[Federal Register Volume 61, Number 35 (Wednesday, February 21, 1996)]
[Notices]
[Pages 6666-6669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3838]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36841; File Nos. SR-CBOE-95-43 and SR-PSE-95-24]
Self-Regulatory Organizations; Order Approving Proposed Rule
Changes and Notice of Filing and Order Granting Accelerated Approval of
Amendments by the Chicago Board Options Exchange, Inc. and the Pacific
Stock Exchange, Inc., Relating to the Listing of Flexible Exchange
Options on Specified Equity Securities
February 14, 1996.
I. Introduction
On August 15, 1995, and October 5, 1995 the Chicago Board Options
Exchange, Incorporated (``CBOE'' or ``Exchange'') and the Pacific Stock
Exchange, Inc. (``PSE'' or ``Exchange'') (collectively the
``Exchanges'') each, respectively, 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 provide for the listing
and trading of Flexible Exchange Options (``FLEX Options'') on
specified equity securities (``FLEX Equity Options''). The CBOE
submitted to the Commission Amendment No. 1 to its proposal on December
21, 1995.\3\ The PSE submitted to the Commission Amendment Nos. 1 and 2
to is proposal on October 26, 1995, and January 24, 1996,
respectively.\4\
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1 to its proposed rule change, CBOE
proposes to: (1) set specific position limits, as described more
fully, herein; (2) require FLEX Post Officials to call upon FLEX
Qualified Market-Makers to quote in response to a Request for
Quotes, whenever no FLEX Quotes are made in response to a specific
Request for Quotes; and (3) limit FLEX Equity Option transactions to
equities that are the subject of Non-FLEX Equity Options traded on
the Exchange. See Letter from Michael Meyer, Attorney, CBOE, to
Howard Kramer, Associate Director, Office of Market Supervision
(``OMS''), Division of Market Regulation (``Market Regulation''),
Commission, dated December 21, 1995 (``CBOE Amendment No. 1'').
\4\ In Amendment No. 1, the Exchange makes certain technical
amendments to conform its filing to CBOE's proposed rule change. See
Letter from Michael D. Pierson, Senior Attorney, Market Regulation,
PSE, to John Ayanian, Attorney, OMS, Market Regulation, Commission,
dated October 26, 1995 (``PSE Amendment No. 1'').
In Amendment No. 2, the Exchange makes further changes to
conform its filing to subsequent amendments submitted to the
Commission by the CBOE. See Letter from Michael D. Pierson, Senior
Attorney, Market Regulation, PSE, to John Ayanian, Attorney, OMS,
Market Regulation, Commission, dated January 24, 1996 (``PSE
Amendment No. 2''). See also CBOE Amendment No. 1, supra note 3.
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Notice of CBOE and PSE proposals were published for comment and
appeared in the Federal Register on September 12, 1995 \5\ and November
13, 1995,\6\ respectively. One comment letter was received on CBOE's
proposed rule change.\7\ This order approves the Exchanges' proposals,
as amended.
\5\ See Securities Exchange Act Release No. 36185 (September 5,
1995), 60 FR 47415 (SR-CBOE-95-43).
\6\ See Securities Exchange Act Release No. 36452 (November 2,
1995), 60 FR 57027 (SR-PSE-95-24). Amendment No. 1 to PSE's proposal
was also published for comment in this release.
\7\ See Letter from Salvatore R. DiDonna, Executive Vice
President & Chief Operating Officer, Swiss American Securities Inc.,
to Jonathan G. Katz, Secretary, SEC, dated September 27, 1995
(``Swiss American Securities Letter'').
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II. Background
The purpose of the Exchanges' proposals is to provide a framework
for the Exchanges to list and trade equity options that give investors
the ability, within specified limits, to designate certain of the terms
of the options. In recent years, an over-the-counter (``OTC'') market
in customized equity options has developed which permits participants
to designate the basic terms of the options, including size, term to
expiration, exercise style, exercise price, and exercise settlement
value, in order to meet their individual investment needs. Participants
in this OTC market are typically institutional investors, who buy and
sell options in large-size transactions through a relatively small
number of securities dealers. To compete with this growing OTC market
in customized equity options, the Exchanges propose to expand their
FLEX Options rules \8\ to permit the introduction of trading in FLEX
Options on specified equity securities that satisfy the Exchanges'
listing standards for equity options and that are currently the subject
of regular (non-FLEX) standardized options trading on the Exchange that
is seeking to list the FLEX Option.\9\ the Exchanges' proposals will
also FLEX Equity Option market participants to designate the following
contract terms: (1) exercise price; (2) exercise style (i.e.,
American,\10\ European,\11\ or capped \12\); (3) expiration date; \13\
and (4) option type (put, call, or spread).
\8\ See CBOE Rules 24A.1 through 24A.17 and PSE Rules 8.100
through 8.115.
\9\ See CBOE Amendment No. 1, supra note 3, and PSE Amendment
No. 2, supra note 4.
\10\ An American-style equity option is one that may be
exercised at any time on or before the expiration date.
\11\ A European-style equity option is one that may be exercised
only during a limited period of time prior to expiration of the
option.
\12\ A capped-style equity option is one that is exercised
automatically prior to expiration when the cap price is less than or
equal to the closing price of the underlying security for calls or
when the cap price is greater than or equal to the closing price of
the underlying security for puts.
\13\ The proposals, however, require that the expiration date of
a FLEX Equity Option may not fall on a day that is within two
business days of the expiration date of a Non-FLEX Equity Option.
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Currently, both the CBOE \14\ and PSE \15\ have received Commission
approval to list and trade FLEX Options on several broad-based market
indexes of equity securities (``FLEX Index Options''). The Exchanges
believe that because of the success of these products in meeting the
needs of investors for greater flexibility is designating the terms of
index options within the parameters of the Exchanges' FLEX Options
rules, the Exchanges are now proposing to provide comparable
flexibility to investors in equity options. The Exchanges believe that
FLEX Equity Options will further broaden the base of institutional
investors that use FLEX Options to manage their trading and investment
risk.
\14\ Specifically, the Commission has approved the listing by
the CBOE of FLEX Options on the S&P 100 (``OEX''), S&P 500
(``SPX''), Nasdaq 100, and Russell 2000 Indexes. See Securities
Exchange Act Release Nos. 31920 (February 24, 1993), 58 FR 12280
(March 3, 1993) (approval of FLEX Options on the SPX and OEX
indexes), 34052 (May 12, 1994), 59 FR 25972 (May 18, 1994) (approval
of FLEX Options on the Nasdaq 100 index), and 32694 (July 29, 1993),
58 FR 41814 (July 5, 1993) (approval of FLEX Options on the Russell
2000 index).
\15\ The Commission has approved the listing by the PSE of FLEX
Options on the Wilshire Small Cap Index and the PSE Technology
Index. See Securities Exchange Act Release No. 34364 (July 13,
1994), 59 FR 36813 (July 19, 1994).
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For the most part, the Exchanges represent that their current rules
governing FLEX Index Options will apply unchanged to FLEX Equity
Options. Certain changes to the Exchanges' existing FLEX Options rules,
however, are proposed to deal with the special characteristics of FLEX
Equity Options. Specifically, the Exchanges propose to add several new
definitions to accommodate the introduction of trading in FLEX Equity
Options,\16\ and to revise certain other rules governing FLEX Options
and their trading, as described below.
\16\ In addition to the term FLEX Equity Options, the proposal
also defines the terms ``FLEX Index Options,'' ``Non-FLEX Options,''
``Non-FLEX Equity Option,'' and, ``Applicable Floor Procedure
Committee.'' See CBOE Rule 24A.1 and PSE Rule 8.1000(b).
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As with FLEX Index Options, the Options Clearing Corporation
(``OCC'')
[[Page 6667]]
will be the issuer of all FLEX Equity Options. The Commission has
designated FLEX Index Options as standardized options for purposes of
the options disclosure framework established under Rule 9b-1 of the
Act.\17\
\17\ See Securities Exchange Act Release No. 31910 (February 23,
1993), 58 FR 12056 (March 2, 1993) (``9b-1 Order''). As described in
note 42 infra, and for the same reasons stated in the 9b-1 Order,
FLEX Equity Options are deemed ``standardized options'' for purposes
of the Rule 9b-1 options disclosure framework.
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III. Description of the Proposal
The Exchanges propose to revise their rules concerning the terms of
FLEX Options to make specific reference to the terms of FLEX Equity
Options.\18\ Specifically, FLEX Equity Options will have (1) a maximum
term of three years, (2) a minimum size of 250 contracts for an opening
transaction in a new series, and (3) a minimum size of 100 contracts
for an opening or closing transaction in a series in which there is
already open interest (or any lesser amount in a closing transaction
that represents the remaining underlying size). The minimum value size
for FLEX Quotes\19\ by a single Market-Maker in response to a Request
for Quotes\20\ in FLEX Equity Options is the lesser of 100 contracts or
the remaining underlying size in a closing transactions.
\18\ CBOE Rule 24A.4 and PSE Rule 8.102.
\19\ See CBOE Rule 24A.1(f) and PSE Rule 8.100(b)(7).
\20\ See CBOE Rule 24A.1(k) and PSE Rule 8.100(b)(12).
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The Exchanges also propose to allow exercise prices and premiums
for FLEX Equity Options to be stated in dollar amounts or percentages,
with premiums rounded to the nearest minimum tick and exercise prices
rounded to the nearest one-eighth. The exercise of FLEX Equity Options
will be by physical delivery, and the exercise-by-exception procedures
of OCC will apply.\21\
\21\ OCC Rule 805 provides for automatic exercise of in-the-
money options at expiration without the submission of an exercise
notice to the OCC if the price of the security underlying the option
is at or above a certain price (for calls) or at or below a certain
price (for puts); and the non-exercise of an option at expiration if
the price of the security underlying the option does not satisfy
such price levels. See OCC Rule 805.
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The Exchanges represent that the trading procedures applicable to
FLEX Equity Options will be subject to many of the same rules that
apply to equity options traded on the Exchanges, and are similar to
those that apply to FLEX Index Options, except that unless the
Exchange's Market Performance Committee decides otherwise, there will
not be FLEX Appointed Market-Makers\22\ who are obligated to respond to
Requests for Quotes in respect of FLEX Equity Options as there are with
FLEX Index Options. Instead, the Exchanges propose to have five or more
``FLEX Qualified Market-Makers'',\23\ who are permitted, but not
obligated, to enter quotes in response to a Request for Quotes in a
class of FLEX Equity Options in which the Market-Maker is qualified. In
addition, a FLEX Post Official\24\ may call upon a FLEX Qualified
Market-Maker to make responsive quotes in the interests of a fair and
orderly market. Moreover, a FLEX Post Official must call upon a FLEX
Qualified Market-Maker to make a quote in response to a Request for
Quotes (``RFQ'') if no quotes are made in response to the RFQ.\25\
Accordingly, a FLEX Qualified Market-Maker is obligated to make
responsive quotes whenever called upon to do so by a FLEX Post
Official. Quotes of FLEX Qualified Market-Makers must satisfy the
minimum size parameters discussed above for FLEX Equity Options and
must be entered within the time periods provided in the Exchanges' FLEX
Options Rules.\26\
\22\ See CBOE Rule 24A.9 and PSE Rule 8.109.
\23\ FLEX Qualified Market-Makers for FLEX Equity Options will
be required to obtain a specific clearing member letter of
guarantee, similar to FLEX Appointed Market-Makers assigned to FLEX
Index Options. FLEX Qualified Market-makers, however, will not be
required to maintain specific minimum financial requirements as are
required for FLEX Appointed Market-Makers assigned to FLEX Index
Options in CBOE Rules 24A.13 and 24A.14, and PSE Rules 8.113 and
8.114. See, e.g., CBOE Rules 24A.9, 24A.13, 24A.14, and 24A.15; and
PSE Rules 8.109, 8.113, 8.114, and 8.115.
\24\ See CBOE Rule 24A.1(e) and PSE Rule 8.100(b)(7).
\25\ See CBOE Rule 24A.9(c) and PSE Rule 8.109(c). See also CBOE
Amendment No. 1, supra note 3, and PSE Amendment No. 2, supra note
4.
\26\ See CBOE Rule 24A.5 and PSE 8.103. Initially, the Request
Response Time will be a minimum of 2 minutes and a maximum of 20
minutes. Under the proposed rules, the Equity Floor Procedures
Committee has the authority to set the range for the Request
Response Time. The Exchanges will provide at least 2 days notice to
their respective members and member organizations of any changes to
the Request Response Time range.
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The Exchange represent that the rules governing priority of bids
and offers for FLEX Equity Options are also similar to those that apply
to FLEX Index Options, except that in the case of FLEX Equity Options,
no guaranteed minimum right of participation is provided to an Exchange
member that initiates a Request for Quotes and indicates an intention
to cross or act as principal on the trade.\27\ The Exchanges' regular
rules of price and time priority will apply in those situations.\28\
\27\ See CBOE Rule 24A.5(c) and PSE Rule 8.103(c).
\28\ See CBOE Rule 6.45 and PSE Rule 6.75.
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The Exchanges are proposing position limits and exercise limits for
FLEX Equity Options that are longer than the limits applicable to Non-
FLEX Equity Options for the same reasons that the position and exercise
limits for FLEX Index Options are larger than those applicable to Non-
FLEX Index Options. Position and exercise limits for FLEX Equity
Options are set forth and compared to existing limits for Non-FLEX
Equity Options on the same underlying security.\29\
\29\ See CBOE Rule 24A.7(b) and PSE Rule 8.107(c). See also CBOE
Amendment No. 1, supra note 3, and PSE Amendment No. 2, supar note
4.
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Non-FLEX equity position limit FLEX equity position limit
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4,500 contracts........................... 13,500 contracts.
7,500 contracts........................... 22,500 contracts.
10,500 contracts.......................... 31,500 contracts.
20,000 contracts.......................... 60,000 contracts.
25,000 contracts.......................... 75,000 contracts.
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The applicable position and exercise limit tiers for Non-FLEX
Equity Options are based on the number of outstanding shares and
trading volume of the underlying security.\30\ This proposal does not
alter the applicable tier criteria set forth in the Equity Option
Position Limit Approval Orders.
\30\ See Securities Exchange Act Release Nos. 36409 (October 23,
1995), 60 FR 55399 (October 31, 1995) (File Nos. SR-NYSE-95-31; SR-
PSE-95-25; SR-Amex-95-42; and SR-Phlx-95-71); and 36371 (October 13,
1995, 60 FR 54269 (October 20, 1995) (File No. SR-CBOE-95-42)
(collectively the ``Equity Option Position Limit Approval Orders'').
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As is currently the case for FLEX Index Options, it is proposed
that there will be no aggregation of positions or exercises in FLEX
Equity Options with positions or exercises in Non-FLEX Equity Options
for purposes of the limits. The Exchanges believe that the larger
position and exercise limits for FLEX Options and the nonaggregation of
positions and exercises in FLEX Options and Non-FLEX Options reflect
the institutional nature of the market for FLEX Options and the fact
that the Exchanges must compete with over-the-counter markets
throughout the world, many of which do not impose position or exercise
limits.
The Exchanges also propose to provide that the expiration date of a
FLEX Equity Option may not occur on a day that falls on, or within, two
business days of the expiration date of a Non-FLEX Equity Option. This
is intended to eliminate the possibility that the exercise of FLEX
Equity Options at FLEX Equity Option. This is intended to eliminate the
possibility that the exercise of FLEX Equity at expiration will cause
any untoward
[[Page 6668]]
pressure on the market for underlying securities at the same time as
Non-FLEX Equity Options underlying securities at the same time as Non-
FLEX Equity Options expire. The Exchanges propose that this change will
also apply to FLEX Index Options.\31\
\31\ Both Exchanges currently provide that the expiration date
of a FLEX Index Option may not occur during this time period. THe
proposed rule change merely clarifies this requirement.
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lThe Exchanges believe that the proposed rule change is consistent
with Section 6 of the Act, in general, and furthers the objectives of
Section 6(b)(5) of the Act,\32\ in particular, in that it is designed
to promote just and equitable principles of trade, remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and to protect investors and the public interest in that
extending the existing FLEX Option program to encompass FLEX Options on
specified equity securities will for the first time provide investors
with a regulated, transparent exchange market in flexible options on
individual equity securities.
\32\ 15 U.S.C. 78f(b)(5).
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IV. Comments
As noted above, the Commission received one comment letter, which
was supportive of CBOE's FLEX Equity Option proposal. The commentator
expressed the view that the FLEX product will provide its customers
with the ability to negotiate equity option contract terms without
compromising the safety and liquidity provided by the five options
exchanges in the U.S.\33\.
\33\ See Swiss American Securities Letter, supra note 7.
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V. Discussion
The Commission finds that the proposals are 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 Sections 6(b)(5) \34\ and 11A \35\ of the Act.
Specifically, the Commission finds that the Exchanges' proposals are
designed to provide investors with a tailored or customized product for
equity options currently traded on each of the respective Exchanges
that may be more suitable to their investment needs. Moreover,
consistent with Section 11A, the proposals should encourage fair
competition among brokers and dealers and exchange markets, by allowing
the Exchanges to compete with the growing OTC market in customized
equity options.
\34\ 15 U.S.C. 78f(b)(5).
\35\ 15 U.S.C. 78k-1.
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The Commission believes the Exchanges' proposals reasonably address
their 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. Additionally, the
Commission believes that the Exchanges' proposals will help promote the
maintenance of a fair and orderly market, consistent with Sections
6(b)(5) and 11A of the Act, because the purpose of each proposal is to
extend the benefits of a listed, exchange market to equity options that
are more flexible than current listed equity options. The benefits of
the Exchanges' options markets include, but are not limited to, a
centralized market center, an auction market with posted transparent
market quotations and transaction reporting, parameters and procedures
for clearance and settlement, and the guarantee of OCC for all
contracts traded on the Exchange.
As indicated above, the trading procedures applicable to FLEX
Equity Options will be subject to many of the same rules that apply to
equity options traded on the Exchanges, and are similar to those that
apply to FLEX Index Options, except that unless the Exchange's Market
Performance Committee decides otherwise, there will not be FLEX
Appointed Market-Makers \36\ who are obligated to respond to Requests
for Quotes in respect of FLEX Equity Options as there are in respect of
FLEX Index Options. Instead, the Exchanges propose to have five or more
``FLEX Qualified Market-Makers'' appointed to each class of FLEX Equity
Option who are permitted, but not obligated, to enter quotes in
response to a Request for Quotes in a class of FLEX Equity Options in
which the Market-Makers is qualified.\37\ To provide for adequate
liquidity, the Exchanges provide that a FLEX Post Official may call
upon a FLEX Qualified Market-Maker to make responsive quotes in the
interests of a fair and orderly market.\38\ Moreover, a FLEX Post
Official must call upon a FLEX Qualified Market-Maker to make a quote
in response to a Request the Quotes (``RFQ'') if no quotes are made in
response to the RFQ.\39\ Accordingly, a FLEX Qualified Market-Maker is
obligated to make responsive quotes whenever called upon to do so by a
FLEX Post Official. Additionally, quotes of FLEX Qualified Market-
Makers must satisfy the minimum size parameters discussed above for
FLEX Equity Options and must be entered within the time periods
provided in the Exchanges' FLEX Options Rules.\40\ The Commission
believes the Exchanges' trading procedures for FLEX Equity Options are
reasonably designed to provide some of the benefits of an Exchange
auction along with features of a negotiated transaction between
investors. The Commission recognizes that the Exchanges' proposed FLEX
Equity Option trading programs will allow the trading of option
contracts of substantial value, for which continuous quotation may be
difficult to sustain. The Commission believes that the Exchanges have
adequately addressed these concerns by establishing procedures for
quotes upon request, which must be firm for a designated period of time
and which will be disseminated through the Options Price Reporting
Authority (``OPRA'').
\36\ See CBOE Rule 24A.9 and PSE Rule 8.109.
\37\ The Commission notes that FLEX Qualified Market-Makers for
FLEX Equity Options will be required to obtain a specific clearing
member letter of guarantee, similar to FLEX Appointed Market-Makers
assigned to FLEX Index Options. FLEX Qualified Market-Makers,
however, will not be required to maintain specific minimum financial
requirements as are required for FLEX Appointed Market-Makers
assigned to FLEX Index Options in CBOE Rules 24A.13 and 24A.14, and
PSE Rules 8.113 and 8.114. See, e.g., CBOE Rules 24A.9, 24A.13,
24A.14, and 24A.15; and PSE Rules 8.109, 8.113, 8.114, and 8.115.
\38\ See CBOE Rule 24A.9(b) and PSE Rule 8.109(b).
\39\ See CBOE Rule 24A.9(c) and PSE Rule 8.109(c). See also CBOE
Amendment No. 1, supra note 3, and PSE Amendment No. 2, supra note
4.
\40\ See CBOE Rule 24A.5 and PSE 8.103.
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The Commission believes that market impact concerns are reduced for
FLEX Equity Options because expiration of these equity options will not
correspond to the normal expiration of Non-FLEX Equity Options. In
particular, FLEX Equity Options, similar to FLEX Index Options, will
never expire on any ``Expiration Friday.'' More specifically, the
expiration date of a FLEX Option may not occur on a day that is on, or
within, two business days of the expiration date of a Non-FLEX Option.
The Commission believes that this should reduce the possibility that
the exercise of FLEX Options at expiration will cause any additional
pressure on the market for underlying securities at the same time that
Non-FLEX Options expire.
Nevertheless, because the position limits for FLEX Equity Options
are much higher than those currently existing for outstanding exchange-
traded equity options and open interest in one or more FLEX Equity
Option series could grow to significant levels, it is possible that
FLEX Equity Options might have an impact on the securities
[[Page 6669]]
markets for the securities underlying FLEX Equity Options. The
Commission expects the Exchanges to monitor the actual effect of FLEX
Equity Options once trading commences and 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.
The Exchanges represent that FLEX Equity Options will allow them to
compete with OTC markets and help meet the demand for customized equity
options products by institutional investors. The minimum value sizes
for opening transactions in FLEX Equity Options are designed to appeal
to institutional investors, and it is unlikely that most retail
investors would be able to engage in options transactions at that size.
Nevertheless, the FLEX Equity Option minimum size is much smaller than
that for FLEX Index Options. Accordingly, the Commission requests that
the Exchanges monitor their respective comparative levels of
institutional and retail investor open interest in FLEX Equity Options
for one year from the commencement of their respective FLEX Equity
Option trading programs, and each provide a report to the Commission's
Division of Market Regulation with their findings.
The Commission notes that effective surveillance guidelines are
essential to ensure that the Exchanges have the capacity to adequately
monitor trading in FLEX Equity Options for potential trading abuses.
The Commission's staff has reviewed CBOE's surveillance program and
believes it provides a reasonable framework in which to monitor the
trading of FLEX Equity Options on its trading floor and detect as well
as deter manipulation activity and other trading abuses. The PSE is in
the process of preparing its surveillance plan to submit to the
Commission.
This approval order, in regard to the PSE, is contingent upon it
submitting adequate surveillance plans that have been reviewed and
approved by Commission staff.
The Commission notes that trading of FLEX Equity Options is
contingent upon receipt by the Commission of a letter from OPRA
indicating that it has adequate systems processing capacity to
accommodate the additional options listed in accordance with the FLEX
Equity Options program. OPRA has reviewed CBOE's request, and has
concluded that the additional traffic generated by FLEX Equity Options
traded on the CBOE is within OPRA's capacity.\41\ The PSE is preparing
to submit its request to OPRA to determine whether the additional
traffic generated by FLEX Equity Options traded on the PSE is within
OPRA's capacity. This approval order, in regard to the PSE, is
contingent upon it submitting its OPRA Capacity Letter to the
Commission's Division of Market Regulation.
\41\ See Letter from Joe Corrigan, Executive Director, OPRA, to
Andy Lowenthal, CBOE, dated January 26, 1996 (``OPRA Capacity
Letter'').
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The Commission finds good cause for approving CBOE Amendment No. 1
and PSE Amendment No. 2 prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register.
Specifically, these amendments (1) set specific position limits for
each tier of Non-FLEX Equity Option position limits; (2) require FLEX
Post Officials to call upon FLEX Qualified Market-Makers to quote in
response to a Request for Quotes, whenever no FLEX Quotes are made in
response to a specific Request for Quotes; and (3) limit FLEX Equity
Option transactions to equities that are the subject to Non-FLEX Equity
Options traded on the Exchange. The Commission does not believe that
the amendments raise any new or unique regulatory issues. The
amendments also strengthen and clarify the proposal by addressing
market impact and liquidity concerns as well as the scope of the
proposal. Accordingly, the Commission believes, consistent with Section
6(b)(5) of the Act, that good cause exists, to approve CBOE Amendment
No. 1 and PSE Amendment No. 2 to their respective proposals on an
accelerated basis.
Interested persons are invited to submit written data, views and
arguments concerning CBOE Amendment No. 1, and PSE Amendment No. 2.
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. Sec. 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 offices of the Exchanges. All submissions should refer
to SR-CBOE-95-43; and SR-PSE-95-24 and should be submitted by March 13,
1996.
VI. Conclusion
For the reasons discussed above, the Commission finds that the
proposal is consistent with the Act and Sections 6 and 11A 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, are
standardized options for purposes of the options disclosure framework
established under Rule 9b-1 of the Act.\42\
\42\ 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).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\43\ that the proposals (File Nos. SR-CBOE-95-43 and SR-PSE-95-24),
as amended, are approved.
\43\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\44\
\44\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-3838 Filed 2-20-96; 8:45 am]
BILLING CODE 8010-01-M