[Federal Register Volume 63, Number 17 (Tuesday, January 27, 1998)]
[Notices]
[Pages 3938-3940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1855]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39556; File No. SR-CBOE-97-65]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Incorporated Relating to
the Placing of Orders Over the Outside Telephone Lines at the Equity
Trading Posts
January 16, 1998.
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 December 11,
1997, the Chicago Board Options Exchange, Incorporated (``CBOE'') 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 Chicago Board Options Exchange, Inc. (``CBOE or the
``Exchange'') proposes to amend its policy \1\ governing the use of
member-owned or Exchange-owned telephones located at the equity trading
post on the floor of the Exchange.
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\1\ The two regulatory circulars that govern the use of
telephones at the equity trading posts were approved by the
Commission on October 28, 1996 [(see SR-CBOE-96-15, Securities
Exchange Act Release No. 37876 (October 28, 1996), 61 FR 56728
(November 4, 1996)] and on March 2, 1994 [See SR-CBOE-93-24,
Securities Exchange Act Release No. 33701 (March 2, 1994)].
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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, Proposed Rule Change
In its filing with the Commission, 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 aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, Proposed Rule Change
The purpose of the proposed rule change is to amend the policy
currently governing the use of telephones at equity option trading
posts. The proposed amendment would permit floor brokers at these posts
to receive orders, over telephones located at the equity option posts,
when (i) those calls are patched through a booth on the floor as
further described below and (ii) the order is from U.S. registered
broker-dealers. The revised policy will be issued in a regulatory
circular. In addition, the Exchange has filed as Exhibit B to the
filing a proposed form of application and agreement to be used by
members seeking approval to use the telephones at the equity option
posts.
Orders Entered by Broker-Dealers
The proposed change is the latest in a continual expansion of
direct telephone access of orders to the equity option trading posts
since a telephone policy was first filed with the Commission in 1993,
see SR-CBOE-93-24. The regulatory circular that was the subject of that
original filing prohibited any orders from being transmitted over the
outside telephone lines at the equity option posts. (At that time and
today, orders could and can be transmitted over the intra-floor lines
from one point on the Exchange floor to another.) In 1996, the Exchange
liberalized its telephone policy in the equity crowds to allow market-
makers to place orders over the outside telephone lines directly with
floor brokers at the equity option posts.\2\ This change allowed
market-makers who need to be off the floor to transmit their orders
more efficiently.
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\2\ See SR-CBOE-96-15, approved in Securities Exchange Act
Release No. 37876 (October 28, 1996), 61 FR 56728 (November 4,
1996).
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The current proposed change would expand the ability to transmit
orders entered by broker-dealers over
[[Page 3939]]
telephones located at the equity option posts \3\ where an order is
transmitted over the telephones on a three way call involving the
following persons at the following locations: (1) a representative of a
member broker-dealer or its correspondent firm from a location from off
of the Exchange trading floor, (2) a CBOE broker or an associated
person of such broker including a Designated Primary Market-Maker
(``DPM'') acting in his capacity as a floor broker, at a booth on the
floor of the Exchange, and (3) CBOE floor broker (including a DPM) or
other person authorized to receive an order at an equity trading post
on the floor of the Exchange.
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\3\ Equity option posts includes trading stations of both
market-makers and Designated Primary Market-Makers where equity
options are traded and any other trading stations over which the
Equity Floor Procedure Committee has jurisdiction. Persons
transacting business in broad-based index options traded at the same
posts as equity options will not be subjected to the restrictions of
this policy as long as the telephone lines are not used in
contravention of this policy in conducting business related to
equity options. The EFPC will determine whether a particular narrow-
based index option is subject to this policy.
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In determining to limit the transmittal of orders in this proposal
to orders from member broker-dealers and their correspondent firms, the
Exchange has adopted the Equity Floor Procedure Committee's
recommendation.\4\ It is the judgment of this Committee which oversees
trading at the equity option posts that it would be best to continue to
expand telephone access to the equity option posts on an incremental
basis. Because of concerns with the potential for error (and thus
liability) in accepting orders from a wide range of customers, the
Equity Floor Procedure Committee determined to limit access to this
class of broker-dealers only. The requirement that the call must
involve a person at a booth on the floor of the Exchange will help to
ensure that there is a further record of the order in the event that a
dispute arises later in connection with the order. The Equity Floor
Procedure Committee and the Exchange will monitor the policy and
determine whether a future expansion in line with the OEX model is
appropriate. As with the use of telephones at the OEX trading post, the
Exchange intends to police compliance with the conditions applicable to
the use of telephones at the equity trading posts by means of customary
floor surveillance procedures, including reliance on surveillance by
Floor Officials and Exchange employees. Floor brokers accepting orders
in this manner would not be required to be qualified pursuant to
Exchange Rule 9.1 as with brokers accepting orders of public customers
over OEX post telephones because the qualification requirements do not
apply to the acceptance of orders from registered broker-dealers.
However, the Department of Compliance will be required to review and
approve all applications to ensure that the applicant is not intending
to transact business which the applicant is not authorized to transact.
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\4\ It should be noted that the Exchange filed (see SR-CBOE-95-
49) and the Commission approved (Securities Exchange Act Release No.
37487 (July 26, 1996)) a more liberal policy concerning the
transmittal or orders over outside telephone lines at the trading
post for Standard & Poor's 100 Stock Index options (``OEX''). That
policy permits orders to be transmitted from any source provided the
broker accepting the order is properly qualified under Exchange
rules to accept the order and provided the broker has received
approval from the Exchange to accept such orders over the telephone.
The Exchange generally has deferred to the judgment of the various
Floor Procedure Committees in determining to what extent they want
to allow telephone access directly into the trading posts over which
they have purview. The Equity Floor Procedure Committee recommended
taking a more limited approach than the OEX Floor Procedure
Committee but, after gaining experience with this expansion, they
may decide to offer access to the same extent as the OEX Floor
Procedure Committee.
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Application and Agreement
In order to implement the change in the policy, the Exchange is
also seeking approval of a proposed form of application and agreement
that members will be required to submit to be approved to use the
telephones at the equity option posts pursuant to the revised policy.
This application and agreement is nearly identical to the application
and agreement used for OEX post telephones which was approved by the
Commission, except to the extent that the agreement sets forth terms of
the equity telephone policy that are different from the terms of the
OEX telephone policy. The Exchange has determined to file the
application and agreement for approval because it contains some
provisions that have not otherwise been approved specifically for use
of telephones at the equity option posts. Among the provisions in the
application and agreement are paragraph G and H which deal with
liability issues. Paragraph G states that the Exchange shall not be
liable to members of their customers for losses resulting from the
installation, operation, relocation, use of, or inability to use
telephones or telephone lines at an equity option post. Paragraph H
requires the member to indemnify the Exchange against any liabilities
arising out of equity post telephones or lines.
The application and agreement will require an applicant to receive
approval of the Department of Compliance as well as the Equity Floor
Procedure Committee, as indicated on the form, before the
Telecommunications Department may authorize a line or telephone to be
installed. Before approving a telephone request, the Department of
Compliance will review the application and contact the applicant if any
questions are raised about the intended use of the telephone line.
Upon approval of the proposed rule changes, the Exchange will issue
a regulatory circular substantially the same as Exhibit A to the
submitted filing. The Exchange will implement these changes within
sixty days of the approval of the changes.
The proposed rules are consistent with and further the objectives
of Section 6(b)(5) of the Securities Exchange Act of 1934 in that they
are designed to improve communications to and from the Exchange's
trading floor in a manner that promotes just and equitable principles
of trade, prevents fraudulent and manipulative acts and practices, and
maintains fair and orderly markets.
B. Self-Regulatory Organization's Statement on Burden on Competition
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.,
[[Page 3940]]
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 CBOE. All submissions should refer to the
file number in the caption above and should be submitted by February
17, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-1855 Filed 1-26-98; 8:45 am]
BILLING CODE 8010-01-M