[Federal Register Volume 61, Number 186 (Tuesday, September 24, 1996)]
[Notices]
[Pages 50059-50060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24426]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37697; File No. SR-CBOE-96-45]


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

September 17, 1996.

I. Introduction

    On July 10, 1996,\1\ the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Association'') filed with the Securities 
and Exchange Commission (``SEC'' or ``Commission'') a proposed rule 
change pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder.\3\ The rule change amends 
CBOE Rule 17.6 to adopt certain procedures for hearings in disciplinary 
cases, and amends CBOE Rule 17.9 to codify CBOE's practice regarding 
the publication of disciplinary decisions.
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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).
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
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    Notice of the proposed rule change, together with the substance of 
the proposal, was provided by issuance of a release (Securities 
Exchange Act Release No. 37500, July 30, 1996) and by publication in 
the Federal Register (61 FR 41194, August 7, 1996). No comments were 
received. This order approves the proposed rule change.

II. Description of the Proposal

    The rule change approved today amends Rule 17.9 to codify CBOE's 
practice regarding the publication of disciplinary decisions, and 
amends 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 
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.

A. Publication of Decisions

    The rule change approved today codifies the Exchange's practice of 
publishing 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.\4\
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    \4\ 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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B. 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 service to expedite 
the hearing.
    CBOE rules do not presently address how to resolve those pre-
hearing issues on which the parties fail to agree. 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 rule change approved today amends 
Rule 17.6(b) to codify the current practice.

C. 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 rule change approved today 
provides that interlocutory Board review of any decision made by the 
Panel prior to completion of the hearing is generally prohibited. 
Interlocutory 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.

D. Hearing Location

    The rule change approved today codifies the process for determining 
the 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. Most 
hearings are held in Chicago at the Exchange's offices; however under 
some circumstances, a location outside of Chicago is more appropriate. 
The rule change amends 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.

E. Hearing Witnesses and Documents

    This rule change approved today provides a mechanism for a 
Respondent to compel testimony or documentary evidence. 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.\5\ Pursuant to Rule 17.2(b), Exchange staff may require a 
member or associated person to testify at a hearing, or to produce 
documents; however, there is currently no procedure permitting a 
Respondent to compel a member or associated person to testify at a 
hearing or to produce documents. Additionally, pursuant to Rule 
17.4(c), a Respondent has access to non-privileged documents in the 
Exchange's investigative file. A Respondent does not have the right to 
compel Exchange

[[Page 50060]]

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.
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    \5\ 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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    The 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. In order 
to obtain such an order, a Respondent must demonstrate that the 
witnesses or documents requested are relevant and material to the 
Respondent's case. Exchange staff has the opportunity to argue why no 
such order should be issued. In making a 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.

F. Witness List

    Rule 17.6(b) presently provides that no 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 rule change approved today requires the 
parties to provide a list of witnesses they intend to present at a 
hearing.

III. Conclusion

    The Commission finds that the rule change is consistent with the 
provisions of Section 6(b)(7) of the Act. The rule change is designed 
to improve the speed, fairness, and efficiency of disciplinary 
hearings, thereby promoting a fair procedure for the disciplining of 
members and persons associated with members.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change SR-CBOE-96-45 be, and hereby is, 
approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12.
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Margaret H. McFarland,
Deputy Director.
[FR Doc. 96-24426 Filed 9-23-96; 8:45 am]
BILLING CODE 8010-01-M