[Federal Register Volume 63, Number 83 (Thursday, April 30, 1998)]
[Notices]
[Pages 23817-23819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11447]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39910; File No. SR-CBOE-98-09]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the Chicago Board Options
Exchange, Inc. Relating to Trade Match Delayed Submission Fees
April 24, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 4, 1998, 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 CBOE. On April 20, 1998, the CBOE submitted to the
Commission Amendment No. 1 to the proposed rule change.\2\ 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).
\2\ In Amendment No. 1, the Exchange made technical corrections
to the proposed rule change and clarified the date of its
implementation. See Letter from Stephanie C. Mullins, Attorney,
CBOE, to Ken Rosen, Attorney, Division of Market Regulation,
Commission, dated April 23, 1998 (``Amendment No. 1'').
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to amend Exchange Rule 2.30, Trade Match Delayed
Submission Fee, in order to reduce the amount of time permitted for
trade submission before the imposition of fees and to include under the
rule, all types of trades executed on the Exchange. 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 CBOE 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 CBOE 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
The purpose of the proposed rule change is to expand the scope of
Rule 2.30 to include all types of executed trades and to reduce the
amount of time under Rule 2.30 in which Exchange members and clearing
firms are assessed additional fees for late trade submission.\3\ As
Exchange rules currently stand, market-makers and clearing firms are
assessed fees for delayed trade match submission if eighty percent
(80%) of market-maker in-person trades are not submitted in less than
two (2) hours. The Exchange proposes to amend this rule to include all
types of trades (not just market-maker in-person trades) and to
require, by December 1, 1998, that the submission time for fee
assessment be reduced from two (2) hours to one (1) hour. The eighty
percent (80%) formula will remain the same, as will existing
protections for extremely high volume days.
---------------------------------------------------------------------------
\3\ The CBOE will not begin to implement any of the proposed
changes to Rule 2.30 until June 1, 1998. See Amendment No. 1.
---------------------------------------------------------------------------
The inclusion of all types of trade activity under Rule 2.30 is
proposed to begin with the initial reduction of the time requirement
below two (2) hours, which the Exchange proposes to start on June 1,
1998. All trades that a member executes and all trades a clearing firm
has executed for it will be required to be submitted on a timely basis
to avoid additional fees. Under current rules, only in-person market-
maker trades are considered under Rule 2.30. In 1991, when Rule 2.30
was implemented, certain in-person market-maker trades were being
significantly delayed for submission to the Exchange's trade match
system. Over time these delays were reduced and, in general, market-
maker in-person trades now are received within two (2) hours. Non-
market-makers trades originally were not included under Rule 2.30
because virtually all non-market-maker activity at that time met the
two (2) hour time requirement. Within the revised time frames,
ultimately one (1) hour, the Exchange realizes that a small but
[[Page 23818]]
significant portion of non-market-maker trades would not be submitted
on a timely basis. For this reason, all executed trades will be
included, so that all parties in the trading process will be held to
the same standards.
Under the proposal, the submission time reduction from two (2)
hours to one (1) hour will be done gradually over a period of months,
so that members and clearing firms will grow accustomed to the tighter
time requirement and will be encouraged towards immediate submission of
trades. The first time reduction will go into effect on June 1, 1998,
and will require timely trade submission to be within one (1) hour,
thirty (30) minutes of execution. The next reduction would go into
effect on September 1, 1998, and will require timely trade submission
to be within one (1) hour, fifteen (15) minutes of execution. Finally,
from December 1, 1998, forward, the Exchange will require that timely
trade submission be within one (1) hour of execution.
At the present time, the average submission time for all market-
maker trades is thirty-one (31) minutes from execution, and eighty
percent (80%) of all market-maker trades are submitted within one (1)
hour of execution. For non-market-makers, the average submission time
is twenty-two (22) minutes, and eighty-seven percent (87%) of trades
are submitted within one (1) hour of execution. Thus, it should not be
a hardship for all members and clearing firms to abide by the proposed
rule.
The purpose of this amendment is to increase the speed at which
trades are received and matched by the trade match system. With the
advent of a more automated trading environment, the current two (2)
hour requirement is not stringent enough and may cause the CBOE to be
slower than other exchanges in matching trades. More timely trade
submission will lead to quicker awareness of out-trades, and
consequently will limit financial loss, thereby allowing the Exchange
to better compete among the other options exchanges for customer
orders.
The Exchange has continually made systems enhancements and
improvements to its procedures in order to quickly receive and compare
trades. The Exchange currently has the ability to receive and match
trade input on a real-time basis, throughout the business day. In a
real-time environment, it is much more difficult and time consuming for
all parties to deal with trade data that is not submitted on a timely
basis. Members and clearing firms that submit trades on a delayed basis
create an unnecessary burden on the majority of participants that
submit trades on a timely basis. When a member or clearing firm does
not submit its portion of a trade quickly after execution, an
uncompared trade is created that can result in considerable financial
loss if not resolved in a timely manner. Thus, the benefits to members
and clearing firms of comparing trades immediately after execution are
significant.
Exchange Rule 2.30(c), which formerly was reserved, is proposed to
address the situation where a nominee-employee of a clearing member
executes and submits trades for that clearing member. This situation is
best represented by an employee of a retail, public customer brokerage
firm who is responsible for executing and submitting trades for the
firm. In this situation, where ownership and/or controlling interest in
the membership lies with the clearing member, assessment of both a
member and clearing member fee would apply a double charge to the
responsible entity for not fulfilling the requirement of Rule 2.30. For
this reason, the Exchange proposes to apply only the member fee when
the member is solely employed by and is acting on behalf of the
clearing member.
Additionally, because of improvements to the Exchange's trade match
system and the advances of clearing firms, several sections of Rule
2.30 have become obsolete and are proposed to be eliminated. As a
result of the ability to trade match continually throughout the day,
Exchange Rule 2.30(d)(2) has become obsolete. Thus, the Exchange
proposes to delete Rule 2.30(d)(2). When Rule 2.30 was initially
implemented, a deficient clearing firm exception was included,
2.30(f)(1). This exception waived fifty percent (50%) of a market-
maker's delayed submission fee if the clearing firm through which the
market-maker submitted trades was severely deficient in submitting all
of its trades on a particular day. This exception initially was applied
infrequently, and in the last two years has not been applied to a
market-maker client of a clearing firm. Due to hand held trade input
terminals and general improvements in trade submission systems, it is
nearly impossible for a clearing firm to fall below the deficient
clearing firm level of fifty-five percent (55%). Therefore, Exchange
Rule 2.30(f)(1) has become obsolete and the Exchange proposes to delete
it.
* * * * *
The Exchange believes that the current proposal will result in an
improved trade comparison process, thereby serving to promote just and
equitable principles of trade and to protect investors and the public
interest in furtherance of the objectives of Section 6(b)(5) of the
Act.
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 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, including whether the proposed rule
change is consistent with the Act. 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 in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
CBOE. All submissions should refer to the File No.
[[Page 23819]]
SR-CBOE-98-09 and should be submitted by May 21, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
---------------------------------------------------------------------------
\4\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-11447 Filed 4-29-98; 8:45 am]
BILLING CODE 8010-01-M
