[Federal Register Volume 59, Number 134 (Thursday, July 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17032]
[[Page Unknown]]
[Federal Register: July 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34329; File No. SR-CBOE-94-02]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc., Relating to Equity
and SPX RAES Participation Requirements
July 7, 1994.
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 January
22, 1994, the Chicago Board Options Exchange, Inc. (``CBOE'' or
``Exchange'') 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 self-
regulatory organization. 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 amend its rules to impose fees on market
makers who fail to observe certain participation duties on the Retail
Automated Execution System (``RAES'') for equity and Standard & Poor's
500 Index (``SPX'') classes of options. Specifically, the CBOE proposes
to amend CBOE Rules 8.16, ``RAES Eligibility in Equity Options'' and
24.16, ``RAES Eligibility in SPX/NDX,'' to impose the following fees
for failures to satisfy the rules' log-off requirements: (1) A fee of
$100.00 for one to three failures within one twelve-month period; (2) a
fee of $250.00 for four to six failures within one twelve-month period;
and (3) a fee of $500.00 for seven or more failures within one twelve-
month period. In addition, the CBOE proposes to issue a Regulatory
Circular clarifying market makers' RAES responsibilities with respect
to equity and SPX options classes and indicating that members who fail
to meet the log-on requirements of CBOE Rules 8.16(b) or 24.16(b)
ordinarily will be suspended from participation on RAES at the
applicable trading station for a period of 21 consecutive business
days.\1\
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\1\CBOE Rules 8.16(b) states that in option classes designated
by the Market Performance Committee (``MPC''), any market maker who
has logged on RAES at any time during an expiration month must log
on the RAES system in that option class whenever he is present in
that trading crowd until the next expiration. CBOE Rule 24.(b)
states that unless exempted by the MPC, any market maker who has
logged on RAES at any time during an expiration month must log on
the RAES system in SPX/NSX whenever he is present in that trading
crowd until the expiration.
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The text of the proposal is available at the Office of the
Secretary, 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 self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the placed specified in Item IV below. The self-regulatory organization
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
The CBOE states that the purpose of the proposed rule change is to
impose fees on members who fail to observe the RAES log-off
requirements set forth in CBOE Rules 8.16(a) and 24.16(a) relative to
equity options and SPX index options. The CBOE proposes to incorporate
the following fee schedule into CBOE Rules 8.16(a) (for equity options)
and 24.16(a) (for SPX options) for failures to comply with the log-off
requirements: (1) A fee of $100.00 for one to three failures within one
twelve-month period; (2) a fee of $250.00 for four to six failures
within one twelve-month period; and (3) a fee of $500.00 for seven or
more failures within one twelve-month period.
The proposed fees for failures to observe the log-off requirements
for equity and SPX RAES are identical in amounts and graduated
structure to the fees proposed for Standard & Poor's 100 Index
(``OEX'') options in File No. SR-CBOE-94-12. Under both proposals, the
fee amounts will increase in relation to the number of times each
calendar year that a member does not log off as required.
As is the case for fees applicable to OEX RAES participants under
existing CBOE Rule 24.17, ``RAES Eligibility in ``OEX,'' the proposed
fees do not constitute disciplinary action, although the CBOE's review
procedures in Chapter XIX, ``Hearings and Review,'' of the CBOE's rules
will be available for review of fees assessed under the proposal. The
Commission has noted the appropriateness of such fees and appeal rights
in a related context.\2\
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\2\Specifically, in approving a CBOE proposal that included
procedures for contesting the fees assessed for delayed submission
of trade data, the Commission stated that ``Although such formalized
procedures are unusual for challenging fee assessments, they
actually make the imposition of the fee fairer by allowing members
to challenge erroneous fee charges. Moreover, these procedures are
reasonably designed to afford a member assessed a fee the
opportunity to challenge the veracity of the assessments.'' See
Securities Exchange Act Release No. 30001 (November 26, 1991), 56 FR
63529 (order approving File No. SR-CBOE-90-06).
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In addition to establishing a fee schedule, the CBOE proposes to
issue a Regulatory Circular that will reaffirm the nature of CBOE
market makers' RAES log-on and log-off responsibilities in respect of
equity and SPX options classes and will describe the consequences that
attach to any market maker's failure to observe these responsibilities.
The Regulatory Circular addresses four points. First, CBOE Rules
8.16(a)(iii) and 24.16(a)(iii) require any market maker who has logged
onto RAES at a trading station on any given trading day to log off RAES
whenever the market maker leaves the trading crowd for more than ``a
brief interval.'' The Regulatory Circular interprets ``a brief
interval'' to mean ``five consecutive minutes.'' Under this
interpretation any market maker who signs onto RAES at a particular
trading station during a trading session must log off the system prior
to leaving that station for more than five consecutive minutes. The
CBOE believes that this interpretation should eliminate ambiguity about
the amount of time a market maker may be away from the trading crowd
without signing off RAES.
Second, the Regulatory Circular notes that graduated fees will be
assessed under CBOE Rules 8.16(a) and 24.16(a) for failure to observe
the RAES log-off requirement.
Third, the Regulatory Circular reflects the MPC's designation
pursuant to CBOE Rules 8.16(b) and 24.16(b) that the expiration month
log-on requirements reflected in those rules will be enforced in all
classes of equity and SPX options for which RAES is available.
Accordingly, any market maker who has logged onto RAES in accordance
with CBOE Rules 8.16(a) or 24.16(a) during an expiration month for a
given class of options must log on whenever present at the applicable
trading station, until expiration.
Fourth, the Regulatory Circular reflects a determination by the
MPC, pursuant to its authority under CBOE Rules 8.16(d) and 24.16(d),
that any market maker who fails to meet the log-on requirements under
CBOE Rules 8.16(b) or 24.16(b) ordinarily will be suspended from
participation on RAES at the applicable trading station for a period of
21 consecutive business days.\3\
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\3\In contrast to this suspension provision, File No. SR-CBOE-
94-12 proposes that members who fail to observe the RAES log-on
requirements for OEX options would be subject to a fee. The CBOE has
determined that suspensions, not fees, are the appropriate
mechanisms to promote compliance with RAES log-on requirements for
equity and SPX options. The CBOE states that it may introduce fees
for failures to observe the log-on requirements for equity and SPX
options at a later date if experience so dictates.
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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), in particular, in that it is designed to enable the
CBOE to enforce compliance with the Act, to promote just and equitable
principles of trade, and to protect investors and the public interest
by assuring that equity and SPX options market makers are aware of and
meet their responsibilities pertaining to RAES.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The CBOE 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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reason for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order approve such proposed rule change, or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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. 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 in the caption above and should be submitted by August 4, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\17 CFR 200.30-3(a)(12) (1993).
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[FR Doc. 94-17032 Filed 7-13-94; 8:45 am]
BILLING CODE 8010-01-M