[Federal Register Volume 62, Number 187 (Friday, September 26, 1997)]
[Notices]
[Pages 50644-50645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25518]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39100; File No. SR-CBOE-97-41]


Self-Regulatory Organizations; Proposed Rule Change By Chicago 
Board Options Exchange, Incorporated Relating to the Definition of Stop 
Orders

September 19, 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 August

[[Page 50645]]

25, 1997, the Chicago Board Options Exchange, Incorporated (``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 its Rule 6.53 (``Rule'') governing the 
definition of stop orders to clarify that a stop order on the CBOE is 
triggered when the option contract reaches a specified price ``on the 
CBOE floor.'' 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 purpose of the proposed change is to amend the definition of a 
stop order to clarify that the stop order becomes triggered when the 
option contract reaches a specified price ``on the CBOE floor.''
    Currently, paragraph (c)(iii) of Exchange Rule 6.53 defines a stop 
order as a contingency order to buy or sell when the market for a 
particular option contract reaches a specified price. The Rule does not 
specify, but has always been interpreted to mean, that the contingency 
to buy or sell is satisfied when the option contract is bid at or above 
the stop price (in the case of a by order) or is offered at or below 
the stop price (in the case of a sell order) ``on the floor of the 
CBOE.'' The proposed amendment will make it clear, therefore, that a 
stop order is not activated when the bid or offer (as appropriate) 
reaches the stop limit on another exchange.
    Unlike the equity markets, the option markets are not 
electronically linked to each other. Thus, options traders have no way 
of knowing whether a contract has reached a specified ``stop'' in 
another market place, as would an equity securities trader. 
Accordingly, there is no rule prohibiting trade-throughs in options 
market places as there is in the equity market places.
    The CBOE believes that the proposed rule change will clarify the 
CBOE's responsibility in this regard, and will prevent any perception 
that CBOE members have a duty to execute stop orders when the ``stop'' 
price has not been reached on the CBOE floor.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) that an exchange have rules that are 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to protect and 
perfect the mechanism of a free and open market and a national market 
system, and in general, to protect investors and the public interest. 
By clarifying the definition of a ``stop order,'' the proposed rule 
change will more accurately describe the obligations of CBOE members 
with regard to stop orders executed on the Exchange. Therefore, the 
Exchange believes that amending the rule is consistent with, and 
furthers, the objectives of Section 6(b)(5) of the Act.

B. 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.

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 approve such proposed rule change, or
    (B) Institute proceedings to adtermine 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 in the 
Commission's Public Reference Section, 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 the file number SR-CBOE-97-41 and should be 
submitted by October 17, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to the delegated authority.\3\
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    \3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25518 Filed 9-25-97; 8:45 am]
BILLING CODE 8010-01-M