[Federal Register Volume 60, Number 63 (Monday, April 3, 1995)]
[Notices]
[Pages 16895-16896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8090]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35538; File No. SR-CBOE-95-18]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Chicago
Board Options Exchange, Inc. Relating to Fractional Changes for Bids
and Offers in Stocks Priced Below $10
March 27, 1995.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 6, 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 and
II 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).
\2\17 CFR 240.19b-4 (1994).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to amend its rule respecting the permissible
fractional changes that may be made for bids and offers in stocks and
related instruments that are priced below $10 per share.
The Exchange requests the Commission to find good cause, pursuant
to section 19(b) (2) of the Act, for approving the proposed rule change
prior to the thirtieth day after publication in the Federal Register.
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 III below. The self-regulatory
organization has prepared summaries, set forth in Section 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
1. Purpose
The proposed rule change increases from $1 to $10 the price level
below which stocks or other designated instruments may be traded in
sixteenths, i.e., 1/16 of $1 ($.0625). CBOE Rule 30.33, Fractional
Changes for Bids and Offers, currently requires bids and offers in
stocks (and other instruments that may be traded on the Exchange
pursuant to Chapter 30 of the CBOE Rules) with a price of $1 or less to
be made at a variation of at least \1/8\ of ($.125).\3\ Currently, the
rule only permits variations of as little as \1/16\ of $1 for bids and
offers in stocks and other instruments that have a price below $1 but
above $.25 per share. Bids and offers in stocks with prices of less
than $.25 per share may be varied by as little as \1/32\ of $1 per
share ($.03125).
\3\The Commission notes that the CBOE currently does not trade
any securities pursuant to Chapter 30 of the CBOE rules except for
SuperShares, which are traded in thirtyseconds. Therefore, the Rule
change will not impact any transactions presently effected on the
Exchange.
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The Exchange believes that by increasing the number of stocks and
other instruments eligible to be traded in sixteenths, the Exchange
will be better able to compete for listings in instruments, such as
warrants. In fact, the Exchange's proposal is identical to a proposal
of the American Stock Exchange (``Amex''), which recently was approved
by the Commission.\4\ The Exchange believes that trading in sixteenths
will improve the market for securities trading under $10 by promoting
greater liquidity and providing for superior executions of retail and
professional orders. Also, the proposal is responsible to the
recommendations of the Division of Market Regulation in its Market 2000
Study that the exchanges convert to a minimum variation of one-
sixteenth as soon as possible.\5\
\4\See Securities Exchange Act Release No. 35537 (March 27,
1995) (File No. SR-Amex-95-02) (``Amex Order'').
\5\Division of Market Regulation, SEC, Market 2000: An
Examination of Current Equity Market Developments (January 1994), at
18 (``Market 2000 Study'').
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In 1992, participants of the Intermarket Trading System (ITS'')\6\
met to discuss the need to make changes to the ITS to accommodate
increased trading of securities priced sixteenths. The Exchange
anticipates that further [[Page 16896]] consultations will be held
between ITS participants to explain to each of them the necessity of
making system changes to accommodate the trading through ITS of CBOE
instruments priced under $10.\7\
\6\ITS is a subsystem of the National Market System approved by
the Commission pursuant to Section 11A of the Act, 15 U.S.C.
Sec. 78k-1 (1988). It facilities intermaket trading in exchange-
listed equity securities based on the current quotation information
emanating from the linked markets. For a discussion of ITS, see
Market 2000 Study, supra note 2, at App. II. Participants of ITS
include the Amex, Boston Stock Exchange, CBOE, Chicago Stock
Exchange, Cincinnati Stock Exchange, New York Stock Exchange,
Pacific Stock Exchange, Philadelphia Stock Exchange, and the
National Association of Securities Dealers.
\7\At the February 1995 meeting of the ITS Operating Committee,
the ITS participants approved enhancements to ITS to permit trading
in sixteenths for Amex-listed securities priced under $10.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act in general and with Section 6(b)(5) in
particular in that it is designed to promote just and equitable
principles of trade, to foster cooperation with persons engaged in
facilitating and clearing transactions in securities, and to protect
investors and 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 Purpose
of Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. 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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
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 No. SR-CBOE-95-18 and should be
submitted by [insert date 21 days from date of publication].
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change to increase from
$1 to $10 the price level below which equity securities may be traded
in sixteenths, and at or above which equity securities may be traded in
eighths, is consistent with the requirements of the Act and the rules
and regulations thereunder applicable to a national securities
exchange, and, in particular, with the requirements of Sections 6(b)
and 11A.\8\ The Commission believes the proposal is consistent with the
Section 6(b)(5) requirements that the rules of an exchange be designed
to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, and, in general, to protect investors
and the public interest. Additionally, the Commission believes that the
proposal is consistent with Section 11A, which requires the Commission
to facilitate the establishment of a national market system. Pursuant
to Section 11A, a national market system should assure, among other
things, fair competition between the exchanges, economically efficient
execution of securities transactions and the practicability of brokers
executing investors' orders in the best market.
\8\15 U.S.C. 78f(b) and 78k-1 (1988).
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Although the CBOE currently does not trade any securities that
would be affected by the proposal, the rule change to allow trading in
sixteenths for securities priced under $10 will make the CBOE's Rule
consistent with the recently approved Amex Rule, and will allow the
Exchange to trade any future equity listings in sixteenths.
The Commission generally believes that market quality should be
enhanced by applying a minimum fractional change of \1/16\, rather than
\1/8\, to securities selling below $10. The Commission believes that
decreasing such trading variations should help to produce more accurate
pricing of such securities and can result in tighter quotations. In
addition, if the quoted markets are improved by the reduced minimum
tick fluctuations, the change could result in added benefits to the
market such as increased liquidity in stocks priced below $10.\9\ The
Commission believes that decreasing such trading variations should help
to produce more accurate pricing of such securities and can result in
tighter quotations.
\9\The rule change is consistent with the recommendation of the
Division of Market Regulation (the ``Division'') in its Market 2000
Study, in which the Division noted that the \1/8\ minimum variation
can cause artificially wide spreads and hinder prices inside the
prevailing quote. See Division of Market Regulation, SEC, Market
2000: An Examination of Current Equity Market Developments (January
1994), at 18.
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In addition, the Commission believes that the proposal could lead
to increased competition between the exchanges pursuant to Section 11A
of the Act. As noted above, ITS participants now have the capability to
trade securities priced below $10 in sixteenths.\10\ Should the CBOE
begin trading equity securities, customers should be able to receive a
better, more competitive price in securities priced below $10 if they
are quoted in sixteenths.
\10\See Amex Order, supra note 4.
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The Commission finds good cause for approving the proposed rule
change prior the thirtieth day after the date of publication of notice
of filing thereof in the Federal Register. The Commission believes that
accelerated approval of the proposal is appropriate in order to allow
the CBOE to permit equities priced below $10 to be traded in
sixteenths. Further, the Amex proposal to allow trading in sixteenths
for Amex-listed securities priced below $10 was noticed previously in
the Federal Register for the full statutory period and the Commission
did not receive any comments on it.\11\
\11\See Securities Exchange Act Release No. 35338 (February 7,
1995), 60 FR 8432 (February 14, 1995) (File No. SR-Amex-95-02).
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It Is Therefore Ordered, pursuant to Section 19(b)(2)\12\ that the
proposed rule change is hereby approved on an accelerated basis.
\12\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
\13\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8090 Filed 3-31-95; 8:45 am]
BILLING CODE 8010-01-M
