[Federal Register Volume 65, Number 241 (Thursday, December 14, 2000)]
[Notices]
[Pages 78231-78233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31801]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43676; File No. SR-CBOE-00-48]


Self-Regulatory Organizations; Notice of Filing by Chicago Board 
Options Exchange, Inc., Relating to RAES Eligibility Requirements for 
OEX and DJX Options

December 5, 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 20, 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 
Exchange. 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 Chicago Board Options Exchange, Inc. (``CBOE'' or ``Exchange'') 
proposes to amend Rule 24.17, which governs the eligibility 
requirements of Market-Makers to participate on the Exchange's Retail 
Automatic Execution System (``RAES'') in both options on the Standard & 
Poor's 100 Index (``OEX'') and options on the Dow Jones Industrial 
Average (``DJX'').
    The text of the proposed rule change is available at CBOE and 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 aspects of such statements.

[[Page 78232]]

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 amend Rule 24.17, 
``RAES Eligibility in OEX and DJX,'' to: (1) eliminate the in-person 
and volume quotas from the eligibility requirements of Rule 24.17; (2) 
eliminate the cap on the maximum number of Market-Makers that may 
participate in a RAES group; and (3) add an exception to the log-off 
requirements of OEX and DJX Market-Makers. The proposed rule changes 
will make the RAES eligibility requirements of OEX and DJX Market-
Makers the same as for other Market-Makers in non-index option classes 
and will enhance the depth and liquidity of the RAES markets in OEX and 
DJX.
    Currently, Rule 24.17(b)(v) sets forth four eligibility 
requirements that a Market-Maker must meet before he or she can 
participate in RAES in either OEX or DJX. One of these requirements is 
that the Market-Maker must execute at least seventy-five percent of his 
or her Market-Maker contracts for the preceding calendar month in the 
option class in which the Market-Maker is participating on RAES. 
Another requirement is that the Market-Maker must execute at least 
seventy-five percent of his or her Market-Maker trades for the 
preceding calendar month in the option class in which the Market-Maker 
is participating on RAES in person. No comparable RAES eligibility 
requirements are imposed upon Market-Makers trading in non-index option 
classes. The Exchange proposes to eliminate the in-person and volume 
quotas from the eligibility requirements of Rule 24.17, so that the 
RAES eligibility requirements of OEX and DJX Market-Makers are the same 
as for other Market-Makers.
    Recently, Market-Maker participation on RAES in index options has 
been low compared to historical levels. This problem has been 
aggravated by the fact that the in-person and volume requirements have 
forced the Exchange to delay new Market-Makers who wish to participate 
on RAES from logging onto RAES for at least 30 days. The proposed rule 
change would allow a new Market-Maker to log onto RAES so long as that 
Market-Maker: (1) Has signed the RAES Participation Agreement and 
completed the RAES instructional program (Rule 24.17(b)(i)); (2) has 
been approved under Exchange Rules as a Market-Maker with a letter of 
guarantee (Rule 24.17(b)(v)(A)); and (3) maintains his or her principal 
business on the CBOE as a Market-Maker (Rule 24.17(b)(v)(B)).
    Accordingly, the Exchange proposes to also eliminate subparagraph 
(b)(vi)(C) to Rule 24.17, which allows a Market-Maker to qualify for 
RAES in both OEX and DJX during the same calendar month by meeting the 
individual in person and volume requirements with respect to OEX, with 
respect to DJX, or the volume requirement with respect to OEX and DJX 
combined and the in person requirement with respect to OEX or DJX. 
Under the proposed rule change, a Market-Maker will be able to 
participate in RAES in both OEX and DJX during the same calendar month 
as long as he or she meets the remaining criteria under subparagraph 
(b)(v) to Rule 24.17 and as long as the two products continue to be 
traded at the same physical trading location. A Market-Maker must be 
present in the particular trading crowd where the class is traded while 
he or she is participating in RAES for that class. The Exchange also 
proposes to eliminate the cap on the maximum number of Market-Makers 
that may participate in a RAES group \3\ set forth in Rule 24.17(e). 
Currently, Rule 24.17(e) provides that a RAES group may not exceed the 
maximum number of RAES participants set by the appropriate Committee 
from time to time, which in no event may be set higher than 50 RAES 
participants or 25% of the average number of RAES participants for the 
prior quarter, whichever is smaller. The recent decline in RAES 
participation in index options has resulted in imposed reductions in 
the RAES group size due to the application of this size limit.
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    \3\ A RAES group is an account whereby members of a joint 
account may participate on the system at the same time and assign 
their RAES trades to a designated joint account or nominee acronym.
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    The Exchange further proposes to add to Rule 24.17 an exception to 
the log-off requirement that provides that a Market-Maker who has 
logged onto RAES in OEX or DJX must log off RAES whenever he or she 
leaves the respective trading crowd. The exception would allow OEX and 
DJX Market-Makers to remain logged onto RAES if the Market-Maker's 
departure from the trading crowd is for a ``brief interval.'' This 
exception is currently found in the SPX RAES eligibility rule, Rule 
24.16, and the RAES eligibility rule for equity options, Rule 8.16.\4\ 
The Exchange believes that OEX and DJX RAES Market-Makers should also 
have the benefit of this exception applicable to SPX and equity options 
Market-Makers. The appropriate Committee, as defined in Rule 24.17, 
would have the authority to determine the length of time that 
constitutes a brief interval in the OEX and DJX trading crowds.
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    \4\ A ``brief interval'' in SPX options has been determined by 
the appropriate Committee to mean no more than 10 to 15 minutes. In 
equity options, a brief interval has been determined by the 
appropriate Committee to mean 5 minutes or less.
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    The proposed rule change would conform Rule 24.17 to the Exchange 
Rule governing RAES eligibility for equity options, Rule 8.16, which 
does not impose in-person and volume requirements on equity options 
Market-Makers. The Exchange believes that by making the OEX and DJX 
RAES eligibility rule consistent with the rule for equity Market-
Makers, the proposed rule change will provide the OEX and DJX markets 
with enhanced capital and market-making expertise while maintaining the 
overall quality of these markets. By increasing the number of RAES 
participants in OEX and DJX, the Exchange believes the proposed rule 
change will further assure the availability of RAES during periods of 
market volatility.
2. Statutory Basis
    The proposed rule change is consistent with and furthers the 
objectives of Section 6(b)(5) of the Act \5\ in that it is designed to 
remove impediments to a free and open market and to protect investors 
and the public interest.
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    \5\ 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 
a burden on competition that is not necessary or appropriate in 
furtherance of 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

    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:

[[Page 78233]]

    (A) by order approve such 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 in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of CBOE. 
All submissions should refer to File No. SR-CBOE-00-48 and should be 
submitted by January 4, 2001.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-31801 Filed 12-13-00; 8:45 am]
BILLING CODE 8010-01-M