[Federal Register Volume 59, Number 95 (Wednesday, May 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12039]
[[Page Unknown]]
[Federal Register: May 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34049; File No. SR-CBOE-94-10]
Self-Regulatory Organizations; Filing of Proposed Rule Change by
the Chicago Board Options Exchange, Inc. Relating to Short Sale of
National Market Securities Trading Through the Nasdaq System
May 12, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 31, 1994, 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 self-regulatory organization.\2\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\15 U.S.C. 78s(b)(1).
\2\The CBOE amended its filing on May 9, 1994 (``Amendment No.
1'') to replace the term ``Nasdaq National Market System
securities'' with the term ``Nasdaq National Market securities.'' In
addition, Amendment No. 1 confirms that surveillance procedures have
been or will be implemented by the CBOE in order to permit the CBOE
to be a ``qualified options exchange'' that satisfies the
requirements of the proposed NASD short-sale rule currently pending
Commission approval (File No. SR-NASD-92-12). See letter from
Michael L. Meyer, Schiff Hardin & Waite, to Francois Mazur, Staff
Attorney, Division of Market Regulation, Commission, dated May 9,
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 adopt rule 15.10 requiring members to
designate sales of National Market securities as long sales, short
sales, or bid test exempt sales in connection with the bid test
applicable to short sales of such securities proposed by the NASD for
inclusion in its Rules of Fair Practice.
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 statement.
(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 coordinate the CBOE's
rules with the proposed addition to the NASD Rules of Fair Practice of
a bid test applicable to short sales of National Market (``NM'')
securities traded through the Nasdaq System.\3\ The proposed new rule
requires members who initiate, accept or transmit for execution, or
execute sales of NM securities for the account of another CBOE member
to designate such sales as long sales, short sales or bid test exempt
sales. This will enable NASD members who receive orders to sell NM
securities from or for the account of CBOE members to know whether such
sales are short sales subject to or exempt from the bid test.
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\3\See File No. SR-NASD-92-12.
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Sales may be designated as bid test exempt if they come within one
or more of the exemptions from the bid test proposed to be included in
the NASD Rules of Fair Practice. One of these exemptions, which is
reflected in the proposed CBOE rule, applies to short sales effected by
qualified options market makers to hedge offsetting options positions.
This exemption recognizes the need for options market makers to hedge
their options positions by buying or selling (including selling short)
shares of underlying stocks or component stocks of underlying stock
indexes. This exemption is also proposed to be included in both CBOE's
Rules and the NASD Rules of Fair Practice as an eighteen month pilot,
subject to modification or termination at the end of the pilot period.
Additionally, this exemption will apply only to NM securities
specifically designated by an options market maker as qualifying for
the exemption. In so designating NM securities, each market maker is
limited to stocks underlying options or included in an index underlying
options at no more than three (3) trading stations on the Exchange.
In the event that the Exchange determines that a qualified options
market maker has failed to comply with the terms of the exemption, the
Exchange may withdraw, suspend or modify the designation of a qualified
options market maker based upon the Exchange's determination that such
action is warranted in light of the substantial, willful, or continuing
nature of the violation. The Exchange further recognizes its commitment
to notify the NASD of such a determination in order that the NASD may
take steps to ensure that Nasdaq NM sales are executed in compliance
with the CBOE action and all applicable NASD rules. Moreover, the CBOE
has stated that it has designed surveillance procedures to ensure
compliance with the proposed rule change. These procedures must be
implemented in order to permit the Exchange to be deemed a ``qualified
options exchange'' as contemplated by the proposed NASD short-sale rule
currently on file as SR-NASD-92-12, as amended.\4\
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\4\See Amendment No. 1, supra note 2.
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The CBOE believes the proposed rule change is consistent with and
furthers the objectives of Section 6(b)(5) of the Act to promote just
and equitable principals of trade and to protect investors and promote
the public interest by coordinating the CBOE's rules with the NASD's
proposed bid test applicable to short sales of NM securities that is
intended to prevent fraud and manipulation in the Nasdaq market without
restricting options market makers who may need to sell stocks short in
order to hedge options positions resulting from their market making
activities.
(B) Self-Regulatory Organization's Statement on Burden on Competition
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
Written comments on the proposed rule change were neither solicited
nor received.
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, NW., Washington, DC 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, NW.,
Washington, DC. 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 File No.
SR-CBOE-94-10 and should be submitted by June 8, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12039 Filed 5-17-94; 8:45 am]
BILLING CODE 8010-01-M
