[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