[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