[Federal Register Volume 59, Number 107 (Monday, June 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13606]
[[Page Unknown]]
[Federal Register: June 6, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34126; File No. SR-CBOE-93-47]
Self-Regulatory Organizations; Order Approving and Notice of
Filing and Order Granting Accelerated Approval of Amendment No. 1 to a
Proposed Rule Change by the Chicago Board Options Exchange, Inc.,
Relating to Temporary Suspensions of Trading in Options
May 27, 1994.
On October 20, 1993, the Chicago Board Options Exchange, Inc.
(``CBOE'' or ``Exchange''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') a proposed rule change to provide limited
authority to Post Directors, Order Book Officials (``OBOs''), and under
certain circumstances, Designated Primary Market-Makers (``DPMs''), to
suspend trading in a class of options for a limited period of time.
Notice of the proposal appeared in the Federal Register on November 9,
1993.\3\ No comment letters were received on the proposed rule change.
On April 11, 1994, the CBOE filed Amendment No. 1 to the proposed rule
change.\4\ This order approves the Exchange's proposal, as amended.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1992).
\3\See Securities Exchange Act Release No. 33131 (November 2,
1993), 58 FR 59500 (November 9, 1993).
\4\Amendment No. 1: (1) Clarifies that only one five minute
suspension of trading is authorized pursuant to the proposal; (2)
defines who is a ``Post Director;'' and (3) deletes the DPM as one
of the persons authorized to impose a temporary suspension of
trading. See Letter from Michael L. Meyer, Schiff Hardin & Waite, to
Michael Walinskas, Branch Chief, Office of Derivatives and Equity
Oversight, Division of Market Regulation, Commission, dated April 8,
1994 (``Amendment No. 1'').
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The CBOE proposes to amend Rule 6.3 (``Trading Halts'') to
authorize, with respect to a particular class of options, the Post
Director\5\ or OBO to suspend trading in the options class for a period
of time not to exceed five minutes whenever trading in the underlying
security is halted. This limited authority may be exercised only if the
trading halt in the underlying security is evidenced by an ``ST''
symbol (for an exchange-listed security) or an ``H'' (for a National
Market security traded through the NASDAQ system) appearing on the
class display screen that displays current market information for the
underlying security, or if such trading halt is otherwise verified by
the senior person in charge of the Exchange's Control Room. The
proposed rule change applies only in the circumstance where there has
been a trading halt in an underlying security, and has no application
to ``circuit breaker'' trading halts under Rule 6.3A.
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\5\A Post Director is an Exchange employee at a trading post
whose function is to assist the OBO and the DPM at each station at
the post. Id.
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Concurrently with any suspension of trading pursuant to the
proposed rule change, the responsible Post Director or OBO shall turn
off the Retail Automatic Execution System applicable to the affected
options class or classes. Additionally, the Post Director or OBO shall
disseminate the designation 998-999 on the Exchange's quote reporting
system, which indicates the option is not trading on the CBOE.
Prior to the expiration of any temporary suspension imposed
pursuant to the proposed rule change, the responsible Post Director or
OBO is required to notify two Floor Officials in order to obtain a
determination by them whether a trading halt in the effected options
class should be declared under Rule 6.3(a). If the two Floor Officials
determine not to halt trading, immediately following such determination
it shall be announced to the crowd and trading (or a rotation in the
option) shall in no event resume more than five minutes after the
temporary suspension of trading was implemented. The Post Director or
OBO may only invoke a single five minute suspension of trading pursuant
to the proposed rule change.\6\
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\6\Id.
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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(b)(5),\7\ in that it is
designed to protect the mechanism of a free and open market and to
protect investors and the public interest. Specifically, the Commission
finds that the proposal will protect investors and the public interest
by enabling Post Directors and OBOs to temporarily suspend options
trading promptly in response to verified trading halts in underlying
securities. Pursuant to the current version of Rule 6.3(a), Floor
Officials have the authority to halt trading in any options class for a
period not in excess of two consecutive business days if trading in the
underlying security has been halted in the primary market. The proposed
rule change, therefore, merely bridges the gap that currently exists
between the time that trading in an underlying security is halted and
the time it takes for the Floor Officials to impose a trading halt in
the related options class pursuant to their authority under Rule
6.3(a). Additionally, a temporary trading suspension pursuant to the
proposed rule change can only be invoked once during a single
occurrence of a halt in trading in the underlying security. If two
Floor Officials determine not to institute a trading halt pursuant to
Rule 6.3(a), or if a decision is not made by two Floor Officials within
the five minute period, trading in the options class will immediately
resume and will continue unless two Floor Officials subsequently
independently decide to invoke a trading halt pursuant to Rule 6.3(a).
Accordingly, the Commission finds that the proposed rule change
protects investors and the public interest by providing a means for an
immediate trading halt in those circumstances where Floor Officials
would be likely to impose a trading halt pursuant to Rule 6.3(a).
Moreover, because the conditions under which the five minute halt can
be invoked are specific and objective, the Commission does not expect
that the rule change will increase the likelihood of abuse in the
implementation of trading halts.
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\7\15 U.S.C. 78f(b)(5) (1988).
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The Commission finds good cause for approving Amendment No. 1 prior
to the thirtieth day after the date of publication of notice of filing
thereof in the Federal Register. Specifically, Amendment No. 1 removes
the DPM as one of the persons authorized to impose a temporary
suspension of trading. Because the DPM performs market making
functions, in addition to having the responsibilities of an OBO, the
Commission believes it would be inappropriate for a DPM to be able to
suspend trading in a class of options for any period of time. Amendment
No. 1 also makes certain clarifications to the proposed rule language.
The Commission believes that these clarifications will minimize any
potential for confusion as to the application of the rule. As a result,
the Commission believes that good cause exists for approving Amendment
No. 1 on an accelerated basis.
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1. 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. 552, will be available for inspection and
copying at the Commission's Public Reference Section, 450 Fifth Street
NW., Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the File
Number SR-CBOE-93-47 and should be submitted by June 27, 1994.
It Is Therefore Ordered, pursuant to section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-CBOE-93-47) is
approved.
\8\15 U.S.C. 78s(b)(2) (1988).
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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) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13606 Filed 6-3-94; 8:45 am]
BILLING CODE 8010-01-M