[Federal Register Volume 64, Number 163 (Tuesday, August 24, 1999)]
[Notices]
[Pages 46221-46222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21867]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41747; File No. SR-CBOE-99-24]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to Changes 
to Option Trading Permit Auction Procedures

August 16, 1999.
    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 9, 1999, 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 
Exchange. Amendment No. 1 was filed on August 2, 1999.\3\ 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.
    \3\ Amendment No. 1 expands the discussion on the proposed rule 
change and clarifies the proposed text of the rule change. See 
letter from Christopher R. Hill, Attorney, CBOE, to Heather Traeger, 
Attorney, Division of Market Regulation, SEC, dated August 2, 1999.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    CBOE proposes to amend the procedure through which it auctions 
Options Trading permits (``Permits'') from the Permit lease pool. The 
text of the proposed rule change is available at 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 Exchange 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 Exchange 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
    CBOE Rule 3.27(a)(3) provides for the creation of a Permit lease 
pool to be administered by the Exchange. The procedures for the 
administration of this lease pool were previously filed with and 
approved by the Commission.\4\ Under these procedures, the Exchange 
conducts and auction every six months during which members and non-
members who have qualified for membership may submit bids equal to the 
monthly rent that the bidder is willing to pay for a month-to-month 
Permit lease. Upon the close of the bidding period, Permits in the 
lease pool are awarded to the highest bidders in a number equal to the 
total number of Permits in the lease pool at that time. Under the 
existing procedures, the monthly rent to be paid by a lessee is the 
dollar value of the bid submitted by that lessee. Following each 
auction, the Exchange continues to accept bids for Permit leases. 
Should any Permit lessee desire to give up that lessee's Permit prior 
to the next auction, the Permit is transferred to the highest bidder at 
a monthly lease price equal to the new lessee's bid for the remainder 
of the six month auction cycle.
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    \4\ The procedures for the administration of the Permit lease 
pool were filed with the Commission in SR-CBOE-97-14. SR-CBOE-97-14 
provided for the issuance of Permits in connection with the transfer 
of the options business of the New York Stock Exchange, Inc. to CBOE 
and defined the rights and obligations associated with Permits. SR-
CBOE-97-14 was approved by the Commission in Securities Exchange Act 
Release No. 38541 (April 23, 1997), 62 FR 23516 (April 30, 1997).
    The CBOE later amended the procedures for administering the 
Permit lease pool in SR-CBOE-97-47, which amended the manner in 
which the CBOE accesses the fee that it charges when a person 
submits a bid to receive a Permit. See Securities Exchange Act 
Release No. 39179 (October 1, 1997), 62 FR 52602 (October 8, 1997).
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    The Exchange proposes to amend the method of the auction to 
establish a procedure known as a Dutch auction. Under the Dutch 
auction, bidders will submit bids equal to the monthly rent which they 
are willing to pay for a six-month lease, and, upon the close of the 
bidding period, Permits in the lease pool will continue to be awarded 
to the highest bidders in a number equal to the total number of Permits 
in the lease pool at that time. under the Dutch auction procedure, 
however, each successful

[[Page 46222]]

bidder will pay only the price of the lowest successful bid. Following 
each Dutch auction, the Exchange will continue to accept bids, with a 
minimum bid established at the price set in the most recent Dutch 
auction.
    The revised Permit Lease Pool Procedures also contain several other 
amendments, most of which merely set forth existing exchange practices 
in greater detail for the benefit of members and the public. The 
following amendments represent changes to existing practices:
     The proposed rule change establishes a minimum qualifying 
bid level for all bidding which occurs between Dutch auctions. The 
minimum qualifying bid is set at the lease rate established in the most 
recent Dutch auction. This change is designed to equalize Permit lease 
rates and enhance administrative efficiency by encouraging lessees to 
use the Dutch auction process, rather than attempt to obtain a lower 
priced lease by bidding between the Dutch auctions.
     The proposed rule change permits a lessee to terminate the 
lessee's Permit during the ease period, by written notice to the 
Membership Department, but provides that the termination notice shall 
be irrevocable.\5\ The Membership Department will post notice of the 
availability of the Permit for at least two business days on the 
Exchange bulletin board. The Permit will be transferred to the highest 
bidder whose bid is received by 3:30 p.m. on the first Wednesday after 
notice of the permit's availability has been posted for at least two 
business days.
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    \5\ The Exchange represents that this proposed rule change 
codifies the Exchange's current procedure. See Amendment No. 1.
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     The proposed rule change also allows Permits to be 
transferred among nominees of an organization with appropriate notice 
to the Exchange, as is the case with CBOE memberships.
     The proposed rule change provides that an individual can 
lease only one Permit from the lease pool at a time. Therefore, an 
individual who is already a Permit lessee may not submit a Permit bid 
during the six month lease period (except to bid in the next Dutch 
auction) unless and until the lessee first terminates the lessee's 
current lease.\6\
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    \6\Id.
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     Finally, the proposed rule change establishes a six month 
Permit lease instead of the current month-to-month lease, for easier 
and more efficient administration of the lease process.
2. Statutory Basis
    The Exchange believes that the proposed Dutch auction procedure for 
the Permit lease pool described herein will more effectively equalize 
the amounts paid for Permits by each successful bidder. As such, the 
proposed rule changes are consistent with Section 6(b) of the Act,\7\ 
in general, and further the objectives of Section 6(b)(4) \8\ in 
particular, in that they are designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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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 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 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 proposed rule 
change, as amended, 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 20549-0609. 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-99-24 and should be submitted by September 14, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-21867 Filed 8-23-99; 8:45 am]
BILLING CODE 8010-01-M