Federal Register / Vol. 60, No. 38 / Monday, February 27, 1995 / Notices 10621

1A ‘‘trading rotation’’ is a series of very brief time

periods during each of which bids, offers, and

transactions in only a single, specified option

contract can be made. See CBOE Rule 6.2.

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 publication of

this notice in the Federal Register or

within such other 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 self-regulatory organization

consents, the Commission will:

(A) By order approve the 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 NW.,

Washington, DC 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 NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the CHX. All submissions

should refer to File No. SR–CHX–95–03

and should be submitted by March 20,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–4648 Filed 2–24–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35397; File No. SR–CBOE–

95–05]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Changes by

the Chicago Board Options Exchange,

Incorporated, Related to Certain

Procedures Regarding Trading Halts,

Trading Suspensions, the Reopening

of Trading After a Trading Halt or

Suspension, and the Shut Down of

RAES

February 21, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on January 18, 1995,

the Chicago Board Options Exchange,

Inc. (‘‘CBOE’’ or ‘‘Exchange’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule changes 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

changes from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Changes

The CBOE proposes to amend its rules

and Regulatory Circulars RG94–17 and

RG93–58 (formerly RG92–40) to

conform to existing practice regarding

(1) the factors the Exchange considers in

deciding whether to halt or suspend

trading and (2) the circumstances under

which trading is generally halted or

suspended by the Exchange. The CBOE

also proposes to establish procedures for

the resumption of trading after a halt or

suspension is lifted, and to grant the

Control Room the authority to turn off

the Retail Automatic Execution System

(‘‘RAES’’) with respect to a stock option

if the Control Room receives a credible

indication that trading in the underlying

stock has been halted.

The text of the proposed rule changes

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

Changes

In its filing with the Commission,

CBOE included statements concerning

the purpose of and the basis for the

proposed rule changes and discussed

any comments it received on the

proposed rule changes. 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 parts of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Changes

The purpose of the proposed rule

changes is to conform the rules to

existing practice both regarding the

factors considered in a decision to halt

or suspend trading and regarding the

circumstances under which trading

generally will be halted or suspended,

to establish procedures for the

resumption of trading after a halt or

suspension is lifted, and to grant the

Control Room the authority to turn off

RAES if the Control Room receives a

credible indication that trading has

stopped in the underlying stock.

Status of Rotation as Factor Considered

in Halt or Suspension

Specifically, the proposal would

amend Rules 6.3(a), 6.4(a) and 24.7(a) to

include the status of the trading

rotation 1 as a factor that may be

considered in a decision whether to halt

or suspend trading. Although it is not

presently explicit in the rules, it is

current practice to consider the rotation

status in deciding whether to halt or

suspend trading. For example, if the

rotation is near completion, Floor

Officials or the Exchange may decide it

is in the interest of a fair and orderly

market to complete the rotation before

calling a halt or suspension in trading.

The proposed amendment to the rules

would notify members and the public

that, when deciding whether to halt

trading, Floor Officials may consider the

extent to which the rotation has been

completed and other factors regarding

the status of the rotation. When

deciding whether to suspend trading,

the Board of Directors similarly would

be able to consider the extent to which

the rotation is completed or other

factors regarding the status of the

rotation.

Regulatory Halt

The proposal would add

Interpretation .04 to Rule 6.3 and

Interpretation .01 to Rule 6.4 to state the

current practice that, in general, trading

in a stock option will be halted when a

regulatory halt in the underlying stock

has occurred in the primary market for

that stock. Any two Floor Officials may

halt trading in any security in the

interests of a fair and orderly market for

a period not in excess of two

consecutive business days.
10622 Federal Register / Vol. 60, No. 38 / Monday, February 27, 1995 / Notices

Similiarly, the proposal would state

the current practice that, in general,

trading in a stock option will be

suspended when a regulatory

suspension in the underlying stock has

occurred in the primary market for that

stock. In the case of a regulatory

suspension, the Board of Directors is

authorized to suspend trading in any

security in the interests of a fair and

orderly market from an indefinite

period.

Rules 6.3 and 6.4 list factors

considered in deciding whether to halt

or suspend trading. These factors are

currently considered in deciding

whether to halt trading in the related

stock option. Moreover, generally, when

a regulatory halt in the underlying stock

has been declared in the primary

market, the Exchange will decide to halt

or suspend trading in the overlying

stock option. The Exchange believes

that the close relationship between the

underlying stock and the pricing of

stock options overlying that security

typically justify such a result. When a

regulatory halt is declared in the

underlying stock, it often is because

some news is pending regarding the

underlying stock and the primary

market wants to allow time for the

dissemination of such news. For the

same reason, it generally is appropriate

in that circumstance to halt trading in

the overlying stock option. By addition

the proposed interpretations to Rules

6.3 and 6.4, CBOE would inform

members and the public of the existence

of this general practice to halt or

suspend trading in a stock option when

a regulatory halt in the underlying stock

has been declared.

The proposal also would amend Rules

6.3(a)(iii) and 6.4(a)(ii) to clarify that

these rules are only applicable in the

case of a security other than an option.

Securities other than options include,

for example, the securities traded at

CBOE which are subject to Chapter 30

of the CBOE Rules. Securities presently

subject to Chapter 30 are: Stock,

warrants (which term includes currency

and index warrants except as otherwise

expressly provided or as the context

otherwise requires), UIT interest, and

such other securities instruments, and

contracts as the Board of Directors may

from time to time declare are subject to

Chapter 30. The changes are necessary

to clarify that Rules 6.3(a)(iii) and

6.4(a)(ii) do not apply to stock options

or any other options traded at CBOE, but

only to securities traded at CBOE other

than options.

Circuit Breaker Halts

The proposal also would delete Rule

6.3A, which provides for a halt in

trading of all equity and index options

when there has been a floor-wide New

York Stock Exchange halt or suspension

as a result of activation of circuit

breakers on the New York Stock

Exchange. This rule is unnecessary

because the only circumstances under

which Rule 6.3A could apply are

situations that Rule 6.3B already

expressly governs. There are only two

circuit breakers that lead to a New York

Stock Exchange floor-wide halt—when

there has been a Dow Jones Industrial

Average drop of 250 or more points

below its closing value on the previous

trading day and when on the same day

there is a cumulative drop of 400 or

more points from the previous day’s

closing value. Rule 6.3B already governs

trading halts under both of these

circumstances. Under Rule 6.3B, the

mandatory circuit breaker halt would

terminate automatically after the

expiration of the applicable one hour or

two hour time period.

The proposal would eliminate the

requirements contained in Rule 6.3A

that, prior to a reopening rotation, (i) an

additional determination must be made

that a halt or suspension is not in effect

in the primary market where the

underlying security for each class of

options is traded; (ii) a determination

must be made, in the case of index

options, that a halt or suspension is not

in effect in the primary market of the

securities constituting 50% or more of

the index value; and (iii) two Floor

Officials, in consultation with a

designated senior executive officer,

must conclude in their judgment that

the interests of a fair and orderly market

are served by a resumption of trading.

After a circuit breaker halt, therefore,

trading would resume automatically

unless the Exchange affirmatively acted

to declare a further halt or suspension

pursuant to other rules, such as Rules

6.3, 6.4 or 24.7.

CBOE believes that trading should

resume after a circuit breaker halt,

subject only to these normal rules

regarding trading halts and suspensions.

Pursuant to Rules 6.3, 6.4 and 24.7, a

halt or suspension in the underlying

security (to which Rule 6.3A refers) is

among the factors considered in the

decision to suspend or halt trading, but

this factor does not necessarily require

a halt or suspension nor limit the

Exchange’s ability to exercise judgment

in these circumstances. CBOE believes

that the interests of a fair and orderly

market are better served when the rules

allow Exchange officials the discretion

to evaluate market conditions and

circumstances and to exercise their

judgment as to when to halt or suspend

trading, without the restrictions on the

exercise of that judgment that are

contained in Rule 6.3A.

Reopening After Circuit Breaker Halt

The proposal also would eliminate

the requirement in Rule 6.3A that, if

trading is halted due to activation of

circuit breakers, reopening rotations

shall be held. Rule 6.3A apparently

makes a reopening rotation mandatory

and prevents Exchange officials from

reopening without a rotation. CBOE

believes the interests of a fair and

orderly market are better served when

the rules allow Exchange officials the

discretion to evaluate market conditions

and circumstances and to exercise their

judgment as to whether to reopen with

or without a rotation.

Procedures regarding reopening after

a halt triggered by circuit breakers will

be added by amending Rule 6.3B,

Interpretation .02. The amended

Interpretation .02 would require a

reopening rotation unless two Floor

Officials, or an Order Book Official

acting on authorization from a senior

Exchange official, conclude it is

appropriate under the circumstances to

employ a different method of reopening,

including but not limited to, no rotation,

an abbreviated rotation, or a variation in

the manner of the rotation. The purpose

of amended Interpretation .02 to Rule

6.3B is to grant Floor Officials the

discretion to deviate from a typical

reopening rotation after the expiration

of a circuit breaker halt. Order Book

Officials would also have this

discretion, but only if a senior Exchange

official authorized such discretion. This

could be accomplished by the senior

Exchange official making a general

announcement to all Order Book

Officials.

The CBOE believes it is reasonable to

presume that a reopening rotation will

be held after a circuit breaker halt

because, after a floor-wide halt, it is

physically difficult to have two Floor

Officials available at each trading post

to make a decision regarding the

resumption of trading. The presumption

allows for a universal treatment of the

reopening after a circuit breaker halt, yet

still permits appropriate Exchange

officials to exercise judgment to deviate

from this presumed course of action

when a different method of reopening is

appropriate.

Corresponding Amendments to

Regulatory Circulars

Regulatory Circular RG94–17

The proposal would amend

Regulatory Circular RG94–17, which

addresses inter-exchange procedures in

volatile markets, to make it consistent
Federal Register / Vol. 60, No. 38 / Monday, February 27, 1995 / Notices 10623

2OPRA is a National Market System Plan

approved by the Commission pursuant to Section

11A of the Act and Rule 11A3–2. Securities

Exchange Act Release No. 17638 (Mar. 18, 1981).

OPRA provides for the collection and

dissemination of last sale and quotation information

on options that are traded on the five exchanges

participating in the plan. The exchanges include the

CBOE, the Philadelphia Stock Exchange, the

American Stock Exchange, the Pacific Stock

Exchange, and the New York Stock Exchange.

The OPRA plan was implanted in response to

directives of the SEC that provisions be made for

the Consolidated reporting of transactions in

eligible options contracts listed and traded on

national securities exchanges.

with the proposed amended

Interpretation .02 to Rule 6.3B.

Regulatory Circular RG94–17 discusses

CBOE’s procedures during a halt in

options trading due to a Dow Jones

Industrial Average drop of 250 or more

points below its closing value on the

previous trading day or a cumulative

drop of 400 points in the Dow Jones

Industrial Average on the same day.

Pursuant to the proposed change to

Interpretation .02 to Rule 6.3B, after the

expiration of the one hour or two hour

period set forth in Rule 6.3B, a

reopening rotation would be held in

each class of options unless two Floor

Officials (or an Order Book Official

acting upon authorization from a senior

Exchange official) conclude a different

method of reopening is appropriate.

Additionally, RG94–17 would be

amended to delete the requirements

contained in Rule 6.3A that, before

reopening after a circuit breaker halt,

the Exchange must verify that (1) there

is no halt or suspension in effect in the

primary market where the underlying

stock is traded and (2) with respect to

an index option, there is no halt or

suspension in the primary market of the

securities constituting 50% of the index.

Regulatory Circular RG93–58

The proposal would amend

Regulatory Circular RG93–58 (RG93–58

is a reprint of Regulatory Circular

RG92–40 dated, July 8, 1992), which

addresses trading halt policy regarding

options on individual equity securities,

to make the circular consistent with the

proposed amendment to Rule 6.3.

Regulatory Circular RG93–58 would be

further amended to state that it does not

address the Exchange’s trading halt

policy when a halt has been declared as

a result of the operation of a circuit

breaker pursuant to Rule 6.3B, due to a

250 or 400 point intra-day drop of the

Dow Jones Industrial Average.

Consistent with Rule 6.3, RG93–58

would be amended so that two Floor

Officials may exercise judgment

regarding trading halts and so that the

concurrence of a senior Exchange staff

official would not be required.

Presently, Rule 6.3 provides that a

decision as to whether to halt trading

may be made by any ‘‘two Floor

Officials,’’ so this amendment to RG93–

58 would make the guidelines in RG93–

58 consistent with Rule 6.3.

Furthermore, Floor Officials need to be

able to exercise their judgment without

obtaining the concurrence of a senior

Exchange staff official, because it may

be physically difficult for a senior

Exchange staff official to be present at

all trading posts during circumstance

where a trading halt may be

simultaneously necessary in multiple

options classes.

Regulatory Circular RE93–58 provides

Floor Officials with non-mandatory

guidelines to assist them in their

decision regarding a trading halt.

Pursuant to Rule 6.3, ‘‘[a]ny two Floor

Officials may halt trading in any

security in the interests of a fair and

orderly market.’’ Floor Officials are free

to exercise judgment and discretion in

deciding whether to halt trading. The

language of Rule 6.3 is discretionary and

does not require that Floor Officials

declare a trading halt, so proposed

amendments to various paragraphs of

RG93–58 delete language which would

limit Floor Officials’ discretion by

imposing mandatory criteria.

The proposal would further amend

RG93–58 to reflect CBOE’s general

practice, as set forth in the proposed

interpretation to Rule 6.3, to halt trading

in an overlying stock option when a

regulatory halt in the underlying stock

has been declared in the primary market

for that stock.

RG93–58 would be further amended

to delete the requirement that, in

connection with a halt due to no last

sale and/or quotation dissemination

either by the Exchange or to the Options

Price Reporting Authority (‘‘OPRA’’),2

trading may only resume 15 minutes

after notification to the news wire

services. The guidelines provide that the

news wire services will be notified of

the dissemination difficulty. However,

under such circumstances, since trading

presumably would have been

proceeding in other markets, it is

important for the options market to

resume trading as soon as practical after

the dissemination difficulty which led

to the halt is no longer present. CBOE

believes that waiting 15 minutes to

resume trading would be inordinately

long and may be contrary to the

interests of a fair and orderly market.

Nonetheless, the proposed amendments

would specifically state CBOE‘s general

practice to notify member firms and

news wire services before the

resumption of trading.

The language in paragraph one of

RG93–58 would be further amended to

clarify that there is a preference, but not

a requirement, to halt trading if two

Floor Officials believe that the

dissemination problem will last more

than 15 minutes. The language would be

further amended to clarify that, if the

two Floor Officials believe that the

dissemination problem will be resolved

within the next 15 minutes, then there

is no preference for a halt—even if that

expectation proves to be incorrect. The

present language would be further

amended to clarify that trading

ordinarily will continue if two Floor

Officials believe it is likely the

dissemination problem will be resolved

in less than 15 minutes. THe present

language appears to require trading to

continue under such circumstances.

Again, these guidelines should not limit

Floor Officials’ discretion, since Rule

6.3 provides for discretion in such

circumstances. If a systems problem

prevented CBOE or OPRA from

disseminating CBOE’s last sale or quote

data, this would be an unusual market

condition and, pursuant to Rule 6.3, two

Floor Officials may halt trading.

The proposed amendments would

delete the requirement in paragraph four

of RG93–58 that, in connection with a

primary market floor-wide trading halt

and despite the determination by two

Floor Officials that sufficient markets

will support trading other than at the

primary market, trading may resume

only upon a one hour notification to the

news wire services. Again, since trading

of the underlying stock is continuing at

an exchange other than the primary

exchange, the CBOE believes that

waiting one hour to resume options

trading at the CBOE could be

inordinately long and might be contrary

to the interests of a fair and orderly

market. Instead, paragraphs one and six

of RG93–58 would be amended so that

the guidelines for the resumption of

trading would be consistent with Rule

6.3(b), which provides that trading in a

security that has been the subject of a

halt may resume upon a determination

by two Floor Officials that the

conditions which led to the halt are no

longer present, or that the interests of a

fair and orderly market are best served

by a resumption of trading. However,

the proposed amendments would

specifically state CBOE’s general

practice to notify member firms and

news wire services before the

resumption of trading.

RAES

Finally, the proposal would add

Interpretation. 05 to Rule 6.3 to grant

authority to the senior person then in
10624 Federal Register / Vol. 60, No. 38 / Monday, February 27, 1995 / Notices

3BOE represents that if information of an

impending halts or suspension comes from the

trading crowed or from a source other than hard

information in the Control Room, the senior person

in charge of the Control Room would first verify it

before turning off RAES. To verify the existence of

a trading halt or suspension, the senior person

would rely upon hard information in the Control

Room including (1) the quote of the underlying

security being pulled from the Class Display Screen,

(2) an ST or H appearing on the Class Display

Screen via the Consolidated Tape Association, (3)

a print-out in the Control Room confirming the halt

or suspension of trading in the underlying security,

and (4) notification of the trading halt or suspension

via the ‘‘Hoot and Holler’’ system. The Hoot and

Holler system is a voice linkage between all of the

exchanges and the Commission. Telephone

conversation between Edward Joyce, CBOE, and

John Ayanian, Attorney, Office of Market

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

Regulation (‘‘Division’’), Commission, on Thursday,

February 16, 1995.

4See Securities Exchange Act Release No. 34126

(May 27, 1994), 59 FR 29309 (June 6, 1994)

(Approval Order giving the Order Book Officials or

the Post Director the authority to suspend trading,

and to turn off RAES for the affected options class

or class whenever trading in the underlying security

is halted). 5 17 CFR 200.30–3(a)(12) (1994).

charge of the Exchange’s Control Room

to turn off RAES with respect to a stock

option if that senior person confirms

that the Control Room has received a

credible indication (including, but not

limited to, information from the trading

crowd) 3 that trading in the underlying

stock has been halted or suspended.

After exercising such authority, that

senior person would need to

immediately seek confirmation of this

decision from two Floor Officials. The

purpose of this interpretation is to

prevent orders from being placed on

RAES during the interval after the

trading in the underlying stocks has

been halted or suspended but before two

Floor Officials have declared a trading

halt pursuant to Rule. 6.3(a) or before a

Post Director or Order Book Official has

suspended trading pursuant to

Interpretation .01 to Rule 6.3. This

interpretation is necessary because,

when a stock halts due to pending news,

the direction of the effect of the news

may be anticipated and, while Floor

Officials are being called to a post to

decide whether to halt trading, firms

could place an order on RAES which

could be detrimental to the market

makers signed onto the system. Under

the current Interpretations to Rule 6.3,

the Post Director or Order Book Official

must turn off RAES concurrently with

any suspension of trading. If an ‘‘ST’’

symbol (for an exchange listed security)

or an ‘‘H’’ symbol (for a security traded

primarily in the over-the-counter

market) is displayed on the Class

Display Screen that displays current

market information for the underlying

security, the Order Book Official or Post

Director may suspend trading in the

related equity option for a period not to

exceed five minutes and concurrently

shall turn off RAES applicable to the

affected options class or classes.4 The

Control Room, however, may receive

information that trading has stopped in

the underlying stock before the Post

Director or Order Book Official sees the

‘‘ST’’ symbol or ‘‘H’’ symbol on the

Class Display Screen for the underlying

stock. Consequently, it is important for

the Control Room to have authority to

turn off RAES without being required to

wait for the ‘‘ST’’ or ‘‘H’’ symbol to

appear on the class display screen or for

the Post Director or Order Book Official

to act.

The proposal would provide that the

Post Director, Order Book Official, or

their representative will re-start RAES

after the trading halt or suspension has

ceased. This would be consistent with

Rules 6.8(f) and 24.15(f), which provide

that each day RAES is available, a Post

Director or his representative will start

RAES.

Conclusion

CBOE believes that the proposed rule

changes are consistent with and further

the objectives of Section 6(b)(5) of the

Act, in that the rule changes are

designed to perfect the mechanism of a

free and open market and to protect

investors and the public interest by

enabling Floor Officials to evaluate and

consider market conditions and

circumstances in determining whether

to halt or suspend trading and in

deciding on a method to reopen trading

after a halt or suspension. CBOE

believes that the proposed rule change

regarding the authority of the Control

Room to turn off RAES with respect to

a stock option upon credible

information that trading in the

underlying stock has been halted is also

consistent with and furthers the

objectives of Section 6(b)(5) of the Act,

in that it is designed to perfect the

mechanism of a free and open market.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

CBOE does not believe that the

proposed rule changes will impose any

burden on competitions.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Changes Received from

Members, Participants or Others

No written comments were solicited

or received with respect to the proposed

rule changes.

III. Date of Effectiveness of the

Proposed Rule Changes 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

80 days of such date if it finds such

longer period to be appropriate and

publishes its reason for so finding or (ii)

as to which the self-regulatory

organization consents, the Commission

will:

(A) By order approve such proposed

rule changes, or

(B) Institute proceedings to determine

whether the proposed rule changes

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, NW.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

changes that are filed with the

Commission, and all written

communications relating to the

proposed rule changes 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, NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of CBOE. All submission should

refer to file number SR–CBOE–95–05

and should be submitted by March 20,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–4705 Filed 2–24–95; 8:45 am]

BILLING CODE 8101–01–M