Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on March 22, 2000, 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 Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change.
17 CFR 240.19b-4.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange requests an extension through September 30, 2000, of a pilot program established in Exchange Rule 6.2A, which governs the operation of, and the eligibility to participate in, the Exchange's Rapid Opening System. The text of the proposed rule change is available at the Office of the Secretary, the Exchange, and at the Commission.
The pilot program was first approved by the Commission effective February 9, 1999 through March 31, 2000. See Securities Exchange Act Release No. 41033 (February 9, 1999), 64 FR 8156 (February 18, 1999.)
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 Exchange 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 Exchange 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 Exchange proposes to extend for six months the Rapid Opening System (“ROS”) pilot program. Before the implementation of ROS, a trading crowd on CBOE arrived at the opening price by manually progressing through series after series of an options class. Open trading for any of the class' series could not commence until all series in the class had undergone the process. ROS allows the Exchange to automate the opening of its various option classes, thereby avoiding the lengthier opening rotations that can occur under circumstances when there is a large influx of orders entered before or during the opening rotation. As the opening occurs, fill reports on all participating orders are generated automatically, opening market quotes and last sales will be disseminated, and market-makers will receive notification of assigned trades. In addition, as part of the pilot, the Exchange has developed a manual procedure for incorporating orders currently not included on CBOE's Electronic Book, known as non-bookable orders, into the opening process.
Id.
Id.
Telephone conversation between Tim Thompson, Director of Regulatory Affairs, CBOE, and Terri Evans, Special Counsel, Division of Market Regulation (“Division”), SEC, March 28, 2000 (clarifying the definition of non-bookable orders and the manual entry of such orders.
The Pacific Exchange, Inc. (“PCX”) has adopted a similar procedure for manually handling non-bookable orders in connection with the use of the PCX's Automated Opening Rotation system. See Securities Exchange Act Release No. 41970 (September 30, 1999), 64 FR 54713 (October 7, 1999).
The CBOE represents that its experience with ROS over the past year has been positive. Member firms have told CBOE that they appreciate how ROS enables the Exchange to enter into opening trading much sooner, allowing them to represent their customer orders in open outcry. The Exchange believes that ROS has prevented large numbers of orders from queuing on the Exchange's book and “live ammo” screens immediately after the opening, thus providing Designated Primary Market-Maker (“DPM”) staff with the ability to handle orders in a more expeditious manner. The Exchange further represents that trading crowds have been able to open classes using ROS within seconds of the dissemination of the opening part in the underlying security.
The Exchange also believes that the current procedure for manually incorporating non-bookable orders has been adequate to provide these orders with the executions that they deserve on the opening. In fact, the Exchange has observed that many firms currently choose to wait until after the opening has been completed to represent their orders because of the short time needed to complete a ROS opening and because the firms have a better sense of where they may trade the order after the opening and after opening quotes have been disseminated. The Exchange represents, however, that it will continue to explore possibilities for including non-bookable orders into ROS in an automated fashion. The Exchange is actively studying the possibility of changing its book to allow for the inclusion of non-bookable orders, at least at the opening. These changes to the Exchange's book would allow ROS to electronically accommodate non-bookable orders.
Telephone conversation between Tim Thompson, Director of Regulatory Affairs, CBOE, and Terri Evans, Special Counsel, Division, SEC, March 28, 2000.
Id.
Id.
In the Commission's approval order of the ROS system, the Commission requested the Exchange to study issues related to the SEC's concerns during the pilot period and to report back to the Commission at least sixty days prior to seeking permanent approval of ROS. The Exchange is now preparing a report to the Commission and will seek permanent approval of ROS in the next couple of months. In the meantime, the extension of the pilot period will allow the Exchange to continue to utilize ROS.
See Securities Exchange Act Release No. 41033 (February 9, 1999), 64 FR 8156 (February 18, 1999).
2. Statutory Basis
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 promote just and equitable principles of trade and to protect investors and the public interest.
15 U.S.C. 78f(b)(5).
B. Self-Regulatory Organization's Statement on Burden on Competition
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
CBOE has neither solicited nor received comments on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder because the proposal: (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 prior to 30 days after the date of filing or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. In addition, the Exchange provided the Commission with 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 the filing the proposed rule change as required by Rule 19b-4(f)(6).
15 U.S.C. 78s(b)(3)(A).
A proposed rule change filed under Rule 19b-4(f)(16) 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 such shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission designate such shorter time period so that the proposed rule change may become operative no later than March 31, 2000. The immediate effectiveness would allow the current ROS pilot program to continue uninterrupted, while allowing the Exchange the opportunity to prepare a report for the Commission prior to seeking permanent approval. 17 CFR 240.19b-4(f)(6)(iii)
Id.
The Commission, consistent with the protection of investors and the public interest, has determined to make the proposed rule change operative immediately upon filing for the following reasons. The proposed rule change extends the expiration date of the ROS pilot program from March 31, 2000, to September 30, 2000. An extension would allow the Exchange to continue to offer ROS without interruption and provide the Exchange more time to complete its review and evaluation of the ROS pilot program. The Commission notes that the CBOE's filing was also the subject of prior notice and comment when it was first proposed over a year ago.
Further, the Commission approved a similar system proposed by the PCX on a pilot basis until September 30, 2000. See Securities Exchange Act Release No. 41970, supra note 7.
Among the issues that the Commission expects the CBOE to explore in its report are: how and when market-makers set ROS risk and size thresholds; how often such thresholds are exceeded and result in the adjustment of AutoQuote; the effect of AutoQuote adjustments on the quality of customer executions; any effects on existing order execution priority; and the handling of an adjustments made for non-bookable orders. The Commission also expects that the Exchange will provide a workable plan for the electronic incorporation of non-bookable orders on ROS.
See Securities Exchange Act Release No. 41033, supra note 3.
Id.
Based on the above reasons, the Commission believes it is consistent with the protection of investors and the public interest that the proposed rule change become operative immediately upon the date of filing, March 22, 2000. 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.
In reviewing this proposal, the Commission has considered its 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 the proposed rule change 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 at the Commission's Public Reference Room.
Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-CBOE-00-09 and should be submitted by April 28, 2000.
For the Commission, by the Division of Market Regulations, pursuant to delegated authority. 17 CFR 200.30-3(a)(12)
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-8489 Filed 4-6-00; 8:45 am]
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