[Federal Register Volume 63, Number 25 (Friday, February 6, 1998)]
[Notices]
[Pages 6247-6249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3010]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39604; File No. SR-CBOE-97-66]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Chicago
Board Options Exchange, Incorporated Providing a Definition of Foreign
Broker-Dealer
January 30, 1998.
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 December
17, 1997, the Chicago Board Options Exchange, Incorporated (``CBOE'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II 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 and to grant accelerated approval to the proposed rule change.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to amend Rules 7.4(a) and 8.51(a) and adopt new Rule
1.1(xx) to provide that a foreign broker-dealer is considered a broker-
dealer for certain purposes under Exchange Rules.
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 in
Item III below. The CBOE has
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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 the proposed rule change is to amend certain rules
of the Exchange applicable to the options transactions of broker-
dealers so that they may apply consistently to all broker-dealers
irrespective of the country in which they conduct their activities.
This will assure that broker-dealers operating outside the United
States do not enjoy a competitive advantage over their U.S.
counterparts.
CBOE Rules 7.4(a) and 8.51(a) currently distinguish between orders
for broker-dealers and orders for non-broker-dealers. Under these
rules, and certain rules governing the Exchange's automatic execution
system (the Retail Automatic Execution System or ``RAES'') which
incorporate Rule 7.4(a) by reference, only the market or limit orders
of non-broker-dealer customers may be placed with an Order Book
Official, or may utilize RAES, or may be eligible for a guaranteed
minimum execution of ten contracts (or more, depending on the option
class) on the floor of the Exchange.\1\ The proposed rule change
defines the term ``broker-dealer,'' as used in these rules, to include
a foreign broker-dealer. To accomplish this, the Exchange proposes to
adopt the following definition of ``foreign broker-dealer'' for
purposes of Rules 7.4(a) and 8.51(a):
\1\ CBOE Rule 7.4(a) provides that ``[n]o member shall place, or
permit to be placed, an order with a Board Broker or Order Book
Official for an account in which * * * any non-member broker-dealer
has an interest.'' Rule 6.8, one of the rules governing RAES, limits
its use to ``[s]uch order * * * as defined in Rule 7.4(a) regarding
placing of orders on the public customer book.'' Rule 8.51(a)
provides that ``[o]nly non-broker dealer customer orders shall be
entitled to an execution'' under that Rule.
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``The term `foreign broker-dealer' means any person or entity
that is registered, authorized or licensed by a foreign governmental
agency or foreign regulatory organization (or is required to be so
registered, authorized or licensed) to perform the function of a
broker or dealer in securities, or both. For purposes of this
definition, the terms `broker' and `dealer' have the same meaning as
provided in Section 3(a)(4) and 3(a)(5) of the Exchange Act, except
that a `broker' or `dealer' may be a bank.\2\
\2\ Sections 3(a)(4) and 3(a)(5) of the Act provide:
``(4) The term `broker' means any person engaged in the business
of effecting transactions in securities for the account of other,
but does not include a bank.
(5) The term `dealer' means any person engaged in the business
of buying and selling securities for his own account, through a
broker or otherwise, but does not include a bank, or any person
insofar as he buys or sells securities for his own account, either
individually or in some fiduciary capacity, but not as a part of a
regular business.''
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The Exchange believes that the proposed definition is sufficiently
specific to ensure fair enforcement of the Rules to which it applies.
It should not be difficult for the Exchange to determine whether a
person or entity is registered by a foreign governmental agency or a
foreign regulatory organization to perform specified functions, or is
required to be so registered. As a member of the Intermarket
Surveillance Group (``ISG''), CBOE may promptly obtain from ISG members
and affiliates information on the accounts of persons or entities
entering orders for execution on CBOE, including whether such orders
have been entered for the account of a broker or dealer.\3\ The
Exchange may also obtain this information from foreign exchanges or
foreign regulatory authorities with which it has an effective
surveillance sharing agreement or that are subject to a memorandum of
understanding with the Commission that would require those entities to
provide such information to the Exchange upon request.
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\3\ ISG was created in February 1981 to design, develop and
implement a coordinated intermarket surveillance system among
securities markets in the United States. On July 14 1983, the
exchanges participating in the ISG entered into an agreement to
coordinate more effectively surveillance and investigative
information sharing agreements in stock and options markets. In
1989, with the active participation of the SEC and Commodity Futures
Trading Commission, the ISG created an ``affiliate'' category for
futures exchanges and non-U.S. SROs. Currently, the ISG is comprised
of nine members and 15 affiliates.
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The Pacific Exchange (``PCX'') recently sought and received
Commission approval for a rule change similar to the proposed rule
change that is the subject of this filing.\4\ In its filing, the PCX
noted that based upon its review of the applicable regulatory
structures of various foreign jurisdictions, it believed that the
proposed definition was sufficiently specific to cover the foreign
equivalents of the U.S. brokers and dealers in a number of foreign
jurisdictions, including Australia, Canada, the Czech Republic, France,
Germany, Hong Kong, Hungary, Japan, Luxembourg, Mexico, the
Netherlands, Poland, South Africa, South Korea, the Slovak Republic,
Switzerland, and the United Kingdom.\5\
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\4\ See, File No. SR-PSE-96-46 approved in Exchange Act Release
No. 38420 (March 19, 1997), 62 FR 14488 (March 26, 1997).
\5\ Furthermore, on December 2, 1997, the Commission approved a
proposed rule change filed by the Philadelphia Stock Exchange
(``Phlx'') to amend its definition of ``foreign broker-dealer''
along the same lines as the PCX. See, Exchange Act Release No. 39382
(December 2, 1997), 62 FR 64903 (December 9, 1997).
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The Exchange also notes that the proposed definition of ``foreign
broker-dealer'' contains objective criteria for its application and is
narrower in scope than the definition of ``foreign broker or dealer''
specified in Rule 15a-6(b)(3) under the Act.\6\ In addition, the
Exchange believes the proposed definition is substantially similar in
form and substance to Rule 17a-7(c) under the Act (definition of
nonresident brokers and dealers) and Sections 3(a)(50) and (52) of the
Act (definitions of foreign securities authority and foreign regulatory
authority).
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\6\ Rule 15a-6(b)(3) provides: ``the term `foreign broker or
dealer' shall mean any non-U.S. resident person (including any U.S.
persons engaged in business as a broker or dealer entirely outside
the United States, except as otherwise permitted by this rule) that
is not an office or branch of, or a natural person associated with,
a registered broker or dealer, whose securities activities, if
conducted in the United States, would be described by the definition
of `broker' or `dealer' in sections 3(a)(4) or 3(a)(5) of the Act.''
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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. 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, 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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
[[Page 6249]]
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 number SR-CBOE-97-66 and should be
submitted by [insert date 21 days from the date of publication].
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
The Commission finds the proposed rule change is consistent with
Section 6(b) of the Act \7\ in general and furthers the objectives of
Section 6(b)(5) in particular in that, by eliminating unintended
differences in treatment between broker-dealers acting within the
United States and those acting in other countries, it is designed to
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest. In addition, the CBOE's proposal is consistent with Section
11A of the Act because it will promote fair competition among brokers
and dealers.\8\
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\7\ 15 U.S.C. Sec. 78f(b).
\8\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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In particular, with regard to the CBOE's rules governing the
Exchange's automatic execution system that distinguish between broker-
dealer orders and non-broker-dealer orders, the Commission finds it is
fair to treat foreign broker-dealers in a manner similar to U.S.
broker-dealers for purposes of such rules. Accordingly, all broker-
dealers, whether U.S. registered or foreign will be prohibited from
placing market or limit orders with an Order Book Official, utilizing
RAES, or benefiting from guaranteed minimum executions.
As mentioned in the PCX's approval order, the Commission believes
that the proposed definition of foreign broker-dealer provides an
objective and verifiable standard that is capable of fair enforcement.
In particular, the Exchange's surveillance staff should be able to
confirm relatively quickly whether a person or entity is registered,
authorized or licensed by a foreign governmental agency or foreign
regulatory organization to perform the functions of a broker or dealer
as defined in the Act.
The proposed rule change will make the CBOE's rules consistent with
those of the PCX and Phlx. Because the PCX's nearly identical filing
was approved after being noticed for the applicable comment period, the
Commission finds good cause for approving the proposed rule change
prior to the thirtieth day after the date of publication of notice
thereof in the Federal Register.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (SR-CBOE-97-66) is hereby
approved on an accelerated basis.
\9\ 15 U.S.C. 78s(b)(2).
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-3010 Filed 2-5-98; 8:45 am]
BILLING CODE 8010-01-M
