[Federal Register Volume 65, Number 28 (Thursday, February 10, 2000)]
[Notices]
[Pages 6668-6669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3037]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42382; File No. SR-CBOE-99-52]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Amending Its Market-Maker Surcharge Fee Schedule

February 3, 2000.
    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 September 2, 1999, 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. 
The Exchange filed Amendment No. 1 \3\ to the proposed rule change on 
January 23, 2000. 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\ See Letter from Stephanie C. Mullins, Attorney, CBOE, to 
Sonia Patton, Attorney, Division of Market Regulation 
(``Division''), Commission, dated January 21, 2000 (``Amendment No. 
1''). Amendment No. 1 states that all option classes on Friede 
Goldman International (FGI), Northwest Airlines Corporation (NAQ), 
Open Market, Inc. (OQM), Orbital Science Corp. (ORB), Onsale, Inc. 
(QOL), Prime Medical Services, Inc. (QSI), Synovous Financial Corp. 
(SNV), Wackenhut Corrections Corp. (WHC), and Zebra Technologies 
Corp. (ZBQ) were designated to Designated Primary Market-Makers 
(``DPMs'') on September 7, 1999 and all option classes on The Boeing 
Company (BA) were designated to DPMs on September 13, 1999. 
Amendment No. 1 also states that no market-maker surcharges were 
assessed on these options after their designation to DPMs.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE is proposing to make changes to its fee schedule pursuant 
to CBOE rule 2.40,\4\ entitled ``Market-Maker Surcharge for 
Brokerage.''
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    \4\ See Securities Exchange Act Release No. 41121 (Feb. 26, 
1999), 64 FR 11523 (March 9, 1999) (order approving CBOE Rule 2.40). 
The Exchange imposes a market-maker surcharge to allow the Exchange 
and its member firms to better compete with other exchanges in floor 
brokerage and order book rates. The surcharge is used to (i) 
reimburse the Exchange to the extent that the order book official 
(`OBO'') brokerage rate is reduced if the reduction is based upon a 
recommendation of resident market-makers, and (ii) pay stationary 
floor brokers (``SFBs'') to induce them to reduce the brokerage 
rates they charge their customers. A resident market-maker is 
defined under CBOE Rule 2.40(a)(ii) as a market-maker who transacted 
at least 80% of his market-maker contracts in option classes traded 
in the trading crowd where the particular option class is traded in 
the prior calendar month. An SFB is defined under CBOE Rule 
2.40(a)(i) as a floor broker who (i) has established a busines in 
the trading crowd for an option class of accepting and executing 
orders for members or registered broker-dealers and (ii) transacted 
at least 80% of his orders for the previous month in the trading 
crowd at which a particular option class is traded.
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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, Proposed Rule Change

1. Purpose
    Pursuant to CBOE Rule 2.40, on September 1, 1999, the Exchange's 
Equity Floor Procedure Committee (``EFPC'') approved the following fees 
for the following option classes:

[[Page 6669]]



------------------------------------------------------------------------
                                                 Market-     Order book
                                                  maker       official
                 Option class                   surcharge     brokerage
                                                   (per       rate (per
                                                contract)     contract)
-----------------------------------------------------------------\5\----
The Boeing Company (BA)......................         0.14         $0.00
Friede Goldman International (FGI)...........         0.02          0.00
Northwest Airlines Corporation (NAQ).........         0.02          0.00
Open Market, Inc. (OQM)......................         0.02          0.00
Orbital Science Corp. (ORB)..................         0.02          0.00
Onsale, Inc. (QOL)...........................         0.02          0.00
Prime Medical Services, Inc. (QSI0...........         0.02          0.00
Synovous Financial Corp. (SNV)...............         0.02          0.00
Wackenhut Corrections Corp. (WHC)............         0.02          0.00
Zebra Technologies Corp. (ZBQ)...............         0.02         0.02
------------------------------------------------------------------------
\5\ The market-maker surcharge will be used in reimburse the Exchange
  for the reduction in the OBO brokerage rate from $0.20 in the relevant
  option classes. Any remaining funds will be paid to SFBs as proved in
  Exchange Rule 2.40.

    These fees went into effect on Thursday, September 2, 1999. All of 
the option classes above are currently multiple listed on at least one 
other exchange. The most recent certification for multiple listing 
relates to options on The Boeing Company (BA) (``Boeing''), which were 
listed on the Pacific Exchange (``PCX'') beginning on September 2, 
1999. All of the market-maker surcharge fees, except those applicable 
to Boeing, reflect reductions in former market-maker surcharge fees 
imposed pursuant to Exchange Rule 2.40.
    With respect to options on Boeing, CBOE Rule 2.40(e) requires that 
an option be listed for trading on another exchange before a market-
maker surcharge fee can be assessed. Boeing has been certified by the 
Options Clearing Corporation to be listed on the PCX. Therefore, the 
CBOE began assessing the market-market surcharge on September 2, 1999, 
when Boeing was first listed on the PCX.\6\
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    \6\ The Exchange interprets Rule 2.40 to allow the EFPC to vote 
on market-maker surcharge before a class has been listed for trading 
on another exchange. Rule 2.40, however, provides that the market-
maker surcharge may not actually be assessed until the class has 
been listed for trading on another exchange.
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    The CBOE represents that the market-maker surcharge fees were 
effective from September 2, 1999 until the options at issue were 
designated to DPMs--September 7, 1999 for FGI, NAQ, OQM, QOL, QSI, SNV, 
WHC, and ZBQ, and September 13, 1999 for BA. The fees were eliminated 
when the options were designated to DPMs.\7\
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    \7\ Telephone conversation between Stephanie C. Mullins, 
Attorney, CBOE, and Gordon Fuller, Special Counsel, Division, 
Commission (December 10, 1999).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\8\ in general, and furthers the objectives of Section 6(b)(4),\9\ 
in particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among CBOE 
members.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement of Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange did not solicit or receive written comments on the 
proposed rule change.

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

    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the Exchange, it has become effective 
pursuant to Section 19(b)(3)(A)(ii) of the Act,\10\ and Rule 19b-
4(f)(2) \11\ thereunder. 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 15 CFR 240.19b-4(f)(2).
    \12\ In reviewing this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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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, 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 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. SR-CBOE-99-52 and 
should be submitted by March 2, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-3037 Filed 2-9-00; 8:45 am]
BILLING CODE 8010-01-M