[Federal Register Volume 62, Number 31 (Friday, February 14, 1997)]
[Notices]
[Pages 7080-7082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3789]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38261; File No. SR-CBOE-97-06]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Board Options
Exchange, Inc., Relating to Enhancements to the CBOE's Order Routing
System
February 10, 1997.
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 February
5, 1997, 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, II, and III below, which Items have been prepared by the self-
regulatory organization. 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 CBOE is adopting certain enhancements to the Exchange's
electronic Order Routing System (``ORS'') on a pilot basis until May
30, 1997, while the Exchange evaluates the changes and determines
whether to implement them on a permanent basis. The enhancements, which
will be described in an Information Circular to CBOE members, include
the following: (1) Allowing the electronic routing and processing of
contingency and discretionary orders; (2) allowing ORS to recognize
firm and broker-dealer orders; (3) allowing the routing of firm and
broker-dealer orders to the Public Automated Routing (``PAR'') System
workstations in the Standard & Poor's 100 Index (``OEX'') crowd; and
(4) allowing the execution of certain contingency orders on the CBOE's
Retail Automated Execution System (``RAES'').
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
The CBOE is adopting an Information Circular that describes certain
enhancements to ORS. These changes will be implemented on a pilot basis
while the Exchange evaluates the changes and determines whether to
implement them on a permanent basis. The pilot will expire on May 30,
1997. In the meantime, the Exchange will decide whether to seek
permanent approval for the changes.
The information circular that will be distributed to the membership
of the Exchange will describe certain enhancements to ORS and certain
limitations that will continue to apply to the use of ORS.
Specifically, the changes will allow the electronic routing and
processing of contingency and discretionary orders, the recognition by
ORS of firm and broker-dealer orders, the routing of firm and broker-
dealer orders to the PAR System workstations in the OEX crowd, and the
execution of certain contingency orders on RAES, as further explained
below.
ORS provides member and correspondent firms with a method of
efficiently delivering orders to and reports from the CBOE trading
floor.
[[Page 7081]]
ORS also interfaces with several other peripheral systems at CBOE,
including the CBOE Trade Match system, the Time-and-Sales system, the
Auto-Quote system, and the market maker hand-held terminals. Member
firms with wires attached to the CBOE's front-end computer can send
orders electronically from their branches or order desk to ORS. Reports
for such orders are sent back electronically to the point from which
the order was entered.
Currently, non-contingency and non-broker-dealer orders received by
ORS are logged to the ORS database and evaluated, based on volume and
price, to determine their routing destination on the CBOE floor. There
are four possible destinations for an ORS order: (1) RAES; (2) the
Electronic Book (``EBOOK''); (3) the PAR System and floor broker
routing; and (4) a firm's booth.
RAES automatically and instantaneously executes customer market and
marketable limit orders for eligible series, generally for orders of up
to ten contracts. The EBOOK receives pre-open market and limit orders.
Generally, intra-day limit orders at least one tick away from the same-
side market quote are also sent to EBOOK. Market orders not eligible
for automatic execution by RAES, and limit orders ``near'' the market
quote may be floor broker routed to the trading crowd. Such orders are
delivered either to printers or to PAR electronic touch-screen
workstations at the trading post. Orders not eligible for RAES, EBOOK,
or floor broker routing are printed on ORS printers in the member firm
booths. These orders are then either run out to the trading crowds or
electronically re-routed via the CBOE's Booth Entry and Routing System
(``BERS'') from booth terminals to EBOOK by the firm staff.\1\
Currently, all contingency orders, complex orders (such as spreads),
and non-customer orders sent over the ORS wires are delivered to ORS
printers in the firm booths. Approximately 70% of customer orders at
CBOE are entered through ORS.
---------------------------------------------------------------------------
\1\ Orders that are phoned to the floor or wired to firm-owned
house printers can also be re-entered into ORS by the firm's booth
staff.
---------------------------------------------------------------------------
The Exchange has recently completed a systems enhancement to ORS,
as a result of which it will now be possible to electronically route
and process contingency and discretionary orders and to accept firm and
broker-dealer orders as valid origin types. The systems enhancements
specifically will allow for the routing of the following types of
contingency and discretionary orders: All or None orders (``AON''),
Immediate or Cancel orders (``IOC''), Fill or Kill order (``FOK''),
Minimum Quantity orders (``MIN''), Stop orders (``STP''), Stop Loss
orders (``STP LOSS''), Opening Only orders (``OPG''), Market on Close
orders (``MOC''), Closing Only orders ``CLO''), Market if Touched
orders (``MIT''), Not Held orders (``NH''), and With Discretion orders.
Due to systems and administrative limitations, ORS will continue to be
unavailable for stop limit orders as well as spreads, straddles,
combos, and other multi-part orders.
There will be a number of practical results from these systems
enhancements for customers, brokers, and the Exchange. As a result of
these changes, customer orders that are otherwise RAES-eligible market
and marketable limit orders tagged with AON, IOC, FOK, or MIN now will
be executed on RAES. For MIN orders, the total order quantity must be
within the RAES volume. The system enhancements will also have the
effect of improving the efficiency of reporting and the accuracy of
audit trails for firm and broker-dealer orders because these orders
will now have an ORS-id. In addition, the Exchange will enable the
system to actually route firm and broker-dealer orders electronically
to the PAR workstations in OEX. After the Exchange gains experience
with routing firm and broker-dealer orders to the PAR workstations in
OEX, it may determine to enable the system to route such orders to
equity and Standard & Poor's 500 Index (``SPX'') crowds at some future
date.
The Exchange expects the system enhancements to provide for more
efficient processing of trades because they will allow for electronic
fill and cancel reporting to the originating customer destination. In
addition, the fill reports will automatically generate an electronic
trade match entry. The systems enhancements will also provide parameter
controls so that different order types can be selectively crowd routed
at the member firm's option. This flexibility will allow the member
firms to employ ORS in the method that each firm believes is the most
efficient. The flexibility also allows the firms to change the routing
depending upon the market circumstances.
Because the system enhancements to ORS will allow the electronic
processing and routing of a greater number of order types and because
the enhancements will provide greater flexibility for member firms in
the routing of their orders, the Exchange believes this rule change is
consistent with and furthers the objectives of Section 6(b) of the Act,
in general, and of Section 6(b)(5), in particular, in that it will
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, and processing information with respect to, and
facilitating transactions in securities, and will 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.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The 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 either solicited or received with respect
to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule change effects a change in an existing
order-entry system of the Exchange that: (1) Does not significantly
affect the protection of investors or the public interest; (2) does not
impose any significant burden on competition; and (3) does not have the
effect of limiting access to or availability of the system, it has
become effective on a pilot basis until may 30, 1997, pursuant to
Section 19(b)(3)(A) of the Act and Rule 19b-4(e)(5) thereunder. At any
time within 60 days of the filing of such 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 submission
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
[[Page 7082]]
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 Section, 450 Fifth Street, NW., Washington, DC. Copies of
such filing will also be available for inspection and copying at the
principal office of the above-mentioned self-regulatory organization.
All submissions should refer to the file number in the caption above
and should be submitted by March 7, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\2\
---------------------------------------------------------------------------
\2\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3789 Filed 2-13-97; 8:45 am]
BILLING CODE 8010-01-M
