regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.,

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Federal Register: May 20, 1998 (Volume 63, Number 97)NoticesPage 27779-27780From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr20my98-102

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-39987] ; File No. SR-CBOE-98-19Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Chicago Board Options Exchange, Inc., Relating to Nominees of Member Organizations

May 12, 1998.

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 May 5, 1998, the Chicago Board Options Exchange, Inc. (``CBOE'' or ``Exchange'') filedwith 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. 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 revise CBOE Rule 3.8, ``Nominees,'' to clarify that a nominee trading for his/her own account pursuant to CBOE Rule 3.8(a)(4)(C) may trade as an independent market maker and/or an independent floor broker.\1\ The CBOE also proposes to replace a reference in CBOE Rule 3.8(a)(4)(C) to the CBOE's Market Surveillance Department with a reference to the Exchange.

\1\ A member who wishes to act as a market maker and as a floor broker on the same business day is subject to the restrictions of CBOE Rule 8.8, ``Restrictions on Acting as a Market-Maker and a Floor Broker.''

The text of the proposed rule change 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 places 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

CBOE Rule 3.8(a)(4)(B) provides that a nominee of a member organization may perform floor functions only on behalf of the member organization for which he or she is authorized. However, CBOE Rule 3.8(a)(4)(C) sets forth an exception to this requirement. Specifically, CBOE 3.8(a)(4)(C) provides that, notwithstanding the provisions of CBOE Rule 3.8(a)(4)(B), a nominee may trade for his/her own account provided that the following three requirements are satisfied: (i) the nominee is a registered broker-dealer; (ii) the nominee has the prior written approval of the nominee's member organization to trade for his/her own account; and (iii) the nominee has the prior written approval of the Exchange's Market Surveillance Department to trade for his/her own account. CBOE Rule 3.8(a)(4)(C) also provides that the approval of the nominee's member organization and of the CBOE's Market Surveillance Department must be filedwith the CBOE's Membership Department.

In addition, CBOE Rule 3.8(a)(2) requires a nominee's member organization to guaranty all obligations arising out of the nominee's representation of the member organization, including transactions for the nominee's own account as authorized pursuant to CBOE Rule 3.8(a)(4)(C).

The purpose of the proposal is to clarify that authorization of a nominee

[Page 27780]to trade for his/her own account pursuant to CBOE Rule 3.8(a)(4)(C) means authorization of the nominee to trade as an independent market maker and/or as an independent floor broker.\2\ Accordingly, the proposal amends CBOE Rule 3.8 by replacing the references to trading by a nominee for his/her own account with references to trading by a nominee as an independent market maker and/or as an independent floor broker.

\2\ As noted above, a member who wishes to act as a market maker and as a floor broker on the same business day is subject to the restrictions of CBOE Rule 8.8. See note 1, supra.

According to the CBOE, this clarification is consistent with the manner in which the CBOE departments that have administered CBOE Rule 3.8(a)(4)(C) have interpreted the rule and is intended to eliminate any potential ambiguity as to whether CBOE Rule 3.8(a)(4)(C) only authorizes a nominee to act as an independent market maker.\3\ Additionally, the CBOE believes that, as a matter or regulatory policy, there is no reason to distinguish between a nominee acting as an independent market maker and a nominee acting as an independent floor broker given that, in either instance, the nominee must have prior written authorization to do so from both the nominee's member organization and from the Exchange, the nominee must be a registered broker-dealer, and the nominee's transactions will be guaranteed by the nominee's member organization.

\3\ A member (or the Exchange) providing authorization under CBOE Rule 3.8(a)(4)(C) may specify the capacity in which the nominee may act (ie., the nominee may be authorized to act solely as a floor broker, solely as market maker, or in both capacities), Telephone conversation between Arthur B. Reinstein, Assistant General Counsel, CBOE, and Yvonne Fraticelli, Attorney, Division of Market Regulation, Commission, on May 8, 1998.

The proposed rule change also replaces the references in CBOE Rule 3.8(a)(4)(C) to the CBOE's Market Surveillance Department with a reference to the Exchange. The reason for this change is twofold. First, the CBOE's Market Surveillance Department recently was combined into the CBOE's Department of Market Regulation. Second, the Exchange body or bodies that grant approvals under CBOE Rule 3.8(a)(4)(C) may change over time. Currently, Exchange approval under CBOE Rule 3.8(a)(4)(C) is required from both the CBOE's Department of Market Regulation and the CBOE's Membership Committee.

Finally, the CBOE notes that all of the provisions in paragraphs (a)(2), (a)(3), and (a)(4) of CBOE Rule 3.8 which are applicable to nominees are also applicable to a person who has registered his or her membership for a member organization because, under Section 2.4 of the CBOE Constitution (``Registration of Individual Memberships for Member Organizations'') such a person represents a member organization is lieu of a nominee. Therefore, the requirements of CBOE Rule 3.8(a)(4)(C) also are applicable to a person who has registered his or her membership for a member organization and desires to also act as an independent market maker and/or as an independent floor broker.

The Exchange 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 the proposed change will clarify the Exchange's rules and is thus designed to remove impediments to and perfect the mechanism of a free and open market.

  (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

Because the foregoing rule change constitutes a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule of the Exchange, it has become effective pursuant to Section 19(b)(3)(A) of the Act \4\ and subparagraph (e)(1) of Rule 19b-4 thereunder.\5\ At any time within 60 days of the filing of such proposed rule change, 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.\6\

\4\ 15 U.S.C. 78s(b)(3)(A).

\5\ 17 CFR 240.19b-4(e)(1).

\6\ In reviewing this proposal, the Commission has considered the proposal's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether it is consistent with the Act. 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 filedwith the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other that 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, N.W., Washington, D.C. 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-98-19 and should be submitted by June 10, 1998.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\7\

\7\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland, Deputy Secretary.

FR Doc. 98-13383Filed5-19-98; 8:45 amBILLING CODE 8010-01-M

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