44296 Federal Register / Vol. 62, No. 161 / Wednesday, August 20, 1997 / Notices

1RAES is the Exchange’s automatic execution

system for small (generally less than 10 contracts)

public customer market or marketable limit orders.

When RAES receives an order, the system

automatically will attach to the order its execution

price, determined by the prevailing market quote at

the time of the order’s entry into the system. A buy

order will pay the offer; a sell order will sell at the

bid. An eligible 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.

2The obligations of a market maker as set forth

in CBOE Rule 8.3 include, among others, to

compete with other market makers to improve

markets in all series of option classes where the

market maker is present, to make markets that,

absent changed circumstances, will be honored to

a reasonable number of contracts, and to update

quotations in response to changed market

conditions.

damaging impact of the activities of

associated persons on registered brokerdealers.

It is estimated that approximately 250

respondents will maintain and report

information under these rules on a

quarterly basis. The average number of

hours necessary to comply with Rules

17h–1T and 17h–2T is six hours per

quarter. The total annual burden is

6,000 hours for respondents, based upon

past submissions. The cost per hour is

approximately $416.67. Therefore, the

total cost of compliance for respondents

is $2,500,000 (6,000 total hours

multiplied by $416.67).

The information required by the Rules

must be maintained and preserved by

the respondents for a period of not less

than three years in an easily accessible

place. In addition, it is mandatory for

broker-dealers subject to Rules 17h–1T

and 17h–2T to maintain and file the

information required by the Rules. All

information received by the

Commission pursuant to the Rules is

kept confidential. Finally, the public

should be aware that an agency may not

conduct or sponsor, and a person is not

required to respond to, a collection of

information unless it displays a

currently valid control number.

General comments regarding the

above information should be directed to

the following persons: (i) Desk Officer

for the Securities and Exchange

Commission, Office of Information and

Regulatory Affairs, Office of

Management and Budget, Room 3208,

New Executive Office Building,

Washington, D.C. 20503; and (ii)

Michael E. Bartell, Associate Executive

Director, Office of Information

Technology, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Comments

must be submitted to OMB within 30

days of this notice.

Dated: August 13, 1997.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–21982 Filed 8–19–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38928; File No. SR–CBOE–

97–37]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc., Relating to Eligibility

Requirements for Participation on the

RAES System

August 12, 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 August 6, 1997, 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 self-regulatory

organization. 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

CBOE proposes to add two additional

eligibility requirements that market

makers must satisfy in order to

participate in the Exchange’s Retail

Automatic Execution System (‘‘RAES’’)

under CBOE Rule 8.16. The Exchange is

also proposing to clarify that Rule 8.16

applies to RAES for all CBOE options

other than options on the Standard &

Poor’s 100 Stock Index (‘‘OEX’’) and

options on the Standard & Poor’s 500

Stock Index (‘‘SPX’’), which have

separate RAES rules. 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

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 CBOE Rule 8.16, the

rule governing RAES 1 eligibility for

CBOE options (other than OEX and

SPX), by adding two eligibility

requirements which market makers

must satisfy before they may continue to

participate on RAES. In addition, the

Exchange is making certain changes to

CBOE Rule 8.16 to make it clear that the

rule applies to RAES participation in all

CBOE options other than options on the

OEX and SPX.

Currently, CBOE Rule 8.16 does not

contain any eligibility requirement for

participating on RAES that is related to

a market maker’s trading activity.

Paragraph (a) of Rule 8.16 merely

requires a market maker: (i) To log onto

the system using his own acronym and

individual password; (ii) to designate

that his trades be assigned to and clear

into either his individual account or a

joint account in which he is a

participant; and (iii) to log on only in

person and to continue on the system

only so long as he is present in the

trading crowd. The Exchange has

learned, however, that a few market

makers across the floor have relied on

their participation in RAES to derive a

large percentage of their profits and

have not been inclined to take the risks

involved with proactively fulfilling their

market maker obligations as set forth in

CBOE Rule 8.3.2 Participation on RAES

was intended to be an adjunct, and not

a substitute, to the normal operation of

a traditional market making business.

To the extent a market maker is able to

derive some profits from participation

on RAES with little risk, RAES

participation can act as a disincentive to
Federal Register / Vol. 62, No. 161 / Wednesday, August 20, 1997 / Notices 44297

3While the Market Performance Committee has

the authority under rule 8.60 to take remedial

action against a market maker who has been found

to have not fulfilled his Rule 8.3 performance

standards, it is often difficult to proceed against a

particular market maker, as opposed to a trading

crowd, where there are no objective criteria on

which to base that market maker’s performance.

The proposed changes to the eligibility standards,

on the other hand, will set forth objective criteria

and should to a large extent be self-policing because

a market maker who does not meet the objective

criteria may lose their right to continue to

participate on RAES. 4 15 U.S.C. 78f(b)(5).

these market makers to perform their

obligations under Rule 8.7.3

Consequently, the Exchange has

determined that there should be a limit

on the percentage of a market maker’s

overall trades, both in terms of total

transaction and contract volume, that a

market maker may transact on RAES

over a designated period of time. The

Exchange believes that this eligibility

standard will provide an incentive to

those market makers that currently

derive a large percentage of their

activity from RAES to actively fulfill

their market making obligations.

Additionally, this proposal would

ensure that those market makers that

actively fulfill their obligations are the

same ones that receive the benefits of

RAES participation.

The Exchange is not at this time

proposing specific percentages which

market makers will have to satisfy

because it expects that the percentages

will have to be adjusted from time to

time as the Exchange gains experience

with the effect of these requirements.

Instead the Exchange is proposing that

the Market Performance Committee be

given the authority to set the

percentages and the time period over

which these percentages shall be

determined. The Market Performance

Committee would provide advance

notice by way of a regulatory circular of

the applicable percentages before the

beginning of any time period during

which these percentages would be

calculated. The Market Performance

Committee would also have the

authority to provide exemptions to

certain option classes and for all market

maker activity in one or more classes of

options for certain days. Finally, the

Market Performance Committee would

have the authority to apply the

percentages in aggregate to all the

options traded at a particular trading

station or to single option classes.

For example, the Market Performance

Committee might determine that in

order to remain eligible to participate on

RAES in a particular class of options a

market maker may not execute through

RAES orders more than 25% of his total

transactions or more than 25% of his

total contract volume during a particular

calendar quarter. Under these

requirements, the Market Performance

Committee may grant exemptions from

these requirements in situations in

which it would be more difficult than

normal to satisfy the criteria. For

example, the Market Performance

Committee might grant exemptions from

the requirements where: (i) The average

daily volume of contracts traded in the

class of options is less than 100 per day

for the calendar quarter; or (ii) the

aggregate number of transactions in the

option class at the Exchange executed

through RAES orders by all market

makers during the calendar quarter is

greater than 25% of the number of total

transactions in the option class executed

by all market makers in the calendar

quarter; or (iii) the aggregate contract

volume at the Exchange in the option

class resulting from transactions

executed through RAES by all market

makers during the calendar quarter is

greater than 25% of the total contract

volume at the Exchange in the option

class executed by all market makers in

the calendar quarter. In addition, the

Market Performance Committee might

determine to exempt a particular day of

trading from the calculations if there

was an unusually large volume of RAES

transactions during a particular day.

In addition to being ineligible to

participate on RAES, violations of the

above requirements could subject the

member to disciplinary action or other

remedial action by the Market

Performance Committee under

paragraph (d) of Rule 8.16. Of course, as

with all Exchange decisions involving

economic aggrievement a market maker

who was the subject of a Market

Performance remedial action would

have the right to appeal such decision

under Chapter XIX of the Exchange’s

rules. Appeal rights also exist under

Chapter XVII of the Exchange’s rules for

disciplinary actions taken by the

Exchange. Also, despite a market

maker’s ineligibility under the

provisions of CBOE Rule 8.16, the

Exchange’s Market Performance Floor

Officials could require, pursuant to

paragraph (c) of Rule 8.16, the ineligible

market maker to log onto RAES if there

is inadequate RAES participation in a

particular options class.

2. Statutory Basis

CBOE believes that the proposed rule

change should provide an incentive to

Exchange market makers to proactively

fulfill their obligations under Exchange

rules. As such, the Exchange believes

the rule proposal is consistent with and

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

of the Act,4 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 Exchange does not believe that

the proposed rule change will impose

any inappropriate 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 either

solicited or received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the 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 the 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.

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 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–97–37 and should be

submitted by September 10, 1997.
44298 Federal Register / Vol. 62, No. 161 / Wednesday, August 20, 1997 / Notices

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

2 17 CFR 240.19b–4.

3For instance, the proposed provisions mimic

clauses found in the standard form of agreement

that the Exchange and the other CTA Plan

Participants enter into with vendors and

subscribers. The Commission has approved

contracts containing those provisions on several

occasions. See, for example, the form of vendor

contract contained in Exhibit C to the Second

Restatement of the CTA Plan, which the

Commission approved last year. (Release No. 34–

37191; File No. SR–CTA/CQ–96–1; May 9, 1996.)

4See Paragraph (b) of Exchange Rule 702 (Rights

and Obligations of Holders and Writers).

5See Exchange Rule 813 (Limitation of Liability).

6See, for instance, American Stock Exchange

Rules 902C and 1003 and Chicago Board Options

Exchange Rules 6.7, 7.11 and 23.14.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 97–22057 Filed 8–19–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38930; File No. SR–NYSE–

97–23]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

New York Stock Exchange, Inc.,

Relating to the Regulation of Market

Data Used on the Exchange Floor

August 12, 1997.

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 July 1,

1997, the New York Stock Exchange,

Inc. (‘‘NYSE’’ 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 selfregulatory organization. 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 introduce

new Rule 39 (Market Data Restrictions

and Liability Limitations) into its rules

in order to regulate the receipt and use

of the market data that the Exchange,

with the assistance of various other

parties, makes available on the Floor of

the Exchange.

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

The Exchange uses its facilities to

make various categories of market

information—including last sale prices,

bids and offers, related sizes and the

like—available on the Exchange Floor

for use by Exchange members in the

course of performing their membership

functions. Typically, the Exchange

enters into arrangements with

traditional vendors of market data

services in order to have the vendors

assist the Exchange in making market

information available on the Floor. The

Exchange proposes to add a new Rule

39 (Market Data Restrictions and

Liability Limitations) to regulate the

provision of market data to the Floor of

the Exchange through Exchange

facilities. The proposed rule seeks to

accomplish three purposes:

1. It would exculpate the Exchange,

market data vendors, market data

sources and others that assist in the

process of making market information

available on the Floor through the

facilities of the Exchange from members’

claims of liability as the result of the

dissemination of inaccurate or delayed

information or the omission of

information. The exculpation applies in

respect of any such party’s negligence or

any cause beyond its reasonable control.

It would not exculpate any party for

gross negligence or willful misconduct.

2. It would clarify that each of the

derivative sources of market data retains

proprietary rights to the market data that

it makes available.

3. It would prohibit members from

redistributing the market data that the

Exchange makes available on the Floor

to any other person, except for the

occasional furnishing of limited

amounts of information in the regular

course of a member’s securities business

on the Floor.

The Exchange considers its members’

easy and complete access to market

information on the Floor of the

Exchange to constitute a singularly

important aspect of the Exchange’s

trading environment. The Exchange

believes such access is essential to the

process of making markets and to the

capital-raising process. By providing

basic protections from liability to

market data vendors, sources of market

data and those that assist in the process

of making market data available, the

proposed rule change will allow each of

those entities to perform their respective

roles. As a result, the Exchange believes

the proposed rule change would greatly

facilitate the Exchange’s ability to enter

into working relationships with those

entities and improve the Exchange’s

ability to place market information in

the hands of its members.

The Exchange believes the proposed

legal protections would act as surrogates

for direct contractual relationships

between the Exchange and/or vendors

on the one hand and Exchange members

that receive access to market data on the

Floor on the other. That is, the Exchange

traditionally requires professional end

users of the market data that is made

available under the CTA Plan and the

CQ Plan to execute contracts. Similarly,

vendors traditionally require each of

their market data service subscribers to

execute contracts. Each such contract

typically contains counterpart

provisions to the ones that the Exchange

is proposing for its new rule.3 By

placing those provisions into an

Exchange rule, the Exchange intends to

obviate the need for those contracts.

In addition, the adoption of rules

designed to protect a securities market’s

agents and contractors and to induce

those agents and contractors to assist the

securities markets in providing its

traditional services is nothing new. For

instance, Exchange rules presently

contain similar exculpatory provisions

for the calculation of index values 4 and

for basket information.5 Other equity

markets have similar protections in their

rules.6

The Exchange believes that Article II,

Section 6 (Use of Exchange Facilities) of

the Exchange Constitution already

exculpates the Exchange from liability

for damages that grow out of the use or

enjoyment of the Exchange’s facilities.

The Exchange has always deemed that

Constitutional provision to implicitly

protect the Exchange’s agents and

contractors in the same manner as it

protects the Exchange and the proposed

rule change is intended to supplement,

not limit, the applicability of that

provision. The Exchange believes the

proposed rule change would merely

codify and expound upon that reading

of the provision and clarify the

Exchange’s interpretation.