3008 Federal Register / Vol. 60, No. 8 / Thursday, January 12, 1995 / Notices

4NSCC will use two double-settlement days for

the conversion. The first double-day settlement,

scheduled for Friday, June 9, will incorporate trades

from Friday, June 2 (the last T+5 settlement day)

and from Monday, June 5 (a T+4 settlement day).

The second double-day settlement, scheduled for

Monday, June 12, will include trades from Tuesday,

June 6 (T+4 settlement day) and Wednesday, June

7 (the first T+3 settlement day). With respect to the

two trade days on which ‘‘regular way’’ trades will

settle on T+4, Amex rules will be temporarily

deemed to be amended accordingly.

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

2 17 CFR 240.19b–4 (1991).

3 In Amendment No. 1 to the proposal, the

Exchange proposes to change the fine schedule as

proposed under CBOE Rule 17.50(g) in two ways.

First, as amended, a fine will be assessed whenever

the as-of-add (as defined herein) submissions of an

individual member or a clearing member equals or

exceeds 300% of that member’s maximum nominal

as-of-add rate for two, rather than three, consecutive

months. Second, fines will be imposed with

reference to a rolling 12-month period, rather than

within a calendar year. In Amendment No. 1, the

Exchange also requests accelerated approval of the

proposed rule change. See Letter from Dan

Schneider, Schiff Hardin & Waite, to Sharon

Lawson, Assistant Director, Office of Market

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

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

December 21, 1994 (‘‘Amendment No. 1’’).

4Among other things, Rule 6.51 requires that

each transaction be immediately reported to the

Exchange in a form and manner prescribed by the

Exchange. See Rule 6.51(a).

references to the equivalent New York

record date.

Amex has participated in meetings

sponsored by the Commission among

self regulated organizations, clearing

corporations, and other industry

participants and has kept its members

informed of the forthcoming transition

to T+3. As the effective date for

implementation draws near, Amex will

continue to educate its membership and

to ascertain that they are informed and

understand specific timing and cutover

issues. The Amex’s implementation of

these rule changes will be consistent

with the June 1995 conversion schedule

which Amex and the National Securities

Clearing Corporation (‘‘NSCC’’) have

developed for industry use.4 The

schedule is as follows.

Trade date Settlement

cycle

Settlement

date

June 2 Friday 5 day ............ June 9 Friday.

June 5 Monday.4 day ............ June 9 Friday.

June 6 Tuesday.4 day ............ June 12 Monday.

June 7

Wednesday.

3 day ............ June 12 Monday.

If the Commission determines to alter

the exemptions currently provided in

Rule 15c6–1, the Amex may be required

to file additional rule amendments.

The proposed rule change is

consistent with Section 6(b) of the Act

in general and furthers the objectives of

Section 6(b)(5) in particular in that it

protects investors and the public

interest by reducing the risk to clearing

corporations, their members and public

investors which is inherent in settling

securities transactions. This is

accomplished by reducing the time

period for settlement of most securities

transactions which will correspondingly

decrease the number of unsettled trades

in the clearance and settlement system

at any given time.

The proposed change is also

consistent with Commission Rule 15c6–

1 which requires brokers or dealers to

settle most securities transactions no

later than the third business day after

the date of the contract unless otherwise

expressly agreed to by the parties at the

time of the transaction.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

Amex does not believe that the

proposed rule change will impose any

inappropriate burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants or Others

No written comments were either

solicited or received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 Amex 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 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 in

the Commission’s Public Reference

Section, 450 Fifth Street NW.,

Washington, DC 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of the Amex.

All submissions should refer to File

No. SR–Amex–94–57 and should be

submitted by February 2, 1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–815 Filed 1–11–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35190; File No. SR–CBOE–

94–50]

Self-Regulatory Organizations; Notice

of Filing and Order Granting Partial

Accelerated Approval of a Proposed

Rule Change and Amendment No. 1 to

the Proposed Rule Change by the

Chicago Board Options Exchange,

Inc., Relating to As-Of-Add

Submissions

January 3, 1995.

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 December

1, 1994, the Chicago Board Options

Exchange, Inc. (‘‘CBOE’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I and II below, which Items have

been prepared by the Exchange. The

Exchange subsequently filed

Amendment No. 1 to the proposed rule

change on December 23, 1994.3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change, as amended, from interested

persons. As discussed below, the

Commission has also granted

accelerated approval to a portion of the

proposal.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to: (1) Amend

CBOE Rule 2.26 so as to place a ceiling

on the monthly fees members pay for

submitting trade information under

Exchange Rule 6.51 4 after the trade date

(each an ‘‘as-of-add’’) on more than a

stated maximum percentage of their

monthly trades and to enable the

Exchange to suspend the rule in exigent

circumstances; and (2) amend CBOE

Rule 17.50(g) to include a fine schedule
Federal Register / Vol. 60, No. 8 / Thursday, January 12, 1995 / Notices 3009

5See Securities Exchange Act Release Nos. 32999

(October 1, 1993), 58 FR 53003 (October 13, 1993)

(Order approving the as-of-add fee Pilot Program on

a six-month pilot basis), 33855 (April 4, 1994), 59

FR 17128 (April 11, 1994) (order extending the Pilot

Program until September 30, 1994), and 34783

(October 3, 1994), 59 FR 51459 (October 11, 1994)

(order extending the Pilot Program until December

31, 1994) (‘‘Pilot Extension Approval Order’’).

6The current ‘‘nominal’’ maximum allowable

monthly number of as of adds for individual

members is 2.4% of an individual member’s

monthly trades.

7The current ‘‘nominal’’ maximum allowable

monthly number of as of adds for clearing members

is 1.2% of clearing members’ monthly trades.

8See supra note 5 and infra note 10.

9See Pilot Extension Approval Order, supra note

5. In the Pilot Extension Approval Order the

Commission stated that it would not be inclined to

grant a further extension of the as-of-add fee Pilot

Program until the concerns of the Commission

expressed therein had been addressed by the CBOE.

Id.

10See Letter from Joanne Moffic-Silver, Associate

General Counsel, CBOE, to Sharon Lawson,

Assistant Director, OMS, Division, Commission,

dated November 29, 1994 (‘‘Pilot Report’’).

11The CBOE notes that the use of fee caps will

limit the incentive effect of the Pilot Program, but

that result will, in its opinion, be offset in part by

the introduction of the proposed fine schedule

under Rule 17.50(g).

12Rule 2.30 provides for fees to be assessed

against market makers and clearing members for

failing to submit trade information required by Rule

6.51 within two hours after execution of a trade.

for substantial and repeated failures to

submit trade data on the trade date. The

Exchange also proposes that the as-ofadd fee pilot program (‘‘Pilot Program’’),

as proposed to be amended herein, be

made permanent. 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

Exchange 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 purpose of the proposed rule

change is to amend the as-of-add fee

Pilot Program in three ways and to have

the Pilot Program, as amended, made

permanent. The proposed changes

would: (1) Place a ceiling on the

monthly as-of-add fee to be paid under

Rule 2.26; (2) establish a fine schedule

under Rule 17.50(g) for substantial and

repeated failures to submit trade data on

the trade data; and (3) incorporate into

Rule 2.26 provisions like those currently

included in Rule 2.30(g) (‘‘Fee for

Delayed Submission of Trade

Information’’) that would authorize the

Exchange to suspend Rule 2.26 (and

thereby waive the fees that would

otherwise be due) in exigent

circumstances. The Exchange believes

these amendments to the Pilot Program

are fully responsive to the concerns the

Commission has previously identified

with respect to the Pilot Program.5

Under the Pilot Program in its present

form, the fee, if any, to an individual

member is $10.00 for each as-of-add

submitted during a given month in

excess of the percentage of such

submissions considered ‘‘nominal’’

under paragraph (a) of Rule 2.26.6 The

fee to any clearing firm under paragraph

(b) of that rule is $3.00 for each as-ofadd submitted in excess of the

‘‘nominal’’ percentage.7 In addition, any

member assessed an as-of-add fee may

request verification from the Exchange

pursuant to Part B of Chapter XIX of

CBOE’s Rules and may appeal the fee

assessment pursuant to Part A thereof.

The CBOE believes that the as-of-add

fees assessed pursuant to the Pilot

Program recognize that late trade

submissions impose special processing

costs on the Exchange and require

significant effort by clearing firms and

executing brokers to check and resolve

late trade reports. The Exchange

represents that late trade submissions

are especially likely to burden the

Exchange’s operations during periods of

high volume and heightened volatility,

when added stress is least tolerable,

thereby adding financial risk to

members during these already difficult

periods.

The as-of-add fees, according to the

Exchange, respond to these problems in

two ways. First, the as-of-add fees help

to reimburse the Exchange for the

administrative burdens and costs of

processing post-trade date submissions,

and impose the obligation to make such

reimbursement on those members who

account for an inordinate number of asof-add submissions and who are thus

most responsible for these added costs

in the first place (i.e., individual

members).

Second, the Pilot Program creates

what the Exchange believes to be

reasonable economic incentives for

members to submit trade data on the

trade date, thereby relieving the

Exchange and Exchange members of

high levels of special handling

associated with processing as-of-adds.

The Exchange continues to believe, for

the reasons set forth in previous filings

and supplemental correspondence,8 that

the particular fees included in the Pilot

Program are equitably allocated among

individual members and clearing

member organizations.

In the last extension of the Pilot

Program, the Commission approved the

proposed rule change as a fair and

equitable allocation of reasonable fees,

but asked the Exchange, in connection

with any request to make the Pilot

Program permanent, to consider ways to

incorporate the Pilot Program into

Exchange Rule 17.50(g), under which

the Exchange imposes fines for minor

rule violations (‘‘Minor Rule Plan’’).9

The Commission also required the

CBOE to submit a report setting forth

particular statistics about the Pilot

Program.10

The first proposed amendment to

Rule 2.26 would place a cap on the

monthly fee that any individual member

or clearing firm would pay under that

rule. The monthly fee to individual

members under Rule 2.26(a) would be

capped at $500.00, and the monthly fee

to clearing firms under Rule 2.26(b)

would be capped at $1,000.00. The

Exchange believes that the caps, when

set at the levels proposed, will enable

the Exchange to recover its costs for asof-add processing while ensuring that

no individual member or clearing

member organization pays an

inappropriately high, or punitive, fee.11

In addition, although the proposed cap

levels are different for individual

members as compared to clearing firms,

the Exchange believes that the structure

and size of the fee caps are equitable

and appropriate. Clearing firms pay, on

average, substantially higher aggregate

as-of-add fees than do individual

members, and the fee cap to clearing

firms accordingly, in the Exchange’s

opinion, should be set at a higher level.

The second proposed amendment to

Rule 2.26 would incorporate in a new

paragraph (d), provisions authorizing

the Clearing Procedures Committee,

with the approval of the President of the

Exchange, or his designee, to suspend

application of the rule, and thereby

waive the assessment of as-of-add fees,

for periods no greater than seven

calendar days, plus extensions,

whenever unusual circumstances so

dictate. This new paragraph

corresponds to the similar suspension

provisions contained in Rule 2.30(g).12

In the proposal, as in Rule 2.30(g), the

term ‘‘unusual circumstances’’ refers to
3010 Federal Register / Vol. 60, No. 8 / Thursday, January 12, 1995 / Notices

13See supra notes 6 and 7.

14See Amendment No. 1, supra note 3. These

fines would be assessed on a rolling basis. For

example, an individual member who is cited for a

first offense for a minor rule violation for exceeding

the nominal allowable number of as-of-adds by

three or more times during each of December and

January would be fined for a second offense if that

member again exceeds the allowable number of asof-adds by three or more times during February.

Telephone conversation between Dan Schneider,

Schiff Hardin & Waite, and Brad Ritter, Senior

Counsel, OMS, Division, Commission, on December

8, 1994.

15See supra notes 6 and 7.

16The CBOE has agreed to issue a Regulatory

Circular to members describing the portions of the

proposal approved herein, describing the portion of

the proposal to incorporate the Pilot Program into

the Minor Rule Plan, emphasizing that serious

instances or extended periods of late submissions

will be subject to investigation and possible

disciplinary action notwithstanding Rule 17.50(g),

and highlighting that all members assessed a fee

pursuant to the Pilot Program may submit a request

for verification and may appeal the fees assessed

pursuant to Chapter XIX of the CBOE Rules.

17 15 U.S.C. 78f(b)(5) (1988).

18 15 U.S.C. 78s(b)(2) (1988).

19See Amendment No. 1, supra note 3.

20 15 U.S.C. 78f(b)(5) (1988).

21See supra note 5.

22 Id.

23 Id.

24The Commission notes that its findings herein

are limited to as-of-add submissions. For violations

of other Exchange rules, it may be inappropriate to

allow the Exchange to assess fees to encourage

compliance rather than instituting disciplinary

proceedings against members for such violations.

25The Commission notes that although the

proposal to incorporate the Pilot Program into the

circumstances that affect the ability of a

significant number of members to

submit trade information on time. Any

such suspension of the rule must be in

writing and must be published by the

Exchange for distribution to the

membership.

The Exchange anticipates that this

authority would be used very

infrequently. The Exchange represents

that it has invoked Rule 2.30

suspensions only once a year, on

average, since the rule was adopted in

1991. In every case, the CBOE

represents that the suspensions have

occurred on a day when there was both

extraordinary volume and a trading

surge at the end of the day. Therefore,

according to the Exchange, it is likely

that any suspension under proposed

Rule 2.26 would ordinarily be matched

with a suspension under Rule 2.30.

The third proposed change to the

Pilot Program would add a fine

schedule to CBOE Rule 17.50(g) for

substantial and repeated failures to file

trade data on the trade date, in

contravention of Rule 6.51. As

proposed, any member who exceeds the

as-of-add rate considered nominal under

Rule 2.26 13 by three times or more for

two consecutive months would be

subject to a fine of $250 for the first

offense, $500 for the second offense, and

$1,000 for each offense thereafter

occurring during any 12-month

period.14 Fines under this proposal

would therefore currently be triggered

for an individual member whenever that

member’s as-of-add submissions equal

or exceed 7.2% of total trade

submissions in each of two consecutive

months, while fines to clearing firms

would be triggered whenever a clearing

member’s as-of-add submissions equal

or exceed 3.6% of total trade

submissions for each of two consecutive

months.15 The fines imposed pursuant

to Rule 17.50(g) would be in addition to

any fees due under Rule 2.26 and would

serve to penalize those members who

submit the greatest number of excessive

as-of-add trades.

The Exchange believes that the

proposed fines would fairly and

effectively supplement the fees assessed

under Rule 2.26, by providing a clear

sanction in those circumstances in

which discipline is clearly appropriate.

As structured, fines would be imposed

when late submissions by a particular

member or members reflect a

pronounced pattern of persistent and

excessive use of as-of-adds. Absent such

a pattern, the Exchange believes, that

the assessment of fees is sufficient and

that fines should ordinarily not be

imposed. Of course, in any

circumstance in which a member’s use

of as-of-adds suggests that it may be

appropriate to impose more severe

disciplinary sanctions than would be

provided for under Rule 17.50(g), the

member would be subject to

investigation and discipline in

accordance with Chapter XVII.16

The Exchange believes that the

proposed rule change is consistent with

Section 6 of the Act, in general, and

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

of the Act,17 in particular, in that it is

designed to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, to foster cooperation and

coordination with persons facilitating

transactions in securities, to remove

impediments to and perfect the

mechanism of a free and open market,

and to protect investors and the public

interest.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any inappropriate burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments on the proposed

rule change were neither solicited nor

received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The Exchange has requested that the

proposed rule change be given

accelerated effectiveness pursuant to

Section 19(b)(2) 18 of the Act.19

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)(5).20

Specifically, the Commission finds, as it

did in originally approving the Pilot

Program and the subsequent

extensions,21 that imposing fees on

members who submit as-of-adds for

more than a prescribed percentage of

transactions in any month is likely to:

(1) Offset the carrying costs incurred by

the Exchange and Exchange members as

a result of these post-trade date

submissions; (2) make trade

comparisons on the CBOE more efficient

in terms of the time and expense

involved in trade processing; and (3)

reduce the risk exposure to investors

and Exchange clearing members.

Additionally, the Commission continues

to believe that the Pilot Program does

not raise any due process concerns

because of the availability of the

verification and appeals processes

pursuant to Chapter XIX of CBOE’s

rules.22

The Commission believes that the

proposed caps on the monthly as-of-add

fees that can be assessed against

members adequately addresses one of

the concerns previously noted by the

Commission of assessing inordinately

high, or punitive, monthly ‘‘fees’’ for

violations of Exchange rules.23 By

placing the proposed caps on the

maximum monthly as-of-add fees, the

Commission believes that it is

appropriate for the Exchange to

continue to classify these assessments as

fees, rather than requiring the Exchange

to institute disciplinary proceedings and

to assess fines against members each

time they submit as-of-adds in violation

of Exchange rules.24 Additionally, the

proposal to incorporate the Pilot

Program into the Minor Rule Plan under

Rule 17.50 further minimizes the

Commission’s concerns about

classifying these assessments as fees

rather than fines.25 The proposal
Federal Register / Vol. 60, No. 8 / Thursday, January 12, 1995 / Notices 3011

Minor Rule Plan is consistent with the

Commission’s prior suggestions regarding the Pilot

Program, for the reasons discussed below, this

portion of the proposed rule change is being

published for comment and is not being approved

by the Commission on an accelerated basis herein

with the remainder of the proposal.

26See supra note 4.

27See supra notes 6 and 7.

28See Pilot Report, supra note 10.

29See supra note 25.

30See supra note 5.

31See Pilot Report, supra note 10.

32 Id.

33See supra note 12.

34For example, situations could arise for which

it may be appropriate for the Exchange to waive

Rule 2.30, but if the unusual circumstances last

only a few hours, it may be inappropriate to

conclude that trade data could not be submitted by

most members on the same day that the trades

occur. In such a situation, the Commission believes

that it would not be appropriate for the Exchange

to also waive Rule 2.26.

ensures that at some objective level,

members will be cited for violating

Exchange Rule 6.51 26 In connection

with as-of-add submissions. The

Commission believes that the prospect

of being fined for a rule infraction,

particularly where the as-of-adds reflect

a significant pattern of abuse in

violation of the requirements of Rule

6.51, will act as a further incentive for

encouraging exchange members to

reduce their as-of-add submissions.

Furthermore, the Commission does

not believe that the fact that the

proposed monthly cap as-of-add fees is

higher for clearing members ($1000)

than for individual members ($500)

raises significant regulatory concerns. In

its present form, the Pilot Program

distinguishes between clearing members

and individual members in two

respects. First, the monthly allowable

percentage of as-of-adds is higher for

individual members than for clearing

members.27 Second, the per-trade fee

amount assessed against individual

members ($10) is higher than that

assessed against clearing members ($3).

Because the average fee assessed against

clearing members during the period

between October 1, 1993, and

September 30, 1994, ($307.51) was

higher than the average fee assessed

against individual members ($104.50),28

the Commission does not disagree with

the Exchange’s determination that it is

reasonable for the monthly cap

applicable to clearing members to be

higher than the cap applicable to

individual members. Moreover, even

though the Exchange represents that

most as-of-adds are the result of late

submission by individual members

rather than by clearing members, the

Commission believes that clearing

members have some ability to encourage

individual members to reduce their

number of as-of-adds, for example, by

charging fees to individual members

who regularly submit as-of-adds to the

clearing member for processing.

Additionally, assuming that the portion

of the proposal to incorporate violations

of Rule 2.26 into the Minor Rule Plan is

ultimately approved,29 the Commission

notes that it will be possible for

individual members who submit a

significant number of as-of-adds in

relation to their total number of monthly

trades to be fined for violating the Minor

Rule Plan without reaching the cap on

fees pursuant to Rule 2.26. Finally, the

fines proposed for violating the Minor

Rule Plan for as-of-add submissions are

the same for individual members and

for clearing members. Even with the

lower monthly cap on fees, therefore,

the Commission believes that the

proposal provides significant incentives

for individual members to reduce their

as-of-add submissions. As a result, the

Commission believes that the difference

between the cap levels for individual

members and clearing members is

reasonable and consistent with the Act.

The Commission also notes that in

prior extensions of the Pilot Program,

the Commission expressed concern over

the Exchange’s inability to determine,

without examining each individual

trade, whether particular as-of-adds are

submitted due to the fault of an

individual member or that member’s

clearing firm.30 As a result, in

determining whether a member has

exceeded its stated monthly percentage

of allowable as-of-adds, each as-of-add

processed by a clearing member is

counted against both the clearing

member and the individual member

who executed the transaction. For

several reasons, however, the

Commission now believes that this does

not prevent a finding that the Pilot

Program is consistent with the Act.

First, data gathered by the Exchange

from the first year of operation of the

Pilot Program support the Exchange’s

representation that most as-of-adds are

the result of late submissions by

individual members, not clearing firms.

From October 1, 1993, through

September 31, 1994, there were 463

assessments of fees against individual

members pursuant to the Pilot Program

but only 13 such assessments against

clearing members.31 Second, during that

same period, only one individual

member requested verification of the fee

assessed by the Exchange and that

member did not appeal the assessment

upon receipt of verification from the

Exchange.32 Finally, the Commission

has not received any comment

concerning the Pilot Program, in

general, or this aspect of the Pilot

Program, in particular. As a result, the

Commission does not believe that

individual members are being damaged

as a result of the CBOE’s inability to

efficiently identify the party actually

responsible for each as-of-add,

especially given that members may

request verification of, and may appeal,

any as-of-add fee assessed by the

Exchange.

Finally, the Commission believes that

the proposal to add paragraph (d) to

Rule 2.26 concerning waivers of the asof-add fees in unusual circumstances is

also consistent with the Act. Proposed

paragraph (d) substantively mirrors

paragraph (g) of Rule 2.30, which was

previously approved by the

Commission. Rule 2.30 is similar to

Rule 2.26 in that both rules are

concerned with the late submission of

trade data.33 As a result, the

Commission believes that if Rule 2.30

can be waived in the event of exigent

circumstances, a similar provision

should also apply to Rule 2.26. The

Commission believes that when unusual

circumstances exist that affect the

ability of a significant number of

members to submit trade information to

the Exchange in a timely manner it may

not be appropriate to assess fees, and

possibly fines (assuming the

amendment to the Minor Rule Plan

discussed herein is ultimately approved

as adopted), against individual members

and clearing members. The Commission

expects the CBOE to use its power to

waive as-of-add fees only in highly

unusual circumstances. In addition,

while the CBOE has indicated that the

power to waive as-of-add fees will

usually be used in conjunction with the

similar power in Rule 2.30, the

Commission expects the CBOE to

examine each situation on its merits to

determine whether just Rule 2.30 or

both Rules 2.26 and 2.30 should be

waived in a particular situation.34

The Commission finds good cause for

approving the following portions of the

proposed rule change and Amendment

No. 1 thereto prior to the thirtieth day

after the date of publication of notice of

filing thereof in the Federal Register: (1)

The request for permanent approval of

the Pilot Program; (2) the proposal to

impose caps on the monthly fee that can

be assessed against members; and (3) the

portion adopting paragraph (d) to Rule

2.26 to allow the Exchange to waive

application of the rule in unusual

circumstances.

First, granting permanent approval of

the Pilot Program will permit the Pilot

Program to remain in effect without
3012 Federal Register / Vol. 60, No. 8 / Thursday, January 12, 1995 / Notices

35See supra note 5.

36See Pilot Report, supra note 10.

37See supra note 5.

38See supra note 34 and accompanying text.

39See supra note 16.

40See Amendment No. 1, supra note 3.

41 15 U.S.C. 78s(b)(2) (1988).

42 17 CFR 200.30–3(a)(12) (1993).

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

interruption. For the reasons discussed

above and in prior orders concerning

the Pilot Program,35 the Commission

believes that reducing the number of asof-adds submitted to the Exchange may

benefit investors by reducing the

Exchange’s processing costs, making the

CBOE more efficient in terms of the time

involved in trade processing, and

reducing risk exposure to investors and

Exchange member firms. Additionally,

the Exchange has represented that no

problems have arisen and no formal

complaints have been received by the

Exchange concerning the Pilot Program

since its implementation.36

Accordingly, the Commission believes it

is consistent with Sections 6(b)(5) and

19(b)(2) of the Act to approve, on an

accelerated basis, that portion of the

proposed rule change requesting

permanent approval of the Pilot

Program.

For the reasons discussed above, the

Commission also believes that it is

appropriate to accelerate approval of the

proposal to impose caps on the monthly

as-of-add fees assessed against members.

The Commission believes that this

portion of the proposal addresses a

significant concern that the Commission

previously raised regarding the Pilot

Program by ensuring that members are

not assessed fees that are inordinately

high, or punitive.37 The Commission

continues to believe that it is

inappropriate for the CBOE to promote

and enforce compliance with Exchange

rules solely through the assessment of

fees. Further, this proposal is a

limitation on the existing Pilot Program,

which has no upper limit on the

monthly fee that can be assessed. As a

result, because the Commission has not

received comment on the existing Pilot

Program, the Commission believes it is

appropriate to approve this aspect of the

proposal on an accelerated basis.

With regard to proposed paragraph (d)

to Rule 2.26, the Commission believes

that this amendment will promote

uniformity between Rule 2.26 and

existing Rule 2.30. The logic for waiving

application of Rule 2.30 in the existence

of unusual circumstances also applies to

Rule 2.26, i.e., if circumstances prevent

a significant number of members from

processing trade information, it

generally may be inappropriate to assess

fees against those members for violating

Rules 2.26 and 2.30. Accordingly, the

Commission believes it is appropriate to

approve this portion of the proposal on

an accelerated basis in order to promote

uniformity between the Exchange’s

rules and thus minimize potential

confusion, and to avoid inconsistent

results where for the same set of

‘‘unusual circumstances,’’ the Exchange

is able to waive application of Rule 2.30

but not Rule 2.26.38

At this time the Commission is not

approving that portion of the proposed

rule change that would incorporate the

Pilot Program into the Minor Rule Plan.

Although the Commission believes that

this portion of the proposal addresses

suggestions previously noted by the

Commission concerning the Pilot

Program, the Commission believes that

prior to approval, Exchange members

should be given adequate notice of, and

an opportunity to comment on,

proposals that could subject them to

disciplinary sanctions. As a result, the

Commission expects the Exchange to

distribute to its members notice of the

rule change as approved herein and

notice of the proposal to incorporate the

Pilot Program into the Minor Rule

Plan.39 Moreover, the Exchange’s

request for accelerated approval of the

proposal was for the sole purpose of

avoiding procedural and accounting

problems that would result from a lapse

in the Pilot Program.40 The Commission

believes this concern has been

adequately addressed by accelerating

permanent approval of the Pilot

Program

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing

proposed rule change and Amendment

No. 1 thereto. 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. 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–94–50 and should be

submitted by January 31, 1995.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act 41 that the

following portions of the proposed rule

change (SR–CBOE–94–50), are

approved: (1) The amendments to CBOE

Rule 2.26 placing a ceiling on the

monthly as-of-add fees that can be

assessed against individual members

and clearing members, and allowing the

Exchange to suspend the rule in exigent

circumstances; and (2) permanent

approval of the Pilot Program.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.42

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–483 Filed 1–11–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35192; File No. SR–CBOE–

94–44]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc., Relating to Market Maker

Appointments

January 4, 1995.

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

Securities Exchange Act of 1934

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

November 14, 1994, the Chicago Board

Options Exchange, Inc. (‘‘CBOE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the self-regulatory

organization. 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 amend CBOE

Rule 8.3(c) concerning the number of

trading stations at which a single market

maker’s appointed classes of options are

traded.

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

self-regulatory organization included

statements concerning the purpose of

and basis for the proposed rule change