[Federal Register Volume 60, Number 198 (Friday, October 13, 1995)]
[Notices]
[Pages 53444-53446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25370]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36343; File No. SR-CBOE-95-33]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc., Relating to an
Amendment to the Exchange's Crossing Rule
October 5, 1995.
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 12, 1995, the Chicago Board Options Exchange (``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.
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ CFR 240.19b-4 (1994).
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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 crossing rule (Rule 6.74) by
adding Interpretation and Policy .05, which will permit Floor Brokers
to cross equity option orders in certain limited situations without
having to comply with all of the requirements of the rule.
[[Page 53445]]
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 Exchange 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.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of proposed Interpretation and Policy .05 to Rule 6.74
is to create an exception to CBOE Rule 6.74(a) to enable Floor Brokers
representing certain types of equity option orders to cross those
orders without having to satisfy the price improvement requirement
embodied in subparagraphs (a) (ii) and (iii) of Rule 6.74.
Rule 6.74(a) imposes specific order exposure requirements on Floor
Brokers seeking to cross buy orders with sell orders. Specifically,
Rule 6.74(a)(i) provides that a Floor Broker who holds orders to buy
and sell the same option series may cross such orders, but only where
the Floor Broker first requests bids and offers for such option series
and makes all persons in the trading crowd aware of his request.
Subparagraph (a)(ii) provides that, after giving the trading crowd an
opportunity to make bids and offers in response to his request, the
Floor Broker either bids above the highest bid in the market and gives
a corresponding offer at the same price or at prices differing by the
minimum fraction, or offers below the lowest offer in the market and
gives a corresponding bid at the same price or at prices differing by
the minimum fraction. Under subparagraph (a)(iii) of the rule, only if
such higher bid or lower offer is not taken may the Floor Broker cross
the orders at such higher bid or lower offer by announcing by public
outcry the cross and giving the quantity and price.
In certain situations where a Floor Broker has been continuously
representing a limit order to buy equity options at a price which is
equal to the lowest offer or sell equity options at a price which is
equal to the highest bid (``Resting Order'')\3\ and the same Floor
Broker subsequently receives a market or marketable limit order to sell
or buy that same option series, the Exchange represents that the effect
of Rule 6.74(a)(ii) and (a)(iii) is to prevent the Resting Order from
competing equally with other pre-existing bids (offers) because the
Floor Broker must comply with Rule 6.74 and improve the stated market
before executing the crossing transaction. As a result, in this
situation, strict compliance with Rule 6.74 allows the trading crowd to
trade ahead of the new market or marketable limit order to buy or sell.
Thus, the Exchange states that the Resting Order and the subsequent
market or marketable limit order may be in a less competitive situation
because the orders were represented by a single Floor Broker rather
than by separate Floor Brokers.
\3\ Even though the limit order matches the current stated
market, the Exchange represents that in certain limited situations
(e.g., illiquid options classes or out-of-the-money series), no one
in the trading crowd will take the other side of the order.
Telephone conversation between Andy Small, Senior Attorney, Legal
Department, CBOE, and Brad Ritter, Senior Counsel, Office of Market
Supervision, Division of Market Regulation, Commission, on July 25,
1995.
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The Exchange believes that proposed Interpretation and Policy .05,
which creates an exception to the requirements of subparagraphs (a)(ii)
and (a)(iii) of Rule 6.74, would, in the limited situation described
above, reduce the possible detrimental effect on execution of a Resting
Order and subsequent market orders or market limit orders solely
because the orders are represented by the same Floor Broker. According
to the Exchange, proposed Interpretation and Policy .05 to Rule 6.74
will permit the orders represented by a single Floor Broker to compete
equally with the trading crowd by permitting the Floor Broker to cross
those number of contracts of the Resting Order with subsequent market
or marketable limit orders represented by the same Floor Broker to the
same extent as if the Resting Order and subsequent market or marketable
limit orders were represented by different Floor Brokers.
The Exchange represents that proposed Interpretation and Policy .05
will only provide an exemption from the requirements of subparagraphs
(a)(ii) and (iii) of Rule 6.74 as described above; the due diligence
and other requirements of that rule (e.g., the open outcry requirements
in subparagraph (a)(i)), as well as the requirements of Exchange rules
pertaining to solicited orders, facilitation crossing, and priority
provisions will continue to apply.
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act, in general, and furthers the objectives of
Section 6(b)(5) of the Act,\4\ in particular, in that it is designed to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating securities
transactions, to remove impediments to and perfect the mechanism of a
free and open market, and to protect investors and the public interest,
by providing an exemption from provisions that currently disadvantage
Resting Orders and subsequent market or marketable limit orders held by
the same Floor Broker.
\4\ 15 U.S.C. Sec. 78f(b)(5) 1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate burden on competition.
(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 Exchange 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
International 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, N.W., Washington, D.C. 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
[[Page 53446]]
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, N.W., Washington, D.C. 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 No.
SR-CBOE-95-33 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. 95-25370 Filed 10-12-95; 8:45 am]
BILLING CODE 8010-01-M
