Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc. Relating to the Short Sale of Securities in the Nasdaq National Market.

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34917; File No. SR-CBOE-94-38]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

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

Short Sale of Securities in the Nasdaq National Market.

November 7, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on October 25, 1994, the

Chicago Board Options Exchange, Inc. (``CBOE'' or ``Exchange'') filed

with the Securities and Exchange Commission (``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.

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

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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 the definition of ``designated Nasdaq

National Market (``Nasdaq/NM'') security,'' contained in CBOE Rule

15.10, to include all Nasdaq/NM securities underlying options classes

for which an Exchange options market-maker holds an appointment

pursuant to CBOE Rule 8.7. The Exchange also proposes to add

Interpretation and Policies .02 and .03 to CBOE Rule 15.10, which in

very limited circumstances expand the Nasdaq/NM securities which may

qualify for the exemption provided in paragraph (c)(2) of the Rule;

specifically, market-maker options transactions which facilitate an

off-floor order, and market-maker transactions for nominees of the same

market-maker organization.

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 places 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 Exchange is amending its Rule 15.10 to expand the definition of

``designated Nasdaq/NM security'' to include all Nasdaq/NM securities

which underlie the options classes for which a market-maker holds an

appointment. In practice the CBOE has found the current definition,

which limits designated Nasdaq/NM securities to no more than three (3)

trading stations of a market-maker, to be unnecessarily restrictive.\2\

Although not identical, the expansion of the definition to include

underlying Nasdaq/NM securities for all appointed options classes of a

market-maker is consistent with the application of the exemption for

options market-makers in other similar markets.\3\

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\2\See letter from Michael J. Carusillo, General Partner,

O'Connor & Associates, to Jeff Schroer, Vice President, Market

Surveillance, CBOE, dated September 21, 1994.

\3\See Securities Exchange Act Release No. 34632 (September 2,

1994), 59 FR 46999. See also American Stock Exchange, Inc., Floor

Members Circular 93-1255 (December 29, 1993).

Currently, CBOE Rule 8.3(c) provides that a market-maker's

appointment is limited to the options classes trading at no more

than five (5) trading stations absent an exemption by the market

Performance Committee. The Exchange intends to expand market-maker

appointments in a subsequent rule filing.

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Proposed Interpretation .02 to CBOE Rule 15.10 would permit an

options market-maker, with prior notice to a Floor Official or Order

Book Official, to facilitate an off-floor order and contemporaneously

hedge the resulting options position with a short sale in applicable

Nasdaq/NM securities as if such securities were designated securities

under paragraph (c)(2) of the Rule. This treatment is consistent with

the NASD's interpretation concerning the hedging of options

facilitation transactions.\4\

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\4\See letter from Richard G. Ketchum, Chief Operating Officer

and Executive Vice President, NASD, to David A. Dami, First Vice

President & Associate General Counsel, Global Derivatives, Paine

Webber, Inc., dated September 13, 1994.

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Proposed Interpretation .03 to CBOE Rule 15.10 would allow a

nominee of a market-maker organization to effect short sales as bid

test exempt in a Nasdaq/NM security which the market-maker nominee has

not designated as qualifying for the exemption contained in paragraph

(c)(2), provided that such security is a designated Nasdaq/NM security

for another nominee of the market-maker organization and such other

nominee is not also present or represented by a Floor Broker in the

applicable trading station at the time of the bid test exempt sale.

This interpretation will allow the market-maker organization the

ability to manage effectively its obligations when nominees are absent

from the trading floor due to illness, personal or other business, and

is consistent with the intent of the exemption, in that the exemption

continues to be limited to those Nasdaq/NM securities which are used to

hedge options transactions in the primary classes in which the market-

maker organization makes markets.

The CBOE believes that its proposal is consistent with and furthers

the objectives of Section 6(b)(5) of the Act in that the rule change

will promote maintenance of fair and orderly markets on the CBOE and

will contribute to the protection of investors and the public interest.

(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

Written comments on the proposed rule change were neither solicited

nor received.

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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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 in the

Commission's Public Reference Section, 450 Fifth Street, N.W.,

Washington, D.C. 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 File No.

SR-CBOE-94-38 and should be submitted by December 7, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\5\

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\5\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-28262 Filed 11-15-94; 8:45 am]

BILLING CODE 8010-01-M