[Federal Register Volume 59, Number 86 (Thursday, May 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10749]
[[Page Unknown]]
[Federal Register: May 5, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33972); File No. SR-CBOE-94-03]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the Chicago Board Options Exchange, Inc. Relating to Trading
Floor Booth Policy and Fee Changes
April 28, 1994.
On February 2, 1994, the Chicago Board Options Exchange, Inc.
(``CBOE'' or ``Exchange'') submitted to the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19B-4
thereunder,\2\ a proposed rule change to set forth formally the
Exchange's current policy (``Policy'') regarding the rental of booths
on the CBOE trading floor, and to amend its current Fee Schedule as it
pertains to Facility Fees for the rental of Exchange trading floor
booths.
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\1\15 U.S.C. 78s(b)(1) (1982).
\2\17 CFR 240.19b-4 (1993).
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The proposed rule change was published for comment in the Federal
Register on March 16, 1994.\3\ No comments were received on the
proposed rule change. This order approves the proposal.
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\3\See Securities Exchange Act Release No. 33745 (March 9,
1994), 59 FR 12388 (March 16, 1994).
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The purpose of the proposed rule change is to memorialize for
distribution to the CBOE membership the Exchange's policy regarding the
rental and use of booth space on the CBOE trading floor by member
organizations. The CBOE included with its filing, solely for
informational purposes, a sample ``Trading Floor Booth Rental
Agreement'' that would be executed between the Exchange and the member
organizations regarding the leasing of trading floor booths. In
addition, in connection with the Exchange's elimination of a practice
known as ``joint leasing,'' the Exchange has proposed to amend the
existing fee structure regarding the rental of trading floor booths.
The CBOE currently has certain space located on its trading floor
which it makes available for rental to qualified member organizations.
These ``booths'' are located at various locations on the trading floor
adjacent to the trading ``pits'' or ``crowds'' where the actual CBOE
trading activity takes place. The booths generally are used by member
organizations to perform various functions in support of their CBOE
trading activities. Over the years, the CBOE has developed certain
policies and practices with regard to the rental and use of these
trading floor booths by member organizations. The Exchange has
determined that it would benefit both the CBOE and the membership to
memorialize the Exchange's current policies for distribution to the
members.
The Policy addresses several issues pertaining to booth rental,
including eligibility requirements, allocation and assignment, and
booth usage and rental terms. Specifically, the Policy sets forth the
four broad categories of member organizations that, in accordance with
current policy, may rent booth space on the floor. These four types of
eligible members are: (1) Members of The Options Clearing Corporation
(``OCC'') that conduct a retail customer business; (2) members of OCC
that clear CBOE market-maker and/or floor broker trades; (3) members
that operate a public customer and/or broker business in options and
meet any financial requirements established at any time by the
Exchange; and (4) members that are stock execution service firms
approved by the Exchange in accordance with CBOE Rule 6.77.\4\ These
categories were formulated in order to accommodate member organizations
with the greatest need for working space in close proximity to CBOE
trading activity, and they encompass almost all major types of CBOE
member organizations. Market-maker organizations, the only major
category of member organization that cannot obtain a booth under the
Policy, customarily obtain booth space through their clearing firms.
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\4\A stock execution service is a regular member organization
that is registered with the Exchange for the purpose of providing
stock execution services to market-makers on the floor of the
Exchange. CBOE Rule 6.77.
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To account for the possibility that in the future demand for booth
space may exceed availability, the Policy states that the Facilities
Committee of the CBOE may establish guidelines with respect to the
allocation and assignment of trading floor booths to CBOE member
organizations, based upon trading volume, business need, product
support, and other reasonable criteria.\5\ The CBOE currently has no
such guidelines in effect, and does not anticipate the creation of such
guidelines in the foreseeable future.
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\5\Prior to implementing such guidelines, the Exchange
represents that it will consult with Commission staff to determine
whether such guidelines would have to be filed with the Commission
as a rule change and be approved pursuant to Section 19(b) of the
Act. Telephone conversation between Dan Schneider, Schiff Hardin &
Waite, Joanne Moffic-Silver, CBOE, and Mary Gilhooly, CBOE, and
Thomas N. McManus, Division of Market Regulation, SEC, on April 26,
1994.
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The Policy also sets forth the requirement that all member
organizations renting booths execute a lease agreement with the
Exchange, which agreement sets forth the contractual terms governing
the rental and use of booths by member organizations. Although the
Exchange in the past has used a standard form agreement regarding booth
rental, that agreement is brief and contains little detail regarding
the nature of the contractual relationship between the parties. Any
lease agreement executed pursuant to the new Policy would set forth
specifically the details of the parties' contractual relationship
regarding rental and use of the booths as they have been established by
custom and usage in the past.
Finally, the Exchange proposes to eliminate the practice of joint
leasing, and to amend the fee structure to account for this change.
Previously, the Exchange has permitted two different member
organizations to occupy jointly a single trading floor booth and to
share the costs associated therewith, believing that such joint leasing
would provide a less costly method for smaller member organizations to
obtain access to multiple locations adjacent to the trading floor.
However, the Exchange states that joint leasing has been used by non-
transaction-producing members solely to reduce their booth fees and not
to facilitate trading activity. Accordingly, the Exchange has
determined to eliminate joint leasing and replace it with a variable
fee arrangement which the Exchange anticipates will soften the economic
impact on smaller member organizations that the elimination of joint
leasing might otherwise have caused. Pursuant to the amended fee
schedule, variable booth fees have been reduced in two respects: (1)
The $1,250 per booth variable monthly fee has been eliminated for the
second booth leased by a member organization; and (2) the $1,250 per
booth variable month fee for a third booth has been reduced by 50
percent to $625. The initial booth rental, and all additional booths
beyond the third booth, continue to be subject to the full variable
fee.
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Section 6(b)(5).\6\ Specifically,
the purpose of the proposal is to memorialize existing Exchange
policies regarding the rental of trading floor booths to member
organizations, including the delineation of eligible lessees and the
requirement that members enter into a formal lease agreement.\7\ The
Policy does not represent a change to current Exchange policies, except
the elimination of the CBOE's current policy to permit joint leasing.
In this regard, the Exchange states that the purpose behind joint
leasing was ultimately to provide small member organizations less
costly access to multiple locations adjacent to the trading floor. The
Exchange proposes to eliminate this practice because it believes that
non-transaction producing member organizations have exploited joint
leasing solely to reduce their booth fees and not to facilitate trading
activity.
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\6\15 U.S.C. Sec. 78f(b)(5) (1982).
\7\Although the Exchange included in its filing a sample lease
agreement, the Commission by this order is approving only the
general requirement referenced in the Policy that a lease agreement
be executed between the Exchange and its member organizations. The
Commission is taking no position on, and by this order is not
approving, the substance of the aforementioned sample lease
agreement.
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The Commission believes that the Exchange's codification of its
existing policy, and the elimination of joint leasing in favor of a
variable fee arrangement, is a reasonable exercise of the CBOE's right
to determine how it wants to administer its floor booth space. In this
regard, the Commission notes that existing joint lessees will continue
to have access, as individual lessees, to booth space under the revised
Policy. Moreover, the variable fee structure should help to eliminate
some of the economic impact of the revised Policy on existing joint
lessees. Accordingly, the Commission finds the proposal to be
consistent with the Act, in that it promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanism of a free and open market.
It is therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-CBOE-94-03) is
approved.
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\8\15 U.S.C. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-10749 Filed 5-4-94; 8:45 am]
BILLING CODE 8010-01-M
