[Federal Register Volume 64, Number 163 (Tuesday, August 24, 1999)]
[Notices]
[Pages 46221-46222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21867]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41747; File No. SR-CBOE-99-24]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc., Relating to Changes
to Option Trading Permit Auction Procedures
August 16, 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 9, 1999, 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
Exchange. Amendment No. 1 was filed on August 2, 1999.\3\ 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.
\3\ Amendment No. 1 expands the discussion on the proposed rule
change and clarifies the proposed text of the rule change. See
letter from Christopher R. Hill, Attorney, CBOE, to Heather Traeger,
Attorney, Division of Market Regulation, SEC, dated August 2, 1999.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
CBOE proposes to amend the procedure through which it auctions
Options Trading permits (``Permits'') from the Permit lease pool. The
text of the proposed rule change is available at 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 Exchange 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
CBOE Rule 3.27(a)(3) provides for the creation of a Permit lease
pool to be administered by the Exchange. The procedures for the
administration of this lease pool were previously filed with and
approved by the Commission.\4\ Under these procedures, the Exchange
conducts and auction every six months during which members and non-
members who have qualified for membership may submit bids equal to the
monthly rent that the bidder is willing to pay for a month-to-month
Permit lease. Upon the close of the bidding period, Permits in the
lease pool are awarded to the highest bidders in a number equal to the
total number of Permits in the lease pool at that time. Under the
existing procedures, the monthly rent to be paid by a lessee is the
dollar value of the bid submitted by that lessee. Following each
auction, the Exchange continues to accept bids for Permit leases.
Should any Permit lessee desire to give up that lessee's Permit prior
to the next auction, the Permit is transferred to the highest bidder at
a monthly lease price equal to the new lessee's bid for the remainder
of the six month auction cycle.
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\4\ The procedures for the administration of the Permit lease
pool were filed with the Commission in SR-CBOE-97-14. SR-CBOE-97-14
provided for the issuance of Permits in connection with the transfer
of the options business of the New York Stock Exchange, Inc. to CBOE
and defined the rights and obligations associated with Permits. SR-
CBOE-97-14 was approved by the Commission in Securities Exchange Act
Release No. 38541 (April 23, 1997), 62 FR 23516 (April 30, 1997).
The CBOE later amended the procedures for administering the
Permit lease pool in SR-CBOE-97-47, which amended the manner in
which the CBOE accesses the fee that it charges when a person
submits a bid to receive a Permit. See Securities Exchange Act
Release No. 39179 (October 1, 1997), 62 FR 52602 (October 8, 1997).
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The Exchange proposes to amend the method of the auction to
establish a procedure known as a Dutch auction. Under the Dutch
auction, bidders will submit bids equal to the monthly rent which they
are willing to pay for a six-month lease, and, upon the close of the
bidding period, Permits in the lease pool will continue to be awarded
to the highest bidders in a number equal to the total number of Permits
in the lease pool at that time. under the Dutch auction procedure,
however, each successful
[[Page 46222]]
bidder will pay only the price of the lowest successful bid. Following
each Dutch auction, the Exchange will continue to accept bids, with a
minimum bid established at the price set in the most recent Dutch
auction.
The revised Permit Lease Pool Procedures also contain several other
amendments, most of which merely set forth existing exchange practices
in greater detail for the benefit of members and the public. The
following amendments represent changes to existing practices:
The proposed rule change establishes a minimum qualifying
bid level for all bidding which occurs between Dutch auctions. The
minimum qualifying bid is set at the lease rate established in the most
recent Dutch auction. This change is designed to equalize Permit lease
rates and enhance administrative efficiency by encouraging lessees to
use the Dutch auction process, rather than attempt to obtain a lower
priced lease by bidding between the Dutch auctions.
The proposed rule change permits a lessee to terminate the
lessee's Permit during the ease period, by written notice to the
Membership Department, but provides that the termination notice shall
be irrevocable.\5\ The Membership Department will post notice of the
availability of the Permit for at least two business days on the
Exchange bulletin board. The Permit will be transferred to the highest
bidder whose bid is received by 3:30 p.m. on the first Wednesday after
notice of the permit's availability has been posted for at least two
business days.
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\5\ The Exchange represents that this proposed rule change
codifies the Exchange's current procedure. See Amendment No. 1.
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The proposed rule change also allows Permits to be
transferred among nominees of an organization with appropriate notice
to the Exchange, as is the case with CBOE memberships.
The proposed rule change provides that an individual can
lease only one Permit from the lease pool at a time. Therefore, an
individual who is already a Permit lessee may not submit a Permit bid
during the six month lease period (except to bid in the next Dutch
auction) unless and until the lessee first terminates the lessee's
current lease.\6\
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\6\Id.
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Finally, the proposed rule change establishes a six month
Permit lease instead of the current month-to-month lease, for easier
and more efficient administration of the lease process.
2. Statutory Basis
The Exchange believes that the proposed Dutch auction procedure for
the Permit lease pool described herein will more effectively equalize
the amounts paid for Permits by each successful bidder. As such, the
proposed rule changes are consistent with Section 6(b) of the Act,\7\
in general, and further the objectives of Section 6(b)(4) \8\ in
particular, in that they are designed to provide for the equitable
allocation of reasonable dues, fees, and other charges.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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 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 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, NW, Washington,
DC 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 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-99-24 and should be submitted by September 14, 1999.
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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-21867 Filed 8-23-99; 8:45 am]
BILLING CODE 8010-01-M
