46528 Federal Register / Vol. 62, No. 170 / Wednesday, September 3, 1997 / Notices

3Although Rule 8.7 and Rule 7.5 do not require

Market-Makers to appear at the Exchange to

perform their market-making duties, the

Commission notes that other CBOE rules encourage

Market-Makers to undertake their market- making

functions. For example, Rule 8.60 provides that the

CBOE Market Performance Committee may take

remedial action against Market-Makers or trading

crowds that fail to satisfy minimum minimum

market performance standards. Accordingly, the

failure of a Market-Maker or trading crowd to

appear at the Exchange and to make markets in a

volatile market situation is a factor the CBOE

Market Performance Committee could consider in

evaluating the performance of a Market-Maker or

trading crowd and in determining whether to take

remedial action against a Market-Maker or trading

crowd pursuant to Rule 8.60. Letter from Arthur B.

Reinstein, Senior Attorney, CBOE, to Michael

Walinskas, Senior Special Counsel, Division of

Market Regulation, SEC, dated August 20, 1997.

4Spicer v. Chicago Board Options Exchange, Inc.,

No. 88C 2139, 1990 WL 172712 (N.D. Ill. Oct. 30,

1990) aff’d, 977 F.2d 255 (7th Cir. 1992).

5 15 U.S.C. § 78f(b)(5).

6 15 U.S.C. § 78s(b)(3)(A).

7 17 CFR 240.19b–4.

8 17 CFR 200.30–3(a)(12).

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

respect to the trading crowd in which

the Market-Maker is present at the time

in question. Similarly, the Exchange has

always interpreted Rule 7.5 as applying

to Market-Makers who are present on

the Exchange floor at the time of the

Order Book Official call. The Exchange

has not interpreted Rule 8.7 or Rule 7.5

as requiring Market-Makers to appear on

the Exchange floor to make markets on

any particular day or under any

particular market conditions.3 However,

when a Market-Maker is on the trading

floor and is present in a particular

trading crowd, the Exchange does

enforce the obligations set forth in Rule

8.7 with respect to the Market-Maker’s

activities in that trading crowd.

Similarly, whenever a Market-Maker is

on the trading floor, the Exchange

enforces the obligations set forth in Rule

7.5 as to that Market-Maker.

The Exchange’s present interpretation

is consistent with Rule 8.7(b)

paragraphs (i) through (iii), which make

clear that, at the station where a MarketMaker is present, a Market-Maker is

expected to perform certain activities in

the course of maintaining a fair and

orderly market. Similarly, the

Exchange’s present interpretation is

consistent with the text of Rule 7.5

which, by authorizing Order Book

Officials to ‘‘call upon’’ Market-Makers

and by requiring a record of those who

‘‘fail to respond,’’ implicitly recognizes

that this procedure will apply to

Market-Makers whose physical presence

on the floor will enable them to hear

and ‘‘respond’’ to such a ‘‘call.’’ The

proposed Interpretation .09 to Rule 8.7

and proposed Interpretation .04 to Rule

7.5 would clarify CBOE’s existing

interpretation and enforcement policy

regarding Rule 8.7(b) and Rule 7.5.

The Exchange believes such

clarification is necessary because it

knows of at least one instance where

Rule 8.7 obligations were

misinterpreted. In a class action lawsuit

filed against the Exchange, Spicer et al.

v. Chicago Board Options Exchange,

Inc. et al.,4 counsel for the class took the

position that Rule 8.7 imposed an

obligation on all Market-Makers to

appear on the Exchange’s trading floor

and to make markets under certain

market conditions. The Exchange

believes the proposed interpretation

will help avoid such misinterpretation

of either Rule 8.7(b) or Rule 7.5 in the

future.

2. Statutory Basis

The Exchange believes the proposed

rule change is consistent with and

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

of the Act 5 in that the Exchange’s

clarification of its interpretation and

policy regarding Market-Maker

obligations under Rule 8.7 and Rule 7.5

is designed to perfect the mechanism 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 believes the proposed

rule change does not impose any burden

on competition that is 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

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change constitutes

an interpretation with respect to the

enforcement of an existing rule of the

self-regulatory organization. Therefore,

the proposed rule change has become

effective pursuant to Section 19(b)(3)(A)

of the Act 6 and subparagraph (e) of Rule

19b–4 thereunder.7 At any time within

sixty 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.

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, 450 Fifth Street, N.W.,

Washington, D.C. 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 File No. SR–CBOE–97–

34 and should be submitted by

September 24, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23340 Filed 9–2–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38974; File No. SR–CBOE–

97–32]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Chicago Board Options Exchange, Inc.

Relating to the Operation and

Enforcement of Rules Relating to the

Transmission of Orders to Exchange

Electronic Order Systems Including

RAES

August 26, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

July 22, 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
Federal Register / Vol. 62, No. 170 / Wednesday, September 3, 1997 / Notices 46529

2RAES is the Exchange’s automatic execution

system for small public customer market or

marketable limit orders.

3The electronic public customer order book

(‘‘EBOOK’’) is an automated system whereby

booked orders are automatically sorted and filed in

price and time sequence. As orders are traded from

EBOOK, Last Sale prices are automatically

generated and overhead screens on the CBOE floor

are simultaneously updated. Upon trade

endorsement by Exchange book staff, execution

reports are instantaneously generated.

4See Rule 6.8(a)(1) and Rule 24.15(a)(1).

5See Regulatory Circular RG97–67 (June 11,

1997) which permits market and marketable limit

orders tagged with AON (All or None), IOC

(Immediate or Cancel), FOK (Fill or Kill), or MIN

(Minimum quantity) to be executed on RAES. For

MIN orders, the total order quantity must be within

the RAES volume. This circular was approved in

Securities Exchange Act Release No. 38702 (May

30, 1997), 62 FR 31184 (June 6, 1997).

6Rule 6.8(a)(i) specifies that RAES is for the

purpose of routing ‘‘small public customer market

or marketable limit orders. * * * as defined in Rule

7.4(a) regarding placing of orders on the public

customer book.’’ Rule 7.4(a) states that no order

shall be placed on the public customer book in

which a member, any non-member joint venture

participant, or any non-member-broker/dealer has

an interest.

7See Exchange Rule 6.8(a) and Exchange Rule

24.15(a).

8For purposes of the circular, a correspondent

firm is any firm or customer that has been given

access to the Exchange’s systems by the member

firm or by another correspondent of the member

firm.

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 issue a

regulatory circular pertaining to the

administration and enforcement of

Exchange rules regarding the routing of

ineligible orders to Exchange electronic

order handling systems including RAES

and the electronic public customer

order book.

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 consolidate and clarify in

a single regulatory circular (referred to

as ‘‘Regulatory Circular 97–aa’’) the

Exchange’s policies concerning the

administration and enforcement of the

rules governing the entry of orders to

Exchange electronic order handling

systems including the Exchange’s Retail

Automatic Execution System (‘‘RAES’’) 2

and the electronic public customer

order book.3 In addition, the rule filing

sets forth steps that member firms may

take to avoid liability for the actions of

their correspondent firms in entering

ineligible orders to RAES and the

electronic book.

Prohibition on RAES Unbundling

The first section of the circular merely

restates and clarifies the terms of

current CBOE rules and circulars

concerning the order eligibility

requirements that orders must meet in

order to be executed on RAES. The

Exchange believed it was important to

combine these criteria into one circular

to provide guidance to Exchange

members regarding these matters.

First, the circular reiterates that to be

eligible for RAES, orders must be market

or marketable limit orders of public

customers.4 In addition, RAES will

accept market or marketable limit orders

with certain contingencies, pursuant to

the terms of a regulatory circular

approved by the Commission.5 The

circular also restates Exchange rules that

specify that eligible public customer

orders are orders for an account in

which a member or a non-member

broker-dealer does not have an interest.6

The circular continues by stating that

generally the volume limitation for

eligible RAES orders is ten contracts or

fewer. The circular also states the

volume parameters for a number of

option classes where the eligible RAES

order size is greater than ten contracts.

The circular points out that a complete

list of the applicable volume parameters

is available from Exchange Support

Systems.

Finally, the first section of the circular

restates the Exchange’s policy, which is

also set forth in Exchange rules, that

orders for more than the applicable

contract limit are never eligible for

execution on the RAES system and may

not be split in an attempt to make the

parts of the order eligible.7

Regulatory Requirements Governing

the Entry of Orders Over Exchange

Systems

The second section of the regulatory

circular sets forth the Exchange’s longstanding interpretations regarding the

liability of member firms for the use of

RAES and other Exchange electronic

order-handling systems by those firms’

correspondent firms.8 In addition, this

section of the circular sets forth

recommended steps that a member firm

may take to avoid potential disciplinary

action for conduct of its correspondent

firms in the use of RAES and other

Exchange electronic order-handling

systems.

First, the second section of the

circular states that members and

member firms who accept, execute,

clear, and/or transmit agency orders for

correspondent firms or who provide

facilities for correspondent firms to

transmit orders for execution via the

Exchange’s systems, including the

Exchange’s RAES systems or the

electronic public customer book, should

provide written notice to all

correspondent firms that explains the

proper use of those systems, including

the eligibility of orders for entry and the

prohibition of unbundling RAES orders.

The circular further states that when

the member firms provide facilities for

correspondent firms to transmit orders

for execution via Exchange systems,

including the Exchange’s RAES system

or the electronic public customer order

book, the member firms should ensure

that correspondents have adequate

written procedures to monitor and

supervise the entry of orders to

minimize misuses of Exchange systems

and the potential for errors. The circular

states that member firms may

accomplish this by (a) obtaining and

maintaining as part of their books and

records, a copy of their correspondents’

written control procedures pertaining to

electronic order entry or (b) establishing

the procedures by which a

correspondent must abide and having

the correspondent sign an agreement

stating that it will abide by such

procedures.

The circular further states the

Exchange’s long-standing practice of

seeking disciplinary action against

member firms for the violative activity

of the correspondent firms in

connection with the improper use of

RAES and the Exchange’s electronic

order-handling systems where the

member firm has not taken reasonable

steps to ensure compliance by the

correspondent firm.

For purposes of the circular, a

correspondent firm is any firm or

customer that has been given access to

the Exchange’s systems by the member
46530 Federal Register / Vol. 62, No. 170 / Wednesday, September 3, 1997 / Notices

9 15 U.S.C. 78f(b)(5).

10 15 U.S.C. 78s(b)(3)(A)(i).

11 17 CFR 240.19b–4.

12 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries prepared by Delta.

firm or by another correspondent of the

member firm. Member firms should

instruct their correspondents not to give

access to the Exchange’s systems to

other customers without the prior

knowledge and consent of the member

firm through whose facilities such

access would be provided.

The Exchange has carried out an

increasing number of investigations of

violative activity involving

correspondent use of the Exchange’s

electronic order-handling systems. In

addition, the Exchange has issued

disciplinary decisions against member

firms due to correspondents’ improper

use of Exchange electronic orderhandling systems. The Exchange

believes that the record-keeping

suggested by the proposed regulatory

circular will serve as an educational tool

to help eliminate violations of the rules

governing the use of such systems.

2. Statutory Basis

The Exchange represents that

proposed rule change is consistent with

the objectives of Section 6(b)(5) 9 in that

it will serve to promote just and

equitable principles of trade and 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

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change constitutes

a stated policy, practice or

interpretation with respect to the

meaning, administration, or

enforcement of the Exchange’s rules

and, therefore, has become effective

pursuant to Section 19(b)(3)(A)(i) of the

Act 10 and subparagraph (e) of Rule 19b–

4 thereunder.11

At any time within 60 days of the

filing of the 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.

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 Chicago Board

Options Exchange. All submissions

should refer to File No. SR–CBOE–97–

32 and should be submitted by

September 24, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23341 Filed 9–2–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38971; File No. SR–DCC–

97–04]

Self-Regulatory Organizations; Delta

Clearing Corp.; Notice of Filing of a

Proposed Rule Change Relating to the

Combining of Options and Repo

Procedures

August 26, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

March 17, 1997, Delta Clearing Corp.

(‘‘Delta’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

the proposed rule change (File No. SR–

DCC–97–04) as described in Items, I, II,

and III below, which items have been

prepared primarily by Delta. Delta

amended the proposed rule change on

May 7, 1997, and May 29, 1997. 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

Delta proposes to combine its

procedures (‘‘Options Procedures’’) for

the clearance and settlement of options

trades and its procedures (‘‘Repo

Procedures’’) for the clearance and

settlement of repurchase and reverse

(‘‘repo’’) agreement transactions into

one set of procedures (‘‘Combined

Procedures’’) to be known as the

Procedures for the Clearing of Securities

and Financial Instrument Transactions.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

Delta 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. Delta has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of such statement.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Combined Procedures

The proposed rule change will effect

various modifications to Delta’s

procedures relating to the clearance and

settlement of options and repos.

a. Definitions: In addition to the

defined terms discussed elsewhere in

this notice, the Combined Procedures

will contain the following defined terms

which apply to transactions in both

options and repos: closing transaction,

contract, delivering participant, holder,

long position, opening transaction,

positions, purchasing participant,

receiving participant, selling

participant, settlement date, short

position, system, trade date,

transactions, underlying collateral, unit

of trading, and variable terms.

‘‘Contract’’ will refer to both option

contracts and repo contracts. ‘‘Options

contracts’’ will be defined to include

puts and calls issued by Delta to a

purchasing participant and matching

puts and calls purchased by Delta from

a writing participant. ‘‘Repo contracts’’

will be defined to include repos and