Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Notices 30251

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

2 17 CFR 240.19b-4.

assets, and the Contract owner has not

been deprived of a proportionate share

of the Variable Account’s assets because

his or her interest in the Bonus amount

has not vested.

16. In addition, Applicants assert that

permitting a Contract owner to retain a

2% Bonus under a New Contract upon

the exercise of the right to cancel during

the free look period would not only be

unfair, but would also encourage

individuals to exchange into a New

Contract with no intention of keeping it

and returning it for a quick profit. The

amounts recaptured equal the 2% Bonus

provided by Sun Life from its general

account assets, and any gain would

remain a part of the Contract owner’s

Account Value. In addition, the amount

the Contract owner receives in the

circumstances where the 2% Bonus is

recaptured will always equal or exceed

the surrender value of the New Contract.

17. Applicants submit that the

provisions for recapture of the 2%

Bonus under the New Contract does not

violate sections 2(a)(32) and 27(i)(2)(A)

of the Act. However, to avoid any

uncertainty as to full compliance with

the Act, Applicants request an

exemption from sections 2(a)(32) and

27(i)(2)(A), to the extent deemed

necessary, to permit the recapture of the

2% Bonus under the circumstance

described in the Application with

respect to the New Contract, without the

loss of relief from section 27 provided

by section 27(i).

18. Section 22(c) of the Act authorizes

the Commission to make rules and

regulations applicable to registered

investment companies and to principal

underwriters of, and dealers in, the

redeemable securities of any registered

investment company to accomplish the

same purposes as contemplated by

section 22(a). Rule 22c–1 thereunder

prohibits a registered investment

company issuing any redeemable

security, a person designated in such

issuer’s prospectus as authorized to

consummate transactions in any such

security, and a principal underwriter of,

or dealer in, such security, from selling,

redeeming, or repurchasing any such

security except at a price based on the

current net asset value of such security

which is next computed after receipt of

a tender of such security for redemption

or of an order to purchase or sell such

security.

19. Sun Life’s recapture of the 2%

Bonus might arguably be viewed as

resulting in the redemption of

redeemable securities for a price other

than one based on the current net asset

value of the Account. Applicants

contend, however, that the recapture of

the Bonus does not violate section 22(c)

and Rule 22c–1. Applicants argue that

the recapture of the 2% Bonus does not

involve either of the evils that Rule 22c–

1 was intended to eliminate or reduce

as far as reasonably practicable, namely:

(a) The dilution of the value of

outstanding redeemable securities of

registered investment companies

through their sale at a price below net

asset value or repurchase at a price

above it, and (b) other unfair results,

including speculative trading practices.

The proposed recapture of the 2%

Bonus does not pose such a threat of

dilution. To effect a recapture of the 2%

Bonus, Sun Life will redeem interests in

a Contract owner’s Contract at a price

determined on the basis of the current

net asset value of that Contract. The

amount recaptured will equal the

amount of the 2% Bonus that Sun Life

paid out of its general account assets.

Although the Contract owner will be

entitled to retain any investment gain

attributable to the 2% Bonus, the

amount of that gain will be determined

on the basis of the current net asset

value of the Contract. Thus, Applicants

state that no dilution will occur upon

the recapture of the 2% Bonus.

Applicants also submit that the second

harm that Rule 22c–1 was designed to

address, namely speculative trading

practices calculated to take advantage of

backward pricing, will not occur as a

result of the recapture of the 2% Bonus.

20. Applicants argue that Section

22(c) and Rule 22c–1 should not apply

because neither of the harms that Rule

22c–1 was meant to address are found

in the recapture of the 2% Bonus.

However, to avoid any uncertainty as to

full compliance with the Act,

Applicants request an exemption from

the provisions of Section 22(c) and Rule

22c–1 to the extent deemed necessary to

permit them to recapture the 2% Bonus

under the New Contract.

Conclusion

For the reasons summarized above,

Applicants submit that the Exchange

Offer is consistent with the protections

provided by Section 11 of the Act and

that approval of the terms of the

Exchange Offer is necessary or

appropriate in the public interest and

consistent with the protection of

investors and the purposes fairly

intended by the policies and provisions

of the Act. Applicants further submit

that their request for exemptions from

Sections 2(a)(32), 22(c) and 27(i)(2)(A)

of the Act and Rule 22c–1 thereunder

meet the standards set out in Section

6(c) of the Act. Applicants submit that

the requested order should therefore be

granted.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14076 Filed 6–4–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–443553; File No. SR–

CBOE–2001–18]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Chicago Board Options Exchange,

Incorporated To Exempt Certain Deepin-the-Money Options Transactions

From the Exchange Marketing Fee

May 25, 2001.

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 10,

2001, the Chicago Board Options

Exchange, Incorporated (‘‘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 make a change

to its marketing fee to exempt call/put

‘‘combo’’ transactions from the fee. The

text of the proposed rule change is

available at 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 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.

30252 Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Notices

3See Securities Exchange Act Release No. 43112

(August 3, 2000), 65 FR 49040 (August 10, 2000)

(SR–CBOE–2000–28).

4See Securities Exchange Act Release No. 44095

(March 23, 2001), 66 FR 17459 (March 30, 2001)

(SR–CBOE–2001–09).

5For purposes of this filing, the term

‘‘spread’’means an options transaction involving the

simultaneous purchase and/or sale of one or more

contracts of at least two different series of the same

class of options (i.e., options covering the same

underlying security), which transaction is executed

at limit or market prices on the floor of the

Exchange. E-mail from Chris Hill, Attorney, CBOE,

to Cyndi Nguyen, Attorney, SEC, dated May 18,

2001.

6 In a ‘‘buy write,’’ a market maker buys stock and

sells calls of a given series in a 1-to-1 ratio, creating

the equivalent of a sale of puts of the same series.

A ‘‘synthetic’’ is the opposite: The market maker

sells stock and buys calls in a 1-to-1 ratio, creating

the equivalent of a purchase of puts of the same

series.

7For purposes of marketing fee waivers, the

CBOE defines ‘‘deep in the money’’ options as

options that are ‘‘in the money’’ by a minimum of

both $10 and 20% of the closing value of the

underlying security on either the trade date or the

date immediately prior to the trade date.

8 15 U.S.C. 78f(b).

9 15 U.S.C. 78f(b)(4).

10 15 U.S.C. 78s(b)(3)(A)(ii).

11 17 CFR 240.19b–4(f)(2).

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

Last year CBOE imposed a $.40 per

contract marketing fee to collect funds

that the appropriate Designated Primary

Market Maker (‘‘DPM’’) may use for

marketing its services and attracting

order flow to the CBOE.3 Initially, this

fee was applicable to all market-maker

to market-maker options transactions.

Thereafter, the Exchange determined

that the fee was making it unprofitable

for market makers to do reversal and

conversion transactions, in which a

market maker trades a given amount of

an underlying security against an

equivalent number of call/put ‘‘combos’’

through buying the call and selling the

put (or vice versa) in equal quantities

with the same strike price in the same

expiration month. The Exchange

therefore amended its marketing fee to

waive the fee in the case of call/put

combo transactions used in reversals

and conversions.4

The Exchange is now filing this rule

change proposal to exempt certain

‘‘spreads’’ 5 as well as ‘‘by write’’ and

‘‘synthetic’’ transactions 6 involving

‘‘deep in the money’’ 7 options. In the

CBOE’s view, these transactions, like

reversals and conversions, enable

popular trading strategies that

contribute to market liquidity, but they

usually have smaller profit margins than

other types of trades. The CBOE believes

that, when the $.40 marketing fee is

imposed upon the call/put combo

transactions, the trades may become

unprofitable.

Consequently, the Exchange has

decided to exempt from the marketing

fee all buy-write and synthetic

transactions involving at least 200 deepin-the-money options contracts for a

particular class, as well as spread

transaction involving a total of at least

400 deep-in-the-money option contracts

for a particular class. The Exchange will

use trade data to determine qualifying

transactions, and may require market

makers to submit documentation

showing that specific trades qualify for

the exemption.

2. Statutory Basis

The CBOE believes the proposed rule

change is consistent with Section 6(b) of

the Act 8 in general, and furthers the

objectives of Section 6(b)(4) 9 in

particular, in that it is designed to

provide for the equitable allocation of

reasonable dues, fees, and other changes

among CBOE members.

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 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

The CBOE neither solicited nor

received written comments with respect

to the proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The proposed rule change has become

effective pursuant to Section

19(b)(3)(A)(ii) of the Act 10 and

subparagraph (f)(2) of Rule 19b–4

thereunder 11 because it establishes or

changes a due, fee, or other charge

imposed by the Exchange. 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,

including whether the proposal 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

20549–0609. 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 number

SR–CBOE–2001–18 and should be

submitted by June 26, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14026 Filed 6–4–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44365; File No. SR–NASD–

2001–35]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the

National Association of Securities

Dealers, Inc. Relating to the

Elimination of the Interval Delay

Between Executions in the Nasdaq

National Market Execution System and

the Effect of Odd-Lot Orders on Market

Makers’ Displayed Quotations in the

Nasdaq National Market Execution

System

May 29, 2001.

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 May 10,

2001, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), through its subsidiary,