63552 Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Notices

4 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4 (1994).

3See Securities Exchange Act Release No. 36331

(October 3, 1995), 60 FR 53440.

4The Exchange previously filed a proposal

concerning its OEX trading post telephone policy

that became effective upon filing pursuant to

Section 19(b)(3)(A) of the Act. Securities Exchange

Act Release No. 35725 (May 17, 1995), 60 FR 27575.

The Commission received one comment letter

objecting to the prohibition on the use of telephones

at the OEX post to receive orders. Letter from David

C. Bohan, Jenner & Block, to Jonathan G. Katz,

Secretary, Commission, dated June 14, 1995. The

Commission published the CBOE’s current proposal

for a full 21 day comment period, and has received

no comments.

5See Securities Exchange Act Release No. 33701

(March 2, 1994), 59 FR 11336.

6The telephone policy also allows members to

use the floor telephones to provide quotations on

OEX options. In using the telephones for this

purpose, members may only provide quotations that

have been publicly disseminated pursuant to CBOE

Rule 6.43.

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 self-regulatory

organization 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.

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 Amex. All submissions

should refer to the File No. SR–Amex–

95–47 and should be submitted by

January 2, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30068 Filed 12–8–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36546; File No. SR–CBOE–

95–49]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Approving a Proposed Rule

Change Relating to Telephone on the

Floor of the Exchange

December 1, 1995.

I. Introduction

On August 25, 1995, 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 regarding

the adoption of a Regulatory Circular

governing the use of member-owned or

Exchange-owned telephones located at

the trading post where options on the

Standard & Poor’s 100 Stock Index

(‘‘OEX’’) options are traded. The

proposed rule change was published for

comment and appeared in the Federal

Register on October 13, 1995.3 No

comments were received regarding the

proposal.4 This order approves the

proposal.

II. Description of the Proposal

The purpose of the Regulatory

Circular is to permit telephones located

at the OEX trading post on the floor of

the Exchange to provide members and

clerks with access to outside lines for

outgoing calls, subject to the conditions

set forth in the Regulatory Circular.

With the exception of the prohibition on

the use of telephones at the OEX trading

post to receive incoming calls, these

conditions are the same as those the

Commission previously approved

governing the use of telephones at the

equity option trading posts on the floor

of CBOE.5 Because there are no

restrictions on where a member may

place an outgoing call, telephones at the

OEX trading post may be used to place

orders in equity or futures markets.6

Exchange Rule 6.23 prohibits

members from establishing or

maintaining any telephone or other wire

communications between their offices

and the Exchange floor without prior

Exchange approval, and it authorizes

the Exchange to direct the

discontinuance of any communication

facility terminating on the Exchange

floor. Pursuant to this rule, the

Exchange adopted the Regulatory

Circular to permit the installation of

outside telephone lines at the OEX

trading post, and to adopt conditions

governing their use.

The proposed rule change also

imposes user fees on members who are

approved to use Exchange-installed

telephones located at the OEX trading

post. The Exchange is adopting these

fees pursuant to Exchange Rule 2.22,

which permits the Exchange to impose

fees on members for the rule of

Exchange facilities or for any services or

privileges granted by the Exchange.

The conditions imposed by the

Regulatory Circular on the use of

telephones at the OEX trading post are

as follows:

1. The telephones may not be used to

receive orders, but may be used to

provide quotes that have been publicly

disseminated pursuant to Rule 6.43.

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 post pit. Portable

or cellular phones also will not be

permitted.

4. Clerks will not be permitted to

establish a base of operation utilizing

telephones at the OEX post.

5. Members and their clerks using the

telephones are required to consent to

recording of conversations on

telephones at the OEX post.

6. The telephones are to be used for

voice service only. Data services CPC’s,

fax, etc.) will remain subject to

Exchange consent under a separate

program.

7. Only outgoing calls may be made

on the telephones; incoming calls are

not permitted.

The Exchange intends to enforce these

conditions as rules of the Exchange, and

has advised members that violations

may lead to formal disciplinary

proceedings.

The Exchange’s proposal is limited to

outgoing calls only. The Exchange has

stated that telephones at the OEX

trading post should not be used to

receive customer order until it has given

further consideration to relevant

regulatory issues, including how to

provide customers with access to the

trading floor on a fair and nondiscriminatory basis, how to assure that

persons on the floor are qualified to

receive orders directly from customers,
Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Notices 63553

7The Exchange states that it intends to consider

these issues in the near future, and depending on

its conclusions, the Exchange may determine to

revise or eliminate these conditions pursuant to a

subsequent rule filing under Section 19(b) of the

Act.

8 15 U.S.C. 78f(b)(5) (1988).

9The proposed rule change also allows members

to use the floor telephones for the purpose of

providing quotations that have been publicly

disseminated pursuant to CBOE Rule 6.43.

10 ISG was formed on July 14, 1983 to, among

other things, coordinate more effectively

surveillance and investigate information sharing

arrangements in the stock and options market.

Because of potential opportunities for trading

abuses involving stock index futures, stock options,

and the underlying stocks and the need for greater

sharing of surveillance information for these

potential intermarket trading abuses, the Chicago

Mercantile Exchange and the Chicago Board of

Trade joined the ISG as affiliate members in 1990.

See Intermarket Surveillance Group Agreement,

July 14, 1983.

11This does not imply that the Exchange is

prohibited from allowing portable telephones on its

floor, subject to appropriate safeguards. Rather, that

it is not inconsistent with the Act for the CBOE to

prohibit them for the reasons discussed above.

12Telephone Conversation between Timothy

Thompson, Senior Attorney, CBOE, and Francois

Mazur, Attorney, Office of Market Supervision,

Division of Market Regulation, Commission, on

November 21, 1995.

13Specifically, 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

phones.

and how to surveil order-taking activity

conducted over floor telephones.7

III. Discussion

The Committee 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)(5),8 in that

it is designed to promote just and

equitable principles of trade, prevent

fraudulent and manipulative acts and

practices, and maintain fair and orderly

markets. Specifically, the Commission

believes the proposed rule change

should help to promote improved

relationships between the OEX trading

crowds and the member firms and

facilitate efficient access to underlying

markets. Providing procedures whereby

members in the OEX options crowd can

readily communicate with the off-floor

offices of member firms as well as other

locations off of the Exchange’s trading

floor, will allow them to obtain and

transmit information more efficiently

which may result in benefits to

investors by improving execution of

orders.

Further, incorporating the procedures

contained in the Regulatory Circular

into the Rules of the Exchange will

enable the Exchange to monitor better

the use of the floor telephones and to

discipline members for violations of

those rules. As noted above, because the

proposed telephone policy does not

restrict where a member may call, the

telephones may be used to place orders

in underlying stocks and in futures

markets.9

With respect to equity-related

transactions, while the telephones may

give options market makers more

immediate access to the market in the

underlying securities, the Commission

believes that the CBOE’s surveillance

systems currently in place are adequate

to detect and deter any such attempts at

manipulation including frontrunning. It

also should be noted that the S&P 100

Index, on which OEX options are based,

is a capitalization-weighted index of 100

different blue chip stocks. The fact that

the value of OEX options is derived

from the value of these stocks,

combined with the large number of

stocks included in the index, suggests

that the type of information that may be

available at the OEX trading post is not

likely to be significant in predicting

future changes in the index.

With respect to futures-related

transactions, the Commission believes

that the Exchange will be able to

conduct adequately surveillance for

improper activities as a result of the

transaction information provided to the

Exchange by the Chicago Mercantile

Exchange (‘‘CME’’) pursuant to the

Exchange’s surveillance sharing

agreement with the CME. Although the

surveillance information obtained by

the Exchange would not indicate that

the floor telephones were used to enter

into a potentially improper futures

transactions, the Exchange’s ability to

conduct surveillance for potential

manipulation will not be hindered

because of the existence of floor

telephones at the OEX options posts on

the floor of the Exchange. Additionally,

the Commission also notes that

surveillance information is shared

through the Intermarket Surveillance

Group (‘‘ISG’’) 10 which the CME and

the Chicago Board of Trade joined as

affiliate members in 1990.

The Commission believes that the

Exchange’s prohibition on the use of

telephones to receive incoming calls is

justified by legitimate regulatory

concerns. Specifically, issues such as

the possible misuse of non-public

information, the need to ensure

compliance with rules designed to

assure the qualifications of members

who accept orders directly from public

customers, and how to provide adequate

surveillance over this activity need to be

addressed.

The Exchange’s proposal also

prohibits the use of portable, cellular,

and headset telephones on the OEX

options trading floor. Prohibiting the

use of portable telephones aids in

ensuring that market makers will be

physically present at the OEX options

trading posts where the options classes

to which they have been appointed are

traded. It is not unreasonable for the

CBOE to take measures to ensure the

physical presence of market makers at

the OEX trading post in order to

promote the maintenance of fair and

orderly markets. The Exchange believes

that the prohibition should enable it to

monitor and control telephone usage at

the trading post, and minimize

disruption of trading at the post. In

addition, the Exchange notes 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 a result, the Commission

believes that this restriction is within

the discretion of the Exchange and does

not raise regulatory concerns.11

The Exchange has represented that

since the Regulatory Circular was issued

and telephones at the OEX options

trading post have been installed, the

Exchange has not received any

complaints concerning their use, nor

detected any violations of the

procedures set forth in the Regulatory

Circular.12

Finally, the Commission believes that

the CBOE’s proposed fees for the use of

the telephones are consistent with the

requirement under Section 6(b)(4) of the

Act that the rules of an exchange

provide for the equitable allocation of

reasonable dues, fees, and other charges

among its members. CBOE Rule 2.22

allows the Exchange to impose fees on

members relating to the use of Exchange

facilities or for any services or privileges

granted by the Exchange. The Exchange

has stated that the proposed fees

generally will be the same as those

charged for the use of telephones at the

equity trading posts.13

In summary, because the Commission

believes that installing telephones at the

OEX options post on the floor of the

Exchange may result in benefits to

investors by allowing market makers to

hedge their options positions more

efficiently through improved immediate

access to underlying markets while not

impairing or diminishing the ability of

the Exchange to conduct surveillance

for improper equity-related or futuresrelated trading activity, the Commission

finds that the proposed rule change is
63554 Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Notices

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

15 17 CFR 200.30–3(a)(12) (1994).

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

2Letter from Piku K. Thakkar, Assistant Counsel,

DTC, to Mark Steffensen, Esq., Division of Market

Regulation (‘‘Division’’), Commission (October 26,

1995).

3The Commission has modified the text of the

summaries prepared by DTC.

4The validity of the coupon number, bond

number, payable date, and payable amount of the

mutilated coupon will be guaranteed by the

depositing participant by a stamp affixed to the

coupon executed by an authorized officer of such

participant. In cases of a badly mutilated coupon,

DTC may require a letter of indemnity. In the event

a paying agent rejects a mutilated coupon, any

credit made to the depositing participant’s account

with respect to such coupon will be reversed.

Telephone conversation between Piku K. Thakkar,

Assistant Counsel, DTC; Ann Reich, DTC; and Mark

Steffensen, Attorney, Division, Commission

(October 17, 1995).

5When the coupons are due in the future, each

deposit ticket can have up to 50 shells attached to

it, but each of the attached shells must have the

same payable date. For past due coupons, shells

with different deposit dates may be listed on the

same deposit ticket. Letter from Piku K. Thakkar,

Assistant Counsel, DTC, to Mark Steffensen, Esq.,

Division, Commission (October 26, 1995).

6A ‘‘stopped certificate’’ is a certificate for which

a stop transfer instruction has been requested. A

stop transfer instruction typically is initiated as the

result of a lost or stolen stock certificate. Telephone

conversation between Piku K. Thakkar, Assistant

Counsel, DTC, and Mark Steffensen, Attorney,

Division, Commission (September 26, 1995).

consistent with the requirements of the

Act.

IV. 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,14 that the

proposed rule change (File No. SR–

CBOE–95–49) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30073 Filed 12–8–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36545; File No. SR–DTC–

95–18]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing of a Proposed Rule Change to

Establish a Coupon Collection Service

for Municipal Bearer Bonds

December 1, 1995.

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

Securities Exchange Act of 1934

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

September 18, 1995, The Depository

Trust Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change (File No. SR–DTC–95–18) as

described in Items I, II, and III below,

which items have been prepared

primarily by DTC. On October 30, 1995,

DTC filed an amendment to the

proposed rule change.2 The Commission

is publishing this notice to solicit

comments on the proposed rule change

for interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

DTC is filing the proposed rule

change to establish a coupon collection

service program in order to provide its

participants with a cost effective

method for the collection of interest

relating to the coupons from municipal

bearer bonds.

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 it received on the proposed

rule change. The text of these statements

may be examined at the places specified

in Items IV below. DTC has prepared

summaries, set forth in sections (A), (B),

(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

DTC seeks to establish a coupon

collection service in order to provide

DTC’s participants with a cost-effective

method for the collection of interest

relating to the coupons from municipal

bearer bonds. This service will include

collection of coupons which are due in

the future as well as past due coupons

for DTC eligible and ineligible

municipal issues payable in the United

States. Past due coupons will be

accepted for up to three years after the

payable date.

DTC participants will be required to

deposit coupons in a standard sealed

envelope or ‘‘shell’’ with no more than

two hundred coupons contained in any

one shell. Only coupons for the same

CUSIP number, series, and payable date

can be enclosed in any one shell.

Mutilated coupons will be required to

be guaranteed by the depositing

participant and placed into separate

shells.4 DTC will require that each shell

contain the following information on its

face: (i) CUSIP number; (ii) a description

of the issue including municipality,

state, purpose, series, date of issue, and

maturity date; (iii) payable date; (iv)

quantity of coupons enclosed; (v) dollar

value of individual coupons; (vi) total

shell value; (vii) participant number;

and (viii) contact name and telephone

number of the depositing participant.

All shells must be accompanied by a

complete deposit ticket that includes: (i)

DTC participant number; (ii) shell

quantity; (iii) total dollar value; (iv)

CUSIP number per shall; (v) coupon

quantity per shell; (vi) dollar value per

shell; and (vii) whether the coupons are

payable on a future date or are past

due.5

DTC will verify the number of shells

listed on the deposit ticket and give the

participant a time-stamped copy of the

ticket. If the number of shells listed on

the deposit ticket does not agree with

the physical number of shells, DTC will

immediately reject the entire deposit

and will return it to the participant.

DTC will neither inspect nor verify the

shell contents prior to presentation to

the paying agent. The depositing

participant is responsible for the

integrity of the shell contents. In the

event of a coupon shell loss, the

participant will be required to provide

DTC with a full description (including

certificate number) of the coupons

contained in the shell.

Coupons may be rejected by the

paying agent and returned to the

depositing participant for a variety of

reasons. The most common reasons for

rejection are likely to include: (i) Mixed

shell contents including mixed payable

dates, mixed series or purposes, or

mixed maturity years; (ii) incorrect

count of shell contents; (iii) called

certificate; (iv) mutilated coupon; (v)

stopped certificate; 6 or (vi) issue in

default.

DTC will act simply as a conduit

between the participant and the paying

agent. In this capacity, DTC will pass

through rejected shells to DTC

participants in the form received from

the paying agent together with any

paying agent documentation. DTC will

neither inspect nor verify the contents

of rejected shells. For shells rejected

after the payable date, appropriate funds

will be debited from the participant’s

account on the day the rejected coupons

are returned to the participant.

Interest for coupons for which the

paying agent is located outside of New

York City that are deposited at least