[Federal Register Volume 63, Number 237 (Thursday, December 10, 1998)]
[Notices]
[Pages 68323-68324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32828]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40736; File No. SR-CBOE-98-37]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Inc.; Order Approving Proposed Rule Change To Allow the Chairman of the
Equity Floor Procedure Committee, or the Chairman's Designee, To
Increase the Eligible Order Size for Entry into RAES
December 1, 1998.
On August 21, 1998, the Chicago Board Options Exchange, Inc.
(``CBOE'' or ``Exchange'') submitted to the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ a proposed rule change to
permit the Chairman of the appropriate Floor Procedure Committee
(``Committee''), or the Chairman's designee, to exercise the authority
of the Committee to increase the size of orders eligible for entry into
CBOE's Retail Automatic Execution System (``RAES'') in certain
circumstances.\2\ The Exchange amended the proposed rule change on
October 5, 1998.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ RAES accepts, through the Exchange's Order Routing System,
small public customer market or marketable limit orders for
automatic execution. An Exchange marketmaker on RAES is assigned as
the contraparty to these trades.
\3\ Letter from Timothy H. Thompson, Director, Regulatory
Affairs, CBOE, to Sonia Patton, Attorney, Division of Market
Regulation, Commission, dated September 15, 1998 (``Amendment No.
1'').
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The proposed rule change was published for comment in the Federal
Register on October 30, 1998.\4\ The Commission received no comments on
the proposal. This order approves the proposal, as amended.
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\4\ See Exchange Act Release No. 40596 (Oct. 23, 1998), 63 FR
58434 (Oct. 30, 1998).
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Description of the Proposal
The Exchange is proposing to amend Exchange Rule 6.8, by adding
Interpretation and Policy .05, to permit the Chairman of the Committee,
or the Chairman's designee, to exercise the authority of the Committee
to increase the size of orders eligible for entry into RAES when the
Chairman or his or her designee believes that the action could
alleviate a potential backlog of unexecuted orders where an options
class is experiencing a large influx of orders. This decision may not
extend for longer than one trading day. If the situation extends into a
second day, the Chairman or his or her designee would have to make an
independent decision to increase the RAES eligible order size for that
subsequent day. The Equity Floor Procedure Committee (``EFPC'') will
review any decision to approve an increase for consecutive days.
Pursuant to its discretion under Exchange Rule 6.8, the EFPC has
established an eligible RAES order size of ten contracts for most
equity options traded on the floor.
The EFPC has discovered through experience in overseeing the
operation of RAES in equity options, however, that it is often
beneficial to temporarily raise the eligible order size to the
allowable limit of twenty contracts in situations where a particular
class of equity options is experiencing a large influx of orders. By
increasing the eligible order size, a large percentage of the order
flow can be filled immediately at the Exchange's quotes or at the
National Best Bid or Offer (``NBBO'').\5\ The Exchange notes that such
increase will allow the trading crowd to concentrate on filling the
non-RAES eligible orders in a more expeditious manner.
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\5\ The Commission recently approved a proposed rule change that
provides that in classes designated by the EFPC, RAES orders will be
executed at the NBBO to the extent the NBBO is no more than one tick
better than the CBOE quote. Exchange Act Release No. 40096 (June 16,
1998), 63 FR 34209 (June 23, 1998) (approving SR-CBOE-98-13).
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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 of the Act \6\ and the rules
and regulations
[[Page 68324]]
thereunder.\7\ Section 6(b) of the Act states that the rules of an
exchange must be designed to facilitate securities transactions and to
remove impediments to and perfect the mechanism of a free and open
market. The Commission believes that permitting the Exchange to allow
the Chairman of the Committee, or the Chairman's designee, to exercise
the authority of the Committee to determine the size of orders eligible
for entry into RAES will help to expedite the execution of orders for
more than 10 contracts, which should free market makers to handle more
complex or larger orders that are not RAES eligible. The Commission
believes that EFPC review of decisions to increase the size of orders
eligible for entry into RAES for consecutive days will help to ensure
that the Chairman or his or her designee only uses the discretion in
those limited circumstances set forth in the Interpretation.
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\6\ 15 U.S.C. 78f(b).
\7\ In approving this rule change, the Commission has considered
the proposal's impact on efficiency, competition, and capital
formation, consistent with Section 3 of the Act. 15 U.S.C. 78c(f).
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Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (SR-CBOE-98-37) is approved.
\8\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-32828 Filed 12-9-98; 8:45 am]
BILLING CODE 8010-01-M