Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices 4877

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

5 15 U.S.C. 78f(b)(5). 6 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Letter from Angelo Evangelou, Counsel,

CBOE, to Jennifer Colihan, Attorney, Division of

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

January 2, 2001. (‘‘Amendment No. 1’’). In

Amendment No. 1, the Exchange clarified that the

Chairman may designate his authority solely to: (1)

another member of the FPC, or (2) or (2) two CBOE

floor officials.

4See Securities Exchange Act Release No. 42862

(May 30, 2000), 65 FR 36481.

5See Exchange Rules 6.8(a)(i) and 6.8(e). The

Commission recently approved a proposed rule

change by the Exchange to increase the maximum

size of RAES-eligible orders to seventy-five

contracts. See Securities Exchange Act Release No.

43517 (November 3, 2000), 65 FR 69082 (November

15, 2000).

6See Amendment No. 1, supra note 3.

7The Exchange has represented that the

minimum level to which the Chairman, or his

designee, may decrease the size of orders eligible

for entry into RAES pursuant to the proposed rule

is ten contracts. Telephone conversation between

Angelo Evangelou, Counsel, CBOE, and Jennifer

Colihan, Attorney, Division, Commission, on

September 8, 2000.

individuals are eligible for the member

Death Benefit: (i) Any individual who is

an active member at the time of his or

her death; and (ii) any individual who

(a) was an active member within ninety

days prior to the date of his or her

death, and (b) was an active member

during at least 274 out of the 365 days

preceding the date of his or her

termination from active member status.

2. Statutory Basis

The Exchange believes the proposed

rule change is consistent with Section

6(b) of the Act 4 in general, and in

particular, with Section 6(b)(5) of the

Act,5 in that it is designed to remove

impediments to and perfect the

mechanism of a free and open market

and to protect investors and the public

interest. The proposed rule change seeks

to revise the Exchange’s membership

application posting process in a manner

that will reduce inefficiency in the

conduct of business on the Exchange

and inconvenience to membership

applicants while preserving the ability

of members to submit information

concerning the qualifications and fitness

for membership of membership

applicants. The proposed rule change

will also clarify certain provisions of the

Exchange’s membership rules making it

easier for members to understand those

rules.

B. Self-Regulatory Organization’s

Statement on Burden Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition 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 Exchange has neither solicited

nor received written comments on 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

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 Exchange 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 20549–0609. Copies of

the submission, all subsequent

amendments, all written statement 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–00–60 and should be

submitted by February 8, 2001.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–1407 Filed 1–17–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Releae No. 34–43829; File No. SR–CBOE–

00–10]

Self-Regulatory Organizations; Order

Granting Approval of Proposed Rule

Change by the Chicago Board Options

Exchange, Inc., and Notice of Filing

and Order Granting Accelerated

Approval of Amendment No. 1, to

Permit the Chairman of the

Appropriate Floor Procedure

Committee to Decrease the Size of

Orders Eligible for Entry Into the Retail

Automatic Execution System During

Unusual Market Conditions

January 10, 2001.

I. Introduction

On March 28, 2000, the Chicago

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

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) pursuant to section

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

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change

that would grant the Chairman of an

appropriate Floor Procedure Committee

(‘‘FPC’’), or his designee, the authority

to decrease the size of orders eligible for

entry into the Exchange’s Retail

Automatic Execution System (‘‘RAES’’)

during unusual market conditions. On

January 3, 2001, the Exchange filed

Amendment No. 1 to the proposed rule

change.3

The proposed rule change was

published for comment in the Federal

Register on June 8, 2004.4 The

Commission received no comments on

the proposal. This order approves the

proposal.

II. Description of Proposal

Currently, the appropriate FPC of the

CBOE has the authority to determine the

size of orders eligible for entry into

RAES up to a maximum of seventy-five

contracts.5 In this proposal, the

Exchange is seeking to amend

Interpretation .05 to Rule 6.8, RAES

Operations, to allow the Chairman of

the appropriate FPC, or the Chairman’s

designee,6 to exercise the authority of

the FPC to decrease the size of orders

eligible for entry into RAES for option

classes during unusual market

conditions.7

In its filing, the Exchange represented

that it is sometimes necessary to

temporarily reduce the eligible order

size levels for RAES in situations where

unusual market conditions exist.

However, under the current Exchange

rules,a decision to decrease the eligible

4878 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices

8According to the Exchange, unusual market

conditions may include drastic movement in the

security underlying an option, or news pending

about the issuer of the underlying security.

Telephone conversation between Angelo

Evangelou, Counsel, CBOE, and Jennifer Colihan,

Attorney, Division, Commission, on September 8,

2000.

9Under CBOE Rule 6.8, Interpretation .05, the

Chairman of the appropriate FPC currently is

authorized to increase the order size eligibility for

RAES if he believes that the action is in the interest

of alleviating a potential backlog of unexecuted

orders in situations where a particular class of

option is experiencing a large influx of orders, and

provided the decision is made for no more than one

trading day. That rule, however, does not permit the

Chairman to decrease the order size eligibility

maximum.

10 15 U.S.C. 78f(b).

11 In approving this rule change, the Commission

has considered the proposal’s impact on efficiency,

competition, and capital formation, consistent with

section 3(f) of the Act. 15 U.S.C. 78c(f).

12 15 U.S.C. 78f(b)(5).

13The Commission notes that approval of this

rule change is not dispositive of whether all aspects

of the revised Interpretation comply with the terms

and conditions of section IV.h.(i)(bb) of the Order

Instituting Public Administrative Proceedings

Pursuant to Section 19(h)(1) of the Securities

Exchange Act of 1934, Making Finding and

Imposing Remedial Sanctions (the ‘‘Order’’). The

parties to the Order, including the Exchange, are

required to ‘‘specify the circumstances, if any,

under which automated execution systems can be

disengaged or operated in any manner other than

the normal manner set forth in the exchange’s rules

and require the documentation of the reasons for

each decision to disengage an automated execution

system or operate it in any manner other than the

normal manner.’’ The Order further provides that

parties to the Order must submit to the Commission

staff draft proposed rule changes that comply with

the requirements set forth above no later than six

months from the date of the Order. See Securities

Exchange Act Release No. 43268 (September 11,

2000).

14The Commission notes that Interpretation .08 to

CBOE rule 6.8 requires the CBOE to document

instances in which the Chairman or his designee

decrease RAES order size eligibility levels pursuant

to this proposal. See Securities Exchange Act

Release No. 43196 (August 22, 2000), 65 FR 52800

(August 30, 2000) (noticing immediate effectiveness

of SR–CBOE–00–38, which implemented

Interpretation .08).

15See Amendment No. 1, supra note 3.

16 15 U.S.C. 78f(b)(5).

17 15 U.S.C. 78f(b)(5) and 78s(b).

order size must be made by the

appropriate FPC. The Exchange

represented that it is not practicable to

provide notice to all the members of the

appropriate FPC and convene a meeting

during the day to make the decision to

decrease eligible order size in the event

of an unusual market situation.

Consequently, the Exchange seeks to

delegate the authority provided in CBOE

Rule 6.8(a)(i) to the Chairman of the

appropriate FPC, or to the Chairman’s

designee, to decrease the eligible order

size for RAES in unusual market

conditions,8 provided that the Chairman

or his designee believes that the action

is warranted and provided that the

decision is made for no more than one

trading day (as is currently the case for

the Chairman increasing the order size

eligibility for RAES).9 To the extent that

the conditions continue to exist on the

following trading day, the Chairman or

his designee must review the situation

and make an independent decision to

decrease the RAES eligible order size for

that subsequent day. Further, any

decisions made by the Chairman or his

designee to decrease the RAES eligible

order size for a particular option class

for consecutive days will be reviewed

by the FPC at its next regularly

scheduled meeting. After reviewing

these decisions, the FPC can provide

guidance to the Chairman or his

designee about the use of this authority

if the FPC considers it appropriate.

III. Discussion

After careful review, the Commission

finds that the proposed rule change is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to a national

securities exchange and, in particular,

the requirements of section 6(b) of the

Act 10 and the rules and regulations

thereunder.11 Section 6(b)(5) of the

Act 12 states that the rules of an

exchange must be designed to facilitate

securities transactions and to remove

impediments to and perfect the

mechanism of a free and open market.

The Commission believes that granting

the Chairman of the appropriate FPC, or

the Chairman’s designee, the discretion

to exercise the authority of the

Committee to decrease the size of orders

for entry into RAES is consistent with

these statutory provisions.13

The Commission further believes that

the requirement that the FPC review any

decision made by the Chairman or his

designee to decrease the size of orders

eligible for entry into RAES for

consecutive days will help ensure that

the Chairman, or his designee, only uses

the discretion in limited circumstances

that require that such action be taken to

ensure the market’s integrity and

adequate function. Finally, the

Commission notes that because this

proposed rule involves changing the

parameters of the eligible RAES order

size, any action taken pursuant to the

proposed rule must be documented in

accordance with CBOE Rule 6.8,

Interpretation .08.14

IV. Amendment No. 1

In Amendment No. 1, the Exchange

clarified that the Chairman may

designate his authority to decrease the

size of orders for entry into RAES

during unusual market conditions only

to: (1) Another member of the FPC, or

(2) two CBOE floor officials.15 The

Commission believes that this limitation

will help to ensure that only those

persons with sufficient knowledge and

judgment will be vested with the

authority to make decisions that will

affect the manner in which RAES is

operated, and consequently the manner

in which customer orders are executed.

The Commission believes that is would

be inappropriate for the Chairman of an

FPC to delegate his authority to make

decisions regarding how RAES is

operated to an unlimited number of

persons, with varying degrees of

knowledge and aptitude for making

such decisions.

The Commission, therefore, finds that

Amendment No. 1 is consistent with

section 6(b)(5) of the Act,16 which

requires that the rules of an exchange be

designed to promote just and equitable

principles of trade, to foster cooperation

and coordination with persons engaged

in relating, clearing, settling, processing

information with respect to, and

facilitating transactions in securities.

The Commission also finds good cause

to approve Amendment No. 1 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing of the

amendment in the Federal Register. The

Commission notes that Amendment No.

1 merely clarifies precisely who is

eligible to be the ‘‘Chairman’s designee’’

for purposes of the proposed

interpretation. Accordingly, the

Commission believes that there is good

cause, consistent with section 6(b)(5)

and 19(b) of the Act 17 to approve

Amendment No. 1 on an accelerated

basis.

V. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

1, including whether Amendment No. 1

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 at

the Commission’s Public Reference

Room. Copies of such filing will also be

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices 4879

18 15 U.S.C. 78s(b)(2).

19 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 43618

(November 27, 2000), 65 FR 75327.

3EMCC’s Rules define an IDB as ‘‘a broker-dealer

that conducts securities trading which matches

buyers and sellers who are banks or dealers, and

who is designated as such by the Corporation.’’

4See, e.g., Government Securities Clearing

Corporation Rule 4, Section 2(c).

5October, 1997 (Asia), August, 1998 (Russia), and

January, 1999 (Brazilian).

6 15 U.S.C. 78q–1(b)(3)(F) (1988).

7 17 CFR 200.30–3(a)(12).

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–CBOE–00–10 and should be

submitted by February 8, 2001.

VI. Conclusion

For all of the aforementioned reasons,

the Commission finds that the proposed

rule change is consistent with the

requirements of the Act and the rules

and regulations thereunder applicable to

a national securities exchange.

It Is Therefore ordered, pursuant to

section 19(b)(2) of the Act,18 that the

proposed rule change (SR–CBOE–00–

10), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.19

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–1485 Filed 1–17–01; 8:45 am]

BILLING CODE 8010–02–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 43824; File No. SR–EMCC–00–

05]

Self-Regulatory Organizations;

Emerging Markets Clearing

Corporation; Order Approving a

Proposed Rule Change Relating to

Increasing the Minimum Clearing Fund

Requirement for All EMCC Members to

$3,000,000 and Establishing Two Tiers

of Inter-Dealer Broker Membership

Standards

January 9, 2001.

On July 14, 2000, the Emerging

Markets Clearing Corporation (‘‘EMCC’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) and on

August 16, 2000, and November 1, 2000,

amended a proposed rule change (File

No. SR–EMCC–00–05) pursuant to

section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’).1 Notice

of the proposal was published in the

Federal Register on December 1, 2000.2

No comment letters were received. For

the reasons discussed below, the

Commission is approving the proposed

rule change.

I. Description

The purpose of the rule change is to

(i) increase the minimum clearing fund

requirement for all EMCC members to

$3,000,000 from the current required

minimum of $1,000,000 and (ii) provide

two tiers of IDB membership standards.3

With respect to the increased

minimum clearing fund requirement,

EMCC’s risk advisory subgroup

reviewed EMCC’s two years of

operations, including trade files and

daily margin calculations. The

subcommittee concluded that, generally,

members’ calculated clearing fund

requirements did not go below

$3,000,000. Moreover, raising the

minimum requirement from $1,000,000

to $3,000,000 is consistent with the

clearing fund requirements imposed on

IDBs by other clearing corporations, 4

and it addresses the fact that IDB

members have a potential clearing fund

loss liability that could well exceed the

current $1,000,000 clearing fund

minimum. Accordingly, EMCC has

determined that it would be more

appropriate to have a greater amount of

IDB funds on hand to cover the

potential exposure than to have to

request such a deposit if needed due to

a loss. Therefore, EMCC has determined

that it is appropriate to increase all

members’, including IDBs’, minimum

clearing fund requirement to

$3,000,000.

The rule change also separates IDBs

into two membership categories based

on excess net capital or excess financial

resources. Those IDBs with excess net

capital, or excess financial resources for

a broker or dealer regulated by the

Securities and Futures Authority

Limited, of between $10,000,000 and

$20,000,000 will be margined using an

‘‘event factor’’ of 1.5 instead of the

factor of 1.25 currently used in EMCC’s

base margining formula. This factor is

representative of the volatilities

experienced during the last three

emerging market events.5 Those IDBs

with excess net capital or excess

financial resources of more than

$20,000,000 will be margined under the

current event factor of 1.25.

EMCC believes that the two-tier

membership standard will permit it to

better collateralize the risk posed by

IDBs with lower levels of capital. EMCC

recognizes that the clearing fund is a

key mitigant to market risk in the event

of member insolvency and feels that

margining those IDBs with less than

$20,000,000 excess regulatory capital at

an event factor of 1.5 should mitigate

the risk of their lower capital levels.

The effective date for these approved

changes will be thirty days following

the date the Commission approves the

filing for current members and will be

immediately for any applicant who

becomes a member after the rule change

is approved.

II. Discussion

Section 17A(b)(3)(F) of the Act

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds

which are in the custody or control of

the clearing agency for which it is

responsible.6 The Commission believes

that the approval of EMCC’s rule change

is consistent with this Section. The

Commission believes it is prudent for

EMCC to have a greater amount of IDB

funds on hand to cover the potential

exposure than to have to request such a

deposit if needed and to increase all

members’, including IDBs’, minimum

clearing fund requirements to

$3,000,000. In addition, the Commission

believes that the two-tier membership

standard whereby EMCC will margin

IDBs with less than $20,000,000 excess

regulatory capital at an event factor of

1.5 will permit EMCC to better

collateralize the risk posed by IDBs with

lower levels of capital.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of section 17A of the Act

and the rules and regulations

thereunder.

It is Therefore Ordered, pursuant to

section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

EMCC–00–05) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–1408 Filed 1–17–01; 8:45 am]

BILLING CODE 8010–01–M