[Federal Register Volume 61, Number 153 (Wednesday, August 7, 1996)]
[Notices]
[Pages 41196-41198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20085]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37505; File No. SR-CBOE-96-53]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by Chicago Board 
Options Exchange, Incorporated To Extend for an Additional Fifteen Day 
Period a Pilot Operation of a System for Monitoring News Announcements 
Made After the Close of Trading in the Primary Market for the 
Underlying Stock

July 31, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 30, 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 and to grant accelerated 
approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend for an additional 15 day period a 
pilot test of a system that, shortly before the close of trading each 
day, monitors news announcements pertaining to underlying securities, 
and automatically suspends the Exchange's automatic execution system in 
respect of options on those securities that are the subject of such 
announcements. 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.

[[Page 41197]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The Exchange proposes to extend for an additional 15 day period a 
pilot program to test an automated system that monitors news wires 
received at the Exchange shortly before the close of trading each day, 
and suspends the Exchange's automatic order execution system in a class 
of equity options whenever there is a news announcement pertaining to 
the security underlying options of that class.\3\ The Exchange notes 
that the purpose of the pilot is to permit the Exchange to evaluate a 
system designed to respond to the problem presented when issuers of 
stocks underlying options make significant news announcements during 
the ten minutes after the close of trading in stocks when options 
continue to trade (i.e., 3:00 to 3:10 central time). The system 
monitors news wires during this period, and automatically suspends the 
Exchange's Retail Automatic Execution System in the event of news 
announcements in order to prevent automatic executions at prices that 
do not reflect the news. The Commission approved the Exchange's 
proposal to test the system on a 30-day pilot basis, to allow the 
Exchange to monitor the effects of its operation, and then make a 
decision whether to request approval on a permanent basis. The Exchange 
agreed to submit a report to the Commission analyzing the pilot in 
connection with any request for permanent approval.
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    \3\ See Securities Exchange Act Release No. 37380 (June 28, 
1996) (SR-CBOE-96-37) (``News Monitoring Pilot Approval Order'').
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    CBOE commenced the pilot in 45 stocks on July 1, 1996, and 
gradually extended it to additional classes until, on July 17, 1996, 
the system was in effect for all classes of equity options traded on 
the Exchange. The Exchange believes the results are promising, but does 
not believe it has had sufficient experience with the operation of the 
system on a floor-wide basis to assess whether to request permanent 
approval of the system. The Exchange is preparing the report that will 
assist it, and the Commission, in evaluating the operation of the 
system during the pilot. In order to provide some additional time to 
evaluate the operation of the system and to prepare its report, the 
Exchange is requesting approval to operate the pilot for an additional 
15-day period. At the end of that period, CBOE will make a decision 
whether to request permanent approval. If the Exchange requests 
permanent approval, it will do so by submitting a proposed rule change 
pursuant to Section 19(b)(2) of the Act. The filing will be accompanied 
by a report of the Exchange's experience with the pilot, and may 
include a request to extend the pilot while the request for permanent 
approval is under consideration.
    CBOE believes that the 15-day extension of the pilot requested 
herein is consistent with the objectives of Section 6(b)(5) of the Act, 
in that it will enable the Exchange and the Commission to evaluate a 
system designed to assure that option orders are executed at fair 
prices in the event of significant news announcements, which is in the 
interest of promoting just and equitable principles of trade and 
protecting 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

    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) thereunder.
    The Commission believes that the Exchange's proposal provides a 
reasonable means to complete its evaluation of a system to address 
pending news announcements after the close of trading in the primary 
market for the underlying securities. The Commission notes that the 
Exchange has not reported any significant problems with the operation 
of the system to date, and that a 15-day extension of the pilot to 
complete its evaluation of the system is appropriate.
    As noted in the News Monitoring Pilot Approval Order, CBOE intends 
to evaluate the pilot in several respects to determine if it wants to 
implement the system on a permanent basis.\4\ The Exchange will provide 
the Commission with the analysis of the pilot.
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    \4\ The additional 15-day period commences on July 31, 1996 and 
expires at 3:10 p.m. central time on August 14, 1996. Any request 
for an extension of the pilot period or request for permanent 
approval of the system would have to be submitted to the Commission 
pursuant to Section 19(b)(2) of the Act.
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    The Commission finds good cause for approving this proposed rule 
change on an accelerated basis prior to the thirtieth day after the 
date of publication of notice thereof in the Federal Register. 
Specifically, the Commission believes that accelerated approval of the 
proposal is appropriate because it is to be implemented for an 
additional limited 15-day period which will provide CBOE with the time 
to complete its evaluation regarding the effectiveness of the system.
    Accordingly, the Commission believes that it is consistent with 
Section 6(b)(5) of the Act to approve the proposed rule change, as 
amended, or an accelerated basis.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing proposed rule change. 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-96-53 and should be 
submitted by August 28, 1996.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-CBOE-96-53), is hereby 
approved for an additional 15-day pilot period expiring on August 14, 
1996, on an accelerated basis.


[[Page 41198]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-20085 Filed 8-6-96; 8:45 am]
BILLING CODE 8010-01-M