[Federal Register Volume 61, Number 252 (Tuesday, December 31, 1996)]
[Notices]
[Pages 69126-69127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33269]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38080; File No. SR-CBOE-96-78]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Incorporated Relating to 
Circuit Breaker Halts

December 23, 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 December 18, 1996, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') the proposed rule change 
relating to certain market-wide circuit breaker provisions 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.
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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 CBOE proposes to amend CBOE Rule 6.3B (Trading Halts Due to 
Extraordinary Market Volatility--``circuit breakers'') to increase the 
levels of decline in the Dow Jones Industrial Average (``DJIA'') \3\ 
that would trigger a trading halt on the Exchange pursuant to that 
Rule.
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    \3\ ``Dow Jones Industrial Average'' is a service mark of Dow 
Jones & Company, Inc.
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    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 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 for in sections 
(A), (B), and (C) below, of the most significant parts 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 conform the circuit 
breaker trading halt procedures of the CBOE to the circuit breaker 
trading halt procedures of the New York Stock Exchange, Inc. 
(``NYSE''), as such procedures are currently proposed to be amended by 
the NYSE. CBOE Rule 6.3B, which sets forth the CBOE's circuit breaker 
trading halt procedures, currently contains substantially the same 
provisions as are contained in NYSE Rule 80B, which sets forth the 
NYSE's circuit breaker trading halt procedures. On December 11, 1996, 
the NYSE submitted a rule filing to the Commission designated as File 
No. SR-NYSE-96-38, which proposed to modify the NYSE's circuit breaker 
trading halt procedures by proposing to amend NYSE Rule 80B. The CBOE's 
proposed amendments to Rule 6.3B are intended to maintain the 
conformity between the circuit breaker trading halt procedures of the 
CBOE and the NYSE by proposing to amend Rule 6.3B in the same manner 
that the NYSE is proposing to amend NYSE Rule 80B in File No. SR-NYSE-
96-38.
    CBOE Rule 6.3B currently provides, in part, that if the DJIA falls 
250 or more points below its previous trading day's closing value, 
trading in all securities on the Exchange will halt for thirty minutes. 
It further provides that, if on the same day the DJIA drops 400 or more 
points from its previous trading day's close, trading on the Exchange 
will halt for one hour. In conformity with the NYSE, the Exchange is 
now proposing to amend CBOE Rule 6.3B to increase the foregoing circuit 
breaker levels from 250 points to 350 points and from 400 points to 550 
points.
    In conformity with the NYSE, the adoption of amendments to CBOE 
Rule 6.3B would be contingent upon the adoption of amended rules or 
procedures substantively identical to CBOE Rule 6.3B by (i) all United 
States stock exchanges and the National Association of Securities 
Dealers with respect to the trading of stocks, stock options, and stock 
index options; and (ii) all United States futures exchanges with 
respect to the trading of stock index futures and options on such 
futures.
    The CBOE's proposed amendments to Rule 6.3B will serve to maintain 
the coordinated approach of the NYSE, the CBOE, and other markets to 
trading halt procedures that are applicable during large, rapid market 
declines. Various studies of the October, 1987 market break noted that 
the stock, options, and futures markets are interrelated. And, in 
addition, the Exchange recognizes the Commission's desire to have 
coordinated mechanisms across these markets to deal with potential 
strains that may develop during periods of extreme downward 
volatility.\4\ Such a coordinated approach is also in accordance with 
the recommendations contained in the Report of the Presidential Task 
Force on Market Mechanisms, which recommended, among other things, that 
circuit breaker mechanisms, in order to be effective, need to be 
coordinated across stock, stock index futures, and options markets in 
order to prevent intermarket problems of the kind experienced in 
October, 1987.\5\
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    \4\ See Securities Exchange Act Release No. 26198 (October 18, 
1988), 53 FR 41637 (October 24, 1988) (Commission order approving 
proposed rule changes of the CBOE, the National Association of 
Securities Dealers, Inc., the NYSE, and the American Stock Exchange, 
Inc. relating to market circuit breakers).
    \5\ See Id. (citing Report of the Presidential Task Force on 
Market Mechanisms).
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) that an Exchange have rules that are 
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, in general, to protect investors and the 
public interest. The Exchange believes that amending Rule 6.3B is 
consistent with these objectives, in that an all-market circuit breaker 
trading halt requirement at appropriate levels can be

[[Page 69127]]

expected to promote stability and investor confidence during a period 
of significant stress by providing market participants with a 
reasonable opportunity to become aware of and respond to significant 
price movements, thereby facilitating, in an orderly manner, the 
maintenance of an equilibrium between buying and selling 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 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:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Soliciation of Comments

    Interest 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. 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 the CBOE. All 
submissions should refer to File No. SR-CBOE-96-78 and should be 
submitted by January 21, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-33269 Filed 12-30-96; 8:45 am]
BILLING CODE 8010-01-M