Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Notices 12671

7 17 CFR 200.30–3(a)(12).

above $200, respectively. The Index

Multiplier for NYA Options is $100.

CBOE proposes to apply to NYA

Options the same 45,000 contract

position and exercise limits (no more

than 25,000 contracts expiring in the

nearest expiration month) and the same

hedge exemption that currently apply to

such options under NYSE rules. In

addition to regular index options, CBOE

proposes to provide for trading in

Quarterly Index Expiration options

(‘‘QIX’’ options), long-term and reducedvale long-term options (‘‘LEAPs’’ and

‘‘reduced-value LEAPs’’) and A.M.-

settled FLEX Options on the Index

pursuant to the same rules and

procedures that currently govern trading

on CBOE in these types of options.

In addition, the proposed rule change

includes a few corrections to the table

of position limits set forth in Rule 24.4

in order to add references to classes of

index options that were inadvertently

omitted from the table when it was last

revised, and a few clarifications to the

language of Rule 24A.4(b) concerning

the specification of the exercise

settlement values for FLEX Index

Options. No substantive changes will

result from these corrections and

clarifications.

CBOE believes that it has adequate

facilities and resources to provide for

the trading, surveillance and data

dissemination called for by the transfer

of the NYSE options business to its

market. In this connection, CBOE

intends to construct a new trading

facility dedicated solely to NYSE

Options, which will be configured and

equipped in the same manner as its

existing trading floor. The surveillance

and regulatory responsibilities resulting

from the transfer of the NYSE options

business to CBOE are not expected to

add significantly to CBOE’s existing

regulatory workload, and CBOE believes

it has adequate resources to assume

these added responsibilities. CBOE

intends to add one additional output

line to the OPRA processor for purposes

of transmitting market information

pertaining to NYSE Options. This will

not increase the total input to OPRA

because two lines from NYSE to the

OPRA processor will be terminated at

the time of the transfer to CBOE.

CBOE believes that the purposed rule

change is consistent with and in

furtherance of the provisions of Section

6(b)(5) of the Securities Exchange Act of

1934 because, by permitting those NYSE

members who have been engaged in

options activities on NYSE to continue

to conduct an options business in

CBOE’s regulated exchange

marketplace, the proposed rule change

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

CBOE does not believe that the

proposed rule change will impose any

burden on competition. Instead, by

providing a framework within which all

of the members of NYSE who have been

active in NYSE’s options business may

continue to conduct that business on

CBOE, the proposed rule change is

intended to strengthen the ability of

those members to compete with other

markets that may also wish to trade the

options formerly traded on NYSE. In

this regard, CBOE understands that

early in 1996, NYSE determined to

continue its options business regardless

of whether it would be able to transfer

that business to CBOE or to any other

market. NYSE’s effort to transfer its

options business to another market was

made largely in order to provide a home

for those of its options members who

wished to continue in the options

business, as evidenced by NYSE’s

emphasis on trading rights for its

members in its request for bids for the

acquisition of its options business.

The terms governing the transfer of

NYSE’s options business to CBOE

impose no restrictions on the ability of

NYSE to resume options trading at any

time, except that if NYSE were to

resume trading options within one year

following the Effective Date, it would

have to pay CBOE $500,000 to offset a

small portion of CBOE’s costs associated

with the transfer. Nor are any

restrictions imposed on NYSE members

that would limit their ability to trade

options on NYSE if that exchange were

to resume its options trading program.

CBOE notes that any other securities

market is also free at any time to trade

any or all of the options formerly traded

on NYSE, other than NYA Options,

which will be exclusively licensed to

CBOE.

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 thirty-five 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

ninety 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.

Persons making written submissions

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

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 20549. 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–97–

14 and should be submitted by April 7,

1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–6562 Filed 3–14–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38376; File No. SR–NYSE–

97–05]

Self-Regulatory Organizations; New

York Stock Exchange, Inc., Notice of

Filing of Proposed Rule Change

Relating to the Agreement Transferring

the New York Stock Exchange Options

Business to the Chicago Board

Options Exchange

March 7, 1997.

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

Securities Exchange Act of 1934
12672 Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Notices

1 15 U.S.C. 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1994).

3On March 3, 1997, the CBOE filed with the

Commission a proposed rule change, SR–CBOE–97–

14, regarding the transfer of the NYSE options

business.

4CBOE’s parallel filing includes the Transfer

Agreement as Exhibit B to the filing. The

Exchange’s proposed rule change and this notice

incorporate Exhibit B to SR–CBOE–97–14.

5NYSE also met on several occasions with the

New York Cotton Exchange (‘‘Cotton Exchange’’),

but the Cotton Exchange did not make a written

submission to NYSE and did not comply with any

deadlines under NYSE’s tender process during

August and September 1996. Moreover, the cotton

Exchange faced barriers to entry not applicable to

the other exchanges, including absence of

registration as a national securities exchange with

the Commission and lack of requisite systems and

regulatory capacity. By letter to NYSE dated

December 16, 1996, (attached as a part of Exhibit

A to this filing), the Cotton Exchange indicated that

it had no interest in acquiring NYSE’s options

business.

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

notice is hereby given that on March 3,

1997, the New York Stock Exchange,

Inc. (‘‘NYSE’’ 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 NYSE. 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 NYSE has determined to cease

maintaining a trading facility for

transactions in options issued by The

Options Clearing Corporation (‘‘OCC’’)

and proposes to facilitate transfer of its

options business to the Chicago Board

Options Exchange, Incorporated

(‘‘CBOE’’).3

As more fully described below, under

the agreement between the Exchange

and CBOE that sets forth the terms and

conditions pursuant to which the

transfer will take place (’’Transfer

Agreement’’),4 CBOE will issue trading

permits to NYSE options firms in

accordance with the number of NYSE

floor badges held by the firms’ partners,

employees and affiliates. Subject to

certain limitations described in the

Transfer Agreement, the Exchange

proposes to have discretion to condition

the issuance of permits upon the

payment of any amounts owed to the

Exchange by the options firms or their

badge holders or other affiliates, as the

case may be, which may include holders

of the corresponding NYSE Options

Trading Rights (‘‘OTRs’’).

In addition, the Transfer Agreement

gives the Exchange control over possible

payments to certain holders of OTRs or

their transferees arising from a lease

pool of permits called for by the

Transfer Agreement, as more fully

described elsewhere in this notice. The

Exchange proposes to have discretion to

withhold permission for such payments

until (1) any amounts owed to the

Exchange by the OTR holder or its

affiliates are paid (which may be

effected by directing CBOE to make the

payments directly to the Exchange until

the indebtedness is satisfied) and (2) in

the case where the OTR has been

separated, the holder transfers his OTR

to the Exchange.

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

NYSE 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 NYSE 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

(a) Purpose

The purpose of the proposed rule

change is to effect the fair and orderly

transfer of the Exchange’s options

business to CBOE and to secure for

traders and brokers who currently make

their living on the Exchange’s options

floor an opportunity to continue their

occupations at CBOE.

The basic parameters of the transfer

and their purposes, as well as the

environmental factors that led to the

transfer and molded the negotiations

between the Exchange and CBOE, are

described below.

(i) Overview

CBOE will acquire the options

business conducted through the

Exchange’s options facilities pursuant to

the Transfer Agreement. The effective

date of the acquisition is scheduled for

April 28, 1997, subject to fulfillment of

conditions specified in the Transfer

Agreement and approval of this

proposed rule change and the parallel

filing by CBOE.

(ii) Background

In April 1996, the Exchange

undertook a strategic review of the 13-

year operation of its options business. In

the course of the review, the Exchange

considered the potential for overall

growth in the options industry; explored

the needs of the order-providing firms

and the relationships through which the

options business is done; assessed the

existing capacity and structure in the

options industry and the Exchange’s

existing and potential competitive

position; and examined the scale of the

effort necessary to make the Exchange’s

options business line profitable. The

Exchange concluded that remaining in

the options business, even at the thencurrent market share, would require

significant capital expenditures, and

that any effort to significantly improve

market share would require an

enormous expenditure of capital and

human resources.

On May 2, 1996, upon presentation of

the strategic review to the Exchange’s

Board of Directors, it was determined

that further investigation would be

made into the possibility of exiting the

options business and directing the

resources previously expended on that

business to the Exchange’s core equity

business.

Publicity via Reuters and other news

media followed this determination,

resulting in numerous inquiries from

options exchanges, commodities

exchanges, member firms and others as

to the possible acquisition of the

Exchange’s options business. Several of

these inquiries mentioned the

possibility of granting special trading

privileges, relocation payments and

other benefits to the Exchange’s options

members in connection with their

collective relocation to the acquirer, as

well as the possibility of paying

licensing fees and other amounts to the

Exchange.

In light of these inquiries and other

factors, on June 24, 1996, the Exchange

notified its members and member

organizations that it would transmit to

the various exchanges and others that

had expressed interest in acquiring its

options business the proposed terms for

the sale of the business, as well as

certain operational and other statistical

data. This information was sent on or

about June 27, 1996, except as to one

recipient to whom it was sent on July

19, 1996.

These transmissions resulted in a

series of telephone and face-to-face

discussions with a variety of potential

purchasers. The American Stock

Exchange (‘‘AMEX’’), CBOE and the

Philadelphia Stock Exchange (‘‘PHLX’’)

provided detailed, written preliminary

bids and executed confidentiality

agreements with the Exchange.5

During these discussions, it became

clear that because there are as many
Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Notices 12673

OTRs as there are Exchange members (a

total of 1366), but only 92 OTRs were

directly involved in the options

business, there was an excess of 1,274

OTRs, thus complicating negotiations to

obtain cost-free trading permits.

Accordingly, by resolution on

September 5, 1996, the Exchange’s

Board limited the universe of OTR

holders potentially entitled to direct

benefits from the transfer to present and

future holders of the 92 ‘‘activated’’

OTRs, that is, to: (1) Regular members

who already were using or leasing out

their OTRs, (2) holders of OTRs

separated from equity memberships,

and (3) subsequent purchasers from

them.

Based upon review of these

preliminary bids and other factors, the

Exchange sent to those three

preliminary bidders a letter dated

September 10, 1996, requesting firm,

written bids (the acceptance of which by

NYSE would create a letter of intent

between the parties), providing

parameters for the bids, and asking that

the bids be submitted within a week.

The Exchange received written bids

from CBOE and AMEX, each dated

September 17, 1996, and from PHLX,

dated September 16, 1996.

Based upon its comparison of these

bids, telephone conferences and

discussions with representatives of the

bidders, the Exchange staff

recommended the CBOE bid to the

Exchange’s Board of Directors. The

recommendation was based on several

factors, including that CBOE’s bid was

competitive with the other bids

financially and generally superior in

terms of the opportunity it promised for

NYSE options traders and brokers to

continue to make their livings in the

options business. In particular, the

CBOE bid, which was competitive from

the standpoint of trading rights, offered

a separate, state-of-the-art facility for the

transferred business. The likelihood that

CBOE would remain viable for the long

term was also a key factor.

On October 3, 1996, the Board

indicated its preference for negotiations

with CBOE based upon CBOE’s bid. By

letter to CBOE dated October 3, 1996,

NYSE accepted CBOE’s bid, thereby

creating a letter of intent between NYSE

and CBOE.

On November 7, 1996, following

further clarification of CBOE’s bid and

extensive discussions between CBOE

and NYSE, the Board authorized

execution and delivery of the requisite

agreements and other appropriate

actions with CBOE to consummate the

proposed transaction.

On December 5, 1996, the Exchange

and CBOE executed a revised letter of

intent for the purpose of further

clarifying certain points. On December

9, 1996, the Exchange distributed on its

options floor a memorandum explaining

the proposed transaction and, shortly

thereafter, mailed copies thereof to the

92 OTR holders discussed above. The

Exchange and CBOE executed the

Transfer Agreement as of February 5,

1997.

(iii) Trading Permits and How They

Benefit Exchange Options Firms and

Options Trading Rights

This section highlights the key

elements of the rights, privileges and

benefits available to transferring NYSE

options members pursuant to the rules

CBOE proposes to adopt in accordance

with the Transfer Agreement.

(aa) Creation and Issuance of CBOE

Trading Permits

CBOE will create and issue 75 trading

permits, each having a seven-year

duration. Subject to limited exceptions,

the permits may not be sold, leased or

transferred for a period of one year after

the effective date under the Transfer

Agreement. The permits will provide for

trading on a new and separate trading

floor at CBOE’s Chicago facility.

Representatives of the Exchange’s

options community will have the

opportunity to participate in the design

of the new trading floor, which will

have services and support facilities

comparable to those used on CBOE’s

principal options trading floor. Upon

qualification pursuant to CBOE rules,

permit recipients will have (1) the right

to act as broker or dealer in transferred

options (i.e., options traded on NYSE

and not dually listed on CBOE), as well

as in options subsequently allocated to

the program by CBOE; (2) the right to

trade ‘‘by order’’ as principal on CBOE’s

principal trading facility those options

dually listed on NYSE and CBOE; and

(3) the right to trade ‘‘by order’’ as

principal on CBOE’s principal trading

facility any other classes of CBOE

options up to an aggregate of 20 percent

of the holder’s quarterly contract

volume on CBOE.

In addition, each NYSE options

specialist unit will be appointed as the

CBOE Designated Primary MarketMaker (‘‘DPM’’) in its transferred

specialty options. CBOE will allocate to

the new program securities underlying

at least 14 options classes per year for

the first seven years after the transfer.

Permit holders will be subject

generally to the same obligations under

the CBOE rules as are regular CBOE

members, except that application fees

will be waived in certain instances.

Under certain circumstances, recipients

of permits or their nominees who move

their principal residence to Chicago and

qualify under CBOE rules may receive

up to $10,000 per permit for customary

moving expenses.

(bb) Recipients of Permits; Manner of

Issuing Permits; Lease Pool

The 75 Permits are to be issued as

follows:

(1) Non-Specialist Firms

(‘‘Homesteader Rule’’). Each Exchange

non-specialist options firm, including

sole proprietors, doing business on the

NYSE options floor will be offered the

same number of permits as that firm had

in valid NYSE floor badges as of

December 5, 1996. However, in order for

the firm to actually receive permits, the

firm’s individual badge holders on that

date must personally qualify and trade

on CBOE as individual permit holders

or as ‘‘nominees’’ of the firms owning

permits. Consistent with CBOE rules

permitting partnerships and

corporations to be members, the firms

themselves may own permits. CBOE

may impose limits on transfers of

permits and prohibit substitution of

nominees in a manner designed to

assure that permits are not transferred,

and that nominees remain with the firm

at CBOE, for one year after issuance.

(2) Specialist Firms. As in the case of

non-specialist firms, each Exchange

specialist options firm, including joint

books, will be offered the same number

of permits as that firm had in valid

NYSE floor badges as of December 5,

1996. However in contrast to nonspecialist firms, no specified individual

will be required to be a specialist firm’s

nominee or to move to or remain at

CBOE as a condition of a permit’s

effectiveness. Instead, the specialist

firms can select the persons to become

nominees and use the permits.

Nominees may be freely substituted, but

CBOE may impose limits on transfers of

permits designed to assure that permits

are not transferred for one year after

issuance.

(3) Creation of Lease Pool and

Distribution of Proceeds. CBOE will

lease out any of the 75 permits not

issued as specified above, as well as any

permits revoked due to violation of

CBOE restrictions on transfer and

substitution of nominees, through an

auction or other competitive process.

The proceeds from the leases will be

distributed pro rata to the

approximately 92 persons who, as a

result of their OTRs, were entitled to

possible benefits, as discussed above.
12674 Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Notices

6The NYSE Foundation, authorized by the Board

of Directors of the Exchange in October 1983 and

incorporated as a not-for-profit organization in

November 1983, provides funds for educational,

civic and charitable purposes. The Foundation’s

charitable giving focuses on three main areas:

education, quality of life, and community. The

escrow funds would be available for any such

purposes other than those specifically targeted at

the securities industry.

(cc) Transfer Agreement Provisions As

Pragmatic Compromises

The elements of the transfer outlined

above represent a series of pragmatic

compromises negotiated to reconcile the

respective goals of the Exchange and

CBOE. As noted above, the Exchange

sought to minimize the disruption in the

lives of the option badge holders and to

maximize the opportunity for its options

traders and brokers to continue to make

their livings in the options business

after the transfer.

In contrast, CBOE sought to maximize

the success of the transferred market as

a whole by seeking to assure (1) That the

NYSE options specialists participated in

the transfer, (2) that NYSE option

traders and brokers with trading

experience moved to Chicago, and (3)

that the number of permits issued

optimized the viability of the transferred

market as a whole and of the businesses

of the permit holders individually.

Thus, for example, the Transfer

Agreement’s ‘‘homesteader’’ element

was designed to support CBOE’s general

goal of attracting experienced traders.

However, the omission of a

homesteading requirement for

specialists reflects the higher priority

attached by CBOE to assuring that all of

the options specialists participated in

the transfer.

(iv) Purchase Price and Economic

Rationale

The purchase price under the Transfer

Agreement is $5,000,000. Following is a

discussion of the economic basis

supporting this purchase price and the

transaction, generally.

By acquiring the Exchange’s options

business, CBOE will obtain a trained

pool of talent with experience in the

trading characteristics of the transferring

option classes and customer

relationships. Assuming that these

attributes and CBOE’s own assets enable

it at least to retain the Exchange’s

market share. CBOE will acquire a

substantial revenue stream offset by

only marginal increases in operating

costs. CBOE also will face a one-time

investment in facilities.

Typically in the sale of a going

business, the seller receives a multiple

of annual revenues, especially if lower

fixed or marginal costs, or other factors,

allow the purchaser a better opportunity

than the seller to realize benefits from

existing or anticipated revenues. The

Exchange believes that the Transfer

Agreement does no more than recognize

an appropriate sharing of these

revenues.

(v) Use of Proceeds

The Exchange will retain $1.2 million

of the purchase price to partially offset

Exchange exit costs and as

compensation for a ten-year license

given to CBOE to list and trade options

on the NYSE Composite Index. The

Exchange will distribute the remaining

$3.8 million of the purchase price, net

of an appropriate tax reserve, on a pro

rata basis to all of its 1366 members,

subject to a determination of whether or

not the distribution will be taxed both

to the Exchange and to the member

recipients. The tax reserve recognizes

that the distribution of the lease pool

proceeds discussed elsewhere in this

notice may also result in imputed

income to the Exchange. The Exchange

will apply to the Internal Revenue

Service for Private Letter Rulings to

resolve the two tax question. Pending

receipt of the rulings, CBOE will pay the

$3.8 million into an Escrow Account.

If the Exchange receives an adverse

ruling on the lease proceeds, a portion

of the escrow account will be released

annually as needed to fund tax

payments, with any surplus reverting to

the Exchange’s treasury after the lease

pool terminates in the year 2004. If the

Exchange receives an adverse ruling on

the distribution to the 1366 members,

distribution (net of any tax reserve for

the lease pool proceeds) of some or all

of the escrow account may be made to

the NYSE Foundation 6 instead of the

1366 members. Under no circumstances

will escrow funds, except for amounts

owed to the Exchange and any tax

reserves or reserve surplus, be

distributed other than to the 1366

members or the NYSE Foundation.

(vi) Conditions to Receipt of Permits

and Lease-Pool Payments

The discretionary conditions

requiring payment of outstanding

amounts owing to the Exchange

implement similar existing

requirements under the Exchange’s

Constitution and rules. (See, e.g., NYSE

Constitution, Article II, Section 8; NYSE

Rule 795(d)(i); and NYSE Rule 795.10,

Supplementary Material.) The

discretionary condition requiring

transfer of separated OTRs to the

Exchange is a housekeeping matter

designed to assure that all OTRs, which

will have only speculative value at the

conclusion of the transfer, are held

either by regular members or the

Exchange itself.

(b) Basis

The Exchange believes the basis

under the Act for this proposed rule

change is the requirement under Section

6(b)(5) that an exchange have rules that

are designed to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, to remove impediments to and

perfect the mechanism of a full and

open market and a national market

system, and, in general, to protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

This proposed rule change does not

impose any burden on competition that

is not necessary or appropriate in

furtherance of the purposes of the 1934

Act.

The Exchange notes that in CBOE’s

parallel filing, Item 4 of SR–CBOE–97–

14, CBOE outlines the way in which the

transfer enhances the competitive

environment and imposes no

restrictions on trading by NYSE or other

markets of the stock options now traded

on NYSE, other than options on the

NYSE Composite Index subject to the

license agreement with CBOE. The

Exchange’s proposed rule change and

this notice incorporate Item 4 of CBOE’s

filing.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange has received the

following written comments from

members or other interested parties:

Letter to Richard Grasso, Chairman

and Chief Executive Officer of the

Exchange, from Stephen G. O’Grady

Frank Barbato and Greg Tenbekjian,

Exchange options traders, dated

November 22, 1996, objecting to the

proposed transaction with CBOE on the

grounds that various classes of options

participants were not treated equally.

The Exchange has not made and could

not make any representation to members

concerning exact equality of treatment.

As more fully explained elsewhere in

this notice, the bid process initiated by

the Exchange brought to bear the

dictates of the market which, generally,

placed a higher premium on specialist

participation in any transfer than on

participation by brokers. The Exchange,

which was under no obligation to obtain

any benefits for any options

participants, felt it was unreasonable to
Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Notices 12675

7 17 CFR 200.30–3(a)(12).

reject potential benefits to almost all

options participants, including brokers

whose badge holders were willing to

transfer to CBOE, because the

marketplace placed a higher premium

on participation by one group than

another.

Letter to Lewis J. Horowitz, Executive

Vice President of the Exchange, from

Joseph J. O’Neill, President of the New

York Cotton Exchange, dated December

16, 1996, to the effect that the Cotton

Exchange had no interest in acquiring

the Exchange’s options operations.

Letter to Rudolph Giuliani, Mayor of

the City of New York, from Mark Green,

Public Advocate of the City of New

York, dated January 8, 1997, regarding

possible loss of jobs in New York City

as a result of the transfer to CBOE.

Letter to the Exchange from Isaac M.

Ovadiah, an OTR lessor, dated January

9, 1997, reflecting the writer’s intent to

arbitrate against the Exchange’s future

plans concerning trading rights and to

apply to the federal courts seeking

injunctive relief. The Exchange knows

of no basis pursuant to which

arbitration would be available to Mr.

Ovadiah and no basis for the granting of

an injunction or similar relief with

respect to any of the proposed

transactions with CBOE. The Exchange

has received no further written

communication from Mr. Ovadiah

concerning the matters referred to

above.

Letter to William Johnston, President

and Chief Operating Officer of the

Exchange, from Cohen, Duffy, McGowan

& Co., LLC, dated January 16, 1997, to

the effect that the Exchange’s process for

the proposed transfer to CBOE was fair

and that the economic benefit to

members choosing to go to CBOE will

surpass anything they could have

achieved elsewhere.

Memorandum to William Johnston,

President and Chief Operating Officer of

the Exchange, from Mark Duffy, an

Exchange options trader, dated January

20, 1997, to the effect that the proposed

CBOE transaction is fair and provides

beneficial opportunities.

Letter to William Johnston, President

and Chief Operating Officer of the

Exchange, from Lawrence Helfant, Inc.,

dated February 4, 1997, indicating that

the firm did not support any possible

legal action against the Exchange by

OTR holders with respect to the

proposed transfer to CBOE and that it

endorsed the proposed transfer.

Letter to William Johnston, President

and Chief Operating Officer of the

Exchange, from BE Partners, dated

February 12, 1997, to the effect that the

CBOE proposal was the best of the

proposals from the major exchanges for

transfer of the options business.

Undated notice entitled ‘‘An Open

Letter To The Members, Directors, and

Chairman of the New York Stock

Exchange’’ from certain NYSE options

participants named therein, as

distributed on the Exchange’s Options

floor, reflecting opposition to the

proposed transaction. The Exchange

notes that is could simply have

terminated its options business and

sought no benefits for any options

participants.

However, as is more fully explained

elsewhere in this notice, the Exchange

has obtained substantial benefits for a

broad cross-section of options

participants. The objections voiced in

this notice do not take into account the

foregoing fact or the limitations and

trade-offs inherent in the negotiation

process necessarily undertaken by the

Exchange in connection with the

proposed transaction. The Exchange

believes that all objections set forth in

the notice from the options participants

have been addressed in the Exchange’s

notice and rule filing and that the

proposed transaction will be beneficial

to the Exchange’s overall membership.

Undated and unsigned notice entitled

‘‘NYSE Options Update’’, as distributed

on the Exchange options floor, alleging

various shortcomings in the proposed

transaction, all of which were

responded to or explained in the body

of the Exchange’s notice. An abbreviated

reiteration of those responses with

respect to all substantive issues in the

notice follows: (i) The assertion that

NYSE members who have not activated

their OTRs will receive no

compensation is not correct; depending

upon rulings from the Internal Revenue

Services with respect to tax treatment of

certain proceeds from the transaction,

members may receive a pro rata

distribution of some or all of such

proceeds, or will benefit indirectly from

contribution of amounts to the NYSE

Foundation; (ii) as to OTR lessors

‘‘losing their income’’ for OTR leases, it

is anticipated that, subject to certain

contingencies, OTR lessors will receive,

for 7 years, payments from the lease

pool to be maintained by CBOE which

will exceed lease payments now

received for OTRs; and (iii) as to current

‘‘operatives’’ of OTRs receiving

‘‘severely limited trading rights on

CBOE’’, in fact, CBOE is creating a new

and separate trading floor with new and

very broad-based trading rights available

in former NYSE options and other

options to transferring NYSE

participants who meet CBOE rules and

requirements.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Security 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

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 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the NYSE. All submissions

should refer to File No. SR–NYSE–97–

05 and should be submitted by April 7,

1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–6560 Filed 3–14–97; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

State of Mississippi Declaration of

Disaster #2936

Union County and the contiguous

Counties of Benton, Lafayette, Lee,

Marshall, Pontotoc, Prentiss, and