[Federal Register Volume 61, Number 153 (Wednesday, August 7, 1996)]
[Notices]
[Pages 41194-41196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20084]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37500; File No. SR-CBOE-96-45]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Incorporated Relating to 
Disciplinary Hearing Procedures and Publication of Disciplinary 
Decisions

July 30, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
July 10, 1996,\1\ the Chicago Board Options Exchange,

[[Page 41195]]

Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``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.
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    \1\ On July 25, 1996 the Exchange filed Amendment No. 1 to the 
proposed rule change. Amendment No. 1 is a technical amendment 
clarifying the language of amended Rule 17.6(b) to include 
situations where there are more than two parties to a hearing. See 
letter from Arthur B. Reinstein, Senior Attorney, Chicago Board 
Options Exchange to Ethan Corey, Special Counsel, Division of Market 
Regulation, Commission (July 25, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend CBOE Rule 17.6 to adopt certain 
procedures for hearings in disciplinary cases, and proposes to amend 
CBOE Rule 17.9 to codify CBOE's practice regarding the publication of 
disciplinary decisions.
    The text of the proposed rule change 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 CBOE 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 CBOE 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

1. Purpose
    The purpose of the proposed rule change is to amend Rule 17.9 to 
codify CBOE's practice regarding the publication of disciplinary 
decisions, and to amend Rule 17.6 to adopt the following additional 
hearing procedures for disciplinary cases: (i) the hearing Panel or the 
hearing Panel Chairperson will decide any unresolved pre-hearing issues 
at [either] any party's request; (ii) interlocutory review of hearing 
Panel decisions is prohibited unless authorized by the hearing Panel; 
(iii) the hearing Panel will decide the location of the hearing; (iv) 
the Respondent will be permitted to submit a written request to the 
hearing Panel asking the Panel to compel the production of non-
privileged documents by the Exchange, a member or associated person, or 
the testimony of a member, associated person or a person within the 
Exchange's control and; (v) parties must provide a witness list prior 
to the scheduled hearing. The Exchange believes that the proposed 
procedures, some of which are presently in practice, will improve the 
speed, fairness, and efficiency of disciplinary hearings.

Publication of Decisions

    It is presently the Exchange's practice to publish summaries of 
Business Conduct Committee hearing decisions in the Exchange's Bulletin 
after those decisions are final. A decision is considered final after 
the CBOE Board of Directors (``Board'') concludes its review of the 
decision or after the time for such review has expired. Only the 
parties to the case are permitted access to the decision prior to the 
time the decision is considered final.\2\ The proposed rule change 
would codify this practice.
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    \2\ In accordance with CBOE Rule 17.14, decisions are also 
reported to the Central Registration Depository prior to the time 
the decision is considered final.
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Decisions Regarding Pre-hearing Issues

    Pursuant to existing CBOE Rule 17.6(b), the parties to a 
disciplinary hearing are to meet in a pre-hearing conference if the 
time and the nature of the proceedings permit such a meeting. The 
purpose of this pre-hearing conference is to clarify and simplify 
issues, and otherwise expedite the proceedings. The parties should 
attempt to reach agreement respecting the authenticity of documents, 
facts not in dispute, and other items which will serve to expedite the 
hearing. Should the parties fail to reach agreement on pre-hearing 
issues, Exchange rules do not presently address how those issues will 
be resolved. In practice, when such pre-hearing conferences are held, 
the hearing Panel or the Chairperson of the hearing Panel decides 
contested issues and any other appropriate pre-hearing issues. The 
Exchange is proposing to amend Rule 17.6(b) to reflect this practice.

Interlocutory Review

    Currently, Exchange rules do not address whether, prior to the 
conclusion of a hearing, a Respondent may request Board review of a 
decision made by the hearing Panel. The Exchange believes such 
interlocutory review would be inefficient and would cause unnecessary 
delays in the disciplinary hearing. After the hearing is concluded and 
the Business Conduct Committee has issued its decision, a Respondent 
may request review of any issue raised during the disciplinary 
proceeding. The proposed rule change would provide that interlocutory 
Board review of any decision made by the Panel prior to completion is 
generally prohibited. Such interluctory review shall be permitted only 
if the Panel agrees to such review after determining that the issue is 
a controlling issue of rule or policy and that immediate Board review 
would materially advance the ultimate resolution of the case.
    The Exchange believes this proposed amendment to Rule 17.6(b) will 
allow the hearing process to proceed efficiently and on a timely basis.

Hearing Location

    Rule 17.6(b) currently provides that the parties will be given 15 
days notice of the time and place of the hearing. However, the rules do 
not presently address who will decide the hearing location. In 
practice, most hearings are held in Chicago at the Exchange's offices. 
However, the Exchange believes that the hearing Panel should have the 
authority to decide where the hearing will take place. It could be that 
a location outside of Chicago is more appropriate. The proposed rule 
change would amend Rule 17.6(b) to provide that the hearing Panel may 
decide to hold a hearing outside Chicago to accommodate the parties, 
witnesses, Exchange staff or the Panel members.

Hearing Witnesses and Documents

    Rule 17.6(c) presently provides that the hearing Panel may request 
the production of documentary evidence and witnesses. This rule also 
provides that no member or person associated with a member shall refuse 
to furnish relevant testimony, documentary materials or other 
information requested by the Panel.\3\ Pursuant to Rule 17.2(b), 
Exchange staff many require a member or associated person to testify at 
a hearing or to produce documents. There is currently no procedure for 
a Respondent to compel a member or associated person to testify at a 
hearing or to produce documents. According to the present hearing 
procedures, a Respondent lacks the right to compel a particular member 
to testify or produce documents in order to defend a disciplinary case 
if that member does not voluntarily cooperate.
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    \3\ The proposed rule change would move the language regarding 
the Panel's power to request the production of documentary evidence 
and witnesses from Rule 17.6 subsection (c) to the proposed 
subsection (d) so that the topics of documents and witnesses are 
addressed in one subsection of Rule 17.6. This language has been 
slightly revised to clarify that the Panel does not have to wait 
until during the hearing to make its request.
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    Pursuant to Rule 17.4(c), a Respondent has access to non-privileged 
documents in the Exchange's investigative file. However, a Respondent 
has no right to compel

[[Page 41196]]

Exchange staff to produce documents not in the investigative file, nor 
does a Respondent have the right to require Exchange employees to 
appear as witnesses at a hearing.
    The proposed rule change provides that if the Exchange, a member or 
a person associated with a member will not voluntarily produce non-
privileged documents or hearing witnesses the Respondent has requested, 
the Respondent may submit a written request to the Panel asking the 
Panel to enter an order compelling the production of such non-
privileged documents or compelling the testimony of the member, 
associated person, or a person within the Exchange's control.
    To obtain such an order from the hearing Penal, a Respondent would 
need to demonstrate that the witnesses and documents requested are 
relevant and material to the Respondent's case. Before the hearing 
Penal enters its order, Exchange staff would have the opportunity to 
argue why no such order should be issued. In making their decision 
whether to issue the requested order, the hearing Panel would have to 
weigh the probative value of the evidence against considerations such 
as undue delay, waste of time, confusion, unfair prejudice or needless 
presentation of cumulative evidence. The hearing Panel could require 
the Respondent who requested the order to pay the witness's travel 
expenses or other costs of complying with the order.

Witness List

    Rule 17.6(b) presently provides that not less than five business 
days in advance of a hearing, each party will furnish the Panel and the 
other parties copies of all documentary evidence such party intends to 
present at a hearing. The proposed rule change would also require that 
parties to provide a list of witnesses they intend to present at a 
hearing. The Exchange believes this additional requirement will make 
the hearing run more efficiently as both sides will know in advance 
which witnesses will testify and be available for cross examination.
2. Statutory Basis
    The proposed rule change is consistent with and furthers the 
objectives of Section 6(b)(7) of the Act by providing fair procedures 
for hearings in disciplinary cases brought against members and persons 
associated with members.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose no 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the 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 reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested copies 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, N.W., Washington, D.C. 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. Sec. 552, will be available for inspection and copying at 
the Commissions Public Reference Room. Copies of such filing will also 
be available for inspection and copying at the principal office of the 
CBOE. All submissions should refer to File No. SR-CBOE-96-45 and should 
be submitted by August 28, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-20084 Filed 8-5-96; 8:45 am]
BILLING CODE 8010-01-M