8472 Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices

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

2 17 CFR 240.19b–4.

3On February 12, 1997, the Exchange filed an

amendment to the rule proposal. See Letter from

Arthur Reinstein, Senior Attorney, CBOE, to Janice

Mitnick, Attorney, Division of Market Regulation,

Commission, dated February 12, 1997

(‘‘Amendment No. 1’’). Amendment No. 1 provides

that failure to file an application notifying the

Exchange of a statutory disqualification would be

a factor to be considered by the CBOE’s

Membership Committee in making determinations

with respect to the person’s membership or

association pursuant to CBOE Rule 3.4(e), instead

of constituting a waiver of the individual’s right of

appeal. Further, Amendment No. 1 describes the

procedures to be followed by the Exchange’s

Membership Committee in reviewing an application

submitted pursuant to proposed Rule 3.4(f). Finally,

Amendment No. 1 describes the composition of the

CBOE’s Business Conduct Committee (‘‘BCC’’) and

CBOE’s Membership Committee.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4612 Filed 2–24–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38290; File No. SR–CBOE–

96–73]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc. Relating to Membership

Committee Jurisdiction Over

Continuing Membership

February 14, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 2 thereunder,

notice is hereby given that on November

26, 1996, 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 selfregulatory organization.3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend

CBOE Rule 3.4 to: (i) grant the

Membership Committee, instead of the

BCC, the power to decide whether to

limit or condition the right of a person

to continue as a member, or as a person

associated with a member, when such

person fails to meet any of the

qualification requirements for

membership or association after the

membership or association has been

approved, fails to meet any condition

placed by the Membership Committee

on such membership or association,

violates an agreement with the

Exchange, or becomes subject to a

statutory disqualification under the Act;

and (ii) require a member or person

associated with a member who is

subject to a statutory disqualification to

submit an application to the

Membership Committee in order to

continue as a member or as a person

associated with a member.

The text of the proposed rule change

is available at the Office of the

Secretary, CBOE and at the Commission.

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

self-regulatory organization 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 self-regulatory organization 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 grant to the CBOE’s

Membership Committee certain

authority over persons who fail to meet

conditions to their remaining as

members or persons associated with

members, or who become subject to a

statutory disqualification after becoming

a member or person associated with a

member. Presently this authority rests

with the Exchange’s BCC. The proposed

rule change also requires a member or

person associated with a member who is

subject to a statutory disqualification

and who wants to continue as a member

or in association with a member to

submit an application to that effect to

the CBOE’s Membership Committee.

CBOE Rule 3.4 (a) through (c) sets

forth the reasons the CBOE’s

Membership Committee may deny or

condition membership or a person’s

association with a member. However,

the jurisdiction of the CBOE’s

Membership Committee currently

applies only to applicants for

membership or association with a

member, not to existing members or

associated persons. CBOE Rule 3.4(e)

currently authorizes the Exchange’s BCC

to take action against an existing

member under Chapter XVII,

‘‘Discipline,’’ of the CBOE’s rules when

any of these reasons for denying or

conditioning membership (or

association with a member) comes into

existence. Under this authority, the

Exchange’s BCC may suspend or bar

from membership an existing member

for the same reasons a person applying

for membership could be denied

membership or be granted only

conditional membership. For example,

if an existing member becomes subject

to a statutory disqualification under

Sections 3(a)(39) and 15(b) under the

Act, the CBOE’s BCC may take action,

pursuant to CBOE Rule 3.4(e), to

discontinue that member’s membership.

In addition, Section 2.2 under the

CBOE’s Constitution, ‘‘Eligibility for

Membership; Good Standing,’’ provides

that the good standing of a CBOE

member may be suspended, terminated

or otherwise withdrawn, as provided in

the CBOE’s Rules, if any of the

conditions for approval cease to be

maintained or the member violates any

of its agreements with the Exchange or

any of the provisions of the

Constitution. Again, the CBOE’s BCC

currently would take action under

Section 2.2 of the Exchange’s

Constitution against existing members

or associated persons.

The CBOE believes it is more

appropriate for the Exchange’s

Membership Committee to deal with

membership related issues (whether

those issues concern an applicant for

membership or an already existing

CBOE member), and for the Exchange’s

BCC to limit its activities to disciplinary

matters involving allegations of specific

rule violations. The Exchange believes

that its Membership Committee is more

familiar with the considerations that

properly bear on decisions to deny or

condition membership, and is best able

to evaluate cases involving whether to

continue or condition the membership

of an existing member by referring to the

standards it applies when evaluating

applicants for membership. The

Exchange’s BCC may not be privy to

membership applications that were

denied by the CBOE’s Membership

Committee and the reasons for such

denial. Furthermore, the CBOE’s BCC

may not be familiar with the factors

considered by the Exchange’s

Membership Committee when acting on

membership applications, or the types

of conditions that may be imposed on

applicants. In short, the Exchange

believes that the present bifurcation of

membership issues between the two

committees could result in the CBOE’s
Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices 8473

4Under CBOE Rule 3.4(c), the CBOE’s

Membership Committee may deny or condition

membership or prevent or condition a person from

becoming an associated person if the applicant has

a negative net worth or other financial difficulties,

is unable to satisfactorily demonstrate a capacity to

adhere to all applicable CBOE, Commission,

Options Clearing Corporation, and Federal Reserve

Board policies and rules, would bring the CBOE

into disrepute, or for such other cause as the

CBOE’s Membership Committee may reasonably

decide.

5See Amendment No. 1 supra note 3. Procedures

to be followed by the CBOE’s Membership

Committee in considering an application filed

pursuant to CBOE Rule 3.4(f) to continue as a

member or associated person after becoming subject

to a statutory disqualification will be the same

procedures that are followed currently by the

CBOE’s Membership Committee when it reviews an

application from a person subject to a statutory

disqualification who is applying for exchange

membership or association with an Exchange

member. These procedures are generally set forth in

Exchange Regulatory Circular RG95–93. 6See Amendment No. 1, supra note 3.

BCC treating existing members who now

fail to meet conditions of membership

inconsistently with the way the CBOE’s

Membership Committee treats

applicants for CBOE membership who

are also subject to these same

conditions.

The CBOE believes the same

committee should make determinations

about a person’s fitness for CBOE

membership whether that person is

applying for CBOE membership or is an

existing member whose ability to

continue in membership is at issue. The

proposed rule change would accomplish

this. The CBOE states that, under the

proposed rule change, the CBOE’s

Membership Committee may determine

whether to limit or condition the right

of a person to continue as a member or

as a person associated with a member

for the same reasons that the Exchange’s

BCC may presently take such action.

Pursuant to the proposed rule change,

the CBOE’s BCC will retain its powers

to take action against existing members

or associated persons under Section 2.2

of the Exchange’s Constitution if the

member or associated person violates

any provision of the Exchange’s

Constitution or Rules. However,

pursuant to the proposed rule change,

the CBOE’s BCC will no longer have the

ability to take action pursuant to CBOE

Rule 3.4(e) for the circumstances set

forth in CBOE Rule 3.4(c).4 Practically,

the Exchange believes that this change

will have little effect because the

CBOE’s BCC does not typically rely on

CBOE Rule 3.4(e) to take action for the

circumstances set forth in CBOE Rule

3.4(c). Instead, the practice of the

CBOE’s BCC is to take disciplinary

action for specific rule violations. Most

of the circumstances set forth in CBOE

Rule 3.4(c) are covered by CBOE Rules

16.1, ‘‘Imposition of suspension,’’ or 4.2,

‘‘Adherence to Law.’’ Following the

Exchange’s present practice, the CBOE’s

BCC will continue to take disciplinary

action based on CBOE Rule 4.2 and the

Chairman of the Board or Chairman of

the Executive Committee will continue

to take action based on CBOE Rule 16.1.

The proposed rule change will also

clarify that CBOE Rule 3.4(e) applies to

persons associated with members as

well as members. The other subsections

of CBOE Rule 3.4 refer to persons

associated with members and it appears

to be an oversight that subsection (e)

does not refer to such persons. The

Exchange has always interpreted Rule

3.4(e) to apply to associated persons.

Presently, under Chapter XIX,

‘‘Hearings and Review,’’ of the CBOE’s

rules, if a person’s application for

membership is denied, that person may

apply for a hearing before a panel of the

Appeals Committee to review the

Membership Committee’s denial. The

panel’s decision may then be reviewed

by the CBOE’s Board of Directors

pursuant to CBOE Rule 19.5, ‘‘Review.’’

The proposed amendment will grant

this same right of review to an existing

member or person associated with a

member and will reference this right in

new paragraph (g) to CBOE Rule 3.4.

New paragraph (g) to CBOE Rule 3.4

also provides that no determination of

the Membership Committee to

discontinue or condition a person’s

membership or association with a

member pursuant to CBOE Rule 3.4(e)

shall take effect until the review

procedures under Chapter XIX have

been exhausted or the time for review

has expired.

The proposed rule change will also

add a paragraph (f) to CBOE Rule 3.4

requiring a member or person associated

with a member who becomes subject to

a statutory disqualification to submit an

application to the Exchange’s

Membership Committee within 30 days

of becoming subject to a statutory

disqualification if the member or person

associated with a member wants to

continue in their membership or

association with a member.5 Paragraph

(b) of Rule 19h–1 under the Act requires

a self-regulatory organization to file a

preliminary notice with the Commission

promptly after it receives an application

for admission to, or continuance in,

membership or association with a

member, notwithstanding a statutory

disqualification. In order to permit the

Exchange to file the required

preliminary notice in respect of existing

members and associated persons,

proposed paragraph (f) of CBOE Rule 3.4

requires the statutorily disqualified

member or associated person to sumit a

formal application to the Exchange

requesting permission to continue in

membership or association. The

application would include the

permission to continue in membership

or association. The application would

include the information the Exchange

needs from the member or associated

person in order to complete the Rule

19h–1 preliminary notice. The

application would also inform the

Exchange that it needs to devote the

resources necessary to make a decision

regarding whether to continue the

membership or association of this

statutorily disqualified person or entity.

Pursuant to proposed paragraph (f) of

CBOE Rule 3.4, absent extenuating

circumstances, if the member or

associated person who is subject to a

statutory disqualification fails to file an

application with the CBOE’s

Membership Committee seeking to

continue in Exchange membership or

association, the Exchange will consider

such failure as a factor to be considered

by the Membership Committee in

making determinations with respect to

the person’s membership or association

pursuant to Rule 3.4(e).6

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

and furthers the objectives of Section

6(b) (6) and (7) of the Act, in that it is

designed to protect investors and the

public interest by providing appropriate

standards of qualification for

membership and association with

members, and procedures intended to

assure the consistent application of

these standards.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that the

proposed rule change will not impose

any burden on competition.

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
8474 Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices

7 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3This filing only addresses trading requirements

relating to necessary surveillance sharing

procedures.

publishes its reasons for so finding or

(ii) as to which the self-regulatory

organization consents, the Commission

will:

(A) by order 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549. 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 coping at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–CBOE–96–73 and should be

submitted by March 18, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4529 Filed 2–24–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38311; International Series

Release No. 1055; File No. SR–CBOE–96–

77]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Chicago Board

Options Exchange, Incorporated

Relating to the Policy of the CBOE

Relating to Information Obtained

Pursuant to the SEC’s Memorandum of

Understanding With the CONSOB

February 19, 1997.

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 December

17, 1996, the Chicago Board Options

Exchange, Incorporated (‘‘CBOE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) the proposed rule

change is described in Items I and II

below, which Items have been prepared

by the CBOE. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons and to grant

accelerated approval of the proposed

rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CBOE is submitting this rule

filing to adopt an official policy

concerning the circumstances and

conditions under which the Exchange,

in order to carry out its market

surveillance and enforcement functions

for derivative products containing

Italian component securities, may

obtain access to information regarding

activity on the Italian securities markets

obtained by the SEC pursuant to the

Commission’s Memorandum of

Understanding (‘‘MOU’’) with the

Commissione Nazionale per le Societa e

la Borsa (‘‘CONSOB’’). The text of the

proposed rule change is available at the

Office of the Secretary, the CBOE, and

at the Commission.

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

The CBOE does not have a

surveillance sharing agreement with the

Milan Exchange, which is an

unincorporated association and is not

able under Italian law to enter into such

an arrangement. Therefore, the purpose

of the proposed rule change is to enable

the CBOE to carry out its market

surveillance and enforcement functions

for derivative products containing

Italian component securities by seeking

the necessary information about activity

on the Italian securities markets from

the SEC per the latter’s MOU with the

CONSOB. The Exchange’s proposed

policy details the circumstances and

conditions under which the Exchange

may obtain access to such information

from the SEC. By adopting this policy,

therefore, the Exchange believes it will

be in a position to list derivative

products containing Italian component

securities because it will be able to have

access to information on the underlying

securities which it may need for

enforcement or market surveillance

purposes.

The Exchange’s proposed policy

provides that the Exchange will advise

the SEC of information it needs

regarding activity on the Italian

securities markets for market

surveillance and enforcement purposes.

The SEC, in turn, may request the

CONSOB’s assistance, pursuant to the

MOU, in gaining access to such

information. The Exchange will use

such information it may receive from

the SEC only for the purposes of

conducting market surveillance and

enforcement proceedings. The Exchange

will limit distribution of such

information to officers and directors of

the Exchange and other employees

directly responsible for conducting

market surveillance and enforcement

proceedings relating to the matter in

connection with which the SEC

provided the information to the CBOE.

The Exchange also will undertake to

maintain the confidentiality of the

information and to take appropriate

disciplinary action in the event it learns

of a breach of such confidentiality,

including referral to the SEC for any

action the SEC deems necessary or

appropriate.

By adopting a policy that provides

access to information on the underlying

securities for market surveillance and

enforcement purposes, the Exchange

will be able to list options and other

derivative products containing Italian

component securities, provided that all

other applicable product listing

standards are met.3 Therefore, the

Exchange believes that the proposed

rule change could potentially provide

investors with the opportunity to invest

in such products and hedge their

exposure to the Italian securities market.

The Exchange also believes that the

proposed rule change, therefore, is

consistent with and furthers the

objectives of Section 6(b)(5) of the Act,

in that it is designed to perfect the

mechanisms of a free and open market