Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc. To Amend the Firm Quote Requirement

[Federal Register Volume 64, Number 18 (Thursday, January 28, 1999)]
[Notices]
[Pages 4485-4486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2002]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40957; File No. SR-CBOE-98-53]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. To Amend the Firm 
Quote Requirement

January 20, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 15, 1998, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its firm quote rule, Rule 8.51, and 
Interpretation and Policy .04 to Rule 6.8, to amend the firm quote 
requirement so that it is equal to the RAES contract limit applicable 
to that class of options. Rule 8.51 also will allow the appropriate 
Floor Procedure Committee (``FPC'') to establish a different 
requirement for a particular class of options that is no less than the 
RAES contract limit and no more than fifty (50) contracts to enable the 
FPC to deal with specific circumstances of trading in a particular 
options class. For classes or series that are not traded on RAES, the 
appropriate FPC would be able to establish a firm quote requirement of 
between ten (10) and fifty (50) contracts. The text of the proposed 
rule change is available at the Office of the Secretary, CBOE and at 
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, 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 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

1. Basis
    The Exchange proposes to amend its firm quote requirement to allow 
the appropriate FPC to establish the requirement for each particular 
class of options. Generally, the firm quote requirement will be equal 
to the RAES contract limit applicable to that class of options. The 
firm quote requirement will apply at all times, except during a trading 
rotation, and obligates a trading crowd to sell (buy) the established 
number of contracts at the offer (bid) which is displayed when a buy 
(sell) customer order reaches the trading station where the particular 
option class is located for trading. Currently, paragraph (a)(2) of 
Rule 8.51 requires trading crowds to buy (sell) at least ten (10) 
contracts under these circumstances.
    Because RAES is essentially a form of electronic firm quote, the 
Exchange believes that in most cases, the firm quote requirement should 
be no less than the RAES contract limit for a particular options class. 
In fact, in deciding to raise the firm quote requirement, the Exchange 
noted that the appropriate FPC responsible for setting the contract 
limit for RAES in particular option classes recently increased the RAES 
maximum contract size, such that in most cases the RAES contract limit 
is now higher than the firm quote requirement.\2\ Additionally, the 
CBOE proposes to allow the appropriate FPC, in its discretion, to 
establish a different firm quote requirement for a particular class of 
options that is no less than the RAES contract limit and no more than 
fifty (50) contracts. This provision would enable the appropriate FPC 
to deal with the specific circumstances of trading in a particular 
option class. For classes or series that are not traded on RAES, the 
appropriate FPC would be able to establish a firm quote requirement of 
between ten (10) and fifty (50) contracts.\3\
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    \2\ See Regulatory Circulars RG98-102, RG98-117, RG98-119.
    \3\ The new firm quote requirement will remain in effect for 
that options class indefinitely or until the FPC changes it. The FPC 
meets once every two weeks. The discretion given by the proposed 
rule change is intended to enable the FPC to respond to general 
trading trends in a given options class. Phone call between Timothy 
Thompson, Director, Regulatory Affairs, Legal Department, CBOE, 
Sonia Patton, Attorney, Division of Market Regulation, Commission, 
and Constance Kiggins, Special Counsel, Division of Market 
Regulation, Commission, on January 6, 1999.

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[[Page 4486]]

    Exchange Rule 8.51 will continue to provide that the appropriate 
Market Performance Committee may determine the classes and series that 
will be subject to the requirements of the Rule. The CBOE also is 
amending Interpretation and Policy .06 to Rule 8.51 to clarify that the 
firm quote requirement for spreads and straddles applies only in equity 
options. The CBOE notes that issue was clearly stated in rule filing 
SR-CBOE-94-54 and in the Commission's order approving that filing.\4\ 
However, the rule language itself is not clear on this point. Thus, the 
CBOE is making this change to clarify in the rule text what was 
originally intended by that rule filing.
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    \4\ Securities Exchange Act Release No. 35785 (May 31, 1995), 60 
FR 30125 (June 7, 1995).
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2. Statutory Basis
    The Exchange believes that by raising the firm quote requirement, 
the proposed rule change will increase the liquidity of the affected 
option classes such that it is consistent with and furthers the 
objectives of Section 6(b) of the Act,\5\ in general, and furthers the 
objectives of Section 6(b)(5),\6\ in particular, in that it removes 
impediments to a free and open market and protects investors and the 
public interest.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The 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

    The Exchange did not solicit or receive written comments 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 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 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 is consistent with the Act. 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 Room, in Washington, D.C. 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-98-53 and should be submitted by February 18, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-2002 Filed 1-27-99; 8:45 am]
BILLING CODE 8010-01-M