[Federal Register Volume 65, Number 99 (Monday, May 22, 2000)]
[Notices]
[Pages 32138-32140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-12759]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42780; File No. SR-CBOE-00-17].


Self-Regulatory Organizations; Proposed Rule Change by Chicago 
Board Options Exchange, Incorporated Relating to Designation of 
Financial/Operations Principals

May 12, 2000.
    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 11, 2000, 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, II, and III below, which Items have been prepared 
by the CBOE. The Commission is publishing this notice to solicit 
comments on the proposed rule from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule

    The CBOE proposes to require each CBOE member subject to Commission 
Rule 15c3-1 (the ``net capital rule'') to designate a Financial/
Operations Principal (``FINOP'') and to register the FINOP with the 
Exchange. Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
RULE 2.22--Other Fees or Charges
    (a) No change.
    (b) Registration Fees. Member organizations (and individual 
members, if applicable,) shall pay application, maintenance and 
transfer registration fees for their Series 7 qualified Registered 
Representatives (``RR'') as described in Rule 9.3, [and] their 
Registered Options Principals (``ROP'') as described in Rule 9.2 and 
their Financial/Operations Principals (``FINOP'') as described in rule 
3.6A. The fees are listed below:
    (i) For each new RR, [or] ROP or FINOP applicant--$35.00
    (ii) For the maintenance of each RR, [or] ROP or FINOP 
Registration-$30.00/year[.]
    (iii) For an RR or ROP who transfers from another organization, or 
a FINOP who transfers from another organization and does not maintain 
any other FINOP registrations--$30.00
* * * * *

Qualification and Registration of Certain Associated Persons

    RULE 3.6A. (a) Financial/Operations Principal. Each individual 
member or member organization subject to Exchange Act Rule 15c3-1 shall 
designate a Financial/Operations Principal. The duties of a Financial/
Operations Principal shall include taking appropriate actions to assure 
that the member complies with applicable financial and operational 
requirements under the Rules and the Exchange Act, including but not 
limited to those requirements relating to the submission of financial 
reports and the maintenance of books and records. Each Financial/
Operations Principal is required to have successfully completed the 
Financial and Operations Principal Examination (Series 27 Exam). Each 
Financial/Operations Principal designated by a member shall be 
registered in that capacity with the Exchange in a form and manner 
prescribed by the Exchange. A Financial/Operations Principal of a 
member may be a full-time employee of the member, or with the prior 
written approval of the Exchange, may be a part-time employee or 
independent contractor of the member.
    (b) Associated Person Statuses Under Chapter IX. Associated person 
statuses under Chapter IX (along with the primary Exchange Rule 
concerning the status) include: (i) Registered Options Principal (Rule 
9.2); (ii) Registered Representative (Rule 9.3); (iii) Senior 
Registered Options Principal (Rule 9.8); and (iv) Compliance Registered 
Options Principal (Rule 9.8).
    . . . Interpretations and Policies:
    .01  Each person in an associated person status enumerated in 
paragraph (a) or (b) of this Rule shall, in a form and manner 
prescribed by the Exchange (i) submit to the Exchange a Uniform 
Application for Securities industry Registration or Transfer (Form U-4) 
and (ii) promptly submit to the Exchange any required amendments to 
Form U-4.
    .02  Any member that discharges or terminates the employment or 
retention of an associated person enumerated in paragraph (a) or (b) of 
this Rule shall comply with the termination filing requirements set 
forth in Rule 9.3(b) and Rule (9.3(c).
    .03  Each person in an associated person status enumerated in 
paragraph (a) or (b) of this Rule is required to satisfy the continuing 
educations requirements set forth in Rule 9.3A.

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
    The purpose of the proposed rule change is to require each 
individual member or member organization subject to Exchange Act Rule 
15c3-1, the net capital rule,\3\ to designate a FINOP and to register 
the FINOP with the Exchange. The Exchange proposes to include this 
requirement in proposed new CBOE Rule 3.6A,``Qualification and 
Registration of Certain Associated Persons.''
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    \3\ 17 CFR 240.15c3-1. Certain options market makers are not 
subject to the net capital rule, see 17 CFR 240.15c3-1(b)(1)(i), and 
therefore are not subject to proposed CBOE Rule 3.6A.
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    Proposed Rule 3.6A provides that the duties of a FINOP include 
taking appropriate actions to ensure that the member complies with 
applicable financial and operational requirements under the CBOE's 
Rules and the Act, including but not limited to requirements relating 
to the submission of financial reports and the maintenance of books and 
records. Additionally, each FINOP would be required to complete 
successfully the Financial and Operations Principal Examination (Series 
27 Exam). Each FINOP designated by a member would also be required to 
be registered in that capacity with the Exchange in a form and manner 
prescribed by the Exchange.
    Proposed Rule 3.6A also provides that a FINOP of a member could be 
a full-time employee of the member or, with the prior written approval 
of the

[[Page 32139]]

Exchange, a part-time employee or independent contractor of the 
member.\4\
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    \4\ The Commission interprets the term ``associated person'' to 
include any independent contractor, consultant, franchisee, or other 
person providing services to a broker-dealer equivalent to those 
service provided by persons specifically referenced in the Act. 
Accordingly, a FINOP is an associated person of a firm, making the 
FINOP and the firm subject to all requirements that accompany 
associated person status, regardless of the nature of the employment 
relationship or contractual relationship between the FINOP and the 
firm.
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    The Exchange states that its proposal to require designation of a 
FINOP is comparable to requirements of other securities self-regulatory 
organizations, such as the New York Stock Exchange, Inc. and the 
National Association of Securities Dealers, Inc.
    The Exchange also states that it intends to monitor firms for 
compliance with the requirements relating to FINOPs during the course 
of the Exchange's financial examination program for CBOE member 
organizations for which CBOE is the designated examining authority.
    To promote ease of reference by CBOE members, the Exchange also 
proposes to set forth in Rule 3.6A and its Interpretations certain 
existing requirements with respect to associated persons required to be 
registered with the Exchange under Chapter IX of CBOE's Rules. 
Accordingly, Rule 3.6A(b) lists the persons that have associated person 
status under Chapter IX, and cross-references the primary CBOE Rule 
concerning each of those persons. These persons include Registered 
Options Principals with Rule 9.2 as the primary CBOE rule, Registered 
Representatives (Rule 9.3), Senior Registered Options Principals (Rule 
9.8), and Compliance Registered Options Principals (Rule 9.8).
    The Interpretations to Rule 3.6A reference certain existing 
requirements applicable to individuals having associated person status 
under Chapter IX and provide that these requirements shall be 
applicable to each FINOP. Thus, Interpretation .01 provides that each 
person having associated person status as described in Rule 3.6A 
(including a FINOP) shall, in a form and manner prescribed by the 
Exchange, submit to the Exchange a Uniform Application for Securities 
Industry Registration or Transfer (Form U-4) and promptly submit to the 
Exchange any required amendments to Form U-4. Interpretation .02 
provides that any member that discharges or terminates the employment 
or retention of an associated person enumerated in Rule 3.6A shall 
comply with the termination filing requirements set forth in CBOE Rules 
9.3(b) and 9.3(c).\5\ Interpretation .03 provides that each associated 
person enumerated in Rule 3.6A is required to satisfy the continuing 
education requirements set forth in CBOE Rule 9.3A.
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    \5\ The requirements set forth in CBOE Rules 9.3(b) and 9.3(c) 
relate to the filing of a Uniform Termination Notice for Securities 
Industry Registration (Form U-5) and the filing of required 
amendments to Form U-5.
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    The Exchange will allow members subject to Rule 15c3-1 under the 
Act six months from the date of approval of this rule filing by the 
Commission in which to designate a FINOP in accordance with Rule 3.6A. 
The purpose of that time period is to provide the Exchange with an 
opportunity to notify the Exchange's membership of the new requirement 
and to provide members that do not currently employ or retain an 
individual who functions as a FINOP a reasonable period of time in 
which to employ or retain such an individual.
    The Exchange also proposes to amend existing CBOE Rule 2.22(b) to 
assess application, maintenance, and transfer registration fees with 
respect to the designation of FINOPs. These fees would be the same as 
those that the Exchange assesses on Registered Representatives and 
Registered Options Principals under Rule 2.22(b).\6\ Thus, the fee for 
each new FINOP designated by a member is proposed to be $35.00, the 
annual maintenance fee for each FINOP registration is proposed to be 
$30.00 per year, and the transfer fee for a FINOP who transfers from 
another organization and does not maintain any other FINOP registration 
is proposed to be $30.00. Each member organization (or individual 
member, if applicable) would have to pay a registration fee for a 
FINOP, regardless of whether the FINOP also acts in that capacity for 
another firm.
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    \6\ The fees applicable to Registered Representatives and 
Registered Options Principals were last raised in 1999. See Exchange 
Act Release No. 41,748 (Aug. 16, 1999); 64 FR 46,218 (Aug. 24, 
1999).
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2. Statutory Basis
    The Exchange states that the proposed rule change would enhance 
compliance with financial and operational requirements under CBOE's 
Rules and the Act and make it easier for the Exchange's membership to 
reference registration requirements under CBOE's Rules. Accordingly, 
the proposed rule is consistent with Section 6(b) of the Act,\7\ in 
general, and furthers the objectives of Section 6(b)(5),\8\ in 
particular, in that it is designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts and 
practices, and to protect investors and the public interest. The 
proposed rule change also would further the objectives of Section 
6(b)(4) of the Act \9\ in that it is designed to provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
CBOE members.
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    \7\ 17 U.S.C. 78f(b).
    \8\ 17 U.S.C. 78f(b)(5).
    \9\ 17 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change would 
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 represents that the proposed rule change (i) would not 
significantly affect the protection of investors or the public 
interest, (ii) would not impose any significant burden on competition, 
and (iii) would not become operative for 30 days from the date it was 
filed. In addition, the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change. 
For the foregoing reasons, this rule filing qualifies for expedited 
approval as a ``non-controversial'' rule change under Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\ thereunder and 
will become operative 30 days from April 11, 2000, the date on which it 
was filed.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule

[[Page 32140]]

change 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-00-17 and should 
be submitted by June 6, 2000.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-12759 Filed 5-19-00; 8:45 am]
BILLING CODE 8010-01-M