[Federal Register Volume 62, Number 98 (Wednesday, May 21, 1997)]
[Notices]
[Pages 27816-27818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13278]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38633; File No. SR-CBOE-94-53]
Self-Regulatory Organizations; Notice of Filing of Amendment Nos.
2 and 3 to Proposed Rule Change by the Chicago Board Options Exchange,
Incorporated Relating to a Determination of the Exchange's Office of
the Chairman Under Exchange Rule 4.10(b)(3)
May 14, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on April 8, 1997, and May 13,
1997, respectively, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') Amendment Nos. 2 and 3 to its
previously filed proposed rule change as described in Items I, II, and
III below, which Items have been prepared by the CBOE.\2\ The
Commission is publishing this notice to solicit comments on the policy
of the Exchange's Office of the Chairman from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ The proposed rule change was noticed for comment in
Securities Exchange Act Release No. 35282 (February 2, 1995), 60 FR
6577. Amendment No. 1 to the proposed rule change was noticed for
comment in Securities Exchange Act Release No. 36458 (November 6,
1995), 60 FR 57255.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE is proposing to amend SR-CBOE-94-53 and the text of the
Regulatory Circular which was attached as Exhibit A to the amendments.
The Regulatory Circular is directed to options market-maker clearing
firms and describes certain financial requirements the Exchange's
Office of the Chairman has determined to apply to these Exchange
members pursuant to Exchange Rule 4.10(b)(3). The text of the
Regulatory Circular 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 filings with the Commission, CBOE included statements
concerning the purpose of and basis for the policy of the Exchange's
Office of the Chairman. The text of these statements may be examined at
the places specified in Item IV below. The CBOE has
[[Page 27817]]
prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements as they pertain to the
proposed amendments.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of these amendments to SR-CBOE-94-53 is to amend the
Regulatory Circular to conform it to the recent amendments to
Commission Rule 15c3-1.\3\ The Regulatory Circular will require all
Exchange members that clear options market-maker transactions on a
proprietary of market-maker customer basis to calculate options market-
maker haircuts in accordance with the recent SEC amendments. These
amendments do not become effective for all broker-dealers until
September 1, 1997. Acting pursuant to its authority under CBOE Rule
4.10(b)(3),\4\ however, the Office of the Chairman has determined to
impose those requirements upon Exchange members that clear the
transactions of options market-makers before the September date. The
Office of the Chairman has determined that the current method of
calculating options market-maker haircuts under current Commission Rule
15c3-1(c)(2)(x) is less effective in that many hedged positions receive
haircuts which are excessive while the haircuts for uncovered positions
do not adequately reflect their potential risk.
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\3\ See Securities Exchange Act Release No. 38248 (February 6,
1997), 62 FR 6474 (``Net Capital Release'').
\4\ CBOE Rule 4.10(b)(3) provides that the Office of the
Chairman may impose additional financial and/or operational
requirements on a member that clears market-maker trades when the
Office of the Chairman determines that the member's continuance in
business without such requirements has the potential to threaten the
financial or operational integrity of Exchange market-maker
transactions. Paragraph (b)(7) of Rule 4.10 provides that the
Exchange shall file notice with the Commission in accordance with
the provisions of Section 19(d)(1) of the Act of all final decisions
to impose extraordinary requirements pursuant to Subsection (b)(3)
of Rule 4.10. In addition, the CBOE has elected to file the
Regulatory Circular as a proposed rule change under Section 19(b)(1)
of said Act and Rule 19b-4 thereunder.
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To date, all but one Exchange member which clears the transactions
of independent options market-makers are calculating haircuts pursuant
to the methodology described in this filing. We understand that the
remaining member is operationally prepared to calculate haircuts under
these parameters.
There are a few changes that were made to the text of the
Regulatory Circular itself. First, the circular will become effective
thirty days from the date the SEC approves SR-CBOE-94-53. The Exchange
believes that thirty days should be adequate time for Exchange members
to make any final preparations for calculating haircuts under the new
parameters, which are somewhat different from the parameters set forth
under the Commission's no-action letter,\5\ and which have been the
basis for the firms' calculations. The previous version of the
Regulatory Circular did not specify a time under which the new haircut
treatment would become effective.
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\5\ See letter from Brandon Becker, Director, Division of Market
Regulation, SEC, to Mary L. Bender, First Vice President, CBOE, and
Timothy Hinkes, Vice President, the Options Clearing Corporation
(``OCC''), dated March 15, 1994 (``1994 No-Action Letter'').
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Second, the Regulatory Circular is being revised to give firms the
option of calculating haircuts under the terms of the 1994 No-Action
Letter until such time as the Commission's amendments adopted in the
Net Capital Release \6\ become effective. The current version of the
Regulatory Circular would have required firms to calculate risk-based
haircuts under the Rule 15c3-1 amendment version approved by the
Commission. This change is being made to accommodate those firms that
may have difficulty instituting the changes approved in the Net Capital
Release from an operational standpoint before September 1, 1997, but
which are already able to calculate haircuts under the 1994 No-Action
Letter. Because the two versions of risk-based haircuts are similar,
the Exchange does not believe there is a problem in allowing firms to
calculate haircuts under either method.
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\6\ Supra note 3.
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Third, consistent with the recently approved rule changes to SEC
Rule 15c3-1, the Regulatory Circular will allow the use of a third
party vendor's system if that system is approved by an examining
authority designated pursuant to Section 17(d) of the Act, i.e., a
Designated Examining Authority (``DEA''). The previous version of the
Regulatory Circular and of Rule 15c3-1 would have required the third
party system to be approved by the Commission.
Fourth, the Regulatory Circular will add a new product group
category for high-cap broad-based indexes. The product group category
will be referred to as U.S. market group ``B'' and will include the S&P
Barra Growth Index and the S&P Barra Value Index. The product group
that was referred to as ``U.S. market group'' will now be ``U.S. market
group A.''
Fifth, the Regulatory Circular will also add a new product group
category for non-high-cap broad-based indexes. The new category will be
the Mexican market product group and will include the Mexican Index of
Prices and Quotations (``IPC'').
Sixth, the Exchange is proposing to add a sentence to the
Regulatory Circular that would authorize broker-dealers to include in
the product group categories any index options which are not specified
in the circular to the extent the Commission has authorized such
inclusion by means of a no-action letter, rule interpretation, or rule
amendment.
Finally, the Regulatory Circular is proposed to be amended by
eliminating the generic references to the offsets permitted between
types of instruments in determining the profits and losses for each
portfolio type. Instead, the Regulatory Circular will now make
reference to a chart that will be attached to the circular. This chart
will depict the various portfolio offsets and will specify the
particular indexes included in each product group. The CBOE believes
that the chart should make it easier to determine the appropriate
offsets.
The Exchange believes the filing, as amended, is consistent with
and furthers the objectives of Section 6(b)(5) of the Act in that it
will promote maintenance of fair and orderly markets and will
contribute to the protection of investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the filing as amended 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
filing as amended.
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 filing, or
(b) Institute proceedings to determine whether the proposed rule
filing should be disapproved.
[[Page 27818]]
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 filing of the Exchange's policy imposing
additional financial requirements upon Exchange members which clear the
trades of options market-makers that are filed with the Commission, and
all written communications relating to this matter 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 CBOE. All submissions should refer to File
No. SR-CBOE-94-53 and should be submitted by June 11, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 C.F.R. 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-13278 Filed 5-20-97; 8:45 am]
BILLING CODE 8010-01-M
