Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by Chicago Board Options Exchange, Incorporated To Extend for an Additional Fifteen Day Period a Pilot Operation of a System for Monitoring News Announcements Made After the Close of Trading in the Primary Market for the Underlying Stock

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37505; File No. SR-CBOE-96-53]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Accelerated Approval of Proposed Rule Change by Chicago Board

Options Exchange, Incorporated To Extend for an Additional Fifteen Day

Period a Pilot Operation of a System for Monitoring News Announcements

Made After the Close of Trading in the Primary Market for the

Underlying Stock

July 31, 1996.

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 July 30, 1996, the Chicago Board Options Exchange, Incorporated

(``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 CBOE. The

Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons and to grant accelerated

approval of the proposed rule change.

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

\2\ 17 CFR 240.19b-4.

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

of the Proposed Rule Change

The Exchange proposes to extend for an additional 15 day period a

pilot test of a system that, shortly before the close of trading each

day, monitors news announcements pertaining to underlying securities,

and automatically suspends the Exchange's automatic execution system in

respect of options on those securities that are the subject of such

announcements. The text of the proposed rule change 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, 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.

[[Page 41197]]

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

The Exchange proposes to extend for an additional 15 day period a

pilot program to test an automated system that monitors news wires

received at the Exchange shortly before the close of trading each day,

and suspends the Exchange's automatic order execution system in a class

of equity options whenever there is a news announcement pertaining to

the security underlying options of that class.\3\ The Exchange notes

that the purpose of the pilot is to permit the Exchange to evaluate a

system designed to respond to the problem presented when issuers of

stocks underlying options make significant news announcements during

the ten minutes after the close of trading in stocks when options

continue to trade (i.e., 3:00 to 3:10 central time). The system

monitors news wires during this period, and automatically suspends the

Exchange's Retail Automatic Execution System in the event of news

announcements in order to prevent automatic executions at prices that

do not reflect the news. The Commission approved the Exchange's

proposal to test the system on a 30-day pilot basis, to allow the

Exchange to monitor the effects of its operation, and then make a

decision whether to request approval on a permanent basis. The Exchange

agreed to submit a report to the Commission analyzing the pilot in

connection with any request for permanent approval.

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\3\ See Securities Exchange Act Release No. 37380 (June 28,

1996) (SR-CBOE-96-37) (``News Monitoring Pilot Approval Order'').

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CBOE commenced the pilot in 45 stocks on July 1, 1996, and

gradually extended it to additional classes until, on July 17, 1996,

the system was in effect for all classes of equity options traded on

the Exchange. The Exchange believes the results are promising, but does

not believe it has had sufficient experience with the operation of the

system on a floor-wide basis to assess whether to request permanent

approval of the system. The Exchange is preparing the report that will

assist it, and the Commission, in evaluating the operation of the

system during the pilot. In order to provide some additional time to

evaluate the operation of the system and to prepare its report, the

Exchange is requesting approval to operate the pilot for an additional

15-day period. At the end of that period, CBOE will make a decision

whether to request permanent approval. If the Exchange requests

permanent approval, it will do so by submitting a proposed rule change

pursuant to Section 19(b)(2) of the Act. The filing will be accompanied

by a report of the Exchange's experience with the pilot, and may

include a request to extend the pilot while the request for permanent

approval is under consideration.

CBOE believes that the 15-day extension of the pilot requested

herein is consistent with the objectives of Section 6(b)(5) of the Act,

in that it will enable the Exchange and the Commission to evaluate a

system designed to assure that option orders are executed at fair

prices in the event of significant news announcements, which is in the

interest of promoting just and equitable principles of trade and

protecting 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

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

The Exchange has requested that the proposed rule change be given

accelerated effectiveness pursuant to Section 19(b)(2) of the Act. 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) thereunder.

The Commission believes that the Exchange's proposal provides a

reasonable means to complete its evaluation of a system to address

pending news announcements after the close of trading in the primary

market for the underlying securities. The Commission notes that the

Exchange has not reported any significant problems with the operation

of the system to date, and that a 15-day extension of the pilot to

complete its evaluation of the system is appropriate.

As noted in the News Monitoring Pilot Approval Order, CBOE intends

to evaluate the pilot in several respects to determine if it wants to

implement the system on a permanent basis.\4\ The Exchange will provide

the Commission with the analysis of the pilot.

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\4\ The additional 15-day period commences on July 31, 1996 and

expires at 3:10 p.m. central time on August 14, 1996. Any request

for an extension of the pilot period or request for permanent

approval of the system would have to be submitted to the Commission

pursuant to Section 19(b)(2) of the Act.

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The Commission finds good cause for approving this proposed rule

change on an accelerated basis prior to the thirtieth day after the

date of publication of notice thereof in the Federal Register.

Specifically, the Commission believes that accelerated approval of the

proposal is appropriate because it is to be implemented for an

additional limited 15-day period which will provide CBOE with the time

to complete its evaluation regarding the effectiveness of the system.

Accordingly, the Commission believes that it is consistent with

Section 6(b)(5) of the Act to approve the proposed rule change, as

amended, or an accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing proposed rule change. 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 20549. Copies of such filing will also be available

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

submissions should refer to File No. SR-CBOE-96-53 and should be

submitted by August 28, 1996.

V. Conclusion

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

that the proposed rule change (File No. SR-CBOE-96-53), is hereby

approved for an additional 15-day pilot period expiring on August 14,

1996, on an accelerated basis.

[[Page 41198]]

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).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-20085 Filed 8-6-96; 8:45 am]

BILLING CODE 8010-01-M