regulatory organizations; proposed rule changes: OneChicago, LLC,

[Federal Register: December 27, 2002 (Volume 67, Number 249)]

[Notices]

[Page 79218-79219]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr27de02-169]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47018; File No. SR-OC-2002-03]

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by OneChicago, LLC Relating to Block Trades

December 18, 2002.

Pursuant to section 19(b)(7) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-7 under the Act,\2\ notice is hereby given that on November 7, 2002, OneChicago, LLC (``OneChicago'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change described in Items I and II below, which Items have been prepared by OneChicago. On December 12, 2002, OneChicago filed Amendment No. 1 to the proposed rule change.\3\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. OneChicago also filed the proposed rule change with the Commodity Futures Trading Commission (``CFTC''). OneChicago filed written certifications with the CFTC under Section 5c(c) of the Commodity Exchange Act \4\ on November 6, 2002 and December 12, 2002.

\1\ 15 U.S.C. 78s(b)(7).

\2\ 17 CFR 240.19b-7.

\3\ See letter dated December 12, 2002 from C. Robert Paul, General Counsel, OneChicago, to Division of Market Regulation, Commission.

\4\ 7 U.S.C. 7a-2(c).

1. Self-Regulatory Organization's Description of the Proposed Rule Change

   OneChicago is proposing to amend OneChicago Rule 417, relating to block trades, in the following respects: (i) Paragraph (c) is amended to provide that the parties to a block trade must report specified information regarding such trade to OneChicago ``without delay,'' rather than ``promptly''; (ii) paragraph (d) is amended to add that clearing members and, if applicable, exchange members and access persons (as such terms are defined in the OneChicago rulebook) may execute orders for a non-discretionary customer account by means of a block trade only if the relevant customer has previously consented thereto; and (iii) paragraphs (e) and (f) are amended to clarify that a natural person who is associated with a clearing member, exchange member or access person is restricted from engaging in transactions for any account that he or she controls when he or she has knowledge of a pending block trade of the clearing member, exchange member or access person with which he or she is associated.

2. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

   OneChicago has prepared statements concerning the purpose of, and statutory basis for, the proposed rule, burdens on competition, and comments received from members, participants, and others. The text of these statements may be examined at the places specified in Item IV below. These statements are set forth in Sections A, B, and C below.

   A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

   1. Purpose

   The proposed rule change is designed to: (i) Clarify the timeframe within which information related to a block trade must be reported: (ii) make it clear that clearing members, exchange members and access persons must obtain a customer's consent prior to executing orders for a non-discretionary account by means of a block trade; and (iii) apply the restrictions on engaging in certain transactions related to a block trade to natural persons associated with a clearing member, exchange member or access person, and to clarify that the restriction on trading extends to any account that such natural person controls.

   The proposed change to paragraph (c) of OneChicago Rule 417 is meant to remove any ambiguity with respect to the timeframe within which market participants are required to report information related to block trades. OneChicago believes that obligating market participants to report block trades ``without delay'' is warranted by the important price discovery function that it expects its markets for security futures products will serve. Given that all trading on OneChicago will be conducted electronically, OneChicago

   [[Page 79219]]

   does not foresee that market participants will encounter practical difficulties in complying with this strict reporting requirement.

   The proposed change to paragraph (d) is intended to protect customers with non-discretionary accounts by making it clear that the clearing members, exchange members and access persons maintaining such accounts must obtain their customers' consent prior to executing customer orders by means of a block trade. OneChicago believes that customer protection in this area is warranted because block trades may be executed at prices that differ from those prevailing in the corresponding contract markets at the time.

   The proposed changes to paragraphs (e) and (f) of OneChicago Rule 417 are intended to clarify that the restrictions on engaging in certain transactions related to a block trade prohibit all natural persons associated with market participants, including access persons, from taking advantage of non-public information with respect to a block trade, by entering orders for execution through OneChicago for any account that he or she controls if such orders relate to the same underlying securities as the block trade in question. 2. Statutory Basis

   OneChicago has filed this proposed rule change pursuant to section 19(b)(7) of the Act.\5\ OneChicago believes that the proposed rule change is authorized by, and consistent with, section 6(b)(5) \6\ of the Act because it is designed to prevent fraudulent and manipulative acts and practices and to promote just and equitable principles of trade.

   \5\ 15 U.S.C. 78s(b)(7).

   \6\ 15 U.S.C. 78f(b)(5).

   B. Self-Regulatory Organization's Statement on Burden on Competition

   OneChicago believes that the proposed rule change is inherently pro-competitive as it is designed to ensure that: (i) Relevant market information becomes available to the public as expeditiously as possible; (ii) customers with non-discretionary accounts are protected from unauthorized block trades; and (iii) natural persons associated with market participants are prevented from taking advantage of any non-public information with respect to block trades.

   C. Self-Regulatory Organization's Statement on Comments on Proposed Rule Change Received From Members, Participants, or Others

   Comments on the proposed rule change have not been solicited.

3. Date of Effectiveness of the Proposed Rules and Timing for Commission Action

   Pursuant to section 19(b)(7)(B) of the Act,\7\ the proposed rule change, as filed with the Commission on November 7, 2002, became effective on that date. Amendment No. 1 to the proposed rule change became effective on December 13, 2002. Within 60 days of the date of effectiveness of the proposed rule change, the Commission, after consultation with the CFTC, may summarily abrogate the proposed rule change and require that the proposed rule change be refiled in accordance with the provisions of section 19(b)(1) of the Act.\8\

   \7\ 15 U.S.C. 78s(b)(7)(B).

   \8\ 15 U.S.C. 78s(b)(1).

4. Solicitation of Comments

   Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rules conflict with the Act. Persons making written submissions should file nine copies of the submission with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Comments also may be submitted electronically to the following e-mail address: rule-comments@sec.gov. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rules that are filed with the Commission, and all written communications relating to the proposed rules 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 these filings will also be available for inspection and copying at the principal office of OneChicago. Electronically submitted comments will be posted on the Commission's internet Web site (http://www.sec.gov ). All submissions should refer to File No. SR-OC-2002-03 and should be submitted by January 17, 2003.

   For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\9\

   \9\ 17 CFR 200.30-3(a)(75).

   J. Lynn Taylor, Assistant Secretary.

   [FR Doc. 02-32642 Filed 12-26-02; 8:45 am]

   BILLING CODE 8010-01-P