[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Notices]
[Pages 17743-17745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9804]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37117; International Series Release No. 968; File No. 
SR-CBOE-96-23]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Chicago Board Options Exchange, Incorporated Relating to 
Permits to Trade Options on the Indice de Precios y Cotizaciones

April 16, 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 April 15, 
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 Exchange proposes to adopt new Exchange Rule 3.26 and related 
definitions in Rule 1.1 to authorize the issuance of 33 permits (``IPC 
Permits'')--one to each firm that was a member of the Bolsa Mexicana de 
Valores (``Bolsa'') as of January 1, 1996 (``Bolsa members'' or ``IPC 
Permit Holders'')--and to set forth the rights and obligations 
appurtenant to the IPC Permits. The listing and trading of IPC Options 
by the Exchange is the subject of a separate rule filing, SR-CBOE-96-
09, which was noticed by the Commission in Securities Exchange Act 
Release No. 34-36920 (March 5, 1996), 61 FR 10043 (March 12, 1996).
    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, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed

[[Page 17744]]

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 Exchange 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 has entered into a license agreement with Bolsa 
(``License Agreement'') pursuant to which Bolsa has licensed the 
Exchange to trade options on the IPC (``IPC Options''). In 
consideration for the grant of this license, CBOE has agreed, among 
other things, to issue the ipc Permits to the Bolsa members.
    The IPC Permits, which will be non-leasable and non-transferable, 
could be used in one of two alternative ways. First, an IPC Permit 
Holder who wanted direct access to the CBOE trading floor in respect of 
IPC Options could exercise its permit on behalf of itself, if it is 
qualified and approved for membership on CBOE, or on behalf of a 
subsidiary that is qualified and approved for membership on CBOE. 
(Qualifications for membership are spelled out in CBOE's rules. Among 
other things, Rule 3.3(a) requires a member to be organized under the 
laws of one of the United States or under such other laws as the CBOE 
Board of Directors shall approve and to be a U.S. registered broker-
dealer.) The organization on whose behalf an IPC Permit is exercised is 
referred to as an ``IPC Permit Exerciser'' under proposed Rule 1.1(yy). 
Assuming the IPC Permit Exerciser is approved for membership in 
accordance with CBOE rules, it will have all the rights and privileges 
of CBOE membership under CBOE's rules with respect to IPC Options--
including the right to have a nominee appointed as a market maker or 
floor broker with respect to IPC Options. The IPC Permit Exerciser will 
also have all of the limitations and obligations of members, including 
the obligation to comply with CBOE rules and the federal securities 
laws, and will be subject fully to CBOE's enforcement jurisdiction. For 
example, nominees of an IPC Permit Exerciser would be required to 
complete CBOE member firm orientation and would be required to comply 
with the requirements set forth in Chapter IX of the Exchange rules in 
order to conduct a public customer business. IPC Permit Exercisers 
would also be subject to the Exchange's limitation of liability rules--
Rule 6.7, Rule 7.11, and Rule 24.12--to the same extent as regular 
members.
    IPC Permit Exercisers would not have certain rights of membership 
and would be subject to certain limitations that do not apply to 
regular Exchange members. IPC Permit Exercisers would not be deemed to 
be members of CBOE for purposes of the General Corporation Law of 
Delaware, CBOE's Certificate of Incorporation, or CBOE's Constitution. 
Thus, IPC Permit Exercisers will have no property interest in the 
Exchange, no voting rights, and will not be eligible as members for 
election to the Board of Directors (although they will be eligible for 
membership on the committees established pursuant to CBOE Rule 2.1). 
IPC Permit Exercisers would also not be permitted to enter into 
transactions or to give orders for any CBOE product other than IPC 
Options while on the floor of the Exchange.\1\
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    \1\ The Exchange will issue IPC Permit Exercisers with badges of 
a distinctive color so that the limited authority of these traders 
will be evident on the floor to other market participants and Floor 
Officials. The Exchange expects, therefore, that these market 
participants and Floor Officials will be able to ensure that IPC 
Permit Exercisers do not engage in activity prohibited by Exchange 
rules. In addition, the Exchange is contemplating the issuance of 
distinctive acronyms to IPC Permit Exercisers so that Exchange staff 
will be able to surveil more effectively and easily for illegal 
activity through a review of trade reports.
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    An IPC Permit Holder which does not exercise its permit would not 
have the rights or obligations of CBOE membership. However, CBOE has 
agreed, as part of the consideration given by it in order to obtain the 
license of IPC from Bolsa, that if an IPC Permit Holder traded IPC 
Options for its own account through a CBOE member (including an IPC 
Permit Exerciser), that IPC Permit Holder would be charged transaction 
fees for those trades at the same rates as the transaction fees for 
CBOE member firm proprietary trades. The Exchange does not believe that 
this would be an unfair discrimination among non-members or would 
constitute an inequitable allocation of Exchange fees. First, as 
mentioned above, this is part of the consideration which Bolsa has 
required from the Exchange in exchange for Bolsa's grant of a license 
of IPC. The IPC Index has been built up and has gained recognition and 
value largely through the efforts of Bolsa, and the reduction in 
transaction fees is not an inappropriate consideration for Bolsa's 
efforts. (In this respect, the transaction is not unlike that by which 
CBOE was originally created through the efforts of the Chicago Board of 
Trade, in exchange for which CBOE gave Board of Trade members the right 
to membership on CBOE.) Second, the reduction in transaction fees is 
extremely limited. It is limited to transactions in IPC Options and 
will not extend to any other CBOE product. It is limited to the 
proprietary trades of those Bolsa members who do not exercise their IPC 
Permits; as a result, it does not give any Bolsa member a competitive 
advantage in seeking to obtain the business of customers. It is limited 
to the 33 firms which were Bolsa members as of January 1, 1996, and a 
number of those 33 firms will either become IPC Permit Execisers or are 
already members of, or are affiliated with members of, CBOE. Because of 
these limitations, it is anticipated that the actual amount of money by 
which CBOE fees will be reduced will be very small.
    The proposed rules changes are consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act'') in general and further 
the objectives of Section 6(b)(5) in particular in that they will grant 
special access to the Exchange's floor, subject to the Rules of the 
Exchange, in respect of IPC Options to a group of persons (i.e., the 
Bolsa members) who are likely to provide increased liquidity for the 
market in the IPC Options.

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
inappropriate burden on completion. For the reasons stated above, CBOE 
believes that there is a reasonable basis for the difference in 
Exchange fees to be paid by IPC Permit Holders who do not exercise 
their IPC Permits and other non-members in respect of proprietary 
trades in IPC Options and that such difference does not impose a 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:

[[Page 17745]]

    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 25049. 
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 the CBOE. All 
submissions should refer to the file number in the caption above and 
should be submitted by May 13, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. 17 CFR 200.30-3(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. 96-9804 Filed 4-19-96; 8:45 am]
BILLING CODE 8010-01-M