[Federal Register Volume 63, Number 136 (Thursday, July 16, 1998)]
[Notices]
[Pages 38441-38442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18905]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40186; File No. SR-CBOE-98-20]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc. and Amendment No. 1
Thereto Relating to RAES Eligibility Requirements for OEX and DJX
Options
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 18, 1998, the Chicago Board Options Exchange, Inc. (``CBOE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the CBOE.
On June 24, 1998, the CBOE filed an amendment to the proposal.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Timothy H. Thompson, Director, Regulatory
Affairs, Legal Department, CBOE, to Deborah Flynn, Attorney,
Division of Market Regulation, Commission, dated June 19, 1998
(``Amendment No. 1''). In Amendment No. 1, the CBOE proposes to
amend the proposed rule change to add cross-references to new
paragraph (b)(vi) where the Rule only refers to paragraph (b)(v)
presently. The proposed change will make clear to joint account
participants, or the nominee of the member organization, that the
requirements of paragraph (b)(v) need not be met in order to
participate in the joint account, or in the firm's Retail Automatic
Execution System account, if the requirements for paragraph (b)(vi)
are met.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to add a new sub-paragraph to CBOE Rule 24.17,
RAES Eligibility in OEX and DJX, that would allow a Market-Maker to
participate on the Retail Automatic Execution System (``RAES'') in both
options on the Standard & Poor's 100 Index (``OEX'') and options on the
Dow Jones Industrial Average (``DJX'') during the same calendar month
by meeting the eligibility requirements for OEX alone, DJX alone, or
eligibility requirements which consider the percentage of transactions
and contracts a Market-Maker transacted in OEX and DJX combined. The
text of the proposed rule change is available at the Office of the
Secretary, the 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 aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Currently, CBOE Rule 24.17(b)(v) sets forth four eligibility
requirements that a Market-Maker must meet before he can participate in
RAES in either OEX or DJX. One of these requirements is that the
Market-Maker must execute at least seventy-five percent of his Market-
Maker contracts for the preceding calendar month in the option class in
which the Market-Maker is participating on RAES. Because of the high
percentage requirement, a Market-Maker who qualifies to participate in
RAES in either OEX or DJX would not be able to qualify to participate
in RAES in the other class. In fact, the Exchange believes the seventy-
five percent requirement is so high that it serves as a disincentive
for a Market-Maker on one side of the common structure in which OEX and
DJX are traded to move into the other side of the structure to trade
the other option product for fear that the Market-Maker will no longer
qualify for RAES in his primary trading area.
The Exchange believes, however, that a strength of the Market-Maker
system is the ability of Market-Makers to move from one trading pit to
another to provide liquidity and capital when market conditions
warrant. Because the traders in OEX or DJX stand right next to each
other in the same physical trading structure, they are in the best
position to provide added liquidity and capital to the products by
moving from one side of the trading structure to the other.
Consequently, the Exchange determined to add new sub-paragraph (b)(vi)
to Rule 24.17 to allow a Market-Maker to qualify for RAES in both OEX
and DJX during the same calendar month (1) by meeting the individual
requirements for OEX, (2) by meeting the individual requirements for
DJX, or (3) by transacting seventy-five percent of his contracts for
the month in both OEX and/or DJX combined and by transacting seventy-
five percent of his contracts in OEX and DJX during the month in
person. A Market-Maker can participate in RAES in both OEX and DJX
during the same calendar month as long as he meets one of the sets of
criteria above and as long as the two products continue to be traded at
the same physical trading location. It should be noted that in the
equity posts on the floor, a Market-Maker may participate in RAES in
all classes traded at that post. Although OEX and DJX are technically
traded at two separate trading posts, the Market-Makers for each
product are separated by a movable railing within the same physical
structure. A Market-Maker must be present in the particular trading
crowd where the class is traded while he is participating in RAES for
that class.
The Exchange proposes to implement this rule change at the
beginning of the next calendar month after the rule proposal is
approved by the Commission. Finally, the Exchange is proposing to
delete current Interpretation .02 because it is no longer relevant now
that December 1, 1997 has passed.
2. Statutory Basis
By eliminating a disincentive for Market-Makers, in the physical
structure where OEX and DJX are traded, to move between trading pits to
provide added liquidity and capital when market conditions warrant, the
Exchange believes the proposed rule change is
[[Page 38442]]
consistent with Section 6 of the Act,\4\ in general, and with section
6(b)(5),\5\ in particular, because it is designed to promote just and
equitable principles of trade and to protect investors and the public
interest.
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\4\ 15 U.S.C. 78f.
\5\ 15 U.S.C. 78f(b)(5).
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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, including whether the proposed rule
change, as amended, is consistent with the Act. 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 submissions, 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 Room. Copies of such
filing will also be available for inspection and copying at the
principal office of the CBOE. All submissions should refer to File No.
SR-CBOE-98-20 and should be submitted by August 6, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18905 Filed 7-15-98; 8:45 am]
BILLING CODE 8010-01-M
