[Federal Register Volume 63, Number 182 (Monday, September 21, 1998)]
[Notices]
[Pages 50265-50270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25164]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40440; File No. SR-CBOE-98-22]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1, 2 and 3 by Chicago Board Options Exchange, 
Inc. Relating to Floor Official Fining Authority

September 14, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 28, 1998, the Chicago Board Options Exchange, Inc. (``CBOE'') or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change. The proposed rule change, as 
amended, is described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The CBOE filed Amendment No. 1 to its 
proposal with the Commission on July 8, 1998,\3\ Amendment No. 2 on 
August 27, 1998 \4\ and Amendment No. 3 on September 9, 1998.\5\ 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. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the CBOE made the following changes to 
its proposal: (1) amended Exchange Rule 6.61 to consolidate summary 
fine authority under Exchange Rule 17.50; (2) clarified the meaning 
of the term ``service personnel'' as used in the proposal; (3) 
clarified that greater fines may be applicable for more serious 
behavior; (4) conformed the amount of the fines payable for failing 
to supervise a visitor and failing to abide by floor official 
determination or floor official request for information as stated in 
the text of the proposal with the amount of the fines identified in 
the proposed Regulatory Circular to Exchange members; (5) made minor 
technical changes to the language of the amended rules; and (6) 
clarified the Exchange's deletion of its use of the term ``member 
organization'' in the Exchange Rules. See Letter from Debora E. 
Barnes, Senior Attorney, CBOE, to Gail Marshall-Smith, Special 
Counsel, Division of Market Regulation (``Division''), Commission, 
dated July 7, 1998 (``Amendment No. 1'').
    \4\ In Amendment No. 2, the CBOE made technical changes to the 
language of the amended rules. See Letter from Debora E. Barnes, 
Senior Attorney, CBOE, to Terri L. Evans, Attorney, Division, 
Commission, dated August 26, 1998 (``Amendment No. 2'').
    \5\ In Amendment No. 3, the CBOE made technical changes to the 
Exchange's proposed rule language and concurred with the 
recommendations made by the Commission regarding the expansion of 
the discussion on the proposed rule change. See Letter from Debora 
E. Barnes, Senior Attorney, CBOE, to Terri L. Evans, Attorney, 
Division, Commission, dated September 8, 1998.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to modify certain Exchange rules and a 
related regulatory circular to consolidate most Floor Official fining 
authority governed by Exchange Rule 17.50, Imposition of Fines for 
Minor Rule Violations (``Summary Fine Rule''), under one regulatory 
circular. The text of the proposed rule change and regulatory circular 
follows: new text is italicized; deleted text is bracketed.

CHAPTER I--Definitions

Definitions

    RULE 1.1. When used in these Rules, unless the context otherwise 
requires:
    (a) through (jj) No Change.

Joint Venture Participant

    (kk) The term ``joint venture participant'' means a member or non-
member of the Exchange who is qualified to execute in person 
transactions in joint venture contracts in a trading crowd on the floor 
of the Exchange. A non-member joint venture participant shall be 
treated as a member for purposes of Rules 6.7 and 6.20(a), (b), [and] 
(c), and (d) and Rule 6.20 Interpretations and Policies .01 and .04 
(iv), (v), and (vi) unless otherwise specified.
    (ll) through (ww) No Change.

. . . Interpretations and Policies

    .01  No Change.
* * * * *

CHAPTER VI--Doing Business on the Exchange Floor

* * * * *

Section B: Member Activities on the Floor

* * * * *

Admission to and Conduct on the Trading Floor; Member Education

    RULE 6.20. (a) Admission to Trading Floor. Unless otherwise 
provided in the Rules, no one but a member or an Order Book Official 
designated by the Exchange pursuant to Rule 7.3 shall make any 
transaction on the floor of the Exchange. Admission to the floor 
[Floor] shall be limited to members, employees of the Exchange, clerks 
employed by members and registered with the

[[Page 50266]]

Exchange, service personnel and Exchange visitors authorized admission 
to the floor pursuant to Exchange policy, and such other persons 
permitted admission to the floor by the President of the Exchange [as 
may be provided by resolution of the Board].
    (b) Conduct on the Exchange. Members and persons employed by or 
associated with any member, while on any premises of the Exchange, 
including the trading floor of the Exchange, shall not engage in 
conduct (i) inconsistent with the maintenance of a fair and orderly 
market; (ii) apt to impair public confidence in the operations of the 
Exchange; (iii) inconsistent with the ordinary and efficient conduct of 
business; or (iv) detrimental to the safety or welfare of any other 
person.
    (c) Fines Imposed by Floor Officials. The Exchange shall 
periodically issue fine schedules setting forth which violations of the 
Exchange's trading conduct and decorum policies are subject to fines 
pursuant to Rule 17.50 and the specific dollar amounts of such fines. 
Floor Officials may (i) fine members and persons employed by or 
associated with members pursuant to Rule 17.50 for trading conduct and 
decorum violations which are subject to fine under such fine schedules, 
[violations of this rule and/or may] (ii) direct members and [such 
other] persons employed by or associated with members to act or cease 
to act in a manner to ensure compliance with Exchange Rules [rules] and 
accepted and established standards of trading conduct and decorum and/
or (iii) refer violations of the foregoing to the Business Conduct 
Committee for disciplinary action pursuant to Chapter XVII of the 
Rules. [A member or person employed by or associated with a member who 
is adversely affected by a determination made under this rule may 
obtain a review thereof in accordance with the provisions of Chapter 
XIX, except as otherwise provided in Rule 17.50.] Any action taken by 
Floor Officials under this paragraph (c) [hereunder] shall not preclude 
additional [further] disciplinary action by the Business Conduct 
Committee under Chapter XVII of the Rules [, except as otherwise 
provided in Rule 17.50]. Any application or interpretation of Rules, 
and any decision to impose a fine under this paragraph (c) [hereunder], 
shall be agreed upon by at least two Floor Officials. Floor Officials 
shall file with the Exchange a written report of any action taken 
pursuant to authority specifically granted them by the Rules and of any 
interpretation of the Rules.
    (d)[(c)] Clerks of Members. While on the trading floor, clerks 
shall display at all times the badge(s) supplied to them by the 
Exchange. Any Market-Maker clerk who writes up an option or stock order 
must give his employer a copy of that order before it is delivered; the 
employer must retain the copy on his person until it is executed. A 
clerk receiving a phone order must initial, must mark as opening or 
closing, and must time-stamp the order. A clerk shall remain at a booth 
assigned to his employer or assigned to his employer's clearing firm 
unless he is (i)[(1)] entering or leaving the trading floor, (ii)[(2)] 
transmitting or checking the status of an order or reporting a fill, 
(iii)[(3)] standing in the same crowd as his employer who is a Market-
Maker or Floor Broker, (iv)[(4)] supervising his firm's clerks if he is 
a floor manager or (v)[(5)] acting as a clerk for an order service 
firm. Only order service firm clerks and Market-Maker or Floor-Broker 
clerks may stand in or near a trading crowd; in the latter case, the 
Market-Maker or Floor Broker must be present in the same trading crowd. 
Quote terminals on the trading floor (except those located in booths) 
may not be used by a clerk unless his employer is a Market-Maker or 
Floor Broker who is standing near the quote terminal.
    (e)[(d)] Educational Classes. Members and persons associated with 
members are required to attend such educational classes as the Exchange 
may require from time to time. Failure to attend Exchange mandated 
continuing educational classes may subject members and persons 
associated with members to sanctions pursuant to the Exchange's Minor 
Rule Violation Plan provided in Exchange Rule 17.50. Any action taken 
by Floor Officials hereunder shall not preclude further disciplinary 
action by the Business Conduct Committee under Chapter XVII of the 
Rules[, except as otherwise provided in Rule 17.50].

. . . Interpretations and Policies:

    .01  Only those members who have been approved to perform a floor 
function are authorized to enter into transactions on the floor. Such 
members include Floor Brokers who are registered pursuant to Rule 6.71, 
Board Brokers who are registered pursuant to Rules 7.2 and 7.3, and 
Market-Makers registered pursuant to Rules 8.2 and 8.3. While on the 
floor such floor members shall at all times display a floor member's 
badge.
    .02  Order Book Officials may effect transactions on the floor only 
in the classes of option contracts to which they have been assigned and 
only in their capacity as Order Book Officials.
    .03  Rule 3.21 provides that a Government securities options permit 
holder is entitled to enter into principal transactions as a Market-
Maker and agency transactions as a Floor Broker in Government 
securities options settled by physical delivery on the floor of the 
Exchange until his permit expires.
    .04  Activities which may violate the provisions of Rule 6.20(b) 
include, but are not limited to, the following:
    (i) Effecting or attempting to effect a transaction with no public 
outcry in violation of Rule 6.43 or 6.74;
    (ii) Failure of a Market-Maker to respond to a request for a market 
by an Order Book Official pursuant to Rule 7.5;
    (iii) Failure of a Market-Maker to bid or offer within the ranges 
specified by Rule 8.7(b);
    (iv) Failure of a member or an associated person of a member in a 
supervisory capacity [member organization] to adequately supervise a 
person employed by or associated with such member [or member 
organization] to ensure that person's compliance with the provisions of 
Exchange Rules 6.20(a), (b), [and] (c), and (d);
    (v) Failure to abide by a determination of Floor Officials;
    (vi) Refusal to provide information requested by a Floor Official 
acting in his official capacity; and
    (vii) Failure to abide by the provisions of Rule 8.51.
    .05  Two Floor Officials may nullify a transaction or adjust its 
terms if they determine the transaction to have been in violation of 
any of the following: (i) Rule 6.43 (manner of bidding and offering), 
(ii) Rule 6.45 (priority of bids and offers), (iii) Rule 6.46 
(transactions outside the book's last quoted range), (iv) Rule 6.47 
(priority on split price transactions), or (v) Rule 8.51 (trading crowd 
firm disseminated market quotes).
    .06  Deleted February 5, 1986.
    .07  Non-member joint venture participants are subject to the 
provisions of Rule 6.20(a),(b),[and] (c), and (d) and Rule 6.20 
Interpretation and Policy [Interpretations and Policies] .01 and are 
subject to fines under Rule 17.50 pursuant to Rule 6.20(c) for 
violations of Rule 6.20, and Rule 6.20 Interpretations and Policies 
.04(iv),(v), and (vi). A non-member joint venture participant against 
whom a fine is imposed under Rule 17.50 may contest the fine in 
accordance with the appeal provisions of Rule 17.50.
    .08  Deleted December 2, 1997.
    .09  Members of the appropriate Market Performance Committee may

[[Page 50267]]

perform the functions of a Floor Official for the purpose of enforcing 
trading conduct policies, including but not limited to, enforcing 
policies and acting pursuant to rules related to the Retail Automatic 
Execution System, fast markets, and the firm quote requirement of Rule 
8.51(a).
* * * * *

Section C: Trading Practices and Procedures

* * * * *

Reporting Duties

    RULE 6.51.
    (a) through (d) No Change.

. . . Interpretations and Policies:

    .01  The Exchange has established the following procedure for 
reporting transactions pursuant to Rule 6.51(a) and (b).
    For each transaction on the Exchange both the buyer and seller 
shall immediately record on a card or ticket, or enter in an electronic 
data storage medium acceptable to the Exchange, his assigned broker 
initial code and his clearing firm (if a Market-Maker), the symbol of 
the underlying security, the type, expiration month and exercise price 
of the option contract, the transaction price, the number of contract 
units comprising the transactions, the time of the transaction obtained 
from a source designated by the Exchange, the name of the contra 
clearing firm member and the assigned broker initial code of the contra 
member. Such a record shall constitute the ``transaction record.'' The 
transaction record for any agency order shall also include the account 
origin code, as set forth in Interpretation .02 below. The seller in 
each transaction, or the buyer if designated by the Exchange, shall 
also immediately place a paper form copy of the transaction record in 
the price reporting belt provided at the station or, alternatively 
shall provide the information required for price reporting through an 
electronic data transmission link approved by the Exchange. Then, the 
buyer and seller in each transaction shall, within the established time 
frames, provide the transaction record to the member for whom the 
transaction was executed and/or the clearing member that will clear the 
transaction. A member receiving a report of execution from another 
member shall immediately forward the report to the clearing member that 
will clear the transaction.
    Before submitting the transaction record information for price 
reporting purposes in the manner prescribed above, the member shall use 
his best efforts to make sure that the Order Book Official acting in 
option contracts of the class involved, or the Order Book Official's 
clerk, is aware of the transaction and its price. A member shall also 
submit the transaction record information for price reporting purposes 
in the manner prescribed above whenever the transaction represents the 
partial execution of a larger order.
    Any floor member failing to report a transaction in accordance with 
Rule 6.51(a) or (b) and this interpretation shall be subject to 
discipline [being fined by the appropriate Floor Procedure Committee or 
disciplined] by the Business Conduct Committee.
    .02  No Change.
* * * * *

Reconciliation and Resolution of Unmatched Trades

    Rule 6.61
    No Change.

* * * Interpretations and Policies:

    .01-.04  No Change.
    .05  With regard to transactions in index options and in any class 
of options which will trade ex-dividend or ex-distribution the 
following day:
    (a)-(c) No Change.
    (d) Any member of member firm who fails to observe the above 
procedures will be responsible for any liability resulting from an 
unmatched transaction which should have matched prior to Second Pass 
processing. [The Exchange may establish a schedule of fines. In 
addition, repeated or aggravated failure to comply with Interpretation 
and Policy .05 will be referred to the Business Conduct Committee.]
    .06-.07  No Change.
* * * * *

CHAPTER VIII--Market-makers, Trading Crowds and Modified Trading 
Systems

* * * * *

Section B: Trading Crowds

* * * * *

Trading Crowd Firm Disseminated Market Quotes

    RULES 8.51.
    (a) through (b) No Change.

. . . Interpretations and Policies:

    .01-.04  No Change.
    .05  Floor Officials may, as provided for under Rules 6.20(c) and 
17.50(g)(6), [Pursuant to Rule 6.20(b) and Interpretation and Policies 
.04 thereunder, Floor Officials of the appropriate Market Performance 
Committee and the appropriate Floor Procedure Committee, may] impose a 
fine on members of the trading crowd for violations of this Rule and 
its Interpretations and Policies.
    .06-.08  No Change.
* * * * *

CHAPTER XVII--Discipline

Imposition of Fines for Minor Rule Violations

    RULE 17.50.
    (a) through (g)(5) No Change.
    (g)(6) Violations of Trading Conduct and Decorum Policies. (Rule 
6.20)
    The Exchange's trading conduct and decorum policies shall be 
distributed to the membership periodically and shall set forth the 
specific dollar amounts that may be imposed as a fine hereunder with 
respect to any violations of those policies. If warranted under the 
circumstances in the view of two floor officials, the fine authorized 
under those policies for a second or third offense may be imposed for a 
first offense and the fine authorized for a third offense may be 
imposed for a second offense. [The maximum fine authorized under those 
policies--this is, for violations subsequent to second offense--may be 
imposed for a first or second offense if warranted under the 
circumstances in the view of the Floor Officials Committee.]
    (g)(7) No Change.

* * * Interpretation and Policies:

    .01-.05  No Change.
* * * * *

CHAPTER XIX--Hearings and Review

Scope of Chapter

    RULE 19.1. No Change.

* * * Interpretations and Policies:

    .01  No Change.
    .02  For the purposes of this Chapter ``persons aggrieved by 
Exchange action'' may include non-member joint venture participants 
only as provided pursuant to Rule 6.20, Interpretation and Policy .07 
and Rule 17.50(d) [in connection with Exchange taken pursuant to Rule 
6.20].
* * * * *

Regulatory Circular RG98-   (RG92-14, Revised) (RG95-37, Revised)

Date:      , 1998 [April 11, 1995]
To: All Exchange Members and Personnel
From: Floor Officials Committee
Re: Violations of Trading Conduct and Decorum Policies

    The purpose of this circular is to advise members and their 
personnel of the provisions of Exchange Rule 17.50, Imposition of Fines 
for Minor Rule

[[Page 50268]]

Violations, as they related to violations of the Exchange's trading 
conduct and decorum policies under Exchange Rule 6.20, Admission to and 
Conduct on the Trading Floor.
    (1) The Rule. Rule 17.50(g)(6) provides for the imposition of fines 
for violations of the Exchange's trading conduct and decorum policies 
under Rule 6.20. The following schedule identifies certain conduct 
deemed to violate [violative of] those policies and lists the 
applicable fines that may be imposed for such violations by the 
Exchange under Rule 17.50(g)(6). Please be advised that Rule 
17.50(g)(6) enables the Exchange, if warranted under the circumstances, 
to impose for a first offense the fine authorized for a second or third 
offense and to impose for a second offense the fine authorized for a 
third offense. [Please be advised that Rule 17.50(g)(6) enables the 
Exchange to impose the maximum fine authorized under those policies--
that is, the fine authorized for subsequent offenses--in connection 
with a first or second offense, if warranted under the circumstances.]

                            Fine Schedule for Trading Conduct and Decorum Violations                            
----------------------------------------------------------------------------------------------------------------
   Number of Violations in Any Twelve Month Period  [Violation                                      Subsequent  
                    Within One Calendar Year]                       lst Offense     2nd Offense      offenses   
----------------------------------------------------------------------------------------------------------------
Abusive language................................................            $100            $250            $500
Abusing Exchange Property:                                                                                      
    --No property damage........................................             100             250             500
    --Property damage (plus repair or replacement costs)........             500          [ 750]                
                                                                                           1,000         [1,000]
                                                                                                           2,000
Book Priority Violation.........................................             400             800           1,200
Disruptive Announcement of Stock Print..........................             200             400             500
Dress Code Violation............................................             $50            $250            $500
Failure to Display ID...........................................              50             250             500
Food or Drink on Floor..........................................             250             500           1,000
Enabling/Assisting Non-Member or Barred/Suspended Member to Gain                                                
 Improper Access to Floor.......................................             500           1,000           2,000
Enabling/Assisting Member or Associated Person to Gain Improper                                                 
 Access to Floor................................................             100             250             500
Gaining Improper Access to Floor................................             100             250             500
Improper Use of Runners' Aisle..................................              25              50             100
Smoking in Unauthorized Areas...................................              50             250             500
Trading in Aisle................................................             250             500           1,000
Physical Violence:                                                                                              
    --Shoving...................................................             500           1,500           2,500
    --Fighting..................................................           1,500           3,000           5,000
Running.........................................................             100             250             500
Unbusinesslike Conduct..........................................          [$]250          [$]500        [$]1,000
Impermissible Use of  [Using] Member Phones.....................              50             150             300
Visitor Badge Returned Late or Not Returned.....................           (\1\)              25            [25]
                                                                                                              50
Failure to Attend Exchange Mandated Education Training..........             500             750            1000
Failure to Supervise a Visitor..................................              50             100             250
Effecting or Attempting to Effect Transaction with No Public                                                    
 Outcry.........................................................             500           1,000           2,000
Failure of Market-Maker to Respond to Request for Market by                                                     
 Order Book Official............................................             500           1,000           2,000
Failure to Bid or Offer within Ranges Specified by Rule 8.7(b)..             500           1,000           2,000
Failure to Abide by Floor Official Determination or Floor                                                       
 Official Request for Information...............................           1,000           2,500           5,000
Violation of Rule 8.51 in an Option Class Other than OEX or DJX.           (\2\)           (\2\)           (\2\)
----------------------------------------------------------------------------------------------------------------
\1\ Warning.                                                                                                    
\2\ Any amount up to 5,000.                                                                                     

    (2) Floor Officials. Fines under Rule 17.50(g)(6) may be imposed 
upon the determination of two Floor Officials that the person fined has 
committed any of the trading conduct and decorum violations enumerated 
in the schedule above [violated Rule 6.20]. Any application or 
interpretation of the Rules relating to conduct on Exchange premises 
shall be agreed upon by at least two Floor Officials. Floor Officials 
shall file with the Exchange a written report of any action taken 
pursuant to authority specifically granted them by the Rules and of any 
interpretation of the Rules.
    (3) Persons Subject to Fine. The Exchange may impose the preceding 
fines against either or both of the following: (a) the individual 
responsible for the subject violation and/or (b) if such individual is 
employed by or associated with a member [or member organization], the 
member and/or any supervisory personnel of the member [member 
organization] that failed to adequately supervise such individual to 
ensure compliance with Exchange rules. Any member or supervisory person 
[member organization] who is fined more than one (1) time in any twelve 
month period [calendar year] for failure to supervise shall be subject 
to the fines specified above for second offenses and subsequent 
offenses, regardless of the number of offenses committed by the 
individual subject to fine for the underlying violation.
    (4) Right to Contest Fines. Any person against whom a fine is 
imposed pursuant to Rule 17.50(g)(6) may contest that fine. 
Specifically, fines imposed under Rule 17.50(g)(6) that do not exceed 
$2,500 may be contested before the Appeals Committee in accordance with 
the provisions of Rule 17.50(d), and fines imposed under Rule 
17.50(g)(6) that exceed $2,500 may be contested before the Business 
Conduct Committee in accordance with the provisions of Rule 71.50(c). 
Persons [Please be advised that persons] wishing to contest such fines 
must comply with the deadlines and all other requirements set forth in 
Rule 17.50(d) or Rule 17.50(c), as applicable. Please be advised that 
if a fine imposed under Rule 17.50(g)(6) is contested and the reviewing 
body finds that the person fined committed the rule violation(s)

[[Page 50269]]

alleged, the reviewing body may impose any one or more of the 
disciplinary sanctions authorized by the Exchange's Constitution and 
Rules, including but not limited to a higher fine than the fine imposed 
pursuant to Rule 17.50(g)(6). In addition, if a person contests a fine 
imposed under Rule 17.50(g)(6) and the fine is upheld by the reviewing 
body, the reviewing body will impose a forum fee against the person in 
the amount of $100 if the reviewing body's determination was reached 
without a hearing, or in the amount of $300 if a hearing was conducted.
    (5) Additional Floor Official Action. In addition to, or instead 
of, issuing a fine pursuant to Rule 17.50(g)(6), Rule 6.20(c) provides 
that Floor Officials may direct members and their associated persons to 
act or cease to act in a manner to ensure compliance with Exchange 
Rules and accepted and established standards of trading conduct and 
decorum and/or refer violations of the foregoing to the Business 
Conduct Committee for disciplinary action pursuant to Chapter XVII of 
the Rules. Furthermore, any action taken by Floor Officials under Rules 
17.50(g)(6) and 6.20(c) does not preclude additional disciplinary 
action by the Business Conduct Committee under Chapter XVII.
    Any questions in connection with this circular should be directed 
to Andrew Spiwak of the Legal Department at (312) 786-7483 [, Legal 
Department] or to Gregory Rich of the Trading Floor Liaison Group at 
(312) 786-7847.

(RG92-14 and RG95-37, Revised)

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 statutory 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 Exchange proposes to modify Exchange Rule 6.20, Admission to 
and conduct on the Trading floor, and certain other Exchange rules to 
consolidate most Floor Official fining authority governed by the 
Summary Fine Rule under one regulatory circular.\6\ The CBOE also 
proposes to modify its regulatory circular pertaining to the 
administration and enforcement of paragraph (g)(6) of the Summary fine 
Rule, as it relates to minor rule violations applicable to trading 
conduct and decorum policies (``Trading Conduct and Decorum 
Circular'').
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    \6\ The Exchange has issued separate circulars setting forth 
fine schedules for violations of Rule 8.51 with respect to OEX and 
DJX options. These circulars were approved by the Commission in SR-
CBOE 96-31 and SR-CBOE 97-45
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    The purpose of the CBOE's summary fine plan is to provide a 
mechanism whereby certain minor violations of Exchange rules can be 
resolved fairly, effectively and expeditiously. Because the minor rule 
violations subject to summary fines are easily ascertainable by floor 
officials, they are suitable for summary fine treatment. The proposed 
changes are meant to clarify the categories of behavior subject to 
summary fines and clarify the authority of floor officials to summarily 
fine under the Summary Fine Rule.
    Currently, rule 6.20 provides that admission to the Exchange's 
trading floor is limited to members, employees of the Exchange, clerks 
employed by members and registered with the Exchange, and such other 
persons as may be provided by resolution of the Board. The Exchange is 
proposing to amend Rule 6.20 to clarify that Exchange visitors and 
service personnel, including but not limited to, electricians, building 
maintenance engineers, and computer repair support staff, are 
authorized admission to the trading floor pursuant to and in accordance 
with Exchange policy concerning admission to the trading floor.\7\ In 
addition, the amendment to Rule 6.20 grants the President, rather than 
the Board, the authority to allow other people admission to the floor, 
because admission to the floor is primarily an administrative issue and 
the President is generally able to act more expeditiously than the 
Board which generally must convene a meeting to take action.
---------------------------------------------------------------------------

    \7\ See Amendment No. 1, supra note 3.
---------------------------------------------------------------------------

    The summary fines for Rule 6.20 violations are set forth in the 
Trading Conduct and Decorum Circular. Currently, if a member is fined 
for a Rule 6.20 violation more than once in a calendar year, that 
individual will then be subject to increased summary fines for second 
or subsequent offenses of that kind in that calendar year. The Exchange 
proposes to amend the Trading Conduct and Decorum Circular to provide 
that summary fines for second or subsequent offenses will be assessed 
on a twelve-month rolling period, rather than on a calendar year basis. 
This Circular is also being amended to allow for the fining of any 
supervisory personnel of an associated person of a member who failed to 
adequately supervise the associated person. The Circular and Rule 17.50 
also are being amended to clarify that the Exchange, if warranted under 
the circumstances, may impose a fine for a first offense equal to the 
fine authorized for a second or third offense and to impose for a 
second offense the fine authorized for a third offense. This permits 
the Exchange to impose greater fines for more serious behavior. 
Currently, floor officials only have the ability to impose a fine 
authorized for a third offense for a first or second offense, which has 
restricted the ability of floor officials to fine in a manner 
corresponding to the circumstances.\8\
---------------------------------------------------------------------------

    \8\ Telephone conversation between Arthur Reinstein, Associate 
General Counsel, CBOE, Debora Barnes, Senior Attorney, CBOE, and 
Terri Evans, Attorney, Division, Commission, on September 1, 1998. 
See Amendment No. 3, supra note 5.
---------------------------------------------------------------------------

    The Exchange is also amending the Trading Conduct and Decorum 
Circular to add the following summary fine categories: Enabling a 
barred or suspended member to gain improper access to the floor, with 
fines of $500 for a first violation, $1000 for a second violation, and 
$2000 for a third violation; Enabling or assisting a member or 
associated person to gain improper access to the floor, with fines of 
$100 for a first violation, $250 for a second violation, and $500 for a 
third violation; Gaining improper access to the floor, with fines of 
$100 for a first violation, $250 for a second violation, and $500 for a 
third violation; Impermissible use of member phones, with fines of $50 
for a first violation, $150 for a second violation, and $300 for a 
third violation; Visitor badge returned late, with a warning for the 
first violation, a $25 fine for a second violation, and a $50 fine for 
a third violation; and Failure to supervise a visitor, with fines of 
$50 for a first violation, $100 for a second violation, and $250 for a 
third violation.
    Additionally, the Exchange is amending the Trading Conduct and 
Decorum Circular to specify fine amounts for the following conduct: 
Effecting or attempting to effect transactions with no public outcry, 
with fines of $500 for a first violation, $1000 for a second violation, 
and $2000 for a third violation; Failure of a market-maker to respond 
to a request for the

[[Page 50270]]

market by order book official, with fines of $500 for a first 
violation, $1000 for a second violation, and $2000 for a third 
violation; Failure to bid or offer within ranges specified by Rule 
8.7(b), with fines of $500 for a first violation, $1000 for a second 
violation, and $2000 for a third violation; Failure to abide by floor 
official determination or floor official request for information, with 
fines of $1000 for a first violation, $2500 for a second violation, and 
$5000 for a third violation; and Violation of Rule 8.51 in an option 
class other than OEX or DJX, with fines of any amount up to $5000 for 
first, second and third violations. Floor Officials currently have 
fining authority for this conduct under Rule 6.20.04, but specific fine 
amounts for the conduct are not set forth in the Trading Conduct and 
Decorum Circular. Including this conduct in the Circular will clarify 
that floor official fines for this conduct are imposed under the 
Summary Fine Rule.
    The Exchange is also proposing to change some of the summary fine 
amounts in the Trading Conduct and Decorum Circular. The current fine 
for property damage is $500 for the first violation, $750 for the 
second violation and $1000 for the third violation. The Exchange is 
proposing to increase the latter two fines to $1000 for a second 
violation and $2000 for a third violation.
    The Exchange also is proposing to amend Rule 6.20(c) to clarify 
that the Exchange has the authority to direct members and persons 
employed by or associated with members to act or cease to act in a 
manner to ensure compliance with Exchange Rules.\9\ In addition, 
because the Exchange is consolidating all summary fine procedures under 
the Summary Fine Rule, the Exchange is proposing to amend Rule 6.20(c) 
by deleting the reference to Chapter XIX and its appeal procedures 
because the appeal procedures for summary fines are set forth in the 
Summary Fine Rule.
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    \9\ Telephone conversation between Arthur Reinstein, Associate 
General Counsel, CBOE, Debora Barnes, Senior Attorney, CBOE, and 
Terri Evans, Attorney, Division, Commission, on September 1, 1998. 
See Amendment No. 3, supra note 5.
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    The Exchange also proposes to amend Exchange Rule 6.51, 
Interpretation and Policy .01, by amending the final paragraph to 
delete the reference to the Floor Procedure Committee. This change is 
being proposed to conform the Exchange's rule language with the 
Exchange's current practice. The Floor Procedure Committee is no longer 
involved in fining floor members who violate Rule 6.51(a) or (b); 
instead members are fined pursuant to the Summary Fine Rule.\10\
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    \10\ Id.
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    The proposed rule change also amends Rule 6.61, Interpretation and 
Policy .05(d) by deleting the last two sentences. The Exchange is 
deleting this language because it is attempting to consolidate summary 
fine authority under Exchange Rule 17.50. In addition, a member's 
failure to observe the procedures referenced in Interpretation and 
Policy .05 is subject to the disciplinary authority of the Business 
Conduct Committee under Chapter XVII of the Exchange's Rules, therefore 
making the cross-reference in Interpretation and Policy .05 
unnecessary.\11\
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    \11\ See Amendment No. 1, supra note 3.
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    The Exchange is proposing that Rule 8.51 (``Firm Quote Rule'') be 
revised as well, to provide that Floor Officials may fine members of 
trading crowds under the Summary Fine Rule for violations of the Firm 
Quote Rule.\12\ This change is being proposed to consolidate all of the 
minor rule violation authority of Floor Officials under the Summary 
Fine Rule, rather than having the Firm Quote Rule refer to Rule 6.20, 
which then refers back to the Summary Fine Rule. This proposed rule 
change also makes certain changes to clarify and incorporate Rule 6.20, 
the Summary Fine Rule, and the Trading Conduct and Decorum Circular 
into other Exchange Rules.\13\
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    \12\ The Exchange has issued separate circulars setting forth 
fine schedules for violations of Rule 8.51 with respect to OEX and 
DJX options. These circulars were approved by the Commission in SR-
CBOE 96-31 and SR-CBOE-97-45
    \12\ For example, in Amendment No. 1, the Exchange notes that it 
has deleted the reference to member organizations in certain of the 
rules proposed to be amended by the rule filing that also refer to 
members, because Section 1.1 of the Exchange Constitution defines 
the term ``member'' to include either an individual member or a 
member organization.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act \14\ in that it is designed to clarify and enhance the Exchange's 
summary fine plan as applied to trading conduct and decorum policies, 
thereby promoting just and equitable principles of trade and protecting 
investors and the public interest.
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    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 self-regulatory organization 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 persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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 Room in Washington D.C. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the Exchange. All submissions should refer to file 
number SR-CBOE-98-22 and should be submitted by October 13, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-25164 Filed 9-18-98; 8:45 am]
BILLING CODE 8010-01-M