Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc., Relating to Equity and SPX RAES Participation Requirements

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34329; File No. SR-CBOE-94-02]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Chicago Board Options Exchange, Inc., Relating to Equity

and SPX RAES Participation Requirements

July 7, 1994.

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 January

22, 1994, 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 self-

regulatory organization. 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 amend its rules to impose fees on market

makers who fail to observe certain participation duties on the Retail

Automated Execution System (``RAES'') for equity and Standard & Poor's

500 Index (``SPX'') classes of options. Specifically, the CBOE proposes

to amend CBOE Rules 8.16, ``RAES Eligibility in Equity Options'' and

24.16, ``RAES Eligibility in SPX/NDX,'' to impose the following fees

for failures to satisfy the rules' log-off requirements: (1) A fee of

$100.00 for one to three failures within one twelve-month period; (2) a

fee of $250.00 for four to six failures within one twelve-month period;

and (3) a fee of $500.00 for seven or more failures within one twelve-

month period. In addition, the CBOE proposes to issue a Regulatory

Circular clarifying market makers' RAES responsibilities with respect

to equity and SPX options classes and indicating that members who fail

to meet the log-on requirements of CBOE Rules 8.16(b) or 24.16(b)

ordinarily will be suspended from participation on RAES at the

applicable trading station for a period of 21 consecutive business

days.\1\

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\1\CBOE Rules 8.16(b) states that in option classes designated

by the Market Performance Committee (``MPC''), any market maker who

has logged on RAES at any time during an expiration month must log

on the RAES system in that option class whenever he is present in

that trading crowd until the next expiration. CBOE Rule 24.(b)

states that unless exempted by the MPC, any market maker who has

logged on RAES at any time during an expiration month must log on

the RAES system in SPX/NSX whenever he is present in that trading

crowd until the expiration.

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The text of the proposal 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 placed 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

The CBOE states that the purpose of the proposed rule change is to

impose fees on members who fail to observe the RAES log-off

requirements set forth in CBOE Rules 8.16(a) and 24.16(a) relative to

equity options and SPX index options. The CBOE proposes to incorporate

the following fee schedule into CBOE Rules 8.16(a) (for equity options)

and 24.16(a) (for SPX options) for failures to comply with the log-off

requirements: (1) A fee of $100.00 for one to three failures within one

twelve-month period; (2) a fee of $250.00 for four to six failures

within one twelve-month period; and (3) a fee of $500.00 for seven or

more failures within one twelve-month period.

The proposed fees for failures to observe the log-off requirements

for equity and SPX RAES are identical in amounts and graduated

structure to the fees proposed for Standard & Poor's 100 Index

(``OEX'') options in File No. SR-CBOE-94-12. Under both proposals, the

fee amounts will increase in relation to the number of times each

calendar year that a member does not log off as required.

As is the case for fees applicable to OEX RAES participants under

existing CBOE Rule 24.17, ``RAES Eligibility in ``OEX,'' the proposed

fees do not constitute disciplinary action, although the CBOE's review

procedures in Chapter XIX, ``Hearings and Review,'' of the CBOE's rules

will be available for review of fees assessed under the proposal. The

Commission has noted the appropriateness of such fees and appeal rights

in a related context.\2\

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\2\Specifically, in approving a CBOE proposal that included

procedures for contesting the fees assessed for delayed submission

of trade data, the Commission stated that ``Although such formalized

procedures are unusual for challenging fee assessments, they

actually make the imposition of the fee fairer by allowing members

to challenge erroneous fee charges. Moreover, these procedures are

reasonably designed to afford a member assessed a fee the

opportunity to challenge the veracity of the assessments.'' See

Securities Exchange Act Release No. 30001 (November 26, 1991), 56 FR

63529 (order approving File No. SR-CBOE-90-06).

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In addition to establishing a fee schedule, the CBOE proposes to

issue a Regulatory Circular that will reaffirm the nature of CBOE

market makers' RAES log-on and log-off responsibilities in respect of

equity and SPX options classes and will describe the consequences that

attach to any market maker's failure to observe these responsibilities.

The Regulatory Circular addresses four points. First, CBOE Rules

8.16(a)(iii) and 24.16(a)(iii) require any market maker who has logged

onto RAES at a trading station on any given trading day to log off RAES

whenever the market maker leaves the trading crowd for more than ``a

brief interval.'' The Regulatory Circular interprets ``a brief

interval'' to mean ``five consecutive minutes.'' Under this

interpretation any market maker who signs onto RAES at a particular

trading station during a trading session must log off the system prior

to leaving that station for more than five consecutive minutes. The

CBOE believes that this interpretation should eliminate ambiguity about

the amount of time a market maker may be away from the trading crowd

without signing off RAES.

Second, the Regulatory Circular notes that graduated fees will be

assessed under CBOE Rules 8.16(a) and 24.16(a) for failure to observe

the RAES log-off requirement.

Third, the Regulatory Circular reflects the MPC's designation

pursuant to CBOE Rules 8.16(b) and 24.16(b) that the expiration month

log-on requirements reflected in those rules will be enforced in all

classes of equity and SPX options for which RAES is available.

Accordingly, any market maker who has logged onto RAES in accordance

with CBOE Rules 8.16(a) or 24.16(a) during an expiration month for a

given class of options must log on whenever present at the applicable

trading station, until expiration.

Fourth, the Regulatory Circular reflects a determination by the

MPC, pursuant to its authority under CBOE Rules 8.16(d) and 24.16(d),

that any market maker who fails to meet the log-on requirements under

CBOE Rules 8.16(b) or 24.16(b) ordinarily will be suspended from

participation on RAES at the applicable trading station for a period of

21 consecutive business days.\3\

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\3\In contrast to this suspension provision, File No. SR-CBOE-

94-12 proposes that members who fail to observe the RAES log-on

requirements for OEX options would be subject to a fee. The CBOE has

determined that suspensions, not fees, are the appropriate

mechanisms to promote compliance with RAES log-on requirements for

equity and SPX options. The CBOE states that it may introduce fees

for failures to observe the log-on requirements for equity and SPX

options at a later date if experience so dictates.

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The CBOE 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 it is designed to enable the

CBOE to enforce compliance with the Act, to promote just and equitable

principles of trade, and to protect investors and the public interest

by assuring that equity and SPX options market makers are aware of and

meet their responsibilities pertaining to RAES.

(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

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 reason 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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.

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 Section, 450 Fifth Street, NW.,

Washington, DC. Copies of such filing will also be available for

inspection and copying at the principal office of the above-mentioned

self-regulatory organization. All submissions should refer to the file

number in the caption above and should be submitted by August 4, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\4\

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\4\17 CFR 200.30-3(a)(12) (1993).

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[FR Doc. 94-17032 Filed 7-13-94; 8:45 am]

BILLING CODE 8010-01-M