6352 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 48950 

(December 18, 2003), 68 FR 74991 (‘‘Notice of 

Proposed Rule Change’’).

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49184; File No. SR–CBOE–

2003–55] 

Self-Regulatory Organizations; Order 

Approving Proposed Rule Change and 

Amendment No. 1 Thereto by the 

Chicago Board Options Exchange, Inc. 

To Amend Provisions of Its 

Constitution and Rules Pertaining to 

the Governance of the Exchange 

February 4, 2004. 

I. Introduction 

On November 19, 2003, the Chicago 

Board Options Exchange, Inc. (‘‘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 to 

amend provisions of CBOE’s 

Constitution and rules pertaining to the 

governance of the Exchange. On 

December 11, 2003, CBOE submitted 

Amendment No. 1 to the proposed rule 

change. The proposed rule change, as 

amended, was published for comment 

in the Federal Register on December 29, 

2003.3 No comments were received on 

the proposed rule change. This order 

approves the proposed rule change, as 

amended.

II. Description of the Amended 

Proposal 

Terms of Office of Directors and Vice 

Chairman 

The proposed rule change will amend 

CBOE Constitution Sections 6.1(b), 6.4, 

and 8.1 to specify that Directors and the 

Vice Chairman take office on January 1. 

Currently, the term of office of Directors 

starts at the first regular meeting of the 

Board held after January 1 following the 

annual election, while the Vice 

Chairman’s term starts on the 3rd Friday 

in December of each year. The proposal 

also amends CBOE Constitution Section 

6.3(b) to provide the later of 45 days or 

until the next regular Board meeting for 

a Director who fails to maintain 

qualifications for a designated category 

to requalify. During any period in which 

a Director fails to maintain 

qualifications for a designated category, 

the Director shall be deemed not to hold 

office and the seat formerly held by the 

Director shall be deemed vacant for all 

purposes. 

CBOE’s Nominating Committee 

The proposal amends CBOE 

Constitution Section 4.1(b) to allow a 

member of the Nominating Committee 

who was elected to a term of less than 

three years as a result of a vacancy to 

stand for reelection. The proposal also 

deletes from CBOE Constitution Section 

4.3 the requirements that the 

Nominating Committee hold three 

meetings in October, and that it 

announce its slate of candidates no later 

than October 10th or the first business 

day thereafter if October 10th is not a 

business day. In addition, the proposal 

adopts new CBOE Constitution Section 

4.8 to require that members of the 

Nominating Committee continuously 

meet the eligibility criteria for the 

category to which they were elected. 

New Constitution Section 4.8 also 

specifies that the Board of Directors 

alone determines whether a Nominating 

Committee member satisfies the 

qualification criteria for the category to 

which he or she was elected and that a 

member of the Nominating Committee 

who fails to maintain the applicable 

qualifications has 45 days from the date 

the Board determines the member is not 

qualified to requalify. During any period 

in which a member of the Nominating 

Committee fails to maintain the 

applicable qualifications, the member 

shall be deemed not to hold office and 

the seat formerly held by the member 

shall be deemed to be vacant for all 

purposes. The proposal also adopts new 

CBOE Constitution Section 4.9, which 

specifies that the Board may remove a 

Nominating Committee member in the 

event of the refusal, failure, neglect, or 

inability to discharge his or her duties, 

or for any cause affecting the best 

interests of the Exchange. 

Election and Voting Procedures 

The proposal adopts CBOE 

Constitution Section 3.8 to authorize the 

Board to set a ‘‘record date’’ to 

determine which members are entitled 

to receive notice and to vote in any 

Exchange election or vote. The record 

date will be the day preceding the date 

on which notice of the vote is given, if 

an alternate record date is not fixed by 

the Board. The proposal also amends 

CBOE Constitution Section 5.2 to 

provide that the Exchange may allow 

voting members to electronically submit 

ballots and proxies and to provide for a 

confidential electronic or online voting 

process in the future, if the Board 

determines to do so. The proposal also 

amends CBOE Constitution Section 10.1 

to allow the Exchange to give notice to 

members and associated persons by 

messenger, courier service, facsimile or 

electronic mail, as well as in person or 

by mail or telephone as is currently 

provided in Section 10.1 while deleting 

wireless, telegraph, and cable as 

available communication methods. In 

addition, the proposal amends 

Constitution Section 10.2 to allow for 

the waiver of notice by the same means 

as notice may be given. 

Provisions for Notice to CBOE Members 

The proposal adopts new CBOE 

Constitution Section 10.1(b) which 

limits the types of notices that may be 

given via e-mail to those notices 

provided in the Exchange Bulletin and 

Regulatory Bulletin and any other types 

of notices designated by the Board. 

CBOE Constitution Section 10.1(b) will 

specifically provide that the Exchange 

may provide the Exchange Bulletin and 

the Regulatory Bulletin (including the 

notices contained therein) by e-mail. In 

addition, Section 10.1(b) will allow the 

Exchange to permit members and 

associated persons to request delivery of 

the Bulletins (or such other notices as 

the Board may designate) by other 

means, in a form and manner prescribed 

by the Exchange.

Securities Transaction Policy 

The proposal deletes CBOE 

Constitution Section 11.4, which 

generally prohibited officers and 

employees of the Exchange from trading 

any CBOE-listed option and required 

them to report to the Exchange every 

purchase or sale of any security 

underlying a CBOE-listed option. CBOE 

has represented that the securities 

transaction policy will now be included 

in the Exchange Employee Handbook, 

instead of in the Exchange’s 

Constitution. The proposal also deletes 

from CBOE Rule 9.17 the requirement 

that a member organization must obtain 

authorization from the CBOE before 

executing securities transactions for 

officers or employees of any national 

securities exchange that is a participant 

of The Options Clearing Corporation. 

CBOE has represented that it plans to 

liberalize the securities transaction 

policies to allow employees (with 

certain restrictions applicable to 

Regulatory Services Division 

employees) to trade CBOE-listed 

products and to require employees to 

report transactions in CBOE listed 

products to the Exchange. In addition, 

CBOE Rule 9.17 will continue to require 

member organizations to obtain 

authorization from the CBOE before 

executing securities transactions for 

CBOE officers and employees. 

Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 6353

4See PCX Constitution Section 2(a).

5 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. 15 U.S.C. 78c(f).

6 15 U.S.C. 78f(b)(3).

7 15 U.S.C. 78f(b)(5).

8 15 U.S.C. 78s(b)(2).

9 17 CFR 200.30–3(a)(12).

Composition of the MTS Committee 

CBOE is amending Rule 8.82 to 

modify the composition of the MTS 

Committee. Under the proposed rule 

change, the nine elected members of the 

MTS Committee will include: three 

persons whose primary business is as a 

Market-Maker, three persons whose 

primary business is as a Market-Maker 

or as a Designated Primary Market 

Maker (‘‘DPM’’) Designee, and three 

persons whose primary business is as a 

Floor Broker, at least two of whom 

represent public customer business in 

the course of their activities as a Floor 

Broker. The proposal removes a 

provision requiring that no more than 

two members of the MTS Committee be 

associated with a DPM. The Vice 

Chairman of the Exchange and the 

Chairman of the Market Performance 

Committee will continue to serve on the 

MTS Committee. 

The amendments to CBOE Rule 8.82 

also provide that one of the nine elected 

positions on the MTS Committee may 

instead be filled by a lessor whose 

primary business is not as a MarketMaker, DPM Designee, or Floor Broker, 

and whose primary residence is located 

within 80 miles of the Exchange’s 

trading floor. In addition, the 

amendments to Rule 8.82 provide that 

the sole judge of whether a candidate 

satisfies the applicable qualifications for 

election to the MTS Committee in a 

designated category shall be the 

Nominating Committee, in the case of 

candidates nominated by the 

Nominating Committee, or the 

Executive Committee, in the case of 

candidates nominated by petition, and 

the decision of the respective committee 

shall be final. The proposal further 

amends CBOE Rule 8.82 to provide that: 

(i) no elected member of the MTS 

Committee may be affiliated with any 

other elected member of the MTS 

Committee; (ii) the term of office of 

elected MTS Committee members will 

commence at the time of the first regular 

Board meeting of the calendar year; (iii) 

the Board of Directors is the sole judge 

of whether or not an MTS Committee 

member no longer qualifies to serve on 

the Committee; (iv) the Board may 

remove MTS Committee members for 

cause; and (v) the Vice Chairman, with 

the approval of the Board, may fill 

vacancies on the MTS Committee until 

the first regular Board meeting of the 

calendar year following the next annual 

election. The MTS Committee monitors 

and implements the Exchange’s DPM 

program. 

Terms of Office for Committee Members 

The proposed rule change also 

amends CBOE Rule 2.1 to provide that 

the term of office for committee 

members appointed pursuant to that 

Rule will continue until the first regular 

Board meeting of the next calendar year 

and until their successors are appointed 

or until death, resignation or removal. In 

addition, amended Rule 2.1 provides 

that any action taken by majority of the 

committee members voting, as opposed 

to present, at a meeting shall be the act 

of the committee. 

Other Business Activities of the 

President of the Exchange 

The Exchange also is amending CBOE 

Constitution Section 8.6 to allow the 

Board of Directors to exempt the 

President from the prohibition against 

engaging in any business other than as 

President of the Exchange, in the same 

manner that the Board may exempt the 

Chairman of the Board pursuant to 

Constitution Section 8.2. The 

Commission notes that the Pacific 

Exchange, Inc. (‘‘PCX’’) has a similar 

provision in its Constitution.4 In 

addition, the Commission notes that 

under CBOE Rule 8.1(d), the President 

cannot be affiliated with a CBOE 

member.

In addition to the changes described 

above, the Exchange is adopting changes 

to several provisions of its Constitution 

and rules that are intended to update 

those provisions to reflect current 

practice. Those changes are described in 

the Notice of Proposed Rule Change. 

III. Discussion 

After careful review, the Commission 

finds that the proposed rule change, as 

amended, is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.5 In 

particular, the Commission finds that 

the proposal is consistent with the 

requirements of Sections 6(b)(3) 6 and 

6(b)(5) 7 of the Act. Section 6(b)(3) 

requires, among other things, that the 

CBOE’s rules assure a fair representation 

of its members in the administration of 

its affairs. Section 6(b)(5) requires, 

among other things, that CBOE’s rules 

be designed to promote just and 

equitable principles of trade, to prevent 

fraudulent and manipulative acts and 

practices, and, in general, protect 

investors and the public interest.

The Commission believes that the 

proposed rule change should clarify 

CBOE’s Constitution with respect to the 

terms of office of its Directors and 

committee members, as well as the 

composition of its Nominating 

Committee and thereby should increase 

the efficiency of CBOE’s governance. In 

addition, the Commission believes that 

the amendments to the composition of 

CBOE’s MTS Committee are consistent 

with its obligation to ensure its 

members are fairly represented in the 

administration of its affairs, and should 

permit CBOE to include representatives 

of diversified broker-dealers on the 

Committee without permitting the 

Committee to become dominated by any 

one type of member constituency. 

Further, the Commission believes that 

the proposed rule change should update 

CBOE’s election and voting procedures, 

as well as the methods by which CBOE 

may provide notice to its members. 

IV. Conclusion 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change, as amended, is consistent 

with the requirements of the Act and 

rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,8 that the 

proposed rule change, as amended, (SRCBOE–2003–55) is approved.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.9

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–2824 Filed 2–9–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49188; File No. SR–CHX–

2003–17] 

Self-Regulatory Organizations; Order 

Approving Proposed Rule Change and 

Amendment No. 1 Thereto by the 

Chicago Stock Exchange, Incorporated 

Relating to Automatic Quotations 

February 4, 2004. 

On June 16, 2003, the Chicago Stock 

Exchange, Incorporated (‘‘CHX’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act