[Federal Register Volume 66, Number 51 (Thursday, March 15, 2001)]
[Notices]
[Pages 15156-15157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-6392]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44045; File No. SR-CBOE-00-37]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval of 
Amendment Nos. 3 and 4 Thereto by the Chicago Board Options Exchange, 
Inc. Amending the Minor Rule Violation Plan

March 7, 2001.

I. Introduction

    On August 11, 2000, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or the ``Exchange'') filed with the Securities and exchange 
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change relating to the reporting of 
options transactions and amending the Exchange's minor rule violation 
plan. The CBOE filed Amendment No. 1 to the proposed rule change on 
August 23, 2000.\3\ On September 6, 2000, the CBOE filed Amendment No. 
2 to the proposed rule change.\4\ The Federal Register published the 
proposed rule change for comment on September 25, 2000, and the same 
time the Commission approved on an accelerated basis the portion of the 
proposal that amended CBOE Rule 6.51 relating to the reporting of 
trades.\5\ The Commission received no comments on the proposal amending 
the CBOE's minor rule violation plan. The Exchange filed Amendment Nos. 
3 \6\ and 4 \7\ to the proposed rule change on October 25, 2000 and 
February 23, 2001, respectively. This order approves the portion of the 
proposal, as amended, relating to the CBOE's minor rule violation plan, 
and solicits comments on Amendment Nos. 3 and 4.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Jamie Galvan, Attorney, Legal Division, 
CBOE, to Deborah Flynn, Senior Special Counsel, Division of Market 
Regulation (``Division''), Commission, dated August 22,2000 
(``Amendment No. 1''). Amendment No. 1 moves certain proposed 
language from Interpretation and Policy .01 of CBOE Rule 6.51 to the 
body of Rule 6.51 to confirm that a member's failure to report an 
options transaction within 90 seconds would be considered a 
violation of proposed CBOE Rule 6.51. Amendment No. 1 also requests 
accelerated approval of the portion of the proposal that amended 
CBOE Rule 6.51.
    \4\ See letter from Jamie Galvan, Attorney, Legal Division, 
CBOE, to Deborah Flynn, Senior Special Counsel, Division, 
Commission, dated September 5, 2000 (``Amendment No. 2''). In 
Amendment No. 2, the CBOE confirmed that the failure to report an 
options transaction within 90 seconds of execution would be 
considered a violation of CBOE Rule 6.51. Amendment No. 2 also 
deletes footnote 5 to Exhibit 1, which defined the term ``offense'' 
for purposes of CBOE Rule 17.50(g)(4) as the first instance that a 
pattern or practice of late reporting or failure to report has been 
determined. In Amendment No. 2, the Exchange proposes to add a 
similar footnote to the text of CBOE Rule 17.50(g)(4).
    \5\ Securities Exchange Act Release No. 43250 (Sept. 6, 2000), 
65 FR 57636.
    \6\ See letter from Jamie Galvan, Attorney, Legal Division, 
CBOE, to Deborah Flynn, Senior Special Counsel, Division, 
Commission, dated October 24, 2000 (``Amendment No. 3''). Amendment 
No. 3 proposes to reserve paragraph (g)(5) of Rule 17.50 and 
renumbers various provisions of the rule accordingly.
    \7\ See letter from Jamie Galvan, Attorney, Legal Division, 
CBOE, to Deborah Flynn, Senior Special Counsel, Division, 
Commission, dated February 22, 2001 (``Amendment No. 4''). Amendment 
No. 4 withdraws proposed amendments to CBOE Rule 17.50(g)(4)(a) to 
increase the fine levels for failures to submit trade information on 
time and to increase the time frames used for determining fine 
amounts for multiple violations. Amendment No. 4 also withdraws the 
proposed policy that market makers who do not use hand held 
terminals may not request verification of fines imposed under CBOE 
Rule 17.50(g)(4)
---------------------------------------------------------------------------

II. Description of Proposal

    The proposal would revise CBOE Rule 17.50 to consolidate the 
failure to submit accurate trade information under CBOE Rule 
17.50(g)(4) and the failure to submit trade information to the price 
reporter under CBOE Rule 17.50(g)(5). The Exchange also proposes to 
eliminate Interpretation and Policy .02 of CBOE Rule 17.50, because 
under the proposed rule change, the surveillance for late trade reports 
would be conducted pursuant to Interpretation and Policy .01 of CBOE 
Rule 6.51.
    Moreover, the proposal would revise the time period within which a 
member served with a written statement pursuant to CBOE Rule 17.50(b) 
could request verification of the fine to fifteen days after the date 
of service of the written statement. The proposal would also require 
the Exchange to attempt to serve members with a written statement 
within the month immediately following the month in which the alleged 
violations occurred.
    The Exchange also proposes to amend CBOE Rule 17.50(b) by deleting 
the requirement that the Exchange contemporaneously send a copy of the 
written statement served on members fined pursuant to CBOE Rule 17.50 
to the clearing member previously designated by the member pursuant to 
CBOE Rule 3.23.
    Finally, the Exchange proposes to issue a Regulatory Circular to 
its membership notifying members that they could not defend against a 
fine imposed pursuant to CBOE Rule 17.50(g)(4) by claiming that a 
transaction time was inaccurately keypunched because an order ticket 
was

[[Page 15157]]

illegible. The proposed Regulatory Circular would also inform the 
membership of the proposed amendments to CBOE Rules 6.51 and 17.50.

III. Discussion

    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.\8\ 
Specifically, the Commission believes that the proposed rule change is 
consistent with the Security 6(b)(5) \9\ requirements that the rules of 
an exchange be designed to promote just and equitable principles of 
trade, to remove impediments to and perfect the mechanisms of a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission also believes 
that the proposed rule change is consistent with Section 6(b)(6) of the 
Act,\10\ which requires the rules of an exchange to appropriately 
discipline members and associated persons for violations of the Act and 
the rules of the exchange.
---------------------------------------------------------------------------

    \8\ In approving the proposal, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

    The Commission believes that the proposal will help to ensure that 
options transactions are reported on time by clarifying that fines will 
be imposed upon market makers and floor brokers who fail to submit 
trade information in accordance with CBOE Rule 6.51. The Commission 
believes that the proposed rule change appropriately disciplines 
members and associated persons because the proposal defines the scope 
of the prohibited conduct, provides notice to members and staff, and is 
tailored to serve a legitimate Exchange regulatory interest.
    In addition, the Commission believes that reducing the time period 
within which a member fined pursuant to CBOE Rule 17.50(b) can request 
a verification of the find from twenty-five to fifteen days provides 
members with sufficient time within which to request a fine 
verification. Moreover, the Commission believes that it is reasonable 
to eliminate the requirement that the Exchange contemporaneously send a 
copy of the written statement served on members fined pursuant to CBOE 
Rule 17.50(b) to the clearing member previously designated by the 
member because, according to the Exchange, clearing members are now 
notified of the fine through the Exchange's automated billing system.
    Finally, the Commission believes that prohibiting members from 
defending against fines imposed under CBOE Rule 17.50(g)(4) by claiming 
that a transaction time was inaccurately keypunched because of 
illegible handwriting should encourage legible handwriting and help to 
prevent inaccurate keypunching.
    The Commission finds good cause to approve Amendment Nos. 3 and 4 
to the proposed rule change prior to the thirtieth day after the date 
of publication of notice of filing of the amendments in the Federal 
Register. Amendment No. 3 amends the proposed rule language to reserve 
rather than delete paragraph (g)(5) of CBOE Rule 17.50. Amendment No. 4 
withdraws certain portions of the proposed rule change. The Commission 
believe that these amendments merely make minor changes and do not 
alter the substance of the proposal. Accordingly, the Commission 
believes that there is good cause, consistent with Sections 6(b)(5) and 
19(b) of the Act,\11\ to approve Amendment Nos. 3 and 4 to the proposal 
on an accelerated basis.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b)(5) and 78s(b).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment Nos. 3 and 4, including whether the 
amendments are consistent with the Act. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington 
DC 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 at the Commission's Public Reference Room. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the CBOE. All submission should refer to the File 
No SR-CBOE-00-37 and should be submitted by April 5, 20001.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-CBOE-00-37), as amended, is 
approved.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-6392 Filed 3-14-01; 8:45 am]
BILLING CODE 8010-01-M