[Federal Register Volume 62, Number 186 (Thursday, September 25, 1997)]
[Notices]
[Pages 50412-50414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25374]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39092; File No. SR-CBOE-97-44]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Board Options
Exchange Relating to Certain Rules Governing the Trading of Options on
the DJIA
September 18, 1997.
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
September 8, 1997,\1\ 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, II and III below, which Items have been prepared by the self-
regulatory organization. The Exchange has designated the proposed rule
change as constituting a ``non-controversial'' rule change under
paragraph (e)(6) of Rule 19b-4 under the act.\2\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons. CBOE has requested that the Commission
accelerate the operative date for the proposed rule change for good
cause.\3\
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\1\ CBOE filed Amendment No. 1 to the proposed rule change
requesting that the Commission accelerate the operative date of the
filing for good cause shown to October 6, 1997. See letter from
Timothy H. Thompson, Senior Attorney, CBOE, to Heather Seidel,
Attorney, Market Regulation, Commission, dated September 12, 1997.
\2\ The Exchange has represented that this proposed rule change:
(i) Will not significantly affect the protection of investors or the
public interest; (ii) will not impose any significant burden on
competition; and (iii) will not become operative for 30 days after
the date of this filing, unless an earlier operative date is
designated by the Commission for good cause shown. The Exchange also
has provided at least five business days notice to the Commission of
its intent to file this proposed rule change, as required by Rule
19b-4(e)(6) under the Act.
\3\ See supra note 1.
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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 certain of its rules governing trading
with respect to the trading of options on the Dow Jones Industrial
Average (``DJIA'').\4\ The text of the proposed rule change is
available at the Office of the Secretary, CBOE and at the Commission.
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\4\ The Commission recently approved a CBOE rule filing to list
and trade options on the DJIA. See Securities Exchange Act Release
No. 39011 (September 3, 1997), 62 FR 47840 (September 11, 1997)
(File No. SR-CBOE-97-26).
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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 self-regulatory organization
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 self-regulatory organization
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 Exchange is proposing to amend certain Exchange rules governing
trading with respect to the trading of options on the DJIA (trading
under the symbol ``DJX''). In each case, the Exchange is proposing to
provide comparable treatment for options on the DJIA to that existing
for other broad-based indexes with wide retail investor interest, i.e.,
options on the Standard & Poor's (``S&P'') 100 Stock Index (``OEX'')
and options on the S&P 500 Stock Index (``SPX'').
First, the Exchange is proposing to amend Interpretation .08 to
Rule 6.20 to permit members of a floor procedure committee which has
been delegated responsibility for overseeing the trading of options on
the DJIA to act as Floor Officials. Currently, the interpretation
permits members of the Index Floor Procedures Committee to act as Floor
Officials in the OEX and SPX trading crowds only. At this time, the
Exchange has not decided which committee will be delegated
responsibility for options on the DJIA, but the Exchange expects the
trading crowd to be large and to develop its unique trading protocols.
Therefore, the rationale for allowing committee members to act as Floor
Officials, i.e., these members will be familiar with the particular
trading protocols in the trading crowd governing those options, applies
equally to options on the DJIA. The interpretation will also change the
reference to the ``Index Floor Procedure Committee'' to the
``applicable Floor Procedure Committee'' because it has not yet been
decided which committee will have jurisdiction over options on the DJIA
and because the Index Floor
[[Page 50413]]
Procedure Committee has been divided into the OEX Floor Procedure
Committee and the SPX Floor Procedure Committee. The Exchange may
decide to delegate responsibility for overseeing the trading in options
on the DJIA to an existing Floor Procedure Committee (such as the OEX
Floor Procedure Committee) or it might create a new Floor Procedure
Committee that is responsible for overseeing trading on options on the
DJIA alone. The Exchange also may decide to create one Committee
responsible for all broad-based index options which would replace the
OEX Floor Procedure Committee and the SPX Floor Procedure Committee.
Second, the Exchange is proposing to exempt DJX from the
requirement that the use of hand signals to convey order information
must be followed in written form and time stamped immediately after the
signal has been sent. Currently, Interpretation .02 to Rule 6.24
exempts options on the OEX and the SPX from this requirement. Because
the Exchange expects trading in DJX to be in a large pit with an active
order flow, the Exchange believes it is appropriate to exempt DJX from
this requirement as well.
Third, the Exchange wants to provide for the possibility of using
Lead Market-Makers (``LMMs'') in the DJX crowd as it uses LMMs in the
OEX crowd during opening rotations. Due to the size of the OEX trading
crowd and the large number of series traded in the crowd, the Exchange
has found that the use of a modified opening rotation whereby LMMs are
assigned to open particular series has allowed the OEX trading crowd to
conduct opening rotations more quickly (and thus, enter into open
trading more quickly). The Exchange believes that the LMM system should
be available for use by the DJX crowd because the Exchange expects the
DJX crowd to be similar in size to the OEX crowd and expects a large
number of series to trade in DJX. In addition, the Exchange is
proposing to change the LMM rule to specify that the ``appropriate
Market Performance Committee,'' rather than the ``Market Performance
Committee,'' may assign LMMs because the Exchange has not yet decided
which Market Performance Committee will have responsibility for
overseeing the trading in DJX.\5\ The appropriate Market Performance
Committee will likely monitor how opening rotations are conducted
without LMMs before it decides whether to appoint LMMs. Nevertheless,
the Exchange believes it is critical to have the system available for
use in the DJX crowd in the event that the opening rotations are taking
too much time from the commencement of trading.
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\5\ The Exchange may create a new Market Performance Committee
responsible for the market performance functions specific to trading
the DJX, or it may delegate market performance duties for the DJX
crowd to an existing Market Performance Committee.
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Finally, the Exchange is also proposing to apply the terms of the
OEX/SPX joint account circular to trading in options on the DJIA.\6\
The circular provides that joint accounts may be represented in the
crowd by more than one participant trading in-person for the joint
account. In addition, the circular provides that joint account
participants who are not trading in-person in the crowd may enter
orders for the joint account with floor brokers even if other
participants are trading the same joint account in-person. The joint
account circular applicable to equity options does not allow a joint
account participant to enter orders while another joint account
participant is trading in-person on behalf of the joint account. The
Exchange believes the OEX/SPX model is more appropriate for options on
the DJIA because of the expected large size of the DJX crowd.\7\
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\6\ The Commission approved the Exchange's OEX/SPX joint account
circular on September 10, 1992. See Securities Exchange Act Release
No. 31174, 57 FR 42789 (September 16, 1992) (approving File No. SR-
CBOE-91-40). The circular was updated pursuant to Commission
approval of a change to allow more than one SPX participant
participate on a trade on behalf of the joint account. See
Securities Exchange Act Release No. 35579 (April 7, 1995), 60 FR
18867 (April 13, 1995) (approving File No. SR-CBOE-95-17).
\7\ Attached as Exhibit B to the proposed rule change is a
revised version of the joint account circular for OEX/SPX which
incorporates DJX.
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2. Statutory Basis
By applying certain existing trading rules and circulars to the
trading of options on the DJIA, the Exchange expects to enhance the
possibility of the successful launch of options on the DJIA and to be
able to provide investors with a useful tool to invest in and hedge
interests in the U.S. equity market. Therefore, the proposed rule
change will better serve the needs of CBOE's public customers and the
Exchange members who make a market for such customers and is consistent
with and furthers the objectives of Section 6(b)(5) of the Act \8\ in
that it is designed to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, and to protect investors and the
public interest.
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\8\ 15 U.S.C. 78F(b)(5).
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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
Written comments on the proposed rule change were neither solicited
nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Commission finds that the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(e)(6) thereunder because it: (1) does not significantly affect the
protection of investors or the public interest; (2) does not impose any
significant burden on competition; and (3) was provided by the Exchange
to the Commission with written notice of its intent to file the
proposed rule change at least five days prior to the filing date. A
proposed rule change filed under Rule 19b-4(e) does not become
operative prior to thirty days after the date of filing or such shorter
time as the Commission may designate if such action is consistent with
the protection of investors and the public interest. CBOE has requested
that the Commission accelerate the implementation of the proposed rule
change so that it may become operative prior to the thirty days
specified under Rule 19b-4(e)(6)(iii). At any time within 60 days of
the filing of the proposed rule change, the Commission may summarily
abrogate such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
The Commission finds good cause to accelerate the thirty day period
for the proposed rule change to become operative prior to the thirtieth
day after the date of filing. Specifically, the Commission believes
that the proposed rule change should become operative on the day that
CBOE begins to trade options on the DJIA to ensure that all rules
applicable to trading DJIA options are in place prior to such trading
commences. Accordingly, the proposed rule change will become operative
on October 6, 1997, rather than October 8, 1997.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
[[Page 50414]]
arguments concerning the foregoing. 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.
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 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-97-44 and
should be submitted by October 16, 1997.
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. 97-25374 Filed 9-24-97; 8:45 am]
BILLING CODE 8010-01-M
