Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices 6665

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 42010 (Oct.

14, 1999), 64 FR 57167.

4Section 7 of the Article XXIV of the 1921

Constitution of the New York Curb Market stated:

‘‘No party to a contract shall be compelled to accept

a substitute principal, unless the name proposed to

be substituted shall be declared in marking the offer

and as a party thereof.’’

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

6 In approving this proposed rule change, the

Commission has considered the proposal’s impact

on efficiency, competition, and capital formation.

15 U.S.C. 78c(f).

7See American Stock Exchange Constitution,

Article X, Section 2.

8 15 U.S.C. 78s(b)(2).

9 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Letter from Timothy H. Thompson, Director,

Regulatory Affairs, Legal Department, CBOE, to

Richard Strasser, Assistant Director, Division of

Market Regulation (‘‘Division’’), SEC, dated June 23,

1998 (‘‘Amendment No. 1’’).

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

of 1934 (‘Act’’),1 and Rule 19b–4

thereunder,2 a proposed rule change to

rescind Exchange Rule 106. The

proposed rule change was published for

comment in the Federal Register on

October 22, 1999.3 The Commission did

not receive any comment letters with

respect to the proposal. This order

approves the Exchange’s proposal.

II. Description of the Proposal

The Amex proposes to delete

Exchange Rule 106, ‘‘Substitute

Principals.’’ Exchange rule 106

currently provides that: ‘‘No party to a

contract shall be compelled to accept a

substitute principal unless the name

proposed to be substituted was declared

in, and as part of, the bid or offer giving

rise to the contract.’’ Rule 106 dates

back to the 1921 Constitution of the

New York Curb market,4 a predecessor

of the Exchange. The Rule’s original

purpose appears to be related to the

clearance and settlement of trades,

specifically, the terms of contracts and

the creditworthiness of counterparties.

The proposed rule change was filed in

response to a recent dispute where an

Exchange member invoked Rule 106 in

an attempt to renege on a contract.

Apparently, the Exchange member’s

counterparty provided an incorrect giveup at the time of the trade, and later

sought to correct the error by

substituting the correct clearing

member.

III. Discussion

For the reasons discussed below, the

Commission finds that the proposed

rule change is consistent with the Act

and the rules and regulations under the

Act applicable to national securities

exchange. In particular, the Commission

believes the proposed rule change is

consistent with the Section 6(b)(5) 5

requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade,

prevent fraudulent and manipulative

acts and practices, and protect investors

and the public interest.6 The

Commission also finds that the proposal

may serve to remove impediments to

and perfect the mechanism of a free and

open market by rescinding Rule 106,

which provides a potential basis for

parties to Exchange contracts to break

trades without appropriate justification.

Since Exchange Rule 106 was adopted

in 1921 the process of clearance and

settlement has evolved. Broker-dealers

no longer compare individual trades as

was the case at the time of the inception

of Exchange Rule 106. Today, trades

executed on the Amex are required to be

cleared and settled through a registered

clearing agency.7 Typically, clearing

agencies guarantee the completion of a

transaction by becoming the

counterparty to each side of the

transaction. This has substantially

reduced the risk of trade default and

made concerns about counterparty

identity largely irrelevant.

Clearing agencies perform

comparison, clearance, and settlement

of trades. Clearance activities confirm

the identity and quantity of the security

being bought or sold, the transaction

price and date, and the identity of the

buyer and the seller, Settlement is the

fulfillment, by the parties to the

transaction, of the obligations of the

trade.

The largest clearing agency is the

National Securities Clearing Corporation

(‘‘NSCC’’), which acts as the contraside

to every trade it processes. The NSCC

guarantees the trades of its member

participants and incurs the risk of

default from the time of the guarantee

until the settlement of obligations and

payments. Thus, it is the NSCC and not

the Exchange member—as was the case

in 1921—who assumes counterparty

risk. When the NSCC guarantees a trade,

it becomes the buyer to every seller and

the seller to every buyer. As a result, the

clearing corporation incurs the risk that

a counterparty to a transaction might

default on its obligations.

Rule 106 was adopted in another era,

prior to the utilization of modern

clearing practices. The total assumption

of default risk by clearing agencies has

obviated the need for Exchange

members to maintain strict control over

the identify of trading counterparties.

Because clearing corporations like

NSCC eliminate the risk of trade default,

trades are guaranteed irrespective of the

identity of a counterparty. Thus, in light

of clearance corporations and modern

clearance and settlement practices, Rule

106 no longer serves the purpose of

protecting a counterparty from the

default risks associated with a trade.

Furthermore, Rule 106 may have the

disruptive effect of permitting parties to

Exchange contracts to break trades

without appropriate justification. This

kind of action is contrary to the goals of

preserving the public’s interest and

protecting investors. The Commission

therefore believes it is appropriate for

the Exchange to rescind Rule 106.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,8 that the

proposed rule change (SR–Amex–99–

35) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–3036 Filed 2–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42379; File No. SR–CBOE–

98–27]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

No. 6 to the Proposed Rule Change by

the Chicago Board Options Exchange,

Inc. Relating to Enhancements to the

Exchange’s Processing of Live Ammo

Orders

February 2, 2000.

I. Introduction

On June 16, 1998, the Chicago Board

Options Exchange, Inc. (‘‘CBOE’’ or

‘‘Exchange’’) submitted to 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 rule governing the

execution of orders on the ‘‘live ammo’’

screen. On June 23, 1998, the CBOE

submitted Amendment No. 1 to the

proposed rule change to the

Commission.3 On July 15, 1998, the

CBOE submitted Amendment No. 2 to

the proposed rule change to the

6666 Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices

4Letter from Timothy H. Thompson, Director,

Regulatory Affairs, Legal Department, CBOE, to

Richard Strasser, Assistant Director, Division, SEC,

dated July 10, 1998 (‘‘Amendment No. 2’’). 5Letter from Timothy H. Thompson, Director,

Regulatory Affairs, Legal Department, CBOE, to

Richard Strasser, Assistant Director, Division, SEC,

dated July 20, 1998 (‘‘Amendment No. 3’’). 6Exchange Act Release No. 40283 (July 30, 1998),

63 FR 42085. 7Letter from Timothy H. Thompson, Director,

Regulatory Affairs, Legal Department, CBOE, to

Michael Walinskas, Associate Director, Division,

SEC, dated August 7, 1998 (‘‘Amendment No. 4’’).

In Amendment No. 4, the Exchange proposed to

implement the proposed rule change on a pilot

basis for 90 days and requested accelerated

approval of the proposed rule change, as amended.

In addition, the Exchange supplemented the record

with data to demonstrate the purpose of the

proposed rule change. 8Letter from Timothy H. Thompson, Director,

Regulatory Affairs, Legal Department, CBOE, to

Michael Walinskas, Associate Director, Division,

SEC, dated August 17, 1998 (‘‘Amendment No. 5’’).

In Amendment No. 5, the Exchange proposed that

the proposed rule change be approved on a pilot

basis for six months during which time the

Exchange would submit a monthly report on the

progress of the implementation of the proposal. The

Exchange further proposed to distribute a

Regulatory Circular to its members describing the

parameters of the live ammo to Retail Automatic

Execution System (‘‘RAES’’) system. 9Letter from Timothy H. Thompson, Director,

Regulatory Affairs, Legal Department, CBOE, to

Richard Strasser, Assistant Director, Division, SEC,

dated January 20, 2000 (‘‘Amendment No. 6’’). In

Amendment No. 6, the CBOE proposed a ninemonth pilot. In addition, the CBOE committed to

submit a report to the SEC by August 31, 2000,

analyzing the degree to which orders accumulate on

the live ammo screen during the pilot period.

During the pilot period, the Exchange will work on

a further systems change that will route live ammo

orders directly to RAES without manual

intervention. The CBOE further committed to

distribute a Regulatory Circular to its members

describing the parameters of the ‘‘Live Ammo to

RAES’’ system and how the proposed changes will

be implemented on the floor. The Exchange

amended the proposed rule by deleting the phrase

that stated that the system may only be used ‘‘when

the OBO or the DPM believes that there are unusual

market conditions or when there is a large influx

of orders to the electronic book screen’’ and

replaced it with the statement that the system

should be used ‘‘when the OBO or the DPM

believes there are more orders on the live ammo

screen than can be expeditiously handled in open

outcry.’’ In Amendment No. 6, the Exchange also

described its plan to roll out the proposed change

over a period of a few weeks to ensure that there

are no unforeseen capacity or operational problems.

Finally, the CBOE withdrew Amendment Nos. 4

and 5 to the proposed rule change.

10Letter from David Miller, Managing Director,

Salomon Smith Barney, Chairman, CBOE Member

Firm Committee, to Michael Walinskas, Associate

Director, Division, SEC, dated August 7, 1998; and

letter from Jim Brophy, A.G. Edwards, et al. to

Michael Walinskas, Associate Director, Division,

SEC, dated August 13, 1998.

11Pursuant to CBOE Rule 8.80, a DPM acts as a

market maker, floor broker and OBO in its allocated

options classes. Currently, equity options on the

CBOE floor have been allocated to DPMs. Index

options still utilize OBOs.

12After the Exchange opens, the EBook does not

display market orders.

13The ‘‘O’’ parameter is an order routing

parameter that may be implemented under high

volume situations to route all limit orders to the

EBook.

14According to the Exchange, approximately 90

percent of orders routed to the live ammo screen

are cancel/replacement orders.

15A ‘‘book all’’ button is currently available to

send book eligible orders on the live ammo screen

to the EBook.

16Since submitting this filing, the Exchange has

implemented the Rapid Opening System (‘‘ROS’’),

which has significantly reduced the opening

rotation time period.

17A live ammo screen page may contain up to

thirteen orders.

Commission.4 On July 21, 1998, the

CBOE submitted Amendment No. 3 to

the proposed rule change to the

Commission.5 On August 6, 1998, the

proposal was published in the Federal

Register.6 On August 11, 1998, the

CBOE submitted Amendment No. 4 to

the proposed rule change to the

Commission.7 On August 18, 1998, the

CBOE submitted Amendment No. 5 to

the proposed rule change to the

Commission.8 On January 21, 2000, the

CBOE submitted Amendment No. 6 to

the proposed rule change to the

Commission.9

The Commission received two

comments on the proposed rule

change.10 This notice and order solicits

comments from interested persons on

Amendment No. 6 and approves the

proposal, as amended, on a pilot basis

until October 31, 2000.

II. Description of the Proposal

The CBOE proposes to amend its rule

governing the execution of orders by

order book officials (‘‘OBO’’) or

designated primary market makers’

(‘‘DPM’’) book staff to provide for the

electronic execution of certain orders on

the ‘‘live ammo’’ screen. The proposal

will allow an OBO or a DPM to

designate orders to be electronically

executed against market makers

standing in the crowd.

Currently, an OBO or a DPM, acting

in his or her capacity as an OBO,11

represents in the trading crowd the

orders that have been placed in the

customer limit order book (also known

as the Electronic Book or the EBook),

which displays all pre-open market

orders 12 and customer limit orders.

Orders placed in the EBook are

represented individually when they

become marketable and are traded with

the market makers standing in the

crowd.

The ‘‘live ammo’’ screen, which is an

undisplayed portion of the EBook,

receives for further processing orders

that are market orders or limit orders

that improve the market. An order may

be routed to the live ammo screen under

a number of circumstances. First, if a

customer submits a cancel/replace

market order to cancel and replace an

order already displayed by the Book, the

replacement market order will

automatically be routed to the live

ammo screen rather than returning

directly to the displayed portion of the

EBook. Second, if a customer submits a

cancel/replace limit order and the

replacement order has a limit price that

betters the same-side market quote for

an order displayed on the EBook, the

replacement order will automatically be

routed to the live ammo screen. Third,

market orders received through the

Exchange’s ‘‘order shoe’’ that are

manually booked are automatically

routed to the live ammo screen. Fourth,

limit orders that better the same-side

market quote that are received through

the order shoe and that are manually

booked are automatically routed to the

live ammo screen. Fifth, limit orders

that better the same-side market quote

and that are routed directly to the book

when the routing parameters have been

set at ‘‘O’’ are automatically sent to the

live ammo screen. 13 Finally, marketable

limit order that are electronically

booked from a floor broker’s PAR

workstation are automatically routed to

the live ammo screen. 14

Orders sent to the live ammo screen

are either traded manually in open

outcry or sent to the EBook if book

eligible, by either the OBO or the DPM,

as the case may be. 15 When the live

ammo screen experiences a large influx

of orders it becomes difficult. according

to the Exchange, for the OBO (or the

DPM) to represent and execute these

orders in a timely fashion, which can

cause orders on the live ammo screen to

queue. According to the Exchange, these

backlogs usually had occurred during

the opening rotations when a large

number of orders can build up on the

live ammo screen, 16 but they also can

occur throughout the day during busy

trading times.

To address this problem and

accelerate the process of executing

orders that are on the live ammo screen,

the Exchange proposes to implement a

new feature created for the live ammo

screen, which will allow the OBO (or

DPM) to send RAES-eligible orders on

the live ammo screen to RAES for

automatic execution. Under the

proposal, the OBO (or DPM) may select

all or any portion of the orders

displayed on a live ammo page to be

routed to RAES. 17 If fewer than all

orders are selected, those orders will be

routed based on time priority, pursuant

to CBOE Rule 6.45. Orders selected for

automatic execution must satisfy RAES

requirements. Currently, RAES accepts

market and marketable limit orders that

meet the applicable size

Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices 6667

18Most equity option classes have an eligible

order size for RAES of 50 contracts. See Exchange

Act Release No. 41821 (September 1, 1999), 64 FR

50313 (September 16, 1999).

19For the reasons discussed below, the Exchange

believes that instances where the priority of orders

would be executed out of sequence would be

infrequent. First, the non-RAES-eligible order must

be for the same series as the RAES-eligible order

that is traded for there to be an interruption of the

normal priority principles. Second, for the RAESeligible order to trade ahead of the non-RAESeligible order, the limit price of the non-RAESeligible order must be at the CBOE’s quoted market

because that is the price at which the RAES-eligible

order will be executed. When the limit price for the

larger non-RAES-eligible order is at the market, the

CBOE book staff will act to execute the order

promptly. See Amendment No. 3.

20The CBOE’s Automated Book Priority (‘‘ABP’’)

system allows orders in live ammo to cross with

orders held in the EBook. If the live ammo order

is for a size greater than the limit order size

displayed on the EBook, the ABP will cross the live

ammo order with the EBook and any balance will

be routed to RAES (provided it is RAES-eligible) for

execution against the market makers signed on to

RAES at the book price. Telephone call between

Timonthy Thompson and Anthony Montesano,

CBOE and Kelly Riley and Heather Traeger, SEC,

dated January 14, 2000.

21See note 10.

22The Commission notes that since this proposal

was filed the ROS has been implemented on the

Exchange. ROS provides for the automated opening

of options classes on the Exchange and has

significantly shortened the length of time needed

for opening each option class. While ROS has

mitigated the problems during the opening

rotations, it has not had an impact on intraday

trading volatility. See Exchange Act Release No.

41033 (February 9, 1999), 64 FR 8156 (February 18,

1999.) Telephone call between Timothy Thompson

and Anthony Montesano, CBOE and Kelly Riley

and Heather Traeger, SEC, on January 14, 2000.

23 In approving this proposal, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

24 15 U.S.C. 78f(b)(5).

25 Delayed execution of customer orders could

implicate a broker-dealer’s best execution

responsibilities. See letter from Chairman Arthur

Levitt to Michael Kelly, President, First Options of

Chicago, Inc., dated April 13, 1999 (‘‘While price

is certainly a key element in a quality execution,

other factors, such as the ability to obtain a

complete and timely fill * * * may also be

considered in determining whether a customer is

receiving best execution.’’)

requirements. 18 Any market maker who

is signed on to RAES at the time the

OBO (or DPM) routes the order or orders

to RAES for automatic execution will be

eligible to be electronically assigned as

the contra-party on the trade. Orders on

the live ammo screen that are not RAESeligible will be manually represented.

As proposed, there may be instances

when a RAES-eligible live ammo order

may be executed before a non-RAESeligible live ammo order that was

received earlier. Therefore, the

Exchange proposes to implement this

live ammo to RAES feature

notwithstanding the provisions of CBOE

Rule 6.45. CBOE Rule 6.45 gives priority

to some bids and offers, because they

were made earlier in time, over other

bids and offers. 19 In addition, if CBOE’s

best bid or offer on the limit order book

equals the prevailing market quote,

orders on the live ammo screen will be

crossed with the orders in the Ebook. 20

III. Summary of Comments

The Commission received two

comments on the proposal both of

which expressed their support. 21 The

comment letter from the CBOE Member

Firm Committee described the problems

caused by backlogs of orders

accumulating on the live ammo screen.

The comment letter described how it

could take the book staff up to 30

minutes to trade orders on the live

ammo screen. The commenter detailed

how many live ammo backlogs occur

during the opening rotation and their

belief that the ROS would alleviate

some of the problems. 22 The commenter

believed that the proposal would be an

interim fix until the implementation of

ROS. The comment letter from the

CBOE member firm community also

expressed its strong support for the

proposal. The commenter believed that

the proposal would be in their best

interests as well as the best interests of

their customers, who they believed,

would receive better service than was

currently available.

IV. Discussion

After careful review, the Commission

finds that the proposed rule change, as

amended, is consistent with the

requirements of the Act and the rules

and regulations thereunder applicable to

a national securities exchange.23 In

particular, the Commission finds that

the proposed rule change is consistent

with the requirements of Section 6(b)(5)

of the Act,24 which provides, among

other things, that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

foster cooperation and coordination

with persons engaged in regulating,

clearing, settling, and processing

information with respect to, and

facilitating transactions in securities,

and to remove impediments to and

perfect the mechanism of a free and

open market, and in general to protect

investors and the public interest.

The Commission believes that the

proposed rule change should help in

providing timely executions of orders

on the live ammo screens of the CBOE’s

EBook. Currently, the OBO (or DPM)

must individually represent orders that

are displayed on the live ammo screen

in the crowd. In periods of high volume

or volatility, the OBO (or DPM) may not

be able to manually represent these live

ammo orders in a timely fashion.

According to the Exchange, these

marketable orders may stay on the live

ammo screen for up to 30 minutes,

during which time the market could

move significantly away from the

market that was quoted at the time the

order was routed to the live ammo

screen. Thus, investors currently may

not be receiving the best price on the

CBOE floor when their orders are placed

on the live ammo screen.25

To address this problem, the

Exchange is proposed to implement a

new mechanism of the live ammo

screen, which will allow the OBO (or

DPM) to send RAES-eligible orders to

RAES for automatic execution. This

feature should help to address the

problem of orders being left on the live

ammo screen for long periods of time

when the OBO (or DPM) is unable to

manually represent the live ammo

orders in a timely fashion. As a result,

customer orders routed to the live ammo

screen should receive more timely

executions during periods of high

volume or volatility on the Exchange.

Although non-RAES eligible orders may

be executed out of time priority under

the proposal, the Commission is hopeful

that the proposed rule change will

enhance the timely processing of all live

ammo orders. That having been said,

however, the Commission is concerned

that the continued use of the live ammo

screen may unfairly disadvantage

customer orders. As a result, the

Commission is approving this proposal

as an interim measure to provide the

Exchange with the time to make

modifications to its order processing

systems to improve the handling of

customer orders that currently are

routed to the live ammo screen. In

particular, the Commission expects that

the Exchange will make the necessary

systems enhancements to ensure that a

maximum number of customer orders in

the CBOE system are matched against

one another.

Moreover, the Commission expects

that the Exchange will develop the

necessary systems enhancements to

ensure that when there are no

opportunities for matching customer

orders in the CBOE system, RAESeligible orders will be routed directly to

RAES without the interim step of

appearing first on the live ammo screen.

The Commission requests that the

Exchange submit any proposed rule

changes to implement these

enhancements by August 31, 2000. The

Commission also notes that the

Exchange has agreed to provide the

Commission with an analysis of the

6668 Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices

26 In Amendment No. 6, the Exchange committed

to distribute a Regulatory Circular to announce the

changes to its members. The Regulatory Circular

will also remind members of the priority principles

under CBOE Rule 6.45(a) and (b).

27 15 U.S.C. 78s(b)(2).

28 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Letter from Stephanie C. Mullins, Attorney,

CBOE, to Sonia Patton, Attorney, Division of Market

Regulation (‘‘Division’’), Commission, dated

January 21, 2000 (‘‘Amendment No. 1’’).

Amendment No. 1 states that all option classes on

Friede Goldman International (FGI), Northwest

Airlines Corporation (NAQ), Open Market, Inc.

(OQM), Orbital Science Corp. (ORB), Onsale, Inc.

(QOL), Prime Medical Services, Inc. (QSI),

Synovous Financial Corp. (SNV), Wackenhut

Corrections Corp. (WHC), and Zebra Technologies

Corp. (ZBQ) were designated to Designated Primary

Market-Makers (‘‘DPMs’’) on September 7, 1999 and

all option classes on The Boeing Company (BA)

were designated to DPMs on September 13, 1999.

Amendment No. 1 also states that no market-maker

surcharges were assessed on these options after

their designation to DPMs.

4See Securities Exchange Act Release No. 41121

(Feb. 26, 1999), 64 FR 11523 (March 9, 1999) (order

approving CBOE Rule 2.40). The Exchange imposes

a market-maker surcharge to allow the Exchange

and its member firms to better compete with other

exchanges in floor brokerage and order book rates.

The surcharge is used to (i) reimburse the Exchange

to the extent that the order book official (‘OBO’’)

brokerage rate is reduced if the reduction is based

upon a recommendation of resident market-makers,

and (ii) pay stationary floor brokers (‘‘SFBs’’) to

induce them to reduce the brokerage rates they

charge their customers. A resident market-maker is

defined under CBOE Rule 2.40(a)(ii) as a marketmaker who transacted at least 80% of his marketmaker contracts in option classes traded in the

trading crowd where the particular option class is

traded in the prior calendar month. An SFB is

defined under CBOE Rule 2.40(a)(i) as a floor broker

who (i) has established a busines in the trading

crowd for an option class of accepting and

executing orders for members or registered brokerdealers and (ii) transacted at least 80% of his orders

for the previous month in the trading crowd at

which a particular option class is traded.

degree to which live ammo orders

accumulate on the live ammo screens

during the pilot period.

The Commission finds good cause for

approving Amendment No. 6 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice in the Federal

Register. In Amendment No. 6, CBOE

requests that the proposal be approved

on a pilot basis for a nine-month period.

Amendment No. 6 also would remove

the requirement that the live ammo to

RAES feature may only be used in

unusual market conditions or when

there is a large influx of orders to the

Book. As amended, the proposal would

permit the OBO (or DPM) to employ the

live ammo to RAES feature at any time

when the OBO (or DPM) determines that

there are more orders on the live ammo

screen than can be expeditiously

handled in open outcry.26 The

Commission finds good cause for

accelerating approval of Amendment

No.6 to allow the Exchange to address

immediately the order processing

problems caused by the live ammo

system while developing the needed

systems enhancements to eliminate

these problems in the future.

V. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

6, including whether Amendment No. 6

is consistent with the Act. Persons

making written submissions should file

six copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, N.W., Washington, D.C.

20549–0609. 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 CBOE. All

submissions should refer to File No.

SR–CBOE–98–27 and should be

submitted by March 2, 2000.

VI. Conclusion

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,27 that the

proposed rule change, as amended, (SR–

CBOE–98–27) is approved on a pilot

basis until October 31, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.28

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–3033 Filed 2–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42382; File No. SR–CBOE–

99–52]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Chicago Board Options Exchange, Inc.

Amending Its Market-Maker Surcharge

Fee Schedule

February 3, 2000.

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

September 2, 1999, 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 CBOE. The Exchange

filed Amendment No. 1 3 to the

proposed rule change on January 23,

2000. 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 proposing to make

changes to its fee schedule pursuant to

CBOE rule 2.40,4 entitled ‘‘MarketMaker Surcharge for Brokerage.’’

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, Proposed Rule

Change

1. Purpose

Pursuant to CBOE Rule 2.40, on

September 1, 1999, the Exchange’s

Equity Floor Procedure Committee

(‘‘EFPC’’) approved the following fees

for the following option classes: