[Federal Register Volume 68, Number 120 (Monday, June 23, 2003)]
[Notices]
[Pages 37181-37182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15774]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48038; File No. SR-CBOE-2003-15]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Chicago Board Options 
Exchange, Incorporated To Amend Rule 17.2 of Its Disciplinary Rules 
Concerning the Initiation of Investigations of Possible Violations 
Within the Disciplinary Jurisdiction of the Exchange

June 16, 2003.
    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 April 7, 2003, 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 CBOE. The CBOE 
filed Amendment No. 1 on May 30, 2003.\3\ The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from J. Patrick Sexon, Assistant General Counsel, 
CBOE, to Sapna C. Patel, Attorney, Division of Market Regulation, 
Commission, dated May 29, 2003 (``Amendment No. 1''). In Amendment 
No. 1, the CBOE: (1) stated that the Exchange's Board of Directors 
approved the proposed rule change on May 7, 2003; (2) represented 
that the Exchange's Regulatory Services Division maintains and will 
continue to maintain a log of all oral complaints that it receives 
alleging possible violations within the disciplinary jurisdiction of 
the Exchange; and (3) made a technical clarification to the proposed 
rule text.
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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 Rule 17.2 of its Disciplinary Rules 
concerning the initiation of investigations of possible violations 
within the disciplinary jurisdiction of the Exchange.
    Below is the text of the proposed rule change, as amended. Proposed 
new language is italicized and proposed deletions are in brackets.
* * * * *

Chicago Board Options Exchange, Incorporated Rules

Chapter XVII--Discipline (Rules 17.1-17.50)

* * * * *

Rule 17.2 Complaint and Investigation

    (a) Initiation of Investigation. The Exchange shall investigate 
possible violations within the disciplinary jurisdiction of the 
Exchange upon order of the Board, the Business Conduct Committee, the 
President or other Exchange officials designated by the President, or 
whenever there is a reasonable basis for the Exchange to do so. [or] 
The Exchange shall also investigate possible violations within the 
disciplinary jurisdiction of the Exchange upon receipt of a complaint, 
written or oral, alleging such violations [filed] made by a member or 
by any other person alleging injury as a result of such violations (the 
``Complainant''), provided such complaint[. All complaints shall be in 
writing signed by the Complainant and shall] specifies[y] in reasonable 
detail the facts constituting the violation[, including the specific 
statutes, by-laws, rules, interpretations or resolutions allegedly 
violated].
    (b)-(d) No change.

* * * Interpretations and Policies:

    .01-.02 No change.
    .03 To assist the Exchange in investigating possible violations 
within its disciplinary jurisdiction, Complainants should sign written 
complaints or identify themselves when making oral complaints pursuant 
to paragraph (a) of this Rule, and also identify the specific statutes, 
by-laws, rules, interpretations or resolutions that allegedly were 
violated.
* * * * *

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
    Exchange Rule 17.2(a) describes the basis on which the Exchange 
initiates investigations of possible violations within the disciplinary 
jurisdiction of the Exchange. Specifically, paragraph (a) of Exchange 
Rule 17.2 states that the Exchange shall investigate possible 
violations within the disciplinary jurisdiction of the Exchange upon 
order of the Board, the Business Conduct Committee (``BCC''), the 
President or other Exchange officials designated by the President. 
Exchange Rule 17.2(a) also provides that the Exchange shall investigate 
possible violations within the disciplinary jurisdiction of the 
Exchange upon receipt of a complaint alleging such violations filed by 
a member or any other person alleging injury as a result of such 
violations. Exchange Rule 17.2(a) states that all complaints should be 
in writing signed by the complainant and shall specify in reasonable 
detail the facts constituting the violation, including the specific 
statutes, by-laws, rules, interpretations or resolutions allegedly 
violated.
    The Exchange proposes to amend paragraph (a) of Exchange Rule 17.2 
to clarify and make express in the rule the basis on which the Exchange 
represents

[[Page 37182]]

that it has historically initiated investigations of possible 
wrongdoing within its disciplinary jurisdiction.
    First, the Exchange proposes to amend Exchange Rule 17.2(a) to make 
express what it represents is the Exchange's Regulatory Division's 
longstanding practice of initiating investigations of possible rule 
violations on its own whenever there is a reasonable basis to do so. 
For instance, among the reasons the Exchange's Regulatory Division may 
determine that there is a reasonable basis to initiate an investigation 
are: Results from the automated surveillance programs that the 
Regulatory Division operates that are designed to highlight particular 
types of misconduct, observations of the Regulatory Division's Trading 
Floor Liaison unit that has a consistent presence on the trading floor, 
regulatory referrals from Exchange committees or other self-regulatory 
organizations, and oral complaints from members or customers. The 
Exchange believes that the current language of Exchange Rule 17.2(a) 
could be read to suggest that the Exchange's Regulatory Division should 
only initiate investigations upon the order of the Board of Directors, 
the BCC, the President, or upon receipt of a written complaint. 
Although the CBOE represents that it has never interpreted Exchange 
Rule 17.2(a) in such a limited fashion, and believes such a reading 
would be inconsistent with the Exchange's obligations as a self-
regulatory organization under the Act,\4\ the Exchange believes 
amending Exchange Rule 17.2 is appropriate.
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    \4\ For instance, the CBOE represents that the Act states that a 
self-regulatory organization (``SRO'') is required to be organized 
so that it is able to enforce compliance by its members and persons 
associated with its members with the provisions of the Act, the 
rules and regulations thereunder, and the SRO's own rules (section 
6(b)(1) of the Act), and further that an SRO's rules must be 
``designed to prevent fraudulent and manipulative practices, to 
promote just and equitable principles of trade,'' and in general 
``to protect investors and the public interest'' (section 6(b)(5) of 
the Act).
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    Second, the Exchange proposes to amend Exchange Rule 17.2(a) to 
provide that the Exchange shall investigate possible violations within 
its disciplinary jurisdiction upon receipt of a complaint, whether the 
complaint is written or oral, provided such complaint specifies in 
reasonable detail the facts constituting the alleged violation. The 
Exchange also proposes to add an interpretation to Exchange Rule 17.2 
stating that, to assist the Exchange in investigating possible 
violations within its disciplinary jurisdiction, complainants should 
identify themselves when making a complaint, whether written or oral, 
and identify the specific statutes, by-laws, rules, interpretations or 
resolutions that allegedly have been violated. In addition, the 
Exchange represents that its Regulatory Services Division currently 
maintains, and will continue to maintain, a log of all oral complaints 
that it receives alleging possible violations within the disciplinary 
jurisdiction of the Exchange.\5\
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    \5\ See Amendment No. 1, supra note .
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    The Exchange believes that this proposed change to Exchange Rule 
17.2 is consistent with its longstanding practice of considering 
whether to investigate complaints, whether oral or written, and is 
consistent with its practice of requesting, but not requiring, that 
complainants identify themselves and identify the specific statutes, 
by-laws, rules, interpretations or resolutions that allegedly have been 
violated.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with the provisions of section 6(b) of the Act,\6\ in 
general, and specifically furthers the objectives of sections 
6(b)(1),\7\ 6(b)(5),\8\ 6(b)(6),\9\ and 6(b)(7)\10\ of the Act, in 
particular, in that it will enhance the ability of the Exchange to 
enforce compliance by its members and persons associated with its 
members with provisions of the Act, the rules and regulations 
thereunder, and the rules of the Exchange. It will help ensure that 
members and persons associated with members are appropriately 
disciplined when they violate those provisions.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(1).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78f(b)(6).
    \10\ 15 U.S.C. 78f(b)(7).
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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, as amended, 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-2003-15 and should be submitted by July 14, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15774 Filed 6-20-03; 8:45 am]
BILLING CODE 8010-01-P