[Federal Register Volume 68, Number 94 (Thursday, May 15, 2003)]
[Notices]
[Pages 26363-26364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-12145]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47818; File No. SR-CBOE-2003-02]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change by the Chicago Board Options Exchange, Inc., 
Relating to the Reporting of Other Affiliations of Associated Persons 
to the Exchange

May 8, 2003.

I. Introduction

    On January 9, 2003, 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 a member's obligation 
to report other affiliations of its Associated Persons (``APs'') to the 
Exchange. Notice of the proposed rule change was published for comment 
in the Federal Register on February 5, 2003.\3\ The Commission received 
one comment letter on the proposed rule change.\4\ On March 10, 2003, 
CBOE filed Amendment No. 1 to the proposed rule change.\5\ 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 Securities Exchange Act Release No. 47290 (January 30, 
2003), 68 FR 5945 (``Notice'').
    \4\ March 6, 2003 letter from Brian C. Underwood, Senior Vice 
President--Director of Compliance, A.G. Edwards & Sons, Inc., to 
Jonathan Katz, Secretary, Commission. The commenter expressed 
support for the proposed rule change.
    \5\ In Amendment No. 1, CBOE added a comma immediately following 
the phrase ``Financial / Operations Principal'' in revised CBOE rule 
9.4. This grammatical correction clarifies the scope of application 
of rule 9.4(b) to Registered Options Principals and Sales 
Supervisors, in accordance with the intent of the proposal, as 
described in the Notice. This is a technical amendment to the 
proposed rule change that does not require notice and comment. See 
e-mail from Jaime Galvan, Attorney, CBOE, to Andrew Shipe, Special 
Counsel, Division of Market Regulation, Commission, dated March 10, 
2003 (``Amendment No. 1'').
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II. Description of the Proposed Rule Change

A. Text of the Proposed Rule Change

    The Exchange proposes to amend its rules requiring members to 
report outside business affiliations of their personnel to the 
Exchange. Below is the text of the proposed rule change. Proposed new 
language is italicized. Proposed deletions are in [brackets].\6\
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    \6\ The text of the proposed rule change was published in the 
notice. This publication of rule text corrects a typographical error 
in the notice to show that the phrase ``and Registered 
Representative'' in revised CBOE rule 9.4(b) should have been marked 
as deleted by placing it in [brackets].
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* * * * *

Chicago Board Options Exchange, Inc.

Rules

* * * * *
Rule 3.6A. Qualification and Registration of Certain Associated Persons
    (a) Financial/Operations Principal. Each individual member or 
member organization subject to Exchange Act rule 15c3-1 shall designate 
a Financial/Operations Principal. The duties of a Financial/Operations 
Principal shall include taking appropriate actions to assure that the 
member complies with applicable financial and operational requirements 
under the rules and the Exchange Act, including but not limited to 
those requirements relating to the submission of financial reports and 
the maintenance of books and records. Each Financial/Operations 
Principal is required to have successfully completed the Financial and 
Operations Principal Examination (Series 27 Exam). Each Financial/
Operations Principal designated by a member shall be registered in that 
capacity with the Exchange in a form and manner prescribed by the 
Exchange. A Financial/Operations Principal of a

[[Page 26364]]

member may be a full-time employee [of the member], [or with the prior 
written approval of the Exchange, may be] a part-time employee or 
independent contractor of the member. Member firms for which the 
Exchange is the Designated Examining Authority (``DEA'') must provide 
prompt written notice to the Exchange's Department of Financial and 
Sales Practice Compliance for each person designated as a Financial/
Operations Principal reporting whether such person is a full-time 
employee, part-time employee, independent contractor or has any outside 
business affiliations.
    (b) No change.
    * * * Interpretations and Policies:
    .01--.03 No change.
* * * * *

CHAPTER IX

* * * * *

Doing Business with the Public

Rule 9.4. Other Affiliations of Registered [Representatives] Associated 
Persons
    (a) No person associated with a member in any registered capacity 
shall be employed by, or accept compensation from, any other person or 
entity as a result of any business activity, other than a passive 
investment, outside the scope of his/her relationship with his/her 
employer firm, unless the person has provided prompt written notice to 
the member and has received prior written consent of the member.
    (b) Except with the prior written consent of the member and 
[express] prompt written notice to [permission of] the Exchange, every 
Registered Options Principal, Sales Supervisor, and Financial/
Operations Principal, registered with a member for which the Exchange 
is the Designated Examining Authority (``DEA'') [and Registered 
Representative] shall devote his/her entire time during business hours 
to the business of the member organization employing [him] or 
compensating him/her. [or to the business of its affiliates which are 
engaged in the transaction of business as a broker or dealer in 
securities or commodities or in such other businesses as have been 
approved by the Exchange.]
* * * * *

B. Description of the Proposed Rule Change

    Currently, CBOE rule 9.4 (``Other Affiliations of Registered 
Representatives'') requires a member firm's Registered Representatives 
and Registered Options Principals (``ROPs'') to obtain express written 
permission from the Exchange in order to engage in any business, other 
than that of their member organization, during business hours. Further, 
CBOE rule 3.6A (``Qualification and Registration of Certain Associated 
Persons'') provides that a member firm may employ a part-time employee 
or independent contractor as a Financial/Operations Principal, provided 
that it receives the prior written approval of the Exchange to do so.
    Pursuant to the proposed rule change, CBOE would amend rule 9.4 to 
apply to all of a member firm's registered APs. The rule would now 
provide that, other than in the case of a passive investment, all such 
persons would be required to give prompt written notice to the 
employing member, and to receive the member's prior written consent, 
with respect to outside business activities. Where CBOE is the firm's 
Designated Examining Authority, and the AP in question is a ROP, Sales 
Supervisor, or Financial / Operations Principal, the CBOE will also 
require prompt written notice to the Exchange. CBOE rule 3.6A's 
restrictions on FINOPs would also be amended with changes corresponding 
to the new provisions of rule 9.4.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\7\ 
In particular, the Commission believes that the proposal is consistent 
with section 6(b)(5) of the Act,\8\ which requires, among other things, 
that the rules of an exchange be designed to promote just and equitable 
principles of trade and to protect investors and the public interest.
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    \7\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78(c)(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change will provide 
CBOE with information that it needs to regulate its member firms. The 
Commission further notes that the proposed rules are similar to rules 
of other self-regulatory organizations.\9\ Finally, the proposed rule 
change does not alter in any way the obligation of a CBOE member or 
member organization to oversee the operation of its business and 
supervise the performance of its associated persons, including any 
potential conflicts of interest involving any associated person, in a 
manner that assures compliance with the Act and rules and regulations 
thereunder, as well as applicable rules of the CBOE. To this end, the 
Commission notes that CBOE member firms will be obligated to review and 
approve in writing any outside business arrangements of their 
personnel.
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    \9\ See American Stock Exchange rule 342(b), National 
Association of Securities Dealers rule 3030, New York Stock Exchange 
rule 346(b), Pacific Exchange rule 1.26(d) and Philadelphia Stock 
Exchange rule 793.
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    Therefore, the Commission believes that the proposal is consistent 
with section 6(b)(5) of the Act,\10\ which requires, among other 
things, that the rules of an exchange be designed to promote just and 
equitable principles of trade, and to protect investors and the public 
interest.
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    \10\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change, as amended (File No. SR-CBOE-
2003-02) be, and it hereby is, approved.
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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. 03-12145 Filed 5-14-03; 8:45 am]
BILLING CODE 8010-01-P