[Federal Register Volume 63, Number 237 (Thursday, December 10, 1998)]
[Notices]
[Pages 68321-68323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32827]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40737; File No. SR-CBOE-98-46]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc. Relating to the
Evaluation of Trading Crowd Performance
December 2, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 23, 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. 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.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE is proposing to modify CBOE Rule 8.60, Evaluation of
Trading Crowd Performance, to provide limited remedial actions for
members, individually or collectively as trading crowds, who have
failed to meet minimum performance standards. The proposed rule also
modifies procedures relating to the administration and enforcement of
the Rule.
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, 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
[[Page 68322]]
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
The Exchange is proposing to modify CBOE Rule 8.60 to clarify and
improve the market performance evaluation of members and trading crowds
on the Exchange. The proposed rule change accomplishes this by giving
the appropriate Market Performance Committee \3\ (``appropriate
Committee'') greater procedural flexibility to address the issue of
member performance, while at the same time providing a clearer
description of the due process safeguards that apply to the exercise of
the appropriate Committee's authority.
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\3\ The appropriate Committee is the Market Performance
Committee, the Index Market Performance Committee or the Modified
Trading System Appointments Committee.
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1. Generally
The purpose of CBOE Rule 8.60 is to provide the appropriate
Committee with a means to work with trading crowds and individual
members to improve market quality and competition among members. The
crowd evaluation process has significantly assisted the appropriate
Committee in working with trading crowds and members to improve
performance. The proposed changes will allow the appropriate Committee
to take certain remedial actions after an informal meeting with members
or crowds who have been identified through the evaluations. Currently,
under CBOE Rule 8.60, the appropriate Committee must hold a formal
hearing to impose more serious sanctions such as (i) suspension, (ii)
termination or (iii) restriction of a market-maker's registration,
appointments to option classes or right to trade at a particular
trading station, but does not explicitly have the right to take limited
remedial actions.
2. The Proposed Changes
One of the proposed amendments to CBOE Rule 8.60(a) is to identify
the Exchange rather than the appropriate Committee as the entity that
prepares, administers and distributes the results of the member
evaluation. The results of the member evaluation are provided by the
Exchange's Market Procedures and Planning staff to the appropriate
Committee for their review. Paragraph (a) of CBOE Rule 8.60 is being
amended to provide that the appropriate Committee, in connection with
its evaluation of member performance, may take into consideration
factors other than the four factors currently enumerated in the
Rule.\4\ To assist the Exchange in gathering market performance data in
a timely manner, the proposed rule change moves language from paragraph
(c) to paragraph (a). This language requires that members, persons
associated with a member, or member firms answer market performance
survey questions by the date specified and to the best of their ability
and knowledge. In addition, the term market-maker is being replaced
with the terms member or trading crowd to provide the appropriate
Committee with more discretion in enforcing market performance
standards.
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\4\ The four factors are (i) quality of markets; (ii)
competition among market-makers; (iii) observance of ethical
standards, and (iv) administrative factors.
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The Exchange is rewording paragraph (b) of CBOE Rule 8.60 to enable
the appropriate Committee to determine whether there has been a failure
to meet minimum performance standards based on the totality of factors
considered, including whether a member or trading crowd is ranked in
the bottom 10% of trading crowds.
The language in paragraph (c) of CBOE Rule 8.60 as to the
distribution of a Questionnaire on a six month periodic basis is being
deleted. The Evaluation will be done as needed. Paragraph (c) of CBOE
Rule 8.60 also will incorporate the existing language from paragraph
(d). This incorporated language gives the appropriate Committee
discretion to have an informal meeting with one or more members to
discuss their performance.
Paragraph (d) of CBOE Rule 8.60 is being amended to clarify that
the appropriate Committee is authorized to take certain remedial
actions against a member or trading crowd if the appropriate Committee
believes that certain performance standards are not being met. These
remedial actions are of a less serious nature than those provided for
in paragraph (a). Paragraph (d) of CBOE Rule 8.60 is intended to
provide the appropriate Committee with greater flexibility to take
limited actions to improve overall market performance in those cases
where more severe actions are not warranted, and without incurring the
expense and delay associated with a formal evidentiary-type hearing
which is required in cases where more severe actions are taken. The
following measures are proposed as limited remedial actions that the
appropriate Committee may take:
(1) require that the trading crowd submit a business plan to the
Committee detailing those steps that the crowd intends to take to
improve its performance;
(2) require that one or more members execute 100% of their opening
transactions in that crowd in person;
(3) restrict crowd members' ability to participate on the Retail
Automatic Execution System;
(4) restrict the eligibility of the crowd to be allocated new
option classes or other securities;
(5) require that one or more members attend a meeting or series of
meetings as the Committee shall require for the purpose of education or
improving the performance of the members;
(6) require that all bookable orders be booked if not executed
immediately upon presentation in the crowd; or
(7) take any other limited remedial action which is comparable to
the foregoing.
Paragraph (d) would provide members an opportunity to be heard by
the appropriate Committee, prior to the appropriate Committee taking
remedial action.
Paragraph (e) of CBOE Rule 8.60 clarifies and expands on the due
process requirements to be fulfilled if the appropriate Committee deems
that the actions listed in paragraph (a) are to be imposed. It will
also be made clear that all affected members will be provided a written
decision.
The Exchange is also amending Paragraph (f) to provide the
appropriate Committee with the authority to impose the proposed limited
remedial sanctions of paragraph (d) for members who fail to appear
before the committee when asked to do so under paragraph (c), without
reasonable justification. The amended language also states that the
appropriate Committee may refer any member's failure to appear to the
Business Conduct Committee.
Finally, the Exchange is amending Paragraph (g) to provide that any
actions taken by the appropriate Committee, whether under paragraph (a)
or (d), may be appealed according to the procedures of Chapter XIX of
Exchange Rules. This change would have a member's appeal go directly to
the Appeals Committee rather than the Board of Directors. This change
would make the appeal procedure consistent with the appeal rights of
most other Exchange committee decisions. Members would retain the right
to appeal the Appeals Committee decision to the Board.
Interpretation and Policy .01 under CBOE Rule 8.60 would be amended
to provide some flexibility as to how the appropriate Committee defines
whether a market-maker is a member of a trading crowd. The proposed
rule change also
[[Page 68323]]
makes certain editorial changes to clarify CBOE Rule 8.60 without
affecting its substance.
The Exchange believes the proposed rule change is consistent with
and promotes the objectives of Section 6(b)(5) of the Act \5\ in that
it is designed to enhance the ability of the appropriate Market
Performance Committee to regulate standards of member performance on
the Exchange, while providing due process standards to members who
appear before the appropriate Committee, thereby promoting just and
equitable principles of trade and protecting 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
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 should 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, 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 Room. 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-98-46 and should be
submitted by December 31, 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. 98-32827 Filed 12-9-98; 8:45 am]
BILLING CODE 8010-01-M
