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[Federal Register Volume 62, Number 186 (Thursday, September 25, 1997)]
[Notices]
[Pages 50412-50414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25374]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39092; File No. SR-CBOE-97-44]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange Relating to Certain Rules Governing the Trading of Options on 
the DJIA

September 18, 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 
September 8, 1997,\1\ 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 self-
regulatory organization. The Exchange has designated the proposed rule 
change as constituting a ``non-controversial'' rule change under 
paragraph (e)(6) of Rule 19b-4 under the act.\2\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons. CBOE has requested that the Commission 
accelerate the operative date for the proposed rule change for good 
cause.\3\
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    \1\ CBOE filed Amendment No. 1 to the proposed rule change 
requesting that the Commission accelerate the operative date of the 
filing for good cause shown to October 6, 1997. See letter from 
Timothy H. Thompson, Senior Attorney, CBOE, to Heather Seidel, 
Attorney, Market Regulation, Commission, dated September 12, 1997.
    \2\ The Exchange has represented that this proposed rule change: 
(i) Will not significantly affect the protection of investors or the 
public interest; (ii) will not impose any significant burden on 
competition; and (iii) will not become operative for 30 days after 
the date of this filing, unless an earlier operative date is 
designated by the Commission for good cause shown. The Exchange also 
has provided at least five business days notice to the Commission of 
its intent to file this proposed rule change, as required by Rule 
19b-4(e)(6) under the Act.
    \3\ See supra note 1.
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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 certain of its rules governing trading 
with respect to the trading of options on the Dow Jones Industrial 
Average (``DJIA'').\4\ The text of the proposed rule change is 
available at the Office of the Secretary, CBOE and at the Commission.
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    \4\ The Commission recently approved a CBOE rule filing to list 
and trade options on the DJIA. See Securities Exchange Act Release 
No. 39011 (September 3, 1997), 62 FR 47840 (September 11, 1997) 
(File No. SR-CBOE-97-26).
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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 Exchange is proposing to amend certain Exchange rules governing 
trading with respect to the trading of options on the DJIA (trading 
under the symbol ``DJX''). In each case, the Exchange is proposing to 
provide comparable treatment for options on the DJIA to that existing 
for other broad-based indexes with wide retail investor interest, i.e., 
options on the Standard & Poor's (``S&P'') 100 Stock Index (``OEX'') 
and options on the S&P 500 Stock Index (``SPX'').
    First, the Exchange is proposing to amend Interpretation .08 to 
Rule 6.20 to permit members of a floor procedure committee which has 
been delegated responsibility for overseeing the trading of options on 
the DJIA to act as Floor Officials. Currently, the interpretation 
permits members of the Index Floor Procedures Committee to act as Floor 
Officials in the OEX and SPX trading crowds only. At this time, the 
Exchange has not decided which committee will be delegated 
responsibility for options on the DJIA, but the Exchange expects the 
trading crowd to be large and to develop its unique trading protocols. 
Therefore, the rationale for allowing committee members to act as Floor 
Officials, i.e., these members will be familiar with the particular 
trading protocols in the trading crowd governing those options, applies 
equally to options on the DJIA. The interpretation will also change the 
reference to the ``Index Floor Procedure Committee'' to the 
``applicable Floor Procedure Committee'' because it has not yet been 
decided which committee will have jurisdiction over options on the DJIA 
and because the Index Floor

[[Page 50413]]

Procedure Committee has been divided into the OEX Floor Procedure 
Committee and the SPX Floor Procedure Committee. The Exchange may 
decide to delegate responsibility for overseeing the trading in options 
on the DJIA to an existing Floor Procedure Committee (such as the OEX 
Floor Procedure Committee) or it might create a new Floor Procedure 
Committee that is responsible for overseeing trading on options on the 
DJIA alone. The Exchange also may decide to create one Committee 
responsible for all broad-based index options which would replace the 
OEX Floor Procedure Committee and the SPX Floor Procedure Committee.
    Second, the Exchange is proposing to exempt DJX from the 
requirement that the use of hand signals to convey order information 
must be followed in written form and time stamped immediately after the 
signal has been sent. Currently, Interpretation .02 to Rule 6.24 
exempts options on the OEX and the SPX from this requirement. Because 
the Exchange expects trading in DJX to be in a large pit with an active 
order flow, the Exchange believes it is appropriate to exempt DJX from 
this requirement as well.
    Third, the Exchange wants to provide for the possibility of using 
Lead Market-Makers (``LMMs'') in the DJX crowd as it uses LMMs in the 
OEX crowd during opening rotations. Due to the size of the OEX trading 
crowd and the large number of series traded in the crowd, the Exchange 
has found that the use of a modified opening rotation whereby LMMs are 
assigned to open particular series has allowed the OEX trading crowd to 
conduct opening rotations more quickly (and thus, enter into open 
trading more quickly). The Exchange believes that the LMM system should 
be available for use by the DJX crowd because the Exchange expects the 
DJX crowd to be similar in size to the OEX crowd and expects a large 
number of series to trade in DJX. In addition, the Exchange is 
proposing to change the LMM rule to specify that the ``appropriate 
Market Performance Committee,'' rather than the ``Market Performance 
Committee,'' may assign LMMs because the Exchange has not yet decided 
which Market Performance Committee will have responsibility for 
overseeing the trading in DJX.\5\ The appropriate Market Performance 
Committee will likely monitor how opening rotations are conducted 
without LMMs before it decides whether to appoint LMMs. Nevertheless, 
the Exchange believes it is critical to have the system available for 
use in the DJX crowd in the event that the opening rotations are taking 
too much time from the commencement of trading.
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    \5\ The Exchange may create a new Market Performance Committee 
responsible for the market performance functions specific to trading 
the DJX, or it may delegate market performance duties for the DJX 
crowd to an existing Market Performance Committee.
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    Finally, the Exchange is also proposing to apply the terms of the 
OEX/SPX joint account circular to trading in options on the DJIA.\6\ 
The circular provides that joint accounts may be represented in the 
crowd by more than one participant trading in-person for the joint 
account. In addition, the circular provides that joint account 
participants who are not trading in-person in the crowd may enter 
orders for the joint account with floor brokers even if other 
participants are trading the same joint account in-person. The joint 
account circular applicable to equity options does not allow a joint 
account participant to enter orders while another joint account 
participant is trading in-person on behalf of the joint account. The 
Exchange believes the OEX/SPX model is more appropriate for options on 
the DJIA because of the expected large size of the DJX crowd.\7\
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    \6\ The Commission approved the Exchange's OEX/SPX joint account 
circular on September 10, 1992. See Securities Exchange Act Release 
No. 31174, 57 FR 42789 (September 16, 1992) (approving File No. SR-
CBOE-91-40). The circular was updated pursuant to Commission 
approval of a change to allow more than one SPX participant 
participate on a trade on behalf of the joint account. See 
Securities Exchange Act Release No. 35579 (April 7, 1995), 60 FR 
18867 (April 13, 1995) (approving File No. SR-CBOE-95-17).
    \7\ Attached as Exhibit B to the proposed rule change is a 
revised version of the joint account circular for OEX/SPX which 
incorporates DJX.
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2. Statutory Basis
    By applying certain existing trading rules and circulars to the 
trading of options on the DJIA, the Exchange expects to enhance the 
possibility of the successful launch of options on the DJIA and to be 
able to provide investors with a useful tool to invest in and hedge 
interests in the U.S. equity market. Therefore, the proposed rule 
change will better serve the needs of CBOE's public customers and the 
Exchange members who make a market for such customers and is consistent 
with and furthers the objectives of Section 6(b)(5) of the Act \8\ 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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    \8\ 15 U.S.C. 78F(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Commission finds that the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(e)(6) thereunder because it: (1) does not significantly affect the 
protection of investors or the public interest; (2) does not impose any 
significant burden on competition; and (3) was provided by the Exchange 
to the Commission with written notice of its intent to file the 
proposed rule change at least five days prior to the filing date. A 
proposed rule change filed under Rule 19b-4(e) does not become 
operative prior to thirty days after the date of filing or such shorter 
time as the Commission may designate if such action is consistent with 
the protection of investors and the public interest. CBOE has requested 
that the Commission accelerate the implementation of the proposed rule 
change so that it may become operative prior to the thirty days 
specified under Rule 19b-4(e)(6)(iii). 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.
    The Commission finds good cause to accelerate the thirty day period 
for the proposed rule change to become operative prior to the thirtieth 
day after the date of filing. Specifically, the Commission believes 
that the proposed rule change should become operative on the day that 
CBOE begins to trade options on the DJIA to ensure that all rules 
applicable to trading DJIA options are in place prior to such trading 
commences. Accordingly, the proposed rule change will become operative 
on October 6, 1997, rather than October 8, 1997.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and

[[Page 50414]]

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 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 
Exchange. All submissions should refer to File No. SR-CBOE-97-44 and 
should be submitted by October 16, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25374 Filed 9-24-97; 8:45 am]
BILLING CODE 8010-01-M
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