[Federal Register Volume 59, Number 229 (Wednesday, November 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29417]
[[Page Unknown]]
[Federal Register: November 30, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34999; File No. SR-CBOE-94-36]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of a Proposed Rule Change and Amendment
No. 1 to the Proposed Rule Change by the Chicago Board Options
Exchange, Inc. Relating to Permanent Approval of the Modified Trading
System Pilot Program
November 22, 1994.
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
21, 1994, 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 and II below, which Items have been prepared by the CBOE. The
Exchange filed Amendment No. 1 to the proposal on November 14, 1994.\1\
The Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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\1\In Amendment No. 1, the Exchange requested permanent approval
of the Modified Trading System pilot program, rather than a one-year
extension as originally proposed. See Letter from Arthur Reinstein,
Attorney, CBOE, to Brad Ritter, Senior Counsel, Office of Market
Supervision, Division of Market Regulation, Commission, dated
November 14, 1994.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE is requesting permanent approval of its Modified Trading
System pilot program (``MTS Pilot Program'').\2\ The text of the
proposed rule change is available at the Office of the Secretary, CBOE,
and at the Commission.
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\2\Id.
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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 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 the
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to obtain permanent
approval of the Exchange's MTS Pilot Program.\3\ Under Exchange Rule
8.80(a), the MTS Pilot Program has been authorized by the Commission to
operate through November 30, 1994.\4\ The proposed rule change would
amend Exchange rule 8.80(a) to delete the expiration date for the MTS
Pilot Program that is contained in the rule.
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\3\The Pilot Program was originally approved by the Commission
in 1987 as a two-year pilot program. See Securities Exchange Act
Release No. 24934 (September 22, 1987), 52 FR 36122 (September 29,
1987) (``Exchange Act Release No. 24934''). The MTS Pilot Program
was subsequently extended through November 30, 1994. See Securities
Exchange Act Release Nos. 27167 (August 22, 1989), 54 FR 35960
(August 30, 1989) (extending the MTS Pilot Program until September
22, 1991); 29935 (November 13, 1991), 56 FR 58595 (November 20,
1991) (extending the MTS Pilot Program until September 22, 1993)
(``Exchange Act Release No. 29935''); and 33430 (January 5, 1994),
59 FR 1976 (January 13, 1994) (extending the MTS Pilot Program
through November 30, 1994) (``Exchange Act Release No. 33430).
\4\See Exchange Act Release No. 33430, supra note 1.
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The Exchange's MTS Pilot Program permits the CBOE to assign a
Designated Primary Market Maker (``DPM'') for options classes traded at
the Exchange. A DPM is a CBOE member who functions in assigned
securities as market-maker, floor broker, and order book official.\5\
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\5\Specifically, the Commission notes that in addition to the
normal obligations of a market maker, the DPM assumes additional
obligations designed to strengthen the market making in the
designated options class, such as: (1) Assuring that disseminated
market quotations are accurate; (2) being present at the trading
post throughout every business day; (3) resolving trading disputes,
subject to Floor Official review; and (4) participating at all times
in any automated execution system which may be open in appointed
options classes. See Exchange Rule 8.80(c).
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The Exchange 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) of the Act, in particular, in that it is designed to
perfect the mechanism of a free and open market. Specifically, the CBOE
believes that the proposed rule change will continue the operation of a
trading system that, in accordance with Section 11A(a)(1)(C)(i) of the
Act,\6\ assures the economic and efficient execution of securities
transactions.
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\6\15 U.S.C. Sec. 78k-1(a)(1)(C)(i) (1990).
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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
a 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
The Exchange has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.
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 Sections 6(b)(5)\7\ and 11A\8\
thereunder. Specifically, the Commission concludes that permanently
approving the MTS Pilot Program will contribute to the protection of
investors and to the Exchange's ability to provide fair and orderly
markets in new options products.
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\7\15 U.S.C. Sec. 78f(b)(5) (1982).
\8\15 U.S.C. Sec. 78k-1 (1982).
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The Commission notes that prior to the last extension of the MTS
Pilot Program, the CBOE was required to submit a report discussing
various aspects of the pilot program (``1993 MTS Report'').\9\ The
findings contained in the 1993 MTS Report were as follows: (1) No
complaints had been lodged with the Exchange concerning the operation
of the MTS Pilot Program; (2) no disciplinary of performance action had
been taken against any Exchange member due to the operation of the
pilot program; (3) since its inception, use of the pilot program by
members had consistently increased in terms of the number of DPMs, the
number of options classes assigned to DPMs, and the aggregate average
daily trading volume associated with options classes assigned to DPMs'
and (4) objective and subjective evaluations had shown that DPMs were
consistently ranked at the high end of the scale in terms of depth of
markets, price continuity, and width of bid/ask spreads, in assigned
options classes.\10\ In granting the last extension of the MTS Pilot
Program, the Commission also stated that before the MTS Pilot Program
would be permanently approved or further extended, the CBOE would be
required to update the 1993 MTS Report highlighting any material
developments during the extension of the pilot program (``1994 MTS
Report'').\11\ The Commission notes that the Exchange has submitted the
1994 MTS Report as part of this proposed rule change and that the 1994
MTS Report contains no material changes from the findings reported in
the 1993 MTS Report.
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\9\See Exchange Act Release No. 29935, supra note 1.
\10\See Exchange Act Release No. 33430, supra note 1.
\11\Id.
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Based on the representations made by the Exchange in the 1994 MTS
Report, the Commission concludes that the MTS Pilot Program has
contributed to the protection of investors and to the Exchange's
ability to provide fair and orderly markets in new options products.
Additionally, the growth in the use of the MTS Pilot Program as
represented by the CBOE, combined with the Exchange's findings that
options classes assigned to DPMs, relative to other options classes,
rate high in the quality of their markets (e.g., depth of the markets
and which of bid/ask spreads), leads the Commission to conclude that
the MTS Pilot Program is beneficial for investors and will promote fair
and orderly markets for options classes. Accordingly, for the reasons
stated herein, for the reasons articulated in the Commission's order
establishing the MTS Pilot Program,\12\ and because of the success of
the pilot program since its inception (as represented by the Exchange
in the 1994 MTS Report), the Commission believes that granting
permanent approval of the MTS Pilot Program at this time is
appropriate.
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\12\See Exchange Act Release No. 24934, supra note 1.
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The Commission finds good cause for approving the proposed rule
change, as amended, prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register in
order to permit the uninterrupted continuation of the Modified Trading
System. As set forth in the 1994 MTS Report, the CBOE has represented
that no adverse comments have been received and no problems have arisen
in connection with the operation of the MTS Pilot Program since its
inception. Furthermore, the Commission has not received any comments
opposing the MTS Pilot Program or otherwise indicating that the MTS
Pilot Program is operating other than as originally intended.
Accordingly, the Commission believes it is consistent with Sections
6(b)(5), 11A, and 19(b)(2) of the Act to approve the proposed rule
change on an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the proposed rule change and Amendment No. 1
thereto. 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 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 CBOE. All submissions should refer to File No.
SR-CBOE-94-36 and should be submitted by December 21, 1994.
It is therefore ordered, Pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-CBOE-94-36), as amended, is
hereby approved.
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\13\15 U.S.C. Sec. 78s(b)(2) (1982).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-29417 Filed 11-29-94; 8:45 am]
BILLING CODE 8010-01-M
