[Federal Register Volume 65, Number 168 (Tuesday, August 29, 2000)]
[Notices]
[Pages 52457-52459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21960]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43194; File No. SR-CBOE-00-04]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. To Amend and Codify 
Its Equity Options Post Telephone Policy

August 22, 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 February 25, 2000, 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 CBOE proposes to amend and codify its policy governing the use 
of member-owned or Exchange-owned telephones on the trading floor with

[[Page 52458]]

respect to communications at equity options trading posts.
    The text of the proposed rule change is available at the 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 CBOE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments its 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 purpose of the proposed rule change is to expand the existing 
CBOE policy governing the use of telephones at equity option trading 
posts \3\ to make it more consistent with the CBOE's current index 
option trading post telephone policy by allowing for the receipt of 
orders over outside telephone lines, from any source, directly at 
equity trading posts, and to incorporate that policy into the 
Exchange's rules. However, unlike the current index option post policy, 
the proposed rule would generally allow for the receipt of orders 
directly at the post over outside telephone lines only when the 
order(s) are placed during outgoing telephone calls. The Exchange seeks 
to codify its current equity option post telephone policy (as modified 
by the changes proposed in this filing), to make clear to member and 
member organizations the Exchange's position with respect to the use of 
telephones at equity option posts and to prevent any misunderstandings 
regarding the policy, which has been subject to considerable change in 
recent years. The proposed rule would supersede any previous policies 
concerning the use of telephones at equity option trading posts 
established in CBOE Regulatory Circulars.
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    \3\ Equity trading posts are all trading posts that are under 
the jurisdiction of the Equity Floor Procedure Committee (all 
trading posts except DJX, NDX, OEX and SPX), including Designated 
Primary Market-Maker crowds.
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    The proposed change to the equity post telephone policy is the 
latest in a continual expansion of direct telephone access of orders to 
the equity option trading posts since a telephone policy for equity 
option posts was first filed with the Commission in 1993, in SR-CBOE-
93-24.\4\ That initial policy prohibited any orders from being 
transmitted over the outside telephone lines to the equity option 
posts, although at that time, and continuing to the present, orders 
could be transmitted over the intra-floor lines from one point on the 
Exchange floor to another. In 1996, the Exchange liberalized its 
telephone policy at equity posts to allow orders of CBOE market-makers 
to be received over the outside telephone lines directly to the trading 
posts. This change allowed CBOE market-makers to transmit their orders 
more efficiently at those times when they may need to be off the floor.
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    \4\ See Securities Exchange Act Release No. 33701 (March 2, 
1994).
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    Thus, under the current policy, the only orders for equity options 
that may be received at the post directly via telephone lines from off-
floor locations are off-floor orders of CBOE market-makers.\5\ The 
proposed amendment would expand this policy by permitting the receipt 
of off-floor orders from any source (i.e., members, broker-dealers, 
non-broker-dealers, or public customers) over outside telephone lines 
directly at the equity trading posts during outgoing telephone 
calls.\6\ However, because the Exchange believes that allowing orders 
from any source to be telephoned from outside the CBOE facility 
directly into the equity trading posts could be too disruptive to 
trading at the posts, the proposed amendment would only allow for such 
orders to be transmitted to the equity posts pursuant to a telephone 
call initiated at the post (an outgoing call). CBOE market-makers, 
however, would still be allowed to transmit orders over the telephone 
lines from off the floor directly to the equity trading posts.
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    \5\ RG 97-92 is the latest circular reflecting the current 
equity telephone policy which was approved by the Commission in 
Securities Exchange Act Release No. 37876, 61 FR 56728 (November 4, 
1996), and in Securities Exchange Act Release No. 39331, 62 FR 62650 
(November 24, 1997).
    \6\ In adopting this change, the CBOE wants to provide more 
immediate access into its trading crowds to its customers. The 
Exchange believes that this expansion in access is necessary to 
allow the CBOE to continue to satisfy its customers in an 
increasingly competitive environment.
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    This liberalization of the Exchange's telephone policy at equity 
posts is consistent with the recommendation of the Equity Floor 
Procedure Committee. That Committee, which oversees trading at the 
equity option posts, believes that the liberalization of this policy 
will help make the Exchange more efficient by reducing the time it 
takes to transmit an order and effect a trade on the Exchange. This, in 
turn, will enable the Exchange to be more competitive, especially since 
speed of execution is increasingly a basis of competition among 
markets.
    The proposed change makes the policy governing telephone orders at 
equity options posts more consistent with the comment policy at the OEX 
post since 1998.\7\ As it does at the OEX trading post, the Exchange 
intends to police compliance with the conditions applicable to the use 
of telephones at the equity trading posts by means of complaints from 
Exchange members at the post, as well as observations of Floor 
Officials and Exchange staff. Further, any individual member or 
associated person receiving orders over outside telephone lines must be 
properly qualified under Exchange rules, including those in Chapter IX, 
to accept such orders.
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    \7\ The OEX policy is set forth in RG-98-09, which was approved 
in Securities Exchange Act Release No. 39435, 62 FR 66157 (December 
17, 1997).
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    The Equity Floor Procedure Committee will be responsible for 
implementing this policy in conformity with Exchange Rules and the 
Act.\8\ The Equity Floor Procedure Committee will approve access and 
the phone technology, and will decide any other issues relating to this 
policy. Additionally, the CBOE Department of Financial and Sales 
Practice Compliance will be required to review and approve all 
applications relating to the policy to ensure that the applicant is 
intending to transact business which the applicant is authorized to 
transact.
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    \8\ Responsibility for accepting orders from a wide range of 
customers will be borne by the member firms. Floor brokers accepting 
orders in this manner would be required to be qualified pursuant to 
Exchange Rule 9.1. As is the case with brokers accepting orders of 
public customers over OEX post telephones, any broker speaking 
directly with a public customer is required to be Series 7 qualified 
and registered with the Exchange by a member organization approved 
to conduct non-member customer business.
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    The Exchange intends to implement these changes within sixty days 
after they are approved.
2. Statutory Basis
    The Exchange believes that the proposed rule is consistent with, 
and furthers the objectives of, Section 6(b)(5) \9\ of the Act in that 
it is designed to improve communications to and from the Exchange's 
trading floor in a manner that promotes just and equitable principles 
of trade, prevents fraudulent and manipulative acts and practices, and 
maintains fair and orderly markets.
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    \9\ 15 U.S.C. 78f(b)(5).

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[[Page 52459]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange represents that the proposed rule change will impose 
no 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 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-00-04 and 
should be submitted by September 19, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 00-21960 Filed 8-28-00; 8:45 am]
BILLING CODE 8010-01-M