[Federal Register Volume 61, Number 68 (Monday, April 8, 1996)]
[Notices]
[Pages 15543-15544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8549]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37051; File No. SR-CBOE-96-20]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Chicago Board Options Exchange, Incorporated Relating to FLEX 
Equity Options

March 29, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on March 18, 
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 CBOE. 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 amend certain rules pertaining to FLEX Equity 
Options. The text of the proposed rule change is available at the 
Office of the Secretary, 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, CBOE 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 CBOE 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 Exchange proposes to amend two rules pertaining to FLEX Equity 
Options. First, the Exchange proposes to amend Interpretation and 
Policy .05 under Exchange Rule 5.5 in order to provide that new series 
of FLEX Equity options may be opened during the month in which they 
will expire, so long as options of that series expire no earlier than 
the day following the day the series is added. The Exchange believes 
that this will provide maximum flexibility to users of FLEX Equity 
Options, while avoiding the administrative costs that would be 
associated with options that expire on the day they are issued.
    Second, the Exchange proposes to amend Rule 24A.5(e) in order to 
provide a minimum right of participation to Exchange members who 
initiate Requests for Quotes in respect of FLEX Equity Options and 
indicate an intention to cross or act as principal on the trade, 
similar to the right of participation that applies under existing 
Exchange rules in respect of FLEX Index Options. Under existing Rule 
24A.5(e)(iii), a member who submits a Request for Quotes in respect of 
a FLEX Index Option and indicates an intention to cross or act as 
principal on the trade, and who matches the current best bid or offer 
(``BBO'') during the BBO Improvement Interval, has priority to execute 
the contra side of the trade up to the greater of (i) one-half of the 
trade, (ii) $1 million Underlying Equivalent Value, or (iii) the 
remaining Underlying Equivalent Value on a closing transaction valued 
at less than $1 million. If the member improves the BBO and any other 
FLEX-participating member matches the improved BBO, the submitting 
member has priority to execute the contra side of the trade up to the 
greater of (i) two-thirds of the trade, (ii) $1 million Underlying 
Equivalent Value, or (iii) the remaining Underlying Equivalent Value on 
a closing transaction valued at less than $1 million. By contrast, 
under current Exchange rules no priority right of participation in a 
principal or agency cross is given to a member who submits a Request 
for Quotes in respect of a FLEX Equity Option, even if the submitting 
member matches or improves the BBO.
    The proposed rule change would provide that a member who submits a 
Request for Quotes in respect of a FLEX Equity Option and indicates an 
intention to cross or act as principal on the trade, and who matches or 
improves the BBO during the BBO Improvement Interval, has a priority 
right to execute the contra side of the trade for at least twenty-five 
percent (25%) of the trade.\1\ The Exchange believes that the proposed 
rule change will encourage members to bring FLEX Equity Option orders 
to CBOE and to commit their capital to the FLEX Equity Options market 
on CBOE, and thereby contribute to the liquidity of that market, by

[[Page 15544]]
guaranteeing them a minimum right of participation in the other side of 
any trade they bring to the market if they are prepared to match or 
improve the BBO.

    \1\ The proposed rule change amends the language of Rule 
24A.5(e) to state that a submitting member will ``have priority'' to 
execute the specified share of a trade, instead of that he will ``be 
permitted'' to execute that share, in order to clarify that a member 
may cross more than the designated share as to which he has priority 
if no one else is willing to trade at the same or a better price.
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    The Exchange believes that by providing investors with the 
flexibility to request quotes for options that expire as early as the 
day following the day they are issued, and by encouraging members to 
submit requests for quotes in FLEX Equity Options and to commit capital 
to CBOE's FLEX Equity Option market, the proposed rule change furthers 
the objectives of Section 6(b)(5) of the Securities Exchange Act of 
1934 to remove impediments to and perfect the mechanism of a free and 
open market in securities, and to protect investors and the public 
interest.

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

    CBOE 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

    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, 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 in 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 CBOE. All submissions 
should refer to File No. SR-CBOE-96-20 and should be submitted by April 
29, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\2\

    \2\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-8549 Filed 4-5-96; 8:45 am]
BILLING CODE 8010-01-M