[Federal Register Volume 60, Number 100 (Wednesday, May 24, 1995)]
[Notices]
[Pages 27575-27577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12693]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35725; File No. SR-CBOE-95-15]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Board Options
Exchange, Inc. Relating to Telephones at the S&P 100 Index Option
Trading Post on the Floor of the Exchange
May 17, 1995.
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 May 12,
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 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 CBOE proposes to treat as a rule of the Exchange the conditions
governing the use of member-owned and Exchange-owned telephones located
at the S&P 100 Index option (``OEX'') trading post on the floor of the
Exchange. The text of the proposed rule change is available at the
Office of the Secretary, the 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. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Section (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 apply the policy
currently governing the use of telephones at [[Page 27576]] equity
option trading posts\1\ to the member-owned or Exchange-owned
telephones at the OEX trading post on the floor of the Exchange. With
the exception of the prohibition on the use of telephone at the OEX
trading posts to receive incoming calls, the Exchange represents that
the telephone policy described below is substantively identical to the
policy approved by the Commission for the use of telephones at equity
option trading posts on the floor of the CBOE.\2\
\1\ See Securities Exchange Act Release No. 33701 (March 2,
1994), 59 FR 113336 (March 10, 1994).
\2\ Id.
---------------------------------------------------------------------------
Exchange Rule 6.23 prohibits members from establishing or
maintaining any telephone or other wire communications between their
offices and the Exchange floor, and it authorizes the Exchange to
direct the discontinuance of any communication facility terminating on
the Exchange floor. Pursuant to Rule 6.23, the Exchange is instituting
this policy for use at the OEX trading post. The Exchange believes that
the proposed rule change will allow market-makers to obtain and
transmit information more efficiently which may result in benefits to
investors by improving the execution of orders.
The proposed rule change also imposes user fees on members who are
approved to use Exchange-installed telephones located at the OEX
trading post. This action is being taken pursuant to CBOE Rule. 2.22,
which permits the Exchange to impose fees on members for the use of
Exchange facilities or for any services or privileges granted by the
Exchange.
As with the use of telephones at the equity trading posts, the
Exchange has determined to file this policy for the use of telephones
at the OEX trading post and make it a formal rule of the Exchange.
Accordingly, the Exchange undertakes that it will surveil for
violations of the policy and that members will be subject to formal
disciplinary proceedings for violations of the policy. The conditions
imposed by the Exchange's policy include:
1. The telephones may not be used to receive orders, although
quotes that have been publicly disseminated pursuant to CBOE Rule 6.43
may be provided.
2. Members may give their clerks their PIN access code. Although
both members and clerks may use the telephones, members will have
priority. Each member will be responsible for all calls made using that
Member's PIN access code.
3. Headsets will not be permitted on the telephones in the OEX post
pit. Portable or cellular telephones also will not be permitted.
4. Clerks will not be permitted to establish a base of operations
utilizing telephones at the OEX post.
5. Members and their clerks using the telephones consent to the
Exchange requiring that any telephone or line be subject to tape
recording.
6. The telephones will be used for voice service only. Data
services (PC's, fax, etc.) will remain subject to Exchange consent
under a separate program.
7. Incoming calls are not permitted on the telephones at the OEX
post. There will be no restrictions on where a Member may call.
Upon the approval of these conditions as rules of the Exchange, the
Exchange will publish a Regulatory Circular, substantially in the form
filed by the CBOE with the Commission, in order to inform members that
these conditions are rules, and that violations may lead to
disciplinary proceedings.
By restricting floor telephones to hard-wired devices only and not
allowing cellular, portable, or headset telephones, the Exchange
believes it will better be able to monitor and control telephone usage
on the floor. In addition, the Exchange believes that currently
available technology would not permit a large number of portable or
cellular telephones to be used in the environment of the trading floor
without significant deterioration or interruption of service.
As with the use of telephones at the equity trading posts, the
Exchange intends to police compliance with these conditions by means of
its customary floor surveillance procedures, including reliance on
surveillance by floor officials and Exchange employees. In addition,
the Exchange has in place a surveillance sharing agreement with the
Chicago Mercantile Exchange (``CME'') whereby transaction information
is continually made available to the CBOE regarding futures transaction
activity by CBOE members that is above certain defined parameters. In
addition, the Exchange also receives surveillance information through
its participation in the Intermarket Surveillance Group (``ISG'').\3\
\3\ The ISG was formed on July 14, 1983 to, among other things,
coordinate more effectively surveillance and investigative
information sharing arrangements in the stock and options markets.
See Intermarket Surveillance Group Agreement, July 14, 1983. The
most recent amendment to the ISG Agreement, which incorporates the
original agreement and all amendments made thereafter, was signed by
ISG members on January 29, 1990. See Second Amendment to the
Intermarket Surveillance Group Agreement, January 29, 1990. The
members of the ISG are: the American Stock Exchange, Inc.; the
Boston Stock Exchange, Inc.; the CBOE; the Chicago Stock Exchange,
Inc.; the National Association of Securities Dealers, Inc.
(``NASD''); the New York Stock Exchange, Inc.; the Pacific Stock
Exchange, Inc.; and the Philadelphia Stock Exchange, Inc. Because of
potential opportunities for trading abuses involving stock index
futures, stock options, and the underlying stock and the need for
greater sharing of surveillance information for these potential
intermarket trading abuses, the major stock index futures exchanges
(e.g., the Chicago Mercantile Exchange and the Chicago Board of
Trade) joined the ISG as affiliate members in 1990.
---------------------------------------------------------------------------
Because the telephone policy does not restrict where a member may
call, the telephones may be used to place orders in equity of futures
markets,\4\ which raises the possibility of orders being entered based
on non-public information. Because the S&P 100 index, on which OEX
options are based, is a capitalization-weighted index of 100 different
``blue chip'' stocks, however, the Exchange believes that non-public
information is not likely to be significant in predicting future
changes in the value of the OEX. In any event, the Exchange believes
that the surveillance procedures it has in place will detect and deter
any attempts at manipulation through the using of OEX options.
\4\ This telephone policy also allows members to use the floor
telephones located at the OEX trading post for the purpose of
providing quotations on OEX options. In use telephones for this
purpose, the CBOE represents that members may only provide
quotations that have been publicly disseminated pursuant to CBOE
Rule 6.43.
---------------------------------------------------------------------------
The fees the Exchange will charge for the use of the telephones
will generally be the same as those charged for the use of telephones
at the equity option trading posts. Specifically, local calls over
Exchange telephones will be charged at 10 cents per minute. Long
distance calls over Exchange telephones will be charged at a rate 25%
greater than the Exchange's direct costs. In addition, the Exchange
will charge a $5 monthly fee for the use of the telephones located at
the OEX trading post.
The CBOE believes that the proposed rule change is consistent with
Section 6(b) of the Act, in general, and furthers the objectives of
Section 6(b)(5) of the Act, in particular, in that the proposal is
designed to improve communications to and from the Exchange's trading
floor in a manner that prevents fraudulent and manipulative acts and
practices, promotes just and equitable principles of trade, perfects
the mechanism of a free and open market, and protects investors and the
public interest.
In addition, the Exchange believes the proposed rule change with
respect to [[Page 27577]] the fees to be charged by the CBOE in
connection with the telephones located at the OEX trading post is
consistent with Section 6(b)(4) of the Act in that it is designed to
provide for the equitable allocation of reasonable dues, fees, and
charges among CBOE members.
(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.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
(3) does not become operative for 30 days from May 12, 1995, the date
on which it was filed, and the Exchange provided the Commission with
written notice of its intent to file the proposed rule change at least
five days prior to the filing date, it has become effective pursuant to
Section 19(b)(3)(A) of the Act and Rule 19b-4(e)(6) thereunder.\5\
\5\ 17 CFR 240.19b-4(e)(6) (1994).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the 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, NW., Washington, DC 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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 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-95-15 and should be
submitted by June 14, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
\6\ 17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12693 Filed 5-23-95; 8:45 am]
BILLING CODE 8010-01-M