97-12886. 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 ...  

  • [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
    
    
    

Document Information

Published:
05/16/1997
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
97-12886
Pages:
27083-27084 (2 pages)
Docket Numbers:
Release No. 34-38607, File No. SR-CBOE-97-10
PDF File:
97-12886.pdf