[Federal Register Volume 65, Number 181 (Monday, September 18, 2000)]
[Notices]
[Pages 56353-56355]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23831]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43273; File No. SR-CBOE-00-29]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Relating to the Market Performance Responsibilities of 
the Exchange's Modified Trading System Appointments Committee

September 11, 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 July 11, 2000, 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 
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 Exchange proposes to amend its rules governing designated 
primary market-makers (``DPMs'') to modify a provision requiring that 
the Exchange's Modified Trading System Appointments Committee (``MTS 
Committee'') undertake certain performance evaluation and remedial 
action functions with respect to DPMs and other Exchange members 
trading in DPM crowds. 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, 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 parts of such statements.

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

    The proposed rule change concerns the role of the CBOE's MTS 
Committee in reviewing the performance of DPMs and Market Makers and 
Floor Brokers that regularly trade at DPM trading stations. The purpose 
of the proposed change is to clarify that while the MTS Committee has 
the authority, by rule, to perform the market performance evaluations 
and remedial action functions set forth in CBOE Rule 8.60 \3\ with 
respect to members that regularly trade at DPM stations, it will not be 
obligated to perform such evaluations and functions when they are 
carried out by other appropriate Exchange committees.
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    \3\ CBOE Rule 8.60(a) requires the periodic evaluation of 
members to determine whether they have fulfilled various performance 
standards, including those related to quality of markets, 
competition among market makers, observance of ethical standards, 
and administrative factors.
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1. Background
    On June 3, 2000, the Commission approved a rule change that updated 
and reorganized the Exchange's rules

[[Page 56354]]

relating to its DPM program,\4\ which has been in existence for 
approximately 13 years. That change also incorporated certain 
modifications to the operations of the DPM program. Among those was a 
requirement in recently adopted Rule 8.88(b) that the MTS Committee 
perform the market performance evaluation and remedial action functions 
set forth in CBOE Rule 8.60 with respect to DPMs and other members that 
regularly trade at DPM trading stations.
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    \4\ Securities Exchange Act Release No. 43004 (June 30, 2000), 
65 FR 43060 (July 12, 2000).
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    At the time the CBOE submitted the rule change proposal in December 
1998, it was anticipated that only about one-half of the equity option 
trading crowds on the Exchange would operate under the DPM system, and 
that, therefore, it would be feasible and practical for the MTS 
Committee to perform the market performance evaluation and remedial 
action functions specified above for all DPMs and all members that 
regularly trade in DPM crowds.\5\ The Exchange's Market Performance 
Committee has historically carried out the market performance and 
remedial action functions for all trading members other than DPMs who 
traded in equity option crowds, whether they traded in non-DPM crowds 
or DPM crowds. The rule change contemplated that the MTS Committee and 
the Market Performance Committee would equally divide the evaluation 
and remedial action responsibilities required under CBOE Rule 8.60 for 
equity option crowds with the MTS Committee performing these functions 
for members of DPM crowds and the Market Performance Committee 
performing these functions for members of non-DPM crowds. On June 29, 
1999, however, the CBOE members voted to expand the application of the 
DPM program to all of its equity option trading crowds in an effort to 
address the strategic needs of the Exchange. This, in turn, has 
resulted in the MTS Committee having to assume market performance 
responsibilities for a much larger group of members than originally 
anticipated.
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    \5\ The MTS Committee currently has the ability to review and 
evaluate the conduct of DPMs pursuant to CBOE Rule 8.60.
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2. Proposed Change
    Because of the significant shift to a DPM system for all equity 
option classes, the Exchange now believes it is too cumbersome for the 
MTS Committee to undertake all of the market performance evaluation and 
remedial action functions for all equity option trading crowds required 
by CBOE Rule 8.60. This is particularly true in light of the other 
significant responsibilities delegated to the MTS Committee, such as 
considering applications for DPM appointments, appointing DPMs, 
conducting detailed operational reviews of each DPM, making decisions 
on DPM appointment transfer proposals, and removing DPMs.
    The Exchange therefore proposes to modify CBOE Rule 8.88(b) to 
state that the MTC Committee may (as opposed to shall) perform the 
market performance evaluation and remedial action functions set forth 
in CBOE Rule 8.60 with respect to DPMs and the Market Makers and Floor 
Brokers that regularly trade at DPM trading stations. The Exchange 
believes that this proposed change is consistent with the historical 
application of CBOE Rule 8.60 because it still allows the Market 
Performance Committee to continue administering performance evaluations 
of members, a function it has typically performed. Further, the 
proposed change is consistent with former CBOE Rule 8.80(b)(10),\6\ 
which allowed, but did not require, the MTS Committee to perform the 
market performance evaluation and remedial action functions set forth 
in CBOE Rule 8.60 with respect to DPMs.
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    \6\ CBOE Rule 8.80(b)(10) preceded current CBOE Rule 8.88(b).
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    The Exchange notes that, under the proposed rule change, the MTS 
Committee would still be allowed to perform market performance 
evaluation and remedial action functions under CBOE Rule 8.60, if 
appropriate, but the Exchange would simply have the authority to 
delegate those functions among various committees. The CBOE believes 
that this flexibility is consistent with SR-CBOE-97-61,\7\ approved by 
the Commission in 1997, which deleted specific references to a 
particular Market Performance Committee or a particular Floor Procedure 
Committee and replaced them with the terms ``appropriate'' Market 
Performance Committee and ``appropriate'' Floor Procedure Committee. 
The CBOE believes that, because all CBOE committees will exercise their 
authority pursuant to Exchange rules, the actual committee that 
exercises its authority under the rules should not be relevant. 
Accordingly, as the proposed rule would merely afford the Exchange 
greater flexibility in determining the appropriate committee or 
committees to carry out the administrative functions prescribed under 
CBOE Rule 8.60, the change is truly administrative in nature. Moreover, 
the proposed rule change would obviate the need to make a future rule 
change simply to change the delegation of authority under CBOE Rule 
8.60 between and among Exchange committees.
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    \7\ Securities Exchange Act Release No. 39479 (December 22, 
1997), 62 FR 68326 (December 31, 1997).
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3. Statutory Basis
    The CBOE believes that the proposed rule change will improve the 
administration of the Exchange's market performance evaluation and 
remedial action functions. Accordingly, the CBOE believes that the 
proposed rule change is consistent with Section 6 of the Act,\8\ and in 
particular Section 6(b)(5),\9\ in that it is designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts and practices, and to protect 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

    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.

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

    Because the CBOE has designated the proposed rule change as 
constituting stated policies, practices, or interpretations with 
respect to the meaning, administration, or enforcement of its existing 
rules, it has become effective pursuant to Section 19(b)(3)(A)(i) of 
the Act \10\ and Rule 19b-4(f)(1).\11\ At any time within 60 days of 
the filing of this proposed rule change, the Commission may summarily 
abrogate the 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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    \10\ 15 U.S.C. 78s(b)(3)(A)(i).
    \11\ 17 CFR 240.19b-4(f)(1).
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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

[[Page 56355]]

Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., 
Washington, D.C. 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 file number SR-CBOE-00-29 and should be 
submitted by October 10, 2000.

    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. 00-23831 Filed 9-15-00; 8:45 am]
BILLING CODE 8010-01-M