[Federal Register Volume 60, Number 30 (Tuesday, February 14, 1995)]
[Notices]
[Pages 8433-8434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3618]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35345; File No. SR-CBOE-94-54]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange Relating to Firm Quote
Responsibilities
February 8, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934, 15 U.S.C. 78(b)(1), notice is hereby given that on January 4,
1995, the Chicago Board Options Exchange, Incorporated (``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.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to expand the applicability of the firm quote
rule to include two-part orders in equity options, in which the
component series are on opposite sides of the market and in a one-to-
one ratio. 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 Exchange 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 Exchange has prepared summaries, set forth in
sections (A), (B), and (C) below, of the most significant parts 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 expand the
applicability of Rule 8.51 to certain two part equity orders and thus,
to attempt to ensure the ability of public customers to execute defined
risk strategies, such as spreads and straddles, at the disseminated
market quotes.
CBOE Rule 8.51 places the responsibility on the trading crowd to
ensure that non-broker-dealer customer orders are sold or bought, up to
ten contracts, at the quoted offer or bid, respectively. This ``firm
quote'' or ``ten-up'' requirement is meant to provide confidence that
the displayed quotes may be relied upon by the investing public and to
ensure that public customer orders will be executed at those quotes.
From its inception the rule was intended to apply to, and has been
interpreted to apply only to, single part orders, i.e., either a buy
order or a sell order for a particular option series. The Exchange has
determined, however, that public customers would be served better if
the interpretation were expanded to included a requirement to provide a
ten-up market in two-part equity option orders in which the components
of the order are on opposite sides of the market and in a one-to-one
ration to each other. The expansion in the interpretation of this rule
would make it possible for public customers to execute both sides of a
defined risk strategy, such as a spread or a straddle, at the
disseminated prices. This rule change, then, should help the Exchange
compete more effectively for public customer order flow and trading
activity.
The Exchange does not believe this rule change would be burdensome
to market-makers because, under the current interpretation, the market-
makers would be required to satisfy the ten-up requirement as to each
leg of a spread or straddle if each was placed as a separate order.
This rule change would merely ensure that these two components may be
done at the same time, as one order, and at the same prevailing market
quotes. The Exchange believes, however, that it is inappropriate, under
any circumstances, to extend the firm-quote treatment to multi-part
orders with all parts on the same side of the market as this would
effectively impose the burden on options market-makers of making
markets in the underlying security. For example, a position in a long
call and a short put is economically equivalent to being long the
underlying stock; and thus, requiring a trading crowd to provide firm
quote treatment to an order for this position would essentially be
requiring the option market-makers to act as market-makers in the
underlying security. [[Page 8434]]
Under Rule 8.51, the firm quote size minimum will not apply
whenever a ``fast market'' is declared under rule 6.6, and may be
suspended for any class or series on a case by case basis as determined
by the Market Performance Committee.
CBOE believes the proposed rule change will contribute to a market
that will instill an increasing customer confidence and ability to
transact business in an increasingly efficient manner. CBOE believes
the proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Exchange Act'') in general and
furthers the objectives of Section 6(b)(5) in particular by providing
rules that perfect the mechanisms of a free and open market and that
protect investors and 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
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 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., 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. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of CBOE. All
submissions should refer to the file number in the caption above and
should be submitted by March 7, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to the delegated authority.\1\
\1\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-3618 Filed 2-13-95; 8:45 am]
BILLING CODE 8010-01-M
