[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