[Federal Register Volume 66, Number 183 (Thursday, September 20, 2001)]
[Notices]
[Pages 48499-48501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23465]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44801; File No. SR-CBOE-2001-49]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Chicago 
Board Options Exchange, Inc. Relating to Temporary Access of American 
Stock Exchange Members to Respond to Market Developments

September 17, 2001.
    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 14, 2001, 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 and II below, which Items have been prepared by 
the CBOE. On September 16, 2001, the CBOE submitted an amendment to the 
proposed rule change.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons 
and to approve the proposed rule change, as amended, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Joanne Moffic-Silver, General Counsel and 
Corporate Secretary, CBOE to Elizabeth King, SEC, dated September 
15, 2001 (``Amendment No. 1''). In Amendment No. 1, the CBOE deleted 
its proposal to permit Amex specialists to act in capacities similar 
to CBOE designated primary market makers, including acting as floor 
brokers on the CBOE, and clarified language that was inadvertently 
omitted from Item B of Exhibit 1 of the filing.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    In light of the emergency situation arising from the aftermath of 
the devastating terrorist attack on New York City on September 11, 
2001, the CBOE proposes to adopt a temporary rule, which is intended by 
the Exchange to promote the maintnenace of fair and orderly markets and 
the protection of investors. The temporary rule would allow the 
Exchange to permit a person or organization that is a member of the 
American Stock Exchange LLC (``Amex'') to conduct business on CBOE 
until emergency conditions cease, provided that the person or 
organization satisfies certain criteria, including that the person or 
organization is a member in good standing of the Amex.
    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 the 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 III 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

1. Purpose
    The Exchange proposes to adopt temporary CBOE Rule 3.22 to allow 
the Exchange to permit a person or organization to conduct business on 
the Exchange until the emergency conditions referenced above cease, 
provided that the person or organization (i) is a member in good 
standing of the Amex, (ii) is not subject to a statutory 
disqualification under the Act, and (iii) is not subject to an 
investigation conducted by any self-regulatory organization (``SRO'') 
under the Act that may involve the fitness for membership on the 
exchange of that person or organization.
    Pursuant to CBOE Rule 3.29, the authority granted to the Exchange 
under the proposed rule to permit a person or organization to conduct 
business on the Exchange for a temporary period during the emergency 
condition may be exercised by the Exchange's Membership Committee and/
or Membership Department. Any person or organization granted such 
temporary access to conduct business on the Exchange would be referred 
to under the proposed rule as a TPO.
    Under the proposed rule, a TPO would only be permitted to act in 
those Exchange capacities that are authorized by the Exchange and that 
are comparable to capacities in which the TPO has been authorized to 
act on the Amex. As part of the Exchange's

[[Page 48500]]

authorization of an Amex member to act in a particular capacity, the 
Exchange would also have the authority to determine which Exchange 
systems and facilities the TPO would be authorized to utilize. 
Additionally, the TPO would only be permitted to trade on CBOE in those 
securities in which the TPO is authorized to trade on the Amex.
    Thus, for example, a TPO would be permitted to act as a Market-
Maker in option classes on the Exchange if the TPO has been authorized 
to act in a comparable membership capacity in those option classes on 
the Amex, such as a Registered Options Trader, and the Exchange 
authorizes the TPO to act as a Market-Maker in those option classes. 
Similarly, a TPO would be permitted to act as a Floor Broker in option 
classes on the Exchange if the TPO has been authorized to act as a 
Floor Broker in those option classes on the Amex and the Exchange 
authorizes the TPO to act as a Floor Broker in these option classes.
    Each TPO shall be subject to, and obligated to comply with, the 
rules of the Exchange that are applicable to Exchange members, but 
shall have none of the rights of a member of the Exchange, except the 
right to conduct business on the Exchange to the extent permitted by 
the proposed rule. Thus, for example, a TPO shall have no right to 
petition or vote at Exchange membership meetings or elections or to be 
counted as part of a quorum; shall have no interest in the assets or 
property of the Exchange; and shall have no right to share in any 
distributions by the Exchange.
    In the event that an individual TPO is associated with an 
organization, the proposed rule requires the TPO to provide the 
Exchange, in a form and manner prescribed by the Exchange, an agreement 
by the organization to be responsible for all obligations arising out 
of that person's activities on or relating to the Exchange. CBOE Rule 
3.8(d) imposes a similar requirement with respect to individual 
nominees of Exchange member organizations and individuals who have 
registered their memberships for Exchange member organizations. In 
addition, CBOE has represented that a TPO will be required to sign a 
document consenting to the Exchange's jurisdiction over the TPO and 
that CBOE will assume responsibility for surveillance of a TPO's 
activities on the Exchange.\4\
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    \4\ Telephone conversation between Joanne Moffic-Silver, General 
Counsel, CBOE, and Elizabeth K. King, Associate Director, and Nancy 
J. Sanow, Assistant Director, Division of Market Regulation, SEC. on 
September 15, 2001.
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    The Exchange believes that the proposed rule is similar to CBOE and 
other SRO rules approved by the Commission in 1989 following mechanical 
disruptions to the Pacific Exchange, Inc. (``PCX'') options floor 
caused by an earthquake in San Francisco under which PCX members were 
authorized to trade on CBOE and other options exchanges.\5\
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    \5\ See Securities Exchange Act Release No. 27365 (October 19, 
1989), 54 FR 43511 (October 25, 1989).
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    The Exchange believes that it is appropriate to permit a fully 
qualified member of another SRO to conduct business on the Exchange on 
a temporary basis and in equivalent capacities when such action is in 
the interest of investors and the maintenance of a fair and orderly 
market and the person or organization is not the subject of a 
regulatory matter. Specifically, the proposed rule would allow the 
Exchange to permit Amex members to conduct business on CBOE for a 
temporary period when the emergency situation that exists in New York 
City as a result of the devastating terrorist attack on the World Trade 
Center complex that occurred on September 11, 2001 continues. The 
Exchange believes that the proposed rule would enhance liquidity in the 
options market and better enable broker-dealers to handle and process 
customer orders, which would benefit the securities markets and the 
investing public.
2. Basis
    For these reasons, the Exchange believes that the proposed rule 
change is consistent with section 6(b) of the Act,\6\ in general, and 
furthers the objectives of Section 6(b)(5) of the Act \7\ in 
particular, because it is designed to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
to foster cooperation and coordination with persons engaged in 
regulating and facilitating transactions in securities, and, in 
general, to protect investors and the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on 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. 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 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-2001-49 and should be 
submitted by October 11, 2001.

IV. Commission's Finding and Order Granting Accelerated Approval of 
the Proposed Rule Change

    The Commission notes that the proposed rule change was submitted in 
response to the emergency situation that resulted from the September 
11, 2001 attacks on the World Trade Center in New York City. On 
September 11, 2001, the U.S. equities and options markets determined 
not to open in light of the attacks that morning. The U.S. equities and 
options markets remained closed throughout the remainder of that week. 
As a result of the attacks, the Amex facilities were damaged and, at 
this time, cannot be reopened. The CBOE seeks to accommodate Amex 
members by temporarily granting them access to the CBOE trading floor 
and facilities to trade those options that they traded on the Amex as 
of September 10, 2001 and that are also listed and traded on the CBOE.
    The Commission further notes that any Amex member granted temporary 
access to CBOE as a TPO would only be permitted to trade on CBOE those 
securities that the TPO is authorized to trade on Amex, and to act in 
those capacities that are authorized by the Exchange and that are 
comparable to capacities that the TPO has been authorized to act on the 
Amex.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the

[[Page 48501]]

rules and regulations thereunder applicable to a national securities 
exchange.\8\ Specifically, the Commission believes that the proposal is 
consistent with the requirements of section 6(b)(5) of the Act, \9\ 
which requires, among other things that the rules of an exchange be 
designed to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.
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    \8\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    In this regard, the Commission notes that the Amex members serving 
as TPOs on CBOE will be subject to the jurisdiction of the Exchange and 
thus the Exchange will be responsible for the surveillance of TPOs to 
ensure that they are in compliance with applicable rules of the 
Exchange, as well as those rules and regulations under the Act, while 
conducting business on the Exchange. In addition, CBOE will be 
responsible for ensuring, among other things, that TPOs' quotes and 
trades are collected and reported to the Options Price Reporting 
Authority and that TPOs are disciplined for any CBOE rule violations 
while they are subject to the Exchange's jurisdiction.
    The Commission believes that the CBOE's proposal should enable 
continuous and liquid markets to be maintained for those options traded 
on both the Amex and CBOE until the Amex can reopen for trading. By 
permitting Amex members to trade the products that they normally trade 
on the Amex should help to ensure that the level of liquidity for these 
options that existed as of September 10, 2001 would be available when 
trading resumes in the U.S. markets. This is especially important in 
light of the upcoming options expiration on September 21, 2001. For 
these reasons, the Commission believes that the proposal is in the 
public interest and should provide additional protections to investors 
when the markets reopen.
    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirtieth day after the date of 
publication of the notice of filing in the Federal Register. The 
Commission believes that it is necessary to approve the proposed rule 
change immediately to provide a trading venue for Amex members when the 
U.S. markets resume trading.
    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\10\ that the proposed rule change, as amended (SR-CBOE-2001-49) is 
hereby approved on an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-23465 Filed 9-19-01; 8:45 am]
BILLING CODE 8010-01-M