[Federal Register Volume 67, Number 225 (Thursday, November 21, 2002)]
[Notices]
[Pages 70275-70276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29540]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46823; File No. SR-CBOE-2002-39]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the Chicago Board Options 
Exchange, Inc. to Make Certain Changes Pertaining to the Enforcement of 
Trading Conduct and Decorum Policies

November 13, 2002.
    On July 15, 2002, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and rule 19b-4 
thereunder,\2\ a proposed rule change relating to the enforcement of 
trading conduct and decorum policies. On August 30, 2002, CBOE 
submitted Amendment No. 1 to the proposed rule change.\3\ On September 
17, 2002, CBOE submitted Amendment No. 2 to the proposed rule 
change.\4\ The proposed rule change, as amended, was published for 
comment in the Federal Register on October 11, 2002.\5\ The Commission 
received no comments on the amended proposal. This order approves the 
proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See form 19b-4 received on August 30, 2002 (``Amendment No. 
1'').
    \4\ See letter from Christopher R. Hill, Attorney II, Legal 
Division, CBOE, to Nancy Sanow, Division of Market Regulation 
(``Division''), Commission, dated September 16, 2002 (``Amendment 
No. 2'').
    \5\ See Securities Exchange Act Release No. 46600 (October 4, 
2002), 67 FR 63480.
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    The Exchange proposes to amend CBOE rule 6.20(c) (Admission to and 
Conduct on the Trading Floor--Fines Imposed by Floor Officials) to 
authorize two Floor Officials, in consultation with a designated senior 
executive officer of the Exchange, to summarily exclude a member or 
person associated with a member from the Exchange premises for not 
longer than the remainder of the trading day for any violation of the 
Exchange's trading conduct and decorum policies that is classified as a 
Class A offense, except for those Class A offenses specified by 
Exchange Regulatory Circulars \6\ as not qualifying the offender for 
summary exclusion. The proposed rule will enable an excluded member or 
associated person to request reinstatement to the Trading Floor from 
Floor Officials after a sufficient ``cooling off period'' has elapsed.
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    \6\ Currently, only the proposed Regulatory Circular specifies 
which Class A offenses do, and which Class A offenses do not qualify 
the offender for summary exclusion. CBOE will file any additional 
Regulatory Circulars that specify which Class A offenses do or do 
not qualify the offender for summary exclusion with the Commission 
as a proposed rule change. Telephone call between Christopher R. 
Hill, Attorney II, Legal Division, CBOE, and Jennifer Lewis, 
Attorney, Division, Commission, on November 13, 2002.
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    Class A offenses are the most serious offenses regarding trading 
conduct and decorum policies, including but not limited to, violations 
such as physical violence (e.g., shoving or fighting), unbusinesslike 
conduct,\7\ harassment, failure to abide by a floor official 
determination, or property damage. Most Class A offenses affect the 
safety or security of personnel and/or property on the Exchange in ways 
that may be ameliorated by temporarily excluding the offender from 
Exchange premises. The Exchange also proposes that members be summarily 
excluded from Exchange premises for enabling or assisting a suspended 
member or associated person to gain improper access to the floor, and 
failing to supervise a visitor. As specified in the proposed Regulatory 
Circular, the Exchange proposes to distinguish three Class A offenses 
as not qualifying the offender for summary exclusion. These are (1) 
Failure to Attend Exchange Mandated Educational Training; (2) Effecting 
or Attempting to Effect a Transaction with No Public Outcry; and (3) 
Violation of CBOE Rule 8.51 (Firm Quote). According to the Exchange, it 
did not classify these offenses as qualifying for summary expulsion 
because it believes that, unlike the other Class A offenses, they do 
not raise

[[Page 70276]]

significant issues of safety or security at the Exchange.
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    \7\ In general, ``unbusinesslike conduct'' is conduct, other 
than harassment, that disrupts trading. Telephone call between 
Christopher R. Hill, Attorney II, Legal Division, CBOE, and Jennifer 
Lewis, Attorney, Division, Commission, on September 30, 2002.
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    The Exchange also proposes to amend CBOE rule 17.50(g)(6) 
(Imposition of Fines for Minor Rules Violations--Violations of Trading 
Conduct and Decorum Policies) to reflect the incorporation into the 
fine policies of specified higher fine levels for ``subsequent'' 
offenses. For example, the amended provision would enable the 
imposition of the fine authorized for a Class A ``subsequent'' offense 
to be imposed for a first, second or third Class A offense, if such is 
deemed warranted under the circumstances in the view of two Floor 
Officials.\8\ Generally, however, the two Floor Officials will impose 
fines based upon the number of the offense that has occurred within a 
rolling 12-month period, except for Firm Quote violations, which will 
have a 24-month look back period.
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    \8\ The amended provision would also enable the imposition of 
the fine authorized for a Class B ``subsequent'' offense to be 
imposed for a first or second Class B offense, if such is deemed 
warranted under the circumstances in the view of two Floor 
Officials.
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    Finally, the Exchange proposes to include in the proposed 
Regulatory Circular the fines that may be imposed under CBOE rule 17.50 
for violations of CBOE rule 6.20.\9\ Any person against whom a fine is 
imposed pursuant to CBOE rule 17.50(g) may contest that fine before the 
applicable CBOE Committee.\10\
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    \9\ The proposed Regulatory Circular will supersede and replace 
current CBOE Regulatory Circular RG 98-123. The proposed Regulatory 
Circular does not include three types of offenses that were set 
forth in Regulatory Circular RG 98-123: Disruptive Announcements of 
Stock Prints, Failure to Abide by Floor Official Request for 
Information; and Book Priority Determinations. According to the 
Exchange, these offenses are either no longer necessary or covered 
by other rules.
    \10\ See paragraph (4) of the proposed Regulatory Circular.
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    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
\11\ and, in particular, the requirements of section 6 of the Act \12\ 
and the rules and regulations thereunder. Specifically, the Commission 
finds that the proposed rule change is consistent with sections 6(b)(5) 
\13\ and 6(b)(7) \14\ of the Act because the proposed rule change 
should protect investors and the public interest by enhancing the 
effectiveness and fairness of the Exchange's disciplinary procedures.
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    \11\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78f(b)(7).
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    In particular, the Commission believes having the authority to 
temporarily exclude disruptive or potentially dangerous rule violators 
from the Exchange premises should assist the Exchange in defusing 
volatile situations, safeguarding trading floor personnel and 
facilities, and minimizing disruptions to the maintenance of fair and 
orderly markets. The Commission also believes the new Regulatory 
Circular sets forth appropriate fine levels for violations of Trading 
and Decorum Policies, which should deter violations of the Exchange's 
rules.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-CBOE-2002-39), as amended, 
is approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-29540 Filed 11-20-02; 8:45 am]
BILLING CODE 8010-01-P