12574 Federal Register / Vol. 66, No. 39 / Tuesday, February 27, 2001 / Notices

3A market center can maintain its own Internet

site at which its files can be downloaded or arrange

for another person to maintain the Internet site at

which the market center’s files can be downloaded

(as well as potentially the files of other market

centers).

4See note 1 above for treatment of an entity that

acts as a market maker in more than one trading

venue and therefore would arrange for a Designated

Participant for each market center/trading venue

under the Rule.

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

2 17 CFR 240.19b–4.

3Letter from Timothy Thompson, Assistant

General General Counsel, Legal Department, CBOE,

to Deborah Flynn, Senior Special Counsel, Division

of Market Regulation (‘‘Division’’), Commission,

dated October 23, 2000 (‘‘Amendment No. 1’’). In

response to comments from Commission staff, the

Exchange submitted Amendment No. 1, which: (i)

States that staff at the American Stock Exchange

LLC, International Securities Exchange LLC, Pacific

Exchange, Inc., and Philadelphia Stock Exchange,

Inc. have informed the CBOE that their respective

regulatory policies do not include any specific rule

or regulatory circular that addresses wash sale

transactions or that prohibits trading between joint

accounts with common participants; (ii) represents

that the proposed rule change makes the CBOE’s

rules and regulatory policies regarding transactions

between related accounts or entities consistent with

those in place at the other options exchanges; and

(iii) cites three letters that were submitted by CBOE

members to the Exchange in support of the rule

filing.

the-quote limit orders, at-the-quote limit

orders, and near-the-quote limit orders), the

field shall be left empty.

VII. Internet Sites for Downloading Market

Center Files

A market center shall make its compressed

files available for downloading (via FTP) at

a single page on an Internet site that is free

of charge and readily accessible to the

public.3 A market center shall make available

on such page the files containing at least the

three most recent monthly reports of the

market center.

VIII. Functions of Designated Participant

Each market center shall be responsible for

arranging with a single Participant to act as

the market center’s Designated Participant.4

The functions of a Designated Participant are

as follows.

(a) Assignment of Market Center and File

Identification Codes

A Designated Participant shall assign a

unique market center identification code to

each market center for which it acts as

Designated Participant. If an individual

market center’s report will be included in a

file that contains only that market center’s

report, the file identification code for the file

shall be the same as the market center

identification code. If an individual market

center’s report will be included in a file that

contains any additional market center’s

report (e.g., if the reports for all of an

exchange’s specialists are included in a

single file), the Designated Participant also

shall assign a separate file identification code

for such file. All Designated Participants will

act jointly to assure that no market center or

file is assigned a code that previously has

been assigned (e.g., by circulating advance

notice to all Participants of codes that have

been assigned).

(b) Maintenance of Market Center

Identification Files

A Designated Participant shall create and

maintain a market center identification file

(in standard, pipe-delimited (‘‘|’’) ASCII

format) for each calendar month. Such file

shall contain fields setting forth, in order, (A)

the identification code for the Designated

Participant (as set forth in Section VI(a)(1) of

the Plan); (B) all market center identification

codes that the Designated Participant has

assigned for the month, (C) the full name of

the market center (in upper case), and (D) the

file identification code applicable to each

market center (if different from the market

center identification code). A Designated

Participant shall make at least the three most

recent market center identification files

available for downloading (via FTP) on an

Internet site that is free of charge and easily

accessible to the public.

(c) Maintenance of Internet Site with Links to

Download Sites

A market center shall notify its Designated

Participant of the hyperlink to the location

where the market center’s files can be

downloaded in accordance with Section VII

of the Plan. A Designated Participant shall

maintain a comprehensive list of the

hyperlinks provided by its market centers at

the same location at which market center

identification files can be downloaded in

accordance with Section VIII(b) of the Plan.

As a result, anyone who wishes to download

all files for a month can be assured that, if

they visit the Internet sites of all Participants,

they will find hyperlinks to all files for the

month.

(d) Change of Designated Participant

A market center may change the identity of

its Designated Participant only by arranging

with another Participant to act as a

replacement. The Participant that has agreed

to act as a replacement Designated

Participant shall provide written notice of the

change to all other Participants, as well as

make such notice available on the Internet

site maintained by the replacement

Designated Participant under Section VIII(b)

of the Plan. The notice shall specify both the

past and new market center identification

code and file identification code for the

market center, or state that the codes have

not changed. The change shall not be

effective until 30 days after the date of the

written notice.

IX. Internet References to Information

Required by Rule

When referring to information on Internet

sites that the Rule requires to be made

available to the public, market centers and

Designated Participants shall use the phrase

‘‘Disclosure of SEC-Required Order

Execution Information.’’

X. Specifying Regular Trading Hours Under

the Rule

With respect to the meaning of the term

‘‘regular trading hours’’ under paragraph

(a)(19) of the Rule, the Participant who

maintains the primary listing for a national

market system security shall specify the

regular trading hours for such security if they

are to be other than the time between 9:30

a.m. and 4:00 p.m. Eastern Time. To effect a

specification of regular trading hours under

this Section X, a Participant shall submit a

proposed rule change to the SEC under

Section 19 of the Exchange Act. A Participant

may specify as regular trading hours for a

security only those times when the

Participant itself is trading the security.

XI. Withdrawal from Plan

If a Participant ceases to be subject to the

Rule or obtains SEC approval for another

means of complying with the Rule, such

Participant may withdraw from the Plan at

any time on not less than 30 days’ prior

written notice to each of the other

Participants. At such time, the withdrawing

Participant shall have no further rights or

obligations under the Plan.

XII. Counterparts and Signatures

The Plan may be executed in any number

of counterparts, no one of which need

contain all signatures of all Participants, and

as many of such counterparts as shall

together contain all such signatures shall

constitute one and the same instrument.

In Witness Thereof, this Plan has been

executed as of the 20th day of February 2001

by each of the parties hereto.

[FR Doc. 01–4748 Filed 2–26–01; 8:45 am]

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43984; File No. SR–CBOE–

00–13]

Self Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc. Amending Procedures and

Requirements for Trading in Joint

Accounts in Equity and Index Options

February 20, 2001.

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 April 3,

2000, the Chicago Board Options

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

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by the Exchange.

On January 8, 2001, the CBOE filed

Amendment No. 1 with the

Commission.3 The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

Federal Register / Vol. 66, No. 39 / Tuesday, February 27, 2001 / Notices 12575

4 15 U.S.C. 78i(a)(1)(A).

5Members who have been granted nonaggregation pursuant to Exchange Rule 4.11.03 are

advised in writing that although non-aggregation

has been granted, trading between the subject

associated accounts is prohibited. 6The Regulatory Circular governing joint account

trading in certain index options was approved in

Securities Exchange Act Release No. 31174

(September 10, 1992), 57 FR 42789 (September 16,

1992). The Regulatory Circular governing joint

account trading in equity options was approved in

Securities Exchange Act Release No. 36977 (March

15, 1996), 61 FR 11911 (March 22, 1996.

7See Securities Exchange Act Release No. 38286

(February 13, 1997), 62 FR 8287 (February 24, 1997)

(SR–CBOE–96–70).

8The Exchange represents that staff at the

American Stock Exchange LLC, International

Securities Exchange LLC, Pacific Exchange, Inc.,

and Philadelphia Stock Exchange, Inc. have

informed the CBOE that their respective regulatory

policies do not include any specific rule or

regulatory circular that addresses wash sale

transactions or that prohibits trading between joint

accounts with common participants. The Exchange

also believes that under section 9(a)(1)(A) of the

Exchange Act, only those transactions that involve

no change in beneficial ownership and that are

effected for an improper purpose, such as creating

a false and misleading appearance of market

activity, would be considered a violation of the

Exchange Act. See Amendment No. 1, supra note

3.

9Letter from Patricia Levy, General Counsel, and

Steven O’Malley, Compliance & Regulatory Officer,

Hull Trading Company, LLC, to Mary Bender,

Senior Vice President, Division of Regulatory

Services, CBOE, dated August 13, 1999 (‘‘Hull

Letter’’) and Letter from William J. Shimanek,

Kesssler Asher Clearing, to Pat Cerny, CBOE, dated

April 24, 1996 (‘‘Kessler Letter’’). The Exchange

notes that Kessler Asher Clearing is no longer an

effective member of the CBOE. See Amendment No.

1, supra note 3. The Exchange also received a letter

from Fulcrum Investment Group LLC (‘‘Fulcrum’’)

urging the Exchange to liberalize its policy on wash

sales. Letter from Michael J. Carusillo, Chief

Executive Officer, and Barbara McHugh, President,

Fulcrum Investment Group, LLC, to Pat Cerny,

Director, Department of Market Regulation, CBOE,

dated July 17, 1998 (‘‘Fulcrum Letter’’). This letter

is discussed in Section II.C. of this Notice.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CBOE proposes to amend

Interpretation .06 to Exchange Rule 8.9

and Exchange Regulatory Circulars RG

98–94 and RG 98–95, which set forth

Exchange procedures and requirements

for trading in joint accounts in equity

and index options, to allow certain

transactions between joint accounts that

have common participants. The text of

the proposed rule change is set forth

below. Deletions are in brackets.

* * * * *

RULE 8.9

No change.

Interpretations and Policies:

.01–.05—No change.

.06—No participant in a joint account shall

effect a transaction, in person or via order,

either for his own account or for the joint

account, with another member acting on

behalf of the joint account. [In addition, no

joint account participant shall cause a

transaction to be executed for the joint

account with another member acting on

behalf of another joint account if the member

knows or, in the exercise of reasonable care

under the circumstances, the member has

reason to know that the two joint accounts

have one or more common participants.]

* * * * *

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, 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 Exchange 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

1. Purpose

Section 9(a)(1)(A) of the Exchange Act

prohibits any person from effecting any

transaction in any securities registered

on a national securities exchange, which

involves no change in beneficial

ownership, for the purpose of creating a

false or misleading appearance of active

trading in any such security.4 In the

early 1980s, the CBOE adopted a

regulatory interpretation of this ‘‘wash

sale’’ rule that prohibited trading

between related accounts with greater

than 10% common ownership. The 10%

threshold was consistent with the

standard used in Exchange Rule 4.11

(Position Limits), which states that

common control, among other factors,

will be presumed if an individual or

entity has greater than 10% ownership.

The CBOE’s wash sale interpretation is

not specifically addressed in any

existing CBOE rule; rather, it was largely

communicated to the membership

verbally, or in written communication

regarding non-aggregation of accounts

for position limit compliance.5 Any

violation of this prohibition is

considered a violation of Exchange Rule

4.1 (Just and Equitable Principles of

Trade).

The Exchange adopted Interpretation

.06 to Exchange Rule 8.9 to extend this

trading prohibition to market maker

joint accounts that have common

participants. Interpretation .06 to

Exchange Rule 8.9 and Exchange

Regulatory Circulars 6 state that ‘‘no

joint account participant shall cause a

transaction to be executed for the joint

account with another member acting on

behalf of another joint account if the

member knows, or in the exercise of

reasonable care under the

circumstances, the member has reason

to know that the two joint accounts have

one or more common participants.’’

This language expressly imposed a

knowledge requirement as an element of

the offense of effecting a transaction

between joint accounts with common

participants.7

The Exchange adopted Interpretation

.06 event though it believed that, in

many instances, the trading in joint

accounts with common participants is

not effected by the same common joint

account participant. The Exchange also

recognized that market makers are not

always in the position to know whether

there are common joint account

participants because of the frequency in

which joint account composition may

change. Although joint accounts may

have common participants, common

ownership between joint accounts is

typically widely diverse.

The CBOE believes that its current

interpretation of a wash sale is more

restrictive than the rules in place at

other national securities exchanges and

the SEC.8 The Exchange represents that

its current interpretation of a wash sale

does not promote a level playing field

for its members vis-a`-vis other

exchanges’ members and thus, places

the Exchange at a competitive

disadvantage. The Exchange states that

it has also received requests from

individual members who provide

financial backing to other members via

joint accounts, and from member

organizations with affiliated broker/

dealer entities, to provide exemptions

from this regulatory policy.9 These

members argued that such related

accounts are structured as separate

profit centers and are operated by

affiliates independently, and separate

books and records are maintained for

these accounts. Moreover, these

members stated that it is burdensome to

monitor their associated accounts to

ensure that the accounts do not trade

together when the common joint

account participants are not aware of

what the other associated account is

trading. Therefore, the Exchange

proposes to alter its long-standing

regulatory interpretation so that certain

transactions effected between joint

accounts with common participants

would be permitted, provided that such

transactions are effected within

Exchange rules.

12576 Federal Register / Vol. 66, No. 39 / Tuesday, February 27, 2001 / Notices

10The Exchange has represented that it will issue

a regulatory circular informing members of

permitted and prohibited trading activity among

joint accounts.

11 15 U.S.C. 78f(b).

12 15 U.S.C. 78f(b)(5).

13Fulcrum Letter, supra note 9. In addition, the

Exchange represents that its regulatory staff has had

numerous conversations with members since the

Exchange first considered changing its regulatory

policy regarding transactions between accounts

with common ownership.

14 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

The proposed rule change would

enable common participants to trade

between related joint accounts that are

used as financing vehicles without

violating Exchange Rule 8.9. The

Exchange proposes that the following

activity be permitted: (1) Trading

between different market makers or

other broker/dealer accounts that are

financed by the same member where

there is no common control over the

trading activity in those accounts; and

(2) trading between independently

operated subsidiaries (i.e., separate

broker/dealers) of the same parent or

holding company.10

The Exchange represents that it will

continue to prohibit the following

activity: (1) Market makers trading with

their joint account, even though their

percentage of ownership is less than

100% (for instance, market maker ABC

finances market maker XYZ via a joint

account and ABC is a participant in the

joint account. Ownership is 50% and

XYZ makes his own trading decisions.

ABC is still prohibited from trading

directly with the joint account of which

he is a member); (2) nominees of the

same entity trading with each other on

behalf of the entity; (3) firm traders

employed by the same broker/dealer on

different trading desks trading together,

regardless of whether they are separate

profit centers; and (4) spouses trading

together.

The Exchange represents that under

the proposed rule change, transactions

between related joint accounts that are

effected for an improper purpose, such

as trades executed to create a false and

misleading appearance of activity,

would continue to violate Exchange

Rule 4.1 (Just and Equitable Principles

of Trade). The Exchange states that its

Department of Market Regulation will

continue to monitor trading between

accounts with common beneficial

ownership for trading abuses.

2. Statutory Basis

The Exchange represents that the

proposed rule change is consistent with

section 6(b) of the Act,11 in general, and

furthers the objectives of section

6(b)(5),12 in particular, in that it is

designed to promote just and equitable

principles of trade 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 burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Exchange received a letter from

Fulcrum urging the Exchange to reevaluate its policy on trading between

joint accounts.13 Fulcrum states that it

is appropriate to allow trading between

joint accounts where control has been

successfully refuted. In addition,

Fulcrum notes that stock exchange

interpretations specifically state that a

trade between a parent and its whollyowned broker-dealer affiliate results in

a change in beneficial ownership subject

to trade reporting, and therefore would

not be considered a wash sale. Fulcrum

urges the Exchange to relax its policy to

permit legitimate trading activity

between joint accounts.

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 Exchange 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,

including whether the proposed rule

change, as amended, is consistent with

the Act. Persons making written

submissions should file six copies

thereof with the Secretary, Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 20549–

0609. 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

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to the File No.

SR–CBOE–00–13 and should be

submitted by March 20, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–4755 Filed 2–26–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43983; File No. SR–ISE–

01–02]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the International Securities Exchange

LLC, Relating to Anticipatory Hedging

Activity

February 20, 2001.

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 January

12, 2001, the International Securities

Exchange LLC (the ‘‘Exchange’’ or the

‘‘ISE’’) 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 Exchange.

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 is proposing to adopt

Supplementary Material .02 to Rule 400

(Just and Equitable Principals of Trade).

Supplementary Material .02 states that it

may be considered conduct inconsistent

with just and equitable principles of

trade for any member or person

associated with a member, who has

knowledge of all material terms and

conditions of (1) an order and a solicited