[Federal Register Volume 67, Number 180 (Tuesday, September 17, 2002)]
[Notices]
[Pages 58665-58667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23529]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46462; File No. SR-CBOE-2002-45]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Chicago 
Board Options Exchange, Inc. To Establish CBOE Rule 4.20 Requiring Each 
Member and Member Organization To Develop and Implement an Anti-Money 
Laundering Compliance Program

September 5, 2002.
    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 August 21, 2002, 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 and 
II below, which Items have been prepared by the CBOE. 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 adopt CBOE Rule 4.20, Anti-Money Laundering 
Compliance Program (the ``Rule''). The Rule requires each member and 
member organization to develop and implement an anti-money laundering 
compliance program (``Program'') consistent with applicable provisions 
of the Bank Secrecy Act and the regulations thereunder. The text of the 
proposed rule change is below. Proposed new language is in italics.

Anti-Money Laundering Compliance Program

    Rule 4.20 Anti-Money Laundering Compliance Program. Each member 
organization and each member not associated with a member organization 
shall develop and implement a written anti-money laundering program 
reasonably designed to achieve and monitor compliance with the Section 
352(a) requirements of the USA PATRIOT Act (Public Law 107-56), 
amending Section 5318 of the Bank Secrecy Act (31 U.S.C. 5311, et 
seq.), and the implementing regulations promulgated thereunder by the 
Department of the Treasury. Each member organization's anti-money 
laundering program must be approved,

[[Page 58666]]

in writing, by a member of senior management. The anti-money laundering 
programs required by this Rule shall, at a minimum:
    (1) Establish and implement policies and procedures that can be 
reasonably expected to detect and cause the reporting of transactions 
required under 31 U.S.C. 5318(g) and the implementing regulations 
thereunder;
    (2) Establish and implement policies, procedures, and internal 
controls reasonably designed to achieve compliance with Section 5318(h) 
of the Bank Secrecy Act and the implementing regulations thereunder;
    (3) Provide for independent testing for compliance to be conducted 
by member or member organization personnel or by a qualified outside 
party;
    (4) Designate, and identify to the Exchange (by name, title, 
mailing address, e-mail address, telephone number, and facsimile 
number) a person or persons responsible for implementing and monitoring 
the day-to-day operations and internal controls of the program and 
provide prompt notification to the Exchange regarding any change in 
such designation(s); and
    (5) Provide ongoing training for appropriate persons.
* * * * *

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

1. Purpose
    On October 26, 2001, President Bush signed into law the USA PATRIOT 
Act (the ``PATRIOT Act''), which amends among other laws the Bank 
Secrecy Act as set forth in Title 31 of the United States Code (the 
``Code''). The PATRIOT Act expands government powers to fight the war 
on terrorism and requires that financial institutions,\3\ including 
broker-dealers, implement policies and procedures to that end.
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    \3\ As defined in 31 U.S.C. 5312(a)(2).
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    Title III of the PATRIOT Act, separately known as the International 
Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 
(``MLAA''), focuses on the requirement that financial institutions 
establish anti-money laundering monitoring and supervisory systems. 
Specifically, MLAA Section 352, which amends Section 5318(h) of the 
Code, requires each financial institution to establish anti-money 
laundering programs by April 24, 2002 that include, at minimum: (1) The 
development of internal policies, procedures, and controls; (2) the 
designation of a compliance officer; (3) an ongoing employee training 
program; and (4) an independent audit function to test programs.
    Proposed CBOE Rule 4.20 incorporates MLAA Section 352 requirements 
and also requires that the Program be in writing and approved, in 
writing, by member organizations' senior management; that a designated 
``contact person'' or persons, primarily responsible for each member's 
or member organization's Program, be identified to the Exchange; and 
that the Program's policies, procedures, and internal controls be 
reasonably designed to achieve compliance with applicable provisions of 
the Bank Secrecy Act and the implementing regulations thereunder, as 
they become effective.
    Further, the Rule addresses members' and member organizations' 
obligation to establish and implement policies and procedures that can 
be reasonably expected to detect and cause the reporting of 
transactions required under 31 U.S.C. 5318(g) (``Reporting of 
Suspicious Transactions'') and the implementing regulations thereunder. 
This reflects the MLAA Section 356 directive that the Department of the 
Treasury (``Treasury'') publish such implementing regulations, 
specifically applicable to registered broker-dealers, in the Federal 
Register by specified dates.
    Accordingly, the Financial Crimes Enforcement Network (``FinCEN''), 
through authority granted by the Secretary of the Treasury, filed 
proposed amendments \4\ to the Bank Secrecy Act regulations on December 
28, 2001. MLAA Section 356 requires publication of these regulations in 
final form not later than July 2, 2002.
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    \4\ Financial Crimes Enforcement Network; Proposed Amendments to 
the Bank Secrecy Act Regulations--``Requirement of Brokers or 
Dealers in Securities to Report Suspicious Transactions;''--66 FR 
67670 (December 31, 2001).
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    Generally, FinCEN's proposed regulations require the filing of 
Suspicious Activity Reports (``SARs'') in a central location, to be 
determined by FinCEN, within a specified timeframe initiated by the 
detection of facts constituting a basis for the filing. Proposed 
reporting criteria stress the development of a sound risk-based 
program.
    The Rule also highlights members' and member organizations' 
existing and ongoing obligation to comply with applicable provisions of 
the Bank Secrecy Act and the implementing regulations thereunder, as 
they become effective.
    Accordingly, and particularly in light of the PATRIOT Act 
amendments, members and member organizations should be cognizant of all 
existing and pending Bank Secrecy Act requirements. These include, but 
are not limited to: (1) MLAA Section 313 (``Prohibition on United 
States Correspondent Accounts with Foreign Shell Banks'')--Effective 
12/25/01, covered financial institutions operating in the United States 
must sever correspondent banking relationships with foreign ``shell 
banks,'' i.e., banks without a physical presence in any country, that 
are not affiliated with a bank that both has a physical presence in a 
country and is subject to supervision by a banking authority that 
regulates the affiliated bank; (2) MLAA Section 312 (``Special Due 
Diligence for Correspondent Accounts and Private Banking Accounts'')--
Effective 7/23/02, financial institutions must be prepared to apply ``* 
* * appropriate, specific, and, where necessary, enhanced, due 
diligence'' with respect to foreign private banking customers and 
international correspondent accounts; and (3) MLAA Section 326 
(``Verification of Customer Identity'')--Effective 10/26/02, financial 
institutions must comply with a regulation issued by the Secretary of 
the Treasury requiring the implementation of ``reasonable procedures'' 
with respect to the verification of customer identification upon 
opening an account, maintaining records of information used for such 
verification, and the consultation of a government-provided list of 
known or suspected terrorists.
2. Statutory Basis
    The CBOE believes that the proposed rule is consistent with Section 
6(b) of the Act \5\ in general and further, the objectives of Section 
6(b)(5) \6\ in particular, in that they are designed to

[[Page 58667]]

promote just and equitable principles of trade and to protect investors 
and the public interest.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 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 impose 
any burden on competition 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.

III. 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, 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 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 No. SR-CBOE-2002-45 and 
should be submitted by October 8, 2002.

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

    The Commission has reviewed carefully the CBOE's proposed rule 
change and finds, for the reasons set forth below, the proposed rule 
change is consistent with the requirements of Section 6 of the Act \7\ 
and the rules and regulations thereunder applicable to a national 
securities exchange. Specifically, the Commission finds the proposed 
rule change is consistent with Section 6(b)(5) of the Act \8\ because 
it will promote just and equitable principles of trade and protect 
investors and the public interest by requiring the CBOE's members and 
member organizations to establish, implement, and improve anti-money 
laundering compliance programs.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change before the 30th day after the date of publication of notice 
thereof in the Federal Register. The Commission notes that the Rule is 
substantially similar to anti-money laundering compliance program rules 
adopted by The New York Stock Exchange, Inc. and the National 
Association of Securities Dealers, Inc. that the Commission approved 
after full notice and comment.\9\ The Commission believes, therefore, 
that granting accelerated approval of the proposed rule change is 
appropriate and consistent with Section 6 of the Act.\10\
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    \9\ See Securities Exchange Act Release No. 45798 (April 22, 
2002), 67 FR 20854 (April 26, 2002)(order approving SR-NASD-2002-24 
and SR-NYSE-2002-10).
    \10\ 15 U.S.C. 78f.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-CBOE-2002-45) is hereby 
approved on an accelerated basis.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-23529 Filed 9-16-02; 8:45 am]
BILLING CODE 8010-01-P