[Federal Register Volume 66, Number 121 (Friday, June 22, 2001)]
[Notices]
[Pages 33589-33590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15679]



[[Page 33589]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44433; File No. SR-CBOE-2001-30]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc., Relating to Joint Account Trading in Certain Broad-
Based Index Options and Options on Exchange-Traded Fund Shares

June 15, 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 30, 2001, he 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. 
The proposed rule change has been filed by the CBOE as a ``non-
controversial'' rule change under Rule 19b-4(f)(6) of the Act.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE's OEX/SPX/DJX Joint Account Circular (``Circular'') 
currently applies to the trading activities of joint account 
participants in Standard & Poor's (``S&P'') 100 Index options 
(``OEX''), S&P 500 Index options (``SPX''), and Dow Jones Industrial 
Average options (``DJX''). The CBOE proposes to amend the Circular to 
apply its terms to trading in options on the Mini-NDX Index 
(``MNX<SUP>SM</SUP>''), the Nasdaq-100 Index (``NDX''), and the Nasdaq-
100 Tracking Stock (``QQQ'').\4\
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    \4\ QQQ options are options overlying the Nasdaq-100 Index 
Tracking Stock, an exchange-traded fund designed to track the 
performance of the Nasdaq-100 Index. The CBOE has determined to 
treat options on exchange-traded fund shares like index options and 
to generally apply to exchange-traded fund shares the same rules 
that are applicable to index options.
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    The text of the proposed rule change is 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

    The Circular currently applies to the trading activities of joint 
account participants in OEX, SPX, and DJX options. The CBOE proposes to 
apply the terms of the Circular to trading in certain additional broad-
based index options and options on exchange-traded fund shares.\5\ 
Specifically, the CBOE proposes to amend the Circular to apply its 
terms to trading in MNX, NDX, and QQQ options. The CBOE does not 
propose to modify any of the joint account trading policies or 
procedures set forth in the Circular.
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    \5\ The Commission approved the Circular on September 10, 1992. 
See Securities Exchange Act Release No. 31174 (September 10, 1992), 
57 FR 42789 (September 16, 1992) (order approving File No. SR-CBOE-
91-40). The CBOE updated the Circular to allow more than one SPX 
participant to participate on a trade on behalf of the joint 
account. See Securities Exchange Act Release No. 35579 (April 7, 
1995), 60 FR 18867 (April 13, 1995) (notice of filing and immediate 
effectiveness of File No. SR-CBOE-95-17). In addition, the CBOE 
updated the Circular to apply the terms of the Circular to trading 
in DJX options. See Securities Exchange Act Release No. 39092 
(September 18, 1997), 62 FR 50412 (September 25, 1997) (notice of 
filing and immediate effectiveness of File No. SR-CBOE-97-44). The 
CBOE also updated the Circular to allow certain transactions between 
joint accounts that have common participants. See Securities 
Exchange Act Release No. 44152 (April 5, 2001), 66 FR 19262 (April 
13, 2001) (order approving File No. SR-CBOE-00-13).
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    The Circular provides that joint accounts may be represented in the 
crowd by participants trading in-person for he joint account. In 
addition, the Circular provides that joint account participants who are 
not trading in-person in the crowd may enter orders for the joint 
account with floor brokers even if other participants are trading the 
same joint account in-person. The joint account circular applicable to 
equity options does not allow a joint account participant to enter 
orders while another joint account participant is trading in-person on 
behalf of the joint account. The Exchange believes the OEX/SPX/DJX 
model is more appropriate for MNX, NDX, and QQQ options because these 
trading crowds are comparable in size to the OEX, SPX, and DJX trading 
crowds.
    The Exchange believes that options on exchange-traded fund shares 
derived from broad-based indexes, such as the QQQ options, share 
trading characteristics similar to the trading characteristics of 
broad-based index options. Accordingly, the CBOE believes that the same 
rules should apply to options on exchange-traded fund shares derived 
from broad-based indexes. The CBOE states that QQQ options can be used 
as a hedge against broad-based index options such as MNX and NDX 
because the QQQ contract derives its value from the Nasdaq-100 Index. 
According to the CBOE, joint account participants who trade MNX, NDX, 
and other broad-based index options may want to place hedging trades in 
QQQ options into their joint accounts. For these reasons, the Exchange 
believes the joint account trading procedures in the Circular should 
also apply to joint account trading in QQQ options.
    The Exchange believes that applying the terms of Circular to MNX, 
NDX, and QQQ options will inform the CBOE's members that the existing 
Exchange policies and procedures regarding permissible joint account 
trading in OEX, SPX, and DJX Index options will now apply also to 
trading in MNX, NDX, and QQQ options. The Circular profits market-
makers from trading with their joint account and prohibits trades in 
which the buyer and seller represent the same joint account and are on 
opposite sides of the transaction. The CBOE's Department of Market 
Regulation will conduct surveillance of joint account trading in MNX, 
NDX, and QQQ options by applying existing surveillance procedures that 
are designed to detect and deter abusive trading by joint account 
participants.
    The CBOE believes that the proposed rule change is consistent with 
and furthers the objectives of Section 6(b)(5) of the Act in that it is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanisms of a free and open market and 
a national system 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 not necessary or appropriate in furtherance 
of the purposes of the Act.

[[Page 33590]]

(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

    The CBOE has filed the proposed rule change as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\6\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\7\ 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; and (3) by its terms, does not 
become operative for 30 days after the date of the filing, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 
19b-4(f)(6). The CBOE also provided the Commission with written notice 
of its intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of the filling of the proposed rule 
change. 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.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether it 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 Section, 450 Fifth Street, N.W., Washington, D.C. 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-2001-30 and should be submitted by July 13, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Marget H. McFarland,
Deputy Secretary.
[FR Doc. 01-15679 Filed 6-21-01; 8:45 am]
BILLING CODE 8010-01-M