[Federal Register Volume 61, Number 240 (Thursday, December 12, 1996)]
[Notices]
[Pages 65422-65423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31497]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38022; File No. SR-CBOE-96-72]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to 
Interest Rate Options and RAES Order Size

December 5, 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 November 
26, 1996, the Chicago Board Options Exchange, Inc., (``CBOE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. 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 Exchange Rule 23.7, ``RAES'', to

[[Page 65423]]

increase the maximum size of interest rate option orders eligible for 
entry into the CBOE's Retail Automated Execution System (``RAES'') from 
10 or fewer contracts to 100 or fewer contracts.
    The text of the proposal 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 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

    The purpose of the proposed rule change is to amend CBOE Rule 23.7 
(ii) to increase the maximum size of orders in CBOE interest rate 
options eligible for execution through RAES from 10 or fewer contracts 
to 100 or fewer contracts. According to the CBOE, the proposed change 
is designed to better serve the needs of CBOE public customers and the 
Exchange by expanding the number of public customer orders for interest 
rate options that are able to realize the benefits of automatic 
execution, which include assured execution, faster turnaround time and 
more efficient transaction processing and reporting. In addition, the 
proposal is designed to keep the CBOE competitive with other markets 
with regard to the trading of interest rate derivatives.
    The proposed increase in the maximum size of RAES-eligible interest 
rate option orders will apply to all classes of interest rate 
options.\1\ According to the CBOE, much of the trading in interest rate 
derivatives currently occurs in markets where transaction sizes are 
larger than are eligible for automatic execution through RAES at the 
CBOE. The CBOE states that the primary users of interest rate options 
are institutional customers.
---------------------------------------------------------------------------

    \1\ Currently, the CBOE offers four interest rate options, 
including the following: IRX (3-month Treasury Bill); FVX (5-year 
Treasury Note); TNX (10-year Treasury Note); TYX (30-year Treasury 
Bond).
---------------------------------------------------------------------------

    Because the TYX interest rate contract offered at the CBOE 
represents approximately one-tenth (\1/10\th) of the value of the 
underlying government securities, the current eligible order limit of 
ten contracts is essentially equivalent in value to only one U.S. 
Treasury Bond option. The Exchange believes that the proposed increase 
in the maximum size of orders for CBOE interest rate options, such as 
the TYX, that are eligible for execution though RAES (essentially a 
``10-lot'' in the Treasury Bonds themselves), will provide a more 
meaningful limit for the primary users of interest rate options, 
institutional customers.
    CBOE believes that the proposed rule change will not impose any 
significant burdens on the operation and capacity of RAES, but instead 
will increase the efficiency of the Exchange's operations by expanding 
the number of orders that are eligible for automatic execution and by 
reducing manual processing.\2\ Finally, the CBOE believes that the rule 
change will not have a negative impact on the capacity, security or 
integrity of RAES.
---------------------------------------------------------------------------

    \2\ See Securities Exchange Act Release No. 33476 (January 13, 
1994), 59 FR 3140 (January 20, 1994) (File No. SR-Amex-93-33) (order 
approving the American Stock Exchange, Inc.'s expansion of AUTO-EX 
order eligibility size to 99 contracts for Japan Index options).
---------------------------------------------------------------------------

    By expanding the maximum size of orders in CBOE interest rate 
options eligible for execution through RAES from 10 to 100 or fewer 
contracts, the Exchange believes that the proposed rule change will 
better serve the needs of the CBOE's public customers and the Exchange 
members who make a market for such customers. The CBOE believes that 
the proposed rule change is consistent with Section 6(b) of the Act, in 
general, and furthers the objectives of Section 6(b)(5), in particular, 
in that it is designed to promote just and equitable principles of 
trade, 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

    The 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 of the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days after the 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 reason 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 submission 
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 provisions of 5 
U.S.C. 552, will be available for inspection and copying at the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to the file 
number in the caption above and should be submitted by January 3, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\
---------------------------------------------------------------------------

    \3\ 17 CFR 200.30-3(a)(12) (1995).
---------------------------------------------------------------------------

Magaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-31497 Filed 12-11-96; 8:45 am]
BILLING CODE 8010-01-M