[Federal Register Volume 61, Number 61 (Thursday, March 28, 1996)]
[Notices]
[Pages 13907-13908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7507]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36996; File No. SR-CBOE-96-10]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc., Relating to
Multiple Representation
March 20, 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 March 6,
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
Currently, CBOE Rule 6.55, ``Multiple Orders Prohibited,'' provides
that no CBOE member, for any account in which he has an interest or on
behalf of a customer, shall maintain with more than one broker orders
for the purchase or sale of the same option contract or other security,
or the same combination of option contracts or other securities, with
knowledge that such orders are for the account of the same principal.
The CBOE proposes to amend CBOE Rule 6.55 by adding paragraph (b),
which will provide that, except in accordance with procedures
established by the appropriate Floor Procedure Committee, or with such
Floor Procedure Committee's permission in individual cases, no market
maker shall enter or be present in a trading crowd while a floor broker
present in the trading crowd is holding an order on behalf of the
market maker's individual account or an order initiated by the market
maker for an account in which the market maker has an interest. The
proposal will also add Interpretation and Policy .01, which will
provide three procedures under which a market maker may enter a trading
crowd in which a floor broker is present who holds an order on behalf
of the market marker's individual account or an order initiated by the
market maker for an account in which the market maker has an interest,
and Interpretation and Policy .02, which will advise CBOE members to
consult Exchange regulatory circulars concerning joint accounts for
procedures government the simultaneous presence in a trading crowd of
participants in and orders for the same joint account.
The text of the proposal 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
According to the CBOE, the purpose of CBOE Rule 6.55 is to prevent
a person from being disproportionately represented in a trading crowd.
In furtherance of this purpose, CBOE Rule 6.55 currently provides that
no Exchange member, for a customer or for any account in which the
member has an interest, shall maintain with more than one broker orders
for the purchase or sale of the same option contract or other security,
or the same combination of option contracts or other securities, with
the knowledge that such orders are for the account of the same
principal.
The CBOE states that, in addition to this prohibition and in
furtherance of the same purpose, the Exchange also has had a long-
standing policy of prohibiting market makers, except in accordance with
procedures established by the appropriate Floor Procedure Committee or
with such Floor Procedure Committee's permission in individual cases,
from entering or being present in a trading crowd while a floor broker
present in the trading crowd is holding an order on behalf of the
market maker's individual account or an order initiated by the market
maker for an account in which the market maker has an interest.\1\ This
policy, which is
[[Page 13908]]
reflected in Exchange Floor Report Number 21, dated May 15, 1975, and
in educational materials which are provided to Exchange members,
prevents a market maker from avoiding CBOE Rule 6.55 by placing an
order with a floor broker for a particular option contract or other
security and also representing himself or herself in the trading crowd
for such option contract or other security. The purpose of the proposed
rule change is to specifically delineate this policy in the Exchange's
rules by including it in a new paragraph (b) to CBOE Rule 6.55.\2\
\1\ Exceptions to this policy which have been approved by a
Floor Procedure Committee are contained in Exchange Regulatory
Circular RG95-64 which concerns the trading activities of joint
account participants in the Standard & Poor's (``S&P'') 100
(``OEX'') and S&P 500 (``SPX'') index option classes. See also
Securities Exchange Act Release No. 36977 (March 15, 1996) (order
approving File No. SR-CBOE-95-65) (approving regulatory circular
which provides that a joint account trading in equity options may be
represented simultaneously in a trading crowd by participants
trading in person).
\2\ The proposal also adds Interpretation and Policy .02 to CBOE
Rule 6.55, which states that members should consult Exchange
regulatory circulars concerning joint accounts in connection with
procedures governing the simultaneous presence in a trading crowd of
participants in and orders for the same joint account, since such
circulars have in the past granted certain exemptions to the policy
proposed to be delineated in CBOE Rule 6.55 with respect to the
trading of joint accounts.
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In addition, the CBOE proposes to add Interpretation and Policy .01
to CBOE Rule 6.55 to specify three alternative procedures that govern
how a market maker may permissibly enter a trading crowd in which a
floor broker is present who holds an order on behalf of the market
maker's individual account or an order initiated by the market maker
for an account in which the market maker has an interest.
Under the first alternative, the market maker must make the floor
broker aware of the market maker's intention to enter the trading crowd
and the floor broker must time-stamp the order ticket for the market
maker order and write the notation ``Cancel'' or ``CXL'' next to the
time stamp. If the market maker wishes to re-enter the order upon the
market maker's exit from the trading crowd, the floor broker must at
that time again time stamp the order ticket and write the notation
``Reentry'' or ``RNTRY'' next to such subsequent time stamp.
Under the second alternative, the market maker must cancel the
market maker order by giving the floor broker a written cancellation of
the order which is time-stamped by the market maker immediately prior
to its transmission to the floor broker. If the market maker wishes to
re-enter the order upon the market maker's exit from the trading crowd,
a new order ticket must be used.
Under the third alternative, the market maker must cancel the
market maker order by taking the order ticket for the order back from
the floor broker, provided that the market maker allows the floor
broker to retain a copy of the order ticket (which copy the floor
broker must time-stamp at the time of cancellation and retain for the
floor broker's records). If the market maker wishes to re-enter the
order upon the market maker's exit from the trading crowd, a new order
ticket must be used.
The CBOE states that the proposed amendment to CBOE Rule 6.55 also
codifies past practice by providing that the appropriate Floor
Procedure Committee may adopt other procedures which, if followed,
would permit a market maker to be exempt from the requirements of
paragraph (b) of CBOE Rule 6.55, or may grant permission for a market
maker to enter a trading crowd in a particular instance notwithstanding
the requirements of that paragraph.
Finally, the proposed amendment makes certain editorial changes to
CBOE Rule 6.55 that do not affect its substance, such as changing the
title of CBOE Rule 6.55 from ``Multiple Orders Prohibited'' to
``Multiple Representation Prohibited'' in order to more accurately
reflect the scope of the amended rule.
The CBOE believes that the proposed rule change is consistent with
Section 6(b) of the Act, in general, and furthers the objectives of
Section 6(b)(5), in particular, in that it prohibits the multiple
representation of an order in a trading crowd, thereby promoting just
and equitable principles of trade, removing impediments to and
perfecting the mechanism of a free and open market and a national
market system, and, in general, protecting 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 solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days after the 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 reason 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, 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 at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
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 the file
number in the caption above and should be submitted by April 18, 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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Jonathan G. Katz,
Secretary.
[FR Doc. 96-7507 Filed 3-27-96; 8:45 am]
BILLING CODE 8010-01-M
