Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Incorporated Relating to Certain Settlement and Margin Deposit Time Frames

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35137; File No. SR-CBOE-94-40]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Chicago Board Options Exchange, Incorporated Relating to

Certain Settlement and Margin Deposit Time Frames

December 22, 1994.

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

(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that

on November 7, 1994, the Chicago Board Options Exchange, Incorporated

(``CBOE'') 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 primarily 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. Sec. 78s(b)(1) (1988).

\2\17 CFR 240.19b-4 (1994).

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The CBOE proposes to reduce the settlement period for transactions

in certain securities and shorten certain time frames respecting

customer margin requirements. One approved, these changes would become

effective at the same time as Commission rule 15c6-1.\3\

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\3\On October 6, 1993, the Commission adopted Rule 15c6-1 which

establishes three business days after the trade date as the standard

settlement cycle for most securities transactions. Securities

Exchange Act Release No. 33023 (October 7, 1993), 58 FR 52891. The

rule becomes effective June 7, 1995. Securities Exchange Act Release

No. 34952 (November 9, 1994), 59 FR 59137.

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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 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

text of these statements may be examined at the places specified in

Item IV below. 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

The purpose of the proposed rule change is to amend those CBOE

rules that reflect a five business day settlement period for

transactions in securities other than options, including stocks and

warrants, or that specify customer margin deposit time frames based on

a five business day settlement cycle. The CBOE represents that the

proposed changes conform CBOE's rules to Commission rule 15c6-1 under

the Act, which will establish a three business day settlement period

for transactions in most types of securities.\4\ These changes in

CBOE's rules will become effective concurrently with similar rule

changes of other national securities exchanges in accordance with Rule

15c6-1.\5\

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\4\Id.

\5\The CBOE represents that CBOE members will be notified by

circular in Spring 1995 of the settlement conversion schedule

established by the National Securities Clearing Corporation. Under

that schedule, June 2nd will be the last trading day with five

business day settlement. Monday, June 5th, and Tuesday, June 6th,

will be trading days with four business day settlement. All regular-

way trades executed on or after June 7th will settle three business

days following the trade date. As a result, there will be two double

settlement days--one on June 9th for trades executed on June 2nd and

5th and one on June 12th for trades executed on June 6th and 7th.

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The proposal will amend Chapter XXX (Stocks, Warrants and Other

Securities) and Chapter XXXI (Approval of Securities for Original

Listing) to reflect a three business day settlement cycle. The proposal

will amend Rules 30.12, 30.31, and 31.40 to change references from

``five business days'' to ``three business days'' as the settlement

time frame for regular way transactions. Rules 30.12 and 30.31 also

will be amended to provide that seller's option trades may not settle

in less than four business days rather than six business days. Rule

30.31 also will be amended to provide that bids and offers in rights to

subscribe shall be made only for next day settlement on the second and

third full business days, rather than the second, third, fourth, and

fifth business days, preceding the final day for subscription. Rule

30.34, covering the trading of warrants, will be amended to change all

references to five business days to three business days. In addition,

the CBOE also proposes to amend a related provision in CBOE Rule 12.3,

covering margin requirements, that is based on a five business day

settlement cycle to reflect a three business day cycle.

Rules 30.32, 31.22, and 31.42 require amendment to provisions

setting forth ex-rights or ex-dividend dates (i.e., the dates when

stocks trade without rights or dividends). All references to

transactions in stocks being ex-dividend or ex-rights on the fourth

business day preceding the record date will be changed to the second

business day preceding the record date. For transactions when the

record date occurs on a day other than a business day, the stock will

be traded ex-dividend or ex-rights on the third preceding business day

rather than on the fifth preceding business day.

Four rules dealing with customer margin requirements also will

require amendment. Rules 21.25, 23.13, 24.11, and 30.51 contain

requirements that depend on the seven day margin deposit time Frame

currently set forth in Regulation T.\6\ In view of Rule 15c6-1,

however, the Board of Governors of the Federal Reserve System has

reduced the time limit in Section 220.4(c) of Regulation T within which

a customer margin call must be satisfied. Under the amendment to

Regulation T, the new time limit is ``the number of business days in

the standard securities settlement cycle in the United States * * *

plus two business days.''\7\ Once Rule 15c6-1 of the Act becomes

effective, most customer margin calls will have to be met in five

business days. Accordingly, the margin deposit time frames set forth in

CBOE rules also are proposed to be reduced to five business days.

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\6\12 CFR 220.1-.19.

\7\See Federal Reserve System Release, Docket No. R-0840

(October 18, 1994), 59 FR 53565 (October 25, 1994).

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The CBOE believes that the proposed rule change is consistent with

section 6 of the Act in general and Section 6(b)(5) of the Act\8\ in

particular in that it is designed to foster cooperation and

coordination with persons engaged in regulating, clearing, settling,

processing information with respect to, and facilitating transactions

in securities by enabling the CBOE to enforce compliance by its members

with its Rules, the rules of the Commission, and the rules of the Board

of Governors of the Federal Reserve System.

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\8\15 U.S.C. Sec. 78f(B)(5) (1988).

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(B) Self-Regulatory Organization's Statement on Burden on Competition

The CBOE does not believe that the proposed rule change will impose

any inappropriate 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 thirty-five 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 ninety 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 CBOE 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 CBOE. All

submissions should refer to File No. SR-CBOE-94-40 and should be

submitted by January 19, 1995.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.\9\

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\9\17 CFR 200.30-3(a)(12)(1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-32093 Filed 12-28-94; 8:45 am]

BILLING CODE 8010-01-M