[Federal Register Volume 62, Number 218 (Wednesday, November 12, 1997)]
[Notices]
[Pages 60738-60739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29700]



[[Page 60738]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39292; File No. SR-CBOE-97-35]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Order Granting Approval to Proposed Rule Change and Notice of 
Filing and Order Granting Accelerated Approval of Amendment No. 1 
Thereto Relating to Trading Halts and Suspensions

November 3, 1997.

I. Introduction

    On July 25, 1997, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') submitted to the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to remove a requirement that a 
halt declared by Floor Officials may continue for only two consecutive 
days and to delete a requirement that a suspension must be declared by 
the CBOE's Board of Directors (``Board'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on August 21, 1997.\3\ No comments were received on the 
proposal. On October 21, 1997, the CBOE submitted Amendment No. 1 to 
the proposed rule change.\4\ This order approves the proposed rule 
change and approves Amendment No. 1 on an accelerated basis.
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    \3\ See Securities Exchange Act Release No. 38937 (August 14, 
1997), 62 FR 44500.
    \4\ See Letter from Arthur B. Reinstein, Senior Attorney, CBOE, 
to Michael Walinskas, Senior Special Counsel, Division of Market 
Regulation, SEC, dated October 14, 1997 (``Amendment No. 1''). In 
Amendment No. 1, the CBOE revises the proposes rule change to 
require under Rule 6.3 that Floor Officials consult with a 
designated senior exchange official prior to halting trading in a 
security for more than two consecutive business days. In addition, 
in Amendment No. 1, the Exchange proposes to provide that any 
trading halt under Rule 6.3 that lasts more than two consecutive 
business days must be reviewed at the next regularly scheduled 
meeting of the Exchange's Floor Officials Committee, which is 
authorized to determine whether, in the interests of a fair and 
orderly market, to terminate or modify any such trading halt that is 
then still in effect.
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II. Description of the Proposal

    The purpose of the proposed rule change is to amend Rule 6.3 to 
remove the requirement that a halt declared by Floor Officials may 
continue for only two consecutive business days, to delete Rule 6.4 
relating to the suspension of trading by the Exchange's Board, and to 
make certain conforming amendments to Rules 21.12 and 23.8 and to 
Interpretation of .02 of Rule 21.19.
    Currently, pursuant to existing Rule 6.3, any two Floor Officials 
may halt trading in any security in the interests of a fair and orderly 
market for a period not in excess of two consecutive business days. 
Pursuant to existing Rule 6.4, the CBOE's Board may suspend trading in 
any security in the interests of a fair and orderly market. The 
Exchange believes that there is no practical difference between a halt 
in trading and a suspension in trading, except for the present two-day 
limit for a halt and the fact that a halt is declared by two Floor 
Officials and a suspension is declared by the Board. According to the 
CBOE, the same factors considered by its Board in deciding whether to 
``suspend'' trading are considered by Floor Officials in deciding 
whether to ``halt'' trading. Rules 6.3 and 6.4 require, however, that 
trading may be stopped for more than two consecutive business days only 
if the Board acts to `'suspend'' trading.
    The CBOE believes it is not necessary to require the Board to 
decide whether trading in an options class may be stopped for more than 
two consecutive business days. The Exchange believes that the 
participation of senior exchange officials is sufficient and that Board 
participation is unnecessary. The Exchange also believes that it is 
unduly cumbersome and often, impractical, to convene its Board on short 
notice just to decide whether trading in an options class may be 
stopped for more than two consecutive business days.
    Pursuant to the proposed rule change, the duration of a halt 
declared by two Floor Officials pursuant to Rule 6.3 would not be 
limited to a particular number of days. Nonetheless, any halt exceeding 
two consecutive business days would require Floor Officials to consult 
with a designated senior Exchange official.\5\ Further, the proposal 
would require a decision to extend a trading halt beyond two 
consecutive business days to be reviewed at the next meeting of the 
Exchange's Floor Officials Committee.\6\ The proposed rule change 
correspondingly would delete Rule 6.4, so that Board action no longer 
would be required before trading in an options class could be stopped 
for more than two consecutive business days. This proposed approach is 
consistent with the procedure for index options under Rule 24.7, where 
trading halts or suspensions are decided in consultation with senior 
Exchange officials and do not require action by the CBOE's Board.
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    \5\ See Amendment No. 1, supra note 4.
    \6\ Id. Amendment No. 1 provides that the Floor Officials 
Committee will make a determination as to whether to terminate or 
modify any trading halt still in effect at the time of the Floor 
Officials Committee's next regularly scheduled meeting. It is the 
understanding of Commission staff that the Floor Officials Committee 
will review and discuss all trading halts with durations exceeding 
two consecutive business days regardless of whether trading has 
since resumed in the particular security. Telephone conservation on 
October 20, 1997 between Arthur B. Reinstein, Senior Attorney, the 
CBOE and Deborah L. Flynn, Attorney, Division of Market Regulation, 
SEC.
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    In addition, the proposed rule change would make clear that trading 
may resume only upon a determination by two Floor Officials that such a 
resumption is in the interests of a fair and orderly market. Currently, 
Rule 6.3(b) allows trading to resume when two Floor Officials determine 
either that the conditions that led to the halt no longer are present 
or that a resumption of trading would serve the interests of a fair and 
orderly market. The Exchange believes that taken literally, the 
existing language would enable trading to resume if the conditions that 
led to the halt no longer are present, even if a resumption of trading 
would be contrary to the interests of a fair and orderly market, an 
interpretation that would conflict with the CBOE's practice and would 
be contrary to the policies under the Act.
    Finally, the deletion of Rule 6.4 requires conforming deletions of 
certain non-substantive references to trading suspensions under Rule 
6.4 that appear in Rule 21.12 and Interpretation .02 of Rule 21.19 
(concerning government securities options) and in Rule 23.8 (concerning 
interest-rate option contracts).

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 6 of the Act \7\ and the rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
The Commission believes that the proposed rule change is consistent 
with and furthers the objectives of Section 6(b)(5) of the Act \9\ in 
that it is designed to perfect the mechanism of a free and open market 
and to protect investors and the public interest by allowing Floor 
Officials, in consultation with senior Exchange officials, to evaluate 
and to consider market conditions and circumstances and to halt trading 
for as long as

[[Page 60739]]

necessary in the interests of a fair and orderly market.
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    \7\ 15 U.S.C. 78f.
    \8\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Commission believes that it is reasonable to 
declare a trading halt in a particular security for a period exceeding 
two consecutive business days without requiring the specific approval 
of a majority of the Exchange's Board. The Commission recognizes that 
it may be impractical to convene the Board each time a determination 
must be made as to whether to extend a trading halt in a particular 
security beyond two consecutive business days. The Commission notes 
that in eliminating the Board's participation in the decisionmaking 
process, the proposed rule change, as amended, does not provide 
unbridled discretion to the Exchange's Floor Officials to declare a 
trading halt of such duration. Instead, the Commission notes that the 
proposal, as amended, requires two procedures which the Commission 
believes will provide some assurances that a decision to halt trading 
in a security for longer than two consecutive business days will 
receive proper consideration. First, the Commission believes that the 
involvement of a senior Exchange official should ensure that the 
interests of all market participants are carefully considered in 
determining the propriety of a trading halt. Second, the review of each 
trading halt declared exceeding two consecutive business days by the 
Exchange's Floor Officials Committee should ensure that the CBOE's 
management structure remains apprised of the manner in which the 
proposed rules are applied. In the event that the Exchange's Floor 
Officials Committee determines that the rules are not being applied in 
an even-handed and fair manner, the Commission expects the Exchange to 
reevaluate the process and propose changes, as necessary.
    The Commission finds good cause for approving proposed Amendment 
No. 1 prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. The Commission notes 
that Amendment No. 1 further clarifies the process by which a 
determination is made to halt trading in a particular security for more 
than two consecutive business days. The Commission believes that 
requiring the consultation of a senior Exchange official and review by 
the Exchange's Floor Officials Committee clarifies the discretion 
granted to Floor Officials with respect to trading halts and raises no 
new regulatory issues. Accordingly, the Commission believes that it is 
consistent with Section 6(b)(5) of the Act \10\ to approve Amendment 
No. 1 to CBOE's proposed rule change on an accelerated basis.
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    \10\ 15 U.S.C. 78f(b)(5).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1. 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. 552, will be available for inspection and 
copying in the Commission's Public Reference Section, 450 Fifth Street, 
NW., Washington, DC 20549. Copies of all such filings will also be 
available for inspection and copying at the principal office of CBOE. 
All submissions should refer to File No. SR-CBOE-97-35 and should be 
submitted by December 3, 1997.

V. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-CBOE-97-35), including 
Amendment No. 1, is approved.

    \11\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-29700 Filed 11-10-97; 8:45 am]
BILLING CODE 8010-01-M