[Federal Register Volume 61, Number 26 (Wednesday, February 7, 1996)]
[Notices]
[Pages 4691-4692]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2617]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36797; File No. SR-CBOE-96-03]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Board Options
Exchange, Inc., Relating to the Exercise of American-Style Options
January 31, 1996.
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 January
19, 1996, 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 proposes to issue a regulatory circular to its membership
which clarifies the application of the rules and procedures of the
Options Clearing Corporation (``OCC'') to the exercise of American-
style options.
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.
[[Page 4692]]
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed regulatory circular is to make it clear
that the holder of an American-style option is able to exercise the
option at any time up to the exercise cut-off time on any trading day
other than the final trading day, even if the holder has sold the
option in a closing sale transaction during that trading day. According
to the CBOE, this result follows from OCC's sequencing procedures for
processing daily activity on every day other than the final trading
day.\1\
\1\ For purpose of the proposed regulatory circular, the final
trading day is the expiration date of options that trade on their
expiration date or the last trading day prior to the expiration date
for all other options.
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Specifically, on every day other than the final trading day, OCC's
sequencing procedures provide that opening purchase transactions,
opening sales transactions, and closing purchase transactions effected
on that day are processed before exercises, and exercises are processed
before that day's closing sales transactions. As a result, to the
extent there is no violation of the CBOE's and OCC's exercise limits,
an investor may exercise an option series on any day other than the
final trading day to the full extent of the sum of: (1) All the long
positions in his account at the opening of that day, plus (2)(a) (in
the case of a firm or customer) all positions resulting from the
investor's opening purchase transactions on that day without deduction
for that day's closing sales transactions, or (b) (in the case of a
market maker) all positions resulting from the market maker's purchase
transactions that day without deduction for the market maker's sales
transactions effected that day.\2\ If the number of contracts sold by
an investor in closing sales transactions exceeds the number of long
positions remaining in the account after the exercises are processed,
OCC treats the excess as having been sold in opening sales transactions
and the contracts are subject to being assigned exercises. However, a
brokerage firm or clearing member may have procedures which would
prevent an investor from effecting an exercise that would result in
changing a closing sales transaction into an opening sales transaction.
\2\ Market makers are not required to mark their transactions as
opening or closing transactions. Customer transactions must be
marked as opening or closing transactions.
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The CBOE's proposed regulatory circular provides several examples
illustrating how the OCC's procedures apply to both customers and
market makers. In addition, the proposed regulatory circular notes that
OCC's sequencing procedures for processing activity on the final
trading day provide for the processing of all purchase and sales
transactions before exercises and assignments are processed. As a
result, on the final trading day an investor may not exercise more than
the investor's long positions remaining after netting any short
position the investor may have at the opening that day and all options
contracts the investor sells that day.
According to the CBOE, the OCC procedures described in the proposed
regulatory circular are not new. Nonetheless, the Exchange believes it
is important for all members to have the same understanding of these
procedures and how they affect exercises. By making Exchange members
and their customers better informed as to the procedures that apply to
the exercise of American-style options, the CBOE believes that the
publication of the proposed regulatory circular will serve to further
the purposes of Section 6(b) of the Act, in general, and of Section
6(b)(5), in particular, by promoting just and equitable principles of
trade and protecting investors and the public interest.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The CBOE does not believe that issuances of the proposed regulatory
circular 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 regulatory circular.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The proposed rule change constitutes a stated policy, practice or
interpretation with respect to the administration of an existing CBOE
rule. Accordingly, the proposal has become effective pursuant to
Section 19(b)(3)(A) of the Act and subparagraph (e) of Rule 19b-4
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 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 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 February 28,
1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\3\
\3\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2617 Filed 2-6-96; 8:45 am]
BILLING CODE 8010-01-M
