29274 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices

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

2On May 7, 1998, the CBOE filed Amendment

No. 1 to the proposal. See Letter from Timothy H.

Thompson, Director, Regulatory Affairs, Legal

Department, CBOE, to Yvonne Fraticelli, Division of

Market Regulation, Commission, dated May 6, 1998

(‘‘Amendment No. 1’’) In Amendment No. 1, the

CBOE revised its proposal to: (1) indicate that CBOE

Rule 12.3(f)(3)(C)(3), rather than Regulation X of the

Board of Governors of the Federal Reserve System,

prohibits a clearing firm from extending credit to

a market maker when the market maker’s account

is in deficit; (2) replace a reference in proposed

Interpretation and Policy .06 to CBOE Rule

12.3(b)(1)(D) with a reference to CBOE Rule

12.3(f)(1)(F) to define net liquidating equity; and (3)

revise proposed Interpretation and Policy .06 to

indicate that clearing firms will be allowed to

extend credit for opening trades, rather than to

permit opening trades.

3All time references are in Central Time.

4See Amendment No. 1, supra note 2.

5See e.g., Securities Exchange Act Release No.

38543 (May 14, 1997), 62 FR 28082 (May 22, 1997)

(order approving File No. SR–CBOE–96–71).

6When the options markets closed at 3:10 p.m.,

this situation would rarely arise because the final

stock prices were almost always disseminated by

the time the options markets closed, thereby

allowing options market makers to adjust their

quotes accordingly.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–14116 Filed 5–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40015; File No. SR–CBOE–

98–11]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 to the Proposed

Rule Change by the Chicago Board

Options Exchange, Inc., Relating to

Adjustments in Market Maker Equity

May 20, 1998.

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

Securities Exchange Act of 1934

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

March 31, 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.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 to amend CBOE

Rule 12.3, ‘‘Margin Requirements’’ by

adopting Interpretation and Policy .06,

which will allow clearing firms to adjust

a market maker’s equity under certain

limited circumstances so that the

clearing firm may extend credit for

opening trades. Specifically, proposed

Interpretation and Policy .06 will allow

a clearing firm to adjust the equity in a

market maker’s account when the

underlying stock price is disseminated

after the options close at 3.02 p.m.3 at

a price that is inconsistent with the

options closing price.

Copies of the proposed rule change

are 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

CBOE Rule 12.3(f)(3) (C)(3) 4 prohibits

clearing firms from extending credit to

a market maker for opening transactions

when the market maker’s account is in

deficit. The CBOE proposes to add

Interpretation and Policy .06 to CBOE

Rule 12.3 to permit a clearing firm to

adjust the equity in a market maker’s

account under certain limited

circumstances in order to allow the

clearing firm to extend credit for

opening trades. Specifically, proposed

Interpretation and Policy .06 will permit

a clearing firm to adjust the equity in

market maker’s account when the

underlying stock price is disseminated

after the options close at 3:02 p.m. at a

price that is inconsistent with the

options closing price.

In 1997, the CBOE and the other

options exchanges changed the closing

time for trading equity options and

certain narrow-based index options

from 3:10 p.m. to 3.02 p.m.5 Since then,

the CBOE has discovered that the equity

of market maker’s account at a clearing

firm can be severely affected when news

of a stock underlying a CBOE option is

disseminated near the close, resulting in

heavy trading and a late trade tape. In

these situations, the last sale of the

underlying stock could be disseminated

well after the overlying options stop

trading at 3:02 p.m.,6 and closing price

of the underlying stock may be out of

line with the closing quotes and the last

sale of the options series. The CBOE

notes that while this situation would

almost assuredly realign itself at the

opening of trading on the next day, the

discrepancy in closing prices may cause

a market maker’s account to have deficit

equity. This is true even though from a

market risk standpoint the market maker

may be hedged.

Proposed Interpretation and Policy

.06 would allow a clearing firm to

appropriately adjust a market maker’s

account equity to eliminate a pricing

disparity for a trader whose account is

in deficit as a result of such a situation.

The clearing firm will be required to

provide documentation to the CBOE for

such adjustments before the opening of

trading the next day (or before the firm

may extend credit for opening

transactions). These adjustments will be

made on a case-by-case basis. In

situations where the deficit is

eliminated by the adjustment and the

adjustment is approved by the CBOE’s

Department of Financial and Sales

Practice Compliance, the trader would

be permitted to continue trading the

next business day.

2. Statutory Basis

The CBOE 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, by allowing for an

adjustment in a market maker’s account

equity in situations where the stock and

the overlying options close at

anomalous prices, the proposal is

designed to promote just and equitable

principles of trade and to protect

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.

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
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices 29275

7 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1).

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 by order approve such proposed

rule change, or 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 Commission’s 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–98–11 and should be

submitted by June 18, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–14022 Filed 5–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40021; File No. SR–CBOE–

98–12]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Chicago Board

Options Exchange, Incorporated

Relating to Exchange Mandated

Education Training

May 21, 1998.

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

Securities Exchange Act of 1934,1 notice

is hereby given that on April 20, 1998,

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 and II 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 and to

grant accelerated approval on the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CBOE proposes to add a

provision of Exchange Rule 6.20

Admission to and Conduct on the

Trading Floor, Member Education, to

require that Exchange members and

persons associated with Exchange

members attend mandatory continuing

education classes as directed by the

Exchange. Proposed new language is in

italics.

Chicago Board Options Exchange, Inc.

Rules

* * * * *

CHAPTER VI

Doing Business on the Exchange Floor

Section B: Member Activities on the

Floor

Admission to and Conduct on the

Trading Floor: Member Education

Rule 6.20(a)—(c) No change.

(d) Education Classes. Members and

persons associated with members are

required to attend such educational

classes as the Exchange may require

from time to time. Failure to attend

Exchange mandated continuing

educational classes may subject

members and persons associated with

members to sanctions pursuant to the

Exchange’s Minor Rule Violation

provided in Exchange Rule 17.50. Any

action taken by Floor Officials

thereunder shall not preclude further

disciplinary action by the Business

Conduct Committee under Chapter XVII

of the Rules, except as otherwise

provided in Rule 17.50.

. . . Interpretations and Policies:

.01–.09 No change.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

CBOE included statements concerning

the purpose of, and statutory 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 III 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

The Exchange is proposing to add a

provision to Exchange Rule 6.20,

Admission to and Conduct on the

Trading Floor; Member Education, to

require that Exchange members and

persons associated with Exchange

members attend mandatory continuing

education classes as directed by the

Exchange. The Exchange believes it is

necessary from time to time to require

mandatory participation in certain

educational training classes by its

members and persons associated with

its members for a variety of reasons,

including to promote professional

behavior and decorum on the trading

floor, or to explain the operation of new

technology. For example, the Exchange

intends to implement a harassment

awareness training and ethics program

for its members and persons associated

with its members who are present on

the trading floor.

Without this rule change, the

Exchange would not have the ability to

mandate attendance. The Exchange is

also proposing to amend its Minor Rule

Violation fine schedule pursuant to

Exchange Rule 17.50(g)(6). Floor

Officials are allowed, pursuant to Rule

17.50(g)(6), to fine members and

associated persons for violations of

trading conduct and decorum policies.

For failure to attend an Exchange

mandated continuing educational class,

the Exchange proposes a fine of $500 for

a first offense, $750 for a second offense