[Federal Register Volume 60, Number 59 (Tuesday, March 28, 1995)]
[Notices]
[Pages 15948-15949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7577]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35519; File No. SR-CBOE-95-07]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to 
Solicited Transactions

March 21, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 14, 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 self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to modify paragraph (e) of Rule 6.9 concerning 
solicited transactions so as to eliminate the requirement that the 
terms of the matching order be disclosed to the trading crowd.

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 and discussed any comments it received on the 
proposed rule change. the test of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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

    Paragraph (e) of Rule 6.9 restricts the ability of a member to 
trade options, securities underlying such options, and related 
instruments while in possession of knowledge of all the material terms 
of an ``original order'' and a solicited matching order unless either 
of two conditions is met. One of the conditions is that all the terms 
of both the original order and the matching order be disclosed to the 
trading crowd.\2\

    \2\The other such condition is that the solicited order can no 
longer reasonably be considered imminent in view of the passage of 
time since the solicitation.
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    The Exchange now proposes to amend paragraph (e) to eliminate the 
requirement that the terms of the matching order be disclosed to the 
trading crowd. Thus, a member will be able to trade options, the 
securities underlying such options, and any related instruments once 
the terms of the original order have been disclosed. Under the 
Exchange's proposal, when there has been advance solicitation of the 
other side of an original order, a member (or associated person) with 
knowledge of the original order and a matching responsive order may not 
buy or sell the option or the underlying security until the terms of 
the original order are disclosed to the trading crowd; once those terms 
are disclosed, however, the member may trade even if the terms of the 
matching order are not disclosed. As explained below, this modification 
would place solicited parties on an equal footing with Exchange members 
who have knowledge of the terms of the original order only, and would 
conform the trading restriction in paragraph (e) to the various 
priority provisions of Rule 6.9 and Interpretation .02 thereunder, 
which generally require disclosure only of the terms of an original 
order, not the terms of a matching solicited order.
    The Exchange believes that this amendment is appropriate to achieve 
the primary purpose of Rule 6.9, which is to facilitate and regulate 
solicitation without imposing undue restrictions on trading, 
particularly anticipatory hedge transactions. As currently structured, 
the trading restrictions in paragraph (e) impose a special and 
substantial burden on any solicited party who was indicated, in 
response to a solicitation, an intention to place a matching responsive 
order. Under the present rule, such a solicited party may not trade 
based on knowledge of the impending solicited transaction, even if the 
original order has been fully disclosed to the crowd, until the 
solicited order is also disclosed.
    In contrast to this treatment of solicited parties, paragraph (e) 
does not restrict trading by other CBOE members who know the terms of 
the disclosed order but who, if solicited, have not indicated an 
intention to trade at the original order's limit and who are otherwise 
unaware of any specific matching solicited order. Such parties may 
trade under the current rule even [[Page 15949]] if they believe that 
an execution of the original order is imminent based on market 
circumstances.
    The Exchange has concluded that this disparity in treatment places 
undue restrictions on solicited parties. Once an original order is 
fully disclosed to the trading crowd, those in the crowd have 
essentially the same market information as do solicited persons. 
Moreover, any solicited person who has privately indicated an intention 
to place a responsive order, and anyone aware of that intention, 
necessarily remains subject to the risks of the market and the auction 
process when entering a responsive order or affecting anticipatory 
trades. In such circumstances, all Exchange members should be able to 
effect trades on equal terms, and the proposal would achieve that 
equality of treatment.
    Accordingly, the Exchange has concluded that paragraph (e) should 
be modified to require disclosure of the terms of the original order 
only. The Exchange believes that this narrower disclosure requirement 
will provide the trading crowd with a fair and full opportunity to make 
informed trading decisions without subjecting solicited parties and the 
solicitation process to overly burdensome restrictions.
    The CBOE believes that its proposal is consistent with Section 6(b) 
of the Act in particular in that it is designed to promote just and 
equitable principles of trade and to protect investors and the public 
interest. Specifically, the CBOE believes that its proposal will 
enhance the CBOE auction by restricting the trading activities of all 
CBOE members and associated persons equally.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
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

    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 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 NW., 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 NW., 
Washington, D.C. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to File No. 
SR-CBOE-95-07 and should be submitted by April 18, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\

    \3\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-7577 Filed 3-27-95; 8:45 am]
BILLING CODE 8010-01-M