[Federal Register Volume 60, Number 159 (Thursday, August 17, 1995)]
[Notices]
[Pages 42927-42928]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20401]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36085; File No. SR-CBOE-95-28]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to Proposed Rule Change by the Chicago Board
Options Exchange, Inc. Relating to Responsibility for Performing
Functions of the ITS Clerks
August 10, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 19,
1995, 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. the Exchange subsequently filed Amendment No. 1 on July
6, 1995.\1\ The Commission is publishing this notice to solicit
comments on the proposed rule change and Amendment No. 1 from interest
persons.
\1\ In Amendment No. 1, the Exchange corrects a typographical
error in the defined term ``ITS Clerk'' as it appears in Rule 30.75
and in the two proposed interpretations and policies thereunder, and
clarifies the use of that term in proposed Interpretation and Policy
.02 under Exchange Rule 30.75. The purpose of this amendment is to
make it clear that the defined term ``ITS Clerk'' refers only to
Exchange employees acting as such, and not to employees of a
Designated Primary Market-Maker who may be performing the functions
of ITS Clerks as contemplated by proposed Interpretation and Policy
.01 under Exchange Rule 30.75. See Letter from Michael L. Meyer,
Esq., Schiff Hardin & Waite, to James T. McHale, Attorney, Office of
Market Supervision, Division of Market Regulation, Commission, dated
July 6, 1995 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
With regard to the exchange trading of stocks, warrants and other
non-option securities, the CBOE proposes to amend one of its
Intermarket Trading System (``ITS'' or ``System'') rules, CBOE Rule
30.75, such that the Exchange will be required to provide ITS clerks
only when the Exchange deems it necessary for the ordinary operation of
the system. In addition, Designated Primary Market-Makers (``DPMs'')
would be required to provide employees to perform the functions of ITS
clerks for transactions in instruments that have been assigned to that
DPM. The proposed rule change would only apply to the Exchange's
Chapter 30 products. Chapter 30 of the Exchange's rules govern trading
in stocks, warrants, and other non-option securities.
The text of the proposed rule change 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, 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
CBOE Rule 30.75 (``Transmission and Reception of System Messages;
Exchange Liability''), governs the transmission and reception of
obligations and commitments to trade, pre-opening notifications, and
responses thereto over the ITS.\2\ Currently, Exchange Rule 30.75
requires the Exchange to provide ITS clerks to send and receive ITS
messages. The Exchange proposes to amend Paragraph (a) of the Rule to
clarify that the Exchange will not be obligated to provide ITS clerks,
except as provided in the interpretations to the Rule.
\2\ ITS is a subsystem of the National Market System approved by
the Commission pursuant to Section 11A of the Act, 15 U.S.C. 78k-1.
ITS facilitates intermarket trading in exchange-listed equity
securities based on the current quotation information emanating from
the linked markets. Participants of ITS include the American Stock
Exchange, the Boston Stock Exchange, CBOE, the Chicago Stock
Exchange, the Cincinnati Stock Exchange, the New York Stock
Exchange, the Pacific Stock Exchange, the Philadelphia Stock
Exchange, and the National Association of Securities Dealers.
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New interpretation .01 to Exchange Rule 30.75 would require
employees of DPMS \3\ to send and receive commitments and obligations
to trade, pre-opening notifications, and responses thereto over the
System. Further, the interpretation makes it clear that the Exchange
will not be liable for the acts, errors, or omissions of these DPM
employees.\4\
\3\ A DPM is a member or member organization which has been
appointed by the Exchange's Modified Trading System (``MTS'')
Committee to perform market-making and certain other functions with
respect to a designated options class or classes or with respect to
a product traded on the Exchange pursuant to Chapter 30. Among other
things, a DPM is required to disseminate accurate market quotations,
honor market quotations, be regularly present at the trading post,
and perform the functions of an Order Book Official, i.e., he must
maintain and keep current the customer limit order book.
\4\ Rule 30.75 currently does provide for limited liability of
the Exchange for losses caused by the errors or omissions of the
Exchange's own employees, i.e., ITS clerks.
A second interpretation to the Rule makes it clear that the
Exchange will provide Exchange employed ITS clerks for products that
are traded at posts that have order book officials (``OBOs''), and will
not provide ITS clerks for products for which a DPM has been appointed.
The Exchange also would be required to provide the services of ITS
clerks for products for which DPMs make markets when the circumstances
(such as fast markets) warrant. Two Floor Officials would be able to
require the Exchange to provide ITS clerks for particular
circumstances.
The Exchange believes this rule change is warranted because it is
possible that some of its Chapter 30 products, which the Exchange may
trade in the future, may be assigned to DPMs. As such, the Exchange
believes it would be most efficient for the DPM that is assigned to the
product that is subject to the ITS rules to employ its own employees to
perform the functions of the ITS clerks. Because a DPM runs his own
business, he is in the best position to make the business determination
concerning how many employees are needed to perform the various
functions assigned to him, including the ITS functions. Requiring the
DPM to provide employees to perform these functions, therefore, should
limit the resources the Exchange will be required to provide to perform
these functions, therefore, should limit the resources the Exchange
will be required to provide to perform this function and thus, reduce
overall costs to the Exchange and its members. Customers of the
Exchange and the DPMs would be protected from interruption of service
in the system, however, because the Exchange will have employees
available to perform the
[[Page 42928]]
ITS function when the circumstances warrant.
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act in general, and with Section 6(b)(5) in
particular, in that it is designed to promote just and equitable
principles of trade, to foster cooperation with persons engaged in
facilitating and clearing transactions in securities, and to protect
investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will impose no
inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
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 the 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. 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 Section, 450 Fifth Street, NW.,
Washington, DC 20549. 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-95-28 and should be
submitted by September 7, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-20401 Filed 8-16-95; 8:45 am]
BILLING CODE 8010-01-M
