[Federal Register Volume 60, Number 198 (Friday, October 13, 1995)]
[Notices]
[Pages 53440-53442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25368]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36331; File No. SR-CBOE-95-49]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc., Relating to
Telephones on the Floor of the Exchange
October 3, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 25, 1995, 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 self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
\1\ 15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE has adopted a Regulatory Circular governing the use of
member-owned or Exchange-owned telephones located at the trading post
where options on the Standard & Poor's 100 Stock Index (``OEX
Options'') are traded, and has determined to file this Circular as a
proposed rule change pursuant to Section 19(b)(2) of the Act.
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 self-regulatory organization
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 self-regulatory organization
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
The purpose of the Regulatory Circular is to permit telephones
located at the OEX trading post on the floor of the Exchange to provide
members and clerks with access to outside lines for outgoing calls,
subject to the conditions set forth in the Circular. With the exception
of the prohibition on the use of telephones at the OEX trading post to
receive incoming calls, these conditions are the same as those
previously approved by the Commission governing the use of telephones
at the equity option trading posts on the floor of the CBOE.\2\
\2\ See Securities Exchange Act Release No. 33701 (March 2,
1994), 59 FR 11336.
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Exchange Rule 6.23 prohibits members from establishing or
maintaining any telephone or other wire communications between their
offices and the Exchange floor without prior approval by the Exchange,
and it
[[Page 53441]]
authorizes the Exchange to direct the discontinuance of any
communication facility terminating on the Exchange floor. Pursuant to
this rule, the Exchange adopted the Regulatory Circular to permit the
installation of outside telephone lines at the OEX trading post, and to
adopt conditions governing their use. The Exchange believes that the
installation of outside telephone lines at the OEX trading post,
subject to the conditions set forth in the Regulatory Circular, will
allow members in the OEX trading crowd to communicate more effectively
and efficiently with persons located off the floor, which in turn will
improve the efficiency of the OEX market and provide better execution
of options orders to the benefit of investors.
The proposed rule change also imposes user fees on members who are
approved to use Exchange-installed telephones located at the OEX
trading post. These fees are adopted pursuant to Exchange Rule 2.22,
which permits the Exchange to impose fees on members for the use of
Exchange facilities or for any services or privileges granted by the
Exchange.
The conditions imposed by the Regulatory Circular on the use of
telephones at the OEX trading post are as follows:
1. The telephones may not be used to receive orders, but may be
used to provide quotes that have been publicly disseminated pursuant to
Rule 6.43.
2. Members may give their clerks their PIN access code. Although
both members and clerks may use the telephones, members will have
priority. Each member will be responsible for all calls made using that
member's PIN access code.
3. Headsets will not be permitted on the telephones in the post
pit. Portable or cellular phones also will not be permitted.
4. Clerks will not be permitted to establish a base of operation
utilizing telephones at the OEX post.
5. Members and their clerks using the telephones are required to
consent to recording of conversations on telephones at the OEX post.
6. The telephones are to be used for voice service only. Data
services (PC's, fax, etc.) will remain subject to Exchange consent
under a separate program.
7. Only outgoing calls may be made on the telephones; incoming
calls are not permitted.
The Exchange intends to enforce these conditions as rules of the
Exchange, and has advised members that violations may lead to formal
disciplinary proceedings.
By restricting floor telephones at the OEX post to hardwired
devices only and not allowing cellular, portable, or headset
telephones, the Exchange believes it will better be able to monitor and
control telephone usage at the trading post, and minimize disruption of
trading at the post. In addition, currently available technology would
not permit a large number of portable or cellular telephones to be used
in the environment of the trading floor without significant
deterioration or interruption of service.
The Exchange has determined that telephones at the OEX trading post
should be limited to outgoing calls only and should not be used to
receive customer orders until further consideration can be given to
relevant regulatory issues, including how to provide customers with
access to the trading floor on a fair and non-discriminatory basis, how
to assure that persons on the floor are qualified to receive orders
directly from customers, and how to surveil order-taking activity
conducted over floor telephones. The Exchange intends to consider these
issues in the near future, and depending on its conclusions, the
Exchange may determine to revise or eliminate these conditions pursuant
to a subsequent rule filing under Section 19(b) of the Act.
As with the use of telephones at the equity trading posts, the
Exchange intends to police compliance with the conditions applicable to
the use of telephones at the OEX post by means of customary floor
surveillance procedures, including reliance on surveillance procedures,
including reliance on surveillance by Floor Officials and Exchange
employees.
Because there are no restrictions on where a member may place an
outgoing call, telephones at the OEX trading post may be used to place
orders in equity or futures markets.\3\ To the extent that this might
raise concerns over the possibility of misuse of non-public information
available at the OEX trading post, it should be noted that the S&P 100
Index, on which OEX options are based, is a capitalization-weighted
index of 100 different blue chip stocks. The fact that the value of OEX
options is derived from the value of these stocks, combined with the
large number of stocks included in the index, suggests that the type of
information that may be available at the OEX trading post is not likely
to be significant in predicting future changes in the index. In any
event, the Exchange believes that the surveillance procedures it has in
place will detect and deter any attempts at misuse of non-public
information related to OEX options. The Exchange shares surveillance
information through the Intermarket Surveillance Group (``ISG'') with
other stock and options markets, and also has in place a surveillance
sharing agreement with the Chicago Mercantile Exchange, which provides
a market in futures on the S&P 500 Index.\4\
\3\ The telephone policy also allows members to use the floor
telephones for the purpose of providing quotations on OEX options.
In using the telephones for this purpose, members may only provide
quotations that have been publicly disseminated pursuant to CBOE
Rule 6.43.
\4\ SG was formed on July 14, 1983 to, among other things,
coordinate more effectively surveillance and investigate information
sharing arrangements in the stock and options market. Because of
potential opportunities for trading abuses involving stock index
futures, stock options, and the underlying stocks and the need for
greater sharing of surveillance information for these potential
intermarket trading abuses, the Chicago Mercantile Exchange and the
Chicago Board of Trade joined the ISG as affiliate members in 1990.
See Intermarket Surveillance Group Agreement, July 14, 1983.
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The proposed fees for the use of the telephones will generally be
the same as those charged for the use of telephones at the equity
trading posts. Specifically, local calls over Exchange telephones will
be charged at 10 cents per minute. Long distance calls over Exchange
telephones will be charged at a rate 25% greater than the Exchange's
direct costs. In addition, the Exchange will charge a $5 monthly fee
for the use of the phones.
The Exchange believes that its proposal is consistent with and
furthers the objectives of Section 6(b)(5) of the Act in that it is
designed to improve communications between the Exchange's trading floor
and off-floor locations in a manner that promotes just and equitable
principles of trade, prevents fraudulent and manipulative acts and
practices, fosters cooperation and coordination with persons engaging
in facilitating transactions in securities, and removes impediments to
and perfects the mechanism of a free and open market and national
market system.
In addition, the Exchange believes that the proposed rule change
with respect to the fees is consistent with Section 6(b)(4) of the Act
in that it is designed to provide for the equitable allocation of
reasonable dues, fees, and charges among CBOE members.
(B) Self-Regulatory Organization's Statement on Burden on Competition
CBOE believes that the Regulatory Circular's prohibition on the use
of headsets and portable and cellular telephones and its prohibition on
the
[[Page 53442]]
use of telephones to receive incoming calls or to receive orders do not
have any anti-competitive effects that are not justified by legitimate
regulatory concerns. All members at the OEX trading post will have the
same access to telephone communications. This is likely to minimize
existing differences among floor members in terms of their ability to
communicate with off-floor locations. While some persons off the floor
might be competitively advantaged if they were able to place calls
directly to the OEX trading post and to place orders directly with
members at the post, since most investors would not be able to do this
even if it were permitted, there could be questions of unfair
competition in the absence of the restrictions that are embodied in the
Regulatory Circular. Further, before off-floor customers are permitted
to place orders directly with floor members, the Exchange must give
further consideration to regulatory concerns, including the possible
misuse of non-public information, the need to assure compliance with
rules designed to assure the qualifications of members who accept
orders directly from public customers, and how to provide audit-trail
surveillance over this activity. Until these concerns have been
addressed, the Exchange believes that it is justified in limiting the
use of telephones at the OEX post as provided in the Regulatory
Circular.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants, or Others
Written comments on the proposed rule change were neither solicited
nor received.
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 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
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 Section, 450 Fifth Street, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory. All submissions should refer to File No. SR-CBOE-95-49
and should be submitted by November 3, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
\5\ 17 CFR 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-25368 Filed 10-12-95; 8:45 am]
BILLING CODE 8010-01-M
