[Federal Register Volume 61, Number 206 (Wednesday, October 23, 1996)]
[Notices]
[Pages 55058-55059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27145]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37840; File No. SR-CBOE-96-62]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Board Options
Exchange, Incorporated to Clarify the Requirements for Taking Orders
Directly From Public Customers
October 17, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on October
9, 1996, the Chicago Board Options Exchange, Incorporated (``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.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 6.70, Floor Broker Defined, to
clarify under what circumstances a floor broker may accept orders
directly from public customers. (New language is in italics and
deletions are in brackets.)
Rule 6.70. A Floor Broker is an individual (either a member or a
nominee of a member organization) who is registered with the
Exchange for the purpose, while on the Exchange floor, of accepting
and executing orders received from members or from registered
broker-dealers. A Floor Broker shall not accept an order from any
other source unless he is either the nominee of, or has registered
his individual membership for, a member organization approved to
transact business with the public in accordance with Rule 9.1[,].
[in which event he may accept orders from public customers of the
organization.] In the event the organization is approved pursuant to
Rule 9.1, a Floor Broker who is the nominee of, or who has
registered his individual membership for, such organization may then
accept orders directly from public customers where (i) the
organization clears and carries the customer account or (ii) the
organization has entered into an agreement with the public customer
to execute orders on its behalf. Among the requirements a Floor
Broker must meet in order to register pursuant to Rule 9.1 is the
successful completion of an examination for the purpose of
demonstrating an adequate knowledge of the securities business.
Unless the context otherwise indicates, a Board Broker acting as
such in option contracts of the class to which he has been appointed
pursuant to Rule 7.3 shall be considered to be a Floor Broker
wherever that term occurs in these Rules.
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 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
1. Purpose
The purpose of the proposed rule change is to clarify the
circumstances, as set forth in Exchange Rule 6.70, under which a floor
broker is permitted to receive orders directly from public customers.
Exchange Rule 6.70 currently states that a floor broker may not accept
an order from any source, other than from a member or a registered
broker-dealer, unless that floor broker is the nominee of, or has
registered his individual membership for, a member organization that is
approved to transact business with the public in accordance with
Exchange Rule 9.1. Rule 6.70 continues by stating that in the event the
floor broker satisfies the stated criteria, the floor broker may then
accept orders from public customers of the ``organization.''
The Exchange has learned there is some uncertainty among the
membership about the intended meaning of the phrase ``public customers
of the organization'' [emphasis added] because there is often more than
one floor broker organization involved in a transaction. Often, one
organization may execute the order on the floor of the Exchange while a
second organization may clear and carry the customer's account. The
Exchange has learned that some members have assumed that Rule 6.70, as
written, permits a floor broker to take an order directly from a public
customer only when that floor broker is a nominee of, or has registered
his membership for, a member organization that clears and carries the
customer's account. These members do not consider the customer to be a
``customer'' of the organization that executes the customer's order but
which does not carry and clear the customer account.
The Exchange, however, has interpreted Rule 6.70 to permit a floor
broker to accept an order from a public customer even in cases where
the customer is a customer of the member organization only for the
purpose of executing the order. In other words, the phrase ``public
customer of the organization'' is intended to refer to a customer of
the floor broker firm that executes the order or a customer of the
floor broker firm that clears and carries the customer account. In
either case, however, the floor broker/member taking the order directly
from a public customer must be a nominee of, or must have his
individual membership registered for, a member organization approved to
transact business with the public in accordance with Rule 9.1.
Rule 6.70 is being amended to more clearly specify that a floor
broker may accept an order directly from a public customer whether the
customer is a customer of the organization for purposes of execution
only or whether the customer account is cleared and carried by the
organization, as long as the floor broker's firm is approved pursuant
to Exchange rules. As specified in Chapter IX of the Exchange's rules,
the floor broker taking the order must also meet certain criteria
before taking such orders, including
[[Page 55059]]
passing an examination for the purpose of demonstrating an adequate
knowledge of the securities business.
2. Statutory Basis
By clarifying the rule that describes the circumstances under which
a floor broker is permitted to receive orders directly from public
customers, the Exchange believes that the proposed rule change is
consistent with Section 6 of the Act in general and with Section
6(b)(5) in particular in that it is designed to promote just and
equitable principles of trade, to foster cooperation with persons
engaged in facilitating and clearing transactions in securities, and to
protect investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe the proposed rule change imposes any
burdens on competition.
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. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The proposed rule change has become effective upon filing pursuant
to Section 19(b)(3)(A)(i) of the Act, and subparagraph (e) of Rule 19b-
4 thereunder, in that the proposal is designated by the Exchange as
constituting a stated policy with respect to the enforcement of an
existing rule. At any time within 60 days of the filing of the rule
change, the Commission may summarily abrogate the rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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, 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 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 the filing will also be
available for inspection and copying at the principal office of CBOE.
All submissions should refer to the file number in the caption above
and should be submitted by November 13, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27145 Filed 10-22-96; 8:45 am]
BILLING CODE 8010-01-M
