[Federal Register Volume 61, Number 68 (Monday, April 8, 1996)]
[Notices]
[Pages 15542-15543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8542]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37050; File No. SR-CBOE-96-15]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to the 
Placing of Orders Over the Outside Telephone Lines at the Equity 
Trading Posts

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 Regulatory Circular governing 
the use of member-owned or Exchange-owned telephones located at the 
equity trading post on the floor of the Exchange.\2\ The amendment 
would permit floor brokers to receive orders from CBOE market makers 
over outside telephone lines at the equity trading posts.

    \2\ The regulatory circular that governs the use of telephones 
at the equity trading posts was approved by the Commission on March 
2, 1994. See SR-CBOE-93-24, Exchange Act Release 34-33701 (March 2, 
1994), 59 FR 11336.
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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 policy 
currently governing the use of telephones at equity option trading 
posts by permitting market makers to place orders with floor brokers 
over the outside telephone lines.\3\ Currently, the telephone policy 
for the equity posts, which has been instituted pursuant to Exchange 
Rule 6.23,\4\ prohibits orders of any type to be entered via outside 
telephone lines. The policy for use of the telephones at the equity 
posts will remain unchanged in every other respect.

    \3\ Currently, the Exchange permits market makers to place 
orders with floor brokers via intra-floor lines.
    \4\ 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.
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    The Exchange has determined to make this change in the equity post 
telephone policy so that market makers may transmit their orders more 
efficiently even when they need to be off the floor to attend to 
personal or Exchange business. This change will permit the market 
makers to provide capital more quickly at option posts in the wake of 
news or market events and to hedge their positions in response to 
market news even when they are off the floor of the Exchange 
temporarily. The change will be particularly useful to those members of 
the Exchange that are often requested to attend meetings on Exchange 
matters during the trading day.
    The Exchange believes that Exchange rules will prevent this policy 
from being used by market makers to avoid standing in their respective 
crowds or to assume de facto an appointment in an option traded at 
another post. Under the proposed policy, orders placed over the outside 
telephone lines will be counted as off-floor orders for purposes of 
determining a market maker's compliance with the 80% requirement of 
Rule 8.7. Pursuant to Interpretation .03 of Rule 8.7, Obligations of 
Market-Makers, a market maker must execute in-person 80 percent of his 
total transactions to receive market maker treatment for off-floor 
orders. An order that receives market maker treatment is entitled to 
certain benefits, such as favorable margin treatment under Regulation 
T; this is a strong incentive for the market makers to satisfy the 80% 
requirement. In addition, consistent with Rule 8.7(a), orders placed by 
a market maker over the outside telephone lines at the equity posts 
should constitute a course of dealings reasonably calculated to 
contribute to the maintenance of a fair and orderly market. Also, 
Interpretation .03 of Rule 8.7 states that the off-floor orders for 
which a market maker receives market maker treatment shall be effected 
for the purpose of hedging, reducing risk of, rebalancing, or 
liquidating open positions of the market maker. Finally, Interpretation 
.03 to Rule 8.7 also generally requires a market maker to executive at 
least 25 percent of this total transactions in-person.
    Upon the approval of this new policy as a rule of the Exchange, the 
Exchange will publish a Regulatory Circular, substantially in the form 
attached hereto.
    As with the current policy governing the use of telephones at the 
equity trading posts, the Exchange intends to monitor compliance with 
these conditions by means by customary floor surveillance procedures, 
including reliance on surveillance by Floor Officials and Exchange 
employees. In addition, the Exchange will review on a weekly basis 
clearance data, as it does now, to assure that a market maker meets the 
80% in-person requirement.
    The Exchange believes that its proposal is consistent with and 
further the objectives of Section 6(b)(5) of the Securities Exchange 
Act of 1934 in that they are designed to improve communications to and 
from the Exchange's trading floor in a manner that promotes just and 
equitable principles of trade, prevents fraudulent and manipulative 
acts and practices, and maintains fair and orderly markets. In 
addition, the Exchange believes that this change in policy will enhance 
the Exchange's ability to provide capital where it is most needed on 
the Exchange floor and it will provide market makers with an efficient 
method to protect their portfolio even when they need to be off the 
floor.

(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.

[[Page 15543]]


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, N.W., 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, N.W., 
Washington, D.C. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organizations. All submissions should refer to File No. 
SR-CBOE-96-15 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. 96-8542 Filed 4-5-96; 8:45 am]
BILLING CODE 8010-01-M