33788 Federal Register / Vol. 61, No. 126 / Friday, June 28, 1996 / Notices

2 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1) (1988).

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 37078

(April 5, 1996), 61 FR 16514.

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 Organizations

Statement of the Terms of Substance of

the Proposed Rule Change

The CBOE proposes to amend the

definition of an expiration month for

purposes of determining compliance

with the Retail Automatic Execution

System (‘‘RAES’’) log-on requirement for

market makers of Standard & Poor’s 500

Stock Index (‘‘SPX’’) options as detailed

in Rule 24.16.

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 text

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

The purpose of the proposed rule

change is to amend the definition of an

expiration month for purposes of

determining compliance with the RAES

log-on requirement for market makers of

SPX options as detailed in Rule 24.16.

According to CBOE Rule 24.16, once a

market maker logs onto SPX RAES at

any time during an expiration month, he

or she must continue to do so each time

he or she is present in the SPX trading

crowd until the next expiration. For this

purpose, an expiration month currently

is defined as the period from the

Monday immediately following an

expiration Saturday through the Friday

immediately preceding the next

successive expiration Saturday. In

consideration of the fact that expiring

SPX option contracts cease trading at

the close of business on the Thursday

immediately preceding an expiration

and that the new near-term series

becomes the RAES eligible series on that

Friday, the Exchange has determined to

redefine the expiration month for SPX

RAES log-on obligations. Commencing

on Friday, May 17, 1996, an expiration

month for SPX RAES log-on obligation

purposes will be defined as the period

from the Friday immediately preceding

an expiration Saturday through the

Thursday immediately preceding the

next successive expiration Saturday.

The expiration month for SPX RAES

log-on obligation purposes will be

defined in this manner for each

expiration thereafter.

Because the proposed rule change is

meant to conform more precisely the

definition of SPX market makers’

obligations with the expiration cycle for

SPX options, the Exchange believes that

the proposed rule change is consistent

with Section 6 of the Act in general and

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

it is designed to promote just and

equitable principles of trade, to foster

cooperation with persons engaged in

facilitating and clearing transactions in

securities, and to protect investors and

the public interest.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The CBOE believes that the proposed

rule change will impose no 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

Because the proposed rule change

constitutes a stated interpretation with

respect to the meaning, administration,

or enforcement of an existing rule, it has

become effective pursuant to Section

19(b)(3)(A) of the Act and subparagraph

(e) of Rule 19b–4 thereunder. At any

time within 60 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 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

above-mentioned self-regulatory

organization. All submissions should

refer to File No. SR–CBOE–96–38 and

should be submitted by July 19, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.2

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16520 Filed 6–27–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37348; File No. SR–CBOE–

96–19]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Approving Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval of

Amendment Thereto Relating to

Eligibility Requirements for

Participation on the RAES System in

SPX Options

June 21, 1996.

I. Introduction

On March 18, 1996, the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission

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

Section 19(b)(1) of the Securities

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

19b–4 thereunder, 2 a proposal to

amend one of the Rule 24.16

requirements market makers in

Standard & Poor’s 500 Stock Index

(‘‘SPX’’) options must meet to qualify

for participation in the Retail Automatic

Execution System (‘‘RAES’’). The

proposed rule change was published for

comment and appeared in the Federal

Register on April 15, 1996.3 No

comments were received regarding the

proposal. On March 27, 1996, the CBOE
Federal Register / Vol. 61, No. 126 / Friday, June 28, 1996 / Notices 33789

4Amendment No. 1 effects a technical change to

the proposal by replacing the term ‘‘regulatory

circular’’ with the term ‘‘proposed rule change’’ in

three different places in the filing; the last sentence

of Item 1, the first line of Item 9, and the last

sentence of Section I of Exhibit 1. Letter from

Timothy Thompson, CBOE, to Michael Walinskas,

Special Counsel, Office of Market Supervision,

Division of Market Regulation, Commission, dated

March 21, 1996 (‘‘Amendment No. 1’’). 5 15 U.S.C. § 78f(b)(5) (1988).

6See Amendment No. 1, supra note 4.

7 15 U.S.C. § 78s(b)(2) (1988).

8 17 CFR 200.30–3(a)(12).

submitted Amendment No. 1 to its

proposal.4 This order approves the

proposal.

II. Description of the Proposal

The purpose of the proposed rule

change is to amend one of the four Rule

24.16 requirements SPX market makers

must meet to qualify for participation in

RAES. RAES is the Exchange’s

automatic execution system for small

(generally fewer than 10 contracts)

public customer market or marketable

limit orders. When RAES receives an

order, the system automatically will

attach to the order its execution price,

determined by the prevailing market

quote at the time of the order’s entry

into the system. A buy order will pay

the offer; a sell order will sell at the bid.

An eligible SPX market maker who is

signed onto the system at the time the

order is received will be designated to

trade with the public customer order at

the assigned price.

Rule 24.16(a)(iv), RAES Eligibility in

SPX, currently states that for a market

maker to qualify to participate in SPX

RAES that market maker must: (A) be

approved under Exchange rules as a

market maker with a letter of guarantee,

(B) maintain his principal business on

the CBOE as a market maker, (C) execute

at least seventy-five percent of his

market maker contracts for the

preceding month in SPX options (‘‘75%

SPX requirement’’), and (D) execute at

least seventy-five percent of his market

maker trades for the preceding month in

SPX options in person. These

requirements generally seek to ensure

that those market makers who are

satisfying the public customer orders at

the prevailing bid or offer are the same

market makers who have made a

commitment to make markets on a

regular basis at the SPX post.

According to the Exchange, however,

a number of market makers who

regularly make markets in SPX

nevertheless fail to execute seventy-five

percent of their market maker contracts

for the preceding month in SPX options.

In many cases, these market makers fail

to meet the 75% SPX requirement

because they execute a large percentage

of contracts in S&P 100 (‘‘OEX’’) options

on the floor of the Exchange to hedge

their SPX positions. Because SPX and

OEX options are legitimate hedge

vehicles for each other, the Exchange

does not believe a market maker who

makes markets regularly in SPX options,

but who employs these hedge strategies,

should be prevented from contributing

to the Exchange’s efforts to execute

small public customer RAES orders.

Consequently, the Exchange proposes

that the 75% SPX requirement be

reduced to a 50% requirement.

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),5 in that

it is designed to promote just and

equitable principles of trade, prevent

fraudulent and manipulative acts and

practices, and maintain fair and orderly

markets.

In its filing, the Exchange states that

the proposed change should increase

the number of market makers available

to execute public customer RAES

orders, while ensuring that the orders

are filled by market makers who are best

equipped to handle these orders. Hence,

the 50% requirement would ensure that

a market maker assigned a RAES trade

would have transacted at least as many

market maker contracts in SPX options

as that market maker had transacted in

all other products on the CBOE floor

combined. Moreover, the Exchange

notes that the requirement of its Rule

24.16(b) that any market maker who has

logged onto RAES at any time during an

expiration month must continue to do

so each time he is present in the trading

crowd until the next expiration will

continue to apply. The Exchange

believes that this should ensure that a

larger number of market makers

generally will be available to participate

on RAES on any particular day.

The Commission believes that the

presence of an adequate number of

market makers protects investors and

contributes to the maintenance of a fair

and orderly market. The Commission

believes that the proposal furthers this

goal by helping the Exchange to

maintain the continued availability of

RAES for SPX options, thereby

contributing to the effective and

efficient execution of public investor

orders at the best available prices. The

Commission agrees with the CBOE that

lowering the 75% SPX requirement to

one of 50% will ensure that the affected

market makers will continue to be those

best equipped to handle RAES orders in

SPX options given that at least half of

their CBOE transactions will continue to

be in SPX options.

The Commission finds good cause for

approving Amendment No. 1 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice thereof in the

Federal Register. Amendment No. 1

merely serves to effect technical changes

to the Exchange’s proposal and does not

materially affect the proposal.6

Accordingly, the Commission believes

there is good cause, consistent with

Sections 6(b)(5) and 19(b)(2) of the Act,

to approve Amendment No. 1 to the

proposal on an accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

1. 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. 20549. 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–96–

19 and should be submitted by July 19,

1996.

V. Conclusion

For the reasons discussed above, the

Commission finds that the proposal is

consistent with the Act, and, in

particular, Section 6 of the Act.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,7 that the

proposed rule change (File No. SR–

CBOE–96–19) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16521 Filed 6–27–96; 8:45 am]

BILLING CODE 8010–01–M