Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Notices 33561

34 17 CFR 240.9b–1(a)(4). As part of the original

approval process of the FLEX Options framework,

the Commission delegated to the Director of the

Division of Market Regulation the authority to

authorize the issuance of orders designating

securities as ‘‘standardized options’’ pursuant to

Rule 9b–1(a)(4) under the Act. See Securities

Exchange Act Release No. 31911 (February 23,

1993), 58 FR 11792 (March 1, 1993).

35 15 U.S.C. 78s(b)(2).

36 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 37051

(March 29, 1996), 61 FR 15543.

seeking to cross a public customer FLEX

Equity Option order, such that the

Submitting Member will be permitted to

execute the contra side of the trade that

is the subject of the Request for Quotes,

to the extent of at least 25% of the trade

under specific circumstances; and (3)

include subparagraph (c) to Rule 909G

to indicate the FLEX Equity Options

specialists must comply with Rules 171

and 950(h) regarding equity option

specialist’s financial requirements. The

Commission does not believe that the

amendments raise any new or unique

regulatory issues. These amendments

also strengthen the proposal by

clarifying certain crossing transaction

procedures and specialists financial

requirements as described above.

Accordingly, the Commission believes,

consistent with Section 6(b)(5) of the

Act, that good cause exists, to approve

Amendment No. 2 to the proposal on an

accelerated basis.

The Commission finds good cause for

approving Amendment No. 3 prior to

the thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically, this

amendment proposes to amend Rule

903G(a)(3) to make it clear that bids and

offers responsive to FLEX Requests for

Quotes must be stated in terms of the

designated currency in the Request for

Quotes. The Commission notes that the

proposed amendment conforms Amex’s

rules to CBOE’s rules regarding the

trading and settlement of FLEX Index

Options in certain designated foreign

currencies. The Commission does not

believe that the amendment raises any

new or unique regulatory issues.

Accordingly, the Commission believes,

consistent with Section 6(b)(5) of the

Act, that good cause exists, to approve

Amendment No. 2 to the proposal on an

accelerated basis.

Interested persons are invited to

submit written data, views and

arguments concerning Amendment Nos.

2 and 3 to the proposed rule change.

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 will also be available for

inspection and copying at the principal

office of the Exchange. All submissions

should refer to SR–Amex-95–57 and

should be submitted by July 18, 1996.

V. Conclusion

For the reasons discussed above, the

Commission finds that the proposal is

consistent with the Act and Sections 6

and 11(a) of the Act in particular. In

addition, the Commission finds

pursuant to Rule 9b–1 under the Act,

that FLEX Options, including FLEX

Equity Options, and FLEX Index

Options traded and settled in certain

designated foreign currencies, are

standardized options for purposes of the

options disclosure framework

established under Rule 9b–1 of the

Act.34 Apart from the flexibility with

respect to strike prices, expiration dates,

exercise styles, and settlement (for FLEX

Index Options), all of the other terms of

FLEX Options are standardized

pursuant to OCC and Amex rules.

Standardized terms include matters

such as exercise procedures, contract

adjustments, time of issuance, effect of

closing transactions, restrictions on

exercise under OCC rules, margin

requirements, and other matters

pertaining to the rights and obligations

of holders and writers.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,35 that the

proposal (File No. SR–Amex-95–57), as

amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.36

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16367 Filed 6–26–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37337; File No. SR–CBOE–

96–20]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change by

the Chicago Board Options Exchange,

Incorporated, Relating to FLEX Equity

Options

June 19, 1996.

I. Introduction

On March 18, 1996, the Chicago

Board Options Exchange, Incorporated

(‘‘CBOE’’ or ‘‘Exchange’’) filed a

proposed rule change with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’), pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 and Rule

19b–4 thereunder,2 to amend certain

rules pertaining to FLEX Equity

Options.

Notice of the proposal was published

for comment and appeared in the

Federal Register on April 8, 1996.3 No

comment letters were received on the

proposed rule change. This order

approves the Exchange’s proposal.

II. Description of the Proposal

The Exchange proposes to amend two

rules pertaining to FLEX Equity

Options. First, the Exchange proposes to

amend Interpretation and Policy .05

under Exchange Rule 5.5 in order to

provide that new series of FLEX Equity

Options may be opened during the

month in which they will expire, so

long as options of that series expire no

earlier than the day following the day

the series is added. The Exchange

believes that this will provide maximum

flexibility to users of FLEX Equity

Options, while avoiding the

administrative costs that would be

associated with options that expire on

the day they are issued.

Second, the Exchange proposes to

amend Rule 24A.5(e) in order to provide

a minimum right of participation to

Exchange members who initiate

Requests for Quotes in respect of FLEX

Equity Options and indicate an

intention to cross or act as principal on

the trade, similar to the right of

participation that applies under existing

Exchange rules in respect of FLEX Index

Options. Under existing Rule

24A.5(e)(iii), a member who submits a

Request for Quotes in respect of a FLEX

Index Option and indicates an intention

to cross or act as principal on the trade,

and who matches the current best bid or

offer (‘‘BBO’’) during the BBO
33562 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Notices

4The proposed rule change amends the language

of Rule 24A.5(e) to state that a submitting member

will ‘‘have priority’’ to execute the specified share

of a trade, instead of that he will ‘‘be permitted’’

to execute that share, in order to clarify that a

member may cross more than the designated share

as to which he has priority if no one else is willing

to trade at the same or a better price.

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

6See Securities Exchange Act Release No. 36841

(February 14, 1996) (File No. SR–CBOE–95–43)

(‘‘FLEX Equity Option Approval Order’’).

7 Id.

8 15 U.S.C. 78k(a).

9 17 CFR 240.11a1–1(T).

10 15 U.S.C. 78s(b)(2).

11 17 CFR 200.30–3(a)(12).

Improvement Interval, has priority to

execute the contra side of the trade up

to the greater of (i) one-half of the trade,

(ii) $1 million Underlying Equivalent

Value, or (iii) the remaining Underlying

Equivalent Value on a closing

transaction valued at less than $1

million. If the member improves the

BBO and any other FLEX-participating

member matches the improved BBO, the

submitting member has priority to

execute the contra side of the trade up

to the greater of (i) two-thirds of the

trade, (ii) $1 million Underlying

Equivalent Value, or (iii) the remaining

Underlying Equivalent Value on a

closing transaction valued at less than

$1 million. By contrast, under current

Exchange rules no priority right of

participation in a principal or agency

cross is given to a member who submits

a Request for Quotes in respect of a

FLEX Equity Option, even if the

submitting member matches or

improves the BBO.

The proposed rule change would

provide that a member who submits a

Request for Quotes in respect of a FLEX

Equity Option and indicates an

intention to cross or act as principal on

the trade, and who matches or improves

the BBO during the BBO Improvement

Interval, has a priority right to execute

the contra side of the trade for at least

twenty-five percent (25%) of the trade.4

The Exchange believes that the

proposed rule change will encourage

members to bring FLEX Equity Option

orders to CBOE and to commit their

capital to the FLEX Equity Options

market on CBOE, and thereby contribute

to the liquidity of that market, by

guaranteeing them a minimum right of

participation in the other side of any

trade they bring to the market if they are

prepared to match or improve the BBO.

The Exchange believes that by

providing investors with the flexibility

to request quotes for options that expire

as early as the day following the day

they are issued, and by encouraging

members to submit requests for quotes

in FLEX Equity Options and to commit

capital to CBOE’s FLEX Equity Option

market, the proposed rule change

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

of the Act to remove impediments to

and perfect the mechanism of a free and

open market in securities, and to protect

investors and the public interest.

III. Discussion

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) of the

Act.5 The Commission believes that the

Exchange’s proposal to provide that new

series of FLEX Equity Options may be

opened so long as they do not expire on

the same day, reasonably addresses the

Exchange’s desire to meet the demands

of sophisticated portfolio managers and

other institutional investors who are

increasingly using the OTC market in

order to satisfy their hedging needs. In

this regard, the change will provide

FLEX Equity Option users with more

flexibility in establishing expiration

dates to better meet their hedging needs.

Market participants wanting to open a

new series of FLEX Equity Options with

a short duration will still have to meet

the 250 contract minimum requirement.

This should help to ensure that such

FLEX Equity Options are opened for

legitimate trading needs.

The Commission further notes that

expiration of FLEX Equity Options may

not correspond to the normal expiration

of Non-FLEX Equity Options. More

specifically, the expiration date of a

FLEX Equity Option may not occur on

a day that is on, or within, two business

days of the expiration date of a NonFLEX Equity Option.6 Moreover, as

stated in the FLEX Equity Option

Approval Order, the Commission

expects the Exchange to take prompt

action (including timely communication

with the self-regulatory organizations

responsible for oversight of trading in

the underlying securities) should any

unusual market effects develop.7

Additionally, the Commission

believes that the Exchange’s proposal to

provide a minimum right of

participation of at least 25% of the trade

to Exchange members who initiate

Requests for Quotes in respect of FLEX

Equity Options and indicate an

intention to cross or act as principal on

the trade, is consistent with the Act. In

addition, under CBOE rules, such

transactions must, in all cases, be in

compliance with the priority, parity,

and precedence requirements of Section

11(a) of the Act,8 and Rule 11a1–1(T) 9

promulgated thereunder. These

provisions set forth, among other things,

the conditions in which members must

yield priority to public customers’ bids

and offers at the same price.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,10 that the

proposed rule change (File No. SR–

CBOE–96–20) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16368 Filed 6–26–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37338; File No. SR–CBOE–

96–28]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by Chicago Board

Options Exchange, Incorporated

Relating to the Selection of Underlying

Securities on Which FLEX Equity

Options May Be Traded on the

Exchange

June 19, 1996

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 April 22, 1996, the

Chicago Board Options Exchange,

Incorporated (‘‘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 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 Exchange proposes to amend

CBOE Rule 24A.4(c)(1) governing the

selection of underlying securities on

which FLEX Equity Options may be

traded on the Exchange to eliminate the

requirement that the underlying

securities must be the subject of NonFLEX Equity Option trading on the

Exchange.

The text of the proposed rule change

is available at the Office of the

Secretary, CBOE and at the Commission.