[Federal Register Volume 62, Number 230 (Monday, December 1, 1997)]
[Notices]
[Pages 63577-63578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31388]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39348; File No. SR-CBOE-97-49]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the Chicago Board Options
Exchange, Inc. To Change the Minimum Increment for Bids and Offers in
Options
November 21, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on September 25, 1997, 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 November 17, 1997, the Exchange
submitted to the Commission an amendment to the proposed rule
change.\3\ 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\ 17 CFR 240.19b-4.
\3\ By adding the term ``appropriate'' before the term ``Floor
Procedure Committee'' in the text of the rule, the amendment
clarified that the decision to change the increments with respect to
a particular class of options will be made by whichever Floor
Procedure Committee has jurisdiction over trading in that option
class. The amendment also replaced the original Exhibit 1 that was
sent to the Commission with a revised Exhibit 1. See Letter from
Timothy H. Thompson, CBOE, to Christine Richardson, Division of
Market Regulation, Commission (Nov. 14, 1997) (``Amendment No. 1'')
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 6.42 by adopting a procedure
that would allow the Exchange to establish options trading
differentials on an expedited basis. The text of the proposed rule
change 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 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 Exchange is proposing to amend Exchange Rule 6.42 to give the
Board of Directors the authority to establish the minimum trading
increments for option contracts. Currently, Rule 6.42 states that bids
and offers shall be expressed in eighths of $1 unless a different
increment is approved by the Floor Procedure Committee for an option
contract of a particular series. An interpretation to the Rule states
that bids and offers for all option series trading below $3 shall be
expressed in sixteenths of a dollar. Until such time as the Board
determines to make a change the current standards will apply.
The proposed change would allow the Exchange to change the trading
increments on an expedited basis and thus, allow the Exchange to
respond appropriately to changes in the minimum trading increment in
the markets for the securities underlying CBOE options or to changes in
the minimum trading increments for one of the other options exchanges.
When the Board of Directors determines to change the trading
increments, the Exchange will designate such change as a stated policy,
practice, or interpretation with respect to the administration of Rule
6.42 within the meaning of subparagraph (3)(A) of subsection 19(b) of
the Exchange Act and will file a rule change for effectiveness upon
filing with the Commission.
There has been a movement within the industry to reduce the minimum
trading and quotation increments
[[Page 63578]]
imposed by the various SROs.\4\ As derivative securities, the prices of
options are determined in reference to the prices of the underlying
securities. Consequently, the Exchange believes that where practicable,
the Exchange should have minimum increments comparable to those
applicable to the securities underlying CBOE options.
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\4\ See Exchange Act Rel. No. 38571 (May 5, 1997), 62 FR 25682
(May 9, 1997) (Commission order approving a change in the minimum
increment to \1/16\th for securities listed on the American Stock
Exchange); Exchange Act Rel. No. 38678 (May 27, 1997), 62 FR 30363
(June 3, 1997) (Commission order approving a change in the minimum
increment to 1/16th for Nasdaq-listed securities); and Exchange Act
Rel. No. 38897 (Aug. 1, 1997), 62 FR 42847 (Aug. 8, 1997)
(Commission order approving a change in the minimum increment to \1/
16\th for NYSE listed-securities).
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The proposed rule change would give the Exchange the flexibility to
follow the suit of the principal exchanges for the underlying
securities without having to continually update its rules but at the
same time would give the Exchange the flexibility it needs to deviate
from the minimum increments established by the principal markets for
the underlying securities in the event that the CBOE's systems were not
immediately able to handle such increments. The Exchange, therefore,
believes the quality of the market for CBOE options will be enhanced by
allowing for more accurate pricing of CBOE options.
2. Statutory Basis
The Exchange represents that the proposed rule change is consistent
with Section 6(b)(5) of the Act \5\ in that it would remove impediments
to and perfect the mechanism of a free and open market in a manner
consistent with the protection of investors and the public interest.
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\5\ 15 U.S.C. 78f(b).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate 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 either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of 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 reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve the 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 at the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
Exchange. All submissions should refer to File No. SR-CBOE-97-49 and
should be submitted by December 22, 1997.
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. 97-31388 Filed 11-28-97; 8:45 am]
BILLING CODE 8010-01-M
