[Federal Register Volume 65, Number 106 (Thursday, June 1, 2000)]
[Notices]
[Pages 35149-35150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13671]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42821; File No. SR-CBOE-00-18]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. To Interpret Rules 
Relating to Customer Communications

May 24, 2000.
    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 April 20, 2000, the Chicago Board Options Exchange, Inc. (``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 Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to issue a Regulatory Circular to its membership 
setting forth a clarifying interpretation to Exchange Rule 9.21, 
Communications to Customers, which governs communications from member 
firms to customers or members of the public. The text of the proposed 
rule change is available at the 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
    Exchange Rule 9.21, Communications to Customers, governs 
communications between Exchange members and their customers and other 
members of the public. The Exchange, along with the other options 
exchanges, has published Guidelines for Options Communications 
(``Guidelines'') \3\ to explain the customer communications rules of 
the options exchanges and the interpretations of these rules. The 
Exchange proposes to issue a Regulatory Circular to formally install a 
clarifying interpretation that has long been applied by the Exchange. 
This interpretation deals with the requirement to discuss tax 
considerations when engaging in certain option strategies. Although the 
Exchange believes this interpretation to be consistent with and fairly 
implied by Rule 9.21 and the Guidelines, the Exchange believes that 
clarification in a Regulatory Circular would be beneficial to its 
members.
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    \3\ See Securities Exchange Act Release No. 29682 (September 13, 
1991), 56 FR 47973 (September 23, 1991) (File Nos. SR-Amex-90-38; 
SR-CBOE-90-27; SR-NASD-91-02; SR-NYSE-90-51; and SR-PSE-90-41).
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    Although Rule 9.21 is silent regarding tax considerations in 
customer communications, the Guidelines and the Exchange's internal 
checklist (``Checklist''), which CBOE's Department of Financial and 
Sales Practice Compliance uses in reviewing communication materials, do 
require that tax considerations be discussed in communications in 
certain circumstances. The Guidelines state, ``depending upon the 
technical or specific nature of such communication, any one or more of 
the following points should be addressed.'' The Guidelines go on to 
list various considerations, including the following statement about 
taxes, ``[s]ince options transactions may involve complex tax 
considerations, it would misleading to omit the mention of such 
strategies from any communication that discusses or recommends options 
strategies.'' In response to comments and recommendations made by the 
Commission's Office of Compliance Inspections and Examinations, the 
Exchange in February 1994 added language to its Checklist reflecting 
the Exchange's long-standing practice in reviewing communications for 
tax considerations. That practice was, and is, to require a discussion 
of tax considerations if the communication is educational material or 
sales literature that is strategy specific and complex.
    The Exchange believes that more clarification could be provided to 
its members regarding this topic and has, therefore, decided to issue 
an interpretation in a Regulatory Circular clarifying which 
communications require a mention about tax considerations. The language 
in the interpretation mimics the language contained in the Exchange's 
Checklist. The proposed interpretation states that an advisory 
concerning taxes is required for educational material and sales 
literature involving specific, detailed and complex option strategies. 
In addition, the proposed interpretation states an advisory regarding 
taxes is not necessary where the communication is of a general, 
noncomplex nature or involves common basic options strategies (e.g., 
purchasing, covered writing or cash secured put writing). An example of 
an appropriate advisory concerning taxes, where one is needed, would 
be, ``[b]ecause of the importance of tax considerations to all option 
transactions, the investor considering options should consult with his/
her tax advisor as to how taxes affect the outcome of contemplated 
options transactions.''
    Again, although the proposed interpretation merely restates the 
Exchange's long-standing policy in reviewing customer communications 
for the inclusion of discussions of tax considerations, the Exchange 
believes that this policy also makes sense from a practical standpoint. 
The Exchange believes that in common, basic option strategies the tax 
consequences are straightforward. Therefore, the Exchange believes that 
the inclusion of a tax advisory in all communications might serve to 
lessen the impact of the advisory in those cases where the advisory 
serves a useful purpose.
    The Exchange believes that formal clarification of this 
interpretation of Rule 9.21 is warranted; however, the Exchange also 
believes that its long-standing interpretation is appropriate and 
supported by the language of the Guidelines.
2. Statutory Basis
    The CBOE believes the proposed Regulatory Circular interpretation 
of Exchange Rule 9.21 is consistent with and further the objectives of 
Section 6(b)(5) \4\ of the Act in that it is designed to remove 
impediments to a free and

[[Page 35150]]

open market and to protect investors and the public interest.
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    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed Regulatory Circular 
interpretation of Exchange Rule 9.21 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 Regulatory Circular interpretation of Exchange Rule 9.21.

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 
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. 20549-0609. 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. Copies of such filing will also be 
available for inspection and coping at the principal office of the 
CBOE. All submissions should refer to File No. SR-CBOE-00-18 and should 
be submitted by June 22, 2000.

    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. 00-13671 Filed 5-31-00; 8:45 am]
BILLING CODE 8010-01-M