Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc. Relating to Trading Floor Booth Policy and Fee Changes

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33745; File No SR-CBOE-94-03]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

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

Floor Booth Policy and Fee Changes

March 9, 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 February

2, 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 CBOE. 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 Exchange is proposing to set forth formally the Exchange's

current policy regarding the rental of booths on the CBOE trading floor

(``Policy''). The CBOE has included with the filing, for informational

purposes, a copy of the CBOE Trading Floor Booth Rental Agreement

(``Agreement''), which has been reformulated in conjunction with the

formalization of this Policy. That Agreement sets forth the contractual

terms, conditions, and restrictions governing rental and use of the

booths. As part of its filing, the CBOE also proposes amending its

current Fee Schedule as such pertains to Facility Fees for rental of

Exchange trading floor booths.

The text of the proposed rule change is available at the Office of

the Secretary, the 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 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 the

Statutory Basis for, the Proposed Rule Change

The purpose of the proposed rule change is to memorialize for

distribution to the CBOE membership the Exchange's policy regarding the

rental and use of booth space on the CBOE trading floor by member

organizations. The rule change also is intended to amend the existing

fee structure with respect to the rental of trading floor booths to

reflect the Exchange's elimination of a practice called ``joint

leasing.'' The elimination of this practice is the only major change in

current policy with respect to booth rental.

The CBOE currently has certain space located on its trading floor

which it makes available for rental to qualified member organizations.

These ``booths'' are located at various points on the floor adjacent to

the trading ``pits'' or ``crowds'' where the actual CBOE trading

activity takes place. They generally are used by member organizations

to perform various functions in support of their CBOE trading

activities. Over the years, the CBOE has developed certain policies and

practices with regard to the rental and use of these trading floor

booths by member organizations. The Exchange has determined that it

would benefit both the CBOE and their membership to memorialize the

Exchange's current policies for distribution to the members.

Although the Policy itself addresses several issues pertaining to

booth rental, it deals primarily with eligibility. Specifically, it

sets forth the four broad categories of member organizations that, in

accordance with current policy, may rent booth space on the floor.

These categories were formulated so as to accommodate member

organizations having the greatest need of working space in close

proximity to CBOE trading activity, and they encompass almost all major

types of CBOE member organizations. Market-maker organizations, the

only major category that would not obtain a booth under the Policy,

customarily obtain boot space through their clearing firms. The

Exchange's experience confirms that this practice has worked well.

The Policy also addresses the potential future need for the

adoption of allocation and assignment guidelines with respect to booth

space. The CBOE has no such guidelines in effect today and currently

does not envision implementing any in the foreseeable future. In the

event that demand for booth space at some point exceeds availability,

the CBOE would establish allocation guidelines.\1\ The CBOE thought it

advisable to inform the membership of the possibility and to identify

the general nature of the criteria upon which such guidelines would be

based.

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\1\Such guidelines would have to be filed with the Commission as

a rule change and approved pursuant to section 19(b) of the Act.

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Finally, the Policy sets forth the requirement that all member

organizations renting booths execute a ``Trading Floor Booth Rental

Agreement'' which sets forth the contractual terms governing the rental

and use of the booths by the member organization. Although the Exchange

in the past has used a standard form agreement regarding booth rental,

that agreement is brief and contains little detail regarding the nature

of the contractual relationship between the parties. The revised

Agreement specifically sets forth the details of the parties'

contractual relationship regarding rental and use of the booths as they

have been established by custom and usage in the past. Among other

provisions, the Agreement includes specific provisions delineating the

termination rights of both the member organization and the Exchange and

establishes a formal procedure for adding booths to and deleting booths

from the Agreement. Such booth changes, which are common, previously

have been handled informally, ad hoc. The Agreement also imposes an

obligation on the member to indemnify the Exchange for any claims,

liabilities, or other losses the Exchange may incur as a result of the

use of the booth by the member, and it spells out requirements

respecting the member's use of the booths, such as those governing the

installation of equipment, the conduct of business, and access of

persons to the booths.

Apart from the addition of detail to the Agreement, the only

principal change in current Exchange practice embodied in the Policy

and the Agreement is the elimination of a practice called ``joint

leasing.'' Previously, the Exchange has permitted two different member

organizations to occupy jointly a single trading floor booth and to

share the costs associated therewith. The Exchange believed that joint

leasing would make it easier (i.e., less costly) for smaller member

organizations to have access to multiple locations adjacent to the

trading floor. In practice, however, joint leasing has been used by

non-transaction producing members solely to reduce their booth fees and

not to facilitate trading activity. Therefore, the Exchange has

determined that joint leasing should be eliminated and replaced with a

variable fee arrangement that will soften the economic impact on small

member organizations that the elimination of joint leasing might

otherwise have. Under the proposed fee change included in this filing,

current booth fees have been reduced in two respects: First, the $1,250

per booth variable monthly fee has been eliminated for the second booth

leased by a member organization. Second, the $1,250 per booth variable

monthly fee on a member firm's third booth has been reduced by fifty

percent (50%) to $625. The full variable fee will continue to be

applicable to any booths leased by the firm beyond the third booth.

The Exchange 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 codify

Exchange policy and procedures with respect to the rental of trading

floor booths by CBOE members in a manner that promotes just and

equitable principles of trade, fosters cooperation and coordination

with persons engaged in regulating, clearing, settling, and processing

information with respect to and facilitating transactions in

securities, and protects investors and the public interest.

(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 reasons for so finding or (ii) as to

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 in the

Commission's Public Reference Section, 450 Fifth Street, NW.,

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

inspection and copying at the principal office of the CBOE. All

submissions should refer to File No. SR-CBOE-94-03 and should be

submitted by April 6, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\2\

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\2\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-6037 Filed 3-15-94; 8:45 am]

BILLING CODE 8010-01-M