[Federal Register Volume 63, Number 245 (Tuesday, December 22, 1998)]
[Notices]
[Pages 70818-70820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33818]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40786; File No. SR-CBOE-98-98-51]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc., To Enhance the Exchange's Order Routing System

December 14, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),1 and Rule 19b-4(e)(6) thereunder,2 
notice is hereby given that on November 13, 1998,3 the 
Chicago Board Options Exchange, Inc. (``CBOE'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, and II, and III below, 
which Items have been prepared by 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(e)(6).
    \3\ On December 11, 1998, the CBOE submitted Amendment No. 1 to 
the proposed rule change, which clarifies certain defined terms in 
the notice and makes certain textual changes, See letter from 
Timothy Thompson, Director, Regulatory Affairs, CBOE, to Anitra 
Cassas, Attorney, Division of Market Regulation, Commission, dated 
December 11, 1998.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    CBOE is proposing to allow firm and broker-dealer orders to be 
routed to the Public Automated Routing (``PAR'') workstations across 
the floor. 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, CBOE included statements 
concerning the propose 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. CBOE has prepared summaries, set forth in Sections A, B, 
and C below, of the most significant aspects of such statements.

[[Page 70819]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    CBOE is proposing to allow broker-dealer and firm order 
4 to be routed over the Exchange's Order Routing System 
(``ORS'')5 to the PAR workstations (including Mobile PAR) 
across the floor, regardless of the location of those PAR workstations 
(i.e., in all trading crowds). Pursuant to a Regulatory Circular RG97-
67, broker-dealer and firm orders currently may be routed to those PAR 
workstations in the trading crowd for options on the Standard & Poor's 
100 Stock Index (``OEX''), but not to PAR workstations in the trading 
crowds for Standard & Poor's 500 Stock Index (``SPX'') options, equity 
options, and narrow-based options. Regulatory Circular RG97-67 was 
filed with and approved by the Commission as a rule of the 
Exchange.6 In its rule filing seeking approval of that 
Regulatory Circular, CBOE stated that after it had gained experience 
with routing firm and broker-dealer orders to the PAR workstations in 
OEX, it may determine to enable the system to route such orders to 
equity and SPX crowds at some future date.
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    \4\ A ``broker-dealer'' order is an order for any account in 
which a broker-dealer has an interest, such as a proprietary account 
or a customer account for a broker-dealer or firm that is not an 
Options Clearing Corporation (``OCC'') member firm. A ``firm'' order 
is an order for a firm proprietary account of an OCC member. These 
designations define the origin of an order sent to the Exchange 
electronically, so that the order can be properly routed. Broker-
dealer and firm orders can not be routed to RAES and may not be 
placed on the customer limit order book.
    \5\ CBOE's Order Routing System provides member and 
correspondent firms with a method of efficiently delivering orders 
to and reports from the CBOE trading floor. ORS also interfaces with 
several other peripheral systems at CBOE, including the CBOE Trade 
Match system, the Time-and-Sales system, the Auto-quote system, and 
the Market-Maker Hand-held Terminals. Member firms with wires 
attached to the CBOE's front-end computer can send orders 
electronically from their branches or order desk to the ORS. Reports 
for such orders are sent back electronically to the point from which 
the order was entered.
    \6\ Securities Exchange Act Rel. No. 38702 (May 30, 1997), 62 FR 
31184 (June 6, 1997), order approving on a permanent basis certain 
enhancements to the Exchange's ORS, including the restriction on the 
routing of firm and broker-dealer orders to the PAR workstations 
except to the OEX post. (File No. SR-CBOE-97-22) See also Securites 
Exchange Act Rel. No. 38261 (February 10, 1997), 62 FR 7080 
(February 14, 1997), notice of filing and immediate effectiveness of 
File No. SR-CBOE-97-06 in which these same proposed changes were 
adopted on a pilot basis. The Commission also approved a CBOE 
proposal to permit routing of firm and broker-dealer orders to PAR 
stations in the trading crowed for options based on the Dow Jones 
Industrial Average (``DJX''). Securites Exchange Act Rel. No. 39240 
(October 14, 1997), 62 FR 54891 (October 22, 1997).
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    CBOE is proposing to make this change at this time for at least two 
reasons. First, the Excahge believes this change will enhance the 
ability of firms and broker-dealers to transact their business in a 
more efficient and timely manner. Currently, firm and broker-dealer 
orders must be routed to a booth on the floor where they are printed 
and run out to the particular post on the floor for execution. Second, 
CBOE believes that its experiene with the routing of firm and broker-
dealer orders to PAR in OEX and DJX over the last year (i.e., since it 
has been permitted) has been positive. The Exchange has experienced no 
capacity problems with the PAR stations or the Order Routing System in 
handling the order flow. The Exchange has not experienced any incidents 
of kickouts of customer orders and the routing of firm and broker-
dealer orders over PAR has not interfered with the transmission of 
customer orders to PAR or the execution of customer orders received on 
PAR. Futher, the Exchange does not believe the routing of brokerdealer 
orders to PAR has slowed the transmission or processing of customer 
orders in OEX and DJX and the Exchange does not expect it will slow the 
transmission or processing of oders in other trading 
crowds.7
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    \7\ See Amendment No. 1.
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2. Statuory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b)8 of the Act, in general, and futhers the 
objectives of Section 6(b)(5),9 in particular, in that it 
should foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, and processing information with respect 
to, and facilitating transactions in securities, and should 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change would 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

    CBOE has neither solicited nor received written comments on the 
proposed rule change.

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

    The foregoing proposed rule change does not: (1) significantly 
affect the protection of investors or the public interest; (2) impose 
any significant burden on competition; and (3) become operative for 30 
days from November 13, 1998, the date on which it was filed and, since 
the Exchange provided the Commission with written notice of its intent 
to file the proposed rule change at least five business days prior to 
the filing date, the proposed rule change has become effective pursuant 
to Section 19(b)(3)(A) of the Act \10\ and subparagraph (e)(6) of Rule 
19b-4 thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(e)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested person 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 File No.

[[Page 70820]]

SR-CBOE-98-51 and should be submitted by January 12, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-33818 Filed 12-21-98; 8:45 am]
BILLING CODE 8010-01-M