[Federal Register Volume 63, Number 50 (Monday, March 16, 1998)]
[Notices]
[Pages 12851-12852]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6661]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39736; File No. SR-CBOE-97-49]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Inc.; Order Granting Approval to Proposed Rule Change Relating to
Trading Differentials for Option Contracts
March 9, 1998.
On October 21, 1997, the Chicago Board Options Exchange, Inc.
(``CBOE'' or ``Exchange'') submitted to the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and
Rule 19b-4 thereunder,\2\ a proposed rule change to allow the Exchange
to establish, upon the filing of a rule change proposal pursuant to
Section 19(b)(3)(A) of the Exchange Act, the trading differentials for
option contracts traded on the Exchange.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on December 1, 1997.\3\ No comments were received on the
proposal. This order approves the proposal, as amended.
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\3\ See Exchange Act Release No. 39348 (November 21, 1997), 62
FR 63577 (December 1, 1997). The Exchange submitted on amendment to
the proposed rule change on November 17, 1997. See Letter from
Timothy H. Thompson, CBOE, to Christine Richardson, Division of
Market Regulation, Commission (Nov. 14, 1997). The amendment was
published for comment along with the originally submitted filing. By
adding the term ``appropriate'' before the term ``Floor Procedure
Committee'' in the text of proposed Rule 6.42, the amendment
clarifies that the decision to change the increments with respect to
a particular class of options will be made by whichever Floor
Procedure Committee has jurisdiction over trading in that option
class. The amendment also replaced Exhibit 1 to the submitted filing
with a revised Exhibit 1.
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The Exchange is proposing to amend Exchange Rule 6.42 to give the
Board of Directors the authority to establish the minimum trading
increments for option contracts. Currently, Rule 6.42 that bids and
offers shall be express in eighths of $1 unless a different increment
is approved by the Floor Procedure Committee for an option contract of
a particular series. An interpretation to the Rule states that bids and
offers for all option series trading below $3 shall be expressed in
sixteenths of a dollar. Until such time as the Board determines to make
a change, the current standards will apply.
The proposed change would allow the Exchange to change the trading
increments on an expedited basis and thus, allow the Exchange to
respond appropriately to changes in the minimum trading increment in
the markets for the securities underlying CBOE options or to changes in
the minimum trading increments for one of the other options exchanges.
When the Board of Directors determines to change the trading
increments, the Exchange will designate such change as a stated policy,
practice, or interpretation with respect to the administration of Rule
6.42 within the meaning of subparagraph (3)(A) of subsection 19(b) of
the Exchange Act and will file a rule change for immediate
effectiveness upon filing with the Commission.
The Exchange notes that there has been a movement within the
industry to reduce the minimum trading and quotation increments imposed
by the various SROs.\4\ As derivative securities, the prices of options
are determined in reference to the prices of the underlying securities.
Consequently, the Exchange believes that where practicable, the
Exchange should have minimum increments comparable to those applicable
to the securities underlying CBOE options.
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\4\ See Exchange Act Release No. 38571 (May 5, 1997), 62 FR
25682 (May 9, 1997) (Commission order approving a change in the
minimum increment to \1/16\th for equity securities listed in the
American Stock Exchange); Exchange Act Release No. 38678 (May 27,
1997), 62 FR 30363 (June 3, 1997) (Commission order approving a
change in the minimum increment to \1/16\th for Nasdaq-listed equity
securities); and Exchange Act Release No. 38897 (Aug. 1, 1997), 62
FR 42847 (Aug. 8, 1997) (Commission order approving a change in the
minimum increment to \1/16\th for NYSE=listed equity securities).
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The Exchange also believes that the proposed rule change would give
the Exchange the flexibility to follow the suit of the principal
exchanges for the underlying securities without having to update its
rules continually but at the same time would give the Exchange the
flexibility it needs to deviate from the minimum increments established
by the principal markets for the underlying securities in the event
that the CBOE's systems were not immediately able to handle such
increments. The Exchange, therefore, believes the quality of the market
for CBOE options will be
[[Page 12852]]
enhanced by allowing for more accurate pricing of CBOE options.
The Commission finds that the proposed rule change is consistent
with the requirement of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Sections 6 and 11A of the Act.\5\
Specifically, the Commission believes that permitting the Exchange to
establish trading differentials for option contracts upon the filing of
a proposal under Section 19(b)(3)(A) of the Act will help to facilitate
securities transactions, to remove impediments to and perfect the
mechanism of a free and open market, to foster competition and
coordination with persons engaged in regulating securities, and to
promote just and equitable principles of trade.
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\5\ See 15 U.S.C. 78f(b) and 78k-1. In approving this rule
change, the Commission notes that it has considered the proposal's
impact on efficiency, competition, and capital formation, consistent
with Section 3 of the Act. Id. at 78c(f).
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As noted above, the Commission previously has approved a rule
proposal that allows the Exchange to establish trading increments for
equity securities. The Commission believes that permitting the Exchange
to establish trading differentials for option contracts upon the filing
of a proposal under Section 19(b)(3)(A) of the Act will provide greater
flexibility to the Exchange and thereby enhance the quality of the
market for affected CBOE-listed options. Allowing the CBOE to quote in
finer increments will facilitate quote competition. This should help
produce more accurate pricing of options and should result in tighter
quotations. Furthermore, if the quoted markets are improved by reducing
the minimum increment, the change could result in added benefits to the
markets such as reduced transaction costs.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\6\ that the proposed rule change (SR-CBOE-97-49) is approved.
\6\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-6661 Filed 3-13-98; 8:45 am]
BILLING CODE 8010-01-M
