[Federal Register Volume 63, Number 153 (Monday, August 10, 1998)]
[Notices]
[Pages 42649-42650]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21278]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40287; File No. SR-CBOE-98-26]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc. Relating to
Quarterly Closing Rotations
July 31, 1998.
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 June 16, 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.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to add an interpretation to Rule 6.2 to
provide for a closing rotation in Exchange-traded options on the last
trading day of each calendar quarter. The text of the proposed rule
change follows. (Italicizing indicates material to be added.)
Trading Rotations
Rule 6.2
No change.
* * * Interpretations and Policies:
.01-.04 No change.
.05A closing rotation shall be employed for each series of options
traded on the Exchange on the last business day of each calendar
quarter. Unless otherwise directed by Floor Officials or the
appropriate Floor Procedure Committee the only orders which may
participate in the closing rotation are those that are received before
the normal close of the trading day, i.e., generally 3:02 p.m. for
equity and narrow-based index options and 3:15 p.m. for broad-based
index options. The Exchange's Retail Automatic Execution System
(``RAES'') will not be available during the closing rotation. The
appropriate Floor Procedure Committee may determine not to hold a
closing rotation for a particular class of options for a calendar
quarter, in which case prior notice will be provided to the Exchange's
membership. The Order Book Official, with the approval of two Floor
Officials, may deviate from the rotation policy or procedures for
quarterly closing rotations as provided for in this Rule.
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
The CBOE is proposing to add Interpretation .05 under Rule 6.2 that
would provide for a closing rotation to be held in options traded on
the CBOE floor on the last trading day of each calendar quarter. Also,
the Exchange is setting forth the procedures to be
[[Page 42650]]
followed in holding these closing rotations. As with other trading
rotations that are provided for currently under Rule 6.2, the Order
Book Official, with the approval of two Floor Officials, may deviate
from these procedures in handling a closing rotation. In addition, the
appropriate Floor Procedure Committee may determine not to hold a
closing rotation for a particular class of options for a calendar
quarter, in which case prior notice will be provided to the Exchange's
membership.
The Exchange has noticed recently that on the last trading day of
each calendar quarter there is increased order flow in Exchange-traded
options and in the underlying securities, particularly at the end of
that trading day. Many large money managers adjust their positions at
the end of the calendar quarter because of tax considerations and
reporting requirements. As a result of this activity in both the
underlying and options markets at the end of the calendar quarter, the
last sale print for many stocks is often delayed, sometimes much beyond
the close of the options market. To account for late prints and
increased order flow at the end of the day, the Exchange believes it is
important to provide for a closing rotation in Exchange-traded options
at the end of each calendar quarter. These rotations will allow
Exchange members to adjust the options prices in line with the prices
of the underlying securities; thus, avoiding potential capital and/or
margin deficiencies for traders with hedged positions involving the
options and the underlying securities. The closing rotation will also
give investors and other interested parties more accurate closing
prices for CBOE options on these high volume days. Although the
Exchange has the authority now under Rule 6.2 to call for closing
rotations any time the circumstances warrant, it determined to add this
interpretation to the Rule so Floor Officials do not have to make the
determination of whether to order a closing rotation each quarter in
many different options classes. Also, by adding this Interpretation to
its Rules it will give member firms and customers advance notice of the
Exchange's intention of holding closing rotations on these four days
each year so they can act accordingly.
For quarterly closing rotations, unless otherwise directed by Floor
Officials or the appropriate Floor Procedures Committee, the only
orders that may participate in the closing rotation are those that are
received before the normal close of the trading day, i.e., generally
3:02 p.m. for equity and narrow-based index options and 3:15 p.m. or
broad-based index options. The Exchange's Retail Automatic Execution
System (``RAES'') \3\ will not be available during the closing
rotation.
---------------------------------------------------------------------------
\3\ RAES is the Exchange's automatic execution system for small
public customer market or marketable limit orders.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange represents that the proposed rule change is consistent
with Section 6(b)(5) of the Act \4\ in that it is designed to promote
just and equitable principles of trade and to protect investors and the
public interest.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate 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 either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the 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 self-regulatory organization consents, the Commission will:
(A) by order approve the 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 proposal is
consistent with the Act. 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 at the Commission's
Public Reference Room. Copies of such filing will also be available for
inspection and copying at the principal office of the Exchange.
All submissions should refer to File No. SR-CBOE-98-26 and should
be submitted by August 31, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
---------------------------------------------------------------------------
\5\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jonathan G. Katz,
Secretary.
[FR Doc. 98-21278 Filed 8-7-98; 8:45 am]
BILLING CODE 8010-01-M
