[Federal Register Volume 62, Number 2 (Friday, January 3, 1997)]
[Notices]
[Pages 434-436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38085; File No. SR-CBOE-96-70]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Notice of Filing of Proposed Rule Change Relating to Reporting 
Requirements for Securities Accounts and Orders of Market-Makers and 
Joint Account Provisions

December 24, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'',\1\ notice is hereby given that on November 20, 1996, the 
Chicago Board Options Exchange, Inc. (``CBOE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
items have been prepared primarily by 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. Sec. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE is proposing to amend Rule 8.9 regarding certain reporting 
requirements

[[Page 435]]

for securities accounts, orders of market-makers and joint account 
provisions.\2\
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    \2\ The text of the proposed rule change is available at the 
Office of the Secretary, CBOE and in the Public Reference Section of 
the Commission.
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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, 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. 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

    CBOE is proposing to amend Rule 8.9, Securities Accounts and Orders 
of Market-Makers. CBOE proposes to amend Rule 8.9(a), regarding the 
identification of accounts. Currently, Exchange market-makers are 
required to identify and report to the Exchange all accounts in which 
the market-maker may engage in stock, option and securities trading, 
directly or indirectly, or over which it has investment discretion. The 
rule in its current form is broad enough to require market-makers to 
report professional trading accounts held at clearing firms, as well as 
outside personal accounts such as brokerage accounts.
    The Exchange has received comment from CBOE members stating that it 
is burdensome and unnecessary to require market-makers to identify all 
non-professional trading accounts, or `outside accounts' to the 
Exchange. Exchange staff agrees that the reporting requirement may be 
overly broad, in that the outside account data has little significance 
to the Exchange's surveillance programs unless there is a specific 
reason for monitoring the outside accounts. The Exchange is most 
concerned with monitoring the professional trading activity of market-
makers in accounts cleared and guaranteed by The Options Clearing 
Corporation member clearing firms.
    Upon review and analysis, the Exchange has determined that the 
reporting requirements of Rule 8.9(a) should be amended to eliminate 
the routine submission of information respecting non-market-maker 
trading accounts, or `outside accounts.' The proposes rule change would 
require market-makers to report outside account information only when 
requested by the Exchange.
    CBOE proposes to amend Rule 8.9(b), regarding the reporting of 
market-maker orders. Currently, each market-maker is required to report 
to the Exchange every order entered into by that market-maker within 
the specifications of the Rule. CBOE is proposing to amend Rule 8.9(b) 
to require the clearing firm for the professional trading account, 
rather than the market-maker personally, to report executed order 
information to the Exchange. CBOE believes that this revision 
recognizes that a clearing firm can most accurately gather and report 
order information to the Exchange in a timely manner, and in fact 
already transmits such order information for Exchange review. In 
addition, the proposed rule will require the order information 
submitted be restricted to executed orders only, as CBOE has received 
few surveillance benefits by gathering unexecuted order information on 
a routine basis.
    According to the proposed rule change, the market-maker will be 
held responsible for the reporting requirements only if the clearing 
firm is not reporting executed order information to the Exchange and/or 
if the Exchange has requested that the market-maker provide the 
information. Further, the proposed rule change will clarify that this 
reporting requirement applies to professional trading accounts (i.e., 
transactions cleared into all accounts carried for market-makers who 
are the subject of a clearing firm letter of guarantee issued to the 
Exchange pursuant to CBOE Rule 8.5).
    The clearing firm thus will be the primary source for the reporting 
of market-maker executed order information to the Exchange. However, 
all firms which represent and execute market-maker orders, including 
order service firms as defined in Exchange Rule 6.77, will continue to 
be responsible for maintaining and retaining executed and unexecuted 
order information as required by Rules 17a-3 and 17a-4 under the Act 
and by Exchange Rule 15.1. CBOE proposed that the continuing 
recordkeeping obligations of such firms pursuant to Exchange rules and 
other applicable securities laws and regulations will be noted in an 
Exchange regulatory circular upon approval of the proposed rule change.
    CBOE proposes to eliminate the existing description of specific 
order information required to be reported as set forth in Rule 8.9(b). 
Upon approval of this filing, the Exchange will issue a regulatory 
circular to clearing firms which will list the order reporting 
requirements that were previously embodied in Rule 8.9(b), and list 
additional requirements as they are implemented. The existing Rule 
8.9(b) already provides that the Exchange will prescribe the manner of 
order reporting.
    Finally, CBOE proposes to amend Interpretation and Policy .06 to 
Rule 8.9 to clarify that the existing prohibition against a joint 
account participant effecting a transaction with another member acting 
on behalf of the same joint account applies whether the transaction is 
effected in person or via order. CBOE will also revise Interpretation 
and Policy .06 to Rule 8.9 to prohibit transactions between two joint 
accounts if the member who causes a transaction to be executed for one 
of the joint accounts knows or has reason to know that the two joint 
accounts have one or more common participants.
    The addition to Interpretation .06 to Rule 8.9 codifies in the rule 
current provisions in regulatory circulars which seek to ensure that 
joint account transactions result in a bona fide change in beneficial 
ownership. Existing regulatory circulars RG96-28 (item 7(b)) and RG95-
64 (item 8(b)) provide that a member has the responsibility to ensure 
that in-person transactions or the entry of orders with floor brokers 
do not result in trades occurring ``between two joint accounts that 
have common participants.'' The proposed rule change expressly imposes 
a knowledge requirement as an element of the offense of effecting a 
transaction between joint accounts with common participants. This 
recognizes that members are not always able to know whether there are 
common participants in two joint accounts because of the frequency with 
which joint account composition may change.
    The CBOE believes the proposed rule change is consistent with and 
furthers the objectives of Section 6(b)(5) \3\ of the Act in that it 
should result in more effective and efficient reporting of market-maker 
accounts and executed order information to the Exchange. CBOE believes 
the proposed rule change also should clarify market-maker joint account 
provisions, removing impediments to a free and open market, thereby 
protecting investors and the public interest.
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    \3\ 15 U.S.C. Sec. 78f(b)(5).
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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.

[[Page 436]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    No written comments relating to the proposed rule change have been 
solicited or received.

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

    Within thirty-five 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 ninety 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 CBOE 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 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. Sec. 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-96-70 and should be submitted by 
January 24, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-19 Filed 1-2-97; 8:45 am]
BILLING CODE 8010-01-M