[Federal Register Volume 60, Number 193 (Thursday, October 5, 1995)]
[Notices]
[Pages 52231-52232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24797]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36302; File No. SR-CBOE-95-34]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc., Relating to the
Interruption of the Retail Automated Execution System Following Certain
Analyst's Reports
September 29, 1995.
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 July 12,
1995, the Chicago Board Options Exchange, Inc. (``CBOE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to promulgate a policy concerning the application
of CBOE Rule 6.6, ``Unusual Market Conditions,'' in the circumstance
where the Exchange has determined that the televised reporting of a
particular securities analyst has had a regular, albeit short-lived,
destabilizing impact on the options market.\1\ Specifically, the
Exchange proposes to declare a ``fast'' market for a short period of
time each day for options of the class or classes of stock(s)
identified in the analyst's report and to temporarily deactivate the
Exchange's Retail Automated Execution System (``RAES'') for the
affected options until the stock prices in the primary market and
options prices in RAES have adjusted, which is likely to occur within
one or two minutes following the report. The Exchange plans to announce
the policy through a regulatory circular to its members.
\1\ CBOE Rule 6.6 allows two or more floor officials, because of
an influx of orders or other unusual conditions or circumstances,
and in the interest of maintaining a fair and orderly market, to
declare the market in one or more classes of option contracts to be
``fast.'' Under CBOE Rule 6.6, the floor officials declaring the
fast market have the power to take actions that are deemed necessary
in the interest of maintaining a fair and orderly market.
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The text of the proposal 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 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), of the
most significant aspects of such statements.
[[Page 52232]]
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposal is to implement procedures in response
to a situation currently confronting the Exchange whereby a well-known
securities analyst presents over cable television, at the same time
each day, an exclusive report of his analysis of a specific identified
company or companies, often involving conjecture concerning a future
transaction or development with respect to the company or companies.
According to the Exchange, each day's broadcast often causes an
immediate and significant impact on the market price of the stock(s)
identified in the report. This permits certain viewers of the televised
report, utilizing high speed computers, to transmit options orders to
buy or sell options covering the stock(s) in question (depending on
whether the report is ``bullish'' or ``bearish'') through RAES before
either the price of the stock(s) in the primary market or the prices of
options governing the stock(s) in RAES have had time to adjust. The
Exchange states that the result is an abuse of the RAES system, in as
much as, for a short period of time, persons entering computerized
options orders in RAES are able to obtain automatic executions at
prices that are no longer current, simply because there has not been
sufficient time to adjust prices in RAES. According to the CBOE, the
ability of certain persons to ``game'' the system in this way operates
to the disadvantage of CBOE market makers who are obligated under
Exchange rules to take the other side of the orders.
In response to this situation, the CBOE's Market Performance
Committee, which consists of floor officials who are authorized under
CBOE Rule 6.6 to take such action as is deemed necessary to maintain a
fair and orderly market in response to unusual market conditions, has
determined that the market in options of the class or classes covering
the stock that is the subject of the televised report will be declared
``fast'' for a short period of time each day, commencing at the time
the analyst's report is aired, at which time RAES will be deactivated
temporarily by the Exchange's control room in the affected class or
classes of options. RAES will be reactivated at the post with the
consent of two floor officials as soon as stock prices in the primary
market and options prices in RAES have adjusted, which is likely to
occur within one or two minutes following the report. CBOE members will
be notified of both the deactivation of RAES in particular classes of
options and its reactivation by means of (1) a message to members that
will print at each post on the trading floor, and (2) a message over
the Exchange's TextNet system, which has terminals at various places
around the Exchange floor.
The Exchange believes that this policy will help to encourage more
active market maker participation in RAES without harming the intended
beneficiaries of RAES, i.e., public customers who submit small orders.
In addition, the CBOE notes that even for the few minutes when RAES is
deactivated, the trading crowd will continue to have the responsibility
to fill customer orders according to CBOE rules, including the firm
quote rule.
The CBOE believes that the proposed rule change is consistent with
Section 6(b) of the Act, in general, and furthers the objectives of
Section 6(b)(5), in particular, 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.
(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 after the 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 reason 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, 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 at 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 above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by October 26,
1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\2\
\2\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-24797 Filed 10-4-95; 8:45 am]
BILLING CODE 8010-01-M
