Self-Regulatory Organizations; Notice of Filing and Order Granting Partial Accelerated Approval of a Proposed Rule Change and Amendment No. 1 to the Proposed Rule Change by the Chicago Board Options Exchange, Inc., Relating to As-Of-Add Submissions

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35190; File No. SR-CBOE-94-50]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Partial Accelerated Approval of a Proposed Rule Change and

Amendment No. 1 to the Proposed Rule Change by the Chicago Board

Options Exchange, Inc., Relating to As-Of-Add Submissions

January 3, 1995.

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 December 1, 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 and

II below, which Items have been prepared by the Exchange. The Exchange

subsequently filed Amendment No. 1 to the proposed rule change on

December 23, 1994.\3\ The Commission is publishing this notice to

solicit comments on the proposed rule change, as amended, from

interested persons. As discussed below, the Commission has also granted

accelerated approval to a portion of the proposal.

\1\15 U.S.C. 78s(b)(1) (1988).

\2\17 CFR 240.19b-4 (1991).

\3\In Amendment No. 1 to the proposal, the Exchange proposes to

change the fine schedule as proposed under CBOE Rule 17.50(g) in two

ways. First, as amended, a fine will be assessed whenever the as-of-

add (as defined herein) submissions of an individual member or a

clearing member equals or exceeds 300% of that member's maximum

nominal as-of-add rate for two, rather than three, consecutive

months. Second, fines will be imposed with reference to a rolling

12-month period, rather than within a calendar year. In Amendment

No. 1, the Exchange also requests accelerated approval of the

proposed rule change. See Letter from Dan Schneider, Schiff Hardin &

Waite, to Sharon Lawson, Assistant Director, Office of Market

Supervision (``OMS''), Division of Market Regulation (``Division''),

Commission, dated December 21, 1994 (``Amendment No. 1'').

---------------------------------------------------------------------------

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

Substance of the Proposed Rule Change

The Exchange proposes to: (1) Amend CBOE Rule 2.26 so as to place a

ceiling on the monthly fees members pay for submitting trade

information under Exchange Rule 6.51\4\ after the trade date (each an

``as-of-add'') on more than a stated maximum percentage of their

monthly trades and to enable the Exchange to suspend the rule in

exigent circumstances; and (2) amend CBOE Rule 17.50(g) to include a

fine schedule [[Page 3009]] for substantial and repeated failures to

submit trade data on the trade date. The Exchange also proposes that

the as-of-add fee pilot program (``Pilot Program''), as proposed to be

amended herein, be made permanent. The text of the proposed rule change

is available at the Office of the Secretary, CBOE, and at the

Commission.

\4\Among other things, Rule 6.51 requires that each transaction

be immediately reported to the Exchange in a form and manner

prescribed by the Exchange. See Rule 6.51(a).

---------------------------------------------------------------------------

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 Exchange 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 the as-of-add

fee Pilot Program in three ways and to have the Pilot Program, as

amended, made permanent. The proposed changes would: (1) Place a

ceiling on the monthly as-of-add fee to be paid under Rule 2.26; (2)

establish a fine schedule under Rule 17.50(g) for substantial and

repeated failures to submit trade data on the trade data; and (3)

incorporate into Rule 2.26 provisions like those currently included in

Rule 2.30(g) (``Fee for Delayed Submission of Trade Information'') that

would authorize the Exchange to suspend Rule 2.26 (and thereby waive

the fees that would otherwise be due) in exigent circumstances. The

Exchange believes these amendments to the Pilot Program are fully

responsive to the concerns the Commission has previously identified

with respect to the Pilot Program.\5\

\5\See Securities Exchange Act Release Nos. 32999 (October 1,

1993), 58 FR 53003 (October 13, 1993) (Order approving the as-of-add

fee Pilot Program on a six-month pilot basis), 33855 (April 4,

1994), 59 FR 17128 (April 11, 1994) (order extending the Pilot

Program until September 30, 1994), and 34783 (October 3, 1994), 59

FR 51459 (October 11, 1994) (order extending the Pilot Program until

December 31, 1994) (``Pilot Extension Approval Order'').

---------------------------------------------------------------------------

Under the Pilot Program in its present form, the fee, if any, to an

individual member is $10.00 for each as-of-add submitted during a given

month in excess of the percentage of such submissions considered

``nominal'' under paragraph (a) of Rule 2.26.\6\ The fee to any

clearing firm under paragraph (b) of that rule is $3.00 for each as-of-

add submitted in excess of the ``nominal'' percentage.\7\ In addition,

any member assessed an as-of-add fee may request verification from the

Exchange pursuant to Part B of Chapter XIX of CBOE's Rules and may

appeal the fee assessment pursuant to Part A thereof.

\6\The current ``nominal'' maximum allowable monthly number of

as of adds for individual members is 2.4% of an individual member's

monthly trades.

\7\The current ``nominal'' maximum allowable monthly number of

as of adds for clearing members is 1.2% of clearing members' monthly

trades.

---------------------------------------------------------------------------

The CBOE believes that the as-of-add fees assessed pursuant to the

Pilot Program recognize that late trade submissions impose special

processing costs on the Exchange and require significant effort by

clearing firms and executing brokers to check and resolve late trade

reports. The Exchange represents that late trade submissions are

especially likely to burden the Exchange's operations during periods of

high volume and heightened volatility, when added stress is least

tolerable, thereby adding financial risk to members during these

already difficult periods.

The as-of-add fees, according to the Exchange, respond to these

problems in two ways. First, the as-of-add fees help to reimburse the

Exchange for the administrative burdens and costs of processing post-

trade date submissions, and impose the obligation to make such

reimbursement on those members who account for an inordinate number of

as-of-add submissions and who are thus most responsible for these added

costs in the first place (i.e., individual members).

Second, the Pilot Program creates what the Exchange believes to be

reasonable economic incentives for members to submit trade data on the

trade date, thereby relieving the Exchange and Exchange members of high

levels of special handling associated with processing as-of-adds. The

Exchange continues to believe, for the reasons set forth in previous

filings and supplemental correspondence,\8\ that the particular fees

included in the Pilot Program are equitably allocated among individual

members and clearing member organizations.

\8\See supra note 5 and infra note 10.

---------------------------------------------------------------------------

In the last extension of the Pilot Program, the Commission approved

the proposed rule change as a fair and equitable allocation of

reasonable fees, but asked the Exchange, in connection with any request

to make the Pilot Program permanent, to consider ways to incorporate

the Pilot Program into Exchange Rule 17.50(g), under which the Exchange

imposes fines for minor rule violations (``Minor Rule Plan'').\9\ The

Commission also required the CBOE to submit a report setting forth

particular statistics about the Pilot Program.\10\

\9\See Pilot Extension Approval Order, supra note 5. In the

Pilot Extension Approval Order the Commission stated that it would

not be inclined to grant a further extension of the as-of-add fee

Pilot Program until the concerns of the Commission expressed therein

had been addressed by the CBOE. Id.

\10\See Letter from Joanne Moffic-Silver, Associate General

Counsel, CBOE, to Sharon Lawson, Assistant Director, OMS, Division,

Commission, dated November 29, 1994 (``Pilot Report'').

---------------------------------------------------------------------------

The first proposed amendment to Rule 2.26 would place a cap on the

monthly fee that any individual member or clearing firm would pay under

that rule. The monthly fee to individual members under Rule 2.26(a)

would be capped at $500.00, and the monthly fee to clearing firms under

Rule 2.26(b) would be capped at $1,000.00. The Exchange believes that

the caps, when set at the levels proposed, will enable the Exchange to

recover its costs for as-of-add processing while ensuring that no

individual member or clearing member organization pays an

inappropriately high, or punitive, fee.\11\ In addition, although the

proposed cap levels are different for individual members as compared to

clearing firms, the Exchange believes that the structure and size of

the fee caps are equitable and appropriate. Clearing firms pay, on

average, substantially higher aggregate as-of-add fees than do

individual members, and the fee cap to clearing firms accordingly, in

the Exchange's opinion, should be set at a higher level.

\11\The CBOE notes that the use of fee caps will limit the

incentive effect of the Pilot Program, but that result will, in its

opinion, be offset in part by the introduction of the proposed fine

schedule under Rule 17.50(g).

---------------------------------------------------------------------------

The second proposed amendment to Rule 2.26 would incorporate in a

new paragraph (d), provisions authorizing the Clearing Procedures

Committee, with the approval of the President of the Exchange, or his

designee, to suspend application of the rule, and thereby waive the

assessment of as-of-add fees, for periods no greater than seven

calendar days, plus extensions, whenever unusual circumstances so

dictate. This new paragraph corresponds to the similar suspension

provisions contained in Rule 2.30(g).\12\ In the proposal, as in Rule

2.30(g), the term ``unusual circumstances'' refers to

[[Page 3010]] circumstances that affect the ability of a significant

number of members to submit trade information on time. Any such

suspension of the rule must be in writing and must be published by the

Exchange for distribution to the membership.

\12\Rule 2.30 provides for fees to be assessed against market

makers and clearing members for failing to submit trade information

required by Rule 6.51 within two hours after execution of a trade.

---------------------------------------------------------------------------

The Exchange anticipates that this authority would be used very

infrequently. The Exchange represents that it has invoked Rule 2.30

suspensions only once a year, on average, since the rule was adopted in

1991. In every case, the CBOE represents that the suspensions have

occurred on a day when there was both extraordinary volume and a

trading surge at the end of the day. Therefore, according to the

Exchange, it is likely that any suspension under proposed Rule 2.26

would ordinarily be matched with a suspension under Rule 2.30.

The third proposed change to the Pilot Program would add a fine

schedule to CBOE Rule 17.50(g) for substantial and repeated failures to

file trade data on the trade date, in contravention of Rule 6.51. As

proposed, any member who exceeds the as-of-add rate considered nominal

under Rule 2.26\13\ by three times or more for two consecutive months

would be subject to a fine of $250 for the first offense, $500 for the

second offense, and $1,000 for each offense thereafter occurring during

any 12-month period.\14\ Fines under this proposal would therefore

currently be triggered for an individual member whenever that member's

as-of-add submissions equal or exceed 7.2% of total trade submissions

in each of two consecutive months, while fines to clearing firms would

be triggered whenever a clearing member's as-of-add submissions equal

or exceed 3.6% of total trade submissions for each of two consecutive

months.\15\ The fines imposed pursuant to Rule 17.50(g) would be in

addition to any fees due under Rule 2.26 and would serve to penalize

those members who submit the greatest number of excessive as-of-add

trades.

\13\See supra notes 6 and 7.

\14\See Amendment No. 1, supra note 3. These fines would be

assessed on a rolling basis. For example, an individual member who

is cited for a first offense for a minor rule violation for

exceeding the nominal allowable number of as-of-adds by three or

more times during each of December and January would be fined for a

second offense if that member again exceeds the allowable number of

as-of-adds by three or more times during February. Telephone

conversation between Dan Schneider, Schiff Hardin & Waite, and Brad

Ritter, Senior Counsel, OMS, Division, Commission, on December 8,

1994.

\15\See supra notes 6 and 7.

---------------------------------------------------------------------------

The Exchange believes that the proposed fines would fairly and

effectively supplement the fees assessed under Rule 2.26, by providing

a clear sanction in those circumstances in which discipline is clearly

appropriate. As structured, fines would be imposed when late

submissions by a particular member or members reflect a pronounced

pattern of persistent and excessive use of as-of-adds. Absent such a

pattern, the Exchange believes, that the assessment of fees is

sufficient and that fines should ordinarily not be imposed. Of course,

in any circumstance in which a member's use of as-of-adds suggests that

it may be appropriate to impose more severe disciplinary sanctions than

would be provided for under Rule 17.50(g), the member would be subject

to investigation and discipline in accordance with Chapter XVII.\16\

\16\The CBOE has agreed to issue a Regulatory Circular to

members describing the portions of the proposal approved herein,

describing the portion of the proposal to incorporate the Pilot

Program into the Minor Rule Plan, emphasizing that serious instances

or extended periods of late submissions will be subject to

investigation and possible disciplinary action notwithstanding Rule

17.50(g), and highlighting that all members assessed a fee pursuant

to the Pilot Program may submit a request for verification and may

appeal the fees assessed pursuant to Chapter XIX of the CBOE Rules.

---------------------------------------------------------------------------

The Exchange believes that the proposed rule change is consistent

with Section 6 of the Act, in general, and furthers the objectives of

Section 6(b)(5) of the Act,\17\ in particular, in that it is designed

to prevent fraudulent and manipulative acts and practices, to promote

just and equitable principles of trade, to foster cooperation and

coordination with persons facilitating transactions in securities, to

remove impediments to and perfect the mechanism of a free and open

market, and to protect investors and the public interest.

\17\15 U.S.C. 78f(b)(5) (1988).

---------------------------------------------------------------------------

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

The Exchange 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

The Exchange has requested that the proposed rule change be given

accelerated effectiveness pursuant to Section 19(b)(2)\18\ of the

Act.\19\

\18\15 U.S.C. 78s(b)(2) (1988).

\19\See Amendment No. 1, supra note 3.

---------------------------------------------------------------------------

The Commission finds that the proposed rule change is consistent

with the requirements of the Act and the rules and regulations

thereunder applicable to a national securities exchange and, in

particular, the requirements of Section 6(b)(5).\20\ Specifically, the

Commission finds, as it did in originally approving the Pilot Program

and the subsequent extensions,\21\ that imposing fees on members who

submit as-of-adds for more than a prescribed percentage of transactions

in any month is likely to: (1) Offset the carrying costs incurred by

the Exchange and Exchange members as a result of these post-trade date

submissions; (2) make trade comparisons on the CBOE more efficient in

terms of the time and expense involved in trade processing; and (3)

reduce the risk exposure to investors and Exchange clearing members.

Additionally, the Commission continues to believe that the Pilot

Program does not raise any due process concerns because of the

availability of the verification and appeals processes pursuant to

Chapter XIX of CBOE's rules.\22\

\20\15 U.S.C. 78f(b)(5) (1988).

\21\See supra note 5.

\22\Id.

---------------------------------------------------------------------------

The Commission believes that the proposed caps on the monthly as-

of-add fees that can be assessed against members adequately addresses

one of the concerns previously noted by the Commission of assessing

inordinately high, or punitive, monthly ``fees'' for violations of

Exchange rules.\23\ By placing the proposed caps on the maximum monthly

as-of-add fees, the Commission believes that it is appropriate for the

Exchange to continue to classify these assessments as fees, rather than

requiring the Exchange to institute disciplinary proceedings and to

assess fines against members each time they submit as-of-adds in

violation of Exchange rules.\24\ Additionally, the proposal to

incorporate the Pilot Program into the Minor Rule Plan under Rule 17.50

further minimizes the Commission's concerns about classifying these

assessments as fees rather than fines.\25\ The proposal

[[Page 3011]] ensures that at some objective level, members will be

cited for violating Exchange Rule 6.51\26\ In connection with as-of-add

submissions. The Commission believes that the prospect of being fined

for a rule infraction, particularly where the as-of-adds reflect a

significant pattern of abuse in violation of the requirements of Rule

6.51, will act as a further incentive for encouraging exchange members

to reduce their as-of-add submissions.

\23\Id.

\24\The Commission notes that its findings herein are limited to

as-of-add submissions. For violations of other Exchange rules, it

may be inappropriate to allow the Exchange to assess fees to

encourage compliance rather than instituting disciplinary

proceedings against members for such violations.

\25\The Commission notes that although the proposal to

incorporate the Pilot Program into the Minor Rule Plan is consistent

with the Commission's prior suggestions regarding the Pilot Program,

for the reasons discussed below, this portion of the proposed rule

change is being published for comment and is not being approved by

the Commission on an accelerated basis herein with the remainder of

the proposal.

\26\See supra note 4.

---------------------------------------------------------------------------

Furthermore, the Commission does not believe that the fact that the

proposed monthly cap as-of-add fees is higher for clearing members

($1000) than for individual members ($500) raises significant

regulatory concerns. In its present form, the Pilot Program

distinguishes between clearing members and individual members in two

respects. First, the monthly allowable percentage of as-of-adds is

higher for individual members than for clearing members.\27\ Second,

the per-trade fee amount assessed against individual members ($10) is

higher than that assessed against clearing members ($3). Because the

average fee assessed against clearing members during the period between

October 1, 1993, and September 30, 1994, ($307.51) was higher than the

average fee assessed against individual members ($104.50),\28\ the

Commission does not disagree with the Exchange's determination that it

is reasonable for the monthly cap applicable to clearing members to be

higher than the cap applicable to individual members. Moreover, even

though the Exchange represents that most as-of-adds are the result of

late submission by individual members rather than by clearing members,

the Commission believes that clearing members have some ability to

encourage individual members to reduce their number of as-of-adds, for

example, by charging fees to individual members who regularly submit

as-of-adds to the clearing member for processing. Additionally,

assuming that the portion of the proposal to incorporate violations of

Rule 2.26 into the Minor Rule Plan is ultimately approved,\29\ the

Commission notes that it will be possible for individual members who

submit a significant number of as-of-adds in relation to their total

number of monthly trades to be fined for violating the Minor Rule Plan

without reaching the cap on fees pursuant to Rule 2.26. Finally, the

fines proposed for violating the Minor Rule Plan for as-of-add

submissions are the same for individual members and for clearing

members. Even with the lower monthly cap on fees, therefore, the

Commission believes that the proposal provides significant incentives

for individual members to reduce their as-of-add submissions. As a

result, the Commission believes that the difference between the cap

levels for individual members and clearing members is reasonable and

consistent with the Act.

\27\See supra notes 6 and 7.

\28\See Pilot Report, supra note 10.

\29\See supra note 25.

---------------------------------------------------------------------------

The Commission also notes that in prior extensions of the Pilot

Program, the Commission expressed concern over the Exchange's inability

to determine, without examining each individual trade, whether

particular as-of-adds are submitted due to the fault of an individual

member or that member's clearing firm.\30\ As a result, in determining

whether a member has exceeded its stated monthly percentage of

allowable as-of-adds, each as-of-add processed by a clearing member is

counted against both the clearing member and the individual member who

executed the transaction. For several reasons, however, the Commission

now believes that this does not prevent a finding that the Pilot

Program is consistent with the Act. First, data gathered by the

Exchange from the first year of operation of the Pilot Program support

the Exchange's representation that most as-of-adds are the result of

late submissions by individual members, not clearing firms. From

October 1, 1993, through September 31, 1994, there were 463 assessments

of fees against individual members pursuant to the Pilot Program but

only 13 such assessments against clearing members.\31\ Second, during

that same period, only one individual member requested verification of

the fee assessed by the Exchange and that member did not appeal the

assessment upon receipt of verification from the Exchange.\32\ Finally,

the Commission has not received any comment concerning the Pilot

Program, in general, or this aspect of the Pilot Program, in

particular. As a result, the Commission does not believe that

individual members are being damaged as a result of the CBOE's

inability to efficiently identify the party actually responsible for

each as-of-add, especially given that members may request verification

of, and may appeal, any as-of-add fee assessed by the Exchange.

\30\See supra note 5.

\31\See Pilot Report, supra note 10.

\32\Id.

---------------------------------------------------------------------------

Finally, the Commission believes that the proposal to add paragraph

(d) to Rule 2.26 concerning waivers of the as-of-add fees in unusual

circumstances is also consistent with the Act. Proposed paragraph (d)

substantively mirrors paragraph (g) of Rule 2.30, which was previously

approved by the Commission. Rule 2.30 is similar to Rule 2.26 in that

both rules are concerned with the late submission of trade data.\33\ As

a result, the Commission believes that if Rule 2.30 can be waived in

the event of exigent circumstances, a similar provision should also

apply to Rule 2.26. The Commission believes that when unusual

circumstances exist that affect the ability of a significant number of

members to submit trade information to the Exchange in a timely manner

it may not be appropriate to assess fees, and possibly fines (assuming

the amendment to the Minor Rule Plan discussed herein is ultimately

approved as adopted), against individual members and clearing members.

The Commission expects the CBOE to use its power to waive as-of-add

fees only in highly unusual circumstances. In addition, while the CBOE

has indicated that the power to waive as-of-add fees will usually be

used in conjunction with the similar power in Rule 2.30, the Commission

expects the CBOE to examine each situation on its merits to determine

whether just Rule 2.30 or both Rules 2.26 and 2.30 should be waived in

a particular situation.\34\

\33\See supra note 12.

\34\For example, situations could arise for which it may be

appropriate for the Exchange to waive Rule 2.30, but if the unusual

circumstances last only a few hours, it may be inappropriate to

conclude that trade data could not be submitted by most members on

the same day that the trades occur. In such a situation, the

Commission believes that it would not be appropriate for the

Exchange to also waive Rule 2.26.

---------------------------------------------------------------------------

The Commission finds good cause for approving the following

portions of the proposed rule change and Amendment No. 1 thereto prior

to the thirtieth day after the date of publication of notice of filing

thereof in the Federal Register: (1) The request for permanent approval

of the Pilot Program; (2) the proposal to impose caps on the monthly

fee that can be assessed against members; and (3) the portion adopting

paragraph (d) to Rule 2.26 to allow the Exchange to waive application

of the rule in unusual circumstances.

First, granting permanent approval of the Pilot Program will permit

the Pilot Program to remain in effect without

[[Page 3012]] interruption. For the reasons discussed above and in

prior orders concerning the Pilot Program,\35\ the Commission believes

that reducing the number of as-of-adds submitted to the Exchange may

benefit investors by reducing the Exchange's processing costs, making

the CBOE more efficient in terms of the time involved in trade

processing, and reducing risk exposure to investors and Exchange member

firms. Additionally, the Exchange has represented that no problems have

arisen and no formal complaints have been received by the Exchange

concerning the Pilot Program since its implementation.\36\ Accordingly,

the Commission believes it is consistent with Sections 6(b)(5) and

19(b)(2) of the Act to approve, on an accelerated basis, that portion

of the proposed rule change requesting permanent approval of the Pilot

Program.

\35\See supra note 5.

\36\See Pilot Report, supra note 10.

---------------------------------------------------------------------------

For the reasons discussed above, the Commission also believes that

it is appropriate to accelerate approval of the proposal to impose caps

on the monthly as-of-add fees assessed against members. The Commission

believes that this portion of the proposal addresses a significant

concern that the Commission previously raised regarding the Pilot

Program by ensuring that members are not assessed fees that are

inordinately high, or punitive.\37\ The Commission continues to believe

that it is inappropriate for the CBOE to promote and enforce compliance

with Exchange rules solely through the assessment of fees. Further,

this proposal is a limitation on the existing Pilot Program, which has

no upper limit on the monthly fee that can be assessed. As a result,

because the Commission has not received comment on the existing Pilot

Program, the Commission believes it is appropriate to approve this

aspect of the proposal on an accelerated basis.

\37\See supra note 5.

---------------------------------------------------------------------------

With regard to proposed paragraph (d) to Rule 2.26, the Commission

believes that this amendment will promote uniformity between Rule 2.26

and existing Rule 2.30. The logic for waiving application of Rule 2.30

in the existence of unusual circumstances also applies to Rule 2.26,

i.e., if circumstances prevent a significant number of members from

processing trade information, it generally may be inappropriate to

assess fees against those members for violating Rules 2.26 and 2.30.

Accordingly, the Commission believes it is appropriate to approve this

portion of the proposal on an accelerated basis in order to promote

uniformity between the Exchange's rules and thus minimize potential

confusion, and to avoid inconsistent results where for the same set of

``unusual circumstances,'' the Exchange is able to waive application of

Rule 2.30 but not Rule 2.26.\38\

\38\See supra note 34 and accompanying text.

---------------------------------------------------------------------------

At this time the Commission is not approving that portion of the

proposed rule change that would incorporate the Pilot Program into the

Minor Rule Plan. Although the Commission believes that this portion of

the proposal addresses suggestions previously noted by the Commission

concerning the Pilot Program, the Commission believes that prior to

approval, Exchange members should be given adequate notice of, and an

opportunity to comment on, proposals that could subject them to

disciplinary sanctions. As a result, the Commission expects the

Exchange to distribute to its members notice of the rule change as

approved herein and notice of the proposal to incorporate the Pilot

Program into the Minor Rule Plan.\39\ Moreover, the Exchange's request

for accelerated approval of the proposal was for the sole purpose of

avoiding procedural and accounting problems that would result from a

lapse in the Pilot Program.\40\ The Commission believes this concern

has been adequately addressed by accelerating permanent approval of the

Pilot Program

\39\See supra note 16.

\40\See Amendment No. 1, supra note 3.

---------------------------------------------------------------------------

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing proposed rule change and Amendment

No. 1 thereto. 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-94-50 and should be submitted by January 31, 1995.

It is therefore ordered, pursuant to Section 19(b)(2) of the

Act\41\ that the following portions of the proposed rule change (SR-

CBOE-94-50), are approved: (1) The amendments to CBOE Rule 2.26 placing

a ceiling on the monthly as-of-add fees that can be assessed against

individual members and clearing members, and allowing the Exchange to

suspend the rule in exigent circumstances; and (2) permanent approval

of the Pilot Program.

\41\15 U.S.C. 78s(b)(2) (1988).

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\42\

\42\17 CFR 200.30-3(a)(12) (1993).

---------------------------------------------------------------------------

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-483 Filed 1-11-95; 8:45 am]

BILLING CODE 8010-01-M