[Federal Register Volume 62, Number 96 (Monday, May 19, 1997)]
[Notices]
[Pages 27283-27285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12965]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38619; File No. SR-CBOE-97-19]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Incorporated Relating to 
a Minor Rule Violation Plan Amendment With Respect to Position Limit 
Fines

May 13, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 8, 1997, the Chicago 
Board Options Exchange, 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 CBOE.\2\ The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. Sec. 78s(b)(1)(1988).
    \2\ The proposed rule change was originally filed on March 28, 
1997. The CBOE submitted Amendment No. 1 to the proposed rule change 
to revise the review period for multiple position limit violations 
under CBOE Rule 17.50(g)(1)(b) to a rolling twelve month review 
period, instead of a calendar year review period. The CBOE has 
requested that the rolling year review period not become effective 
until three months after SR-CBOE-97-19 is approved so that CBOE 
members who may be affected by the change will have a notice period 
prior to the revision. Letter from Margaret G. Abrams, Senior 
Attorney, CBOE, to Katherine England, Esq., Assistant Director, 
Division of Market Regulation--Office of Market Supervision, dated 
May 8, 1997.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    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.

[[Page 27284]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    CBOE proposes to revise the position limit summary fine schedule 
applied to CBOE members and the period of review for multiple position 
limit violations in subsection (g)(1)(b) of Exchange Rule 17.50, its 
minor rule violation plan (and for other accounts not qualifying as 
non-member customer accounts under subsection (g)(1)(a)). CBOE also 
proposes to amend Interpretation and Policy .01 to Rule 17.50 to 
conform to the proposed amendments to the fine schedule. The revisions 
result from an Exchange review of existing position limit sanction 
levels at other exchanges to ensure comparative equality of sanction 
levels between option exchanges and to ensure that sanction levels 
appropriately fit the violative behavior.\3\
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    \3\ A subgroup was formed by the Exchange's Business Conduct 
Committee (``BCC'') to review position limit sanctions. The subgroup 
included the BCC chairman, vice chairman, another BBC member, a 
member firm representative, and five other Exchange committee 
chairmen. The subgroup met during September through November 1996. 
The subgroup's recommendations were approved by the full BCC in 
November 1996, and by the Exchange's Board of Directors in December 
1996.
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    CBOE proposes to change its review period for multiple member 
position limit violations under CBOE Rule 17.50(g)(1)(b) to a rolling 
12 month period, rather than a calendar year period, to more 
effectively deter repeat violators.
    CBOE also proposes to revise its fining method for member position 
limit summary fines so that the first three position limit violations 
within any twelve month period be redefined in Rule 17.50(g)(1)(b) to 
include either a single trade date occurrence or a two consecutive 
trade date occurrence. For the first three violations only, CBOE will 
treat a member with two consecutive trade dates of position limit 
overage in the same manner as a member with a single trade date 
overage. CBOE believes that such treatment is appropriate for initial 
violations, in that a member with a two consecutive trade date overage 
may unintentionally violate the position limit on the first trade date 
and, upon becoming aware of the overage, begin to take action to reduce 
the position. Market conditions and the size of the overage may then 
prevent the member from reducing the overage until the end of the 
second trade date.
    CBOE notes that a member will not be extended comparable treatment 
between a single trade date occurrence and two consecutive trade date 
occurrences after the first three violations. For the fourth and 
succeeding violations in any twelve month period, CBOE will treat a two 
consecutive trade date occurrence as two separate violations. CBOE 
believes that the issuance of letters of caution and/or a staff 
interview during the initial three violations should educate a member 
to avoid future violations. Therefore, the treatment of two consecutive 
trade date occurrences as one violation is not warranted for the fourth 
and succeeding violations.
    The first three member violations will continue to result in non-
disciplinary letters of caution from Exchange staff in lieu of a fine, 
so long as the overage does not exceed 5% of the applicable limit. CBOE 
proposes that Exchange staff, in its discretion, for the third 
violation, may meet with the member during a non-disciplinary staff 
interview, in lieu of issuing a letter of caution. The staff interview, 
which is conducted in person and at length, may be a useful tool to 
prevent future position limit violations.
    CBOE does not propose to change the $1.00 per contract position 
limit summary fine currently in effect for the fourth through sixth 
member violations, and also for the first through third violations when 
the overage exceeds 5% of the applicable limit. However, CBOE proposes 
to establish fine levels of $2.50 per contract for the seventh through 
ninth position limit violations, and $5.00 per contract for the tenth 
and succeeding violations. Under the existing fine schedule, a fine of 
$5.00 per contract is imposed for the seventh and succeeding 
violations. By creating another fining tier between the $1.00 and $5.00 
per contract levels, the Exchange will utilize a more graduated 
calculation of position limit summary fines.
    CBOE believes that all of the above changes in the fining method 
for member violations will continue to deter multiple violations and 
will improve the minor rule violation plan process, while resulting in 
position limit summary fines that are in proportion to other fines 
imposed by the Business Conduct Committee for comparable rule 
violations.\4\ The proposed rule change is consistent with and furthers 
the objectives of Section 6(b)(5) of the Act in that it is designed to 
refine and enhance the Exchange's minor rule violation plan as applied 
to position limit violations, thereby removing impediments to a free 
and open market and protecting investors and the public interest.
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    \4\ In combination with CBOE's proposal in File No. SR-CBOE-96-
57 to amend Rule 17.50 so that a member may make a settlement offer 
if the summary fine is over $2,500 per day (and not more than $5,000 
per day), or if the member had 5 or more consecutive trade date 
summary fines aggregation to over $10,000 (and not more than $5,000 
per day), the changes proposed herein are designed to bring position 
limit summary fines to a level in line with fines for other rule 
violations. Together, the proposals should remedy the situation 
where a member currently may pay a disproportionately large position 
limit summary fine due to a fixed calculation that does not account 
for market conditions.
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B. Self-Regulatory Organization's Statement on Burden on Completion

    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 reasons for so finding or (ii) as to 
which the CBOE 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 person 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 in 
the Commission's Public Reference Room. Copies of such filing will also 
be available for inspection and copying at

[[Page 27285]]

the principal office of CBOE. All submissions should refer to File No. 
CBOE-97-19 and should be submitted by June 9, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12965 Filed 5-16-97; 8:45 am]
BILLING CODE 8010-01-M