suspension in the underlying stock 
has occurred in the primary market for that stock. The Commission 
believes that a general practice whereby trading is halted on the CBOE 
when investors lack access to current pricing information in the 
primary market for the underlying stock, should contribute to the 
maintenance of fair and orderly markets. Moreover, the Commission 
believes that the CBOE's proposal to amend its Regulatory Circular 
RG93-58 to parallel the provisions of Interpretation .04 to Rule 6.3 
and Interpretation .01 to Rule 6.4 will help make such procedures 
readily known and available to floor members.
    The Commission further believes that it is appropriate to amend 
Rules 6.3(a)(iii) and 6.4(a)(ii) to clarify that these rules are only 
applicable to non-option securities. Currently, Rule 6.3(a)(iii) and 
Rule 6.4(a)(ii) state that the rules apply to any security other than a 
stock option. The Commission believes that the amendments clarify the 
proper application of the rule to non-option securities such as stock, 
UIT interests, and warrants.
    Further, the Commission believes that it is appropriate to rescind 
Rule 6.3A, which provides for a halt in trading of all equity and index 
options when there has been a floor-wide New York Stock Exchange halt 
or suspension as a result of activation of circuit breakers on the New 
York Stock Exchange. The Commission understands that the only 
circumstances under which Rule 6.3A could apply are situations that 
Rule 6.3B already expressly governs and, as a result, the rule is 
redundant. The rescission of Rule 6.3A will have the effect of removing 
the mandatory reopening rotation (and related procedures) following a 
floor-wide NYSE trading halt. However, the Commission believes that the 
proposed amendment to Interpretation .02 to Rule 6.3B appropriately 
addresses this circumstance. Interpretation .02 to Rule 6.3B requires a 
reopening rotation in each class of options following a circuit breaker 
halt unless two Floor Officials (or an Order Book Official acting upon 
authorization from a senior Exchange official) conclude that a 
different method of reopening is appropriate under the circumstances, 
including but not limited to, no rotation, an abbreviated rotation, or 
any other variation in the manner of the rotation. Moreover, the 
Commission believes that the CBOE's proposal to amend and redistribute 
Regulatory Circular RG94-17 to parallel the provisions of 
Interpretation .02 to Rule 6.3B, and notice the rescission of Rule 
6.3A, are necessary in order to notify to CBOE members of these 
reopening procedures.
    The Commission also believes it is appropriate to amend CBOE 
Regulatory Circular RG93-58 to reflect the discretion granted to Floor 
Officials in Rule 6.3, as amended. Currently, CBOE Regulatory Circular 
RG93-58 contains limiting language regarding the Floor Officials' 
discretion when addressing trading halt and resumption of trading 
procedures. The CBOE's proposed amendments to the Regulatory Circular 
address the need to provide parallel guidelines between the rules and 
regulatory circulars regarding trading halt and resumption of trading 
procedures.

[[Page 30131]]

    The Commission also believes that it is appropriate for the CBOE to 
add Interpretation .05 to Rule 6.3 to grant the authority to the senior 
person then in charge of the Exchange's Control Room to turn off RAES 
for a particular stock option if that senior person confirms that the 
Control Room has received a credible indication that trading in the 
underlying stock has been halted or suspended. The proposed rule change 
should protect investors and the public interest by enabling the senior 
person in charge of the Control Room to take prompt action in response 
to trading halts in underlying securities verified in the Control Room, 
before the ``ST'' or ``H'' symbol appears on the Class Display Screen, 
or the Post Director or Order Book Official has acted. The Commission 
notes that if information of an impending halt or suspension comes from 
the trading crowd or from a source other than authoritative information 
in the Control Room, the senior person in charge of the Control Room 
must first verify the information before turning off RAES.\14\

    \14\See supra note 11.
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    The Commission also finds good cause for approving Amendment No. 1 
to the proposed rule change prior to the thirtieth day after the date 
of publication of notice of filing thereof in the Federal Register. 
Specifically, Amendment No. 1 merely corrects a technical error in the 
proposed amendment to Rule 24.7. As filed, the proposed amendment 
showed ``no change'' to paragraph (c) of that rule. In fact, CBOE 
proposes to amend paragraph (c) to delete the reference to Rule 6.3A, 
because the rule change proposes the deletion of the latter rule in its 
entirety. Accordingly, the Commission believes it is consistent with 
Section 6(b)(5) of the Act to approve Amendment No. 1 to the CBOE's 
proposal on an accelerated basis.
    Additionally, the Commission finds good cause for approving 
Amendment No. 2 prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. This 
amendment clarifies that when the senior person in charge of the 
Control Room receives a report from the trading crowd that trading in 
the underlying stock has been halted or suspended in the primary 
market, the report from the trading crowd must first be verified before 
turning off the RAES system with respect to the stock option. The 
Commission believes that this amendment clarifies the responsibilities 
of the senior person in charge of the Control Room when invoking this 
interpretation and is substantially similar to the original proposal. 
Accordingly, the Commission believes that it is consistent with Section 
6(b)(5) of the Act to approve Amendment No. 2 to CBOE's proposed rule 
changes on an accelerated basis.
    The Commission also finds good cause for approving Amendment No. 3 
prior to the thirtieth day after the date of publication of notice of 
filing thereof in the Federal Register. Specifically, Amendment No. 3 
clarifies that, pursuant to Regulatory Circular RG93-58, two Floor 
Officials may permit trading to continue for more than 15 minutes after 
a failure of dissemination only with the concurrence of a senior 
Exchange official. The Commission believes that this amendment 
clarifies the scope of authority granted to the Floor Officials when 
invoking this provision and raises no new regulatory issues. 
Accordingly, the Commission believes that it is consistent with Section 
6(b)(5) of the Act to approve Amendment No. 3 to CBOE's proposed rule 
changes on an accelerated basis.
    Interested persons are invited to submit written data, views and 
arguments concerning Amendment Nos. 1, 2 and 3. 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 
NW., Washington, D.C. 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-95-05 and should be 
submitted by June 28, 1995.
    It is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule changes (File No. SR-CBOE-95-05), as 
amended, are approved.

    \15\15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\

    \16\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-13900 Filed 6-6-95; 8:45 am]
BILLING CODE 8010-01-M