[Federal Register Volume 62, Number 95 (Friday, May 16, 1997)]
[Notices]
[Pages 27083-27084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12886]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38607; File No. SR-CBOE-97-10]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by Chicago Board Options Exchange, Incorporated Relating to
Minimum Sizes for Closing Transactions, Exercises, and Responses to
Requests for Quotes in FLEX Equity Options
May 9, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on February 21,
1997, the Chicago Board Options Exchange, Incorporated (``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. 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
The CBOE proposes to reduce from 100 contracts to 25 contracts the
minimum value size of closing transactions in and exercises of FLEX
Equity Options, and to make a comparable reduction in the minimum value
size of FLEX Equity Quotes in response to a Request for Quotes.
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 parts 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 reduce from 100
contracts to 25 contracts the minimum value size of closing
transactions in an exercises of FLEX Equity Options, and to make a
comparable reduction in the minimum value size of FLEX Equity Quotes in
response to a Request for Quotes.
The reason for reducing the minimum value size of closing and
exercise transactions in FLEX Equity Options is that, based on the
Exchange's experience to date with such options, it appears that the
existing 100 contract minimums are too large to accommodate the needs
of certain firms and their customers.\1\ These firms may purchase 100
or more FLEX Equity Options in an opening transactions for a single
firm account in which more than one of the firm's clients have an
interest. If one of these clients wants to redeem its investment in the
account, the firm likely will want to engage in a closing or exercise
transaction in order to reduce the account's position in those FLEX
Equity Options by the number being redeemed. Currently, Rule
24A.4(a)(4)(iii) imposes a 100 contract minimum on all transactions in
FLEX Equity Options unless the transaction is for the entire remaining
position in the account. Thus, if the redeeming client's interest is
less than 100 FLEX Equity Options and does not represent the total
remaining position in the account, Rule 24A.4(a)(4)(iii) as it stands
presently, prevents the firm from closing or exercising positions of
this size.
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\1\ The Exchange notes that the existing customer base for FLEX
Equity Options includes both institutional investors, in particular
mutual funds, money managers and insurance companies, and high net
work individuals who meet the ``sophisticated investor'' criteria
applied to various clients by Exchange member firms. See Letter from
William J. Barclay, Vice President, Strategic Planning and
International Development, CBOE, to Sharon Lawson, Senior Special
Counsel, Office of Market Supervision, Division of Market
Regulation, Commission, dated April 21, 1997 (``CBOE Letter'').
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The Exchange believes that the proposed rule change to Rule
24A.4(4)(iii) would remedy the situation described above, by permitting
an order to close or exercise as few as 25 FLEX Equity Option
contracts. The corresponding change to Rule 24A.4(a)(iv), which governs
the minimum size for FLEX Equity Quotes that may be entered in response
to Request for Quotes, is necessary in order to provide the liquidity
needed to facilitate the execution of closing orders between 25 and 99
FLEX Equity Option contracts that would be permitted by the
[[Page 27084]]
proposed amendment to Rule 24A.4(4)(iii).
The Exchange notes that the Exchange would issue a circular that
(1) Describes the new rule; and (2) reminds all members and member
firms of their continued responsibility to insure that FLEX Equity
Options are utilized only by sophisticated investors with the necessary
financial resources to sustain the possible losses arising from
transactions in the requisite FLEX Equity Options class size.\2\ The
Exchange will submit surveillance procedures for the Commission's
review prior to considering this proposal for approval, that will help
to ensure that only such sophisticated investors are utilizing this
product.
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\2\ See CBOE Letter, supra note 1.
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The Exchange believes by providing firms and their customers
greater flexibility to trade FLEX Equity options by lowering from 100
to 25 the minimum number of contracts required for a closing
transaction, for exercises, and for FLEX Quotes responsive to a Request
for Quotes, the proposed rule change is consistent with and furthers
the objectives of Section 6(b)(5) of the Securities Exchange Act of
1934 by removing impediments to and perfecting the mechanism of a free
and open market in securities and otherwise serving to protect
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 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, 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 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 the File No. SR-CBOE-97-10 and should be
submitted by June 6, 1997.
For the Commission by the Division of Market Regulation,
pursuant to the delegated authority.\3\
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\3\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 97-12886 Filed 5-15-97; 8:45 am]
BILLING CODE 8010-01-M