[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