[Federal Register Volume 62, Number 53 (Wednesday, March 19, 1997)]
[Notices]
[Pages 13201-13203]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6892]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38393; File No. SR-CBOE-97-12]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. To Amend the 
Exchange's Rule Concerning the Pre-Opening Application of the 
Intermarket Trading System

March 12, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on February 
26, 1997, 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 self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to amend CBOE Rule 30.72, Pre-Opening Application 
Rule, with respect to the Pre-Opening Application in the Intermarket 
Trading System (``ITS''). The proposed amendment is to enhance the 
operation of the Pre-Opening Application by effectively including 
circuit breakers as a trading halt situation that will trigger the Pre-
Opening Application.\1\
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    \1\ The Commission notes that the majority of other ITS 
Participants (the American Stock Exchange, Boston Stock Exchange, 
Chicago Stock Exchange, Cincinnati Stock Exchange, National 
Association of Securities Dealers, New York Stock Exchange, Pacific 
Stock Exchange) have filed essentially the same proposals to amend 
each of their rules concerning the Pre-Opening Application. See 
Securities Exchange Act Release No. 38285 (February 13, 1997), 62 FR 
8065 (February 21, 1997).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received

[[Page 13202]]

on the proposed rule change. The text of these statement may be 
examined at the places specified in Item IV below. The self-regulatory 
organization has prepared summaries, set forth in Sections A, B, and C 
below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to enhance the operation 
of CBOE Rule 30.72, the ITS Pre-Opening Application. The CBOE's Pre-
Opening Application rule contains basic definitions pertaining to ITS, 
prescribes the sorts of transactions that may be effected through ITS 
and the pricing of commitments to trade, and specifies the procedures 
pertaining to the Pre-Opening Application, whereby an Exchange 
Designated Primary Market-Maker (``Exchange DPM'') who wishes to open a 
market in an ITS stock may obtain any pre-opening interest in that 
stock by other market-makers registered in that stock in other 
Participant markets.
    CBOE's current Pre-Opening Application prescribes that if an 
Exchange DPM anticipates that the opening transaction on the Exchange 
will be at a price that represents a change from the security's 
previous day's consolidated closing price of more than the ``applicable 
price change,'' the Exchange DPM shall notify other Participant markets 
by sending a pre-opening notification through the ITS. The ``applicable 
price changes'' are:

------------------------------------------------------------------------
                                          Applicable price change (more 
     Consolidated closing price \2\                   than)             
------------------------------------------------------------------------
Network A:\3\                                                           
  Under $15............................  \1/8\ point.                   
  $15 or over..........................  \1/4\ point.                   
Network B:                                                              
  Under $5.............................  \1/8\ point.                   
  $5 or over...........................  \1/4\ point.                   
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\2\ If the previous day's closing price of an eligible listed security  
  exceeded $100 and the security does not underlie an individual stock  
  option contract listed and currently trading on an exchange, the      
  ``applicable price change'' is one point.                             
\3\ Network A is comprised of New York Stock Exchange securities;       
  Network B is comprised of American Stock Exchange securities.         

Thereafter, the Exchange DPM shall not open the market in the security 
until not less than three minutes after the transmission of the pre-
opening notification. Once an Exchange DPM has issued a pre-opening 
notification, other Participant markets may transmit ``pre-opening 
responses'' to the Exchange DPM through the ITS that contain 
``obligations to trade.'' The Exchange DPM is then obligated to combine 
these obligations with orders it already holds in the security, and, on 
the basis of this aggregated information, decide upon the opening 
transaction in the security.
    The Pre-Opening Application also applies whenever an ``indication 
of interest'' is sent to the Consoldiated Tape Association (``CTA'') 
Plan Processor prior to the opening of trading in the relevant security 
or prior to the reopening of trading in the relevant security following 
the declaration of a trading halt for certain defined reasons, even if 
the anticipated opening or re-opening price is not greater than the 
``applicable price change.'' The current Pre-Opening Application 
provides that the Pre-Opening Application Rule applies when an 
indication of interest is disseminated following five defined trading 
halt situations; reopenings following order imbalance, order influx, 
equipment, communications or technical problems, news pending and news 
dissemination, and for a delayed opening.
    The purpose of the proposed amendment is to amend the CBOE's Pre-
Opening Application rule to provide that the Pre-Opening Application 
would be triggered whenever any ``indication of interest'' (i.e., an 
anticipated opening price range) is sent to the Consolidated Tape 
System prior to the opening or reopening of trading in the relevant 
security. Under the proposed change, the Pre-Opening Application would 
also be triggered when indications of interest are disseminated in 
situations other than those five defined trading halts, including the 
resumption of trading following the activation of market-wide circuit 
breakers. In particular, the proposed amendment would delete the 
definition of ``Trading Halt,'' which is limited to the five defined 
trading halt situations mentioned above, and replace all references to 
``Trading Halt'' with ``halt or suspension in trading.'' As a result, 
one standard procedure would then goven all trading halt situations and 
would include suspensions of trading pursuant to circuit breakers.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act \4\ in that it is designed to promote just and equitable principles 
of trade, to remove impediments to and 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 proposed rule change is 
also consistent with Section 11A(a)(1)(D) \5\ of the Act which provides 
that the linking of all markets for qualified securities through 
communications and data processing facilities will foster efficiency, 
enhance competition, increase the information available to brokers, 
dealers, and investors, facilitate the offsetting of investors' orders, 
and contribute to the best execution of such orders.
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    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78k-1(a)(1)(D).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    No written comments were either solicited or received.

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

    Within 35 days of the 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 the 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

[[Page 13203]]

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-CBOE-97-12 and 
should be submitted by April 9, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-6892 Filed 3-18-97; 8:45 am]
BILLING CODE 8010-01-M