69080 Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices

12 15 U.S.C. 78s(b)(2).

13 15 U.S.C. 78f(b)(5).

14 15 U.S.C. 78s(b)(2).

15 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 40883

(January 5, 1999), 64 FR 1839 (January 12, 1999).

4See Letter from Karen Aluise, Vice President,

BSE, to Richard Strasser, Assistant Director,

Division of Market Regulation (‘‘Division’’),

Commission, dated March 25, 1999, with

attachments (‘‘Amendment No. 1’’). Amendment

No. 1 proposed to eliminate the right to appeal

rulings by the Market Performance Committee

regarding applications to serve as a competing

specialist.

5See Letter from William Cummings, Manager of

Legal and Regulatory Affairs, BSE, to Nancy Sanow,

Senior Special Counsel, Division, Commission,

dated April 12, 2000, with attachments

(‘‘Amendment No. 2’’). Amendment No. 2

superseded Amendment No. 1. Amendment No. 2

generally sought to revert the proposed rule change

back to a form that was similar to the version that

the BSE originally proposed, but which differed

from the BSE’s original proposal in a few ways: by

clarifying that an applicant competing specialist

could appear before the Market Performance

Committee to respond to issues raised by the

regular specialist regarding competition, by

omitting language which provided that competition

could begin during an appeal of a Market

Performance Committee ruling in favor of

competition, and by making other changes

regarding the appeal process.

6See Letter from John Boese, Assistant Vice

President, BSE, to Nancy Sanow, Assistant Director,

Division, Commission dated August 24, 2000, with

attachments (‘‘Amendment No. 3’’). Amendment

No. 3, which superseded Amendment No. 2,

clarified that competition could begin pending the

outcome of an appeal of a pro-competition ruling

by the Market Performance Committee, which is

consistent with the rule change as it was originally

proposed by the BSE.

7See Securities Exchange Act Release No. 37045

(March 29, 1996), 61 FR 15318 (April 5, 1996)

(order permanently approving Competing Specialist

Initiative).

governors and senior floor officials

determine to approve orders as large as

seventy-five contracts as eligible for

AUTO–EX, those officials or any other

Amex officials or Amex committee

should disengage AUTO–EX more

frequently by, for example, declaring a

‘‘fast’’ market. Disengaging AUTO–EX

can negatively affect investors by

making it slower and less efficient to

execute their option orders. It is the

Commission’s view that the Exchange,

when increasing the maximum size

orders that can be sent through AUTO–

EX, should not disadvantage all

customers—the vast majority of which

enter orders for less than seventy-five

contracts—by making the AUTO–EX

system less reliable.

Finally, the Commission finds good

cause for approving Amendment Nos. 1

and 2 prior to the 30th day after notice

of the Amendment is published in the

Federal Register pursuant to section

19(b)(2) of the Act.12 Amendment No. 1

codifies the proposed increase in the

AUTO–EX parameters from fifty

contracts to seventy-five option

contracts. Amendment No. 2 corrects

the rule language in Amex Rule 933,

Commentary .02. The Commission finds

that accelerated approval of

Amendment Nos. 1 and 2 is appropriate

in order to allow the Amex to increase

its AUTO–EX eligibility limits so that it

may better compete with the other

option exchanges.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment Nos.

1 and 2, including whether they are

consistent with the Act. Persons making

written submissions should file six

copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549–0609. 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 Amex. All

submissions should refer to File No.

SR–Amex–99–45 and should be

submitted by December 6, 2000.

Conclusion

For the foregoing reasons, the

Commission finds that the proposed

rule change is consistent with the Act

and the rules and regulations

thereunder applicable to a national

securities exchange, and, in particular,

with section 6(b)(5).13

It is Therefore Ordered, pursuant to

section 19(b)(2) of the Act,14 that the

proposed rule change (SR–Amex–99–

45) is approved, and Amendment Nos.

1 and 2 are approved on an accelerated

basis.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–29184 Filed 11–14–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43525 File No. SR–BSE–

98–11]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval to an

Amendment to the Proposed Rule

Change by the Boston Stock

Exchange, Inc. Relating to Its

Competing Specialist Initiative

November 7, 2000.

I. Introduction

On November 23, 1998, the Boston

Stock Exchange, Inc. (‘‘BSE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’),1 and Rule 19b–4

thereunder,2 a proposed rule change to

modify the procedures by which a

regular specialist may object to

competition in a stock.

The proposed rule change was

published for comment in the Federal

Register on January 12, 1999.3 The

Commission received no comments on

the proposal. The Exchange filed

amendments on March 26, 1999 4 and

April 13, 2000.5 The Exchange filed a

third amendment to the proposed rule

change on August 25, 2000, which

superseded the earlier amendments.6

This order approves the proposed rule

change, and grants accelerated approval

to the third amendment to the proposed

rule change.

II. Description

The Exchange’s Competing Specialist

Initiative permits multiple specialists to

make a market in individual securities

traded on the BSE. The Exchange has

proposed a rule change to modify the

process that governs objections to

competition in a security.

The Procedures for Competing

Specialists, which are set forth in

chapter XV, section 18 of the Exchange’s

Rules, currently provide that a regular

specialist in a security may object to any

application by another specialist to act

as a competing specialist in that

security. The Exchange’s Market

Performance Committee will consider

the regular specialist’s objections as one

factor in reviewing applications to act as

a competing specialist in a security. The

Market Performance Committee may not

deny applications based solely on such

an objection, but only in circumstances

wherein the stock at issue requires

special treatment such that an entering

competitor could jeopardize the fair and

orderly market maintained by the

regular specialist.7

Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices 69081

8See BSE Constitution, Art. II, Section 6, which

provides that certain persons affected by a decision

of a committee acting under powers delegated by

the Board of Governors may require that the Board

review the decision. 9The Exchange’s existing procedures for handling

objections to competition were clarified during a

conversation between Karen Aluise, Vice President,

BSE, and Joshua Kans, Attorney, Division,

Commission, December 2, 1998.

10 In approving this rule, the Commission has

considered the proposed rule’s impact on

efficiency, competition and capital formation. 15

U.S.C. 78c(f). 11 15 U.S.C. 78f(b)(5). 12 15 U.S.C. 78s(b)(2).

As presently written, section 18(2)

requires the regular specialist to object

in writing within 48 hours of notice of

another specialist’s application to

compete in a stock. This section also

states that the Market Performance

Committee’s decision may be appealed

to the Executive Committee of the

Exchange. Moreover, decisions of the

Executive Committee may be appealed

to the Board of Governors of the

Exchange.8 Competition may not begin

during the appeal process.9

The Exchange is proposing to amend

its existing rules that govern a regular

specialist’s ability to object to another

specialist’s application to serve as a

competing specialist in a security. As

amended, the proposal would divide

section 18(2) into four parts (a to d).

Proposed section 18(2)(a) would

continue to require that a regular

specialist file its objection within 48

hours after receiving notice of the

request to compete, and would now

require that the specialist submit the

objection on a form designated by the

Exchange.

Proposed section 18(2)(b) would

require that when a specialist objects to

competition, the specialist set forth the

reasons in writing and deliver them to

the Exchange within 24 hours of the

filing of the objection.

Proposed section 18(2)(c) would

provide that a Market Performance

Committee meeting will be scheduled to

review the reasons for objection and to

determine whether competition could

jeopardize the regular specialist’s ability

to maintain a fair and orderly market in

the issue. That section adds that the

regular specialist would be permitted to

appear before that committee to discuss

the reasons for objection, and that the

applicant competing specialist would

also be permitted to appear before that

committee to respond to any issues

raised. That section further states that

after the committee renders its decision,

either party may appeal the decision to

the Exchange’s Executive Committee,

and, if necessary, to the Exchange’s

Board of Governors. A footnote to

proposed section 18(2)(c) further would

provide that the appeal must be

submitted to the Exchange within 10

days notice of the Market Performance

Committee’s or the Executive

Committee’s final decision.

Proposed section 18(2)(d) would

provide that if the Market Performance

Committee rules in favor of competition,

competition will commence pending the

outcome of any appeal process.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange.10 Specifically, the

Commission believes that the proposal

is consistent with the section 6(b)(5) 11

requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

perfect the mechanism of a free and

open market and a national market

system, and, in general, to protect

investors and the public interest.

The Commission believes that the

proposed rule change is appropriate

because it permits the Exchange to

evaluate applications to serve as a

competing specialist in a security more

efficiently. In particular, the

Commission believes that proposed

chapter XV, sections 18(2)(a), (b) and

(c)—which would require the regular

specialist to submit objections using an

Exchange-designated form and set forth

the reasons for objection in writing

within 24 hours of the objection, and

which would permit the regular

specialist and applicant competing

specialist to discuss those reasons at a

Market Performance Committee meeting

scheduled to review the reasons for the

objection—would streamline the

process for evaluating a regular

specialist’s objections while paying due

regard to the interests of the regular

specialist and applicant competing

specialist. The Commission also

believes that proposed Section 18(2)(d),

which would provide that competition

will commence during the appeal

process, provides a reasonable means of

reconciling the interests of the

Exchange, the regular specialist, and the

applicant competing specialist.

The Commission finds good cause for

approving Amendment No. 3 prior to

the thirtieth day after the date of

publication of notice thereof in the

Federal Register. Amendment No. 3,

which supplanted two earlier proposed

amendments, most significantly

modified the Exchange’s original

language by clarifying that an applicant

competing specialist has the right to

appear before the Market Performance

Committee to respond to issues raised

by the regular specialist. The

Commission finds that clarifying this

right will better enable the committee to

make fully informed decisions and will

promote the adequate representation of

applicant competing specialists.

Amendment No. 3 also modified the

rule change as it was originally

proposed by specifying that appeals of

decisions by the Market Performance

Committee would go first to the

Executive Committee and then, if

necessary, to the Board of Governors (in

contrast to the original version of the

proposed rule change, which would

have provided that appeals go directly

to the Board of Governors), and by

making technical changes to the

structure and language of the proposed

rule change. The Commission finds that

modifying the appeal process is

consistent with the Exchange’s right to

set forth rules governing its own

administration, and that the technical

changes to the rule language do not

change the substance of the proposed

rule change. Based on the above, the

Commission believes that good cause

exists, consistent with sections 6(b)(5)

and 19(b)(2) 12 of the Act, to accelerate

approval of Amendment No. 3.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

3, including whether it is consistent

with the Act. Persons making written

submissions should file six copies

thereof with the Secretary, Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 20549–

0609. 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–BSE–98–11 and should be

submitted by December 6, 2000.

V. Conclusion

It Is Therefore Ordered, pursuant to

section 19(b)(2) of the Act, that the

proposed rule change SR–BSE–98–11,

69082 Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices

13 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b-4.

3See Securities Exchange Act Release No. 42930

(June 13, 2000), 65 FR 38618 (June 21, 2000).

4See letter from Timothy Thompson, Assistant

General Counsel, Legal Department, CBOE, to

Gordon Fuller, Special Counsel, Division of Market

Regulation, Commission, dated September 29, 2000.

(‘‘Amendment No. 1’’).

5Options subject to the fifty contract maximum

include all classes of equity options, all classes of

sector index options and all other classes of index

options, except options on the S&P 500 Index,

options on the Nasdaq 100 Index, options on the

Dow Jones Industrial Average (‘‘DJIA’’), options on

the High Yield Select Ten, and interest rate options.

The RAES eligibility maximum is currently 100

contracts for options on the S&P 500 Index, the

Nasdaq 100 Index, the DJIA, the High Yield Select

Ten, and interest rate options. See Securities

Exchange Act Release No. 41821 (September 1,

19999), 64 FR 50313 (September 16, 1999).

6The proposed increase to seventy-five contracts

will not apply to those classes of index options

cited in footnote 5 above.

7See CBOE Rule 8.51.

8See CBOE Rule 6.8(e).

7See CBOE Rule 6.8, Interpretation .02.

10See supra note 5 (citing to the order

implementing Variable RAES on the CBOE).

11See CBOE Rule 8.85(a)(9).

12All equity options have now been assigned to

DPMs. Telephone conversation between Timothy

Thompson, Director-Regulatory Affairs, CBOE, and

Gordon Fuller, Special Counsel, Commission, on

March 9, 2000.

13See CBOE Rule 6.6(b)(vi).

including Amendment No. 3, in

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–29180 Filed 11–14–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43517; File No. SR–CBOE–

99–51]

Self-Regulatory Organizations; Order

Granting Approval of Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval of

Amendment No. 1 by the Chicago

Board Options Exchange, Inc. Relating

to the Maximum Size of Option Orders

Eligible for Automatic Execution

November 3, 2000.

I. Introduction

On September 1, 1999, the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) pursuant to section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’)1 and Rule 19b-4

thereunder,2 a proposed rule change

amending its rules regarding the

automatic execution of options orders to

increase the maximum number of

contracts eligible to be executed on the

Exchange’s Retail Automatic Execution

System (‘‘RAES’’) from fifty contracts to

seventy-five contracts. Notice of the

proposal was published in the Federal

Register on June 21, 2000.3 The

Commission received no comments on

the proposal. On October 3, 2000, the

Exchange submitted Amendment No. 1

to the proposal.4 This order approves

the proposal and grants accelerated

approval of Amendment No. 1.

II. Description of the Proposal

RAES automatically executes public

customer market and marketable limit

orders that fall within designated order

size parameters. Generally, the

maximum size of public customer

market and marketable limit orders

eligible for automatic execution through

the RAES is fifty contracts.5 The

Exchange proposes to increase from fifty

contracts to seventy-five contracts the

maximum size of orders for equity

options and certain classes of index

options that are eligible to be executed

through RAES.6 In addition, the

Exchange seeks to make certain

complementary changes to the

Exchange’s firm quote rule and

Interpretation .03 thereunder.7

The Exchange notes that increasing

the maximum size of orders eligible for

execution through RAES to seventy-five

contracts will not permit orders up to

this size to be entered into RAES unless,

for a particular options class, the

appropriate Floor Procedure Committee

(‘‘FPC’’) of the Exchange has

determined, in its discretion, not to

restrict the size of eligible orders in that

options class.8 In addition, the

Exchange represents that increasing

automatic execution levels should

provide the benefits of automatic

execution to a larger number of

customer orders. Further, the Exchange

represents that RAES affords prompt

and efficient executions at the CBOE

displayed price or, in most cases, at the

National Best Bid or Offer (‘‘NBBO’’) if

the NBBO is better than the CBOE’s

displayed bid or offer.9

The Exchange notes that its rules

contain several safeguards to ensure the

proper handling of RAES orders, even as

the maximum order size is increased.

First, the Commission has approved the

implementation of variable RAES on the

CBOE.10 Variable RAES allows market

makers to specify the maximum size of

orders that they are willing to trade at

any one time on RAES; however, this

determination is subject to a minimum

size that may be established by the

appropriate FPC. Variable RAES was

proposed to ensure that market makers

are willing to continue participating on

RAES even as the maximum contract

size is increased. The Exchange

represents that the appropriate FPC will

likely implement Variable RAES in any

options class that has a contract limit of

seventy-five contracts to ensure that

there is adequate market-maker

participation in that class.

Second, the Exchange requires

Designated Primary Market-Makers

(‘‘DPMs’’) to participate in any

automated execution system which may

be open in appointed option classes.11

Further, Interpretation .07 to CBOE Rule

8.7 states that market makers are

expected to participate in and support

Exchange-sponsored automated

programs, including but not limited to,

RAES. The Exchange is in the process

of assigning a large percentage of its

option classes that were formerly traded

in market-maker crowds to DPMs.12

Third, the Exchange’s rules allow for

RAES to be suspended when a fast

market has been declared in order to

maintain a fair and orderly market.13

CBOE Rule 6.6(b)(vi) provides the

Exchange with the flexibility to

intervene if it determines that there is

inadequate market maker participation

or capital requirements. In addition,

CBOE Rule 8.16(b) requires a market

maker who has logged onto RAES at any

time during an expiration month to log

onto RAES in that option class

whenever he is present in the trading

crowd until the next expiration. Further,

CBOE Rule 8.16(c) provides that Floor

Officials of the appropriate Market

Performance Committee may require

market makers who are members of the

trading crowd to log on to RAES absent

reasonable justification or excuse for

nonparticipation if there is inadequate

participation on RAES. Alternatively,

the Floor Officials may allow market

makers in other classes of options to log

on to RAES in such classes.

Finally, the Exchange notes that its

rules provide a minimum net capital

requirement regarding DPMs, which is

currently set forth in CBOE Rule 8.86.

Further, the clearing firms for market

makers and DPMs perform risk

management functions to ensure that

the market makers have sufficient

financial resources to cover their

positions throughout the day.

In addition to increasing the

maximum size for RAES-eligible orders

in certain classes of options, the

Exchange proposes to amend its firm

quote rule, CBOE Rule 8.51. Currently,