[Federal Register Volume 67, Number 211 (Thursday, October 31, 2002)]
[Notices]
[Pages 66434-66435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27687]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46716; File No. SR-CBOE-2002-59]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Relating to Margin Requirements for Broker-Dealer 
Accounts

October 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 September 25, 2002, the Chicago Board Options Exchange, Inc. 
(``CBOE'') 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 
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 its margin rule pertaining to the 
accounts of broker-dealers in order to establish parity with the 
requirements for Joint Back Office (``JBO'') participants.\3\ The text 
of the proposed rule change appears below. New text is in italics; 
deletions are in [brackets].
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    \3\ A JBO participant purchases an ownership interest in a 
clearing broker-dealer. Regulation T of the Board of Governors of 
the Federal Reserve System permits a clearing broker-dealer to 
finance transactions of its JBO owners on a good faith basis rather 
than pursuant to the margin otherwise required by Regulation T.
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* * * * *
Chicago Board Options Exchange, Inc. Rules
CHAPTER XII
Margins
    No change to Rules 12.1 and 12.2.
Rule 12.3 Margin Requirements
    (a) through (f)--(no change).
    (g)(i) Broker-Dealer Account. A member organization may carry the 
proprietary account of another broker-dealer, which is registered with 
the SEC, upon a margin basis which is satisfactory to both parties, 
provided the requirements of Regulation T of the Board of Governors of 
the Federal Reserve System are adhered to and the account is not 
carried in a deficit equity condition. The amount of any deficiency 
between the equity maintained in the account and the [margin required 
by the other provisions of this Rule] haircut requirements calculated 
pursuant to Rule 15c3-1 (Net Capital) of the Exchange Act shall be 
deducted in computing the Net Capital of the member organization under 
Rule 15c3-1 of the Exchange Act.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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
    CBOE is proposing a change to CBOE Rule 12.3(g)--Margin 
Requirements (Broker-Dealer Account). When a member organization 
carries the proprietary account of another broker-dealer, CBOE Rule 
12.3(g)(i), in effect, exempts the account from the minimum maintenance 
margin requirements imposed by CBOE Rule 12.3 and allows the member 
organization to carry the account on a margin basis that is 
satisfactory to both parties. However, the rule currently requires that 
if account equity is below the minimum maintenance margin requirements 
of CBOE Rule 12.3, the carrying member organization must deduct the 
amount of the deficiency in computing its net capital under Rule 15c3-1 
under the Act.\4\ The CBOE proposes to change the amount that must be 
deducted for net capital purposes under Rule 12.3(g)(i) to the amount, 
if any, by which the equity maintained in the account is below the 
haircut requirements prescribed by Rule 15c3-1.
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    \4\ 17 CFR 240.15c3-1.
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    The New York Stock Exchange, Inc. (``NYSE'') has a comparable rule 
(Rule 431(e)(6)(A)) that was amended in February 2000 \5\ to eliminate 
the maintenance margin standard and

[[Page 66435]]

implement the haircut standard as the equity benchmark. Thus, the CBOE 
believes that the proposed rule change would make CBOE Rule 12.3(g) 
consistent with NYSE Rule 431(e)(6)(A).
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    \5\ See Securities Exchange Act Release No. 42453 (February 24, 
2000), 65 FR 11620 (March 3, 2000) (SR-NYSE-97-28).
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    NYSE Rule 431(e)(6)(A) was changed to gain consistency with NYSE 
Rule 431(e)(6)(B)--Joint Back Office Arrangements. In 2000, both the 
CBOE and NYSE instituted similar margin and net capital requirements 
for member organizations that carry accounts on a JBO basis. In 
addition, certain requirements were imposed on JBO participants, which 
included a broker-dealer registration requirement. The CBOE and NYSE 
JBO rules do not impose exchange maintenance margin requirements on JBO 
accounts, but instead require that the carrying firm, in computing its 
net capital, deduct any amount by which equity in the JBO account is 
below the haircut requirement. At the same time, the NYSE amended NYSE 
Rule 431(e)(6)(A) on the grounds that, since a JBO participant is a 
broker-dealer, a broker-dealer account (non-JBO) should receive the 
same treatment accorded the JBO account for computing a deduction to 
net capital. Likewise, the CBOE believes that the proposed rule change 
would make the treatment of broker-dealers under CBOE Rule 12.3(g) 
consistent with the treatment of JBO participants under the CBOE's JBO 
rules.\6\
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    \6\ See CBOE Rule 13.4(b)(3).
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2. Statutory Basis
    The proposed rules are intended to harmonize the margin treatment 
across types of broker-dealer accounts, as well as between CBOE's rule 
and the analogous NYSE rule. As such, the CBOE believes that the 
proposed rule change is consistent with, and furthers the objectives 
of, Section 6(b)(5) of the Act,\7\ in that it is designed to perfect 
the mechanism of a free and open market and to protect investors and 
the public interest.
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    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of 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

    The foregoing 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\ 
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 30 days from the date of filing, or such shorter time that the 
Commission may designate if consistent with the protection of investors 
and the public interest, provided that the CBOE has given the 
Commission written notice of its intent to file the proposed rule 
change at least five business days prior to the filing date of the 
proposed rule change.\10\ 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 the furtherance of the purposes of the 
Act.\11\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ As required under Exchange Act Rule 19b-4(f)(6)(iii), the 
CBOE provided the Commission with written notice of its intent to 
file the proposed rule change at least five business days prior to 
the filing date.
    \11\ 15 U.S.C. 78s(b)(3)(C).
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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 all such filing will also 
be available for inspection and copying at the principal office of the 
CBOE. All submissions should refer to the File No. SR-CBOE-2002-59 and 
should be submitted by November 21, 2002.

    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. 02-27687 Filed 10-30-02; 8:45 am]
BILLING CODE 8010-01-P