[Federal Register Volume 74, Number 160 (Thursday, August 20, 2009)]
[Notices]
[Pages 42139-42140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-19892]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60488; File No. SR-CBOE-2009-037]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2 Thereto, To Amend Its Minor Rule Violation Plan

August 12, 2009.
    On June 4, 2009, the Chicago Board Options Exchange, Incorporated 
(``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 amending CBOE Rule 17.50 (Minor 
Rule Plan) (``MRP'') to incorporate additional violations into the MRP, 
increase the sanctions for certain violations, to make other minor 
changes, and to make changes to the trading and decorum violations. On 
June 17, 2009, the Exchange filed Amendment No. 1 to the proposed rule 
change to make non-substantive, technical edits to the rule text 
submitted as Exhibit 5 to SR-CBOE-2009-037. On June 23, 2009, the 
Exchange filed Amendment No. 2 to the proposed rule change making 
corrections to the description of the changes submitted in Amendment 
No. 1. The proposed rule change, as amended, was published for comment 
in the Federal Register on July 6, 2009.\3\ The Commission received no 
comments on the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 60177 (June 25, 2009), 
74 FR 32015.
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    The Exchange has proposed to make additional rules subject to 
punishment under its the MRP. These rules relate to: (1) Exercise 
limits (Rule 4.12); (2) trading in restricted classes (Rule 5.4); (3) 
linkage violations (Rules 6.83 and 6.84); (4) market maker quoting 
obligations (Rules 8.7, 8.15A, 8.85, and 8.93); (5) failure to 
accurately report position and account information (Rule 4.13); (6) 
failure to designate a person or persons responsible for implementing 
and monitoring a member's anti-money laundering compliance program 
(Rule

[[Page 42140]]

4.20); (7) failure to provide prior capital withdrawal notice (Rule 
15c3-1(e) under the Act); and (8) failure to provide post capital 
withdrawal notice (Rule 15c3-1(e) under the Act). The Exchange believes 
that it will be able to carry out its regulatory responsibility more 
quickly and efficiently by incorporating these violations into its MRP.
    The Exchange has also proposed to increase the fine levels for 
certain violations.\4\ The Exchange believes that the current fine 
levels for such violations are too low, given the serious nature of 
such offenses, and that the proposed increases are necessary to be an 
effective deterrent against future violations and a just penalty for 
such violations. Furthermore, the Exchange has proposed to extend the 
surveillance period for many of the violations to a 24-month rolling 
period from a 12-month period.\5\ The Exchange believes that increasing 
the surveillance period will serve as an effective deterrent to future 
violative conduct. The Exchange also proposed a few other technical 
corrections to its MRP.
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    \4\ The proposed increased fines would apply to the following 
violations: (1) Failure to respond in a timely manner to a request 
for automated submission of trade data (``Blue Sheets'') (Rule 
15.7); (2) failure of a floor broker or market maker to honor the 
firm quote requirements (Rule 8.51), to honor the priority of 
marketable customer orders maintained in the Customer Limit Order 
Book (Rule 6.45), and to use due diligence in the execution of 
orders for which the floor member maintains an agency obligation 
(Rule 6.73); and (3) violations of exercise and exercise advice 
rules for American-style, cash-settled index options (Rule 11.1, 
Interpretation and Policy .03).
    \5\ The violations that will have a 24-month rolling period are: 
(1) Violation of exercise and position limits (Rule 4.11 and 4.12); 
(2) failure to respond in a timely manner to a request for automated 
submission of trade data (``Blue Sheets'') (Rule 15.7); (3) failure 
of a floor broker or market maker to honor the firm quote 
requirements (Rule 8.51), to honor the priority of marketable 
customer orders maintained in the Customer Limit Order Book (Rule 
6.45), and to use due diligence in the execution of orders for which 
the floor member maintains an agency obligation (Rule 6.73); (4) 
failure to submit trade data on trade date (Rule 6.51); (5) 
violations of exercise and exercise advice rules for American-style, 
cash-settled index options (Rule 11.1, Interpretation and Policy 
.03); (6) communications to the Exchange or the clearing corporation 
(Rule 4.22); (7) trading in restricted classes (Rule 5.4); (8) 
linkage violations (Rules 6.83 and 6.84); (9) failure to meet 
Exchange quoting obligations (Rules 8.7, 8.15A, 8.85, and 8.93); 
(10) failure to accurately report position and account information 
(Rule 4.13); (11) failure to provide prior capital withdrawal notice 
(Rule 15c3-1(e) under the Act); (12) failure to provide post capital 
withdrawal notice (Rule 15c3-1(e) under the Act); and (13) failure 
to designate a person or persons responsible for implementing and 
monitoring a member's anti-money laundering compliance program (Rule 
4.20).
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    The Exchange proposed to establish a rolling 24-month look-back 
period for all of their trading and decorum violation offenses. In 
addition, the Exchange proposed to establish fixed fine levels for 
Class A and Class B Offenses.\6\ For Class A Offenses, CBOE will now 
assess a fine of $1,000 for the first violation, $2,500 for the second 
violation, and $5,000 for the third violation. The Exchange is also 
proposing to delete the reference to ``Subsequent Offenses'' for Class 
A Offenses.\7\ For Class B Offenses, CBOE is proposing to assess a fine 
of $250 for the first offense, $500 for the second offense, $1,000 for 
the third offense, and $2,500 for any subsequent offenses.\8\ The 
Exchange proposes to change the classification of a market maker 
failing to respond to a request for a market by an Order Book Official 
or a PAR Official from a Class B Offense to a Class A Offense due to 
the nature of this violation. The Exchange is also proposing to remove 
obsolete or duplicative violations from the list of Class A and Class B 
Offenses.\9\
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    \6\ Class A Offenses are considered more serious than Class B 
Offenses and therefore carry a heavier penalty. Class A Offenses 
include unbusinesslike conduct, harassment, and property damage. 
Class B Offenses include abusive language, dress code violations, 
and failure to display I.D.
    \7\ The previous fine levels for Class A Offenses were: $500 to 
$1,500 for the first violation, $1,000 to $3,000 for the second 
violation, $2,000 to $5,000 for the third violation, and $3,500 to 
$5,000 for subsequent offenses.
    \8\ The previous fine levels for Class B Offenses were: $100 to 
$500 for the first offense, $500 to $1,000 for the second offense, 
$1,000 for the third offense, and $2,500 for subsequent offenses.
    \9\ The Exchange is proposing to remove ten Class A and Class B 
Violations. They are: (i) Quote width violations; (ii) violations of 
Rule 8.51 (Firm Quote); (iii) enabling/assisting a suspended member 
or associated person to gain improper access to the floor; (iv) 
gaining/enabling improper access to the floor; (v) effecting or 
attempting to effect a transaction with no public outcry; (vi) 
improper use of the runners' aisle; (vii) trading in the aisle; 
(viii) impermissible use of member phones; (ix) returning late or 
failing to return a visitor badge; and (x) DPM failure to activate 
or deactivate RAES.
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    The Commission finds that the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\10\ In particular, the 
Commission believes that the proposal is consistent with Section 
6(b)(5) of the Act,\11\ which requires that the rules of an exchange be 
designed to, among other things, protect investors and the public 
interest. The Commission also believes that the proposal is consistent 
with Sections 6(b)(1) and 6(b)(6) of the Act,\12\ which require that 
the rules of an exchange enforce compliance with, and provide 
appropriate discipline for, violations of Commission and Exchange 
rules. Furthermore, the Commission believes that the proposed changes 
to the MRP should strengthen the Exchange's ability to carry out its 
oversight and enforcement responsibilities as a self-regulatory 
organization in cases where full disciplinary proceedings are 
unsuitable in view of the minor nature of the particular violation. 
Therefore, the Commission finds that the proposal is consistent with 
the public interest, the protection of investors, or otherwise in 
furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2) 
under the Act,\13\ which governs minor rule violation plans.
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    \10\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \13\ 17 CFR 240.19d-1(c)(2).
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    In approving this proposed rule change, the Commission in no way 
minimizes the importance of compliance with CBOE rules and all other 
rules subject to the imposition of fines under the MRP. The Commission 
believes that the violation of any self-regulatory organization's 
rules, as well as Commission rules, is a serious matter. However, the 
MRP provides a reasonable means of addressing rule violations that do 
not rise to the level of requiring formal disciplinary proceedings, 
while providing greater flexibility in handling certain violations. The 
Commission expects that CBOE will continue to conduct surveillance with 
due diligence and make a determination based on its findings, on a 
case-by-case basis, whether a fine of more or less than the recommended 
amount is appropriate for a violation under the MRP or whether a 
violation requires formal disciplinary action under CBOE Rules 17.1-
17.14.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\14\ and Rule 19d-1(c)(2) under the Act,\15\ that the proposed rule 
change (SR-CBOE-2009-037), as amended, be, and hereby is, approved and 
declared effective.
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ 17 CFR 240.19d-1(c)(2).
    \16\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-19892 Filed 8-19-09; 8:45 am]
BILLING CODE 8010-01-P