Federal Register / Vol. 63, No. 98 /Thursday, May 21, 1998 / Notices 28019

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

2 In Amendment No. 1, the Exchange clarifies the

operation of the proposed rule change. More

specifically, the Amendment explains the process

of designating options to which the proposed

automatic execution feature applies as well as

reasons for suspending the new feature. See Letter

from Timothy Thompson, Director, Regulatory

Affairs, Legal Department, CBOE, to Ken Rosen,

Attorney, Division of Market Regulation,

Commission, dated May 11, 1998 (‘‘Amendment

No. 1’’). 3See Amendment No. 1.

Additional Information or Comments:

To request more information or to

obtain a copy of the information

collection justification, forms, and/or

supporting material, please call RRB

Clearance Officer at (312) 751–3363.

Comments regarding the information

collection should be addressed to

Ronald J. Hodapp, Railroad Retirement

Board, 844 N. Rush Street, Chicago,

Illinois 60611–2092. Written comments

should be received on or before July 20,

1998.

Chuck Mierzwa,

Clearance Officer.

[FR Doc. 98–13582 Filed 5–20–98; 8:45 am]

BILLING CODE 7905–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39992; File No. SR–CBOE–

98–13]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the

Chicago Board Options Exchange, Inc.

Relating to the Automatic Execution of

Small Retail Orders in Equity Options

May 14, 1998

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

Securities Exchange Act of 1934

(‘‘Act’’) 1, notice is hereby given that on

April 6, 1998, 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. On May 13,

1998, the CBOE submitted to the

Commission Amendment No. 1 to the

proposed rule change.2 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 amend CBOE

Rule 6.8 and Interpretation and Policy

.02 thereunder to provide added

flexibility to the Exchange’s Retail

Automatic Execution System (‘‘RAES’’)

where the best bid or offer on the

Exchange for a given equity option is

inferior to the best bid or offer for the

same option in another market where

the option is traded.

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. 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

The purpose of the proposed rule

change is to provide for the automatic

execution on RAES of eligible retail

orders to buy or sell equity options at

a price that may be one tick better than

the best price currently quoted on the

Exchange if the better price is then

being quoted in another market where

the same options are traded. Under

existing CBOE Rule 6.8(a)(ii), the

execution price automatically attached

to an equity option order executed in

RAES is the prevailing market quote on

CBOE at the time the order is entered

into the system. If at that same time

another market is displaying a better

quote for the option, under the existing

Rules the order is not automatically

executed, but instead, pursuant to

Interpretation and Policy .02 under

CBOE Rule 6.8, is rerouted for nonautomated handling. In most cases,

especially where the market away from

the CBOE is better by only one ‘‘tick’’

(i.e., by one minimum quote interval),

the order is usually manually executed

on CBOE at the better price.

The proposed rule change will

automate the process of filing equity

option orders through RAES at any

better price being quoted in another

market, so long as the price is better by

no more than one tick. If the market

away from the CBOE purports to be

better than the CBOE’s quoted market by

more than one tick, the existing

procedure will continue to apply

whereby the order is rerouted out of

RAES to the Designated Primary Market

Maker or Order Book Official for nonautomated handling.

By automating the execution of

eligible retail orders for equity options

in the manner described above (referred

to as ‘‘RAES Auto-Step-Up’’), investors

will be assured the prompt, automatic

execution of these orders at the best

available prices, even if those prices are

being quoted in a market by more than

one tick. This proposal should minimize

the delay inherent in manually handling

orders in this circumstance, and thereby

reduce the risk to investors that, as a

result of an adverse move in the market

while their orders are being manually

handled, they may receive an inferior

execution.

The Exchange continues to believe

that manual handling is called for where

prices apparently quoted in other

markets are more than one tick better

than the Exchange’s best quotes,

because the quotes in other markets may

be displayed in error or may otherwise

not be likely to be available, and

because even if Exchange market makers

determine to provide an execution at

such better prices, this decision should

be made on a case-by-case basis by the

market makers rather than

automatically. In addition, the proposed

rule change authorizes the Chairman of

the appropriate Floor Procedure

Committee or his or her designee to

disable RAES Auto-Step-Up for

specified classes or series of options or

in respect of specified markets when

such action is deemed to be warranted

by circumstances or conditions

applicable to such options or markets.

This authority would be expected to be

exercised in circumstances such as

communication or system problems, fast

markets, and similar situations that

could make quotes unreliable.

While the Exchange expects that

eventually the Floor Procedure

Committees will determine to apply the

RAES Auto-Step-Up to all or nearly all

option classes traded on the floor, the

proposed rule change would permit the

program to be initiated on a class by

class or trading station by station basis.3

To provide for the orderly introduction

of this change to the exchange’s RAES

procedures and to measure its effect

before expanding it to equity options

floor-wide, the Exchange intends to

introduce the change RAES procedure

to selected classes of equity options

during an initial evaluation period, and

then over time to expand the changed

procedure to cover a larger number of

equity options unless, upon evaluation,

such expansion appears not to be

warranted. Members will be given
28020 Federal Register / Vol. 63, No. 98 /Thursday, May 21, 1998 / Notices

4 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4. 3 15 U.S.C. 78f(b)(40.

advance notice of each class of options

to which these revised procedures

apply.

By enhancing the ability of eligible

retail orders in multiply-traded options

to receive best execution, the Exchange

believes the proposed rule change will

promote just and equitable principles of

trade and protect investors and the

public interest, in furtherance of the

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

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 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. 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 Commissions, 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–98–13 and should be

submitted by June 11, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–13501 Filed 5–20–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39991; File No. SR–CHX–

98–10]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Chicago Stock Exchange, Inc.,

Relating to Membership Dues and Fees

May 13, 1998.

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 April 27,

1998, the Chicago Stock Exchange, Inc.

(‘‘CHX’’ 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 CHX. 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 its

membership dues and fees schedule.

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

Exchange 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

Exchange 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 Proposed of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The purpose of the proposed rule

change is twofold. First, the proposed

rule change would reduce the total fixed

fee paid by specialist from $345,000 to

$220,000 per month. This reduction

reflects a continuing effort by the

Exchange to enhance the effectiveness

and efficiency of its specialists’

operations by reducing costs and

thereby encouraging improved

competition.

Second, the proposed rule change will

expand the type of charges which are

eligible to be offset by transaction

credits to include the cost of rebills—

certain fees and charges that are paid by

the Exchange and then ‘‘rebilled’’ to the

specialists. The Exchange has

concluded that the economic rationale

for providing transaction credits as an

offset to specialist fees is equally

applicable to rebills and to other

monthly fees owed by specialists, as

both charges represent actual expenses

to the specialist. Because there is no

relevant distinction between rebills and

other monthly fees, the application of

transaction credits to both types of fees

eliminates an artificial barrier and

results in the appropriate recognition of

the contribution of the specialists to

overall CHX revenue. This proposed

rule change is particularly important in

light of the fact that numerous CHX

specialist units have entirely offset their

fixed fees and are again in a position

where their future contribution to

overall CHX revenue will not be

recognized.

The Exchange’s Finance Committee

has determined that after the proposed

changes in fee structure, the Exchange

will have ample capital and resources to

continue to fulfill its proscribed duties

in its capacity as a self-regulatory

organization and as a registered national

securities exchange.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

section 6(b)(4) of the Act 3 in that it

provides for the equitable allocation of

reasonable dues, fees and other charges

among its members.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that he

proposed rule change will impose any

inappropriate burden on competition.