[Federal Register Volume 61, Number 68 (Monday, April 8, 1996)]
[Notices]
[Pages 15540-15542]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8541]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37049; File No. SR-CBOE-96-14]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to the 
Telephone Policy for the S&P 100 (``OEX'') Options Post

March 29, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 12, 1996, 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 self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
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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 policy governing the use of 
member-owned or Exchange-owned telephones located at the trading post 
where options on the Standard & Poor's 100 Stock Index (``OEX 
Options'') are traded \2\ by relaxing the restriction on the use of the 
telephones to receive orders and by relaxing the prohibition on the use 
of post telephones to receive incoming calls. In addition, the Exchange 
is amending Rule 6.70 to make clear that a Floor Broker may receive 
orders from non-member registered broker-dealers without satisfying the 
additional requirements necessary to take orders from public customers.

    \2\ The Regulatory Circular setting forth the OEX telephone 
policy initially was filed by the Exchange as SR-CBOE-95-15 (noticed 
in Securities Exchange Act Release No. 35725 (May 17, 1995)) on May 
12, 1995, under paragraph (e)(6) of Exchange Act Rule 19b-4 and 
accordingly became effective upon the date of filing and operative 
30 days thereafter. The Exchange decided to re-file the policy for 
full Commission review in SR-CBOE-95-49. That second filing was 
approved by the Commission on December 1, 1995 (Securities Exchange 
Act Release No. 36546, 60 FR 63552 (December 11, 1995)).
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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 self-regulatory organization 
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 self-regulatory organization 
has prepared summaries, set forth in Sections (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 the Exchange's 
regulatory circular governing the use of telephones at the OEX trading 
post in two respects. First, the Exchange is relaxing the prohibition 
against brokers taking orders over the post telephones. Floor brokers 
who meet the requirements to do a public customers business, including 
the requirement that they be registered Representatives associated with 
a member organization which is qualified to do a public customer 
business under Chapter IX of the Exchange's rules, and who are approved 
by the Exchange to receive such telephone orders, would be permitted to 
take the orders of public customers.\3\ Floor brokers who are not 
qualified to do a public customer business would still be permitted to 
take the orders of registered broker-dealers, after receiving Exchange 
approval to take such telephone orders.\4\ Only phone lines dedicated 
to a particular floor broker who has been approved for such use by the 
Exchange may be used to receive orders.

    \3\ In addition to the SEC net capital, recordkeeping, and 
financial reporting requirements applicable to member organizations, 
a member or associated person transacting business with the public 
must satisfy other requirements including, receiving approval of the 
Membership Committee, participating in certain education programs, 
and passing a test concerning the handling of customer accounts.
    \4\ Floor brokers who intend to receive orders only from other 
Exchange members or other registered broker-dealers for their own 
accounts need not qualify to do a public customer business under 
Chapter IX, but still have to apply for approval to take orders over 
a floor telephone.

[[Page 15541]]

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    In File No. SR-CBOE-95-49, the Exchange expressed its concern 
regarding the ability of floor brokers to receive orders over the 
telephones by stating that it was concerned about ``how to provide 
customers with access to the trading floor on a fair and 
nondiscriminatory basis, how to assure that persons on the floor are 
qualified to receive orders directly from customers, and how to surveil 
order-taking activity conducted over floor telephones.'' The Exchange 
does not believe that its proposal will have a significant effect on 
customers access, given that calls now come into member firm booths, 
some of which are located just outside of the OEX post. In fact, 
allowing calls to come directly to the post eliminates the existing 
disparity between those members whose booths are adjacent to the post 
and those whose booths are further away. The Exchange believes it will 
be a business decision of the individual floor brokers and their member 
firms whether to use telephones at the OEX post, and that will 
determine customer access. Moreover, under the current system, 
brokerage firms already decide which customers may call them at the 
booth telephones. Therefore, this policy change should not represent a 
material departure from the current state of customer access. The 
Exchange's Department of Compliance will maintain a list of floor 
brokers who are approved to receive orders over telephone lines at the 
post. The Exchange will rely on floor officials and other members in 
the OEX trading crowd to surveil activities of floor brokers to assure 
compliance with these requirements.
    A second change to the current policy involves relaxing the 
prohibition against receiving incoming calls to accommodate the receipt 
of orders. In File No. SR-CBOE-95-49, the Exchange stated that it 
``intends to consider these issues in the near future, and depending on 
its conclusions, the Exchange may determine to revise or eliminate 
these conditions.'' In fact, over the ensuing months, the Exchange has 
held a number of meetings to reconsider these conditions on the OEX 
post telephone before it decided to amend the policy. Only those 
telephone lines at the OEX post that are dedicated to the exclusive use 
of a floor broker who is approved to receive orders will be enabled to 
receive incoming calls. Under the proposal, only floor brokers who have 
been approved to receive orders would be permitted to receive incoming 
calls. At this point, the Exchange, however, is reviewing this policy 
and expects to decide soon whether or not market-makers at the OEX post 
also should be permitted to receive incoming calls.
    Pursuant to these proposed changes to the CBOE's telephone policy, 
two of the seven conditions from the Exchange's existing regulatory 
circular will be amended to read as follows:

     The telephones may not be used to receive orders except 
for those telephones dedicated to a particular floor broker who has 
been approved for such use by the Exchange. Only persons qualified 
to receive public customer orders may take such orders over the 
telephones. Quotations that have been publicly disseminated pursuant 
to Rule 6.43 may be provided from any of the telephones.
     Incoming calls are only permitted at the OEX post on 
the telephone lines of floor brokers who have been approved to 
receive calls by the Exchange.

    To accommodate the receipt of orders, Rule 6.70, Floor Broker 
Defined, is being amended to state that a floor broker may receive 
orders from registered broker-dealers without satisfying the additional 
requirements necessary to take orders from public customers. Currently, 
Rule 6.70 states that a floor broker may only receive orders either 
from: (1) members, or (2) public customers, if, in the case of public 
customer orders, that floor broker is either the nominee of, or has 
registered his individual membership for, a member organization 
approved to transact business with the public in accordance with Rule 
9.1. Orders from non-member registered broker-dealers do not fit into 
either of the above categories; they are not considered public customer 
orders and are not, by definition, orders of members.
    The CBOE also proposes to amend Rule 6.70 to state explicitly the 
CBOE Rule 9.3 requirements that a floor broker seeking to transact 
business with the public must complete successfully an examination 
demonstrating adequate knowledge of the securities business. Currently, 
a floor broker must complete successfully the Series 7 examination to 
transact business with the public.
    The CBOE believes that the proposed rule change will enhance 
communications between the OEX post and the public and provide faster 
execution for orders. The Exchange believes, however, that its proposal 
does not raise any regulatory concerns beyond those already presented 
by the current system. For the foregoing reasons, the Exchange believes 
the rule proposal is consistent with and furthers the objectives of 
Section 6(b)(5) of the Act, in that it is designed to perfect the 
mechanisms of a free and open market and to protect investors and the 
public interest by providing better access to the OEX post.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed 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

    Written comments on the proposed rule change were neither solicited 
nor received.

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 NW., 
Washington, D.C. Copies of such filing will also be available for 
inspection and copying at the principle office of the above-mentioned 
self-regulatory organization. All submissions should refer to File No. 
SR-CBOE-96-14 and should be submitted by April 29, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\

    \5\ 17 CFR 200.30-3(a)(12) (1994).
    
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-8541 Filed 4-5-96; 8:45 am]
BILLING CODE 8010-01-M