[Federal Register Volume 67, Number 191 (Wednesday, October 2, 2002)]
[Notices]
[Pages 61934-61940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25008]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46546; File No. SR-CBOE-2002-48]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Incorporated Relating to 
Amendments to Its Constitution and Rules Pertaining to the Governance 
of the Exchange

September 24, 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 26, 2002, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III 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 amend provisions of its Constitution and Rules 
pertaining to the governance of the Exchange. Below is the text of the 
proposed rule change. Proposed new language is italicized, proposed 
deletions are bracketed.
* * * * *

Chicago Board Options Exchange, Incorporated

Proposed Governance Amendments to CBOE Constitution and Rules

Constitution

Article I
Definitions
    No change.
Article II
Membership
    No change.
Article III
Meetings of Members
    Sections 3.1-3.3 No change.

Section 3.4 Special Meetings

    Special meetings of members, for any purpose or purposes, unless 
otherwise prescribed by statute or by the Certificate of Incorporation, 
may be called by the Chairman of the Board, the Vice Chairman of the 
Board[Executive Committee] or the Board of Directors, and shall be 
called by the Secretary at the request in writing of 150 voting 
members, provided that such request shall state the purpose or purposes 
of the proposed meeting and the day and hour at which such meeting 
shall be held.
    Sections 3.5-3.7 No change.
Article IV
Nominations

Section 4.1 Nominating Committee

    (a) There shall be a Nominating Committee composed of four members 
who are primarily engaged in business on the floor of the Exchange in 
the capacity of a member (floor members) [(except that, as provided in 
paragraph (b) of this Section 4.1, the Nominating Committee shall have 
six floor members until the 1999 annual election meeting

[[Page 61935]]

and shall have five floor members until the 2000 annual election 
meeting)]; two members who are officers of member organizations that 
primarily conduct a non-member public customer business (firm members); 
two members each of whom directly or indirectly owns and controls (as 
defined in Section 6.1(a)) one or more memberships in respect of which 
he acts solely as lessor (lessor members), at least one of whom is not 
actively engaged in business as a ``broker-dealer'' or as a ``person 
associated with a broker-dealer'' as those terms are defined in the 
Securities Exchange Act of 1934; and two representatives of the public 
(public members).
    (b) All of the members of the Nominating Committee shall be elected 
by the voting members of the Exchange. [Members of the Nominating 
Committee elected prior to the 1999 annual election meeting shall 
continue to serve until the expiration of the terms for which they were 
elected. The Nominating Committee to serve in respect of the 1999 
annual election meeting shall also include two firm members, two lessor 
members and two public members, all of whom shall be appointed by the 
Chairman of the Executive Committee with the approval of the Board of 
Directors.] In the 1999 annual election meeting, one floor member shall 
be elected for a three year term, and two firm members, two lessor 
members and two public members shall be elected, one firm member, one 
lessor member and one public member for terms expiring at the second 
annual election meeting following the 1999 annual election meeting, and 
one firm member, one lessor member and one public member for terms 
expiring at the third annual election meeting following the 1999 annual 
election meeting. In the 2000 annual election meeting, one floor member 
shall be elected for a three year term. At each subsequent annual 
election meeting, members of the Nominating Committee shall be elected 
to succeed those whose terms expire, each to serve for a term expiring 
at the third succeeding annual election meeting and until their 
successors are duly elected and qualified. Elected members of the 
Nominating Committee shall be ineligible for reelection for a period of 
three years after their terms expire.

Section 4.2 Nominating Committee Vacancies

    Any vacancy occurring among the members of the Nominating Committee 
may be filled by a qualified person appointed by the Vice Chairman of 
the Board [Executive Committee] with the approval of the Board to hold 
office until the next annual election meeting, at which time a 
qualified successor shall be elected to serve the unexpired term, if 
any, of his predecessor in office.
    Sections 4.3-4.7 No change.
Article V
Conduct of Annual Election

Section 5.1 Election Committee

    The Vice Chairman of the Board [Executive Committee], with the 
approval of the Board, shall appoint not less than three tellers, none 
of whom may be a member of the Exchange or a partner or officer of a 
member organization, who shall constitute a Committee to conduct the 
annual election. The Committee shall have authority to decide all 
questions pertaining to the conduct of the annual election, and its 
decision shall be final.
    Sections 5.2-5.3 No change.
Article VI
Board of Directors

Section 6.1 Number, Election and Term of Office of Directors

    (a) The Board of Directors shall consist of 22 directors as 
described below and the Chairman of the Board, who by virtue of his 
office shall be a member of the Board. [Commencing with the 1999 annual 
election meeting, t]The Directors elected by the membership shall be 
divided into three classes which, commencing with the 2002 annual 
election meeting, shall be composed as follows: 3
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    3 Prior to the 2002 annual election meeting, the three 
classes of Directors elected by the membership are composed as 
follows: Class I: one floor director, one-at-large director, one 
lessor director, two off-floor directors, and two public directors; 
Class II: one floor director, one at-large director, two off-floor 
directors, and three public directors; Class III: two floor 
directors, one at-large director, two off-floor directors, and three 
public directors.
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    Class I shall consist of one member who directly or indirectly owns 
and controls a membership and is primarily engaged in business on the 
floor of the Exchange in the capacity of a member (floor director), 
[one member who functions as a member in any recognized capacity either 
individually or on behalf of a member organization (at-large 
director),] one member who directly or indirectly owns and controls a 
membership with respect to which he acts solely as lessor and who is 
not actively engaged in business as a ``broker-dealer'' or as a 
``person associated with a broker-dealer'' as those terms are defined 
in the Securities Exchange Act of 1934, (lessor director), [two members 
who are executive officers of member organizations that primarily 
conduct a non-member public customer business and are not individually 
engaged in business on the Exchange floor (off-floor directors),] and 
[two] three non-members who are not broker-dealers or persons 
affiliated with broker-dealers (public directors).
    Class II shall consist of one floor director, one member who 
functions as a member in any recognized capacity either individually or 
on behalf of a member organization (at-large director), two members who 
are executive officers of member organizations that primarily conduct a 
non-member public customer business and are not individually engaged in 
business on the Exchange floor (off-floor directors) and [three] four 
public directors.
    Class III shall consist of two floor directors, one at-large 
director, two off-floor directors and [three]four public directors.
    The ordinary place of business of at least one of the two off-floor 
directors in each Class shall be a location more than 80 miles from the 
Exchange's trading floor. For purposes of this Section 6.1, a member 
shall be considered to directly own and control a membership only if 
the member individually and directly owns of record and beneficially 
all right, title and interest in the membership, and a member shall be 
considered to indirectly own and control a membership only if the 
member (A) has the sole and exclusive right to vote the membership and 
control its sale, and (B) is in possession of and subject to all of the 
risks and rewards of a direct owner of at least a fifty percent (50%) 
interest in a membership, either through ownership of an equity 
interest in a member organization or of a beneficial interest in a 
trust, which in either case is the owner of one or more memberships as 
permitted under the Rules.
    (b) The [initial] terms of Class I, Class II and Class III 
directors shall terminate following the annual election meetings to be 
held in [1999] 2002, [2000] 2003 and [2001] 2004, respectively[, and 
members of the Board prior to the annual election meeting to be held in 
1999 shall be assigned to one of these three Classes on the basis of 
the year in which their current term of office expires].[\4\] At the 
[1999] 2002 annual election meeting, all of the Class I directors shall 
be elected for three-year terms, and directors shall be elected to fill 
vacancies in Classes II and III. At subsequent annual election 
meetings,

[[Page 61936]]

the directors of each class shall be elected for three year terms to 
succeed those whose terms are then about to expire, and they shall hold 
office for the terms for which elected and until their successors shall 
have been duly elected and qualified, or until their earlier death, 
resignation or removal. Terms of office of directors shall expire at 
the first regular meeting of the Board of Directors held on or after 
January 1 following the annual election meetings at which their 
successors are elected.
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    [\4\ Any member serving as a floor director prior to the 1999 
annual election meeting shall be permitted to serve out the 
remainder of his current term of office without regard to whether 
his business on the floor is conducted ``in the capacity of a 
member.'']
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    Sections 6.2-6.6 No change.

Section 6.7 Special Meetings

    Special meetings of the Board may be called by the Chairman of the 
Board or the Vice Chairman of the Board [Executive Committee] and shall 
be called by the Secretary upon the written request of any 4 Directors. 
The Secretary shall give at least one hour's notice of such meeting to 
each Director, either by announcement on the Exchange floor during 
trading hours on business days, or personally, or by mail, telegram or 
cablegram. Every such notice shall state the time and place of the 
meeting which shall be fixed by the person calling the meeting, but 
need not state the purpose thereof except as otherwise required by 
statute, the Constitution or the Rules.
    Sections 6.8-6.11 No change.
Article VII
Committees

Section 7.1 Designation of Committees

    The committees of the Exchange shall consist of an Executive 
Committee, an Audit Committee, a Compensation Committee, a Floor 
Directors Committee, and such other standing and special committees as 
may be provided in the Constitution or Rules or as may be from time to 
time appointed by the Vice Chairman of the Board[Executive Committee] 
with the approval of the Board. Except as may be otherwise provided in 
the Constitution or the Rules, the Vice Chairman of the Board[Executive 
Committee] with the approval of the Board shall appoint the members of 
all committees and may designate a Chairman and a Vice-Chairman thereof 
[other than the Chairman of the Executive Committee, who shall be 
selected as provided in Section 8.1(a) of the Constitution].

Section 7.2 The Executive Committee

    The Executive Committee shall consist of the Chairman of the Board, 
the Vice Chairman of the Board[Executive Committee], and at least 4 
other persons appointed as provided in Section 7.1, each of whom must 
be a Director. Not less than 50% of the members of the Executive 
Committee (excluding the Chairman) shall be public directors. Members 
of the Executive Committee shall not be subject to removal except by 
the Board. The Chairman of the Board shall be the Chairman of the 
Executive Committee. Each member of this Committee shall be a voting 
member. The members of the Executive Committee shall serve for a term 
of one year expiring at the first regular meeting of Directors 
following the annual election meeting in each year. The Executive 
Committee shall have and may exercise all the powers and authority of 
the Board in the management of the business and affairs of the 
Exchange, except it shall not have the power or authority of the Board 
in reference to amending the Certificate of Incorporation, adopting an 
agreement of merger or consolidation, recommending to the members the 
sale, lease or exchange of all or substantially all of the Exchange's 
property and assets, recommending to the members the dissolution of the 
Exchange or a revocation of a dissolution, or amending the Constitution 
or Rules of the Exchange.

Section 7.3 The Audit Committee

    The Audit Committee shall consist of at least three Directors 
appointed by the Chairman of the Board with the approval of the Board, 
the exact number to be determined from time to time by the Board. Not 
less than 50% of the members of the Audit Committee shall be public 
directors. Members of the Audit Committee shall not be subject to 
removal except by the Board. The Chairman of the Audit Committee shall 
be a public director appointed by the Chairman of the Board. The Audit 
Committee shall have such duties and may exercise such authority as may 
be prescribed in the Constitution or Rules or by resolution of the 
Board.

Section 7.4 The Compensation Committee

    The Compensation Committee shall consist of the Vice Chairman of 
the Board, the lessor director, the Chairman of the Financial Planning 
Committee, one or more off-floor directors, and such number of public 
directors that will constitute at least 50% of the members of the 
Committee. The off-floor director(s) and the public directors shall be 
appointed to the Compensation Committee by the Chairman of the Board 
with the approval of the Board. Members of the Compensation Committee 
shall not be subject to removal except by the Board. The Chairman of 
the Compensation Committee shall be a public director appointed by the 
Chairman of the Board. The Compensation Committee shall have such 
duties and may exercise such authority as may be prescribed in the 
Constitution or Rules or by resolution of the Board.

Section 7.5 The Floor Directors Committee

    The Floor Directors Committee shall consist of those Directors who 
are primarily engaged in business on the floor of the Exchange (whether 
serving as floor directors or at-large directors), the lessor director 
as a non-voting member of the Committee, and such other persons as may 
be appointed as voting or nonvoting members of the Committee by the 
Vice Chairman of the Board with the approval of the Board. The Vice 
Chairman of the Board shall be the Chairman of the Floor Directors 
Committee. The Floor Directors Committee shall have such duties and may 
exercise such authority as may be prescribed in the Constitution or 
Rules or by resolution of the Board.

Section 7.[3]6 Other

    All other committees shall have such duties and may exercise such 
authority as may be prescribed for them in the Constitution or Rules or 
by resolution of the Board.

Section 7.[4]7 Conduct of Proceedings

    Except as otherwise provided in the Certificate of Incorporation, 
Constitution or Rules, or by resolution of the Board, each committee 
may determine the manner in which its proceedings shall be conducted. 
Committees shall keep minutes of their meetings and periodically report 
their proceedings to the Board of Directors.
Article VIII
Officers

Section 8.1 Designation; Number; Election

    (a) The officers of the Exchange shall be a Chairman of the Board, 
a Vice Chairman of the Board[Executive Committee], a President, one or 
more Vice-Presidents (the number thereof to be determined by the Board 
of Directors), a Secretary, a Treasurer, and such other officers as the 
Board may determine. The Chairman of the Board shall be elected by the 
affirmative vote of at least two-thirds of the Directors then in office 
exclusive of the Chairman, who shall not vote. Such affirmative vote 
may also prescribe his duties not inconsistent with the Constitution or 
Rules and may prescribe a tenure of office.

[[Page 61937]]

    The Vice Chairman of the Board [Executive Committee] shall be a 
director who owns or directly controls his own membership and is 
primarily engaged in business on the floor of the Exchange in the 
capacity of a member. He shall be elected by a plurality of members 
voting at a meeting of the membership held on the 3rd Friday in 
December of each year (or if that day is not a business day, on the 
next succeeding business day) and shall serve until his successor is 
duly chosen and qualified or until his earlier death or his resignation 
or removal. Once a director has held the office of the Vice Chairman of 
the Board [Executive Committee] for six months or more of a one-year 
term and for the next two succeeding one-year terms, the director shall 
thereafter be ineligible to again hold the office until a period of not 
less than six months has elapsed during which the director has not held 
that office. Candidates for the office of Vice Chairman of the Board 
[Executive Committee] must notify the Secretary of the Exchange in 
writing no later than the close of business on November 23rd (or if 
that day is not a business day, on the next succeeding business day). 
In the event there is only one candidate, no election need be held, and 
the Board of Directors shall declare the office filled by the sole 
announced candidate.
    The remaining officers of the Exchange shall be appointed by the 
Chairman of the Board, subject to the approval of the Board, at the 
first regular meeting of the Board of Directors held on or after 
January 1 following each annual election meeting, each to serve until a 
successor has been duly chosen and qualified or until the officer's 
earlier death or resignation or removal.
    (b) No officer, other than the Vice Chairman of the Board 
[Executive Committee], shall be a member or affiliated with a member or 
a broker or a dealer in securities or commodities. Two or more offices 
may be held by the same person, except the offices of Chairman of the 
Board and President, Chairman of the Board and Secretary, or President 
and Secretary may not be held by the same person. The compensation of 
all officers of the Exchange chosen by the Board shall be fixed by the 
Board.
    Section 8.2 No change.

Section 8.3 [Chairman of the Executive Committee] Vice Chairman of the 
Board

    The Vice Chairman [of the Executive Committee (who is also Vice-
Chairman] of the Board[)] shall preside at meetings of the [Executive 
Committee and at meetings of the] members. Subject to the approval of 
the Board, the Vice Chairman of the Board[Executive Committee] may 
appoint standing and special committees unless the method of 
appointment is otherwise provided for in the Constitution or Rules or 
in the resolution of the Board establishing the committee. The Vice 
Chairman of the Board[Executive Committee] shall be responsible for the 
coordination of the activities of all committees, with the exception of 
committees of the Board, including the Executive Committee, the Audit 
Committee and the Compensation Committee. The Vice Chairman of the 
Board [He] shall be an ex-officio member, without a right to vote, of 
all committees, without prejudice to being specifically appointed as a 
voting member of any committee. In the case of the absence or inability 
to act of the Chairman of the Board, or in case of a vacancy in the 
office of the Chairman of the Board, the Vice Chairman of the Board 
[Executive Committee] shall exercise the powers and discharge the 
duties of the Chairman of the Board.

Section 8.4 Acting Chairman

    In the absence or inability to act of both the Chairman of the 
Board and the Vice Chairman of the Board[Executive Committee], the 
Board may designate an Acting Chairman of the Board. In the absence of 
such a designation by the Board, the President, or in his absence or 
inability to act, the senior available Vice-President, shall assume all 
the functions and discharge all the duties of the Chairman of the 
Board.

Section 8.5 Vacancy in Office of Vice Chairman of the Board [Executive 
Committee]

    (a) If the Vice Chairman of the Board[Executive Committee] shall 
cease to satisfy the requirements for election to that office, he shall 
thereupon cease to hold his office and such office shall become vacant, 
provided that if his membership is suspended he may continue to hold 
office unless he is removed pursuant to paragraph (a) of Section 8.7.
    (b) If a vacancy occurs in the office of Vice Chairman of the 
Board[Executive Committee] pursuant to paragraph (a) of this Section or 
if for any other reason the office becomes vacant, the Board, by the 
affirmative vote of a majority of the Directors then in office, shall 
fill such vacancy by the election to such office of a Director then in 
office who satisfies the requirements for election to such office.
    Section 8.6 No change.

Section 8.7 Removals

    (a) In the event of the refusal, failure, neglect or inability of 
the Vice Chairman of the Board[Executive Committee] to discharge his 
duties, or for any cause affecting the best interests of the Exchange, 
the sufficiency of which the Board of Directors shall be the sole 
judge, the Board shall have the power, by the affirmative vote of at 
least two-thirds of the Directors then in office exclusive of the Vice 
Chairman of the Board[Executive Committee], to remove the Vice Chairman 
of the Board[Executive Committee] and declare such office vacant.
    (b) Any officer, other than the Vice Chairman of the 
Board[Executive Committee], chosen by the Board may be removed at any 
time by the Board whenever in its judgment the best interests of the 
Exchange would be served thereby; provided, that the Chairman of the 
Board or the President may be removed only by the affirmative vote of 
at least two-thirds of the Directors then in office exclusive of the 
Chairman of the Board, who shall not vote. Any such removal shall be 
without prejudice to the contract rights, if any, of the person so 
removed.
    (c) Any vacancies occurring in any office of the Exchange at any 
time may be filled by the Board for the unexpired term.
    Sections 8.8-8.10 No change.
Article IX
Indemnification
    No change.
Article X
Notices
    No change.
Article XI
General Provisions
    Sections 11.1-11.3 No change.

Section 11.4 Officers and Employees Restricted

    (a) Every salaried officer or employee of the Exchange, except the 
Vice Chairman of the Board[Executive Committee], and every salaried 
officer or employee of any corporation in which the Exchange owns the 
majority of the stock, shall report promptly to the Exchange every 
purchase or sale for his or her own account or the account of others of 
any security which is the underlying security of any option contract 
admitted to dealings on the Exchange.
    (b) With the exception of the Vice Chairman of the Board[Executive 
Committee], no salaried officer or employee of the Exchange or salaried 
officer or employee of any corporation in which the Exchange owns the 
majority of the corporate stock may

[[Page 61938]]

purchase or sell for his or her own account or for the account of 
others any option contract which entitles the purchaser to purchase or 
sell any security described in paragraph (a) of this Section.
    (c) Paragraphs (a) and (b) above of this Section shall not be 
construed to preclude any salaried officer or employee of the Exchange 
or of any corporation in which the Exchange owns a majority of the 
stock from performing his duties and responsibilities as assigned to 
him by such organization.
Article XII
Amendments
    No change.
* * * * *

Rules

* * * * *
Chapter II--Organization and Administration
Part A--Committees
Committees of the Exchange
Rule 2.1. Committees of the Exchange
    (a) Establishment of Committees. In addition to committees 
specifically provided for in the Constitution, there shall be the 
following committees: Appeals, Arbitration, Business Conduct, 
appropriate Floor Procedure Committees, Floor Officials, appropriate 
Market Performance Committees, Membership, Product Development and such 
other committees as may be established in accordance with the 
Constitution. Except as may be otherwise provided in the Constitution 
or the Rules, [T]the Vice Chairman of the Board[Executive Committee], 
with the approval of the Board, shall appoint the chairmen and members 
of such committees to serve for terms expiring at the regular meeting 
of the Board following the next succeeding Annual Election Meeting or 
until successors are appointed. Consideration shall be given to 
continuity and to having, where appropriate, a cross section of the 
membership represented on each committee. Except as may be otherwise 
provided in the Constitution or the Rules, [T]the Vice Chairman of the 
Board[Executive Committee] may, at any time, with or without cause, 
remove any member of such committees. Any vacancy occurring in one of 
these committees shall be filled by the Vice Chairman of the 
Board[Executive Committee] for the remainder of the term. 
Notwithstanding the foregoing, the Chairman of the Board, with the 
approval of the Board, shall appoint Directors to serve on the Audit 
and Compensation Committees, whose members shall not be subject to 
removal except by the Board. Whenever the Vice Chairman of the 
Board[Executive Committee] is, or has reason to believe he may become, 
a party to any proceeding of an Exchange committee, he shall not 
exercise his power to appoint or remove members of that committee, and 
the Chairman of the Board shall have such power.
    (b)-(d) No change.
* * * * *
Chapter II--Organization and Administration
Part C--Dues, Fees and Other Charges
Liability for Payment
    Rule 2.23. A member or associated person that does not pay any 
dues, fees, assessments, charges, fines or other amounts due to the 
Exchange within 30 days after the same has become payable shall be 
reported to the Vice Chairman of the Board[Executive Committee], who 
may, after giving reasonable notice to the member or associated person 
of such arrearages, suspend the member or associated person from 
membership and association with any member until payment is made. 
Should payment not be made by a member within 6 months after payment is 
due, any memberships owned by that member may be disposed of by the 
Exchange in accordance with Rule 3.14(b). A former member or associated 
person that does not pay any dues, fees, assessments, charges, fines or 
other amounts due to the Exchange within 30 days after the same has 
become payable shall be reported to the Vice Chairman of the 
Board[Executive Committee], who may, after giving reasonable notice to 
the former member or associated person of such arrearages, bar the 
former member or associated person from becoming a member and 
associated person until payment is made.
    * * * Interpretations and Policies:
    01. Reasonable notice under Rule 2.23 shall include, but is not 
limited to, service on a member or associated person's address as it 
appears on the books and records of the Exchange either by (1) hand 
delivery or (2) deposit in the United States post office, postage 
prepaid via registered or certified mail.
    02. The Exchange shall report to the Central Registration 
Depository operated by the National Association of Securities Dealers, 
Inc. (``CRD'') any suspension or bar imposed pursuant to this Rule.
* * * * *
Chapter XVI
Summary Suspension by Chairman of the Board or
Vice Chairman of the Board[Executive Committee]
Imposition of Suspension
    Rule 16.1. A member or person associated with a member who has been 
and is expelled or suspended from any self-regulatory organization or 
barred or suspended from being associated with a member of any self-
regulatory organization, or a member which is in such financial or 
operating difficulty that the Chairman of the Board or Vice Chairman of 
the Board[Executive Committee] determines that the member cannot be 
permitted to continue to do business as a member with safety to 
investors, creditors, other members, or the Exchange, may be summarily 
suspended by the Chairman of the Board or Vice Chairman of the 
Board[Executive Committee]. In addition, the Chairman of the Board or 
Vice Chairman of the Board[Executive Committee] may limit or prohibit 
any person with respect to access to services offered by the Exchange 
if any of the criteria or the foregoing sentence is applicable to such 
person or, in the case of a person who is not a member, if the Chairman 
of the Board or Vice Chairman of the Board[Executive Committee] 
determines that such person does not meet the qualification 
requirements or other prerequisites for such access with safety to 
investors, creditors, members, or the Exchange. In the event a 
determination is made to take summary action, as described above, 
notice thereof will be sent to the Securities and Exchange Commission. 
Any person aggrieved by any summary action taken under this Rule shall 
be promptly afforded an opportunity for a hearing by the Exchange in 
accordance with the provisions of Chapter XIX. In addition, the 
Securities and Exchange Commission may on its own motion order or such 
a person may apply to the Securities and Exchange Commission for a stay 
of such summary action pending the results of a hearing pursuant to 
Chapter XIX.
* * * * *
Chapter XXX

Part A--Trading in Stocks, Warrants and Other Securities

Appendix A--Applicability of Rules of the Exchange
    This Appendix lists the rules in Chapters I through XIX of the 
rules of the Exchange that apply to the trading of stock, warrants, and 
such other

[[Page 61939]]

securities instruments and contracts as may be traded subject to the 
rules in Chapter XXX. Where a rule in Chapter I through XIX is 
supplemented by a rule in Chapter XXX, that fact is so indicated.

------------------------------------------------------------------------
             Existing rule by                       Supplemented
------------------------------------------------------------------------
Chapter I-Chapter 15......................  No Change.
Chapter XVI...............................  Summary Suspension by
                                             Chairman of the Board or
                                             Vice Cha.
  Rule 16.1-Rule 16.5.....................  No Change.
Chapter XVII-Chapter XIX..................  No Change.
------------------------------------------------------------------------

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
    The purpose of the proposed amendment is to make certain revisions 
to provisions of the Exchange's Constitution and Rules pertaining to 
the governance of the Exchange. The principal governance change 
proposed to be made is to increase the public representation on the 
Exchange's Board of Directors (``Board'') and three committees of the 
Board so that the Board and these three committees will be balanced 
between industry (member) and public directors. With respect to the 
Board, the Exchange proposes to amend Section 6.1 of the Constitution 
to maintain the current 23-person size of the Board, while increasing 
the number of public directors from 8 to 11. In order to accommodate 
the greater number of public directors, the Exchange proposes to reduce 
the number of off-floor member firm directors from 6 to 4, and to 
reduce the number of at-large member directors from 3 to 2. The number 
of floor member directors will remain unchanged at 4 directors, and the 
Board will continue to have one lessor member director. The Chairman of 
the Board will continue to serve as an ex-officio director. As a 
result, the Board will be equally balanced between 11 member directors 
and 11 public directors plus the Chairman. Directors will continue to 
be elected for three-year terms, with all categories of directors to be 
elected by the membership. As a matter of transition, the Exchange 
proposes to effect the changes with the 2002 annual election of 
directors.\5\
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    \5\ In 1999, the Exchange amended its Constitution to increase 
the public representation on its Board of Directors from 4 to 8 
public directors, and also to create a lessor director category on 
the Board. To accommodate the greater number of public directors and 
the lessor director, the Exchange increased the total size of its 
Board from 21 to 23 directors, reduced the number of floor directors 
from 6 to 4, and provided that the President of the Exchange would 
no longer be an ex-officio director. To effectuate these governance 
changes, the number of off-floor member directors and at-large 
directors remained unchanged at 6 directors and 3 directors, 
respectively, and the Chairman continued to serve as an ex-officio 
director. See Securities Exchange Act Release No. 4206 (October 18, 
1999), 64 FR 57499 (October 25, 1999).
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    In addition to changing the composition of the Board, the Exchange 
proposes to modify the composition of the Executive Committee to make 
it reflect the same balance and composition as the Board as a whole. To 
accomplish this, the Exchange proposes to amend Section 7.2 of its 
Constitution to provide that not less than 50% of the members of the 
Executive Committee, excluding the Chairman of the Board, will be 
public directors. Members of the Executive Committee may be removed 
only by the Board. The Chairman of the Board and the Vice Chairman of 
the Board will continue to be ex officio members of the Executive 
Committee, with the Chairman of the Board serving as the Chairman of 
the Executive Committee in place of the Vice Chairman, who currently 
holds that position.
    The Exchange also proposes to codify in the Constitution the 
establishment of the Audit Committee (Section 7.3), the Compensation 
Committee (Section 7.4) and the Floor Directors Committee (Section 7.5) 
as committees of the Board.
    The Audit Committee will consist of at least 3 directors of which 
not less than 50% will be public directors. The members of the Audit 
Committee will be appointed by the Chairman of the Board, subject to 
Board approval, as is currently provided in Exchange Rule 2.1, and the 
Chairman of the Audit Committee will be a public director also 
appointed by the Chairman of the Board. Members of the Audit Committee 
may be removed only by the Board.
    The Compensation Committee will consist of the Vice Chairman of the 
Board, the lessor director, the Chairman of the Exchange's Financial 
Planning Committee, one or more off-floor directors, and a number of 
public directors that will constitute at least 50% of the members of 
the Committee. The Chairman of the Compensation Committee will be a 
public director appointed by the Chairman of the Board with the 
approval of the Board, and the off-floor directors and the public 
directors on the Compensation Committee will also be appointed by the 
Chairman of the Board consistent with the Chairman's current authority 
under Rule 2.1. Members of the Compensation Committee may be removed 
only by the Board.
    The Floor Directors Committee will consist of those directors who 
are primarily engaged in business on the floor of the Exchange, whether 
serving as floor directors or at-large directors, and will also include 
the lessor director as a non-voting member of the Committee. This 
represents no change from current practice. The Vice Chairman of the 
Board will be designated in the Constitution as the Chairman of this 
Committee. The Floor Directors Committee will continue to function as 
an advisory committee to the Board of Directors and to the Office of 
the Chairman.
    It is also proposed to amend Section 8.3 of the Constitution, which 
describes the authority of the Vice Chairman of the Board, to make it 
clear that the authority of that officer to coordinate the activities 
of the committees of the Exchange does not extend to the Executive, 
Audit or Compensation Committees of the Board.
    In addition to the foregoing proposed changes to the governance 
provisions of the Constitution, a few ``housekeeping'' amendments to 
the Constitution and rules are also proposed. Among these is the 
proposed deletion of outdated references to members of the Nominating 
Committee and floor directors who were elected prior to the 1999 annual 
election in Section 4.1 and in the note to Section 6.1(b) of the 
Constitution. In addition, because the offices of Chairman of the 
Executive Committee and Vice Chairman of the Board will no longer be 
held by the same person, it is proposed to amend a number of provisions 
in the Constitution and rules that refer to the Chairman of the 
Executive Committee to make them refer instead to the Vice Chairman of 
the Board so as not to change their intended meaning.
2. Statutory Basis
    The CBOE believes that, by increasing the public representation on 
the Exchange's Board and three committees of the Board (the Executive, 
Audit and

[[Page 61940]]

Compensation Committees) such that the Board and these three committees 
are balanced between industry and public directors, and by requiring 
that the Chairman of the Audit Committee and the Compensation Committee 
be public directors, the proposed amendment to the Constitution 
furthers the objectives of Section 6(b)(3) of the Act \6\ to assure 
fair representation of the members of the Exchange in the selection of 
its directors and in the administration of its affairs, and to provide 
that one or more members of the Board of Directors must be 
representatives of investors (i.e., public directors). The CBOE also 
believes that the proposed amendment furthers the objectives of Section 
6(b)(5) of the Act \7\ to protect investors and the public interest.
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    \6\ 15 U.S.C. 78f(b)(3).
    \7\ 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 change.

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 Exchange 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 
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-2002-48 and should 
be submitted by October 23, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-25008 Filed 10-1-02; 8:45 am]
BILLING CODE 8010-01-P