[Federal Register Volume 62, Number 175 (Wednesday, September 10, 1997)]
[Notices]
[Pages 47712-47715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23954]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39010; File No. SR-CBOE-97-39]
Self-Regulatory Organizations; Notice of Filing of and Order
Granting Accelerated Approval to Proposed Rule Change by the Chicago
Board Options Exchange, Incorporated Relating to Amendments to the
Exchange's Telephone Solicitation Rule
September 3, 1997.
Pursuant to section 19(b)(1) of the Securities Exchange Act of
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on August 25,
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
[[Page 47713]]
prepared by the CBOE. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons
and to grant accelerated approval to the proposed rule change.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Chicago Board Options Exchange, Inc. (``CBOE'' or the
``Exchange'') proposes to amend Exchange Rules 9.21, Communications to
Customers and 9.24, Telephone Solicitation. 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 III below. The CBOE has prepared summaries, set forth in sections
A, B, and C below, of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Purpose
The purpose of the proposed rule change is to amend Exchange Rules
9.21 relating to communications to customers and Rule 9.24 pertaining
to the conduct of CBOE members and persons associated with members
(``associated persons'') who make unsolicited telephone calls to sell
securities or related services (``telemarketing'' or ``cold-calling'').
Rule 9.21(e) is being amended to include telemarketing scripts under
the definition of ``sales literature.''
In December 1995, pursuant to the Telephone Consumer Protection Act
(``TCPA''),\1\ the CBOE adopted a ``telephone solicitation'' rule to
implement certain rules of the Federal Communications Commission (``FCC
Rules'') \2\ that require persons who engage in telephone solicitations
to sell products and services (``telemarketers'') to establish and
maintain a list of persons who have requested that they not be
contacted by the caller (a ``do-not-call'' list).\3\ Under the
Telemarketing and Consumer Fraud and Abuse Prevention Act
(``Telemarketing Act'') which became law in August 1994,\4\ the Federal
Trade Commission adopted detailed regulations (``FTC Rules'') to
prohibit deceptive and abusive telemarketing acts and practices that
became effective on December 31, 1995.\5\ The FTC Rules, among other
things, (i) require the maintenance of ``do-not-call'' lists and
procedures, (ii) prohibit abusive, annoying, or harassing telemarketing
calls, (iii) prohibit telemarketing calls before 8 a.m. or after 9
p.m., (iv) require a telemarketer to identify himself, the company for
whom he or she works, and the purpose of the call, and (v) require
express written authorization or other verifiable authorization from
the customer before use of negotiable instruments called ``demand
drafts.'' \6\
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\1\ 47 U.S.C. 227.
\2\ Pursuant to the TCPA, the FCC adopted rules in December 1992
regulating and limiting telemarketing activities. 57 FR 48333
(codified at 47 CFR 64.1200). With certain limited exceptions, the
FCC Rules apply to all residential telephone solicitations,
including those relating to securities transactions. Id. The term
``telephone solicitation'' refers to the initiation of a telephone
call or message for the purpose of encouraging the purchase or
rental of, or investment in, property, goods, or services, which is
transmitted to any person, other than with the called person's
express invitation or permission, or to a person with whom the
caller has an established business relationship, or by a tax-exempt
non-profit organization. Id.
\3\ Securities Exchange Act Release No. 36588 (December 13,
1995), 60 FR 65703 (December 20, 1995); order approving File No. SR-
CBOE 95-63.
\4\ 15 U.S.C. 6101-08.
\5\ FTC Rules Secs. 310.3-4.
\6\Id.
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Under the Telemarketing Act, the SEC is required either to
promulgate or to required the self-regulatory organizations (``SROs'')
to promulgate rules substantially similar to the FTC rules, unless the
SEC determines either that the rules are not necessary or appropriate
for the protection of investors or the maintenance of orderly markets,
or that existing federal securities laws or SEC rules already provide
for such protection.\7\ The proposed rule change amends CBOE Rule 9.24
and Interpretations thereunder in response to the Commission's request
that major SROs promulgate rules substantially similar to applicable
provisions of the FTC Rules. The CBOE believes that the proposed rule
change addresses all relevant elements of the FTC Rules not already
extensively regulated by existing federal securities laws and
regulations or inapplicable to securities transactions.
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\7\ In response, the National Association of Securities Dealers
(``NASD''), the Municipal Securities Rulemaking Board (``MSRB''),
the New York Stock Exchange (``NYSE''), the American Stock Exchange
(``Amex''), and the Philadelphia Stock Exchange (``Phlx'') have
adopted rules to curb abusive telemarketing practices. See
Securities Exchange Act Release Nos. 38009 (Dec. 2, 1996), 61 FR
65625 (Dec. 13, 1996) (order approving File No. SR-NASD-96-28);
38053 (Dec. 16, 1996), 61 FR 68078 (Dec. 26, 1996) (order approving
File No. SR-MSRB-96-06); 38638 (May 14, 1997), 62 FR 27823 (May 21,
1997) (order approving File No. SR-NYSE-97-07); 38724 (June 6,
1997), 62 FR 32390 (June 13, 1997) (order approving File No. SR-
Amex-97-07); 38724 (June 6, 1997), 62 FR 32390 (June 13, 1997)
(order approving File No. SR-Amex-97-17); and 38875 (July 25, 1997),
62 FR 41983 (August 4, 1997) (order approving file No. SR-Phlx-97-
18).
The Commission has determined that the NASD Rule, the MSRB Rule,
the NYSE Rule, the Amex Rule and the Phlx Rule, together with the
Exchange Act and the Investment Advisers Act of 1940, the rules
thereunder, and the other rules of the SROs, satisfy the
requirements of the Telemarketing Act, because the applicable
provisions of such laws and rules are substantially similar to the
FTC Rules except for those FTC Rules that involve areas already
extensively regulated by existing securities laws or regulations or
activities inapplicable to securities transactions. Securities
Exchange Act Release No. 38480 (Apr. 7, 1997), 62 FR 18666 (Apr. 16,
1996). Accordingly, the Commission has determined that no additional
rulemaking is required by it under the Telemarketing Act. Id.
Notwithstanding this determination, the Commission still expects the
remaining SROs to file similar proposals.
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Time Limitations and Disclosure
The proposed rule change amends Exchange Rule 9.24 by adding
paragraph (a) to prohibit a member or associated person from making
outbound telephone calls to a member of the public's residence for the
purpose of soliciting the purchase of securities or related services at
any time other than between 8 a.m. and 9 p.m. local time at the called
person's location without that person's prior consent; and by adding
paragraph (b) to require that the member or associated person promptly
disclose to the called person in a clear and conspicuous manner the
caller's identity and firm, the telephone number or address at which
the caller may be contacted, and that the purpose of the call is to
solicit the purchase of securities or related services.
Proposed paragraph (c) to Rule 9.24 creates exemptions from the
time-of-day and disclosure requirements of paragraphs (a) and (b) for
telephone calls by associated persons responsible for maintaining and
servicing accounts of certain ``existing customers'' assigned to or
under control of that associated person. Paragraph (c) defines
``existing customer'' as a customer for whom the broker or dealer, or a
clearing broker or dealer on its behalf, carries an account. Proposed
subparagraph (c)(1) exempts calls by the associated person to an
existing customer who, within the preceding twelve months, has effected
a securities transaction in, or made a deposit of funds or securities
into, an
[[Page 47714]]
account under the control of or assigned to that associated person at
the time of the transaction or deposit. Proposed subparagraph (c)(2)
exempts calls by an associated person to an existing customer who, at
any time, has effected a securities transaction in, or made a deposit
of funds or securities into an account under the control of or assigned
to the associated person at the time of the transaction or deposit, as
long as the customer's account has earned interest or dividend income
during the preceding twelve months. Each of these exemptions also
permits calls by other associated persons acting at the direction of an
associated person who is assigned to or controlling the account.
Proposed paragraph (c)(3) exempts telephone calls to a broker or
dealer. The proposed rule change also expressly clarifies that the
scope of this rule is limited to the telemarketing calls described
herein; the terms of the Rule do not otherwise expressly or by
implication impose on members any additional requirements with respect
to the relationship between a member and a customer or between an
associated person and a customer.
Demand Draft Authorization and Recordkeeping
The proposed rule change adds paragraph (e) to Exchange Rule 9.24
to prohibit a member or associated person from obtaining from a
customer or submitting for payment a check, draft, or other form of
negotiable instrument drawn on a customer's checking, savings, share,
or similar account (``demand draft'') without that person's express
written authorization (which may include the customer's signature on
the instrument), a record of which must be retained for at least three
years. The proposal also states, however, that this provision does not
require maintenance of copies of negotiable instruments signed by
customers.
Telemarketing Scripts
The proposed rule change also amends Exchange Rule 9.21(e) to
include telemarketing scripts under the definition of ``sales
literature.'' Therefore, telmarketing scripts will be required to be
retained for a period of three years.\8\
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\8\ See, CBOE Rule 9.21(b).
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Statutory Basis
The CBOE believes that the proposed rule change is consistent with
the provision of Section 6(b)(5) of the Act,\9\ which requires that the
Exchange adopt and amend its rules to promote just and equitable
principles of trade and generally provide for the protection of
customers and the public interest, in that the proposed rule change, by
imposing time restriction and disclosure requirements, with certain
exceptions, on members' telmarketing calls, and by requiring verifiable
authorization from a customer for demand drafts, prevents members from
engaging in certain deceptive and abusive telemarketing acts and
practices while allowing for legitimate telemarketing practices. The
CBOE also believes that the proposed rule change fulfills the mandate
that SRO rules promulgated under the Telemarketing Act provide
protection from deceptive and abusive telemarketing practices and are
necessary and appropriate in the public interest and for the protection
of investors.
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\9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
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. 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, 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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the CBOE. All
submission should refer to File No. SR-CBOE-97-39 and should be
submitted by October 1, 1997.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
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, with Section 6(b)(5) of the Act \10\ which requires, among
other things, that the rules of the exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and, in general, to protect investors
and the public interest.\11\ The proposed rule change is consistent
with these objectives in that it imposes time restriction and
disclosure requirements, with certain exceptions, on members'
telemarketing calls, requires verifiable authorization from a customer
for demand drafts, and prevents members from engaging in certain
deceptive and abusive telemarketing acts and practices while allowing
for legitimate telemarketing activities.
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\10\ 15 U.S.C. 78f(b)(5).
\11\ In approving this rule, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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The Commission believes that the addition of paragraph (a) to
Exchange Rule 9.24, prohibiting a member or associated person from
making outbound telephone calls to the residence of any person for the
purpose of soliciting the purchase of securities or related services at
any time other than between 8 a.m. and 9 p.m. local time at the called
person's location, without the prior consent of the person, is
appropriate. The Commission notes that, by restricting the times during
which a member or associated person may call a residence, the proposal
furthers the interest of the public and provides for the protection of
investors by preventing members and associated persons from engaging in
unacceptable practices, such as persistently calling members of the
public at unreasonable hours of the day and night.
The Commission also believes that the addition of paragraph (b) to
Rule 9.24, requiring a member or associated person to promptly disclose
to the called person in a clear and conspicuous manner the caller's
identity and firm, telephone number or address at which the caller may
be contacted, and that the purpose of the call is to solicit the
purchase of securities or related services, is appropriate. By
requiring the caller to identify himself or herself and the purpose of
the call, paragraph (b)
[[Page 47715]]
assists in the prevention of fraudulent and manipulative acts and
practices by providing investors with information necessary to make an
informed decision when purchasing securities. Moreover, by requiring
the associated persons to identify the firm for which he or she works
and the telephone number or address at which the caller may be
contacted, the Rule encourages responsible use of the telephone to
market securities.
The Commission further believes that the addition of paragraph (c),
which creates exemptions from the time-of-day disclosure requirements
for telephone calls by associated persons, or other associated persons
acting at the direction of such persons, to certain categories of
``existing customer'' is appropriate. The Commission believes it is
appropriate to create an exemption for calls to customers with whom
there are existing relationships in order to accommodate personal and
timely contact with a broker who can be presumed to know when it is
convenient for a customer to respond to telephone calls. Moreover, such
an exemption also may be necessary to accommodate trading with
customers in multiple time zones across the United States. The
Commission, however, believes that the exemption from the time-of-day
and disclosure requirements should be limited to calls to persons with
whom the broker has a minimally active relationship. In this regard,
the Commission believes that paragraph (c) achieves an appropriate
balance between providing protection for the public and the members'
interests in competing for customers.
Moreover, the Commission believes that the addition of paragraph
(e) to Rule 9.24, requiring that a member or associated person obtain
from a customer, and maintain for three years, express written
authorization when submitting for payment a check, draft, or other form
of negotiable paper drawn on a customer's checking, savings, share or
similar account, is appropriate. The Commission notes that requiring a
member or associated person to obtain express written authorization
from a customer in the above-mentioned circumstances assists in the
prevention of fraudulent and manipulative acts in that it reduces the
opportunity for a member, or associated person to misappropriate
customers' funds. In addition, the Commission believes that by
requiring a member or associated person to retain the authorization for
three years, subparagraph (e) protects investors and the public
interest in that it provides interested parties with the ability to
acquire information necessary to ensure that valid authorization was
obtained for the transfer of a customer's funds for the purchase of a
security.
The Commission believes that the amendment to paragraph (e) of Rule
9.21, adding telemarketing scripts to the definition of sales
literature thereby requiring the retention of telemarketing scripts for
a period of three years is appropriate. By requiring the retention of
telemarketing scripts for three years, the Rule assists in the
prevention of fraudulent and manipulative acts and practices and
provides for the protection of the public in that interested parties
will have the ability to acquire copies of the scripts used to solicit
the purchase of securities to ensure that members and associated
persons are not engaged in unacceptable telemarketing practices.
Finally, the Commission believes that the proposed rule achieves a
reasonable balance between the Commission's interest in preventing
members from engaging in deceptive and abusive telemarketing acts and
the members' interests in conducting legitimate telemarketing
practices.
The Commission finds good cause for approving the proposed rule
change, prior to the thirtieth day after the date of publication of
notice thereof in the Federal Register. The proposal is identical to
the NASD and MSRB rules, which were published for comment and,
subsequently, approved by the Commission. The approval of the CBOE's
rules provides a consistent standard across the industry. In that
regard, the Commission believes that granting accelerated approval to
the proposed rule change is appropriate and consistent with Section 6
of the Act.\12\
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\12\ 15 U.S.C. 78f.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
\13\ that the proposed rule change (SR-CBOE-97-39) is approved on an
accelerated basis.
\13\ 15 U.S.C. 78s(b)(2)
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-23954 Filed 9-9-97; 8:45 am]
BILLING CODE 8010-01-M