[Federal Register Volume 59, Number 81 (Thursday, April 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10091]


[Federal Register: April 28, 1994]


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

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33937; File No. SR-CBOE-93-58]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to the 
Maintenance by Members of Certain Written Policies and Procedures

April 20, 1994.
    On December 20, 1993, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') submitted to the Securities and Exchange 
Commission (``SEC'' or ``Commission''), pursuant to section 19(b) of 
the Securities Exchange Act of 1934 (``Act''),\1\ and rule 19b-4 
thereunder,\2\ a proposal to amend Exchange Rule 4.18, ``Prevention of 
Misuse of Material, Nonpublic Information,'' to provide that a CBOE 
member who is a lessor of a membership and is not registered, not 
required to register, as a broker-dealer under section 15 of the Act, 
is not subject to the requirements of Exchange Rule 4.18 concerning the 
establishment, maintenance, and enforcement of written policies and 
procedures respecting the misuse of material, non-public 
information.\3\
---------------------------------------------------------------------------

    \1\15 U.S.C. 78s(b)(1) (1982).
    \2\17 CFR 240.19b-4 (1993).
    \3\On April 11, 1994, the CBOE submitted a letter indicating 
that the exemption from CBOE Rule 4.18 would not apply to a broker-
dealer once the member is registered as a broker-dealer. Since the 
exemption ceases to apply once the member is registered or required 
to register as a broker-dealer, there should be no gap in the 
application of CBOE Rule 4.18 after the member is required to 
register as a broker-dealer. See Letter from Michael L. Meyer, 
Schiff Hardin & Waite, to Yvonne Fraticelli, Staff Attorney, Options 
Branch, dated April 7, 1994 (``April 7 Letter'').
---------------------------------------------------------------------------

    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 33425 (January 5, 1994), 59 FR 1573. No 
comments were received on the proposed rule change.
    Currently, CBOE Rule 4.18 requires every CBOE member to 
``establish, maintain and enforce written policies and procedures 
reasonably designed, taking into consideration the nature of such 
member's business, to prevent the misuse, in violation of the Act and 
Exchange Rules, of material, nonpublic information by such member or 
persons associated with such member.'' The CBOE proposes to amend 
Exchange Rule 4.18 to provide that a member who is a lessor of a 
membership, and who is not registered as a broker-dealer or required to 
be registered, and who performs no other function in respect of the 
membership is not subject to the requirements of Exchange Rule 4.18 
concerning the establishment, maintenance, and enforcement of written 
policies and procedures respecting the misuse of material, non-public 
information. The Exchange believes that lessor members that do not 
conduct any securities business in respect of their membership, and, as 
a result, are not required to register as broker-dealers under Section 
15 of the Act, should not be subject to the written policy and 
procedure requirements of Exchange Rule 4.18. Accordingly, the CBOE 
proposes to amend CBOE Rule 4.18 to clarify that members who perform no 
function in respect to their membership except as lessors, and that are 
not otherwise required to register as broker-dealers under the Act, do 
not have to establish, maintain or enforce written policies and 
procedures precluding the misuse of non-public information.
    The CBOE 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) of the Act, in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest by eliminating unnecessary costs and burdens 
without impairing the CBOE's capacity to meet the requirements 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)\4\ in that it is 
designed to promote just and equitable principles of trade and to 
protect investors and the public interest. The Commission believes that 
the proposal will benefit CBOE members who are lessors of memberships 
and who are not registered or required to register as broker-dealers 
under the Act by eliminating the costs and burdens of establishing the 
procedures required under CBOE Rule 4.18. The Commission agrees with 
the CBOE's assertion that lessor members who do not conduct any 
securities business in respect of their membership and who are not 
required to register as broker-dealers under the Act should not be 
subject to the requirements of Exchange Rule 4.18, which are meaningful 
only to an ongoing securities business. Because such lessor members, 
unlike other members involved in the securities business, are not 
likely to receive material, nonpublic information from their limited 
role as a lessor of a CBOE membership, the Commission believes that the 
CBOE's proposal is a reasonable effort by the Exchange to eliminate an 
unnecessary burden for lessor members.
---------------------------------------------------------------------------

    \4\15 U.S.C. 78f(b)(5) (1988).
---------------------------------------------------------------------------

    In addition, the Commission believes that the proposal is 
consistent with the existing language of CBOE Rule 4.18, which requires 
members to establish, maintain, and enforce written policies ``taking 
into consideration the nature of such member's business. . . .'' Since 
CBOE Rule 4.18 is intended to require members to adopt procedures to 
prevent the misuse of material, non-public information, it is 
consistent with CBOE Rule 4.18 for the CBOE to exempt from the rule's 
requirements lessor members who are not involved in the securities 
business.
    At the same time, the CBOE's proposal should not compromise the 
effectiveness of Exchange Rule 4.18. Specifically, the Commission notes 
that the exemption from the requirements of Exchange Rule 4.18 applies 
solely to lessor members who are not registered, or required to 
register, as broker-dealers under the Act. If a member is required to 
register as a broker-dealer, then he must immediately establish the 
procedures required under CBOE Rule 4.18.\5\
---------------------------------------------------------------------------

    \5\See April 7 Letter, supra note 3.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to section 19(b)(2) of the Act\6\ 
that the proposed rule change (SR-CBOE-93-58) is approved.
---------------------------------------------------------------------------

    \6\15 U.S.C. 78s(b)(2) (1982).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\17 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------

[FR Doc. 94-10091 Filed 4-26-94; 8:45 am]
BILLING CODE 8010-01-M