Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices 35149

14 17 CFR 200.30–3(a)(29).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 29682

(September 13, 1991), 56 FR 47973 (September 23,

1991) (File Nos. SR–Amex–90–38; SR–CBOE–90–

27; SR–NASD–91–02; SR–NYSE–90–51; and SR–

PSE–90–41). 4 15 U.S.C. 78f(b)(5).

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13616 Filed 5–31–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42821; File No. SR–CBOE–

00–18]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc. To Interpret Rules Relating to

Customer Communications

May 24, 2000.

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 April 20,

2000, 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.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CBOE proposes to issue a

Regulatory Circular to its membership

setting forth a clarifying interpretation

to Exchange Rule 9.21, Communications

to Customers, which governs

communications from member firms to

customers or members of the public.

The text of the proposed rule change is

available at the 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

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.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

Exchange Rule 9.21, Communications

to Customers, governs communications

between Exchange members and their

customers and other members of the

public. The Exchange, along with the

other options exchanges, has published

Guidelines for Options Communications

(‘‘Guidelines’’) 3 to explain the customer

communications rules of the options

exchanges and the interpretations of

these rules. The Exchange proposes to

issue a Regulatory Circular to formally

install a clarifying interpretation that

has long been applied by the Exchange.

This interpretation deals with the

requirement to discuss tax

considerations when engaging in certain

option strategies. Although the

Exchange believes this interpretation to

be consistent with and fairly implied by

Rule 9.21 and the Guidelines, the

Exchange believes that clarification in a

Regulatory Circular would be beneficial

to its members.

Although Rule 9.21 is silent regarding

tax considerations in customer

communications, the Guidelines and the

Exchange’s internal checklist

(‘‘Checklist’’), which CBOE’s

Department of Financial and Sales

Practice Compliance uses in reviewing

communication materials, do require

that tax considerations be discussed in

communications in certain

circumstances. The Guidelines state,

‘‘depending upon the technical or

specific nature of such communication,

any one or more of the following points

should be addressed.’’ The Guidelines

go on to list various considerations,

including the following statement about

taxes, ‘‘[s]ince options transactions may

involve complex tax considerations, it

would misleading to omit the mention

of such strategies from any

communication that discusses or

recommends options strategies.’’ In

response to comments and

recommendations made by the

Commission’s Office of Compliance

Inspections and Examinations, the

Exchange in February 1994 added

language to its Checklist reflecting the

Exchange’s long-standing practice in

reviewing communications for tax

considerations. That practice was, and

is, to require a discussion of tax

considerations if the communication is

educational material or sales literature

that is strategy specific and complex.

The Exchange believes that more

clarification could be provided to its

members regarding this topic and has,

therefore, decided to issue an

interpretation in a Regulatory Circular

clarifying which communications

require a mention about tax

considerations. The language in the

interpretation mimics the language

contained in the Exchange’s Checklist.

The proposed interpretation states that

an advisory concerning taxes is required

for educational material and sales

literature involving specific, detailed

and complex option strategies. In

addition, the proposed interpretation

states an advisory regarding taxes is not

necessary where the communication is

of a general, noncomplex nature or

involves common basic options

strategies (e.g., purchasing, covered

writing or cash secured put writing). An

example of an appropriate advisory

concerning taxes, where one is needed,

would be, ‘‘[b]ecause of the importance

of tax considerations to all option

transactions, the investor considering

options should consult with his/her tax

advisor as to how taxes affect the

outcome of contemplated options

transactions.’’

Again, although the proposed

interpretation merely restates the

Exchange’s long-standing policy in

reviewing customer communications for

the inclusion of discussions of tax

considerations, the Exchange believes

that this policy also makes sense from

a practical standpoint. The Exchange

believes that in common, basic option

strategies the tax consequences are

straightforward. Therefore, the

Exchange believes that the inclusion of

a tax advisory in all communications

might serve to lessen the impact of the

advisory in those cases where the

advisory serves a useful purpose.

The Exchange believes that formal

clarification of this interpretation of

Rule 9.21 is warranted; however, the

Exchange also believes that its longstanding interpretation is appropriate

and supported by the language of the

Guidelines.

2. Statutory Basis

The CBOE believes the proposed

Regulatory Circular interpretation of

Exchange Rule 9.21 is consistent with

and further the objectives of Section

6(b)(5) 4 of the Act in that it is designed

to remove impediments to a free and

35150 Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices

5 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 39086

(September 17, 1997), 62 FR 50036 (September 24,

1997) (SR–PCX–97–18)(‘‘Approval Order’’). The

PCX Application has been in operation on the

Exchange since January 1999.

4 Id. at 50046.

open market and to protect investors

and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The CBOE does not believe that the

proposed Regulatory Circular

interpretation of Exchange Rule 9.21

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

Regulatory Circular interpretation of

Exchange Rule 9.21.

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 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 such filing will also be

available for inspection and coping at

the principal office of the CBOE. All

submissions should refer to File No.

SR–CBOE–00–18 and should be

submitted by June 22, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13671 Filed 5–31–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42822; File No. SR–PCX–

00–10]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Pacific Exchange, Inc. Relating to the

PCX Application’s Mid-Point Price

Profile

May 24, 2000.

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 March 26,

2000, the Pacific Exchange, Inc.

(‘‘Exchange’’ or ‘‘PCX’’), filed a

proposed rule change with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’). The

proposed rule change is 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.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange is filing a proposed rule

change to modify the definition of the

term ‘‘Orders’’ under Exchange Rule

15.1(f) of its Rules of the Board of

Governors, as such term is used for

purposes of the PCX Application of the

OptiMark System (‘‘PCX Application’’),

and to add Commentary .04 to Rule 5.3,

Rules of the Board of Governors,

Equities Trading, Trading Differentials,

to provide for separate minimum

trading differentials for certain profiles

in the PCX Application. The proposed

rule change would permit certain PCX

Application Profiles to receive an

execution under specified

circumstances at price increments finer

than the minimum trading differential

permitted under the Exchange’s rules

for other transactions on the Exchange.

The text of the proposed rule change is

available at the Exchange 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

On September 17, 1997, the

Commission approved the PCX

Application.3 The PCX Application is a

computerized, screen-based trading

service for use by Exchange members

and their customers to purchase or sell

equity securities listed or traded on the

Exchange (‘‘PCX Securities’’). The PCX

Application is a supplement to the

Exchange’s traditional floor facilities

and allows PCX members and their

customers to submit expressions of

trading interest known as ‘‘Profiles’’

anonymously from their computer

terminal. As stated in the Approval

Order, Profiles do not constitute ‘‘bids’’

or ‘‘offers’’ within the meaning of

Exchange Act Rule 11Ac1–1, the ‘‘Firm

Quote Rule.’’ Rather, each Profile ‘‘is

only a generalized expression of interest

with conditions attached and is not

eligible for execution until the

completion of the Cycle.’’ 4

The PCX Application includes several

types of Profiles where price can be

pegged to reflect changes in a specific

market parameter. The midpoint price

(‘‘MP’’) Profile is a type of pegged

Profile. An MP Profile allows a user to

enter a Profile to be priced at the

midpoint of the national best bid or

offer (‘‘NBBO’’) posted on the

consolidated Quotation System (‘‘CQS’’)

at the time of a matching cycle of the

PCX Application. The MP feature will

automatically update the price of any

buy or sell Profile designated by the

user of the PCX Application to conform

to the midpoint of the NBBO displayed

on CQS. All Profiles, other than the CQS