[Federal Register Volume 63, Number 83 (Thursday, April 30, 1998)]
[Notices]
[Pages 23817-23819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11447]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39910; File No. SR-CBOE-98-09]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Chicago Board Options 
Exchange, Inc. Relating to Trade Match Delayed Submission Fees

April 24, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 4, 1998, 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 CBOE. On April 20, 1998, the CBOE submitted to the 
Commission Amendment No. 1 to the proposed rule change.\2\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ In Amendment No. 1, the Exchange made technical corrections 
to the proposed rule change and clarified the date of its 
implementation. See Letter from Stephanie C. Mullins, Attorney, 
CBOE, to Ken Rosen, Attorney, Division of Market Regulation, 
Commission, dated April 23, 1998 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to amend Exchange Rule 2.30, Trade Match Delayed 
Submission Fee, in order to reduce the amount of time permitted for 
trade submission before the imposition of fees and to include under the 
rule, all types of trades executed on the Exchange. 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 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, the Proposed Rule Change

    The purpose of the proposed rule change is to expand the scope of 
Rule 2.30 to include all types of executed trades and to reduce the 
amount of time under Rule 2.30 in which Exchange members and clearing 
firms are assessed additional fees for late trade submission.\3\ As 
Exchange rules currently stand, market-makers and clearing firms are 
assessed fees for delayed trade match submission if eighty percent 
(80%) of market-maker in-person trades are not submitted in less than 
two (2) hours. The Exchange proposes to amend this rule to include all 
types of trades (not just market-maker in-person trades) and to 
require, by December 1, 1998, that the submission time for fee 
assessment be reduced from two (2) hours to one (1) hour. The eighty 
percent (80%) formula will remain the same, as will existing 
protections for extremely high volume days.
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    \3\ The CBOE will not begin to implement any of the proposed 
changes to Rule 2.30 until June 1, 1998. See Amendment No. 1.
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    The inclusion of all types of trade activity under Rule 2.30 is 
proposed to begin with the initial reduction of the time requirement 
below two (2) hours, which the Exchange proposes to start on June 1, 
1998. All trades that a member executes and all trades a clearing firm 
has executed for it will be required to be submitted on a timely basis 
to avoid additional fees. Under current rules, only in-person market-
maker trades are considered under Rule 2.30. In 1991, when Rule 2.30 
was implemented, certain in-person market-maker trades were being 
significantly delayed for submission to the Exchange's trade match 
system. Over time these delays were reduced and, in general, market-
maker in-person trades now are received within two (2) hours. Non-
market-makers trades originally were not included under Rule 2.30 
because virtually all non-market-maker activity at that time met the 
two (2) hour time requirement. Within the revised time frames, 
ultimately one (1) hour, the Exchange realizes that a small but

[[Page 23818]]

significant portion of non-market-maker trades would not be submitted 
on a timely basis. For this reason, all executed trades will be 
included, so that all parties in the trading process will be held to 
the same standards.
    Under the proposal, the submission time reduction from two (2) 
hours to one (1) hour will be done gradually over a period of months, 
so that members and clearing firms will grow accustomed to the tighter 
time requirement and will be encouraged towards immediate submission of 
trades. The first time reduction will go into effect on June 1, 1998, 
and will require timely trade submission to be within one (1) hour, 
thirty (30) minutes of execution. The next reduction would go into 
effect on September 1, 1998, and will require timely trade submission 
to be within one (1) hour, fifteen (15) minutes of execution. Finally, 
from December 1, 1998, forward, the Exchange will require that timely 
trade submission be within one (1) hour of execution.
    At the present time, the average submission time for all market-
maker trades is thirty-one (31) minutes from execution, and eighty 
percent (80%) of all market-maker trades are submitted within one (1) 
hour of execution. For non-market-makers, the average submission time 
is twenty-two (22) minutes, and eighty-seven percent (87%) of trades 
are submitted within one (1) hour of execution. Thus, it should not be 
a hardship for all members and clearing firms to abide by the proposed 
rule.
    The purpose of this amendment is to increase the speed at which 
trades are received and matched by the trade match system. With the 
advent of a more automated trading environment, the current two (2) 
hour requirement is not stringent enough and may cause the CBOE to be 
slower than other exchanges in matching trades. More timely trade 
submission will lead to quicker awareness of out-trades, and 
consequently will limit financial loss, thereby allowing the Exchange 
to better compete among the other options exchanges for customer 
orders.
    The Exchange has continually made systems enhancements and 
improvements to its procedures in order to quickly receive and compare 
trades. The Exchange currently has the ability to receive and match 
trade input on a real-time basis, throughout the business day. In a 
real-time environment, it is much more difficult and time consuming for 
all parties to deal with trade data that is not submitted on a timely 
basis. Members and clearing firms that submit trades on a delayed basis 
create an unnecessary burden on the majority of participants that 
submit trades on a timely basis. When a member or clearing firm does 
not submit its portion of a trade quickly after execution, an 
uncompared trade is created that can result in considerable financial 
loss if not resolved in a timely manner. Thus, the benefits to members 
and clearing firms of comparing trades immediately after execution are 
significant.
    Exchange Rule 2.30(c), which formerly was reserved, is proposed to 
address the situation where a nominee-employee of a clearing member 
executes and submits trades for that clearing member. This situation is 
best represented by an employee of a retail, public customer brokerage 
firm who is responsible for executing and submitting trades for the 
firm. In this situation, where ownership and/or controlling interest in 
the membership lies with the clearing member, assessment of both a 
member and clearing member fee would apply a double charge to the 
responsible entity for not fulfilling the requirement of Rule 2.30. For 
this reason, the Exchange proposes to apply only the member fee when 
the member is solely employed by and is acting on behalf of the 
clearing member.
    Additionally, because of improvements to the Exchange's trade match 
system and the advances of clearing firms, several sections of Rule 
2.30 have become obsolete and are proposed to be eliminated. As a 
result of the ability to trade match continually throughout the day, 
Exchange Rule 2.30(d)(2) has become obsolete. Thus, the Exchange 
proposes to delete Rule 2.30(d)(2). When Rule 2.30 was initially 
implemented, a deficient clearing firm exception was included, 
2.30(f)(1). This exception waived fifty percent (50%) of a market-
maker's delayed submission fee if the clearing firm through which the 
market-maker submitted trades was severely deficient in submitting all 
of its trades on a particular day. This exception initially was applied 
infrequently, and in the last two years has not been applied to a 
market-maker client of a clearing firm. Due to hand held trade input 
terminals and general improvements in trade submission systems, it is 
nearly impossible for a clearing firm to fall below the deficient 
clearing firm level of fifty-five percent (55%). Therefore, Exchange 
Rule 2.30(f)(1) has become obsolete and the Exchange proposes to delete 
it.
* * * * *
    The Exchange believes that the current proposal will result in an 
improved trade comparison process, thereby serving to promote just and 
equitable principles of trade and to protect investors and the public 
interest in furtherance of the objectives of Section 6(b)(5) of the 
Act.

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

    The 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, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file 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. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
CBOE. All submissions should refer to the File No.

[[Page 23819]]

SR-CBOE-98-09 and should be submitted by May 21, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-11447 Filed 4-29-98; 8:45 am]
BILLING CODE 8010-01-M