[Federal Register Volume 69, Number 217 (Wednesday, November 10, 2004)]
[Notices]
[Pages 65232-65235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-25066]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50630; File No. SR-CBOE-2004-62]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend Exchange Rule 9.3A Relating to Continuing 
Education for Registerd Persons

November 3, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 6, 2004, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. The CBOE has filed the proposal as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 CBOE Rule 9.3A relating to Continuing 
Education for Registered Persons. The proposed rule change would 
eliminate all exemptions from the requirement to complete the 
Regulatory Element of the Continuing Education Program. Below is the 
text of the proposed rule change. Proposed new language is in italics. 
Deletions are in [brackets].
Chapter IX
Rule 9.3A. Continuing Education for Registered Persons
    (a) Regulatory Element--No member or member organization shall 
permit any registered person to continue to, and no registered person 
shall continue to, perform duties as a registered person, unless such 
person has complied with the continuing education requirements of 
Section (a) of this Rule.
    Each registered person shall complete the Regulatory Element of the 
continuing education program beginning with the occurrence of their 
second registration anniversary date and every three years thereafter, 
or as otherwise prescribed by the Exchange. On each occasion, the 
Regulatory Element must be completed within one hundred twenty days 
after the person's registration anniversary date. A person's initial 
registration date, also known as the ``base date'', shall establish the 
cycle of anniversary dates for purposes of this Rule. The content of 
the Regulatory Element of the program shall be determined by the 
Exchange for each registration category of persons subject to the Rule.
    [(1) Persons who have been continuously registered for more than 
ten years as of the effective date of this Rule are exempt from the 
requirements of this rule relative to participation in the Regulatory 
Element of the continuing education program, provided such persons have 
not been subject to any disciplinary action within the last ten years 
as enumerated in subsection (a)(3)(i)-(ii) of this Rule. However, 
persons delegated supervisory responsibility or authority pursuant to 
Rule 9.8 and registered in such supervisory capacity are exempt from 
participation in the Regulatory Element under this provision only if 
they have been continuously registered in a supervisory capacity for 
more than 10 years as of the effective date of this rule and provided 
that such supervisory person has not been subject to any disciplinary 
action under subsection (a)(3)(i)-(ii) of this rule. In the event that 
a registered person who is exempt from participation in the Regulatory 
Element subsequently becomes the subject of a disciplinary action as 
enumerated in subsection (a)(3)(i)-(ii), such person shall be required 
to satisfy the requirements of the Regulatory Element as if the date 
the disciplinary action becomes final is the person's initial 
registration anniversary date.]
    (1) [(2)] Failure to complete--Unless otherwise determined by the 
Exchange, any registered persons who have not completed the Regulatory 
Element of the program within the prescribed time frames will have 
their registration deemed inactive until such time as the requirements 
of the program have been satisfied. Any person whose registration has 
been deemed inactive under this Rule shall cease all activities as a 
registered person and is prohibited from performing any duties and 
functioning in any capacity requiring registration. The Exchange may, 
upon application and a showing of good cause, allow for additional time 
for a registered person to satisfy the program requirements.
    (2) [(3) Re-entry into program] Disciplinary Actions--Unless 
otherwise determined by the Exchange, a registered person will be 
required to [re-enter] re-take the Regulatory Element and satisfy all 
of its requirements in the event such person:
    (i) Becomes subject to any statutory disqualification as defined in 
Section 3(a)(39) of the Securities Exchange Act of 1934;
    (ii) Becomes subject to suspension or to the imposition of a fine 
of $5,000 or more for violation of any provision of any securities law 
or regulation, or any agreement with or rule or standard of conduct of 
any securities governmental

[[Page 65233]]

agency, securities self-regulatory organization, or as imposed by any 
such regulatory or self-regulatory organization in connection with a 
disciplinary proceeding; or
    (ii) Is ordered as a sanction in a disciplinary action to [re-
enter] re-take the [continuing education program] Regulatory Element by 
any securities governmental agency or securities self-regulatory 
organization.
    [Re-entry into the program] A re-taking of the Regulatory Element 
shall commence with [initial] participation within one hundred twenty 
days of the registered person becoming subject to the statutory 
disqualification, in the case of (i) above, or the disciplinary action 
becoming final, in the case of (ii) or (iii) above. The date that the 
disciplinary action becomes final will be deemed the person's new base 
date for purposes of this Rule.
    (b)-(c) Unchanged.
    * * * Interpretations and Policies:
    .01-.04 Unchanged.
    [.05 the effective date of this rule, for purposes of determining 
whether a registered person is exempt from participation in the 
Regulatory Element is July 1, 1998.]

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 Exchange include 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 parts of such statements.

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

1. Purpose \5\
    CBOE Rule 9.3A specifies the Continuing Education (``CE'') 
requirement for registered persons subsequent to their initial 
qualification and registration with the CBOE. The requirements consist 
of a Regulatory Element and a Firm Element.\6\ The Regulatory Element 
is a computer-based education program administered by National 
Association of Securities Dealers, Inc. (``NASD'') to help ensure that 
registered persons are kept up to date on regulatory, compliance and 
sales practice matters in the industry.\7\ Unless exempt, each 
registered person is required to complete the Regulatory Element 
initially within 120 days after the person's second anniversary date 
and, thereafter, within 120 days after every third registration 
anniversary date.\8\ There are three Regulatory Element programs: The 
S201 Supervisor Program for registered principals and supervisors; The 
S106 Series 6 Program for Series 6 registered persons; and the S101 
General Program for Series 7 and all other registrations.
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    \5\ The CBOE requested that the Division of Market Regulation 
(``Division'') staff make minor modifications to language in the 
purpose section. Telephone discussions between Jamie Galvan, 
Attorney, CBOE and Mia C. Zur, Attorney, Division, Commission 
(October 19 and 26, and November 2, 2004).
    \6\ The Firm Element of the CE Program applies to any person 
registered with a CBOE member firm who has direct contact with 
customers in the conduct of the member's securities sales, trading 
and investment banking activities, and to the immediate supervisors 
of such persons (collectively called ``covered registered 
persons''). The requirement stipulates that each member firm must 
maintain a continuing education program for its covered registered 
persons to enhance their securities knowledge, skill and 
professionalism. Each firm has the requirement to annually conduct a 
training needs analysis, develop a written training plan, and 
implement the plan.
    \7\ CBOE Rule 9.3A permits a member firm to deliver the 
Regulatory Element to registered persons on firm premises (``In-Firm 
Delivery'') as an option to having persons take the training at a 
designated center provided that firms comply with specific 
requirements relating to supervision, delivery site(s), technology, 
administration, and proctoring. In addition, CBOE Rule 9.3A requires 
that persons serving as proctors for the purposes of In-Firm 
Delivery must be registered.
    \8\ This is the current Regulatory Element schedule, as amended 
in 1998.
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    Approximately 135,000 registered persons currently are exempt from 
the Regulatory Element. These include registered persons who, when the 
CE Program was adopted in 1995, had been registered for at least ten 
years and who did not have a significant disciplinary action \9\ in 
their CRD record fro the previous ten years (``grandfathered 
persons''). These also include those persons who had ``graduated'' from 
the Regulatory Element by satisfying their tenth anniversary 
requirement before July 1998, when CBOE Rule 9.3A was amended and the 
graduation provision eliminated and did not have a significant 
disciplinary action in their CRD record for the previous ten years.\10\
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    \9\ For purposes of CBOE Rule 9.3A, a significant disciplinary 
action generally means a statutory disqualification, a suspension or 
imposition of a fine of $5,000 or more, or being subject to an order 
from a securities regulator to re-enter the Regulatory Element. See 
CBOE Rule 9.3A(a)(3).
    \10\ When CBOE Rule 9.3A was first adopted in 1995, the 
Regulatory Element schedule required registered persons to satisfy 
the Regulatory Element on the second, fifth, and tenth anniversary 
of their initial securities registration. After satisfying the tenth 
anniversary requirement, a person was ``graduated'' from the 
Regulatory Element. A graduated principal re-entered the Regulatory 
Element if he or she incurred a significant disciplinary action. A 
graduated person who was not a principal re-entered if he or she 
acquired a principal registration or incurred a significant 
disciplinary action.
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    At its December 2003 meeting, the Securities Industry/Regulatory 
Council on Continuing Education (``Council'') \11\ discussed the 
current exemptions from the Regulatory Element and agreed unanimously 
to recommend that the SROs repeal the exemptions and require all 
registered persons to participate in the Regulatory Element. In 
reaching this conclusion, the Council was of the view that there is 
great value in exposing all industry participants to the benefits of 
the Regulatory Element, in part because of the significant regulatory 
issues that have emerged over the past few years. The Regulatory 
Element programs include teaching and training content that is 
continuously updated to address current regulatory concerns as well as 
new products and trading strategies. Exempt persons presently do not 
have the benefit of this material.
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    \11\ As of the date of this rule filing, the Council consists of 
17 individuals, six representing self-regulatory organizations 
(``SROs'') (the American Stock Exchange LLC, CBOE, the Municipal 
Securities Rulemaking Board, the NASD, the New York Stock Exchange, 
Inc., and the Philadelphia Stock Exchange) and 11 representing the 
industry. The Council was organized in 1995 to facilitate 
cooperative industry/regulatory coordination of the CE Program in 
keeping with applicable industry regulations and changing industry 
needs. Its roles include recommending and helping to develop 
specific content and questions for the Regulatory Element, defining 
minimum core curricula for the Firm Element, developing and updating 
information about the program for industry-wide dissemination, and 
maintaining the program on a revenue neutral basis while assuring 
adequate financial reserves.
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    In addition, the Council will introduce a new content module to the 
Regulatory Element programs that will specifically address ethics and 
will require participants to recognize ethnical issues in given 
situations. Participants will be required to make decisions in the 
context of, for example, peer pressure, the temptation to rationalize, 
or a lack of clear-cut guidelines from existing rules or regulations. 
The Council strongly believes that all registered persons, regardless 
of their years of experience in the industry, should have the benefit 
of this training.
    Consistent with the Council's recommendation, the proposed rule 
change would eliminate the current Regulatory Element exemptions. The 
other SRO members of the Council also support eliminating the 
exemptions and

[[Page 65234]]

are pursuing amendments to their respective rules.
    CBOE will announce the effective date of the proposed rule change 
in a Regulatory Circular to be published no later than 30 days 
following the proposed rule becoming operative. The effective date will 
be (1) not more than 30 days following the implementation of necessary 
changes to Web Central Registration Depository (Web CRD[supreg]) 
administered by the NASD, or (2) April 4, 2005, whichever date is the 
latest to occur.
    Following the effective date of the proposed rule change, 
implementation will be based on the application of the existing 
requirements of the Regulatory Element to all registered persons. The 
way in which CRD applies these requirements is as follows. CRD 
establishes a ``base date'' for each registered person and calculates 
anniversaries from that date. Usually, the base date is the person's 
initial securities registration. However, the base date may be revised 
to be the effective date of a significant disciplinary action in 
accordance with CBOE Rule 9.3A or the date on which a formerly 
registered person re-qualifies for association with a CBOE member by 
qualification exam. Using the base date, CRD creates a Regulatory 
Element requirement on the second anniversary of the base date and then 
every three years thereafter. Registered persons formerly exempt from 
the Regulatory Element requirement must satisfy this requirement that 
occurs on an anniversary on or after the effective date of the proposed 
rule change (see examples in the Table below).

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                                                      First regulatory
                                                     element requirement
                                                       of a registered
                                         Initial       person formerly
          Registered person           registration     exempt from the
                                          date       regulatory element
                                                        (assuming an
                                                      effective date of
                                                       April 4, 2005)
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A...................................   \12\ 4/4/85                4/4/05
B...................................        7/1/83                7/1/06
C...................................        8/1/84                8/1/07
D...................................        4/3/85                4/3/08
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    \12\ A registered person with an initial registration date of 
April 4, 1985 will have a Regulatory Element anniversary date on 
April 4 of 1987, 1990, 1993, 1996, 1999, 2002 and 2005.
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    It is noted that a person's base date may be revised to be the 
effective date of a significant disciplinary action in accordance with 
proposed CBOE Rule 9.3A(2).\13\ Proposed CBOE Rule 9.3A(2) has been 
amended to clarify that a person subject to a significant disciplinary 
action would be required to ``re-take'' rather than ``re-enter'' the 
Regulatory Element.\14\ A person's base date may also be revised to be 
the date on which a formerly registered person re-qualifies for 
association with a member or member organization.
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    \13\ CBOE Rule 9.3A(3) is proposed to be renumbered as CBOE Rule 
9.3A(2).
    \14\ The SEC notes that this requirement would apply to all 
registered persons that are subject of a significant disciplinary 
action, and not only to currently exempt persons.
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2. Statutory Basis
    CBOE believes that the proposed rule is consistent with the 
provisions of Section 6(b) of the Act, in general and furthers, the 
objectives of Section 6(b)(5) of the Act,\15\ in particular, which 
requires, among other things, that CBOE's rules be designed to prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade and, in general, to protect investors and 
the public interest. CBOE believes that the proposed rule change is 
designed to accomplish these ends by ensuring that all registered 
persons are kept up to date on industry rules, regulations, and 
practices.
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    \15\ 15 U.S.C. 78o-3(b)(6).
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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 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

    The CBOE has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \16\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\17\ Because the foregoing 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 after the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the 
Act\18\ and Rule 19b-4(f)(6) thereunder.\19\ This proposed rule change 
will not become operative until 30 days after the date of filing with 
the Commission. Furthermore, the Commission notes that CBOE designates 
the effective date of the proposed rule change to be the latest to 
occur of: (1) Not more than 30 days following the implementation of 
necessary changes to Web Central Registration Depository (Web CRD) 
administered by the NASD, or (2) April 4, 2005. At any time within 60 
days of the filing of such 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 furtherance of the 
purposes of the Act.\20\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). The Commission notes that the 
Exchange had satisfied the pre-filing five-day notice requirement.
    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ See Section 19b(3)(C) of the Act, 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. Comments may be submitted by any of 
the following methods:

[[Page 65235]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-CBOE-2004-62 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-CBOE-2004-62. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 the 
filing also will be available for inspection and copying at the 
principal offices of the CBOE. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-CBOE-2004-62 and should be submitted on or before 
December 1, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-25066 Filed 11-9-04; 8:45 am]
BILLING CODE 8010-01-M