[Federal Register Volume 61, Number 153 (Wednesday, August 7, 1996)]
[Notices]
[Pages 41196-41198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20085]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37505; File No. SR-CBOE-96-53]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by Chicago Board
Options Exchange, Incorporated To Extend for an Additional Fifteen Day
Period a Pilot Operation of a System for Monitoring News Announcements
Made After the Close of Trading in the Primary Market for the
Underlying Stock
July 31, 1996.
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 July 30, 1996, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II 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 and to grant accelerated
approval of the proposed rule change.
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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 Exchange proposes to extend for an additional 15 day period a
pilot test of a system that, shortly before the close of trading each
day, monitors news announcements pertaining to underlying securities,
and automatically suspends the Exchange's automatic execution system in
respect of options on those securities that are the subject of such
announcements. 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.
[[Page 41197]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The Exchange proposes to extend for an additional 15 day period a
pilot program to test an automated system that monitors news wires
received at the Exchange shortly before the close of trading each day,
and suspends the Exchange's automatic order execution system in a class
of equity options whenever there is a news announcement pertaining to
the security underlying options of that class.\3\ The Exchange notes
that the purpose of the pilot is to permit the Exchange to evaluate a
system designed to respond to the problem presented when issuers of
stocks underlying options make significant news announcements during
the ten minutes after the close of trading in stocks when options
continue to trade (i.e., 3:00 to 3:10 central time). The system
monitors news wires during this period, and automatically suspends the
Exchange's Retail Automatic Execution System in the event of news
announcements in order to prevent automatic executions at prices that
do not reflect the news. The Commission approved the Exchange's
proposal to test the system on a 30-day pilot basis, to allow the
Exchange to monitor the effects of its operation, and then make a
decision whether to request approval on a permanent basis. The Exchange
agreed to submit a report to the Commission analyzing the pilot in
connection with any request for permanent approval.
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\3\ See Securities Exchange Act Release No. 37380 (June 28,
1996) (SR-CBOE-96-37) (``News Monitoring Pilot Approval Order'').
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CBOE commenced the pilot in 45 stocks on July 1, 1996, and
gradually extended it to additional classes until, on July 17, 1996,
the system was in effect for all classes of equity options traded on
the Exchange. The Exchange believes the results are promising, but does
not believe it has had sufficient experience with the operation of the
system on a floor-wide basis to assess whether to request permanent
approval of the system. The Exchange is preparing the report that will
assist it, and the Commission, in evaluating the operation of the
system during the pilot. In order to provide some additional time to
evaluate the operation of the system and to prepare its report, the
Exchange is requesting approval to operate the pilot for an additional
15-day period. At the end of that period, CBOE will make a decision
whether to request permanent approval. If the Exchange requests
permanent approval, it will do so by submitting a proposed rule change
pursuant to Section 19(b)(2) of the Act. The filing will be accompanied
by a report of the Exchange's experience with the pilot, and may
include a request to extend the pilot while the request for permanent
approval is under consideration.
CBOE believes that the 15-day extension of the pilot requested
herein is consistent with the objectives of Section 6(b)(5) of the Act,
in that it will enable the Exchange and the Commission to evaluate a
system designed to assure that option orders are executed at fair
prices in the event of significant news announcements, which is in the
interest of promoting just and equitable principles of trade and
protecting investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
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
The Exchange has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act. The
Commission finds that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange, and, in particular the
requirements of Section 6(b)(5) thereunder.
The Commission believes that the Exchange's proposal provides a
reasonable means to complete its evaluation of a system to address
pending news announcements after the close of trading in the primary
market for the underlying securities. The Commission notes that the
Exchange has not reported any significant problems with the operation
of the system to date, and that a 15-day extension of the pilot to
complete its evaluation of the system is appropriate.
As noted in the News Monitoring Pilot Approval Order, CBOE intends
to evaluate the pilot in several respects to determine if it wants to
implement the system on a permanent basis.\4\ The Exchange will provide
the Commission with the analysis of the pilot.
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\4\ The additional 15-day period commences on July 31, 1996 and
expires at 3:10 p.m. central time on August 14, 1996. Any request
for an extension of the pilot period or request for permanent
approval of the system would have to be submitted to the Commission
pursuant to Section 19(b)(2) of the Act.
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The Commission finds good cause for approving this proposed rule
change on an accelerated basis prior to the thirtieth day after the
date of publication of notice thereof in the Federal Register.
Specifically, the Commission believes that accelerated approval of the
proposal is appropriate because it is to be implemented for an
additional limited 15-day period which will provide CBOE with the time
to complete its evaluation regarding the effectiveness of the system.
Accordingly, the Commission believes that it is consistent with
Section 6(b)(5) of the Act to approve the proposed rule change, as
amended, or an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing proposed rule change. 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 in 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 CBOE. All
submissions should refer to File No. SR-CBOE-96-53 and should be
submitted by August 28, 1996.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-CBOE-96-53), is hereby
approved for an additional 15-day pilot period expiring on August 14,
1996, on an accelerated basis.
[[Page 41198]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-20085 Filed 8-6-96; 8:45 am]
BILLING CODE 8010-01-M
