[Federal Register Volume 62, Number 226 (Monday, November 24, 1997)]
[Notices]
[Pages 62650-62652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30721]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39331; File No. SR-CBOE-97-56]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 Thereto by the Chicago Board Options Exchange, Inc. Relating to the 
Elimination of the Prohibition on the Use of Headsets and Other 
Telephone Technology

November 17, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 20, 1997, the Chicago Board Options Exchange, Inc. (``CBOE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the CBOE. On 
November 3, 1997, the CBOE filed Amendment No. 1 to its proposal.\3\ On 
November 13, 1997, the CBOE submitted a letter clarifying its ability 
to surveil the use of telephone headsets on its trading floors.\4\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and to grant accelerated 
approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the CBOE added a sentence to clarify 
that the immediate impact of the rule change will be to allow 
members in the Standard & Poor's 100 Index pit and in equity pits to 
use headsets that are being provided with the Exchange's new 
Ericsson wireless telephone system. See Letter from Timothy 
Thompson, Senior Attorney, CBOE, to Michael Walinskas, Senior 
Special Counsel, Division of Market Regulation, SEC, dated October 
31, 1997.
    \4\ See Letter from Timothy Thompson, Senior Attorney, CBOE, to 
Jerome Roche, Law Clerk, Division of Market Regulation, SEC, dated 
November 13, 1997.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to eliminate certain restrictions on the types of 
telephones that may be used at the trading posts for equity options and 
options on the Standard & Poor's 100 Index (``OEX''). The text of the 
proposed rule change and Amendment No. 1 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 III below. The 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

1. Purpose
    The purpose of the proposed rule change is to eliminate the 
prohibitions on certain types of telephones that may

[[Page 62651]]

be used by members at the equity option posts and at the OEX trading 
post. The Exchange's phone policy for the OEX option trading post is 
reflected in Regulatory Circular RG 96-73, and the Exchange's phone 
policy for the equity option trading post is contained in Regulatory 
Circulars RG 94-26 and RG 97-03.
    The Exchange is proposing to eliminate the current prohibition on 
the use of headsets and cellular telephones at both the equity and the 
OEX option trading posts. The Exchange no longer sees a regulatory 
reason for continuing to impose these specific prohibitions. The 
Exchange believes that its customary floor surveillance procedures and 
the monitoring of trading activities of a member, after a call, by 
other self-interested members of the trading post are sufficient. In 
place of prohibiting the use of these types of telephones, the Exchange 
will issue a circular to its members stating that ``the Exchange may 
disapprove the use of any type of telephone technology that interferes 
with the normal operation of the Exchange's own systems or facilities 
or that the Exchange determines interferes with its regulatory 
duties.'' The Exchange believes this constitutes a clarification of the 
authority the Exchange already exercises under Exchange Rule 6.23 which 
permits the Exchange to ``direct the discontinuance of any 
communication facility terminating on the floor of the Exchange.'' 
Pursuant to Rule 6.23, the Exchange will continue to prohibit the use 
of cellular telephones. In addition to distributing the circular, the 
Exchange will redistribute a revised version of the OEX and equity 
option post telephone circulars with the change in the policy 
indicated. As under the current policies, the CBOE's members wishing to 
establish a telephone line on the floor must first receive approval of 
the Exchange or the appropriate Floor Procedure Committee.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b)(5) of the Act \5\ that an 
Exchange have rules that are designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and in general, 
to protect investors and the public interest. The Exchange believes 
that the elimination of the prohibition on headsets and other telephone 
technology is consistent with these objectives in that it is designed 
to improve communication to and from the Exchange's trading floor in a 
manner that prevents fraudulent and manipulative acts and practices and 
maintains fair and orderly markets.
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    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose no 
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. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. Persons making written submissions 
should filed 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 Room, 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 File No. SR-CBOE-97-56 and should be submitted by December 15, 
1997.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\6\ 
Specifically, the Commission believes the Exchange's proposal to 
eliminate the per se prohibition on headsets and other telephone 
technology is consistent with Section 6(b)(5) of the Act.\7\ Approval 
of this rule change permits the CBOE to extend the use of established 
headset communications equipment to the OEX and equity trading 
areas.\8\ The Commission believes that the Exchange continues to have 
sufficient authority to regulate and restrict the use of communication 
devices on its floor under Exchange Rule 6.23 and the phone line 
approval process in the Exchange's Regulatory Circulars. The Commission 
also believes that the CBOE has adequately represented its ability to 
surveil the use of headset communications equipment.
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    \6\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on effciency, competition, and 
capital formation. 15 U.S.C. 78c(b)(5).
    \7\ U.S.C. 78f(b)(5).
    \8\ Headsets are currently being used at the trading posts for 
options on the Standard & Poor's 500 Index (``SPX'') and the Dow 
Jones Industrial 30 Index (``DJX'') without any reported problems. 
Telephone conversation between Timothy Thompson, Senior Attorney, 
CBOE, and Mike Walinskas, Senior Special Counsel, Division of Market 
Regulation, SEC, on October 30, 1997.
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    The Commission nonetheless encourages the Exchange to consider the 
adoption of more comprehensive guidelines in the area of communications 
equipment approval. The current CBOE telephone policies rely upon the 
ability to: (1) Approve new telephone lines; and (2) restrict the use 
of communication devices on its floor, pursuant to Exchange Rule 6.23. 
This creates a potential loophole whereby a novel communications device 
could be brought on to the floor, without Exchange approval, if the 
device did not rely on a ``telephone line'' and had not been clearly 
restricted pursuant to Exchange Rule 6.23.
    The Commission finds good cause for approving the proposed rule 
change, including Amendment No. 1, prior to the thirtieth day after the 
date of publication of notice thereof in the Federal Register. This 
immediate impact of the proposal is to allow the CBOE's members to 
utilize headsets that are provided within the Exchange's new Ericsson 
wireless telephone system. As noted above, this system is currently in 
use in other trading crowds on the Exchange. Accelerated approval will 
allow the incorporation of this new technology on the OEX and equity 
trading posts without further delay. For the foregoing reasons, the 
Commission believes that granting accelerated approval to the proposed 
rule change is appropriate and consistent with Section 6 of the Act.\9\
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    \9\ 15 U.S.C. 78f.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-97-

[[Page 62652]]

56), including Amendment No. 1, is approved on an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-30721 Filed 11-21-97; 8:45 am]
BILLING CODE 8010-01-M