[Federal Register Volume 61, Number 171 (Tuesday, September 3, 1996)]
[Notices]
[Pages 46497-46498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22358]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37612; File No. SR-CBOE-96-51]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Chicago 
Board Options Exchange, Incorporated Relating to Eligibility 
Requirements for Participation on the RAES System in SPX Options

August 27, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on July 26, 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 self-
regulatory organization. On August 22, 1996, the Exchange filed with 
the Commission Amendment No. 1 to the proposed rule change.\3\ 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, as amended.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 is a technical amendment clarifying the term 
``preceding month'' as used in Rules 24.16 and 24.17. See letter 
from Timothy Thompson, Senior Attorney, CBOE to John Ayanian, 
Attorney, Office of Market Supervision, Division of Market 
Regulation, Commission, dated August 20, 1996.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to conform the qualifications that members 
participating through joint accounts must meet in order to participate 
on the Retail Automatic Execution System (``RAES'') in Standard & 
Poor's 500 options (``SPX'') to those qualifications that must be met 
by market-makers trading on RAES through their individual accounts.\4\ 
Pursuant to the change, members of joints accounts who execute at least 
50%, instead of 75% (as Rule 24.16 currently states), of their market-
maker contracts for the preceding calender month in SPX may participate 
on RAES. The text of the proposed rule change is available at the 
Office of the Secretary, CBOE and at the Commission.
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    \4\ See Securities Exchange Act Release No. 37348 (June 21, 
1996), 61 FR 33788 (June 28, 1996) (File No. SR-CBOE-96-19).
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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

1. Purpose
    The purpose of the proposed rule change is to amend the 
qualifications for members of joint accounts to participate in SPX 
RAES.\5\ Specifically, the Exchange is proposing to specify that 
market-makers participating in RAES through joint accounts must meet 
the same eligibility requirements for market-makers participating 
through individual accounts. Currently, the one difference in the 
requirements is that each member of a joint account that participates 
on RAES must execute at least 75% of his or her market-maker contracts 
for the preceding month in SPX, while those participating through 
individual accounts have a 50% requirement, as recently approved by the 
Commission.\6\
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    \5\ RAES is the Exchange's automatic execution system for small 
(generally less than 10 contracts) public customer market or 
marketable limit orders. When an order is entered through RAES, the 
system automatically attaches to the order its execution price, 
determined by the prevailing market quote at the time or the order's 
entry into the system. A buy order pays the offer; a sell order 
sells at the bid. An eligible SPX market-maker who is signed onto 
the system at the time the order is received will be designated to 
trade with the public customer order at the assigned price.
    \6\ See Release No. 34-37348, supra note 4.
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    The Exchange notes that at the time it proposed to change the 
eligibility requirements for market-makers participating in RAES 
through individual accounts, the Exchange intended to make the same 
eligibility change for market-makers participating in RAES through 
joint accounts. Through an oversight, however, the Exchange did not 
revise the Rule 24.16(c)(i) language describing the eligibility 
requirements for market-makers participating in joint accounts.
    The Exchange believes that the rational for minimum eligibility 
requirements is the same for market-makers participating through 
individual accounts and those participating through joint accounts. 
Accordingly, the Exchange believes that the minimum eligibility 
requirements for individual and joint accounts should be set at the 
same threshold. In both cases, the eligibility requirements generally 
ensure that those market-makers who are satisfying the public customer 
orders at the prevailing bid or offer are the same market-makers who 
have made a commitment to make markets on a regular basis at the SPX 
post.
    The Exchange notes that whether a particular market-maker 
participates in

[[Page 46498]]

RAES through an individual or a joint account is a business decision of 
the market-maker, and should not affect that market-maker's eligibility 
to participate in RAES. The Exchange believes that without making this 
change to equalize the eligibility requirements, those market-makers 
who, for business reasons, have decided to participate through joint 
accounts would have stricter eligibility requirements than those 
market-markers participating on RAES through individual accounts.
2. Statutory Basis
    By equalizing the eligibility requirements of all market-makers to 
participate on SPX RAES, the CBOE believes that the proposed rule 
change will treat all market-makers more fairly. As such, the Exchange 
believes the rule proposal is consistent with and furthers the 
objectives of Section 6(b)(5) of the Act, in that it is designed to 
perfect the mechanisms of a free and open market and to protect 
investors and the public interest.

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

    The proposed rule change will impose no 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 
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, with 
the requirements of Section 6(b) of the Act. Specifically, the 
Commission believes that the proposal is consistent with the Section 
6(b)(5) requirements that the rules of an exchange be designed to 
promote just and equitable principles of trade, to prevent fraudulent 
and manipulative acts, and, in general, to protect investors and the 
public interest.
    The Commission believes that the presence of an adequate number of 
market-makers protects investors and contributes to the maintenance of 
a fair and orderly market. The Commission also believes it is 
reasonable for the Exchange to apply the same minimum eligibility 
requirements for participation in SPX RAES through joint accounts as 
apply to participation through individual accounts. The Commission 
believes that the Exchange's proposal help ensure continued 
availability of RAES for SPX options, thereby contributing to the 
effective and efficient execution of public investor orders at the best 
available prices. The Commission believes that requiring market-makers, 
whether participating through joint or individual accounts, to execute 
at least 50% of their contracts in SPX in the preceding month to 
participate in SPX RAES is a reasonable means for achieving this goal.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register. Specifically, as stated above, 
the Commission believes that the presence of an adequate number of 
market-makers protects investors and contributes to the maintenance of 
a fair and orderly market. The Commission also believes that the CBOE 
proposal to conform its rules for eligibility requirements for market-
makers participating on RAES through joint accounts with the 
eligibility requirements for those participating through individual 
accounts raises no new regulatory issues. Additionally, as noted above, 
the Exchange recently proposed the same minimum SPX RAES eligibility 
requirements for individual accounts. The proposal regarding SPX RAES 
eligibility for individual accounts was published in the Federal 
Register,\7\ and was subject to a full notice and comment period. No 
comments were received on the proposal. 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.
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    \7\ See Release No. 34-37348, supra note 4.
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    The Commission also finds good cause for approving Amendment No. 1 
to the proposed rule change prior to the thirtieth day after the day of 
publication of notice hereof in the Federal Register. Specifically, 
Amendment No. 1 clarifies that the ``preceding month'' reviewed by the 
Exchange to determine both SPX and OEX RAES eligibility is the 
preceding calendar month. The Commission believes that the Amendment 
further clarifies and strengthens the rule language, and raises no new 
regulatory issues. Accordingly, the Commission believes, consistent 
with Section 6(b)(5) of the Act, that good cause exists to approve 
Amendment No. 1 to 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 those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. Sec. 552, will be available for inspection and copying at 
the Commission's Public Reference Room. Copies of such filing will also 
be available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-CBOE-96-51 and 
should be submitted by September 24, 1996.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-CBOE-96-51), as amended, is 
hereby approved on an accelerated basis.

    \8\ 15 U.S.C. Sec. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret McFarland,
Deputy Secretary.
[FR Doc. 96-22358 Filed 8-30-96; 8:45 am]
BILLING CODE 8010-01-M