[Federal Register: June 10, 2002 (Volume 67, Number 111)]
[Notices]
[Page 39758-39759]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10jn02-125]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46020; File No. SR-CBOE-2002-18]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by Chicago Board Options Exchange, Inc. Relating to its DPM
Membership Ownership Requirement
June 3, 2002.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on April 19, 2002, the Chicago Board Options
Exchange, Inc. (``CBOE'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'' or ``SEC'') 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to amend Rule 8.85(e) pertaining to the
Designated Primary Market-Maker (``DPM'') seat ownership requirement.
The text of the proposed rule change appears below.
New text is in italics; deletions are in [brackets].
Chicago Board Options Exchange, Incorporated Rules
Rule 8.85(e) Requirement to Own Membership. Each DPM organization
shall own at least one Exchange membership for each trading location in
which the organization serves as a DPM, as determined by the MTS
Committee. An Exchange membership shall include a transferable regular
membership or a Chicago Board of Trade full membership that has
effectively been exercised pursuant to Article Fifth(b) of the
Certificate of Incorporation. [A DPM shall be deemed to satisfy this
ownership requirement if the DPM or a senior principal of the DPM owns
an Exchange membership. No single] The same Exchange membership(s) may
not be used to satisfy this ownership requirement for different [more
than one] DPM organizations or different trading locations operated by
the same DPM organization. Each DPM shall have until [February 21,
2002] insert date 90 days from date of SEC approval to satisfy this
ownership requirement, but each DPM organization must continually own
at least one membership until that date.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, CBOE 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
CBOE 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
On August 21, 2000, the Commission approved a CBOE rule filing
adopting a DPM membership ownership requirement.\3\ This requirement is
contained in Rule 8.85(e). Currently, it provides, among other things,
that each DPM must own at least one Exchange membership. It also states
that this requirement would be deemed satisfied if the senior principal
of the DPM owned the required membership(s). Pursuant to the terms of
the rule, DPMs were required to comply with Rule 8.85(e) by February
21, 2002. The Exchange now seeks to modify Rule 8.85(e) to make clear
that the requirements of the Rule are applicable to each DPM trading
location (as opposed to each DPM organization), and to eliminate the
concept that a senior principal can own a membership in place of the
DPM organization.
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\3\ See Exchange Act Release No. 43186 (August 21, 2000), 65 FR
51880 (August 25, 2000) (Order approving File No. SR-CBOE-99-37).
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CBOE proposed the seat ownership requirement at roughly the same
time it was seeking to convert the entire equity option trading floor
to the DPM system. At that time, each CBOE DPM managed only one trading
location (trading post) on the CBOE trading floor. Thus, at that time,
each DPM trading location would have been subject to the seat ownership
requirement. Further, because Rule 8.85(e) does not state that each DPM
organization needs to own a membership, Rule 8.85(e) could arguably
apply to each DPM trading location on the floor, since for many
purposes (including the allocation of option classes) different DPM
trading locations managed by the same DPM organization are treated as
separate DPMs.\4\ Since that time, there has been a significant
consolidation of DPM operations at CBOE resulting in several DPM
organizations each operating multiple DPM trading locations on CBOE's
floor.
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\4\ However, because of the ambiguity in Rule 8.85(e), CBOE has
applied the Rule to DPM organizations and not DPM trading locations
on the Exchange floor.
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CBOE believes it is more consistent with the Exchange's original
intent to modify the rule to make clear that each DPM organization must
own at least one Exchange membership for each trading location in which
the organization acts as a DPM. Such a change is also consistent with
the Exchange's original rationale for these requirements: to contribute
toward assuring that DPMs have a long-term commitment to the Exchange
given the important functions performed by DPMs and that DPMs are a
pivotal component of the Exchange's marketplace.
With respect to the use of the term ``trading location,''
generally, a trading location is meant to be a trading station on
CBOE's floor. However, because certain spots on the trading floor are
structured in a way that makes it difficult to distinguish the
boundaries of a trading station, CBOE proposes that the Exchange's
Modified Trading System Appointments Committee (``MTS Committee''),\5\
determine the number of trading locations in which a DPM organization
serves as a DPM.
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\5\ The MTS Committee is the Committee responsible for reviewing
and ensuring compliance with Rule 8.85.
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Lastly, in order to simplify the application and enforcement of the
DPM membership ownership requirement, CBOE is proposing to eliminate
the provision allowing a senior principal of a DPM to own a required
membership instead of the DPM organization. As proposed, each DPM
organization would be required to own any seats required to be owned
under Rule 8.85(e).
2. Statutory Basis
The Exchange believes the proposed rule change will contribute
toward assuring that DPMs have a long-term commitment to the Exchange.
Accordingly, the Exchange believes the proposed rule change is
consistent with
[[Page 39759]]
Section 6(b) of the Act,\6\ in general, and further the objectives of
section 6(b)(5),\7\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market, and to protect
investors and the public interest.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
This proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
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 reasons 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, 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 in the
Commission's Public Reference Section. Copies of such filing will also
be available for inspection and copying at the principal office of
CBOE. All submissions should refer to the File No. CBOE-2002-18 and
should be submitted by July 1, 2002.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-14430 Filed 6-7-02; 8:45 am]
BILLING CODE 8010-01-P