[Federal Register Volume 63, Number 210 (Friday, October 30, 1998)]
[Notices]
[Pages 58434-58435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29117]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40596; File No. SR-CBOE-98-37]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto, By the Chicago Board Options
Exchange, Inc. To Allow the Chairman of the Equity Floor Procedure
Committee, or the Chairman's Designee, To Increase the Eligible Order
Size for Entry Into RAES
October 23, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 21, 1998, 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 CBOE. On October 5, 1998, the Exchange
filed with the Commission Amendment No. 1 to the proposed rule
change.\2\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ The proposed rule change was originally filed under Section
19(b)(3)(A) of the Exchange Act. Pursuant to the Commission's
request, the Exchange amended the proposed rule change to file it
under Section 19(b)(2) of the Exchange Act. See letter from Timothy
H. Thompson, Director, Regulatory Affairs, CBOE, to Sonia Patton,
Attorney, Division of Market Regulation, Commission, dated September
15, 1998.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to permit the Chairman of the appropriate Floor
Procedure Committee (``Committee''), or the Chairman's designee, to
exercise the authority of the Committee to determine the size of orders
eligible for entry into CBOE's Retail Automatic Execution System
(``RAES'') in certain circumstances.\3\
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\3\ RAES accepts, through the Exchange's Order Routing System,
small public customer market or marketable limit orders for
automatic execution. An Exchange market-maker on RAES is assigned as
the contraparty to these trades.
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The text of the proposed rule change is set forth below. Additions
are italicized.
CHAPTER VI
Doing Business on the Exchange Floor
Section A: General
* * * * *
RAES Operations in Equity Options
Rule 6.8 No change.
. . . Interpretations and Policies:
.01-.04 No change.
.05 The Chairman of the appropriate Floor Procedure Committee or
the Chairman's designee may exercise the authority of the appropriate
FPC under paragraph (a)(i) of the Rule to increase the size of orders
eligible for RAES when the Chairman or his designee believes that the
action is in the interest of alleviating a potential backlog of
unexecuted orders in situations where a particular class of options is
experiencing a large influx of orders and provided the decision is made
for no more than one trading day. To the extent the conditions exist on
the following trading day, the Chairman or his designee must review the
situation and make an independent decision to increase the RAES
eligible order size for that subsequent day. Any decisions made by the
Chairman or his designee to increase the RAES eligible order size for a
particular option class for consecutive days will be reviewed by the
EFPC at its next regularly scheduled meeting.
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
Exchange Rule 6.8(a)(i) states that ``the appropriate Floor
Procedure Committee (``FPC'') shall determine the size of orders
eligible for entry into RAES.'' Paragraph (e) states that ``[e]ligible
orders must be market or marketable limit orders for twenty or fewer
contracts on series placed on the system. The appropriate FPC, in its
discretion, may determine to restrict eligible orders, including but
not limited to lowering contract limits.'' Pursuant to its discretion
under Exchange Rule 6.8, the Equity Floor Procedure Committee
(``EFPC'') has established an eligible RAES order size
[[Page 58435]]
of ten contracts for most equity options traded on the floor.
The Committee has discovered through experience in overseeing the
operation of RAES in equity options, however, that it is often
beneficial to temporarily raise the eligible order size to the
allowable limit of twenty contracts in situations where a particular
class of equity options is experiencing a large influx of orders. By
increasing the eligible order size, a larger percentage of the order
flow can be filled immediately at the Exchange's quotes or at the
National Best Bid or Offer (``NBBO'').\4\ This, in turn, will allow the
trading crowd to concentrate on filling the non-RAES eligible orders in
a more expeditious manner.
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\4\ The Exchange recently received approval of a rule change
that provides that in classes designated by the EFPC, RAES orders
will be executed at the NBBO to the extent the NBBO is no more than
one tick better than the CBOE quote. Exchange Act Release No. 40096
(June 16, 1998), 63 FR 34209 (June 23, 1998) (approving SR-CBOE-98-
13).
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The decision to increase the RAES eligible order size to address
these high volume situations must be made quickly to be effective. In
addition, the Committee believes the increase should only be made for
that period of time in which the class is in a high volume situation;
and so, the situation requires monitoring. Because the EFPC commonly
consists of twenty or more members who conduct business in all parts of
the floor, it is not practicable to provide notice to all the members
of the Committee and convene a meeting to make these decisions. It is
also not practicable to expect these members to monitor the situation
when they are trying to conduct business on the floor that requires
their attention. Intra-day meetings are not only impracticable to
convene but would distract these members from the conduct of their
business on the floor.
Consequently, the EFPC has determined to delegate its authority
under Exchange Rule 6.8 to the Chairman of the EFPC, or to the
Chairman's designee, to increase the eligible order size for RAES
provided that the Chairman or his designee believes the action is in
the interest of alleviating a potential backlog of unexecuted orders in
situations where a particular class of options is experiencing a large
influx of orders and provided the decision is made for no more than one
trading day. To the extent the conditions exist on the following
trading day, the Chairman or his designee must review the situation and
make an independent decision to increase the RAES eligible order size
for that subsequent day. Any decisions made by the Chairman or his
designee to increase the RAES eligible order size for a particular
option class for consecutive days will be reviewed by the EFPC at its
next regularly scheduled meeting. After reviewing these decisions the
EFPC can provide guidance to the Chairman or his designee about the use
of this authority if they feel it is appropriate.
2. Statutory Basis
By allowing the Chairman of the EFPC or his designee to make
decisions to increase the eligible order size for RAES, the Exchange
can help to prevent the backlog of executable orders in an efficient
manner. The Exchange believes, therefore, the filing is consistent with
and furthers the objectives of Section 6(b)(5) of the Act \5\ in that
it is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and to protect investors and the
public interest.
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\5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the proposed rule change will impose
any burden 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
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 be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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, in Washington, D.C. Copies of such
filing will also be available for inspection and copying at the
principal office of CBOE. All submissions should refer to File No. SR-
CBOE-98-37 and should be submitted by November 20, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-29117 Filed 10-29-98; 8:45 am]
BILLING CODE 8010-01-M
