[Federal Register Volume 60, Number 233 (Tuesday, December 5, 1995)]
[Notices]
[Pages 62273-62274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29511]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36513; File No. SR-CBOE-95-59]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 to Proposed
Rule Change by the Chicago Board Options Exchange, Inc. Relating to the
Requirement to Make Prior Arrangements or Obtain Other Assurances
Before Engaging in Short Sales
November 27, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on
October 19, 1995, 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 October 31, 1995, the Exchange submitted Amendment No.
1 (``Amendment No. 1'') to the proposal to reduce the number of days in
which a customer must assure delivery of the subject securities from
five days to three days.\1\ The Commission is publishing this notice to
solicit comments on the proposed rule change and Amendment No. 1 from
interested persons.
\1\ Letter from Timothy Thompson, CBOE, to Michael Walinskas,
SEC, dated October 31, 1995.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to make certain changes to its rules relating to
the requirement to make prior arrangements to borrow stock or to obtain
other assurances that delivery can be made on settlement date before a
member or person associated with a member may sell short. 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 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
[[Page 62274]]
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 this rule proposal is to establish procedures and
rules regarding the need to make prior arrangements to borrow stock,
warrants, or other securities that trade subject to Chapter 30 of the
Exchange's rules, or to otherwise ensure availability of the subject
securities before engaging in short sales. The change involves the
adoption of Interpretation .04 to Rule 30.20, ``Long'' and ``Short''
Sales. Interpretation .04 is similar to rules of other securities
exchanges \2\ and would require that member organizations who effect
short sales for their own account or for the accounts of customers to
make an affirmative determination that delivery of the subject
securities can be made on settlement date. The purpose for this rule
proposal is to ensure that borrowings and short sales do not outpace
the supply of deliverable stock, thus, leading to potential systematic
problems. In the case of the short selling of members' proprietary
positions, the proposal is intended to address unnecessary speculation
in connection with the short selling of broker-dealers' proprietary
positions caused by the members' ability to go short without securities
to cover the short position. The proposed amendment, as with the rules
of the other securities exchanges, would not apply to bona fide market
making transactions by a member in securities in which it is a
registered market-maker. This market-maker exemption recognizes that
many short selling transactions are engaged in by market-makers to
enhance market liquidity, which is beneficial to the market and thus
should not be unduly restricted.
\2\ See e.g., New York Stock Exchange (``NYSE'') Rule 440C (and
NYSE Information Memo 91-10, Deliveries Against Short Sales, (Oct.
18, 1991)) and Interpretation of the Board of Governors of the
National Association of Securities Dealers, Inc. (``NASD''), Prompt
Receipt and Delivery of Securities, under Article III, Section 1 of
the NASD Rules of Fair Practice.
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Interpretation .04 also describes the type of ``affirmative
determinations'' that must be obtained by the member or person
associated with the member to ensure that the securities will be
available. The member or person associated with the member is obligated
to keep a written record of each ``affirmative determination.'' If a
customer assures delivery, the written affirmative determination must
record the present location of the securities in question, whether they
are in good deliverable form and the customer's ability to deliver them
to the member within three business days.\3\ If the member or person
associated with a member locates the stock, the affirmative
determination must record the identity of the individual and firm
contacted who offer assurance that the shares would be delivered or
that were available for borrowing by settlement date and the number of
shares needed to cover the short sale. The requirement to keep a
written record of each affirmative determination serves two purposes:
first, the written record allows the Exchange to audit compliance with
the Rule, and second, the written record provides the member firm with
evidence to pursue its own resolution in the event of a default.
\3\ See Amendment No. 1. This reduction from five days to three
days complies with the normal settlement schedule for equity
securities.
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By ensuring that securities are available for borrowing and for
delivery, the Exchange believes the rule proposal will help to prevent
situations where there is a shortage of deliverable stock as well as
failures to deliver. By facilitating short sales and decreasing the
likelihood of a fail, the Exchange believes the rule proposal is
consistent with Section 6(b) of the Act in general and Section 6(b)(5)
in particular by providing rules that facilitate transactions in
securities, remove impediments to a free and open market and protect
investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe 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
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
(3) was provided to the Commission for its review at least five
business days prior to the filing date; and (4) does not become
operative for 30 days from October 31, 1995, the rule change proposal
has become effective pursuant to Section 19 (b)(3)(A) of the Act and
Rule 19b-4(e)(6) thereunder. In particular, the Commission believes the
proposal qualifies as a ``noncontroversial filing'' in that the
proposed amendments do not significantly affect the protection of
investors or the public interest and do not impose any significant
burden on competition. At any time within 60 days of the filing of the
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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, 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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. 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-95-59 and should be
submitted by December 26, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
\4\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29511 Filed 12-4-95; 8:45 am]
BILLING CODE 8010-01-M
