[Federal Register Volume 64, Number 161 (Friday, August 20, 1999)]
[Notices]
[Pages 45578-45579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21656]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41742; File No. SR-CBOE-99-35]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc. Relating to Crossing
Index Options Orders
August 13, 1999.
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 29, 1999, 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 Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to amend its rule governing the crossing of index
option orders of 500 contracts or more by brokers, to give the firm
from which an order originates a participation right in trades that are
proposed to be crossed in certain circumstances. The text of the
proposed rule change is set forth below. Additions are italicized.
* * * * *
Chicago Board Options Exchange, Inc.
Rules
* * * * *
Chapter VI--Doing Business on the Exchange Floor
Section D: Floor Brokers
* * * * *
``Crossing'' Orders
RULE 6.74.
(a)-(c) \3\ No change.
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\3\ Paragraph (d) of Rule 6.74 was proposed to be added in SR-
CBOE-99-10, which is currently pending before the Commission. See
Securities Exchange Act Release No. 41609 (July 8, 1999), 64 FR
38494 (July 16, 1999).
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(e)(i) Notwithstanding the provisions of paragraphs (a) and (b) of
this Rule, when a Floor Broker holds an index option order for 500 or
more contracts (``original order''), the Floor Broker is entitled to
cross 20% of the order with a facilitation order of the originating
firm (as defined in paragraph (d)) after requesting bids and offers for
such option series, if the order is traded between the best bid and
offer given by the crowd in response to the broker's initial request
for a market.
(ii) In determining whether an order satisfies the 500 contract
requirement, any multi-part or spread order must contain one leg alone
which is for 500 contracts or more.
(iii) If the originating firm is also the Designated Primary
Market-Maker (``DPM'') for the particular class of options to which the
order relates, then the DPM is not entitled to the DPM guaranteed
participation rate.
(iv) The appropriate Floor Procedure Committee may exempt a
particular option class from the application of this paragraph.
* * * Interpretations and Policies
No change.
* * * * *
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 Exchange 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 proposes to add a new paragraph (e) to CBOE Rule 6.74,
``Crossing'' Orders, to give a firm that is holding an index option
order for a public customer the right to participate on the order
through a facilitation order in certain circumstances.\4\ To take
advantage of the new provision, the particular index option order must
be for 500 or more contracts. For a multi-part or spread order, at
least one leg of the order alone must be for 500 contracts or more.
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\4\ The Exchange has proposed to add a paragraph (d) to Rule
6.74, to provide for a participation right for crossing equity
option orders, in SR-CBOE-99-10. That filing is pending before the
Commission. See Securities Exchange Act Release No. 41609 (July 8,
1999), 64 FR 38494 (July 16, 1999). See also Securities Exchange Act
Release No. 41610 (July 8, 1999), 64 FR 38495 (July 16, 1999) (SR-
CBOR-99-07) (a proposed rule change to permit ``cross-only''
contingency orders).
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Paragraph (a) of CBOE Rule 6.74 sets forth the procedures to be
followed currently by a floor broker to cross customer orders.
Paragraph (b) of CBOE Rule 6.74 sets forth the procedures to be
followed by a floor broker to facilitate a customer order. In both
cases, market-makers in the trading crowd currently are given the
opportunity to accept a floor broker's better bid or offer for orders
that he intends to cross or facilitate before the floor broker can
cross or facilitate the orders himself. Under current rules, therefore,
if the market-makers are willing to take the entire order the floor
broker will not be able to cross or facilitate any part of the order.
Generally, new paragraph (e) will provide that, in those
circumstances where a floor broker has an index option order for a
public customer for 500 contracts or more that he is holding to execute
(``original order''), that floor broker will have priority to cross 20%
of that original order against a firm proprietary order of the
originating firm (i.e., faciliation order), if the cross is done at a
price between the best bid and offer quoted by the crowd (i.e., at a
price that improves the market provided by the market-makers) in
response to the broker's initial request for a market. This is
comparable to the 25% participation right given under certain
circumstances to a firm bringing a FLEX option order to the floor
pursuant to CBOE Rule 24A.5(e)(iii).
In the event that the originating firm is also the Designated
Primary Market-Maker (``DPM'') for that option class and the floor
broker takes advantage of the participation right provided by proposed
new paragraph (e) of CBOE Rule 6.74, then the DPM shall not also be
entitled to the guaranteed participation rate provided by paragraph
(c)(7) of CBOE Rule 8.80 for that particular trade.
The Rule will also provide that the appropriate Floor Procedure
Committee may exempt a particular option class from the application of
this paragraph. The Exchange believes that the effect of this
liberalization of its crossing rule will be to provide market-makers
with an additional incentive to quote tighter markets in response to a
request for quotes, and, at the same time, it will encourage member
firms to bring their
[[Page 45579]]
order flow to the CBOE. The Rule will also provide floor brokers with
an incentive to trade at a price between the quoted bid and ask. The
benefits of the tighter markets will inure to the customers. In
addition, by establishing a minimum participation right, the CBOE
expects that the Rule will provide firms with the ability to
participate on these trades in a more efficient manner than is
available today.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with and furthers the objectives of Section 6(b)(5) \5\ of the Act in
that it is designed to remove impediments to a free and open market and
protects investors and the public interest.
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\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 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-
0609. 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 in the
Commission's Public Reference Room. Copies of the filing will also be
available for inspection and copying at the principal offices of the
CBOE. All submissions should refer to File No. SR-CBOE-99-35 and should
be submitted by September 10, 1999.
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. 99-21656 Filed 8-19-99; 8:45 am]
BILLING CODE 8010-01-M
