[Federal Register Volume 63, Number 153 (Monday, August 10, 1998)]
[Notices]
[Pages 42649-42650]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21278]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40287; File No. SR-CBOE-98-26]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to 
Quarterly Closing Rotations

July 31, 1998.
    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 June 16, 1998, the Chicago Board Options Exchange, Inc. (``CBOE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to add an interpretation to Rule 6.2 to 
provide for a closing rotation in Exchange-traded options on the last 
trading day of each calendar quarter. The text of the proposed rule 
change follows. (Italicizing indicates material to be added.)
Trading Rotations
Rule 6.2
    No change.

* * * Interpretations and Policies:

.01-.04  No change.
    .05A  closing rotation shall be employed for each series of options 
traded on the Exchange on the last business day of each calendar 
quarter. Unless otherwise directed by Floor Officials or the 
appropriate Floor Procedure Committee the only orders which may 
participate in the closing rotation are those that are received before 
the normal close of the trading day, i.e., generally 3:02 p.m. for 
equity and narrow-based index options and 3:15 p.m. for broad-based 
index options. The Exchange's Retail Automatic Execution System 
(``RAES'') will not be available during the closing rotation. The 
appropriate Floor Procedure Committee may determine not to hold a 
closing rotation for a particular class of options for a calendar 
quarter, in which case prior notice will be provided to the Exchange's 
membership. The Order Book Official, with the approval of two Floor 
Officials, may deviate from the rotation policy or procedures for 
quarterly closing rotations as provided for in this Rule.

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

1. Purpose
    The CBOE is proposing to add Interpretation .05 under Rule 6.2 that 
would provide for a closing rotation to be held in options traded on 
the CBOE floor on the last trading day of each calendar quarter. Also, 
the Exchange is setting forth the procedures to be

[[Page 42650]]

followed in holding these closing rotations. As with other trading 
rotations that are provided for currently under Rule 6.2, the Order 
Book Official, with the approval of two Floor Officials, may deviate 
from these procedures in handling a closing rotation. In addition, the 
appropriate Floor Procedure Committee may determine not to hold a 
closing rotation for a particular class of options for a calendar 
quarter, in which case prior notice will be provided to the Exchange's 
membership.
    The Exchange has noticed recently that on the last trading day of 
each calendar quarter there is increased order flow in Exchange-traded 
options and in the underlying securities, particularly at the end of 
that trading day. Many large money managers adjust their positions at 
the end of the calendar quarter because of tax considerations and 
reporting requirements. As a result of this activity in both the 
underlying and options markets at the end of the calendar quarter, the 
last sale print for many stocks is often delayed, sometimes much beyond 
the close of the options market. To account for late prints and 
increased order flow at the end of the day, the Exchange believes it is 
important to provide for a closing rotation in Exchange-traded options 
at the end of each calendar quarter. These rotations will allow 
Exchange members to adjust the options prices in line with the prices 
of the underlying securities; thus, avoiding potential capital and/or 
margin deficiencies for traders with hedged positions involving the 
options and the underlying securities. The closing rotation will also 
give investors and other interested parties more accurate closing 
prices for CBOE options on these high volume days. Although the 
Exchange has the authority now under Rule 6.2 to call for closing 
rotations any time the circumstances warrant, it determined to add this 
interpretation to the Rule so Floor Officials do not have to make the 
determination of whether to order a closing rotation each quarter in 
many different options classes. Also, by adding this Interpretation to 
its Rules it will give member firms and customers advance notice of the 
Exchange's intention of holding closing rotations on these four days 
each year so they can act accordingly.
    For quarterly closing rotations, unless otherwise directed by Floor 
Officials or the appropriate Floor Procedures Committee, the only 
orders that may participate in the closing rotation are those that are 
received before the normal close of the trading day, i.e., generally 
3:02 p.m. for equity and narrow-based index options and 3:15 p.m. or 
broad-based index options. The Exchange's Retail Automatic Execution 
System (``RAES'') \3\ will not be available during the closing 
rotation.
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    \3\ RAES is the Exchange's automatic execution system for small 
public customer market or marketable limit orders.
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2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \4\ in that it is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest.
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    \4\ 15 U.S.C. 78f(b).
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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 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, including whether the proposal is 
consistent with the Act. 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-98-26 and should 
be submitted by August 31, 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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Jonathan G. Katz,
Secretary.
[FR Doc. 98-21278 Filed 8-7-98; 8:45 am]
BILLING CODE 8010-01-M