[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]


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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.
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    \1\See Securities Exchange Act Release No. 32248 (April 30, 
1993), 58 FR 27596 (``RAES Fee Approval Order'').
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    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\
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    \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.''
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    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\
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    \4\See CBOE Rule 19.5, ``Review.''
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    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\
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    \5\See Securities Exchange Act Release No. 30001 (November 26, 
1991), 56 FR 63529 (order approving File No. SR-CBOE-90-06).
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    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