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Self-Regulatory Organizations; Order Approving Proposed Rule Change by the Chicago Board Options Exchange, Inc. Relating to Customer Communications

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Information about this document as published in the Federal Register.

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Start Preamble February 18, 2000.

I. Introduction

On June 18, 1999, the Chicago Board Options Exchange, Inc. (“CBOE” or “Exchange”) submitted to the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) [1] and Rule 19b-4 [2] thereunder, a proposed rule change. In its proposal, CBOE seeks to permit the use of non-standardized worksheets in customer communications. Notice of the proposal was published in the Federal Register on December 8, 1999.[3] The Commission received no comment letters on the filing and this order approves the proposal.

II. Description of the Proposal

CBOE proposes to amend Exchange Rule 9.21 (“Communications to Customers”), which governs communications between Exchange members and their customers and other members of the public, to eliminate the requirement that standard forms of options worksheets be uniform within a member organization (i.e., for specific types of options and strategies). Following the recommendations of the Commission's Special Study of the Options Market,[4] the options exchanges amended their rules to require uniform options worksheets. In 1991, the options exchanges further amended and clarified their rules by publishing the Guidelines for Options Communications (“Guidelines”),[5] which explained the customer communications rules of the options exchanges and the interpretations of these rules. Among other things, the Guidelines helped clarify the options exchanges' rules about using options worksheets and stated, in part, that “[s]tandard forms of worksheets must be uniform within a particular member organization. * * *” CBOE now proposes to remove this requirement.

CBOE notes that the proposal will allow a member organization or its associated person to tailor worksheets to specific prospective or existing clients, to utilize worksheets that may be commercially available, or to use Exchange or other industry developed worksheets. Member organizations may still decide to require within their written supervisory procedures that options worksheets be standardized within their respective organizations. However, CBOE states that worksheets will continue to be subject to the content and approval requirements of material deemed sales literature, as required by existing Exchange Rule 9.21.Start Printed Page 10575

III. Discussion

After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act.[6] In particular, the Commission finds the proposal is consistent with Section 6(b)(5) [7] of the Act. Section 6(b)(5) requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade and to protect investors and the public interest.

The Commission believes that the proposal is consistent with the Act because it provides flexibility to CBOE member firms while still providing for investor protection. In particular, the proposal provides flexibility to CBOE members and their associated persons by allowing them to create options worksheets that match the investment objectives of their clients. At the same time, however, the proposal provides for investor protection by continuing the requirement that a registered options principal first approve the worksheet before its use.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,[8] that the proposed rule change (SR-CBOE-99-27) is approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[9]

Start Signature

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  See Securities Exchange Act Release No. 42186 (November 30, 1999), 64 FR 68707.

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4.  See Report of the Special Study of the Options Market, Chapter V, page 130 (December 22, 1978); Securities Exchange Act Release No. 15575 (Feb. 22, 1979) (Order implementing certain recommendations contained in the Commission's Special Study of the Options Market).

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5.  See Securities Exchange Act Release No. 29682 (September 13, 1991), 56 FR 47973 (September 23, 1991) (File Nos. SR-Amex-90-38; SR-CBOE-90-27; SR-NASD-91-02; SR-NYSE-90-51; and SR-PSE-90-41).

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6.  In addition, pursuant to Section 3(f) of the Act, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. 00-4556 Filed 2-25-00; 8:45 am]