[Federal Register Volume 61, Number 171 (Tuesday, September 3, 1996)]
[Notices]
[Pages 46497-46498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22358]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37612; File No. SR-CBOE-96-51]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Chicago
Board Options Exchange, Incorporated Relating to Eligibility
Requirements for Participation on the RAES System in SPX Options
August 27, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on July 26, 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 self-
regulatory organization. On August 22, 1996, the Exchange filed with
the Commission Amendment No. 1 to the proposed rule change.\3\ 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, as amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 is a technical amendment clarifying the term
``preceding month'' as used in Rules 24.16 and 24.17. See letter
from Timothy Thompson, Senior Attorney, CBOE to John Ayanian,
Attorney, Office of Market Supervision, Division of Market
Regulation, Commission, dated August 20, 1996.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to conform the qualifications that members
participating through joint accounts must meet in order to participate
on the Retail Automatic Execution System (``RAES'') in Standard &
Poor's 500 options (``SPX'') to those qualifications that must be met
by market-makers trading on RAES through their individual accounts.\4\
Pursuant to the change, members of joints accounts who execute at least
50%, instead of 75% (as Rule 24.16 currently states), of their market-
maker contracts for the preceding calender month in SPX may participate
on RAES. The text of the proposed rule change is available at the
Office of the Secretary, CBOE and at the Commission.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 37348 (June 21,
1996), 61 FR 33788 (June 28, 1996) (File No. SR-CBOE-96-19).
---------------------------------------------------------------------------
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 purpose of the proposed rule change is to amend the
qualifications for members of joint accounts to participate in SPX
RAES.\5\ Specifically, the Exchange is proposing to specify that
market-makers participating in RAES through joint accounts must meet
the same eligibility requirements for market-makers participating
through individual accounts. Currently, the one difference in the
requirements is that each member of a joint account that participates
on RAES must execute at least 75% of his or her market-maker contracts
for the preceding month in SPX, while those participating through
individual accounts have a 50% requirement, as recently approved by the
Commission.\6\
---------------------------------------------------------------------------
\5\ RAES is the Exchange's automatic execution system for small
(generally less than 10 contracts) public customer market or
marketable limit orders. When an order is entered through RAES, the
system automatically attaches to the order its execution price,
determined by the prevailing market quote at the time or the order's
entry into the system. A buy order pays the offer; a sell order
sells at the bid. An eligible SPX market-maker who is signed onto
the system at the time the order is received will be designated to
trade with the public customer order at the assigned price.
\6\ See Release No. 34-37348, supra note 4.
---------------------------------------------------------------------------
The Exchange notes that at the time it proposed to change the
eligibility requirements for market-makers participating in RAES
through individual accounts, the Exchange intended to make the same
eligibility change for market-makers participating in RAES through
joint accounts. Through an oversight, however, the Exchange did not
revise the Rule 24.16(c)(i) language describing the eligibility
requirements for market-makers participating in joint accounts.
The Exchange believes that the rational for minimum eligibility
requirements is the same for market-makers participating through
individual accounts and those participating through joint accounts.
Accordingly, the Exchange believes that the minimum eligibility
requirements for individual and joint accounts should be set at the
same threshold. In both cases, the eligibility requirements generally
ensure that those market-makers who are satisfying the public customer
orders at the prevailing bid or offer are the same market-makers who
have made a commitment to make markets on a regular basis at the SPX
post.
The Exchange notes that whether a particular market-maker
participates in
[[Page 46498]]
RAES through an individual or a joint account is a business decision of
the market-maker, and should not affect that market-maker's eligibility
to participate in RAES. The Exchange believes that without making this
change to equalize the eligibility requirements, those market-makers
who, for business reasons, have decided to participate through joint
accounts would have stricter eligibility requirements than those
market-markers participating on RAES through individual accounts.
2. Statutory Basis
By equalizing the eligibility requirements of all market-makers to
participate on SPX RAES, the CBOE believes that the proposed rule
change will treat all market-makers more fairly. As such, the Exchange
believes the rule proposal is consistent with and furthers the
objectives of Section 6(b)(5) of the Act, in that it is designed to
perfect the mechanisms of a free and open market and to protect
investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will impose no 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. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
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, with
the requirements of Section 6(b) of the Act. Specifically, the
Commission believes that the proposal is consistent with the Section
6(b)(5) requirements that the rules of an exchange be designed to
promote just and equitable principles of trade, to prevent fraudulent
and manipulative acts, and, in general, to protect investors and the
public interest.
The Commission believes that the presence of an adequate number of
market-makers protects investors and contributes to the maintenance of
a fair and orderly market. The Commission also believes it is
reasonable for the Exchange to apply the same minimum eligibility
requirements for participation in SPX RAES through joint accounts as
apply to participation through individual accounts. The Commission
believes that the Exchange's proposal help ensure continued
availability of RAES for SPX options, thereby contributing to the
effective and efficient execution of public investor orders at the best
available prices. The Commission believes that requiring market-makers,
whether participating through joint or individual accounts, to execute
at least 50% of their contracts in SPX in the preceding month to
participate in SPX RAES is a reasonable means for achieving this goal.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice thereof in the Federal Register. Specifically, as stated above,
the Commission believes that the presence of an adequate number of
market-makers protects investors and contributes to the maintenance of
a fair and orderly market. The Commission also believes that the CBOE
proposal to conform its rules for eligibility requirements for market-
makers participating on RAES through joint accounts with the
eligibility requirements for those participating through individual
accounts raises no new regulatory issues. Additionally, as noted above,
the Exchange recently proposed the same minimum SPX RAES eligibility
requirements for individual accounts. The proposal regarding SPX RAES
eligibility for individual accounts was published in the Federal
Register,\7\ and was subject to a full notice and comment period. No
comments were received on the proposal. Accordingly, the Commission
believes, consistent with Section 6(b)(5) of the Act, that good cause
exists to approve the proposed rule change on an accelerated basis.
---------------------------------------------------------------------------
\7\ See Release No. 34-37348, supra note 4.
---------------------------------------------------------------------------
The Commission also finds good cause for approving Amendment No. 1
to the proposed rule change prior to the thirtieth day after the day of
publication of notice hereof in the Federal Register. Specifically,
Amendment No. 1 clarifies that the ``preceding month'' reviewed by the
Exchange to determine both SPX and OEX RAES eligibility is the
preceding calendar month. The Commission believes that the Amendment
further clarifies and strengthens the rule language, and raises no new
regulatory issues. Accordingly, the Commission believes, consistent
with Section 6(b)(5) of the Act, that good cause exists to approve
Amendment No. 1 to the proposed rule change on an accelerated basis.
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, 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. Sec. 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-96-51 and
should be submitted by September 24, 1996.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (SR-CBOE-96-51), as amended, is
hereby approved on an accelerated basis.
\8\ 15 U.S.C. Sec. 78s(b)(2).
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret McFarland,
Deputy Secretary.
[FR Doc. 96-22358 Filed 8-30-96; 8:45 am]
BILLING CODE 8010-01-M
