[Federal Register Volume 63, Number 97 (Wednesday, May 20, 1998)]
[Notices]
[Pages 27779-27780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13383]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39987]; File No. SR-CBOE-98-19]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc., Relating to Nominees of Member Organizations

May 12, 1998.
    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 May 5, 
1998, the Chicago Board Options Exchange, Inc. (``CBOE'' or 
``Exchange'') 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 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 CBOE proposes to revise CBOE Rule 3.8, ``Nominees,'' to clarify 
that a nominee trading for his/her own account pursuant to CBOE Rule 
3.8(a)(4)(C) may trade as an independent market maker and/or an 
independent floor broker.\1\ The CBOE also proposes to replace a 
reference in CBOE Rule 3.8(a)(4)(C) to the CBOE's Market Surveillance 
Department with a reference to the Exchange.
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    \1\ A member who wishes to act as a market maker and as a floor 
broker on the same business day is subject to the restrictions of 
CBOE Rule 8.8, ``Restrictions on Acting as a Market-Maker and a 
Floor Broker.''
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    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 self-regulatory organization 
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 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

    CBOE Rule 3.8(a)(4)(B) provides that a nominee of a member 
organization may perform floor functions only on behalf of the member 
organization for which he or she is authorized. However, CBOE Rule 
3.8(a)(4)(C) sets forth an exception to this requirement. Specifically, 
CBOE 3.8(a)(4)(C) provides that, notwithstanding the provisions of CBOE 
Rule 3.8(a)(4)(B), a nominee may trade for his/her own account provided 
that the following three requirements are satisfied: (i) the nominee is 
a registered broker-dealer; (ii) the nominee has the prior written 
approval of the nominee's member organization to trade for his/her own 
account; and (iii) the nominee has the prior written approval of the 
Exchange's Market Surveillance Department to trade for his/her own 
account. CBOE Rule 3.8(a)(4)(C) also provides that the approval of the 
nominee's member organization and of the CBOE's Market Surveillance 
Department must be filed with the CBOE's Membership Department.
    In addition, CBOE Rule 3.8(a)(2) requires a nominee's member 
organization to guaranty all obligations arising out of the nominee's 
representation of the member organization, including transactions for 
the nominee's own account as authorized pursuant to CBOE Rule 
3.8(a)(4)(C).
    The purpose of the proposal is to clarify that authorization of a 
nominee

[[Page 27780]]

to trade for his/her own account pursuant to CBOE Rule 3.8(a)(4)(C) 
means authorization of the nominee to trade as an independent market 
maker and/or as an independent floor broker.\2\ Accordingly, the 
proposal amends CBOE Rule 3.8 by replacing the references to trading by 
a nominee for his/her own account with references to trading by a 
nominee as an independent market maker and/or as an independent floor 
broker.
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    \2\ As noted above, a member who wishes to act as a market maker 
and as a floor broker on the same business day is subject to the 
restrictions of CBOE Rule 8.8. See note 1, supra.
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    According to the CBOE, this clarification is consistent with the 
manner in which the CBOE departments that have administered CBOE Rule 
3.8(a)(4)(C) have interpreted the rule and is intended to eliminate any 
potential ambiguity as to whether CBOE Rule 3.8(a)(4)(C) only 
authorizes a nominee to act as an independent market maker.\3\ 
Additionally, the CBOE believes that, as a matter or regulatory policy, 
there is no reason to distinguish between a nominee acting as an 
independent market maker and a nominee acting as an independent floor 
broker given that, in either instance, the nominee must have prior 
written authorization to do so from both the nominee's member 
organization and from the Exchange, the nominee must be a registered 
broker-dealer, and the nominee's transactions will be guaranteed by the 
nominee's member organization.
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    \3\ A member (or the Exchange) providing authorization under 
CBOE Rule 3.8(a)(4)(C) may specify the capacity in which the nominee 
may act (ie., the nominee may be authorized to act solely as a floor 
broker, solely as market maker, or in both capacities), Telephone 
conversation between Arthur B. Reinstein, Assistant General Counsel, 
CBOE, and Yvonne Fraticelli, Attorney, Division of Market 
Regulation, Commission, on May 8, 1998.
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    The proposed rule change also replaces the references in CBOE Rule 
3.8(a)(4)(C) to the CBOE's Market Surveillance Department with a 
reference to the Exchange. The reason for this change is twofold. 
First, the CBOE's Market Surveillance Department recently was combined 
into the CBOE's Department of Market Regulation. Second, the Exchange 
body or bodies that grant approvals under CBOE Rule 3.8(a)(4)(C) may 
change over time. Currently, Exchange approval under CBOE Rule 
3.8(a)(4)(C) is required from both the CBOE's Department of Market 
Regulation and the CBOE's Membership Committee.
    Finally, the CBOE notes that all of the provisions in paragraphs 
(a)(2), (a)(3), and (a)(4) of CBOE Rule 3.8 which are applicable to 
nominees are also applicable to a person who has registered his or her 
membership for a member organization because, under Section 2.4 of the 
CBOE Constitution (``Registration of Individual Memberships for Member 
Organizations'') such a person represents a member organization is lieu 
of a nominee. Therefore, the requirements of CBOE Rule 3.8(a)(4)(C) 
also are applicable to a person who has registered his or her 
membership for a member organization and desires to also act as an 
independent market maker and/or as an independent floor broker.
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act, in general, and furthers the objectives 
of Section 6(b)(5), in particular, in that the proposed change will 
clarify the Exchange's rules and is thus designed to remove impediments 
to and perfect the mechanism of a free and open market.

(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.

(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

    Because the foregoing rule change constitutes a stated policy, 
practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule of the Exchange, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act \4\ and 
subparagraph (e)(1) of Rule 19b-4 thereunder.\5\ At any time within 60 
days of the filing of such proposed rule change, the Commission may 
summarily abrogate such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.\6\
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    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(e)(1).
    \6\ In reviewing this proposal, the Commission has considered 
the proposal's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether it is consistent 
with the Act. Persons making written submissions should file six copies 
thereof with the Secretary, Securities and Exchange Commission, 450 
Fifth Street, N.W., Washington, D.C., 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 that 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, N.W., Washington, D.C. 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-98-19 and should be submitted by June 10, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-13383 Filed 5-19-98; 8:45 am]
BILLING CODE 8010-01-M