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 May 5, 2003, OneChicago, LLC (“OneChicago” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I and II below, which Items have been prepared by OneChicago. On May 6, 2003, OneChicago submitted Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and to grant accelerated approval of the proposed rule change.
17 CFR 240.19b-4.
See letter from Madge M. Hamilton, Deputy General Counsel, OneChicago, to Theodore Lazo, Senior Special Counsel, Division of Market Regulation, Commission, dated May 5, 2003.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
OneChicago proposes to adopt, on a permanent basis, Rule 515(n)(ii)(C) (“Exclusion for Market Makers”) (herein referred to as “Margin Rule”). On November 7, 2002, the Commission approved the Margin Rule on a pilot basis, ending May 7, 2003 (“the Pilot”). OneChicago believes that permanent approval of the Margin Rule is consistent with the jointly adopted margin rules of the Commission and the Commodity Futures Trading Commission (“CFTC”) (collectively, “Commissions”).
See Securities Exchange Act Release No. 46787 (November 7, 2002), 67 FR 69059 (November 14, 2002).
Below is the text of the proposed rule change that OneChicago proposes to adopt on a permanent basis.
Customer Margin Requirements
515. General Requirements; Offsetting Positions; Exclusion for Market Makers
(a)-(n)(ii)(B) No Change.
(C) Hold itself out as being willing to buy and sell security futures for its own account on a regular or continuous basis.
A Market Maker satisfies condition (C) above if:
(1) Such Market Maker: (x) provides continuous two-sided quotations throughout the trading day for all delivery months of Contracts representing a meaningful proportion of the total trading volume on the Exchange, subject to relaxation during unusual market conditions as determined by the Exchange (such as a fast market in either a Contract or a security underlying such Contract) at which times such Market Maker must use its best efforts to quote continuously and competitively; and (y) when providing quotations, quotes with a maximum bid/ask spread of no more than the greater of $0.20 or 150% of the bid/ask spread in the primary market for the security underlying each Contract;
(2) Such Market Maker: (x) responds to at least 75% of the requests for quotation for all delivery months of Contracts representing a meaningful proportion of the total trading volume on the Exchange, subject to relaxation during unusual market conditions as determined by the Exchange (such as a fast market in either a Contract or a security underlying such Contract) at which times such Market Maker must use its best efforts to quote competitively; and (y) when responding to requests for quotation, quotes within five seconds with a maximum bid/ask spread of no more than the greater of $0.20 or 150% of the bid/ask spread in the primary market for the security underlying each Contract; or
(3) (w) Such Market Maker is assigned to a group of Contracts that is either unlimited in nature (“Unlimited Assignment”) or is assigned to no more than 20% of the Contracts listed on the Exchange (“Limited Assignment”); (x) at least 75% of such Market Maker's total trading activity in Exchange products is in its assigned Contracts, measured on a quarterly basis; (y) during at least 50% of the trading day such Market Maker has bids or offers in the market that are at or near the best market, except in unusual market conditions as determined by the Exchange (such as a fast market in either a Contract or a security underlying such Contract), with respect to at least 25% (in the case of an Unlimited Assignment) or at least one (in the case of a Limited Assignment) of its assigned Contracts; and (z) the requirements set forth in clauses (x) and (y) are satisfied on at least 90% (in the case of an Unlimited Assignment) or 80% (in the case of a Limited Assignment) of the trading days in each calendar quarter.
For purposes of clauses (1) and (2) above, beginning on the 181st calendar day after the commencement of trading on the Exchange, a “meaningful proportion of the total trading volume on the Exchange” shall mean a minimum of 20% of such trading volume.
(n)(iii) No Change.
Schedule A—No Change.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, OneChicago 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 III below. OneChicago 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
OneChicago proposes to adopt, on a permanent basis, the Margin Rule, which sets forth the standards under which a OneChicago member may be excluded from the Exchange's margin requirements as a “market maker.” OneChicago believes that the Margin Rule, consistent with Rule 400(c)(2)(v) under the Act and the CFTC Rule 41.42(c)(2)(v), establishes standards by which members may qualify as Security Futures Dealers and therefore be excluded from OneChicago's margin rules.
17 CFR 41.42(c)(2)(v).
The Commission did not receive any comments on the Margin Rule during the pilot period. Since OneChicago believes that the Margin Rule has been performing as anticipated during the pilot period and OneChicago proposes no changes to the Margin Rule, OneChicago now proposes to adopt the Margin Rule on a permanent basis.
2. Statutory Basis
OneChicago believes that the proposed rule change is consistent with section 6(b)(5) of the Act, in that the proposal promotes competition, and is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. OneChicago believes that the proposed rule change is designed to accomplish these goals by permitting members to qualify as Security Futures Dealers, as permitted under the Commission's Rule.
See 17 CFR 240.400(c)(2)(v).
B. Self-Regulatory Organization's Statement on Burden on Competition
OneChicago does not believe that the proposed rule change will have an impact on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
Comments on the proposed rule change have not been solicited and none have been received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as amended, 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 in the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of OneChicago. All submissions should refer to File No. SR-OC-2003-05 and should be submitted by June 5, 2003.
IV. Commission Findings and Order Granting Accelerated Approval of a Proposed Rule Change
The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. In particular, the Commission believes that the proposed rule change is consistent with the requirements of section 6(b)(5) of the Act, which requires, among other things, that the rules of the Exchange be designed to promote just and equitable principles of trade and, in general, to protect investors and the public interest. In addition, the Commission believes that the proposed rule change is consistent with section 7(c)(2)(B) of the Act, which provides, among other things, that the margin requirements for security futures must preserve the financial integrity of markets trading security futures, prevent systemic risk, be consistent with the margin requirements for comparable exchange-traded options, and provide that the margin levels for security futures may be no lower than the lowest level of margin, exclusive of premium, required for any comparable exchange-traded option.
15 U.S.C. 78f(b)(5).
In approving the proposed rule, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
15 U.S.C. 78g(c)(2)(B).
The Commission believes that OneChicago's standards for market makers under Rule 515(n)(ii)(C) are consistent with the Act, and Rule 400(c)(2)(v) thereunder. Specifically, Rule 400(c)(2)(v) provides that the Commission's joint margin rules do not apply to a member of a national securities exchange that is registered with such exchange as a “Security Futures Dealer” pursuant to exchange rules that must meet several criteria, including a requirement that a Security Futures Dealer be required to “to hold itself out as being willing to buy and sell security futures for its own account on a regular and continuous basis.” The Commission believes that the affirmative obligations required by OneChicago pursuant to Rule 515(n)(ii)(C) satisfy this requirement.
17 CFR 240.400(c)(2)(v)(B)(3).
OneChicago has requested that the Commission approve the proposed rule change, as amended, prior to the thirtieth day after publication of notice of the filing in the Federal Register. The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. The Commission believes that accelerated approval of the proposed rule change should enable OneChicago members that trade security futures as market makers to continue to do so on an uninterrupted basis. The Commission notes that it approved the Margin Rule as a temporary pilot to give members of the public an opportunity to comment on the substance of the Margin Rule. The Commission received no comments on the Pilot. Accordingly, the Commission finds good cause, consistent with section 19(b)(2) of the Act, to approve the proposed rule change, as amended, prior to the thirtieth day after publication of the notice of filing.
V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the Act , that the proposed rule change (File No. SR-OC-2003-05), as amended, be approved on a permanent basis.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-12149 Filed 5-14-03; 8:45 am]
BILLING CODE 8010-01-P