38618 Federal Register / Vol. 65, No. 120 / Wednesday, June 21, 2000 / Notices

5 15 U.S.C. 78f(b).

6 15 U.S.C. 78f(b)(5).

7 15 U.S.C. 78s(b)(3)(A)(iii).

8 17 CFR 240.19b–4(f)(3).

9 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

approval of CBOE Rule 15.12, to require

testing and reporting with respect to the

implementation of decimal pricing

under the broad authority granted it to

enforce the provisions of the Act and to

ensure the safety of its marketplace.

More specifically, CBOE Rule 4.2

prohibits members from engaging in

conduct that violates the Act or rules

and regulations thereunder; CBOE Rule

4.3 provides the Exchange authority to

approve the maintenance of any wire

connections between its members and

other members or non-members; and

CBOE Rule 4.10 gives the President or

the Chairman of the Exchange the right

to impose such conditions and

restrictions on a member as either may

consider reasonably necessary for the

protection of the Exchange and the

customers of such member.

Notwithstanding this existing authority,

however, the Exchange believes that its

membership would be better served by

having its specific intentions with

respect to mandatory decimal pricing

testing defined in a stand-alone rule.

The proposed CBOE Rule 15.12

would expire automatically upon the

completion of decimal pricing

implementation.

2. Statutory Basis

The CBOE believes proposed CBOE

Rule 15.12, whose purpose is to ensure

the participation of Exchange members

in important testing prior to the

securities industry’s conversion to

decimal pricing, is consistent with

Section 6(b) of the Act 5 in general and

further the objectives of Section 6(b)(5) 6

in particular in that it is designed to

promote just and equitable principles of

trade and to protect investors and the

public interest.

C. 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.

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 to the proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Because the foregoing rule change is

concerned solely with the

administration of the Exchange, it has

become effective pursuant to Section

19(b)(3)(A)(iii) of the Act 7and

subparagraph (f)((3) of Rule 19b–4

thereunder.8 At any time within 60 days

of the filing of such 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.

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

Room, 450 Fifth Street, NW,

Washington, DC. 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–00–20 and should

be submittted by July 12, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–15614 Filed 6–20–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42930; File No. SR–CBO–

99–51]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc. to Increase the Maximum Order

Size Eligible for Automatic Execution

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

September 1, 1999, the Chicago Board

Options Exchange, Inc. (‘‘CBOE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘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.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CBOE proposes to amend its rules

governing the operation of its Retail

Automatic Execution System (‘‘RAES’’)

to increase the maximum size of orders

eligible for execution on RAES, and

make conforming changes to CBOE’s

firm quote rule and Interpretation .03

thereunder. 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

The principal purpose of the

proposed rule change is to increase from

fifty contracts to seventy-five contracts

Federal Register / Vol. 65, No. 120 / Wednesday, June 21, 2000 / Notices 38619

3RAES is the Exchange’s automatic execution

system for public customer market or marketable

limit orders of less than a certain size.

4See Securities Exchange Act Release No. 41821

(September 1, 1999), 64 FR 50313 (September 16,

1999).

5The RAES eligibility maximum is currently 100

contracts for options on the S&P 500 Index, the

Nasdaq 100 Index, the DJIA, the High Yield Select

Ten, and interest rate options. See supra note 4.

6The Commission recently approved a proposal

by the Exchange to allow an order entered into

RAES to trade directly with an order on the

Exchange’s customer limit order book in those cases

where the prevailing market bid or offer is equal to

the best bid or offer on the Exchange’s book. See

Securities Exchange Act Release No. 41995 (October

8, 1999), 64 FR 56547 (October 20, 1999).

7See supra note 4.

8The entire equity options floor has been

assigned to DPMs. Telephone conversation between

Timothy Thompson, Director—Regulatory Affairs,

CBOE, and Gordon Fuller, Special Counsel,

Commission, on March 9, 2000.

9See CBOE Rule 6.6(b)(vi).

10See Securities Exchange Act Release No. 41325

(April 22, 1999), 64 FR 2369 (May 3, 1999).

the maximum size of orders for equity

options and certain classes of index

options that are eligible to be executed

through RAES.3 Additionally, the

proposed rule change makes certain

complementary changes to the

Exchange’s firm quote rule and

Interpretation .03 thereunder.

Currently, the maximum size of

RAES-eligible orders is fifty contracts

for all classes of options traded on

CBOE for which a greater maximum is

not expressly provided in the rules.4

Options subject to the fifty contract

maximum include all classes of equity

options, all classes of sector index

options and all other classes of index

options except options on the S&P 500

Index, options on the Nasdaq 100 Index,

options on the Dow Jones Industrial

Average (‘‘DJIA’’), options on the High

Yield Select Ten, and interest rate

options.5 Increasing the RAES eligibility

maximum to seventy-five contracts for

these classes of options will not

automatically permit orders up to this

size to be entered into RAES. Instead,

the actual maximum RAES eligibility

size is established by the appropriate

Floor Procedure Committee (‘‘FPC’’) of

the Exchange, which may maintain the

maximum for particular classes at levels

below the seventy-five contract

maximum that would be allowable

under the proposed rule change.

The CBOE represents that increasing

automatic execution levels will provide

the benefits of automatic execution to a

larger number of customer orders. The

CBOE also represents that RAES affords

prompt and efficient executions at the

CBOE displayed price or, in most cases,

at the National Best Bid or Offer

(‘‘NBBO’’) if the NBBO is better than the

CBOE’s displayed bid or offer.

The Exchange notes that there are

many safeguards incorporated into

Exchange rules to ensure the

appropriate handling of RAES orders

even as the maximum order size is

increased. The Exchange’s firm quote

rule, Rule 8.51, ensures that non-broker

dealer customer orders will be executed

at the CBOE’s displayed quote or better

even if an order is rejected from RAES

because a better quote is being

disseminated by another market. Rule

8.51(a) states that the firm quote

requirement for a particular class of

options shall be no less than the RAES

contract limit applicable to that class of

options. This ensures that orders that

are rejected from RAES will still be

executed at the CBOE’s displayed quote

or better.

In this filing, the CBOE proposes to

amend Rule 8.51(a) to state that if the

RAES contract limit is established at a

level of higher than fifty contracts then

the firm quote requirement will be for

fifty contracts. The Exchange believes

that because, for the most part, the

RAES contract limit and the firm quote

limit are of comparable levels on the

CBOE, a firm representing a customer

will not be disadvantaged if it

determines to seek the quick and

relatively assured execution available

on RAES: even if the order is kicked out,

if will be entitled to the firm quote

guarantee in most instances.6

In addition, the Commission has

approved a rule filing permitting the

implementation of Variable RAES.7

Variable RAES allows market makers to

specify the maximum size of orders

which they are willing to trade at any

one time on RAES, subject to a

minimum size that may be established

by the appropriate FPC. Variable RAES

was proposed to ensure that market

makers are willing to continue to

participate on RAES even as the

maximum contract size is increased.

The CBOE represents that the

appropriate FPC will likely implement

Variable RAES in any options class that

has a contract limit of seventy-five

contracts to ensure that there is

adequate market-maker participation in

that class.

There is also a rule that requires

DPMs to participate in any automated

execution system which may be open in

appointed option classes (Rule

8.80(c)(5)) and a rule that states that

market makers are expected to

participate in and support Exchangesponsored automated programs,

including but not limited to RAES

(Interpretation .07 to Rule 8.7). The

Exchange is in the process of assigning

a large percentage of its option classes

that were formerly traded in marketmaker crowds to DPMs.8

The Exchange also has rules that

allow for RAES to be suspended when

a fast market has been declared in order

to maintain a fair and orderly market.9

This rule provides the Exchange with

the flexibility to intervene if it

determines that there is inadequate

market maker participation or capital

requirements. In addition, CBOE Rule

8.16(b) requires a market maker who has

logged onto RAES at any time during an

expiration month to log onto RAES in

that option class whenever he is present

in the trading crowd until the next

expiration. CBOE Rule 8.16(c) states that

if there is inadequate participation on

RAES then Floor Officials of the

appropriate Market Performance

Committee may require market makers

who are members of the trading crowd

to log on to RAES absent reasonable

justification or excuse for nonparticipation. Alternatively, the Floor

Officials may allow market makers in

other classes of options to log on to

RAES in such classes.

With respect to financial

responsibility issues, the Exchange

notes that it has a minimum net capital

requirement respecting DPMs which is

currently set forth in Interpretation .02

to Rule 8.80. The Exchange has

proposed to increase the DPM capital

requirements in a rule filing pending

before the Commission.10 In addition,

the clearing firms for market makers and

DPMs perform risk management

functions to ensure that the market

makers have sufficient financial

resources to cover their positions.

In addition to increasing the

maximum size for RAES-eligible orders

in certain classes of options, the

Exchange is proposing to change

Interpretation .03 to Rule 8.51, the

Exchange’s firm quote rule.

Interpretation .03 states that ‘‘MarketMaker orders and other broker-dealer

proprietary order that in each case are

for less than the firm quote requirement

applicable for that class of options and

are represented in the crowd by a Floor

Broker or DPM should not be reflected

in the displayed market quote.’’ With

respect to all option classes other than

broad-based index option classes, the

Exchange is proposing to change this

requirement such that the only orders

exempted from being reflected in the

market quote are market maker orders

represented in the crowd by a Floor

Broker or DPM for less than ten

contracts. This change will ensure that

any broker-dealer order represented in

the crowd will be presented in CBOE’s

38620 Federal Register / Vol. 65, No. 120 / Wednesday, June 21, 2000 / Notices

11 15 U.S.C. 78f(b)(5).

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3 15 U.S.C. 78s(b)(3)(A)(ii).

4On October 13, 1999, the Commission approved,

on a pilot basis, the CHX’s proposed rule change

that allowed the CHX to implement an extended

hours trading session. See Securities Exchange Act

Release No. 42004 (October 13, 1999), 64 FR 56548

(October 20, 1999) (SR–CHX–99–16). The E-Session

takes place from 3:30 p.m. to 5:30 p.m. Central

quote and may thus become the basis for

a quote at which an order may be

executed. The Exchange will conduct

further review to determine whether to

include broad-based index option

classes under the proposed change in

the future.

The Exchange believes that the

increase should provide customers with

quicker executions for a larger number

of orders, by providing automatic rather

than manual executions, thereby

reducing the amount of orders subject to

manual processing. In support of its

proposal to increase the RAES eligibility

maximum, CBOE represents that its

system capacity is sufficient to

accommodate the increased number of

automatic executions anticipated to

result from the implementation of this

proposal.

2. Statutory Basis

The proposed rule change will

enhance the ability of the Exchange to

provide instantaneous, automatic

execution of public customers’ orders at

the best available prices, which furthers

the objectives of Section 6(b)(5) 11 of the

Act to promote just and equitable

principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market,

and to protect investors and the public

interest.

B. Self-Regulatory Organizatin’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

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 approved such proposed

rule change, or

(B) institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

The Commission invites interested

persons to submit written data, views,

and arguments concerning the

foregoing, including whether the

proposed rule change is consistent with

the Act. In addition, the Commission

seeks comment concerning whether the

proposed rule change fosters quote

competition among options market

professionals and enhances investors’

interests in obtaining the best available

price.

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

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the CBOE. All

submission should refer to File No. SR–

CBOE–99–51 and should be submitted

by July 12, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–15616 Filed 6–20–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42929; File No. SR–CHX–

00–18]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Chicago Stock Exchange, Incorporated

Relating to Fees for the E-Session

June 13, 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 June 1,

2000, the Chicago Stock Exchange,

Incorporated (‘‘CHX’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by the Exchange.

The Exchange has designated this

proposal as one establishing or changing

a due, fee, or other charge imposed by

the CHX under section 19(b)(3)(A)(ii) of

the Act,3 which renders the proposal

effective upon filing with the

Commission. 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 proposes to amend its

membership dues and fees schedule (the

‘‘Schedule’’) to continue, through

October 1, 2000, the waiver of all

transaction, order processing and floor

broker fees for transactions that occur

during the CHX’s after-hours trading

session (‘‘E-Session’’). The text of the

proposed rule change is available upon

request from the Commission or the

CHX.

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

The proposed rule change amends the

Schedule to eliminate, through October

1, 2000, order processing, transaction

and floor broker fees for transactions

that occur during the CHX’s E-Session.4