[Federal Register Volume 62, Number 31 (Friday, February 14, 1997)]
[Notices]
[Pages 7080-7082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3789]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38261; File No. SR-CBOE-97-06]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc., Relating to Enhancements to the CBOE's Order Routing 
System

February 10, 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 February 
5, 1997, the Chicago Board Options Exchange, Inc. (``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 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 is adopting certain enhancements to the Exchange's 
electronic Order Routing System (``ORS'') on a pilot basis until May 
30, 1997, while the Exchange evaluates the changes and determines 
whether to implement them on a permanent basis. The enhancements, which 
will be described in an Information Circular to CBOE members, include 
the following: (1) Allowing the electronic routing and processing of 
contingency and discretionary orders; (2) allowing ORS to recognize 
firm and broker-dealer orders; (3) allowing the routing of firm and 
broker-dealer orders to the Public Automated Routing (``PAR'') System 
workstations in the Standard & Poor's 100 Index (``OEX'') crowd; and 
(4) allowing the execution of certain contingency orders on the CBOE's 
Retail Automated Execution System (``RAES'').
    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

    The CBOE is adopting an Information Circular that describes certain 
enhancements to ORS. These changes will be implemented on a pilot basis 
while the Exchange evaluates the changes and determines whether to 
implement them on a permanent basis. The pilot will expire on May 30, 
1997. In the meantime, the Exchange will decide whether to seek 
permanent approval for the changes.
    The information circular that will be distributed to the membership 
of the Exchange will describe certain enhancements to ORS and certain 
limitations that will continue to apply to the use of ORS. 
Specifically, the changes will allow the electronic routing and 
processing of contingency and discretionary orders, the recognition by 
ORS of firm and broker-dealer orders, the routing of firm and broker-
dealer orders to the PAR System workstations in the OEX crowd, and the 
execution of certain contingency orders on RAES, as further explained 
below.
    ORS provides member and correspondent firms with a method of 
efficiently delivering orders to and reports from the CBOE trading 
floor.

[[Page 7081]]

ORS also interfaces with several other peripheral systems at CBOE, 
including the CBOE Trade Match system, the Time-and-Sales system, the 
Auto-Quote system, and the market maker hand-held terminals. Member 
firms with wires attached to the CBOE's front-end computer can send 
orders electronically from their branches or order desk to ORS. Reports 
for such orders are sent back electronically to the point from which 
the order was entered.
    Currently, non-contingency and non-broker-dealer orders received by 
ORS are logged to the ORS database and evaluated, based on volume and 
price, to determine their routing destination on the CBOE floor. There 
are four possible destinations for an ORS order: (1) RAES; (2) the 
Electronic Book (``EBOOK''); (3) the PAR System and floor broker 
routing; and (4) a firm's booth.
    RAES automatically and instantaneously executes customer market and 
marketable limit orders for eligible series, generally for orders of up 
to ten contracts. The EBOOK receives pre-open market and limit orders. 
Generally, intra-day limit orders at least one tick away from the same-
side market quote are also sent to EBOOK. Market orders not eligible 
for automatic execution by RAES, and limit orders ``near'' the market 
quote may be floor broker routed to the trading crowd. Such orders are 
delivered either to printers or to PAR electronic touch-screen 
workstations at the trading post. Orders not eligible for RAES, EBOOK, 
or floor broker routing are printed on ORS printers in the member firm 
booths. These orders are then either run out to the trading crowds or 
electronically re-routed via the CBOE's Booth Entry and Routing System 
(``BERS'') from booth terminals to EBOOK by the firm staff.\1\ 
Currently, all contingency orders, complex orders (such as spreads), 
and non-customer orders sent over the ORS wires are delivered to ORS 
printers in the firm booths. Approximately 70% of customer orders at 
CBOE are entered through ORS.
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    \1\ Orders that are phoned to the floor or wired to firm-owned 
house printers can also be re-entered into ORS by the firm's booth 
staff.
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    The Exchange has recently completed a systems enhancement to ORS, 
as a result of which it will now be possible to electronically route 
and process contingency and discretionary orders and to accept firm and 
broker-dealer orders as valid origin types. The systems enhancements 
specifically will allow for the routing of the following types of 
contingency and discretionary orders: All or None orders (``AON''), 
Immediate or Cancel orders (``IOC''), Fill or Kill order (``FOK''), 
Minimum Quantity orders (``MIN''), Stop orders (``STP''), Stop Loss 
orders (``STP LOSS''), Opening Only orders (``OPG''), Market on Close 
orders (``MOC''), Closing Only orders ``CLO''), Market if Touched 
orders (``MIT''), Not Held orders (``NH''), and With Discretion orders. 
Due to systems and administrative limitations, ORS will continue to be 
unavailable for stop limit orders as well as spreads, straddles, 
combos, and other multi-part orders.
    There will be a number of practical results from these systems 
enhancements for customers, brokers, and the Exchange. As a result of 
these changes, customer orders that are otherwise RAES-eligible market 
and marketable limit orders tagged with AON, IOC, FOK, or MIN now will 
be executed on RAES. For MIN orders, the total order quantity must be 
within the RAES volume. The system enhancements will also have the 
effect of improving the efficiency of reporting and the accuracy of 
audit trails for firm and broker-dealer orders because these orders 
will now have an ORS-id. In addition, the Exchange will enable the 
system to actually route firm and broker-dealer orders electronically 
to the PAR workstations in OEX. After the Exchange gains experience 
with routing firm and broker-dealer orders to the PAR workstations in 
OEX, it may determine to enable the system to route such orders to 
equity and Standard & Poor's 500 Index (``SPX'') crowds at some future 
date.
    The Exchange expects the system enhancements to provide for more 
efficient processing of trades because they will allow for electronic 
fill and cancel reporting to the originating customer destination. In 
addition, the fill reports will automatically generate an electronic 
trade match entry. The systems enhancements will also provide parameter 
controls so that different order types can be selectively crowd routed 
at the member firm's option. This flexibility will allow the member 
firms to employ ORS in the method that each firm believes is the most 
efficient. The flexibility also allows the firms to change the routing 
depending upon the market circumstances.
    Because the system enhancements to ORS will allow the electronic 
processing and routing of a greater number of order types and because 
the enhancements will provide greater flexibility for member firms in 
the routing of their orders, the Exchange believes this rule change is 
consistent with and furthers the objectives of Section 6(b) of the Act, 
in general, and of Section 6(b)(5), in particular, in that it will 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, and processing information with respect to, and 
facilitating transactions in securities, and will remove impediments to 
and perfect the mechanism of a free and open market in a manner 
consistent with the protection of investors and the public interest.

(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 either solicited or received with respect 
to the proposed rule change.

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

    Because the foregoing rule change effects a change in an existing 
order-entry system of the Exchange that: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not have the 
effect of limiting access to or availability of the system, it has 
become effective on a pilot basis until may 30, 1997, pursuant to 
Section 19(b)(3)(A) of the Act and Rule 19b-4(e)(5) thereunder. At any 
time within 60 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 submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 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

[[Page 7082]]

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 Section, 450 Fifth Street, NW., Washington, DC. Copies of 
such filing will also be available for inspection and copying at the 
principal office of the above-mentioned self-regulatory organization. 
All submissions should refer to the file number in the caption above 
and should be submitted by March 7, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\2\
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    \2\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3789 Filed 2-13-97; 8:45 am]
BILLING CODE 8010-01-M