[Federal Register Volume 60, Number 200 (Tuesday, October 17, 1995)]
[Notices]
[Pages 53819-53820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25625]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36354; File No. CBOE-95-28]
Self-Regulatory Organizations; Order Approving a Proposed Rule
Change and Amendment No. 1 to the Proposed Rule Change by the Chicago
Board Options Exchange, Inc. Relating to Responsibility for Performing
Functions of the ITS Clerks
October 10, 1995.
On May 19, 1995, the Chicago Board Options Exchange, Inc. (``CBOE''
or ``Exchange'') submitted to the Securities Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend one of its Intermarket
Trading System (``ITS'' or ``System'') rules, CBOE Rule 30.75, which
relates to the exchange trading of stocks, warrants and other non-
option securities. The Exchange subsequently filed Amendment No. 1 to
the proposed rule change on July 6, 1995.\3\ Notice of the proposed
rule change and Amendment No. 1 was published for comment and appeared
in the Federal Register on August 17, 1995.\4\ No comment letters were
received on the proposal. This order approves the CBOE proposal as
amended.
\1\15 U.S.C. 78s(b)(1).
\2\17 CFR 240.19b-4.
\3\In Amendment No. 1, the Exchange corrects a typographical
error in the defined term ``ITS Clerk'' as it appears in Rule 30.75
and in the two proposed interpretations and policies thereunder, and
clarifies the use of that term in proposed Interpretation and Policy
.02 under Exchange Rule 30.75. The purpose of this amendment is to
make it clear that the defined term ``ITS Clerk'' refers only to
Exchange employees acting as such, and not to employees of a
Designated Primary Market-Maker who may be performing the functions
of ITS Clerks as contemplated by proposed Interpretation and Policy
.01 under Exchange Rule 30.75. See Letter from Michael L. Meyer,
Esq., Schiff Hardin & Waite, to James T. McHale, Attorney, Office of
Market Supervision, Division of Market Regulation, Commission, dated
July 6, 1995 (``Amendment No. 1''). August 17, 1995. No comment
letters were received on the proposal. This order approves the CBOE
proposal as amended.
\4\See Securities Exchange Act Release No. 36085 (August 10,
1995), 60 FR 42927 (August 17, 1995).
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Description of the Proposal
CBOE Rule 30.75 (``Transmission and Reception of System Messages;
Exchange Liability''), governs the transmission and reception of
obligations and commitments to trade, pre-opening notifications, and
responses thereto over the ITS.\5\ Currently, Exchange Rule 30.75
requires the Exchange to provide ITS Clerks to send and receive ITS
messages. The Exchange proposes to amend Paragraph (a) of the Rule to
clarify that the Exchange will not be obligated to provide ITS Clerks,
except as provided in the interpretations to the Rule.
\5\ITS is a subsystem of the National Market System approved by
the Commission pursuant to Section 11A of the Act, 15 U.S.C. 78k-1.
ITS facilities intermarket trading in exchange-listed equity
securities based on the current quotation information emanating from
the linked markets. Participants of ITS include the American Stock
Exchange, the Boston Stock Exchange, CBOE, the Chicago Stock
Exchange, the Cincinnati Stock Exchange, the New York Stock
Exchange, the Pacific Stock Exchange, the Philadelphia Stock
Exchange, and the National Association of Securities Dealers.
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Proposed interpretation .01 to Exchange Rule 30.75 would require
employees of Designated Primary Market-Makers (``DPMs'')\6\ to send and
receive commitments and obligations to trade, pre-opening
notifications, and responses thereto over the System. Further, the
interpretation makes it clear that the Exchange will not be liable for
the acts, errors, or omissions of these DPM employees.\7\
\6\A DPM is a member or member organization which has been
appointed by the Exchange's Modified Trading System (``MTS'')
Committee to perform market-making and certain other functions with
respect to a designated options class or classes or with respect to
a product traded on the Exchange pursuant to Chapter 30. Among other
things, a DPM is required to disseminate accurate market quotations,
honor market quotations, be regularly present at the trading post,
and perform the functions of an Order Book Official, i.e., he must
maintain and keep current the customer limit order book.
\7\Rule 30.75 currently does provide for limited liability of
the Exchange for losses caused by the errors or omissions of the
Exchange's own employees, i.e., ITS Clerks.
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A second interpretation to the Rule makes it clear that the
Exchange will provide Exchange-employed ITS Clerks for products that
are traded at posts that have order book officials (``OBOs''), and will
not provide ITS Clerks for products for which a DPM has been appointed.
The Exchange also would be required to provide the services of ITS
Clerks for products for which DPMs make markets when the circumstances
(such as fast markets) warrant. Two Floor Officials would be able to
require the Exchange to provide its ITS Clerks for particular
circumstances.
The Exchange believes this rule change is warranted because it is
possible that some of its Chapter 30 products, which the Exchange may
trade in the future, may be assigned to DPMs. As such, the Exchange
believes it would be most efficient for the DPM that is assigned to the
product that is
[[Page 53820]]
subject to the ITS rules to employ its own employees to perform the
functions of the ITS Clerks. Because a DPM runs his own business, he is
in the best position to make the business determination concerning how
many employees are needed to perform the various functions assigned to
him, including the ITS functions. Requiring the DPM to provide
employees to perform these functions, therefore, should limit the
resources the Exchange will be required to provide to perform this
function and thus, reduce overall costs to the Exchange and its
members. Customers of the Exchange and the DPMs would be protected from
interruption of service in the system, however, because the Exchange
will have employees available to perform the ITS function when the
circumstances warrant.
Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, the requirements of Section 6(b)(5)\8\ in that it is
designated to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in clearing and
facilitating transactions in securities, and to protect investors and
the public interest. Specifically, the Commission believes that the
proposed rule change will result in a more efficient allocation of
Exchange resources by requiring the DPMs assigned to particular
products to provide their own employees to perform the ITS functions.
The proposed change will shift the responsibility for providing ITS
employees from the Exchange to the primary users of the ITS system,
thus creating a more economically efficient operation for the Exchange.
This will become particularly important if trading volume in Chapter 30
products on the Exchange increases.
\8\15 U.S.C. 78f(b)(5).
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Additionally, the Commission notes that the proposed change is
consistent with the goals of the ITS plan. One of the goals of the ITS
plan, and Section 11A of the Act, is to link effectively all markets
for qualified securities through data processing and communication
facilities, and to assure fair competition among Exchanges.\9\ The
proposed rule change merely shifts the responsibility for performing
the functions of ITS Clerks from the Exchange to DPMs assigned to a
particular product, and will have no negative impact on CBOE's ability
to remain linked to the other participants of ITS. Moreover, the change
will not provide CBOE with any unfair competitive advantage over the
other participants in the ITS plan.
\9\See Securities Exchange Act Release No. 28874 (February 12,
1991), 56 FR 6889 (February 20, 1991) (order approving ninth
amendment to ITS to include CBOE as a participant in the ITS plan).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-CBOE-95-28) is approved.
\10\15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
\11\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-25625 Filed 10-16-95; 8:45 am]
BILLING CODE 8010-01-M
