[Federal Register Volume 68, Number 94 (Thursday, May 15, 2003)]
[Notices]
[Pages 26369-26371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-12149]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47810; File No. SR-OC-2003-05]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change and Amendment 
No. 1 Thereto by OneChicago, LLC To Adopt, on a Permanent Basis, the 
Standards Under Which a Market Maker Can Qualify for Exclusion From 
OneChicago's Margin Rules

May 7, 2003.
    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 5, 2003, OneChicago, LLC (``OneChicago'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by OneChicago. On May 6, 2003, OneChicago 
submitted Amendment No. 1 to the proposed rule change.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons and to grant 
accelerated approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Madge M. Hamilton, Deputy General Counsel, 
OneChicago, to Theodore Lazo, Senior Special Counsel, Division of 
Market Regulation, Commission, dated May 5, 2003.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    OneChicago proposes to adopt, on a permanent basis, Rule 
515(n)(ii)(C) (``Exclusion for Market Makers'') (herein referred to as 
``Margin Rule''). On November 7, 2002, the Commission approved the 
Margin Rule on a pilot basis, ending May 7, 2003 (``the Pilot'').\4\ 
OneChicago believes that permanent approval of the Margin Rule is 
consistent with the jointly adopted margin rules of the Commission and 
the Commodity Futures Trading Commission (``CFTC'') (collectively, 
``Commissions'').
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    \4\ See Securities Exchange Act Release No. 46787 (November 7, 
2002), 67 FR 69059 (November 14, 2002).
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    Below is the text of the proposed rule change that OneChicago 
proposes to adopt on a permanent basis.
* * * * *

[[Page 26370]]

Customer Margin Requirements

515. General Requirements; Offsetting Positions; Exclusion for Market 
Makers

    (a)-(n)(ii)(B) No Change.
    (C) Hold itself out as being willing to buy and sell security 
futures for its own account on a regular or continuous basis.
    A Market Maker satisfies condition (C) above if:
    (1) Such Market Maker: (x) provides continuous two-sided quotations 
throughout the trading day for all delivery months of Contracts 
representing a meaningful proportion of the total trading volume on the 
Exchange, subject to relaxation during unusual market conditions as 
determined by the Exchange (such as a fast market in either a Contract 
or a security underlying such Contract) at which times such Market 
Maker must use its best efforts to quote continuously and 
competitively; and (y) when providing quotations, quotes with a maximum 
bid/ask spread of no more than the greater of $0.20 or 150% of the bid/
ask spread in the primary market for the security underlying each 
Contract;
    (2) Such Market Maker: (x) responds to at least 75% of the requests 
for quotation for all delivery months of Contracts representing a 
meaningful proportion of the total trading volume on the Exchange, 
subject to relaxation during unusual market conditions as determined by 
the Exchange (such as a fast market in either a Contract or a security 
underlying such Contract) at which times such Market Maker must use its 
best efforts to quote competitively; and (y) when responding to 
requests for quotation, quotes within five seconds with a maximum bid/
ask spread of no more than the greater of $0.20 or 150% of the bid/ask 
spread in the primary market for the security underlying each Contract; 
or
    (3) (w) Such Market Maker is assigned to a group of Contracts that 
is either unlimited in nature (``Unlimited Assignment'') or is assigned 
to no more than 20% of the Contracts listed on the Exchange (``Limited 
Assignment''); (x) at least 75% of such Market Maker's total trading 
activity in Exchange products is in its assigned Contracts, measured on 
a quarterly basis; (y) during at least 50% of the trading day such 
Market Maker has bids or offers in the market that are at or near the 
best market, except in unusual market conditions as determined by the 
Exchange (such as a fast market in either a Contract or a security 
underlying such Contract), with respect to at least 25% (in the case of 
an Unlimited Assignment) or at least one (in the case of a Limited 
Assignment) of its assigned Contracts; and (z) the requirements set 
forth in clauses (x) and (y) are satisfied on at least 90% (in the case 
of an Unlimited Assignment) or 80% (in the case of a Limited 
Assignment) of the trading days in each calendar quarter.
    For purposes of clauses (1) and (2) above, beginning on the 181st 
calendar day after the commencement of trading on the Exchange, a 
``meaningful proportion of the total trading volume on the Exchange'' 
shall mean a minimum of 20% of such trading volume.
    (n)(iii) No Change.
    Schedule A--No Change.
* * * * *

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

    In its filing with the Commission, OneChicago 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 III below. OneChicago 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
    OneChicago proposes to adopt, on a permanent basis, the Margin 
Rule, which sets forth the standards under which a OneChicago member 
may be excluded from the Exchange's margin requirements as a ``market 
maker.'' OneChicago believes that the Margin Rule, consistent with Rule 
400(c)(2)(v) under the Act \5\ and the CFTC Rule 41.42(c)(2)(v),\6\ 
establishes standards by which members may qualify as Security Futures 
Dealers and therefore be excluded from OneChicago's margin rules.
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    \5\ 17 CFR 242.400(c)(2)(v).
    \6\ 17 CFR 41.42(c)(2)(v).
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    The Commission did not receive any comments on the Margin Rule 
during the pilot period. Since OneChicago believes that the Margin Rule 
has been performing as anticipated during the pilot period and 
OneChicago proposes no changes to the Margin Rule, OneChicago now 
proposes to adopt the Margin Rule on a permanent basis.
2. Statutory Basis
    OneChicago believes that the proposed rule change is consistent 
with section 6(b)(5) of the Act,\7\ in that the proposal promotes 
competition, and is designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
and to protect investors and the public interest. OneChicago believes 
that the proposed rule change is designed to accomplish these goals by 
permitting members to qualify as Security Futures Dealers, as permitted 
under the Commission's Rule.\8\
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    \7\ 15 U.S.C. 78f(b)(5).
    \8\ See 17 CFR 240.400(c)(2)(v).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    OneChicago does not believe that the proposed rule change will have 
an impact on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Comments on the proposed rule change have not been solicited and 
none have been received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 OneChicago. All submissions should refer to File 
No. SR-OC-2003-05 and should be submitted by June 5, 2003.

IV. Commission Findings and Order Granting Accelerated Approval of a 
Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is

[[Page 26371]]

consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\9\ 
In particular, the Commission believes that the proposed rule change is 
consistent with the requirements of section 6(b)(5) of the Act,\10\ 
which requires, among other things, that the rules of the Exchange be 
designed to promote just and equitable principles of trade and, in 
general, to protect investors and the public interest.\11\ In addition, 
the Commission believes that the proposed rule change is consistent 
with section 7(c)(2)(B) of the Act,\12\ which provides, among other 
things, that the margin requirements for security futures must preserve 
the financial integrity of markets trading security futures, prevent 
systemic risk, be consistent with the margin requirements for 
comparable exchange-traded options, and provide that the margin levels 
for security futures may be no lower than the lowest level of margin, 
exclusive of premium, required for any comparable exchange-traded 
option.
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ In approving the proposed rule, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78g(c)(2)(B).
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    The Commission believes that OneChicago's standards for market 
makers under Rule 515(n)(ii)(C) are consistent with the Act, and Rule 
400(c)(2)(v) thereunder.\13\ Specifically, Rule 400(c)(2)(v) provides 
that the Commission's joint margin rules do not apply to a member of a 
national securities exchange that is registered with such exchange as a 
``Security Futures Dealer'' pursuant to exchange rules that must meet 
several criteria, including a requirement that a Security Futures 
Dealer be required to ``to hold itself out as being willing to buy and 
sell security futures for its own account on a regular and continuous 
basis.'' The Commission believes that the affirmative obligations 
required by OneChicago pursuant to Rule 515(n)(ii)(C) satisfy this 
requirement.
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    \13\ 17 CFR 240.400(c)(2)(v)(B)(3).
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    OneChicago has requested that the Commission approve the proposed 
rule change, as amended, prior to the thirtieth day after publication 
of notice of the filing in the Federal Register. The Commission finds 
good cause for approving the proposed rule change prior to the 
thirtieth day after the date of publication of notice of filing thereof 
in the Federal Register. The Commission believes that accelerated 
approval of the proposed rule change should enable OneChicago members 
that trade security futures as market makers to continue to do so on an 
uninterrupted basis. The Commission notes that it approved the Margin 
Rule as a temporary pilot to give members of the public an opportunity 
to comment on the substance of the Margin Rule. The Commission received 
no comments on the Pilot. Accordingly, the Commission finds good cause, 
consistent with section 19(b)(2) of the Act,\14\ to approve the 
proposed rule change, as amended, prior to the thirtieth day after 
publication of the notice of filing.
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    \14\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\15\, that the proposed rule change (File No. SR-OC-2003-05), as 
amended, be approved on a permanent basis.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-12149 Filed 5-14-03; 8:45 am]
BILLING CODE 8010-01-P