[Federal Register Volume 67, Number 195 (Tuesday, October 8, 2002)]
[Notices]
[Pages 62841-62842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25610]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46582; File No. SR-CBOE-2002-53]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Amending Its Rules To Provide Notice of Benefits of 
Membership and Attendant Obligations

October 1, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4\2\ thereunder, notice is hereby given that 
on September 9, 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, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to add a rule provision setting forth that each 
CBOE member and Option Trading Permit holder (until such permit 
expires) with trading rights on CBOE (i) is a member of OneChicago, 
LLC, and (ii) to the extent provided in OneChicago rules, becomes bound 
by OneChicago rules and subject to jurisdiction of OneChicago by 
accessing or entering any order into the OneChicago System.
    Below is the text of the proposed rule change. Proposed new 
language is italicized and proposed deletions are in brackets.
* * * * *

Chicago Board Options Exchange, Incorporated

Rules

* * * * *
    RULE 3.28. Reserved.

Membership in OneChicago, LLC

    RULE 3.29. Each member and Option Trading Permit holder (until such 
permit expires) with trading rights on the Exchange is a member of 
OneChicago, LLC, and to the extent provided in OneChicago rules, 
becomes bound by OneChicago rules and subject to jurisdiction of 
OneChicago by accessing or entering any order into the OneChicago 
System.

Extension of Time Limits

    RULE 3.30 [3.28]. Any time limit imposed on an applicant, member, 
or other person under this Chapter may be extended by the Membership 
Committee in the event that the Membership Committee determines that 
such an such extension is warranted due to extenuating circumstances.

Delegation of Authority

    RULE 3.31 [3.29].(a) All of the authority granted to the Exchange 
under this Chapter may be exercised by the Membership Committee and/or 
the Membership Department.
    (b) The Membership Committee may delegate to the Membership 
Department any of the authority that is granted to the Membership 
Committee under the Rules.
* * * * *

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 Exchange 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 Exchange 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
    OneChicago, LLC is a joint venture formed by CBOE, the Chicago 
Mercantile Exchange, and the Chicago Board of Trade to provide a market 
for trading security futures products. OneChicago has been 
conditionally designated by the Commodity Futures Trading Commission as 
a contract market under the Commodity Exchange Act and is in the 
process of registering with the Commission as a national securities 
exchange under section 6(g) of the Act.\3\
    One of CBOE's primary goals in participating in the formation of 
OneChicago was to provide CBOE's membership with access to a market for 
trading security futures products. Accordingly, OneChicago Rule 132 \4\ 
provides that any person or entity with full member trading rights or 
option trading permits (until such permits expire) on CBOE is a member 
of OneChicago. A person or entity with full member trading rights on 
CBOE is a CBOE member with the right to enter into securities 
transactions at the CBOE. These persons and entities include CBOE 
members in a number of CBOE membership capacities including, among 
others, those CBOE members with an authorized floor function (i.e., are 
approved to act as a CBOE Market-Maker and/or Floor Broker), lessees of 
CBOE memberships, Chicago Board of Trade exercisers, CBOE Clearing 
Members, and CBOE member organizations approved to transact business 
with the public. A person or entity with option trading permits (until 
such permits expire) is an Option Trading Permit holder under CBOE Rule 
3.27 that is not a lessor of the Option Trading Permit.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(g).
    \4\ The CBOE's original filing referred to OneChicago Rule 129. 
The CBOE represents that the OneChicago rules have since been 
amended and the correct reference should now be to OneChicago Rule 
132. Telephone conversation between Arthur B. Reinstein, Legal 
Division, CBOE, and Sapna C. Patel, Attorney, Division of Market 
Regulation, Commission, on September 24, 2002.
---------------------------------------------------------------------------

    Additionally, OneChicago Rule 307(a) provides, in pertinent part, 
that by accessing, or entering any order into, the OneChicago System, 
and without any need for any further action, undertaking or agreement, 
a OneChicago member agrees (i) to be bound by, and comply with, 
OneChicago rules, the rules of any OneChicago clearing corporation, and 
applicable law, to the extent applicable to it, and (ii) to become 
subject to the jurisdiction of OneChicago with respect to any and all 
matters arising from, related to, or in connection with, the status, 
actions, or omissions of that OneChicago member.
    In this regard, CBOE proposes to add a CBOE rule provision setting 
forth that each CBOE member and Option Trading Permit holder (until 
such permit expires) with trading rights on CBOE (i)

[[Page 62842]]

is a member of OneChicago, LLC, and (ii) to the extent provided in 
OneChicago rules, becomes bound by OneChicago rules and subject to 
jurisdiction of OneChicago by accessing or entering any order into the 
OneChicago System. This rule provision would be set forth in new CBOE 
Rule 3.29.\5\
---------------------------------------------------------------------------

    \5\ Current CBOE Rules 3.28 and 3.29 would be re-numbered as 
CBOE Rules 3.30 and 3.31, respectively. The rule change would leave 
Rule 3.28 reserved for future use.
---------------------------------------------------------------------------

    The primary purpose of this proposed rule change is two-fold. 
First, the right to trade on and to be a member of OneChicago is a 
benefit granted to CBOE members with trading rights on CBOE, and CBOE 
desires to provide notice of this benefit of CBOE membership in CBOE's 
rules. Second, CBOE desires to provide notice to CBOE members in the 
CBOE rules that by accessing or entering an order into the OneChicago 
System, a CBOE member will become bound by OneChicago rules and subject 
to the jurisdiction of OneChicago. In the absence of CBOE Rule 3.29, 
CBOE members would still be bound by OneChicago rules and subject to 
the jurisdiction of OneChicago by accessing or entering an order into 
the OneChicago System by virtue of OneChicago Rule 307(a). It is also 
the case that CBOE members will have notice of these provisions in the 
OneChicago rules and through other means such as circulars and 
educational sessions conducted in connection with the launch of trading 
on OneChicago. However, CBOE believes that it is important to also 
include notice of these provisions in CBOE's rules to further ensure 
that CBOE members, applicants for CBOE membership, and prospective CBOE 
members are aware of these provisions.
    Although proposed CBOE Rule 3.29 would fall within the scope of the 
consent form that new CBOE members sign and that current CBOE members 
have previously signed to the effect that they agree to abide by CBOE 
rules as they shall be in effect from time to time, OneChicago would 
continue to be responsible for enforcing its own rules. It is not 
intended that CBOE would enforce OneChicago rules by virtue of adopting 
proposed CBOE Rule 3.29, and CBOE would not be assuming any 
responsibility or obligation to enforce OneChicago rules, or compliance 
by CBOE members with those rules, by virtue of this rule change. 
Nevertheless, OneChicago would be a third party beneficiary of proposed 
CBOE Rule 3.29 and would be able to rely upon the agreement by CBOE 
members to be subject to proposed CBOE Rule 3.29 in enforcing 
OneChicago rules, in addition to the authority granted by OneChicago 
rules themselves.
    In this regard, proposed CBOE Rule 3.29 is similar to other CBOE 
rules which provide important notices to CBOE members and others by 
including those notices in CBOE's rules and in which other parties are 
third party beneficiaries of those CBOE rules. For example, CBOE Rule 
24.14 sets forth disclaimers of warranty and liability that are 
applicable with respect to reporting authorities for index options that 
are traded on CBOE. In addition, CBOE Rule 6.7A generally provides that 
CBOE members may not institute a lawsuit against, among others, CBOE 
contractors for actions taken or omitted to be taken in connection with 
the official business of CBOE.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \6\ in general and furthers the objectives 
of section 6(b)(5) of the Act \7\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system and to promote just and equitable 
principles of trade by further ensuring that CBOE members are aware of 
an important benefit of CBOE membership and of important obligations 
that are applicable to those who utilize that benefit.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

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

    Because the proposed rule change (1) does not significantly affect 
the protection of investors or the public interest; (2) does not impose 
any significant burden on competition; and (3) does not become 
operative for thirty days from September 9, 2002, the date on which it 
was filed, the proposed rule change has become effective pursuant to 
section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    Under Rule 19b-4(f)(6)(iii), the Exchange is required to provide 
the Commission with written notice of its intent to file the proposed 
rule change at least five business days prior to the filing date or 
such shorter time as designated by the Commission. The CBOE provided 
the Commission with notice of intent to file at least five days prior 
to filing the proposed rule change.
    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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-2002-53 and 
should be submitted by [insert date 21 days from date of publication]. 
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-25610 Filed 10-7-02; 8:45 am]
BILLING CODE 8010-01-P