[Federal Register Volume 62, Number 230 (Monday, December 1, 1997)]
[Notices]
[Pages 63577-63578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31388]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39348; File No. SR-CBOE-97-49]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Chicago Board Options 
Exchange, Inc. To Change the Minimum Increment for Bids and Offers in 
Options

November 21, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on September 25, 1997, 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 
by the self-regulatory organization. On November 17, 1997, the Exchange 
submitted to the Commission an amendment to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ By adding the term ``appropriate'' before the term ``Floor 
Procedure Committee'' in the text of the rule, the amendment 
clarified that the decision to change the increments with respect to 
a particular class of options will be made by whichever Floor 
Procedure Committee has jurisdiction over trading in that option 
class. The amendment also replaced the original Exhibit 1 that was 
sent to the Commission with a revised Exhibit 1. See Letter from 
Timothy H. Thompson, CBOE, to Christine Richardson, Division of 
Market Regulation, Commission (Nov. 14, 1997) (``Amendment No. 1'')
---------------------------------------------------------------------------

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

    The Exchange proposes to amend Rule 6.42 by adopting a procedure 
that would allow the Exchange to establish options trading 
differentials on an expedited basis. 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 self-regulatory organization 
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 self-regulatory organization 
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 Exchange is proposing to amend Exchange Rule 6.42 to give the 
Board of Directors the authority to establish the minimum trading 
increments for option contracts. Currently, Rule 6.42 states that bids 
and offers shall be expressed in eighths of $1 unless a different 
increment is approved by the Floor Procedure Committee for an option 
contract of a particular series. An interpretation to the Rule states 
that bids and offers for all option series trading below $3 shall be 
expressed in sixteenths of a dollar. Until such time as the Board 
determines to make a change the current standards will apply.
    The proposed change would allow the Exchange to change the trading 
increments on an expedited basis and thus, allow the Exchange to 
respond appropriately to changes in the minimum trading increment in 
the markets for the securities underlying CBOE options or to changes in 
the minimum trading increments for one of the other options exchanges. 
When the Board of Directors determines to change the trading 
increments, the Exchange will designate such change as a stated policy, 
practice, or interpretation with respect to the administration of Rule 
6.42 within the meaning of subparagraph (3)(A) of subsection 19(b) of 
the Exchange Act and will file a rule change for effectiveness upon 
filing with the Commission.
    There has been a movement within the industry to reduce the minimum 
trading and quotation increments

[[Page 63578]]

imposed by the various SROs.\4\ As derivative securities, the prices of 
options are determined in reference to the prices of the underlying 
securities. Consequently, the Exchange believes that where practicable, 
the Exchange should have minimum increments comparable to those 
applicable to the securities underlying CBOE options.
---------------------------------------------------------------------------

    \4\ See Exchange Act Rel. No. 38571 (May 5, 1997), 62 FR 25682 
(May 9, 1997) (Commission order approving a change in the minimum 
increment to \1/16\th for securities listed on the American Stock 
Exchange); Exchange Act Rel. No. 38678 (May 27, 1997), 62 FR 30363 
(June 3, 1997) (Commission order approving a change in the minimum 
increment to 1/16th for Nasdaq-listed securities); and Exchange Act 
Rel. No. 38897 (Aug. 1, 1997), 62 FR 42847 (Aug. 8, 1997) 
(Commission order approving a change in the minimum increment to \1/
16\th for NYSE listed-securities).
---------------------------------------------------------------------------

    The proposed rule change would give the Exchange the flexibility to 
follow the suit of the principal exchanges for the underlying 
securities without having to continually update its rules but at the 
same time would give the Exchange the flexibility it needs to deviate 
from the minimum increments established by the principal markets for 
the underlying securities in the event that the CBOE's systems were not 
immediately able to handle such increments. The Exchange, therefore, 
believes the quality of the market for CBOE options will be enhanced by 
allowing for more accurate pricing of CBOE options.
2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \5\ in that it would remove impediments 
to and perfect the mechanism of a free and open market in a manner 
consistent with the protection of investors and the public interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate 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 either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the 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 the 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. 552, will be available for inspection and copying at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-CBOE-97-49 and 
should be submitted by December 22, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-31388 Filed 11-28-97; 8:45 am]
BILLING CODE 8010-01-M