[Federal Register Volume 61, Number 84 (Tuesday, April 30, 1996)]
[Notices]
[Pages 19106-19107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10643]



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

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37141; File No. SR-CBOE-96-13]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to the 
Exchange's Member Death Benefit Program

April 24, 1996.

I. Introduction

    On March 11, 1996, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed a proposed rule change with the 
Securities and Exchange Commission (``SEC'' or ``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ to revise its Member Death 
Benefit Program to expand its coverage to include certain recently 
active members and to establish a defined benefit of $50,000.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    Notice of the proposal was published for comment and appeared in 
the Federal Register on March 20, 1996.\3\ No comment letters were 
received on the proposed rule change. This order approves the 
Exchange's proposal.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 36961 (March 13, 
1996), 61 FR 11452.
---------------------------------------------------------------------------

II. Background

    The Exchange's Member Death Benefit Program is set forth in CBOE 
Rule 3.24 and functions in the following manner. The Member Death 
Benefit Program covers any natural person who is a nominee of a member 
organization, a Chicago Board of Trade exerciser, a lessee of an 
Exchange membership, or an owner of an Exchange membership that is not 
being leased to a lessee. The Exchange refers to the foregoing 
individuals as ``active members.'' Each active member designates a 
beneficiary under the Program. Upon the death of an active member, the 
Exchange pays a member death benefit to that member's designated 
beneficiary. The amount of the benefit is equal to the number of active 
members at the time of the member's death multiplied by $25. Because 
this benefit is based on the number of active members, the amount of 
the benefit fluctuates as the number of active members fluctuates. As 
of December 31, 1995, there were 1,384 active members. Therefore, if a 
benefit were to have been paid on that date, it would have been equal 
to $34,600. After a member death benefit has been paid under the 
Program, the Exchange bills each active member $25 in order to recoup 
the cost of the benefit.

III. Description of the Proposal

    The Exchange proposes to revise the Member Death Benefit Program in 
two primary respects. First, the Exchange proposes to expand the 
coverage of the Member Death Benefit Program to cover any individual 
who (i) was an active member within 90 days prior to the date of his or 
her death and (ii) was an active member during at least 274 out of the 
365 days preceding the date of his or her last termination from active 
member status. This expanded coverage would be in addition to the 
Program's current coverage of any individual who is an active member at 
the time of his or her death. Second, the Exchange proposes to 
establish a defined member death benefit under the Program of $50,000. 
This $50,000 benefit would replace the current member death benefit 
under the Program which is based on the number of active members at the 
time of a member's death. Accordingly, instead of being billed $25 by 
the Exchange after a member death benefit payout has occurred, under 
the proposed rule change each active member will be assessed an amount 
equal to $50,000 divided by the number of active members at the time of 
the assessment.
    The proposed rule change also makes two clarifications concerning 
the administration of the Member Death Benefit Program. First, the 
proposed rule change clarifies that in no event shall more than one 
member death benefit be paid by reason of the death on an individual 
who is eligible to receive the member death benefit. Second, the 
proposed rule change clarifies that the active members who will be 
assessed after a member death

[[Page 19107]]

benefit has been paid by the Exchange will be those individuals who are 
active members at the time of the assessment. The actual date upon 
which such assessments will occur will be at the discretion of the 
Exchange. Finally, the proposed rule change makes certain editorial 
changes to Rule 3.24 that do not affect its substance.
    The purpose of the Member Death Benefit Program is to provide a 
death benefit to the designated beneficiaries of active members. The 
Exchange believes that the proposed rule change will further that 
purpose and provide for a fairer and more appropriate way to provide 
the member death benefit. For example, currently if an individual who 
has been an active member for three quarters of the previous year 
temporarily leaves his seat in order to take a short vacation, that 
individual would not be covered by the Member Death Benefit Program in 
the event that the individual ere to pass away while on vacation. The 
same is true if the individual were to temporarily leave his seat 
because of an illness or accident and then were to pass away shortly 
thereafter. The proposed rule change is intended to cover these types 
of individuals under the Member Death Benefit Program because they have 
been active members for much of the year preceding the time of their 
death.
    The Exchange 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) of the Act in particular, in that it is 
designed to (i) provide for the equitable allocation of reasonable 
dues, fees, and other charges among Exchange members and (ii) remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system by serving to assist the Exchange in 
attracting and retaining active members through the enhancement of the 
financial security of their families in the event of their death.

IV. Discussion

    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) of the Act.\4\ The 
Commission believes that the Exchange's proposal is consistent with the 
Section 6(b)(5) requirements that the rules of an exchange be designed 
to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, and, in general, to protect investors 
and the public interest. The Commission further believes that the 
proposed rule change is consistent with Section 6(b)(4) of the Act, 
which requires the equitable allocation of reasonable dues and fees 
among members and persons using exchange facilities.
---------------------------------------------------------------------------

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

    The Commission believes that proposed amended Rule 3.24 reasonably 
addresses the Exchange's interest in providing death benefits to an 
active member's designated beneficiary. Under proposed Rule 3.24, the 
Exchange establishes a defined benefit of $50,000 to be paid to a 
designated beneficiary of an ``active member'', as defined above, upon 
which each active member will be assessed an amount equal to $50,000 
divided by the number of active members at the time of assessment. The 
Commission believes that the revised Member Death Benefit Program is 
reasonable and should provide enhanced benefits to a wider range of the 
Exchange's members.
    It is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\5\ that the proposed rule change (File No. SR-CBOE-96-13) is 
approved.

    \5\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-10643 Filed 4-29-96; 8:45 am]
BILLING CODE 8010-01-M