[Federal Register Volume 62, Number 95 (Friday, May 16, 1997)]
[Notices]
[Pages 27083-27084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12886]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38607; File No. SR-CBOE-97-10]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Chicago Board Options Exchange, Incorporated Relating to 
Minimum Sizes for Closing Transactions, Exercises, and Responses to 
Requests for Quotes in FLEX Equity Options

May 9, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on February 21, 
1997, 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, 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.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to reduce from 100 contracts to 25 contracts the 
minimum value size of closing transactions in and exercises of FLEX 
Equity Options, and to make a comparable reduction in the minimum value 
size of FLEX Equity Quotes in response to a Request for Quotes.
    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 forth 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

    The purpose of the proposed rule change is to reduce from 100 
contracts to 25 contracts the minimum value size of closing 
transactions in an exercises of FLEX Equity Options, and to make a 
comparable reduction in the minimum value size of FLEX Equity Quotes in 
response to a Request for Quotes.
    The reason for reducing the minimum value size of closing and 
exercise transactions in FLEX Equity Options is that, based on the 
Exchange's experience to date with such options, it appears that the 
existing 100 contract minimums are too large to accommodate the needs 
of certain firms and their customers.\1\ These firms may purchase 100 
or more FLEX Equity Options in an opening transactions for a single 
firm account in which more than one of the firm's clients have an 
interest. If one of these clients wants to redeem its investment in the 
account, the firm likely will want to engage in a closing or exercise 
transaction in order to reduce the account's position in those FLEX 
Equity Options by the number being redeemed. Currently, Rule 
24A.4(a)(4)(iii) imposes a 100 contract minimum on all transactions in 
FLEX Equity Options unless the transaction is for the entire remaining 
position in the account. Thus, if the redeeming client's interest is 
less than 100 FLEX Equity Options and does not represent the total 
remaining position in the account, Rule 24A.4(a)(4)(iii) as it stands 
presently, prevents the firm from closing or exercising positions of 
this size.
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    \1\ The Exchange notes that the existing customer base for FLEX 
Equity Options includes both institutional investors, in particular 
mutual funds, money managers and insurance companies, and high net 
work individuals who meet the ``sophisticated investor'' criteria 
applied to various clients by Exchange member firms. See Letter from 
William J. Barclay, Vice President, Strategic Planning and 
International Development, CBOE, to Sharon Lawson, Senior Special 
Counsel, Office of Market Supervision, Division of Market 
Regulation, Commission, dated April 21, 1997 (``CBOE Letter'').
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    The Exchange believes that the proposed rule change to Rule 
24A.4(4)(iii) would remedy the situation described above, by permitting 
an order to close or exercise as few as 25 FLEX Equity Option 
contracts. The corresponding change to Rule 24A.4(a)(iv), which governs 
the minimum size for FLEX Equity Quotes that may be entered in response 
to Request for Quotes, is necessary in order to provide the liquidity 
needed to facilitate the execution of closing orders between 25 and 99 
FLEX Equity Option contracts that would be permitted by the

[[Page 27084]]

proposed amendment to Rule 24A.4(4)(iii).
    The Exchange notes that the Exchange would issue a circular that 
(1) Describes the new rule; and (2) reminds all members and member 
firms of their continued responsibility to insure that FLEX Equity 
Options are utilized only by sophisticated investors with the necessary 
financial resources to sustain the possible losses arising from 
transactions in the requisite FLEX Equity Options class size.\2\ The 
Exchange will submit surveillance procedures for the Commission's 
review prior to considering this proposal for approval, that will help 
to ensure that only such sophisticated investors are utilizing this 
product.
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    \2\ See CBOE Letter, supra note 1.
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    The Exchange believes by providing firms and their customers 
greater flexibility to trade FLEX Equity options by lowering from 100 
to 25 the minimum number of contracts required for a closing 
transaction, for exercises, and for FLEX Quotes responsive to a Request 
for Quotes, the proposed rule change is consistent with and furthers 
the objectives of Section 6(b)(5) of the Securities Exchange Act of 
1934 by removing impediments to and perfecting the mechanism of a free 
and open market in securities and otherwise serving 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 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 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, 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 the File No. SR-CBOE-97-10 and should be 
submitted by June 6, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to the delegated authority.\3\
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    \3\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 97-12886 Filed 5-15-97; 8:45 am]
BILLING CODE 8010-01-M