61156 Federal Register / Vol. 62, No. 220 / Friday, November 14, 1997 / Notices

17 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

3FLEX equity options are flexible exchangetraded options contracts which overlie equity

securities. In addition, FLEX equity options provide

investors with the ability to customize basic option

features including size, expiration date, exercise

style, and certain exercise prices.

4SR–CBOE–95–43 approved in Exchange Act

Release No. 36841 (February 14, 1996), 61 FR 6666

(February 21, 1996). 5 15 U.S.C. § 78f(b).

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 Amex. All submissions

should refer to SR–AMEX–97–37 and

should be submitted by December 5,

1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–29931 Filed 11–13–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39305; File No. SR–CBOE–

97–57]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc., Relating to Extension of the

Permissible Maturity of FLEX Equity

Options

November 6, 1997.

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

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule

19b–4 thereunder,2 notice is hereby

given that on October 23, 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

The CBOE proposes to change its

rules to permit a FLEX equity option to

have a term of five years in certain

circumstances.

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 Exchange is proposing to allow

FLEX equity options 3 traded on the

Exchange to have a maturity beyond

three years and up to five years in

certain circumstances. Currently, FLEX

equity options, by operation of Rule

24A.4(a)(4)(i), are limited to a maturity

of three years.

When the Exchange filed for

permission to list and trade FLEX equity

options 4 it determined to limit the

maturity of these options to three years

because, unlike FLEX Index options

which were already being traded on the

Exchange since February 1993 and

which could have a maturity of up to

five years, the Exchange was concerned

that there would not be sufficient

liquidity in many equity option classes

to support series with a longer term to

expiration. Since it has traded FLEX

equity options, however, the Exchange

has had numerous requests from brokerdealers to extend the maturity of FLEX

equity options to five years. Among the

reasons the broker-dealer firms have

been interested in seeking an extension

in the allowable maturity is that these

longer expiration FLEX equity options

might be used to hedge a firm’s longer

term issuances of structured products

linked to returns of an individual stock.

The Rule would permit the longer term

FLEX equity options to be listed when

requested by the submitting member if

the FLEX Post Official determined that

sufficient liquidity existed among

Equity FLEX qualified participants. By

allowing for the extension of the

maturity of FLEX equity options to five

years in situations where there is

demand for a longer term expiration and

where there is sufficient liquidity

among Exchange qualified marketmakers to support the request, the

proposed rule change will better serve

the needs of CBOE’s customers and the

Exchange members who make a market

for such customers.

2. Statutory Basis

The Exchange represents that the

proposed rule change is consistent with

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

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
Federal Register / Vol. 62, No. 220 / Friday, November 14, 1997 / Notices 61157

6 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

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–97–57 and should be

submitted by December 5, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–29932 Filed 11–13–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39307; File No. SR–CHX–

97–21]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Stock Exchange,

Incorporated, Regarding Suitability of

Customer Recommendations

November 6, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4,2 notice is

hereby given that on September 18,

1997, the Chicago Stock Exchange,

Incorporated (‘‘CHX’’ or ‘‘Exchange’’)

file with the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

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 Change

The Exchange proposes to add Article

VIII, Rule 25 to the Exchange’s Rules

relating to market-at-the-close orders.

The text of the proposed rule change is

as follows: new text is italicized.

Article VIII

Business Conduct

Rule 25. (a) In recommending to a

customer the purchase, sale or exchange

of any security, a member shall have

reasonable grounds for believing that

the recommendation is suitable for such

customer upon the basis of the facts, if

any, disclosed by such customer as to

his other security holdings and as to his

financial situation and needs.

(b) Prior to the execution of a

transaction recommended to a

customer, other than transactions with

customers where investments are

limited to money market mutual funds,

a member shall make reasonable efforts

to obtain information concerning:

(i) the customer’s financial status;

(ii) the customer’s tax status;

(iii) the customer’s investment

objectives;

(iv) such other information used or

considered to be reasonable by such

member or registered representative in

making recommendations to the

customer.

Interpretations and Policies

.01 The following is a non-exclusive

list of practices that the Exchange

deems to violate a member’s duty to

recommend to a customer only

securities suitable for that customer.

(a) Recommending speculative lowpriced securities to customers without

knowledge of or an attempt to obtain

information concerning the customers’

other securities holdings, their financial

situation and other necessary data.

(b) Excessive activity in a customer’s

account, often referred to as ‘‘churning’

or ‘‘overtrading.’’ There are no specific

standards to measure excessiveness of

trading in customer accounts, because

this must be related to the objectives

and financial situation of the customer

involved.

(c) Trading in mutual fund shares,

particularly on a short-term basis. It is

clear that normally these securities are

not proper trading vehicles and such

activity on its face may raise the

question of trade violation.

(d) Fraudulent activity, including:

establishing fictitious accounts in order

to execute transactions which otherwise

would be prohibited; executing

transactions in discretionary accounts

in excess of or without actual authority

from customers; causing the execution

of transactions which are unauthorized

by customers or the sending of

confirmations in order to cause

customers to accept transactions not

actually agreed upon; and unauthorized

use or borrowing of customers’ funds

and securities.

(e) Recommending the purchase of

securities or the continuing purchase of

securities in amounts that are

inconsistent with the reasonable

expectation that the customer has the

financial ability to meet such a

commitment.

.02 Derivatives and Other New

Financial Products. As new financial

products are introduced into the

marketplace, it is important that

members make every effort to

familiarize themselves with each

customer’s financial situation, trading

experience, and ability to meet the risks

involved with such products and to

make every effort to make customers

aware of the pertinent information

regarding new financial products.

Moreover, members should be careful to

always comply with all Exchange

requirements regarding the trading of

such products.

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

Exchange 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

Exchange 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 Purposed Rule

Change

1. Purpose

The Exchange currently does not have

a rule that expressly addresses

suitability, churning and related matters

for Exchange members. While the

Exchange believes that such conduct

may currently fall within existing

Exchange rules, such as the Exchange’s

rule relating to ‘‘just and equitable’’

activity, the Exchange believes that it is

desirable at this time to specifically

address this type of conduct. As a result,

the purpose of the proposed rule change

is to add Rule 25 to Article VIII of the

Exchange’s rules, requiring that, in

recommending to a customer the

purchase, sale or exchange of any

security, a member must have

reasonable grounds for believing that

the recommendation is suitable for such

customer upon the basis of the facts, if

any, disclosed by such customer as to