Federal Register / Vol. 62, No. 163 / Friday, August 22, 1997 / Notices 44739

33 15 U.S.C. 78s(b)2.

34 17 CFR 200.30.3(a)12.

1 15 U.S.C. 78s(b)(1) (1988 & Supp. V 1993).

2 17 CFR 240.19b–4.

3See letter from Timothy H. Thompson, Senior

Attorney, CBOE, to Steve Youhn, Division of

Market Regulation, Commission, dated May 13,

1997 (‘‘Amendment No. 1’’).

4See Securities Exchange Act Release No. 38637

(May 14, 1997), 62 FR 28084 (May 22, 1997).

5See Securities Exchange Act Release No. 31920

(February 24, 1993), 58 FR 12280 (March 3, 1993).

6The rule currently provides that the Submitting

Member is entitled to the largest of the percentage

of the trade (1⁄2 or 2⁄3), $1 million Underlying

Equivalent Value, or the remaining Underlying

Equivalent Value on a closing transaction valued at

less than $1 million. These qualifications ($1

million Underlying Equivalent Value or the

remaining Underlying Equivalent Value) remain in

the proposed rule.

7Because the percentage entitlements for

Submitting Members for both FLEX Equity and

FLEX Index options are currently contained in one

paragraph in CBOE Rule 24A.5, the Exchange’s

proposal will separate the treatment of Flex Equity

and Flex Index options into different paragraphs.

as if a market disruption occurred due

to a natural disaster or a foreign holiday.

The Commission believes that

Amendment Nos. 1, 2, and 3, as

described herein, clarify and strengthen

the Exchange’s proposal by, among

other things, providing the specific

continued listing standards that will

apply, which should help ensure a

minimal level of depth and liquidity for

continued trading of the product on

Amex, identifying which trading rules

will apply to the trading of the Index

Notes, and adopting a heightened

suitability standard for

recommendations covering the Index

Notes. Amendment Nos. 1 and 2 also

refine the original proposal by

specifying in further detail how the

Exchange will be responsible for

determining any changes in the subindices due to a significant event, and

Amendment No. 1 clarifies the terms of

the Information Circular. Additionally,

the Exchange’s proposal to list and trade

the proposed Index Notes was noticed

for the full comment period and no

comment letters were received.

Accordingly, the Commission believes

that it is consistent with Section 6(b)(5)

of the Act to approve Amendment Nos.

1, 2, and 3 to the proposal on an

accelerated basis.

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment Nos.

1, 2, and 3 to the rule proposal. 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 also will be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–Amex–97–20 and should be

submitted by September 12, 1997.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,33 that the

proposed rule change (SR–Amex–97–

20), including Amendment Nos. 1, 2,

and 3 is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.34

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–22291 Filed 8–21–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38939; File No. SR–CBOE–

97–16]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Approving Proposed Rule

Change, and Amendment No. 1

Thereto, Relating to the Trading of

FLEX Index Options

August 15, 1997.

On March 13, 1997, the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’

or ‘‘Exchange’’) submitted to the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’), pursuant to

Section 19(b) of the Securities Exchange

Act of 1934 (‘‘Act’’),1 and Rule 19b–4

thereunder,2 a proposed rule change to

amend its rules governing the trading of

FLEX Index options. On May 13, 1997,

the CBOE submitted an amendment to

the Commission regarding the

proposal.3 Notice of the proposed rule

change, and Amendment No. 1 thereto,

appeared in the Federal Register on

May 22, 1997.4 No comments were

received on the proposal. This order

approves the proposal, as amended.

I. Description of the Proposal

The purpose of the proposed rule

change is to make certain changes to the

Exchange’s rules governing the trading

of FLEX Index options. Specifically,

those changes involve a reduction in the

percentage of a trade to which a

Submitting Member indicating an intent

to cross is entitled, and the

establishment of bid-offer spreads for

certain FLEX Index trades.

Since their inception,5 FLEX Index

options have relied on Appointed

Market-Makers (‘‘AMMs’’) to provide

liquidity for FLEX requests for quotes

(‘‘RFQs’’). AMMs are required, pursuant

to CBOE Rule 24A.9(b), to enter a FLEX

Quote in response to any RFQ on any

FLEX option of the class to which the

AMM is appointed.

As an inducement to attract volume

that would otherwise be transacted in

the over-the-counter market, the

Exchange established percentage

entitlements for the Exchange member

that initiates FLEX bidding and offering

by submitting a RFQ (‘‘Submitting

Member’’) where the Submitting

Member has indicated an intention to

cross or to act as principal on the trade

and has matched or improved the best

bid or offer (‘‘BBO’’). Generally, with

some qualifications, pursuant to CBOE

Rule 24A.5, the Submitting Member in

a FLEX Index option is entitled to 50%

(1⁄2) of the trade in the case where the

Submitting Member matches the BBO

and 66.67% (2⁄3) of the trade where the

Submitting Member improves the BBO.

To the extent Submitting Members

accept their entire entitlement on a

FLEX Index option trade, half of the

trade or less would remain for the other

market-makers to share. The Exchange

believes, however, that these

entitlements have discouraged

participation by market-makers in the

FLEX Index product. Accordingly, the

Exchange has proposed to amend its

rules so that the entitlement for

Submitting Members would be reduced

to the greater of 25% or a proportional

share of the trade.6 This means, for

example, that if there are four marketmakers participating on the trade in

addition to the Submitting Member,

then the Submitting Member would be

entitled to 25% of the trade because it

is greater than the proportional share

(1⁄5) of the trade. However, if there were

two market-makers participating on a

trade along with a Submitting Member,

the Submitting Member would be

entitled to a proportional share of the

trade, or 1⁄3. This is different from the

current entitlement for Submitting

Members in Flex Equity options, under

CBOE Rule 24A.5, who are entitled only

to 25% of the trade regardless of the

number of participants to the trade.7
44740 Federal Register / Vol. 62, No. 163 / Friday, August 22, 1997 / Notices

8See Securities Exchange Act Release No. 37337

(June 19, 1996), 61 FR 33561 (June 27, 1996).

9Options with a time to expiration greater than

two weeks and less than or equal to one year shall

have the following bid/ask spreads:

10 15 U.S.C. 78f(b)(5) (1988).

11The Commission notes that the current

entitlement for Submitting Members in FLEX

Equity options will remain unchanged at 25% of

the trade regardless of the number of participants

to the trade.

12The Commission also believes that the

proposed rule change will not result in any injury

to public customers as customer orders on parity

will not receive a smaller participation than any

other crowd participant.

13 15 U.S.C. 78s(b)(2) (1988).

14 17 CFR 200.30–3(a)(12).

The proposed rule change also

amends the language of sub-paragraphs

(e)(iii) (A) and (B) of CBOE Rule 24A.5

to state that a submitting member ‘‘will

have priority to execute’’ the specified

share of a trade that is the subject of a

RFQ, instead of the term ‘‘be permitted

to execute.’’ The Exchange initially

adopted this rule language in Securities

Exchange Act Release No. 37337 in

order to clarify that a member may cross

more than the designated share as to

which he has priority if no one else is

willing to trade at the same or a better

price.8 The current filing inadvertently

utilized the old rule language.

Amendment No. 1 to the filing clarifies

that the original rule language will

remain unchanged.

The Exchange is also proposing to

impose maximum bid-offer spreads on

certain FLEX Index options. Currently,

under CBOE Rule 24A.9 (d), marketmakers are not required to quote a

minimum bid-offer spread in FLEX

options because of the unique nature of

the product in which new series are

established periodically by the

submission of a RFQ. Based on

experience over the last four years,

however, the Exchange has determined

that it is appropriate to establish

maximum bid-offer spreads for Index

FLEX AMMs when quoting Europeanexercise FLEX options overlying the

S&P 100 Index (‘‘OEX’’) or the S&P 500

Index (‘‘SPX’) with a time to expiration

of more than two weeks and less than

two years.9 The Exchange expects that

the establishment of these spreads will

increase customer confidence in the

CBOE markets for these products. The

CBOE also believes that the

establishment of these maximum bidoffer spreads will ensure tight markets

for the majority of the Index FLEX RFQs

submitted to the CBOE floor; the

proposed spreads would have applied to

77% of the RFQs submitted in 1996.

The Exchange also believes that if, as

expected, the reduction in the

entitlement of a trade to a Submitting

Member encourages more active

participation by market-makers in the

quoting process, then bid-offer spreads,

through competition, should decrease in

any event.

Where Bid Is Maximum Bid/Ask Spread Is

Less than $5 ..................... 3⁄4 of $1

At least $5, but not more

than $10.

$1

At least $10, but not

more than $20.

$1.50

At least $20 ...................... $2

Where Bid Is Maximum Bid/Ask Spread Is

Options with a time to expiration greater than one year

and less than two years shall have the following maximum bid/ask spreads:

Where Bid Is Maximum Bid/Ask Spread Is

Less than $10 ................... $1.50

At least $10, but not

more than $20.

$2

At least $20, but not

more than $40.

$3

At least $40 ...................... $4

Compare CBOE Rule 8.7 regarding maximum bid/ask

spreads for non-Flex options.

Because the proposed rules should

encourage more active participation of

market-makers in the establishment of

bid-ask spreads as well as require the

quoting of spreads on FLEX Index

options within a certain range, CBOE

believes that the proposed rules are

consistent with and further the

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

in that they are designed to improve

communications to and from the

Exchange’s trading floor in a manner

that promotes just and equitable

principles of trade, prevents fraudulent

and manipulative acts and practices,

and maintains fair and orderly markets.

II. Findings and Conclusions

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, the

requirements of Section 6(b)(5).10 The

Commission finds that CBOE’s proposal

to reduce the Submitting Member’s

entitlement rate to the greater of 25% or

a proportional share of the trade should

serve to encourage more active

participation by market-makers in FLEX

Index options. Specifically, because

participating market-makers will be

entitled to a greater share of the FLEX

trade, they should have more incentive

to make markets in FLEX Index options.

More active participation should, in

turn, result in increased liquidity for the

product, which would serve to enhance

the market for FLEX Index options.11

Accordingly, the Commission believes

that this portion of the CBOE filing is

consistent with the Act in that it should

facilitate transactions in securities

consistent with investor protection and

in furtherance of the public interest.12

The Commission also believes that

CBOE’s proposal to impose maximum

bid-offer spreads for Index FLEX AMMs

when quoting European-style FLEX

options overlying the OEX or the SPX

should serve to potentially tighten

spreads as well as to ensure that the

spreads are no larger than the

predetermined range. The Commission

believes that the potential for tighter

markets in FLEX OEX and SPX

contracts as a result of the adoption of

maximum bid-ask spreads should serve

to increase investors’ confidence that

the quoted market for these options

represents fair and indicative prices. In

this regard, the CBOE may wish to adopt

maximum bid-ask spreads for other

FLEX options. Accordingly, the

Commission believes the Exchange’s

proposal to impose maximum bid-offer

spreads for certain FLEX Index options

is consistent with the Act in that it

should facilitate trading in securities.

It therefore is ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule change (SR–CBOE–97–

16), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–22293 Filed 8–21–97; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

[License No. 07/07–0099]

Civic Ventures Investment Fund, L.P.,

Notice of Issuance of a Small Business

Investment Company License

On March 18, 1996, an application

was filed by Civic Ventures Investment

Fund, L.P., at One Metropolitan Square,

211 North Broadway, Suite 2380, St.

Louis, Missouri 63102 with the Small

Business Administration (SBA)

pursuant to Section 107.300 of the

Regulations governing small business

investment companies (13 C.F.R.

107.300 (1997)) for a license to operate

as a small business investment

company.

Notice is hereby given that, pursuant

to Section 301(c) of the Small Business

Investment Act of 1958, as amended,

after having considered the application

and all other pertinent information, SBA

issued License No. 07/07–0099 on

August 1, 1997, to Civic Ventures

Investment Fund, L.P. to operate as a

small business investment company.

(Catalog of Federal Domestic Assistance

Program No. 59.011, Small Business

Investment Companies)