[Federal Register Volume 66, Number 160 (Friday, August 17, 2001)]
[Notices]
[Pages 43278-43279]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 01-20769]
[[Page 43278]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-44683; File No. SR-CBOE-2001-41]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by
the Chicago Board Options Exchange, Inc. Relating to the Display of
Indicative Spread Prices
August 10, 2001.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on July 19, 2001, the Chicago Board Options Exchange, Inc.
(``Exchange'' or ``CBOE'') 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 CBOE. On July 20, 2001, the CBOE submitted Amendment No. 1 to
the proposed rule change.\3\ The proposed rule change, as amended, has
been filed by the CBOE as a ``non-controversial'' rule change under
Rule 19b-4(f)(6) \4\ under the Act. The Commission is publishing this
notice to solicit comments on the proposed rule change, as amended,
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Nancy Nielsen, First Vice President & Deputy
General Counsel, CBOE, to Nancy Sanow, Assistant Director, Division
of Market Regulation (``Division''), Commission, dated July 18, 2001
(``Amendment No. 1''). In Amendment No. 1, the CBOE corrected its
original filing to include a request for the Commission to waive the
five-business-day pre-filing requirement and the 30-day delay in the
operative date of the proposed rule change under Rule 19b-4(f)(6)
under the Act. See 17 CFR 240.19b-4(f)(6).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to adopt a new interpretation to CBOE Rule 8.7.
Below is the text of the proposed rule change. Proposed new language is
italicized.
* * * * *
.10 Market-Makers may display indicative spread prices on the
websites of member organizations through a system licensed from a third
party, developed by the Exchange or otherwise. Such indicative prices
shall not be regarded as firm quotes, and a Market-Maker shall not be
obligated to execute at the indicative prices spread orders that are
entered into the market.
* * * * *
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, as
amended, 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. Purpose
The CBOE states that a spread order is an order to buy a stated
number of option contracts and to sell a stated number of option
contracts of the same class of options. The CBOE represents that there
are various types of spread transactions. For example, a typical
calendar spread order would be to buy ten March call options and to
sell ten June call options of the same class. The CBOE states that
spread transactions can be used by investors in a number of trading
strategies.
The CBOE represents that market-makers at the Exchange are often
willing to execute a spread transaction at a net price that is better
than the aggregate price of executing each leg of the spread
separately. However, the CBOE states that there is currently no
systematic means by which market-makers can communicate their
willingness to execute spread transactions at favorable prices to
investors who might be interested in such spread transactions. By
adopting the proposed Interpretation, the CBOE intends to encourage
market-makers to post indicative prices for spreads on the websites of
member organizations through a system licensed from a third party,
developed by the Exchange or otherwise.
Initially, the CBOE represents that it intends to license the
software for such a system (called the ``iSpreads System'') from a
third party. The CBOE states that it may later develop its own
proprietary software to operate such a system. The CBOE states that it
will make this system available to all CBOE market-makers on its
trading floor. CBOE members and member firms who wish to use the system
from off the trading floor may do so by obtaining their own license
from the third party. Use of this system is not mandatory; a market-
maker is not required to post indicative spread prices at all, and, if
he chooses to do so, he is free to use some mechanism other than the
system being made available by the Exchange.
The CBOE states that market-makers who choose to use the iSpreads
System can post indicative spread prices for selected options classes
on the websites of participating member organizations. Depending on how
the member organization wishes to use the system, a customer either can
search directly on the firm's publicly accessible website to find
indicative prices for the particular spread in which he is interested,
or he can contact his broker at the firm and ask the broker to conduct
the search on an internal site accessible to the firm. Customer orders
would be sent to the CBOE market for execution in accordance with
current practices, by being phoned into a member firm's order desk or
transmitted via an electronic order routing system. Once a spread order
has been transmitted to the Exchange, it will be executed in accordance
with the Exchange's current trading rules. No special allocation rules
or priority rules are being created.
The CBOE states that the iSpreads System should provide significant
benefits to customers. The CBOE represents that it will provide
improved information about spread prices and help customers get their
spread orders executed at a price that is better than executing each
leg of the spread separately.
The proposed Interpretation also provides that the indicative
spread prices shall not be regarded as firm quotes, and a market-maker
shall not be obligated to execute at the indicative prices spread
orders that are entered into the market. The Exchange believes that
attempting to obligate a market-maker to execute a spread order at the
posted indicative price would create a disincentive to his use of the
system. The proposed Interpretation makes it clear to all market
participants that the indicative spread prices are not firm quotes and
may not be available when an order is sent to the Exchange for
execution. A similar disclaimer will be posted on the websites of
member firms displaying the indicative spread prices.
2. Statutory Basis
The Exchange believes the proposed rule change, as amended, is
consistent with Section 6 of the Act \5\ in general, and with Section
6(b)(5) of the Act \6\ specifically, because it is designated to
[[Page 43279]]
remove impediments to and perfect the mechanism of a free and open
market and national market system, and, in general, to protect
investors and the public interest. In particular, the CBOE states that
the proposed Interpretation is intended to benefit customers by
providing them with improved information about spread prices. The CBOE
states that the proposed Interpretation is also intended to help
customers get their spread orders executed at a better price than
executing each leg of the spread order separately.
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\5\ 15 U.S.C. 78f.
\6\ 15 U.S.C. 78(f)(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, as
amended, will impose a burden on competition that is not necessary or
appropriate in furtherance of purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Because the foregoing proposed rule change, as amended: (1) does
not significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) does not become operative for 30 days after the date of filing,
or such shorter time as the Commission may designate if consistent with
protection of investors and the public interest; provided that the
self-regulatory organization has given the Commission written notice of
its intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule change,
or such shorter time as designated by the Commission, the proposed rule
change, as amended, has become effective pursuant to Section
19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) \8\ thereunder.
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of filing.
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The CBOE seeks to have the proposed
rule change, as amended, become operative immediately.\9\
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\9\ See supra note 3.
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The Commission, consistent with the protection of investors and the
public interest, has determined to make the proposed rule change, as
amended, operative as of July 19, 2001.\10\
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\10\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f).
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A proposed rule change filed under Rule 19b-4(f)(6) normally
requires that a self-regulatory organization give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at least
five business days prior the date of filing of the proposed rule
change. However, Rule 19b-(f)(6)(iii) permits the Commission to
designate a shorter time. The CBOE seeks to have the five-business-day
pre-filing requirement waived with respect to the proposed rule change,
as amended. \11\
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\11\ See supra note 3.
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The Commission has determined to waive the five-business-day pre-
filing requirement.
At any time within 60 days of the filing of the proposed rule
change, as amended, 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.\12\
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\12\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78(b)(3)(C).
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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 in the Commission's Public Reference Room. 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-2001-41 and should
be submitted by September 7, 2001.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-20769 Filed 8-16-01; 8:45 am]
BILLING CODE 8010-01-M