[Federal Register Volume 68, Number 232 (Wednesday, December 3, 2003)]
[Notices]
[Pages 67708-67709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30056]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48838; File No. SR-CBOE-2003-31]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval of Amendment No. 1 Thereto by the Chicago Board 
Options Exchange, Incorporated Relating to Audit Committee Requirements 
Applicable to Companies Listing Non-Option Securities

November 25, 2003.

I. Introduction

    On July 11, 2003, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the

[[Page 67709]]

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 to amend certain 
non-option listing rules of the Exchange in response to the adoption of 
Rule 10A-3 under the Act.\3\ The proposed rule change would require the 
audit committee of each issuer of non-option securities listed on the 
CBOE to comply, where applicable, with the standards for audit 
committees mandated by Section 10A(m) of the Act \4\ and Rule 10A-3 
thereunder. The Exchange also committed to adopt additional listing 
policies and requirements pertaining to issuer corporate governance.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.10A-3.
    \4\ 15 U.S.C. 78j-1(m).
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    The proposed rule change was published for comment in the Federal 
Register on October 2, 2003.\5\ The Commission received no comments on 
the proposal. On November 17, 2003, the CBOE submitted an amendment to 
the proposed rule change.\6\ This order approves the proposal, 
publishes notice of Amendment No. 1, and approves Amendment No.1 on an 
accelerated basis.\7\
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    \5\ See Securities Exchange Act Release No. 48540 (September 25, 
2003), 68 FR 56856 (``Notice'').
    \6\ See letter from David Doherty, Attorney, Legal Division, 
CBOE, to Ira Brandriss, Special Counsel, Division of Market 
Regulation, Commission, dated November 14, 2003 (``Amendment No. 
1''). In Amendment No. 1, with respect to investment companies, the 
CBOE expanded the scope of the requirement that audit committees 
establish procedures for the confidential, anonymous submission of 
concerns regarding questionable accounting or auditing matters.
    \7\ Rule 10A-3 requires each national securities exchange and 
national securities association to have rules that comply with its 
requirements approved by the Commission no later than December 1, 
2003. By the Commission approving the proposed rule change, the 
Exchange can comply with this deadline.
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II. 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.\8\ 
Specifically, the Commission finds that the proposal relating to 
independent audit committees for listed companies is consistent with 
Section 6(b)(5) of the Act,\9\ which requires, among other things, that 
the CBOE's rules be designed to prevent fraudulent and manipulative 
acts and practices, and, in general, to protect investors and the 
public interest. Moreover, the Commission believes that the CBOE's 
proposal to add the new requirements concerning audit committees is 
appropriate and consonant with Section 10A(m)\10\ of the Act and Rule 
10A-3 thereunder relating to audit committee standards for listed 
issuers. The Commission notes that the CBOE intends to file an 
additional rule proposal relating to other corporate governance listing 
standards.\11\
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    \8\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78j-1(m).
    \11\ See Notice at note .
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    Furthermore, the Commission finds good cause, consistent with 
Section 19(b)(2) of the Act,\12\ to approve Amendment No. 1 to the 
proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. In 
Amendment No. 1, the CBOE expanded, with respect to investment 
companies, the scope of the proposed provision regarding complaint 
procedures. Rule 10A-3 requires audit committees to establish 
procedures for ``the confidential, anonymous submission by employees of 
the listed issuer of concerns regarding questionable accounting or 
auditing matters.''\13\ The amended CBOE proposal would require that 
audit committees of investment companies also establish procedures for 
the confidential, anonymous submission of such concerns by employees of 
the investment adviser, administrator, principal underwriter, or any 
other provider of accounting related services for the investment 
company, as well as employees of the investment company. This revision 
responds to a recommendation by the Commission that self-regulatory 
organizations take into account, in adopting rules to comply with Rule 
10A-3, the fact that most services are rendered to an investment 
company by employees of third parties, such as the investment adviser, 
rather than by employees of the investment company.\14\ The Commission 
believes that it is appropriate to accelerate approval of this 
amendment, because it conforms the rule text to similar rules of the 
New York Stock Exchange, Inc. and the National Association of 
Securities Dealers, Inc. that were approved by the Commission,\15\ and 
the amendment raises no new substantive issues.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 240.10A-3(b)(3)(ii).
    \14\ See Securities Act Release No. 8220, Securities Exchange 
Act Release No. 47654, and Investment Company Act Release No. 26001 
(April 9, 2003), 68 FR 18788 (April 16, 2003) (release adopting Rule 
10A-3).
    \15\ See Securities Exchange Act Release Nos. 48745 (November 4, 
2003), 68 FR 64154 (November 12, 2003) (approval of, among other 
proposals, File Nos. SR-NYSE-2002-33 and SR-NASD-2002-141).
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
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 filings will also be available 
for inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-CBOE-2003-31 and should be 
submitted by December 24, 2003.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\, that Amendment No. 1 is approved on an accelerated basis, and 
that the proposed rule change (File No. SR-CBOE-2003-31) be, and it 
hereby is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-30056 Filed 12-2-03; 8:45 am]
BILLING CODE 8010-01-P