[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Notices]
[Pages 33562-33564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16369]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37338; File No. SR-CBOE-96-28]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by Chicago Board 
Options Exchange, Incorporated Relating to the Selection of Underlying 
Securities on Which FLEX Equity Options May Be Traded on the Exchange

June 19, 1996
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on April 
22, 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 and 
II 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 amend CBOE Rule 24A.4(c)(1) governing the 
selection of underlying securities on which FLEX Equity Options may be 
traded on the Exchange to eliminate the requirement that the underlying 
securities must be the subject of Non-FLEX Equity Option trading on the 
Exchange.
    The text of the proposed rule change is available at the Office of 
the Secretary, CBOE and at the Commission.

[[Page 33563]]

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 CBOE proposes to trade FLEX Equity Options on qualified 
underlying securities that have been approved by the Exchange for 
options trading whether or not Non-FLEX Equity Options on those same 
underlying securities are traded on the Exchange. Under CBOE Rule 24A. 
4(c)(1), only those qualified and approved underlying securities that 
are the subject of Non-FLEX Equity Option trading on the Exchange may 
serve as underlying securities of FLEX Equity Options traded on the 
Exchange. In this respect, Rule 24A.4(c)(1) differs from the rules 
proposed by the American Stock Exchange (``Amex'') and the Philadelphia 
Stock Exchange (``Phlx'') in respect of FLEX Equity Option trading on 
those exchanges.\1\ Proposed Amex Rule 903G(c) and proposed Phlx Rule 
1069A(a)(1)(B) are substantively identical in that any options-eligible 
security, regardless of whether the security is the subject of Non-FLEX 
Equity Options traded on the exchange, may underlie a FLEX Equity 
Option. CBOE Rule 24A.4(c)(1), on the other hand, requires that an 
underlying security must be ``the subject of Non-FLEX equity Options 
traded on the Exchange'' to be eligible for FLEX Equity Options 
trading.
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    \1\ See Securities Exchange Act Release Nos. 37053 (March 29, 
1996), 61 FR 15537 (April 8, 1996) (File No. SR-Amex-95-57) and 
37048 (March 29, 1996), 61 FR 15549 (File No. SR-Phlx-96-08). See 
also Letter from Michael Pierson, Senior Attorney, Market 
Regulation, Pacific Stock Exchange (``PSE''), to John Ayanian, 
Attorney, Office of Market Supervision (``OMS''), Division of Market 
Regulation (``Market Regulation''), Commission dated April 26, 1996 
(proposing the same amendment to File No. SR-PSE-96-11).
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    CBOE initially believed it was appropriate to limit FLEX Equity 
Options to those underlying securities on which it provides a Non-FLEX 
Equity Options market. Such a limitation would likely facilitate 
market-making in FLEX Equity Options, and it would avoid investor 
confusion that could arise if an exchange were to maintain a market in 
one kind of option but not the other on the same underlying stock. CBOE 
incorporated this limitation in its rules in the expectation that other 
exchanges that saw fit to copy its FLEX Equity Options program in all 
other respects would include this provision in their rules as well. The 
CBOE believes that in order to remain competitive with the exchanges 
that propose to list Equity Option on eligible underlying securities 
regardless of whether that exchange lists Non-FLEX Equity Options 
overlying that security, the CBOE must submit a similar proposed rule 
change.
    By permitting CBOE to compete equally with other exchanges in 
listing FLEX Equity Options on qualified underlying securities, and in 
light of the Congressional finding embodied in Section 11A(a)(1)(C)(ii) 
of the Act that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure fair competition among exchange markets, the Exchange 
believes that the proposed rule change is consistent with and furthers 
the objectives of Section 6(b)(5) of that Act to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system 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. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    The Exchange has requested that the proposed rule change be given 
accelerated effectiveness pursuant to section 19(b)(2) of the Act. 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, and, in particular the 
requirements of Section 6(b)(5) and 11A thereunder. The Commission 
believes that the proposed rule change is reasonable in that it 
promotes fair competition among exchanges, consistent with Section 11A 
of the Act, and will perfect the mechanism of a free and open market 
and serve to protect investors and the public interest in accordance 
with Section 6(b)(5) of the Act.
    As noted above, as originally approved, the CBOE determined to 
restrict the trading of FLEX Equity Options to those options which were 
traded on the Exchange as Non-FLEX Equity Options. The CBOE rationale 
for this restriction was reasonable and the Commission therefore 
approved the restriction as consistent with the Act. The Commission 
believes, however, that the restriction is not mandated by the Act and 
that it is reasonable for the CBOE to conform its rules to those 
proposed by other competing markets seeking to establish FLEX Equity 
Options must still meet the eligibility requirements and criteria set 
forth in CBOE Rule 5.3. The change should also promote fair competition 
among exchange markets trading FLEX Equity Options by allowing CBOE to 
trade and compete for FLEX Equity Options order flow on more options 
eligible securities.
    The Commission finds good cause for approving this proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register. Specifically, the Commission 
believes that the CBOE proposal to conform its rules concerning the 
selection of underlying securities for FLEX Equity Option trading to 
the proposed rules of other exchanges on the same subject raises no new 
regulatory issues. Additionally, the Amex and Phlx proposals were 
subject to a full notice and comment period, and no comments were 
received. Accordingly, the Commission believes, consistent with Section 
6(b)(5) of the Act, that good cause exists, to approve the proposed 
rule change on an accelerated basis.

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

[[Page 33564]]

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. 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-96-28 and should be 
submitted by July 18, 1996.
    It is therefore ordered pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change is approved on an accelerated basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\2\
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    \2\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16369 Filed 6-26-96; 8:45 am]
BILLING CODE 8010-01-M