20542 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Notices

2The scale also applies to all ITS trades.

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

2 17 CFR 240.19b–4 (1994).

3See Securities Exchange Act Release No. 35192

(January 4, 1995), 60 FR 3012.

4 In Amendment No. 1, the CBOE provides

information comparing its method of assigning

classes of options to that of the American Stock

Exchange (‘‘Amex’’), describes the effect of

increasing the number of trading stations to which

a market maker’s appointment may relate from five

to ten, provides further rationale for this increase;

and states that future changes respecting the

number of applicable trading stations would be

made pursuant to a filing under Section 19(b)(3)(A)

under the Act, 15 U.S.C. 78s(b)(3)(A) (1988). See

letter from Michael L. Meyer, Schiff, Hardin &

Waite, to Francois Mazur, Attorney, Division of

Market Regulation (‘‘Division’’), Commission, dated

February 17, 1995. The reference in Amendment

No. 1 regarding the means by which future changes

will be effected is superseded by Amendment Nos.

2 and 3, infra notes 5 and 6, respectively.

5Amendment No. 2 states that the CBOE will

discuss with Commission staff the appropriate

manner in which to file future changes in the

maximum number of designated trading stations

prior to making any such filing with the

Commission. See letter from Mary L. Bender, Senior

Vice President, Division of Regulatory Services,

CBOE to Francois Mazur, Attorney, Division,

Commission, dated February 23, 1995.

Maximum charge per side (non-cross):

$100.00

Maximum charge per side (cross):

$75.00

(contract value accumulates for volume

discounts)

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

It 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

1. Purpose

The purpose of the proposed rule

change is to clarify certain provisions of

the fee schedule. The trade recording

and comparison charges are being

amended to reflect that all trades up to

and including 2,000 shares executed on

the Exchange will not be charged, and

that all other executions will be charged

under the current scale applicable to

trades over 2,000 shares.2 The value

charges are being amended to add

explanatory language that the contract

value of trades will accumulate for the

volume discounts and to clarify that all

other executions pertain to BSE trades

over 2,000 shares and ITS trades.

2. Statutory Basis

The proposed rule change is

consistent with Section 6(b)(5) of the

Act in that it furthers the objectives to

promote just and equitable principles of

trade, to foster cooperation and

coordination with persons engaged in

regulating, clearing, settling, processing

information with respect to, and

facilitating transactions in securities, to

remove impediments to and perfect the

mechanisms of a free and open market

and a national market system, and in

general, to protect investors and the

public interest, and is not designed to

permit unfair discrimination between

customers, issuers, brokers, or dealers.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The fee change will impose no 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 fee

change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change establishes

or changes a due, fee, or other charge

imposed by the Exchange and, therefore,

has become effective pursuant to

Section 19(b)(3)(A) of the Act and

subparagraph (e) of Rule 19b–4

thereunder. 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.

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, 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 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, N.W.,

Washington, D.C. 20549. 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–BSE–95–06

and should be submitted by May 17,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–10224 Filed 4–25–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35629; File No. SR–CBOE–

94–44]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Approving and Notice of

Filing and Order Granting Accelerated

Approval of Amendments to a

Proposed Rule Change Relating to

Market Maker Appointments

April 19, 1995.

I. Introduction

On November 14, 1994, the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’), pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’)1 and Rule

19b–4 thereunder,2 a proposal to amend

CBOE Rule 8.3(c) concerning the

number of trading stations at which a

single market maker’s appointed classes

of options are traded. The proposed rule

change was published for comment and

appeared in the Federal Register on

January 12, 1995.3 on February 21, 1995,

the CBOE filed Amendment No. 1 to its

proposal,4 on February 24, 1995, the

CBOE filed Amendment No. 2 to its

proposal,5 and on April 11, 1995, the

CBOE filed Amendment No. 3 to its
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Notices 20543

6Amendment No. 3 amends the original proposed

changes to Rule 8.3(c) by removing reference to the

Market Performance Committee (‘‘MPC’’)

designating the maximum number of trading

stations, and by removing Proposed Interpretation

and Policy .02 which stated that the MPC had

designated such maximum number to be ten.

Proposed Rule 8.3(c) now replaces five with ten as

the maximum number of trading stations at which

a market maker may hold an appointment.

Amendment No. 3 also discusses the alternative

means by which future proposed changes to Rule

8.3(c) may be filed, and states that the MPC, when

assigning station appointments to market makers,

considers, among other matters, the physical

location of stations to be assigned to a market

maker. See letter from Mary L. Bender, Senior Vice

President, Division of Regulatory Services, CBOE, to

Michael Walinskas, Branch Chief, Division,

Commission, dated April 10, 1995.

7See Amendment No. 3, supra note 6.

8The NASD short sale rule prohibits brokerdealers from effecting short sales for themselves or

their customers at or below the ‘‘bid’’ when the

current ‘‘inside’’ or best price is below the previous

inside bid. See NASD Rules of Fair Practice, Art.

III, section 48. The CBOE’s market maker exemption

to the short sale rule allows options market makers

to hedge options positions in their appointed

classes of options by buying or selling (including

selling short) shares of underlying stocks or

underlying component stocks contained in stock

indexes. Such an ‘‘exempt hedge transaction’’ is

defined by the Exchange as a short sale effected to

hedge, and which in fact serves to hedge, an

existing offsetting options position or an offsetting

options position that was created in one or more

transactions contemporaneous with the short sale.

See CBOE Rule 15.10.

9See Amendment No. 1, supra note 4. In

comparison, the CBOE notes that a registered

options trader on the Amex may be assigned to 300

classes of options or more representing 70% of the

430 classes of options traded on the Amex. Id.

10For example, CBOE Rule 8.7 requires generally

that a market maker’s transactions constitute a

course of dealing reasonably calculated to

contribute to the maintenance of a fair and orderly

market. Specific requirements include a market

maker’s continuous obligation to deal for his or her

own account when there is a lack of price

continuity; or when there is a disparity between

supply and demand for a particular option contract,

or between options contracts of the same class. In

fulfilling these requirements, market maker must,

among other things, compete with other market

makers to improve markets, make markets, and

update market quotations in response to changed

market conditions.

The Commission notes that increasing the

number of trading stations at which a market maker

may hold an appointment does not in any way

lessen a market maker’s obligation to make a

market. The CBOE has stated that the MPC, when

assigning station appointments to market makers,

considers, among other matters, the physical

location of the stations to be assigned to a market

maker. See amendment No. 3, supra note 6.

11CBOE Rule 8.7, Interpretation .03 generally

requires that at least 25% of a market maker’s

transactions be executed in person, and not through

the use of orders. Moreover, at least 75% of a

market maker’s total contract volume must be in

option classes to which the market maker has been

appointed.

12The Commission notes that any further

increases may warrant the development of

additional standards to ensure adequate market

making performance.

13The CBOE has indicated in its proposal that, in

the future, it will consult with Commission staff in

order to determine the appropriate rule filing

method for proposing any further increases to the

maximum trading stations at which a market maker

may hold an appointment. The alternatives would

include: (1) filing a proposal pursuant to Section

19(b)(2) of the Act, which requires that the

Commission publish notice of the proposal and

provide an opportunity for public comment; or (2)

filing a proposal pursuant to Section 19(b)(3)(A) of

the Act, including either a filing that would be

effective immediately upon filing, or operative 30

days after the filing date, if filed as a noncontroversial rule proposal. See Amendment Nos. 2

and 3, supra notes 5 and 6, respectively.

14 15 U.S.C. 78f(b)(5) and 78s(b)(2) (1988).

proposal.6 No comments were received

regarding the proposal. This order

approves the proposal, as amended.

II. Description of the Proposal

The CBOE proposes to increase from

five trading stations to ten the maximum

number of trading stations at which a

market maker’s appointed classes of

options may be traded pursuant to

CBOE Rule 8.3(c).7 In addition, the MPC

maintains its authority to provide

exemptions to the trading station

limitation. The CBOE’s proposal also

will have the effect of allowing market

makers to rely on the market maker

exemption to the NASD’s short sale rule

for hedging a greater number of options

classes, provided that the requirements

of the exemption are met.8

III. Discussion

The Commission finds the proposed

rule change consistent with the

requirements of the Act and the rules

and regulations thereunder applicable to

a national securities exchange.

Specifically, the proposed rule change is

consistent with the requirements of

Section 6(b)(5) of the Act because the

proposal is designed to remove

impediments to and perfect the

mechanism of a free and open market,

and protect investors and the public

interest.

The Commission believes that

increasing the number of trading

stations which may be included in a

market maker’s appointment from five

stations to ten stations is a reasonable

measure designed by the Exchange to

help ensure adequate market maker

participation in each class of options

traded on the Exchange. The Exchange

has stated that the effect of increasing

the trading station maximum will be to

increase the maximum number of

options classes in which a market maker

may hold an appointment. Accordingly,

out of a total of 644 classes of options

at the CBOE, the change can result in

increases from 137 to 241 in appointed

classes, representing an increase from

21% to 37% of the total number of

classes traded on the Exchange.9

The Commission believes that the

CBOE’s proposal will benefit the market

and investors by increasing the potential

number of options classes to which the

obligations of a market maker will

apply.10 Although the Commission

recognizes that the proposal can result

in increasing a market maker’s

appointed classes by over 100 classes,

we believe adequate market making

capabilities and obligations will

continue to exist in such classes. In this

regard, the Commission expects CBOE

to assess whether market makers have

adequate capital to fulfill their continual

market making obligations under CBOE

Rule 8.7 in all their appointed classes.

Further, the in-person and general

trading requirements applicable to

market makers under CBOE Rule 8.7,

Interpretation and Policy .03 11 should

continue to ensure that market making

is adequate in all appointed classes.12

Finally, in light of the growth of the

number of options traded on the

Exchange in recent years, the increase

from 21% to 37% of the classes traded

on the CBOE is reasonable.13

The Commission finds good cause for

approving Amendment No. 1, as

modified by, and together with,

Amendment Nos. 2 and 3, prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Amendment No. 1

provides additional information

regarding the number of options classes

affected by the Exchange’s proposal, as

well as general information regarding

the structure of its trading floor.

Amendment No. 2 modifies

Amendment No. 1 by stating that the

CBOE will consult with Commission

staff regarding the manner in which to

file any future changes to the maximum

number of trading stations at which

market makers may hold appointments.

Amendment No. 3 effects changes to

Proposed Rule 8.3(c), but does not

change the effect of the Exchange’s

proposal.

The Commission believes that these

changes do not affect the substance of

the Exchange’s proposal because they

merely serve to provide additional data

regarding the proposal, describe

guidelines for seeking Commission

approval of future changes by the MPC

in trading station appointments, and

fashion minor textual changes to the

proposed language of Rule 8.3(c).

Accordingly, the Commission believes

the Amendments raise no new or

unique regulatory issues. Therefore, the

Commission believes it is consistent

with Sections 6(b)(5) and 19(b)(2) of the

Act 14 to approve Amendment Nos. 1, 2,

and 3 to the proposal on an accelerated

basis.
20544 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Notices

15 15 U.S.C. 78s(b)(2) (1988).

16 17 CFR 200.30–3(a)(12) (1994).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 35420

(February 27, 1995), 60 FR 11999 (March 3, 1995).

4Currently, the addition of strike prices, which is

governed by Phlx Rules 1012 and 1101A, is

determined by the movement of the underlying

stock, index, or foreign currency, such that strike

prices reasonably close to the value of the

underlying security are listed for trading. When the

Exchange plans to add a new strike price, a

memorandum is distributed to the trading floor as

well as over electronic systems notifying the

membership and their customers of the new strike.

See Securities Exchange Act Release No. 34349

(July 11, 1994), 59 FR 36469 (July 18, 1994).

5The Commission has previously approved

certain Phlx proposals that shortened foreign

currency option strike price intervals. See e.g.,

Securities Exchange Act Release Nos. 25685 (May

10, 1988), 53 FR 17524 (May 17, 1988) (French

franc from $.05 to $.025 strike price intervals) (File

No. SR–Phlx–86–14), and 24103 (February 13,

1987), 52 FR 5605 (February 25, 1987) (British

Pound from $.05 to $.025 strike price intervals)

(File No. SR–Phlx–86–14).

6The total number of new strikes includes both

puts and calls for American and European style

options on the British pound. See Letter from

Gerald O’Connell, First Vice President, Phlx, to

Michael Walinskas, Office of Market Supervision

(‘‘OMS’’), Division of Market Regulation

(‘‘Division’’), Commission, dated April 10, 1995

(‘‘O’Connell Letter No. 1’’).

7See Letter from William H. Morgan, Vice

President, Phlx, to Michael Walinskas, OMS,

Division, Commission, dated April 12, 1995

(‘‘Morgan Letter’’). See also Letter from Joseph P.

Corrigan, Executive Director, OPRA, to William

Terrell, Vice President, Phlx, dated April 6, 1995

(‘‘OPRA Letter’’).

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendments

Nos. 1, 2, and 3. 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 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

Section, 450 Fifth Street, N.W.,

Washington, D.C. 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–94–

44 and should be submitted by May 17,

1995.

V. Conclusion

For the reasons discussed above, the

Commission finds that the proposal is

consistent with the Act, and, in

particular, Section 6 of the Act.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,15 that the

proposed rule change (File No. SR–

CBOE–94–44), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–10222 Filed 4–25–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35631; International Series

Release No. 805; File No. SR–Phlx–95–06]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.,

Relating to British Pound Strike Price

Intervals

April 20, 1995.

I. Introduction

On January 30, 1995, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

‘‘Exchange’’) pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) a proposed rule change

to revise its strike price policy

respecting foreign currency options on

the British pound by changing from: a

$.025 interval to a $.01 interval in the

nearest three expiration months; a $.025

interval to a $.02 interval in the next

three nearest expiration months; and a

$.05 interval to a $.04 interval for longterm British pound options, which have

12 to 36 months until expiration.

Notice of the proposal was published

for comment and appeared in the

Federal Register on March 3, 1995.3 No

comment letters were received on the

proposed rule change. This order

approves the Exchange’s proposal.

II. Description of the Proposal

The Phlx has proposed to revise its

strike price policy respecting foreign

currency options on the British pound

pursuant to Phlx Rule 1012—Series of

Options Open for Trading by adopting

shorter strike price intervals than

currently used. Currently, British pound

options are listed at 21⁄2 cent intervals;

long-term options are listed at 5 cent

intervals. Pursuant to Phlx Rule 1012,

six expiration months are currently

listed in regular foreign currency

options, with one, two, three, six, nine,

and twelve months until expiration.

Additionally, two long-term options are

currently listed (in June and December)

with 18 and 24 months until expiration.

Fluctuations in the spot price of the

British pound currently result in

additional listings at 21⁄2 cent intervals.4

The Exchange proposes to revise its

strike price policy respecting foreign

currency options on the British pound

by changing from a $.025 interval to a

$.01 interval in the nearest three

expiration months and from a $.025

interval to a $.02 in the next three

nearest expiration months. In addition

to reducing the strike price interval from

21⁄2 cents to 1 and 2 cents, respectively,

the Exchange also proposes to reduce

the strike price interval for long-term

British pound options, which have 12 to

36 months until expiration, from $.05 to

$.04.

The Exchange states that the purpose

of the proposed rule change is to

address certain market needs that have

arisen as a result of recent lower

volatility respecting the British pound

(in relation to the U.S. dollar), which

has created a customer need for

narrower strike price intervals.5 The

Exchange represents that the lower

volatility of the British pound has

resulted in a narrower trading range for

the currency option, sometimes limiting

the availability of sufficient near- or atthe-money series.

Additionally, the Exchange believes

the proposal is necessary to ensure that

the British pound foreign currency

option contract remains competitive and

consistent with the contract terms

applicable to British pound foreign

currency futures (and futures options)

traded on the Chicago Mercantile

Exchange (‘‘CME’’). Recently, the CME

determined to list certain options on

British pound futures (the three near

months) as $.01 intervals.

The Phlx asserts that the proposed

rule change will initially create 496 new

strike prices.6 Additionally, both the

Phlx and the Options Price Reporting

Authority (‘‘OPRA’’) represent that the

predicted increase in the number of

British pound options series will not

adversely affect their respective

computer processing capacities to

accommodate the additional strike

prices.7

The Exchange further states that its

general policy with respect to the

delisting of inactive options series,

subject to the assigned option

specialist’s approval, is to delist series

in which there is no open interest

beginning with the highest or lowest

strike for that month. The Exchange,

however, may not delist a series if such