[Federal Register Volume 59, Number 106 (Friday, June 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13473]
[[Page Unknown]]
[Federal Register: June 3, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34128; File No. SR-CBOE-94-12]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc., Relating to
Modification of Fees for Failure to Observe OEX RAES Requirements
May 27, 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 April 1,
1994, the Chicago Board Options Exchange, Inc. (``CBOE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II and III below, which Items have been prepared by the self-
regulatory organization. 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
Currently, CBOE Rule 24.17, ``RAES Eligibility in OEX,''
establishes eligibility standards under which individuals, member
organizations, and joint accounts may participate in the CBOE's Retail
Automatic Execution System (''RAES'') for Standard & Poor's 100 Index
(``OEX'') options. The CBOE proposes to amend CBOE Rule 24.17(a)(iii)
to provide that an individual required to sign onto RAES immediately
prior to expiration may apply to the OEX Floor Procedure Committee
(``OFPC'') for prospective relief from the log-on requirements during a
particular expiration cycle. The CBOE also proposes to delete paragraph
(iv), which states, among other things, that a member's failure to meet
his RAES obligations will disqualify him from signing onto RAES for
such time period as the OFPC determines. In addition, the CBOE proposes
to replace the current $500.00 fee for failing to comply with CBOE rule
24.17's log-on and log-off requirements with the following fee
schedule: (1) A fee of $100.00 for one to three failures within one
calendar year; (2) a fee of $250.00 for four to six failures within one
calendar year; and (3) a fee of $500.00 for seven or more failures
within one calendar year. Finally, the CBOE proposes to assess a fee
for any joint account member or nominee of a member organization who
has logged onto RAES and later terminates participation on RAES at any
time prior to the next succeeding expiration date, unless the member
participates in another OEX RAES account or terminates his membership
with the Exchange.
The text of the proposal 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, the self-regulatory organization
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 self-regulatory organization
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 CBOE states that the purpose of the proposed rule change is to
eliminate the automatic disqualification provisions in CBOE Rule 24.17
and to reduce the fees now required of members under that rule for
failure to observe the rule's log-on and log-off requirements. In
addition, the proposal makes certain editorial changes to clarify CBOE
Rule 24.17 without affecting its substance.
In May 1993, Exchange Rule 24.17 was amended to establish, among
other things, more rigorous log-on and log-off requirements for
participants in OEX RAES.\1\ For example, group members who previously
were logged on automatically by the Exchange must now log on at their
own initiative each time they enter the trading crowd. Likewise,
members who previously were not required to log off the system each
time they left the trading crowd must now do so.
---------------------------------------------------------------------------
\1\See Securities Exchange Act Release No. 32248 (April 30,
1993), 58 FR 27596 (``RAES Fee Approval Order'').
---------------------------------------------------------------------------
In view of such additional log-on and log-off requirements, the
Exchange believes that the $500.00 fees currently due from members who
do not log on or log off as required are excessive. The proposed rule
change therefore establishes a new graduated fee schedule, under which
the fee amount will increase in relation to the number of times within
any one calendar year that a member does not log on or log off as
required. Specifically, during each calendar year, a $100.00 fee will
be due for each of the first three times that a member fails to observe
the log-on or log-off requirements; a $250.00 fee will be due for each
of the fourth through sixth such times; and a $500.00 fee will be due
for all subsequent times. In addition, the CBOE proposes to assess a
$500.00 fee on any member participating in a joint account or nominee
account held by a member organization if the member logs onto OEX RAES
but thereafter terminates participation prior to the next succeeding
expiration date without either joining another OEX RAES account or
terminating membership on the Exchange.
Members who fail to observe CBOE Rule 24.17 can be subject to a
variety of sanctions.\2\ The CBOE states that the fees suggested in the
proposed rule change, like the fees imposed currently under CBOE Rule
24.17, do not constitute disciplinary action. Nevertheless, the review
procedures in Chapter XIX, ``Hearings and Review,'' of the Exchange's
rules will be available with respect to the assessment of the proposed
fees. Under those procedures, a member may seek verification of fees
charged by the Exchange. If the member is not satisfied with the
verification of fees, he may request a hearing before a panel of three
or more members of the Exchange's Appeals Committee. At the hearing the
appellant may be represented by counsel and may cross-examine
witnesses.\3\
---------------------------------------------------------------------------
\2\Under CBOE Rule 24.17(b)(v), the OFPC may bar, restrict, or
condition a joint account's participation in RAES if any member
fails to meet the OEX market maker requirements. Under CBOE rule
24.17(c)(vi), the OFPC may bar, restrict, or condition a member
organization's participation in RAES if any nominee on RAES in OEX
fails to meet the OEX market maker requirements. CBOE Rule
24.17(e)(ii) provides several sanctions for failures to comply with
the requirements of CBOE Rule 24.17, including disciplinary action
under, among others, CBOE Rule 6.20, ``Admission to and Conduct on
the Trading Floor,'' and Chapter XVII, ``Discipline,'' of the CBOE's
rules. In addition, the OFPC may take remedial action, including
suspension of a member's eligibility for participation on RAES and
other remedies appropriate under Chapter VIII, ``Market Makers,
Trading Crowds, and Modified Trading Systems,'' of the CBOE's rules.
\3\See CBOE Rules 19.3, ``Procedure Following Applications for
Hearing,'' and 19.4, ``Hearing.''
---------------------------------------------------------------------------
In addition, the decision of the Exchange's Appeals Committee panel
is subject to review by the Board of Directors of the Exchange on the
Board's own motion, on the written request of the appellant, or at the
request of the Exchange's President or the relevant Exchange Committee
Chairman. The review must be conducted by the Board or by a Board
Committee consisting of at least three Directors (other than Directors
who sat on the Appeals Committee in the matter). An appellant has an
opportunity to address issues raised specifically by the Board or the
Committee, and in addition may submit oral or written arguments if the
Board so allows in its discretion.\4\
---------------------------------------------------------------------------
\4\See CBOE Rule 19.5, ``Review.''
---------------------------------------------------------------------------
The CBOE states that in a related context the Commission has noted
the appropriateness of fees like those proposed herein, particularly
when coupled with appeal rights. Specifically, in approving a CBOE
proposal that included procedures for contesting the fees assessed for
delayed submission of trade data, the Commission stated that ``Although
such formalized procedures are unusual for challenging fee assessments,
they actually make the imposition of the fee fairer by allowing members
to challenge erroneous fee charges. Moreover, these procedures are
reasonably designed to afford a member assessed a fee the opportunity
to challenge the veracity of the assessments.''\5\
---------------------------------------------------------------------------
\5\See Securities Exchange Act Release No. 30001 (November 26,
1991), 56 FR 63529 (order approving File No. SR-CBOE-90-06).
---------------------------------------------------------------------------
The Exchange believes that the proposed fee schedule is appropriate
and equitable given the additional requirements imposed on participants
in OEX RAES in the RAES Fee Approval Order. Furthermore, to ensure that
all members are treated alike under the RAES Fee Approval Order, the
Exchange will apply the revised fee schedule retroactively from April
30, 1993, the effective date of the RAES Fee Approval Order.
The proposal also deletes the automatic disqualification provisions
that appear in current CBOE Rules 24.17(a)(iv), (b)(vii), and
(c)(viii). The CBOE believes these deletions are appropriate in view of
the new requirements imposed under the RAES Fee Approval Order and the
fee structure imposed hereunder.
The CBOE believes that the proposed rule change is consistent with
Section 6(b) of the Act, in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5), in particular, in that it is designed to
allocate reasonable dues, fees and charges among CBOE members and to
promote the efficiency and effectiveness of the CBOE's automatic
execution system.
(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 reason for so finding or (ii) as to
which 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 at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by June 24, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13473 Filed 6-2-94; 8:45 am]
BILLING CODE 8010-01-M