[Federal Register Volume 59, Number 223 (Monday, November 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28675]
[[Page Unknown]]
[Federal Register: November 21, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34972; File No. SR-CBOE-94-27]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the Chicago Board Options
Exchange, Inc. Relating to the Options Market Maker Exemption From the
Nasdaq Short Sale Bid Test
November 14, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 4, 1994, 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 self-regulatory organization. On
September 29, 1994, the Exchange filed Amendment No. 1 to the proposed
rule change.\2\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\15 U.S.C. 78s(b)(1).
\2\In Amendment No. 1, the CBOE adds the express requirement
that the merger or acquisition must be ``publicly announced'' to
qualify as an exempt hedge transaction in an ``M&A'' security. See
letter from Michael L. Meyer, Schiff Hardin & Waite, to Francois
Mazur, Attorney, Office of Market Supervision, Commission, dated
September 29, 1994 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to amend its Rule 15.10\3\ concerning the
designation of certain short sales of Nasdaq National Market Securities
(``Nasdaq/NM securities'') by market makers as exempt from the bid test
imposed under NASD Rules of Fair Practice.\4\
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\3\CBOE Rule 15.10 recently was approved as an 18-month pilot.
See Securities Exchange Act Release No. 34632 (September 2, 1994),
59 FR 46999. The rule change proposed herein is intended to apply
only so long as Rule 15.10 is effective.
\4\See Securities Exchange Act Release No. 34277 (June 29,
1994), 59 FR 34885.
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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) 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 the proposed rule change is to permit CBOE options
market makers to designate as ``bid test exempt'' under CBOE Rule 15.10
certain short sales of the stock of a company that is involved in a
merger or acquisition with the issuer of a stock underlying an option
that has been designated as a ``designated Nasdaq/NM security'' in
accordance with CBOE Rule 15.10(c)(2)(ii)(B). To qualify as bid test
exempt under this proposal, a short sale must serve to hedge a position
in an option covering the designated Nasdaq/NM security, where the
option position was or will be established in the course of bona fide
market making activity.
This proposal recognizes that when a designated Nasdaq/NM security
becomes involved in a merger or acquisition, CBOE market makers may
need to hedge positions in options on the designated Nasdaq/NM security
by buying or selling shares of stock of the other company involved in
the merger or acquisition, whether or not the other company's stock has
listed overlying options. Indeed, where there are no options on that
stock, buying or selling the stock itself may at times be the only
feasible way for a market maker to hedge positions in options on the
designated Nasdaq/NM security, given the risk arbitrage relationship
that is likely to exist between the two stocks. The proposed rule
change will facilitate hedging by options market makers in this
circumstance, by allowing them to sell short shares of the other
company involved in the merger for hedging purposes, and to designate
those short sales as bid test exempt. The CBOE believes that its
proposal will enhance the ability of CBOE market makers to perform
their market making functions, thereby contributing to the liquidity of
the market for options, as well as the market for the stocks of both
companies. This proposed rule change, like the remainder of Rule 15.10,
is intended to operate in coordination with an exemption from the bid
test provided for in the NASD Rules of Fair Practice. It is CBOE's
understanding that the NASD intends to publish an interpretation of its
bid test rule that is consistent with the amendment to CBOE Rule 15.10
proposed herein.
CBOE believes that the proposed rule change will enhance the
ability of market makers to perform their market making activities,
thereby contributing to the depth and liquidity of the options market,
and thus will serve in furtherance of the objectives of Section 6(b)(5)
of the Act to promote just and equitable principles of trade and to
protect investors and promote the public interest.
(B) Self-Regulatory Organization's Statement on Burden on Competition
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
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 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, DC 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 Section, 450 Fifth Street, NW.,
Washington, DC. 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 File No.
SR-CBOE-94-27 and should be submitted by December 12, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-28675 Filed 11-18-94; 8:45 am]
BILLING CODE 8010-01-M
