[Federal Register Volume 65, Number 111 (Thursday, June 8, 2000)]
[Notices]
[Pages 36481-36482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14405]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42862; File No. SR-CBOE-00-10]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Incorporated To Permit 
the Chairman of the Appropriate Floor Procedure Committee To Exercise 
the Authority of the Committee To Decrease the Size of Orders Eligible 
for Entry Into the Retail Automatic Execution System During Unusual 
Market Conditions

May 30, 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 28, 2000, 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 CBOE. 
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.
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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 its rules to permit the Chairman of the 
appropriate Floor Procedure Committee (``FPC''), or the Chairman's 
designee, to exercise the authority of the Committee to decrease the 
size of orders eligible for entry into CBOE's Retail Automatic 
Execution System (``RAES'') during unusual market conditions.
    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, 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
    On December 1, 1998, the Commission approved a CBOE rule change 
that allowed the Chairman of the appropriate FPC, or the Chairman's 
designee, to exercise the authority of the FPC to increase the size of 
orders eligible for entry into RAES.\3\ This measure, which has been 
successfully utilized at the Exchange, is exercised when the Chairman, 
or his/her designee, believes that taking such action could alleviate a 
potential backlog of unexecuted orders where an option class is 
experiencing a large influx of orders. It has allowed the Exchange to 
react more quickly and efficiently to potential backlog situations. 
However, CBOE rules do not currently allow the Chairman to decrease the 
contract size limit for orders eligible for entry into RAES (an ability 
that the FPC maintains pursuant to CBOE Rule 6.8(e)).
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    \3\ See Securities Exchange Act Release No. 40736 (December 1, 
1998), 63 FR 68323 (December 10, 1998) (File No. SR-CBOE-98-37).
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    The Exchange now proposes to amend its rules to allow the Chairman 
of the appropriate FPC, or the Chairman's designee, to exercise the 
authority of the FPC to decrease the size of orders eligible for entry 
into RAES for equity option classes during unusual market conditions.
    Exchange Rule 6.8(a)(i) states, ``the appropriate Floor Procedure 
Committee shall determine the size of orders eligible for entry into 
RAES.'' Paragraph (e) of CBOE Rule 6.8 states that ``[e]ligible orders 
must be for fifty or fewer contracts on series placed on the system * * 
*. The appropriate FPC, in its discretion, may determine to restrict 
the size and kind of eligible orders, including but not limited to, 
lowering contract limits.'' The FPCs, particularly the Equity Floor 
Procedure Committee (``EFPC''), have discovered through experience in 
overseeing the operation of RAES, that it is sometimes necessary to 
temporarily reduce the eligible order size levels (which are amounts 
that the Exchange has been aggressively increasing in recent years) in 
situations where unusual market conditions exist.
    However, the decision to decrease the RAES eligible order size to 
address these unusual market situations must be made quickly to be 
effective. Because the EFPC commonly consists of twenty or more members 
who conduct business in all parts of the floor, it is not practicable 
to provide notice to all the

[[Page 36482]]

members of the Committee and convene a meeting to make these decisions. 
It is also not practicable to expect these members to monitor the 
situation when they are trying to conduct a business on the floor that 
requires their attention. Intra-day meetings are not only impracticable 
to convene but would distract these members from the conduct of their 
business on the floor.
    Consequently, the EFPC has determined to delegate its authority 
under CBOE Rule 6.8 to the Chairman of the EFPC, or to the Chairman's 
designee, to decrease the eligible order size for RAES in unusual 
market conditions provided that the Chairman or his designee believes 
the action is warranted and provided the decision is made for no more 
than one trading day (as is currently the case for the Chairman 
increasing the order size eligibility for RAES). As proposed, to the 
extent the conditions exist on the following trading day, the Chairman 
or his designee must review the situation and make an independent 
decision to decrease the RAES eligible order size for that subsequent 
day. Further, any decisions made by the Chairman or his designee to 
decrease the RAES eligible order size for a particular option class for 
consecutive days will be reviewed by the FPC at its next regularly 
scheduled meeting. After reviewing these decisions the FPC can provide 
guidance to the Chairman or his designee about the use of this 
authority if they feel it is appropriate.
2. Statutory Basis
    By allowing the Chairman of the appropriate FPC or his designee to 
make decisions to decrease the eligible order size for RAES, the 
Exchange can sustain the operation of RAES during unusual market 
conditions in an efficient manner. The filing, therefore, is consistent 
with and furthers the objectives of Section 6(b)(5) of the Act \4\ 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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    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act.

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 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 
change 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 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 the CBOE. All submissions should 
refer to SR-CBOE-00-10 and should be submitted by June 29, 2000.

    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. 00-14405 Filed 6-7-00; 8:45 am]
BILLING CODE 8010-01-M