67002 Federal Register / Vol. 60, No. 248 / Wednesday, December 27, 1995 / Notices

5 U.S.C. 78s(b)(3)(A)(ii).

6 17 CFR 240.19b–4(e)(2).

7 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4 (1994).

3According to the CBOE, a facilitation trade is a

transaction that involves crossing an order of a

member firm’s public customer with an order from

the member firm’s proprietary account.

4See Securities Exchange Act Release No. 30944

(July 21, 1992), 57 FR 33376 (July 28, 1992)

(approval order for File No. SR–CBOE–92–09).

5See Securities Exchange Act Release No. 33106

(October 26, 1993), 58 FR 58358 (November 1, 1993)

(approval order for File No. SR–CBOE–93–21).

6The CBOE notes that the SPX facilitation

exemption defines a customer order as one that is

entered, cleared, and in which the resulting

position is carried with the firm.

7The CBOE’s general exercise limit provisions

(Rule 4.12) also will be amended to increase

exercise limits to the levels permitted by the firm

facilitation exemption. Several other nonsubstantive, editorial changes to the position and

exercise limit rules, interpretations, and policies

will be made as well.

8Through the rule proposal, the exemption

provisions contained in Rule 24.4.03 (for SPX index

options) and in Rule 23.3(c) (for interest rate

options) would be eliminated.

9The CBOE notes that the structuring of the rule

proposal in this manner is important because the

special position limits for broad-based index

options (Rule 24.4), for narrow-based index options

(Rule 24.4A), for FLEX Options (Rule 24A.7), for

interest rate options (Rule 23.3), and for government

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

The foregoing rule change constitutes

or changes a due, fee, or other charge

imposed by the Exchange and, therefore,

has become effective pursuant to

Section 19(b)(3)(A)(ii) of the Act 5 and

subparagraph (e)(2) of Rule 19b–4(2)

thereunder.6

At any time within sixty 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.

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 at

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of the American Stock Exchange.

All submissions should refer to File No.

SR–Amex–95–52 and should be

submitted by January 17, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–31306 Filed 12–26–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36609; File No. SR–CBOE–

95–68]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc., Relating to an Expansion of the

Firm Facilitation Exemption to All NonMultiple-Listed Exchange Option

Classes

December 20, 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 November

16, 1995, 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 CBOE. 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, pursuant to Rule 19b–4 of

the Act, proposes to expand the firm

facilitation exemption for position and

exercise limits that is currently available

for the Standard & Poor’s (‘‘S&P’’) 500

Index (‘‘SPX’’) options and for interest

rate options to all non-multiple-listed

Exchange option classes. The text of the

proposed rule change is available at the

Office of the Secretary, the CBOE, and

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 the 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 CBOE has previously established

firm facilitation 3 exemptions for certain

option classes, such as for SPX index

options (Rule 24.4.03),4 and for interest

rate options (Rule 23.3(c)).5 Exchange

member firms have expressed to the

CBOE’s Department of Market

Regulation their belief that the current

firm facilitation exemptions, which

allow member firms to meet the

investing needs of their customers,

should be expanded floor-wide. The

CBOE has also noted situations in

which a member firm was willing to

accommodate a large customer order 6

that could not be filled by the trading

crowd, but was prevented from

facilitating the order because of a

position limit constraint. In light of the

above, the CBOE proposes that the firm

facilitation exemption be made available

in all option classes that are exclusively

listed on the CBOE.7

The CBOE proposes to expand the

firm facilitation exemption by

incorporating it as new Interpretation

and Policy .06 to Rule 4.11, the general

position limit rule which also sets

specific limits for equity option classes.8

By including the firm facilitation

exemption within Rule 4.11, the

exemption would be available to equity,

broad-based (sector) index, narrowbased (industry) index, Flexible

Exchange (‘‘FLEX’’), interest rate, and

government securities option classes to

the extent and at the levels specified

therein.9
Federal Register / Vol. 60, No. 248 / Wednesday, December 27, 1995 / Notices 67003

securities options (Rule 21.3) each mandate

compliance with Rule 4.11.

10The CBOE notes that this filing does not

propose to change the existing SPX and interest rate

firm facilitation exemptions.

11 50,000 facilitation+50,000 hedge+25,000

standard=125,000 contracts

12The CBOE notes, however, that the Intermarket

Surveillance Group (‘‘ISG’’) is currently working on

developing such procedures. 13 17 CFR 200.30–3(a)(12) (1994).

As is the case with the SPX and

interest rate firm facilitation

exemptions, Exchange Rule 6.74(b)

procedures for crossing a customer

order with a firm facilitation order must

be followed. In this regard, before a

customer order can be crossed with a

firm facilitation order, the trading crowd

must be given reasonable opportunity to

participate. Moreover, only after it has

been determined that the trading crowd

will not fill the order, may the firm’s

customer order be crossed with the

firm’s facilitation order.

In addition, except for the existing

SPX and interest rate firm facilitation

exemptions which are set at higher

levels, the expanded firm facilitation

exemption will be twice the standard

limit.10

The CBOE notes that the firm

facilitation exemption will be in

addition to and separate from the

standard limit, as well as other

exemptions available under Exchange

position limit rules. For example, if a

firm desires to facilitate a customer

order in the XYZ option class, which is

assumed to be a class of options traded

exclusively on the Exchange with a

25,000 contract standard position limit,

the firm may qualify for a firm

facilitation exemption of up to twice the

standard limit (50,000 contracts), as

well as an equity hedge exemption of up

to twice the standard limit (50,000

contracts), in addition to the 25,000

contract standard limit. If both

exemptions are allowed, the facilitation

firm may hold or control a combined

position of up to 125,000 XYZ contracts

on the same side of the market.11

The CBOE notes, however, that the

firm facilitation exemption will not

extend to all option classes listed on the

Exchange. Rather, until coordinated

intermarket procedures are developed,

the exemption will be extended only to

non-multiply-listed option classes.12

The CBOE also proposes a new

provision with respect to the

requirement that the ‘‘facilitation firm’’

hedge the exempted position within five

business days. The new provision

would allow the facilitation firm to be

granted an exemption from this

requirement when opposite side of the

market contracts are used to hedge the

original facilitated customer order. In

this regard, the Department of Market

Regulation’s staff would be responsible

for granting the exemption for the

hedge, and the facilitation firm would

be required to submit documentation to

the regulatory staff as to how the

position was hedged.

Lastly, to aid in understanding the

scope of the firm facilitation exemption,

Interpretation .06 will include both a

table and an example showing how the

exemption will be applied.

The Exchange believes that expanding

the firm facilitation exemption will

contribute to the depth and liquidity of

the market by allowing those member

firms who are willing to commit firm

capital the ability to facilitate large

customer orders in a wide range of

option classes. In approving the firm

facilitation exemptions for SPX and

interest rate options, the Commission

expressed its opinion that providing

member organizations with exemptions

for the purpose of facilitating large

customer orders would better serve the

needs of the investing public by

distributing the risks of large customer

transactions to several market

participants. At that time, the

Commission also noted that safeguards

were built into the exemption to

minimize any potential disruption or

manipulation concerns. The CBOE

believes that these same benefits and

assurances are also applicable with

respect to the new firm facilitation

exemption.

Because the expanded firm

facilitation exemption will enhance the

depth and liquidity of the market for

both members and investors, the

Exchange believes that the rule proposal

is consistent with and furthers the

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

in that it would remove impediments to

and perfect the mechanism of a free and

open market in a manner consistent

with the protection of 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

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 solicited

or received with respect to 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 longer period (i) as the

Commission may designate up to 90

days of such date if it finds such longer

period to be appropriate and publishes

its reasons for so finding, or (ii) as to

which the CBOE 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 also will be available for

inspection and copying at the principal

office of the CBOE. All submissions

should refer to File No. SR–CBOE–95–

68 and should be submitted by January

17, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–31310 Filed 12–26–95; 8:45 am]

BILLING CODE 8010–01–M