Federal Register / Vol. 60, No. 100 / Wednesday, May 24, 1995 / Notices 27575

14See Securities Exchange Act Release No. 25738,

supra note 6.

15See Securities Exchange Act Release Nos.

32903 and 32900, supra note 7.

16 15 U.S.C. 78s(b)(2)(1982).

17 17 CFR 200.30–3(a)(12) (1994).

without significantly increasing

concerns regarding intermarket

manipulations or disruptions of either

the options market or the underlying

stock market.

In this regard, the Commission notes

that the Exchanges’ hedge exemption

programs have operated on a pilot basis

since 1988 and that the Exchanges have

not experienced any significant

difficulties with the pilots since their

inception or observed any market

disruptions resulting from the increased

positions. In addition, the Exchanges

have submitted reports to the

Commission describing, among other

things, the frequency with which the

exemptions have been utilized, the

types of investors using the exemptions,

the size of the positions assumed

pursuant to the programs, and the

market impact of the programs. The

reports indicate that the Exchanges have

not observed any negative impact on

their markets as a result of the hedge

exemption programs. Finally, the

Exchanges have established surveillance

procedures designed to monitor

compliance with the position limit

hedge exemption programs. The

Commission expects the Exchanges to

continue to monitor utilization of the

hedge exemptions to ensure compliance

with the programs’ requirements.

With regard to the equity option

hedge exemption, the Commission

believes, as it has concluded in the

past,14 that the exemption will not

disrupt the options or equity markets or

substantially increase the possibility of

manipulation in the underlying stocks

or options. In this regard, the

Commission notes that the position and

exercise limit exemption is limited to

accounts that have established one of

four hedged positions. Moreover, market

disruption concerns are lessened

because any option positions in excess

of current position limits must be

hedged fully with an offsetting stock

position on a one-for-one basis; thus, the

holder of the options position would not

be required to enter the market to buy

or sell the stock if the options were

exercised or assigned. The Commission

also believes that a maximum position

of double the existing position and

exercise limits will help to ensure that

any potential market disruptions are

minimal.

With regard to the broad-based index

option hedge exemption programs, the

Commission believes, as it has

concluded previously,15 that the

programs will allow more effective

hedging of stock portfolios and may

increase the depth and liquidity of the

stock index options market. In this

regard, public customers with long or

short stock portfolios (or instruments

convertible into such securities) will be

able to utilize the broad-based index

hedge exemption, thereby making an

alternative hedging technique more

available to such customers and

facilitating their use of index options to

hedge their portfolios, rather than

financially equivalent index futures

products.

As noted above, the broad-based

index option hedge exemption applies

only to public customers and each

request for the exemption must be

specifically approved by the appropriate

Exchange. This should ensure that the

hedges are appropriate for the position

being taken and in compliance with

Exchange rules.

In addition, the Commission notes

that the broad-based index option hedge

exemptions have additional safeguards

that will make it difficult to use the

exempted positions to disrupt or

manipulate the market. In this regard,

the qualified stock portfolio must be

broad-based, and correspond in value to

the value of the options hedge so that

the increased positions could not be

used in a leveraged manner. Both the

options and stock positions must be

initiated and liquidated in an orderly

manner. The requirement that a

reduction in the options position must

occur at or before the corresponding

reduction in the stock portfolio position

should ensure that the stock

transactions are not used to impact the

market so as to benefit the options

position. Moreover, because the

exemption may not be used for arbitrage

in stock baskets and overlying stock

index options, the broad-based index

option hedge exemption should not

exacerbate stock market volatility.

Finally, the Commission notes that the

index option hedge exemption applies

only to options on broad-based indexes,

where the potential for manipulation is

minimal and thus regulatory concerns

are decreased.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,16 that the

proposed rule changes (SR–Amex–95–

13, SR–CBOE–95–13, SR–NYSE–95–04,

SR–PSE–95–09, and SR–PHLX–95–10)

are approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.17

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–12690 Filed 5–23–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35725; File No. SR–CBOE–

95–15]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Chicago Board Options Exchange, Inc.

Relating to Telephones at the S&P 100

Index Option Trading Post on the Floor

of the Exchange

May 17, 1995.

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 12, 1995, 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 Exchange. 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 treat as a rule

of the Exchange the conditions

governing the use of member-owned

and Exchange-owned telephones

located at the S&P 100 Index option

(‘‘OEX’’) trading post on the floor of the

Exchange. The text of the proposed rule

change is available at the Office of the

Secretary, the 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

Exchange has prepared summaries, set

forth in Section (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 apply the policy currently

governing the use of telephones at
27576 Federal Register / Vol. 60, No. 100 / Wednesday, May 24, 1995 / Notices

1See Securities Exchange Act Release No. 33701

(March 2, 1994), 59 FR 113336 (March 10, 1994).

2 Id.

3The ISG was formed on July 14, 1983 to, among

other things, coordinate more effectively

surveillance and investigative information sharing

arrangements in the stock and options markets. See

Intermarket Surveillance Group Agreement, July 14,

1983. The most recent amendment to the ISG

Agreement, which incorporates the original

agreement and all amendments made thereafter,

was signed by ISG members on January 29, 1990.

See Second Amendment to the Intermarket

Surveillance Group Agreement, January 29, 1990.

The members of the ISG are: the American Stock

Exchange, Inc.; the Boston Stock Exchange, Inc.; the

CBOE; the Chicago Stock Exchange, Inc.; the

National Association of Securities Dealers, Inc.

(‘‘NASD’’); the New York Stock Exchange, Inc.; the

Pacific Stock Exchange, Inc.; and the Philadelphia

Stock Exchange, Inc. Because of potential

opportunities for trading abuses involving stock

index futures, stock options, and the underlying

stock and the need for greater sharing of

surveillance information for these potential

intermarket trading abuses, the major stock index

futures exchanges (e.g., the Chicago Mercantile

Exchange and the Chicago Board of Trade) joined

the ISG as affiliate members in 1990.

4This telephone policy also allows members to

use the floor telephones located at the OEX trading

post for the purpose of providing quotations on

OEX options. In use telephones for this purpose, the

CBOE represents that members may only provide

quotations that have been publicly disseminated

pursuant to CBOE Rule 6.43.

equity option trading posts1 to the

member-owned or Exchange-owned

telephones at the OEX trading post on

the floor of the Exchange. With the

exception of the prohibition on the use

of telephone at the OEX trading posts to

receive incoming calls, the Exchange

represents that the telephone policy

described below is substantively

identical to the policy approved by the

Commission for the use of telephones at

equity option trading posts on the floor

of the CBOE.2

Exchange Rule 6.23 prohibits

members from establishing or

maintaining any telephone or other wire

communications between their offices

and the Exchange floor, and it

authorizes the Exchange to direct the

discontinuance of any communication

facility terminating on the Exchange

floor. Pursuant to Rule 6.23, the

Exchange is instituting this policy for

use at the OEX trading post. The

Exchange believes that the proposed

rule change will allow market-makers to

obtain and transmit information more

efficiently which may result in benefits

to investors by improving the execution

of orders.

The proposed rule change also

imposes user fees on members who are

approved to use Exchange-installed

telephones located at the OEX trading

post. This action is being taken pursuant

to CBOE Rule. 2.22, which permits the

Exchange to impose fees on members for

the use of Exchange facilities or for any

services or privileges granted by the

Exchange.

As with the use of telephones at the

equity trading posts, the Exchange has

determined to file this policy for the use

of telephones at the OEX trading post

and make it a formal rule of the

Exchange. Accordingly, the Exchange

undertakes that it will surveil for

violations of the policy and that

members will be subject to formal

disciplinary proceedings for violations

of the policy. The conditions imposed

by the Exchange’s policy include:

1. The telephones may not be used to

receive orders, although quotes that

have been publicly disseminated

pursuant to CBOE Rule 6.43 may be

provided.

2. Members may give their clerks their

PIN access code. Although both

members and clerks may use the

telephones, members will have priority.

Each member will be responsible for all

calls made using that Member’s PIN

access code.

3. Headsets will not be permitted on

the telephones in the OEX post pit.

Portable or cellular telephones also will

not be permitted.

4. Clerks will not be permitted to

establish a base of operations utilizing

telephones at the OEX post.

5. Members and their clerks using the

telephones consent to the Exchange

requiring that any telephone or line be

subject to tape recording.

6. The telephones will be used for

voice service only. Data services (PC’s,

fax, etc.) will remain subject to

Exchange consent under a separate

program.

7. Incoming calls are not permitted on

the telephones at the OEX post. There

will be no restrictions on where a

Member may call.

Upon the approval of these conditions

as rules of the Exchange, the Exchange

will publish a Regulatory Circular,

substantially in the form filed by the

CBOE with the Commission, in order to

inform members that these conditions

are rules, and that violations may lead

to disciplinary proceedings.

By restricting floor telephones to

hard-wired devices only and not

allowing cellular, portable, or headset

telephones, the Exchange believes it

will better be able to monitor and

control telephone usage on the floor. In

addition, the Exchange believes that

currently available technology would

not permit a large number of portable or

cellular telephones to be used in the

environment of the trading floor without

significant deterioration or interruption

of service.

As with the use of telephones at the

equity trading posts, the Exchange

intends to police compliance with these

conditions by means of its customary

floor surveillance procedures, including

reliance on surveillance by floor

officials and Exchange employees. In

addition, the Exchange has in place a

surveillance sharing agreement with the

Chicago Mercantile Exchange (‘‘CME’’)

whereby transaction information is

continually made available to the CBOE

regarding futures transaction activity by

CBOE members that is above certain

defined parameters. In addition, the

Exchange also receives surveillance

information through its participation in

the Intermarket Surveillance Group

(‘‘ISG’’).3

Because the telephone policy does not

restrict where a member may call, the

telephones may be used to place orders

in equity of futures markets,4 which

raises the possibility of orders being

entered based on non-public

information. Because the S&P 100

index, on which OEX options are based,

is a capitalization-weighted index of 100

different ‘‘blue chip’’ stocks, however,

the Exchange believes that non-public

information is not likely to be

significant in predicting future changes

in the value of the OEX. In any event,

the Exchange believes that the

surveillance procedures it has in place

will detect and deter any attempts at

manipulation through the using of OEX

options.

The fees the Exchange will charge for

the use of the telephones will generally

be the same as those charged for the use

of telephones at the equity option

trading posts. Specifically, local calls

over Exchange telephones will be

charged at 10 cents per minute. Long

distance calls over Exchange telephones

will be charged at a rate 25% greater

than the Exchange’s direct costs. In

addition, the Exchange will charge a $5

monthly fee for the use of the

telephones located at the OEX trading

post.

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) of the

Act, in particular, in that the proposal

is designed to improve communications

to and from the Exchange’s trading floor

in a manner that prevents fraudulent

and manipulative acts and practices,

promotes just and equitable principles

of trade, perfects the mechanism of a

free and open market, and protects

investors and the public interest.

In addition, the Exchange believes the

proposed rule change with respect to
Federal Register / Vol. 60, No. 100 / Wednesday, May 24, 1995 / Notices 27577

5 17 CFR 240.19b–4(e)(6) (1994).

6 17 CFR 200.30–3(a)(12) (1994).

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

2The revised fee schedule is available for review

in the Annex to Exhibit A of File No. SR–DTC–95–

08. The file is available for review in the

Commission’s Public Reference Room and at the

principal office of DTC.

3The Commission has modified the text of the

summaries prepared by DTC.

4While some service fees were increased, others

remained unchanged or were decreased making the

net result an overall decrease in service fees.

Telephone conversation between Piku Thakkar,

Attorney, DTC, and Margaret J. Robb, Attorney,

Division of Market Regulation, Commission (April

27, 1995).

5 15 U.S.C. 78q–1(b)(3)(D) (1988).

the fees to be charged by the CBOE in

connection with the telephones located

at the OEX trading post is consistent

with Section 6(b)(4) of the Act in that it

is designed to provide for the equitable

allocation of reasonable dues, fees, and

charges among CBOE members.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange 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 proposed rule

change: (1) Does not significantly affect

the protection of investors or the public

interest; (2) does not impose any

significant burden on competition; (3)

does not become operative for 30 days

from May 12, 1995, the date on which

it was filed, and the Exchange provided

the Commission with written notice of

its intent to file the proposed rule

change at least five days prior to the

filing date, it has become effective

pursuant to Section 19(b)(3)(A) of the

Act and Rule 19b–4(e)(6) thereunder.5

At any time within 60 days of the

filing of the 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.

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–95–

15 and should be submitted by June 14,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–12693 Filed 5–23–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35736; File No. SR–DTC–

95–08]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing and Immediate Effectiveness of

a Proposed Rule Change Relating to

Fees Charged for Various Services

May 18, 1995.

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

Securities Exchange Act of 1934

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

April 25, 1995, The Depository Trust

Company (‘‘DTC’’) 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 primarily by DTC. 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 purpose of the proposed rule

change is to adjust DTC’s fee schedule

for various services.2

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DTC included statements concerning

the purpose of and basis for the

proposed rule change and discussed any

comments that it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. DTC

has prepared summaries, set forth in

sections (A), (B), and (C) below, of the

most significant aspects of such

statements.3

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, which will be effective for

services provided on and after May 1,

1995, is to adjust the fees charged for

various services to bring them closer to

or to their respective estimated service

costs for 1995.

Continuing DTC’s annual practice of

aligning service fees with estimated

service costs, DTC’s Board of Directors

completed a review of its unit service

costs for 1995 and adjusted many DTC

service fees accordingly. The 1995 fee

schedule has been set to yield $11.4

million less in operating revenue on an

annual basis than the 1994 fee schedule

would have yielded. This will mark the

ninth consecutive year in which DTC

has not had to increase its overall

schedule of service fees to users.

Moreover, for the fourth consecutive

year a significant fee reduction will be

implemented.4

Section 17A(b)(3)(D) of the Act 5

requires that the rules of a clearing

agency provide for the equitable

allocation of reasonable dues, fees, and

other charges among its participants.

DTC believes that the proposed rule

change is consistent with the

requirements of Section 17A(b)(3)(D) of

the Act because its new fee schedule

allocates its fees more equitably among

its participants.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

DTC does not believe that the

proposed rule change will impose any

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants, or Others

DTC informed participants and other

users of its services of the proposed fee