[Federal Register Volume 65, Number 120 (Wednesday, June 21, 2000)]
[Notices]
[Pages 38617-38618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-15614]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42943; File No. SR-CBOE-00-20]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Incorporated, Amending Its Rules to Mandate Decimal Pricing 
Testing

June 14, 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 May 24, 2000, the Chicago Board Options Exchange, Incorporated 
(``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 CBOE has designated this proposal as one concerned solely with the 
administration of the CBOE under Section 19(b)(3)(A)(iii) of the 
Act,\3\ which renders the proposal effective upon filing with the 
Commission. 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\ 15 U.S.C. 78s(b)(3)(A)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposed to amend its rules to mandate that member firms 
test computer systems in order to ensure preparedness for the 
industry's conversion to decimal pricing.
    The text of the proposed rule change is available upon request from 
the CBOE or the Commission.

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

    In its filling with the Commission, the Exchange included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received regarding 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
    As the securities industry prepares for the conversion to decimal 
pricing, it will be necessary for various constituents of the 
securities industry to test their computer systems in order to avoid 
widespread problems. The CBOE, in cooperation with the Commission and 
other self-regulatory organizations, has been working toward a 
successful transition to decimal pricing. The purpose of the proposed 
rule change is to require CBOE member firms to participate in tests of 
computer systems designed to prepare for the industry's conversion to 
decimal pricing.
    The proposed rule change would create new CBOE Rule 15.12 to 
require CBOE members to participate in the testing of computer systems 
in a manner and frequency to be prescribed by the Exchange. It is the 
CBOE's understanding that other self-regulatory organizations, 
including the National Association of Securities Dealers, Inc., the New 
York Stock Exchange, Inc., and the American Stock Exchange LLC, are 
also proposing rule changes to require testing by their members in 
connection with the industry's conversion to decimal pricing.
    The Securities Industry Association has undertaken to coordinate 
industry-wide computer testing to ensure that the securities industry 
is adequately prepared to convert to decimal pricing. Industry 
constituents to participate in the testing will include, among others, 
national securities exchanges, registered clearing corporations, data 
processors, and broker-dealers. Several industry-wide tests have been 
planned, the first of which took place in April 2000.
    The CBOE will employ its new Rule 15.12 to require that its members 
participate in these tests. CBOE Rule 15.12 further provides that any 
firm having an electronic interface with the Exchange would be required 
to conduct point-to-point testing with the Exchange. Point-to-point 
testing refers to tests conducted between two entities, in this case a 
member having an electronic interface and the Exchange.\4\
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    \4\ A member that has its electronic interface with the Exchange 
through a service provider may be exempted from this requirement if 
such service provider conducts successful tests with the Exchange on 
behalf of the firms its services, if the member conducts successful 
point-to-point testing with the service provider by a time to be 
designated by the Exchange, and if the Exchange agrees that no 
further testing is necessary.
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    Under the proposal, the Exchange would require member firms to 
participate in industry-wide testing to the extent such firms can be 
accommodated by the testing schedule. The Exchange would exercise its 
authority under CBOE Rule 15.12 to the extent it deems that the 
participation of particular members in the testing is important, and to 
the extent those members would otherwise not voluntarily choose to 
participate.
    The proposed rule change would also allow the CBOE to require 
members to file reports with the CBOE concerning the required tests in 
the manner and frequency determined by the Exchange. A member subject 
to CBOE Rule 15.12 who failed to participate in the manadatory tests or 
who failed to file any required reports, would be subject to 
disciplinary action pursuant to Chapter XVII of the Exchange's rules.
    The Exchange believes that it currently has the authority, without 
the

[[Page 38618]]

approval of CBOE Rule 15.12, to require testing and reporting with 
respect to the implementation of decimal pricing under the broad 
authority granted it to enforce the provisions of the Act and to ensure 
the safety of its marketplace. More specifically, CBOE Rule 4.2 
prohibits members from engaging in conduct that violates the Act or 
rules and regulations thereunder; CBOE Rule 4.3 provides the Exchange 
authority to approve the maintenance of any wire connections between 
its members and other members or non-members; and CBOE Rule 4.10 gives 
the President or the Chairman of the Exchange the right to impose such 
conditions and restrictions on a member as either may consider 
reasonably necessary for the protection of the Exchange and the 
customers of such member. Notwithstanding this existing authority, 
however, the Exchange believes that its membership would be better 
served by having its specific intentions with respect to mandatory 
decimal pricing testing defined in a stand-alone rule.
    The proposed CBOE Rule 15.12 would expire automatically upon the 
completion of decimal pricing implementation.
2. Statutory Basis
    The CBOE believes proposed CBOE Rule 15.12, whose purpose is to 
ensure the participation of Exchange members in important testing prior 
to the securities industry's conversion to decimal pricing, is 
consistent with Section 6(b) of the Act \5\ in general and further the 
objectives of Section 6(b)(5) \6\ in particular 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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C. 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 not necessary or appropriate in furtherance 
of the purposes of the Act.

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 to the proposed rule 
change.

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

    Because the foregoing rule change is concerned solely with the 
administration of the Exchange, it has become effective pursuant to 
Section 19(b)(3)(A)(iii) of the Act \7\and subparagraph (f)((3) of Rule 
19b-4 thereunder.\8\ At any time within 60 days of the filing of such 
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.
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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(3).
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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, 450 Fifth Street, NW, Washington, 
DC. 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-00-20 and should be submittted by July 12, 
2000.

    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. 00-15614 Filed 6-20-00; 8:45 am]
BILLING CODE 8010-01-M