[Federal Register Volume 66, Number 111 (Friday, June 8, 2001)]
[Notices]
[Pages 30968-30970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-14460]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44385; File No. SR-CBOE-2001-17]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Chicago 
Board Options Exchange, Incorporated To Change the Voting Requirement 
for Approval of Membership Applications and to Clarify a Notice 
Requirement Relating to the Exercise of an Authorization To Sell a 
Membership

June 1, 2001.
    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 5, 2001, 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. 
The CBOE submitted an amendment to the proposed rule change on May 22, 
2001.\3\ The Commission is publishing this notice to solicit comments 
from interested persons on the proposed rule change, as amended, and to 
approve the proposal, as amended, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Arthur B. Reinstein, Deputy General Counsel, 
CBOE, to Sonia Patton, Attorney, Division of Market Regulation, 
Commission, dated May 22, 2001 (``Amendment No. 1''). Amendment No. 
1 designated the proposed rule change for submission to the 
Commission under Section 19(b)(2) of the Act instead of under 
Section 19(b)(3)(A) of the Act.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to change the voting requirement for approval of 
CBOE membership applications and to clarify a notice requirement 
relating to the exercise of an Authorization to Sell a membership. 
Below is the text of the proposed rule change. New language is 
italicized, and deletions are bracketed.
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Chapter III--Membership

* * * * *

Application Procedures and Approval or Disapproval

Rule 3.9.
    (a)-(j) Unchanged.
    (k) [Approval of an application requires a vote of the majority of 
the members of the Membership Committee then in office.] Any applicant 
that is approved to be a member by the Membership Committee must be 
approved by the Membership Committee to perform in at least one of the 
recognized capacities of a member as stated in Rule 3.1(b). Written 
notice of the action of the Membership Committee, specifying in the 
case of disapproval of an application the grounds therefore, shall be 
provided to the applicant.
* * * * *

Sale and Transfer of Membership

Rule 3.14.
    (a)-(c) Unchanged.
    (d) Authorizations to Sell. The owner of a transferable membership 
may voluntarily grant to another Exchange member an Authorization to 
Sell the membership. Authorizations to Sell shall be subject to the 
following provisions:

[[Page 30969]]

    (i) An Authorization to Sell shall be effective only if it has been 
executed on a form prescribed by the Exchange and filed with the 
Membership Department.
    (ii) A membership owner may not grant an Authorization to Sell a 
particular membership to more than one member.
    (iii) The grantee of an Authorization to Sell shall have all of the 
authority granted under the Constitution and Rules relating to the sale 
of the membership that would otherwise be vested in the membership 
owner, including the sole authority to determine whether and when to 
submit an offer to sell the membership in accordance with the 
provisions of paragraph (a) of this Rule. Notwithstanding the 
foregoing, unless the following notice requirement is waived as 
described below, a grantee of an Authorization to Sell must (A) notify 
the membership owner in writing at least 3 business days prior to 
exercising the grantee's right to sell the membership of any decision 
by the grantee to exercise that right and (B) provide the Membership 
Department with written verification in a form and manner prescribed by 
the Exchange that the required notice has been provided to the 
membership owner. The membership owner may waive the foregoing notice 
requirement in a form and manner prescribed by the Exchange.
* * * * *

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 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 proposed rule change would (i) change the voting requirement 
for approval of CBOE membership applications by CBOE's Membership 
Committee to the same voting requirement that applies to other CBOE 
committee decisions and (ii) clarify that a membership owner that 
grants to another member an Authorization to Sell the membership may 
waive the requirement that the grantee of the Authorization to Sell 
provide at least 3 business days notice to the membership owner prior 
to exercising the grantee's right to sell the membership.
    With respect to the proposed voting requirement change, CBOE Rule 
3.9(k) currently requires a vote of the majority of the members of 
CBOE's Membership Committee then in office to approve a membership 
application. However, CBOE Rule 2.1(b) provides that, except as 
provided in CBOE's Constitution, CBOE's Rules, or by resolution of 
CBOE's Board of Directors, the vote of a majority of the members of a 
committee present at a meeting at which a quorum is present will be the 
act of the committee. The voting requirement set forth in CBOE Rule 
2.1(b) is generally applicable to other CBOE committees and even to 
votes of the Membership Committee regarding issues other than whether 
to approve a membership application. In order to make the Membership 
Committee voting requirement for the approval of membership 
applications consistent with the voting requirement for other CBOE 
committee decisions, the Exchange is proposing to delete the special 
voting requirement for membership applications currently contained in 
CBOE Rule 3.9(k). by virtue of this deletion, the voting requirement 
contained in CBOE Rule 2.1(b) would apply to the approval of membership 
applications.
    With respect to waiving the notice requirement that must be 
satisfied in order to exercise an Authorization to Sell a membership, 
CBOE Rule 3.14(d) currently permits an owner of a transferable 
membership to voluntarily grant to another member an Authorization to 
Sell the membership. The grantee of an Authorization to Sell is vested 
with all of the authority provided for under the Exchange's 
Constitution and Rules relating to the sale of the membership. The 
grantee of an Authorization to Sell also has the right upon the sale of 
the membership to submit claims against the membership owner pursuant 
to CBOE Rule 3.15(b), to be satisfied out of the proceeds of the sale 
of the membership, that are related to the membership owner's Exchange 
business activities. CBOE Rule 3.14(d)(iii) requires a grantee of an 
Authorization to Sell a membership (i) to notify the membership owner 
in writing at least 3 business days prior to exercising the grantee's 
right to sell the membership of any decision by the grantee to exercise 
that right, and (ii) to provide the Membership Department with written 
verification in a form and manner prescribed by the Exchange that the 
required notice has been provided to the membership owner. However, a 
membership owner may wish to waive this notice requirement if the 
grantee of the Authorization to Sell is exercising the grantee's right 
to sell the membership and the membership owner believes a higher sale 
price will be obtained if the membership is sold right away instead of 
three business days later. Because this notice requirement is for the 
sole benefit of the membership owner, the Exchange believes that it is 
fairly and reasonably implied that the membership owner may waive this 
notice requirement.
    The Exchange is now proposing to amend CBOE Rule 3.14(d)(iii) to 
make explicit that the membership owner may waive the foregoing notice 
requirement in a form and manner prescribed by the Exchange. The 
Exchange believes that this codification would benefit members and 
would help to ensure that members are aware of the ability to waive the 
notice requirement.
2. Statutory Basis
    The CBOE believes the proposed rule change is consistent with 
Section 6(b) of the Act \4\ in general, and furthers the objectives of 
Section 6(b)(5) \5\ in particular, in that it is designed to remove 
impediments to and perfect the mechanism of a free and open market and 
to protect investors and the public interest by improving the 
Exchange's approval process for membership applicants and by clarifying 
the Exchange's membership rules.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 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 rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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, including whether the proposed rule 
change, as amended, is consistent with

[[Page 30970]]

the Act. Persons making written submissions should file six copies 
thereof with the Secretary, Securities and Exchange Commission, 450 
Fifth Street, NW., 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 copying at the principal office of the CBOE. All 
submissions should refer to file number SR-CBOE-17 and should be 
submitted by June 29, 2001.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change. as amended, is consistent with the requirements of the act and 
the rules and regulations thereunder applicable to a national 
securities exchange \6\ and, in particular, the requirements of Section 
6(b)(5) of the Act.\7\ Specifically, the Commission finds that the 
proposed rule change will make the Exchange's approval process for 
membership applications consistent with the Exchange's generally 
applicable committee voting process. In addition, the Commission 
believes that clarifying that membership owners are permitted to waive 
the notice requirement relating to the exercise of an Authorization to 
Sell a membership will help ensure that members are aware of this 
right.
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    \6\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after date of publication of the 
notice of filing thereof in the Federal Register pursuant to Section 
19(b)(2) of the Act.\8\ Accelerated approval will permit the Exchange 
to use its generally applicable committee voting process in approving 
membership applications, and will put membership owners on notice of 
their right to waive the notice requirement relating to Authorizations 
to Sell, without undue delay. Accordingly the Commission finds that it 
is consistent with Section 6(b)(5) of the Act \9\ to approve the 
proposal on an accelerated basis.
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    \8\ 15 U.S.C. 78s(b)(2).
    \9\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2001-17), as amended, 
is hereby approved on an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-14460 Filed 6-7-01; 8:45 am]
BILLING CODE 8010-01-M