[Federal Register Volume 60, Number 59 (Tuesday, March 28, 1995)]
[Notices]
[Pages 15948-15949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7577]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35519; File No. SR-CBOE-95-07]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc., Relating to
Solicited Transactions
March 21, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 14, 1995, the
Chicago Board Options Exchange, Inc. (``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 self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
\1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to modify paragraph (e) of Rule 6.9 concerning
solicited transactions so as to eliminate the requirement that the
terms of the matching order be disclosed to the trading crowd.
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 test 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
Paragraph (e) of Rule 6.9 restricts the ability of a member to
trade options, securities underlying such options, and related
instruments while in possession of knowledge of all the material terms
of an ``original order'' and a solicited matching order unless either
of two conditions is met. One of the conditions is that all the terms
of both the original order and the matching order be disclosed to the
trading crowd.\2\
\2\The other such condition is that the solicited order can no
longer reasonably be considered imminent in view of the passage of
time since the solicitation.
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The Exchange now proposes to amend paragraph (e) to eliminate the
requirement that the terms of the matching order be disclosed to the
trading crowd. Thus, a member will be able to trade options, the
securities underlying such options, and any related instruments once
the terms of the original order have been disclosed. Under the
Exchange's proposal, when there has been advance solicitation of the
other side of an original order, a member (or associated person) with
knowledge of the original order and a matching responsive order may not
buy or sell the option or the underlying security until the terms of
the original order are disclosed to the trading crowd; once those terms
are disclosed, however, the member may trade even if the terms of the
matching order are not disclosed. As explained below, this modification
would place solicited parties on an equal footing with Exchange members
who have knowledge of the terms of the original order only, and would
conform the trading restriction in paragraph (e) to the various
priority provisions of Rule 6.9 and Interpretation .02 thereunder,
which generally require disclosure only of the terms of an original
order, not the terms of a matching solicited order.
The Exchange believes that this amendment is appropriate to achieve
the primary purpose of Rule 6.9, which is to facilitate and regulate
solicitation without imposing undue restrictions on trading,
particularly anticipatory hedge transactions. As currently structured,
the trading restrictions in paragraph (e) impose a special and
substantial burden on any solicited party who was indicated, in
response to a solicitation, an intention to place a matching responsive
order. Under the present rule, such a solicited party may not trade
based on knowledge of the impending solicited transaction, even if the
original order has been fully disclosed to the crowd, until the
solicited order is also disclosed.
In contrast to this treatment of solicited parties, paragraph (e)
does not restrict trading by other CBOE members who know the terms of
the disclosed order but who, if solicited, have not indicated an
intention to trade at the original order's limit and who are otherwise
unaware of any specific matching solicited order. Such parties may
trade under the current rule even [[Page 15949]] if they believe that
an execution of the original order is imminent based on market
circumstances.
The Exchange has concluded that this disparity in treatment places
undue restrictions on solicited parties. Once an original order is
fully disclosed to the trading crowd, those in the crowd have
essentially the same market information as do solicited persons.
Moreover, any solicited person who has privately indicated an intention
to place a responsive order, and anyone aware of that intention,
necessarily remains subject to the risks of the market and the auction
process when entering a responsive order or affecting anticipatory
trades. In such circumstances, all Exchange members should be able to
effect trades on equal terms, and the proposal would achieve that
equality of treatment.
Accordingly, the Exchange has concluded that paragraph (e) should
be modified to require disclosure of the terms of the original order
only. The Exchange believes that this narrower disclosure requirement
will provide the trading crowd with a fair and full opportunity to make
informed trading decisions without subjecting solicited parties and the
solicitation process to overly burdensome restrictions.
The CBOE believes that its proposal is consistent with Section 6(b)
of the Act in particular in that it is designed to promote just and
equitable principles of trade and to protect investors and the public
interest. Specifically, the CBOE believes that its proposal will
enhance the CBOE auction by restricting the trading activities of all
CBOE members and associated persons equally.
(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
Written Comments on the proposed rule change were neither solicited
nor received.
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 NW.,
Washington, D.C. 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 File No.
SR-CBOE-95-07 and should be submitted by April 18, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\3\
\3\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-7577 Filed 3-27-95; 8:45 am]
BILLING CODE 8010-01-M
