77404 Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Notices

10 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. 43285

(September 12, 2000), 65 FR 56972 (September 20,

2000) (SR–CBOE–00–01). The Exchange’s rule is

similar to a rule of the International Securities

Exchange (‘‘ISE’’) that the Commission approved

earlier. When the Commission approved ISE’s

application for Exchange registration, it also

approved several ISE rules, including ISE Rule

717(f) regarding the entry of computer-generated

orders. See Securities Exchange Act Release No.

42455 (February 24, 2000), 65 FR 11401 (March 2,

2000).

4CBOE Rule 6.8A clarifies that an order is eligible

for execution on RAES if: (1) Its size is equal to or

less than the maximum RAES order size for the

particular option series; (2) the order is marketable

or is tradable pursuant to the RAES auto step-up

feature at the time it is sent; and (3) the order has

either no contingency or has a contingency that is

accepted for execution by RAES.

5See note 3, supra.

6Specifically, the Commission noted: ‘‘ * * * the

Commission recognizes that the CBOE’s business

model depends on market makers for competition

and liquidity. Allowing electronic order entry into

ORS could give automated customers a significant

advantage over market makers. This could undercut

CBOE’s business model.’’ Id. at 56973.

7Letter from Joel Greenberg, Managing Director,

Susquehanna Investment Group, to Jonathan G.

Katz, Secretary, Commission, dated August 29,

2000.

8 Id. at p. 3.

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 CBOE. All

submissions should refer to File No.

SR–CBOE–00–53 and should be

submitted by January 2, 2001.

For the Commission, by the Division of

Market Regulations, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–31383 Filed 12–8–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43638; File No. SR–CBOE–

00–57]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Incorporated Relating to the

Prohibition Against Electronically

Generated and Communicated Orders

November 29, 2000.

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

Securities Exchange Act of 1934,1

(‘‘Act’’) and Rule 19b–4 thereunder,2

notice is hereby given that on November

13, 2000, the Chicago Board Options

Exchange, Incorporated (‘‘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 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 Exchange proposes to amend

CBOE Rule 6.8A, which governs the

entry of electronically generated and

communicated orders. Pursuant to the

proposed amendment, an order would

be deemed electronically generated and

communicated for purposes of the Rule

even if a practice requiring minimal

human intervention has been added to

the process of electronically generating

and communicating the order.

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

On September 12, 2000, the

Commission approved a proposed rule

change filed by the Exchange that

prohibits the entry of certain options

orders that are created and

communicated electronically, without

manual input, into the CBOE’s Order

Routing System (‘‘ORS’’).3 Specifically,

the new Rule (CBOE Rule 6.8A)

provides that members may not enter

nor permit the entry of, orders into ORS

if those orders are created and

communicated electronically without

manual input and if such orders are

eligible for execution on Retail

Automatic Execution System (‘‘RAES’’)

at the time they are sent.4 To be

permitted under the Rule, order entry by

public customers or associated persons

of members must involve manual input,

such as entering the terms of an order

into an order-entry screen or manually

selecting a displayed order against

which an off-setting order should be

sent.

In its Order approving CBOE Rule

6.8A,5 the Commission noted that

allowing the entry of electronically

generated and communicated orders

could undercut CBOE’s business

model.6 As CBOE Rule 6.8A is currently

drafted, however, it is the Exchange’s

view that the Rule is capable of being

easily undermined. Professional traders

that have developed or purchased

software to electronically generate and

communicate orders can easily install a

simple manual step into the process in

order to avoid a violation of the Rule.

In fact, the Exchange has learned that

professional traders have had persons

enter a keystroke to electronically

generate and communicate orders to an

exchange’s order routing system in

order to circumvent the prohibition

against such orders that have been

adopted by other exchanges.

The one comment letter submitted to

the Commission on the Exchange’s

proposed rule change adopting the

CBOE Rule 6.8A made this same point.7

The commenter noted, ‘‘[t]he CBOE

should be free to interpret its

prohibition against electronically

generated and submitted orders to

include orders with nominal or minimal

human intervention. Otherwise, CBOE’s

proposal could be completely

undermined.’’8

The Exchange believes that its

proposed new interpretation to Rule

6.8A is an appropriate response to the

potential harm that could result to its

business model from those persons who

can easily avoid violations of the Rule

as it currently stands. The Exchange

does not believe it is enough to simply

prohibit orders that are sent by the entry

of a single keystroke because those

Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Notices 77405

9 15 U.S.C. 78f(b)(5).

10 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Exchange Act Release No. 43344 (September

26, 2000), 65 FR 59038 (October 3, 2000).

4See Exchange Act Release No. 39729, 63 FR

12559 (March 13, 1998) (order approving File No.

SR–NASD–97–56).

5See In the Matter of National Association of

Securities Dealers, Inc., Exchange Act Release No.

37538 (August 8, 1996); Administrative Proceeding

File No. 3–9056 (‘‘SEC Order’’).

professional traders who determine to

send electronically generated orders

would, thus, be able to avoid violations

by inputting two keystrokes or by

inputting one touch of a computer

screen. Consequently, the proposed

interpretation provides some leeway for

the Exchange to determine what

constitutes minimal human

intervention.

The Exchange will be willing to

provide interpretive guidance to its

members in order to help them

determine what type of action will be

deemed to be minimal human

intervention and what type of activity

will not be considered minimal human

intervention. The Exchange will also be

willing to provide advice to its members

about whether a particular surveillance

mechanism to detect violations of this

Rule by its customers is adequate.

2. Statutory Basis

The proposed rule change is

consistent with and furthers the

objectives of Section 6(b)(5) of the Act 9

in that it is designed to remove

impediments to a free and open market

and protecting 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 that is not

necessary or appropriate in furtherance

of the Act.

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 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,

including whether the proposed rule

change 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

Section. Copies of such filing will also

be available for inspection and copying

at the principal office of CBOE. All

submissions should refer to the File

Number SR–CBOE–00–57 and should be

submitted by January 2, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–31387 Filed 12–8–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43654; File No. SR–

NASD–00–70]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

National Association of Securities

Dealers, Inc. Relating to the Extension

of the Effective Date of Phase Three for

Order Audit Trail System Rules

December 1, 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 November

30, 2000, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), through its whollyowned subsidiary, NASD Regulation,

Inc. (‘‘NASD Regulation’’) 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 NASD Regulation. 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

NASD Regulation proposes to amend

Rule 6957 to extend the effective date of

the implementation of Phase Three of

the Order Audit Trail System (‘‘OATS’’)

rules until 120 days after the SEC

approves File No. SR–NASD–00–23,3

which also proposes changes to the

OATS rules. The text of the proposed

rule change is available at the Office of

the Secretary, NASD Regulation and 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,

NASD Regulation 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.

NASD Regulation 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

On March 6, 1998, the SEC approved

NASD OATS Rules 6950 through 6957.4

OATS provides a substantially

enhanced body of information regarding

orders and transactions that improves

NASD Regulation’s ability to conduct

surveillance and investigations of

member firms for violations of

Association rules. In addition, OATS is

intended to fulfill one of the

undertakings contained in the order

issued by the SEC relating to the

settlement of an enforcement action

against the NASD for failure to

adequately enforce its rules.5 Pursuant

to the SEC Order, OATS is required, at