Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Notices 15553

3Securities Exchange Act Release No. 31118

(Aug. 28, 1992), 57 FR 40484 (Sept. 3, 1992)

(approving SR–Amex–91–07).

4Securities Exchange Act Release No. 35537

(Mar. 27, 1995), 60 FR 16894 (Apr. 3, 1995)

(approving File No. SR–Amex–95–02).

5Standard and Poor’s Depositary Receipts 

(‘‘SPDRs ’’) and S&P MidCap 400 SPDRs TM will

continue to trade in 1⁄64’s.

6The Commission notes that the tests conducted

March 22, 1997 involving the Amex, the Boston

Stock Exchange, the Nasdaq Stock Market, and the

Pacific Stock Exchange were successful.

Amendment No. 1, supra note 2.

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

8 15 U.S.C. 78f(b)(5).

9 17 C.F.R. 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Amendment No. 1 clarifies that the Exchange

will report any Business Conduct Committee

(‘‘Committee’’) decision accepting a settlement offer

under the proposed settlement procedure for

position limit fines to the Commission on a current

Continued

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Amex proposes to amend Amex

Rule 127 (Minimum Fractional Changes)

to provide a significant expansion in the

number of Amex securities traded in

fractions of 1⁄16 of $1.00. In 1992, the

Commission approved sixteenths

trading for Amex securities selling

under $5 and above $0.25.3 In 1995, the

Commission approved an expansion of

these parameters to allow sixteenths

trading in Amex securities selling under

$10.4

The Exchange has determined to

extend the benefits of trading in

sixteenths to Amex equity securities

priced at $10 and over, which currently

includes approximately 50% of Amex’s

equity list.5 The Exchange believes that

trading in sixteenths will promote

investor protection by, among other

things, enhancing the already significant

potential for price improvement

available on the Amex to both retail and

professional orders.

On March 18, 1997, the Amex

discussed the proposed expansion of

trading in sixteenths with the

Intermarket Trading System (‘‘ITS’’)

participants and with the Securities

Industry Automation Corporation

(‘‘SIAC’’). The ITS Operating Committee

voted unanimously to instruct SIAC to

make necessary enhancements to the

ITS host system to accommodate the

proposed expanded sixteenths trading.

SIAC also agreed to coordinate with the

ITS participants regarding any required

testing and changes to the participants’

internal systems.6

2. Statutory Basis

The Exchange believes the proposed

rule change is consistent with Section

6(b) 7 of the Act 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 facilitate transactions in

securities and, in general, to protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes the proposed

rule change will impose no burden on

competition. Indeed, the Exchange

believes an expansion of trading in

sixteenths will enhance competition by

permitting trading in all Amex equity

securities by all ITS participants in

narrower trading fractions, with the

potential for significant price

improvement for investors. The

proposed rule change will require SIAC

to modify the host system and may

require individual ITS participant

markets to modify their own systems to

permit trading in sixteenths via ITS in

Amex securities priced $10 and higher.

No competitive issue is raised by these

system changes, however, as expanded

sixteenths trading will not commence

until the SIAC and participant system

changes have been effected.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

members, Participants, or Others

The Exchange has neither solicited

nor received written comments.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the 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 self-regulatory organization

consents, the Commission will:

(A) By order approve the 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, NW.,

Washington, DC 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 copying at

the Commission’s Public Reference

Section, 450 Fifth Street, NW.,

Washington, DC 20549. Also, copies of

such filing will be available for

inspection and copying at the principal

office of the Amex. All submissions

should refer to File No. SR–Amex–97–

14 and should be submitted by April 22,

1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8229 Filed 3–31–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38438; File No. SR–CBOE–

96–57]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Granting Approval to

Proposed Rule Change and Notice of

Filing and Order Granting Accelerated

Approval of Amendment Nos. 1, 2, and

3 Relating to a Minor Rule Violation

Plan Amendment To Create a

Settlement Procedure for Position

Limit Fines

March 25, 1997.

I. Introduction

On September 25, 1996, the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’

or ‘‘Exchange’’) submitted to 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 its minor rule violation

procedure to create an offer of

settlement process for certain position

limit violations.

The proposed rule change, together

with the substance of the proposal, was

published for comment in Securities

Exchange Act Release No. 37787

(October 4, 1996), 61 FR 53472 (October

11, 1996). No comments were received

on the proposed rule change. The CBOE

filed Amendment Nos. 1, 2, and 3 with

the Commission on January 21, March 4,

and March 4, 1997, respectively.3 This
15554 Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Notices

basis. Amendment No. 1 also clarifies the

settlement offer time frame and procedure.

Amendment No. 2 changes the language of

proposed Interpretation and Policy .01 of Rule

17.50 to state that members whose offer of

settlement is accepted by the Committee must

report the acceptance of the settlement offer on the

members’ broker-dealer form under the Act (‘‘Form

BD’’) as a decision in a contested Exchange

disciplinary hearing. Amendment No. 2 also makes

a technical change to proposed Interpretation and

Policy .01 of Rule 17.50 by lettering paragraphs as

(a) and (b). Amendment No. 3 further changes the

language of proposed Interpretation and Policy .01

of Rule 17.50 to state that members whose offer of

settlement is accepted by the Committee must

report the acceptance of the settlement offer on the

uniform application for securities industry

registration or transfer (‘‘Form U–4’’). See letters

from Margaret G. Abrams, Senior Attorney, CBOE,

to Sharon Lawson, Senior Special Counsel, Market

Regulation, Commission, dated January 15, 1997

(‘‘Amendment No. 1’’), February 12, 1997

(‘‘Amendment No. 2’’), and February 26, 1997

(‘‘Amendment No. 3’’), respectively.

4Under CBOE’s minor rule plan and Rule

17.50(a), the Exchange can impose fines up to

$5,000 for minor rule violations. Fines above $2,500

must, however, be reported on a current basis.

5See note 4, supra.

6This will be the case irrespective of whether the

accepted settlement offer is below $2,500.

7 If the offer of settlement is not accepted, the

minor rule violation process will continue as if the

offer was never made; the member will be able to

either contest the violation under Rule 17.50(c) or

pay the fine. Phone conversation between Margaret

G. Abrams, Senior Attorney, CBOE, and Heather

Seidel, Attorney, Market Regulation, Commission,

on February 25, 1997.

order approves the proposal, including

Amendment Nos. 1, 2, and 3, on an

accelerated basis.

II. Description

Section 19(d)(1) of the Act and Rule

19d–1(c)(1) thereunder require a selfregulatory organization (‘‘SRO’’) to

report any ‘‘final’’ disciplinary action

taken to the Commission on a current

basis. Rule 19d–1(c)(2) of the Act, which

provides for the filing and approval of

a minor rule violation reporting plan,

states that any disciplinary action taken

by an SRO for violation of the SRO’s

rules that has been designated a ‘‘minor

rule violation’’ by the SRO pursuant to

a plan approved by the Commission

shall not be considered ‘‘final’’ for

purposes of Section 19(d)(1) and Rule

19d–1(c)(1) of the Act if the sanction

imposed consists of a fine that (1) does

not exceed $2,500 and (2) where the

sanctioned person has not sought an

adjudication, including a hearing, or

otherwise exhausted his administrative

remedies at the SRO with respect to the

matter. Under Rule 19d–1(c)(2), these

unadjudicated minor rule violations can

be reported on a quarterly basis rather

than on a current basis.4

CBOE Rule 17.50 sets forth the minor

rule violation provisions adopted by

CBOE in accordance with Section

19(d)(1) and Rule 19d–1(c)(2) of the Act.

Under CBOE Rule 17.50(a), ‘‘[a]ny fine

imposed pursuant to this Rule that (i)

does not exceed $2,500 and (ii) is not

contested, shall be reported on a

periodic, rather than a current, basis,

except as may be otherwise required by

Rule 19d–1 under the Securities

Exchange Act of 1934 and by any other

regulatory authority.’’ The CBOE

currently processes position limit

violations as minor rule violations

pursuant to CBOE Rule 17.50 (i.e.

summary fines) and can impose a fine,

not exceeding $5,000 for any one trade

date, for such violations. An Exchange

member may contest the fine(s) imposed

under Rule 17.50 by following the

procedures outlined in Rule 17.50(c),

which include filing a written answer

and requesting a hearing, if the member

so desires. At that time the matter

becomes subject to review by the

Business Conduct Committee

(‘‘Committee’’) because it becomes a

disciplinary proceeding subject to

Chapter XVII of the CBOE’s rules and,

where applicable, the current reporting

provisions of Rule 19d–1(c)(1) of the

Act.

Members with significant position

limit summary fines do not presently

have access to the settlement resolution

process available to respondents under

Exchange Rule 17.8 for regular

disciplinary matters pending before the

Committee, including making offers of

settlement and personal appearances.

According to the CBOE, some members

who proceeded to a contested fine

hearing admitted that the violations

occurred, and used the hearing forum

solely to request that the fines be

reduced or removed. Based upon this

past experience with contested position

limit summary fine matters, as well as

an internal regulatory focus study, the

Exchange is proposing a new procedure

so that members with significant

position limit violations meeting certain

criteria will have an opportunity within

the minor rule violation procedure to

present one settlement offer before the

Committee.

The proposed rule change adds

language describing the settlement offer

procedure to Interpretation and Policy

.01 under Exchange Rule 17.50. The

additional language defines the

threshold levels of position limit

summary fines that trigger access to the

new settlement procedure. The original

filing stated that the CBOE will treat (a)

position limit violations resulting in any

one-day fine in excess of $2,500, or (b)

position limit violations resulting in an

aggregate fine in excess of $10,000 and

involving five or more consecutive trade

dates, as appropriate for an offer of

settlement opportunity before the

Committee. Under Amendment No. 1,

the CBOE adds upper limits to the

threshold levels, so that the settlement

procedure can be used for (a) position

limit violations resulting in any one-day

fine in excess of $2,500 but not

exceeding $5,000; or (b) position limit

violations resulting in an aggregate fine

greater than $10,000 and not more than

$5,000 in any one day. This amendment

makes the CBOE’s proposed rule

consistent with the limits for

commencing an action under CBOE’s

minor rule plan; for example, violations

which would result in a fine exceeding

$5,000 a day cannot be processed under

CBOE’s minor rule plan.5

Amendment No. 1 also clarifies

several aspects of the settlement process

under the minor rule violation

procedure. Members who meet the

threshold position limit fine level have

the opportunity to submit one written

offer of settlement in accordance with

Rule 17.8(a), except that the

Interpretations and Policies of Rule 17.8

will not apply and the member must

submit the settlement offer within thirty

(30) days of the date of service of the

written statement informing them of the

fine(s) imposed. Amendment No. 1 also

states that a member may personally

appear before the Committee in order to

make an oral statement in support of the

offer. In addition, Amendment No. 1

adds language to the rule change stating

that a decision accepting an offer of

settlement under this process will be

reported on a current basis pursuant to

Rule 19d–1 of the Act.6 Amendment No.

2 adds additional language to proposed

Interpretation and Policy .01 of Rule

17.50 stating that members whose offer

of settlement is accepted by the

Committee shall report the acceptance

of the settlement offer on the member’s

broker-dealer form under the Act

(‘‘Form BD’’) as a decision in a

contested Exchange disciplinary

proceeding. Amendment No. 3 further

amends the language of proposed

Interpretation and Policy .01 of Rule

17.50 to state that members whose offer

of settlement is accepted by the

Committee shall report the acceptance

on the uniform application for securities

industry registration or transfer (‘‘Form

U–4’’) as a decision in a contested

Exchange disciplinary proceeding.7

The CBOE is only proposing to apply

the new settlement procedures to fines

imposed under Rule 17.50 for position

limit violations at this time. In this

regard, the CBOE noted that it has not

experienced significant accumulations

of fines by members for minor rule

violations under Exchange Rule 17.50

other than position limit violations.
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Notices 15555

8 15 U.S.C. 78(f)(b)(5).

9 In approving this rule, the Commission notes

that it has considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

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

10Amendment No. 1 specifically changes the text

of CBOE’s proposed rule to state that ‘‘[a] decision

by the Business Conduct Committee accepting an

offer of settlement hereunder shall be reported on

a current basis pursuant to Rule 19d–1 under the

Securities Exchange Act of 1934.’’

11See discussion earlier regarding the content

and operation of Rules 19d–1(c)(1) and 19d–1(c)(2)

of the Act and of CBOE’s Rule 17.50.

12Form BD requires broker-dealers to report

violations of Commission and Exchange rules, as

well as certain criminal, civil and administrative

penalties, and this information is then made

available to the public and investors.

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

1The Exchange filed Amendment No. 1 with the

Commission on February 18, 1997, the substance of

Continued

III. Discussion

The proposed rule change is

consistent with and furthers the

objectives of Section 6(b)(5) of the Act 8

in that it is designed to refine and

enhance the Exchange’s minor rule

violation procedure as applied to

position limit violations, while retaining

adequate enforcement measures for

violations of such rules, thereby

removing impediments to a free and

open market and protecting investors

and the public interest.9

The Commission finds that by

adopting formal procedures for the

settlement of certain position limit

summary fines that are separate from a

full disciplinary hearing, the proposed

rule change should increase the

efficiency of the Exchange’s disciplinary

process by saving the time and expense

of both members and Exchange staff in

preparing for hearings, while continuing

to ensure that position limit rules are

effectively enforced. Under the CBOE’s

proposed rule, violations settled using

new procedures, irrespective of whether

the settlement amount is under $2,500,

will be subject to immediate, rather than

quarterly, reporting to the

Commission.10 The Commission

believes this result is appropriate and

makes CBOE’s new rule consistent with

the CBOE’s minor rule reporting plan

and Rule 19d–1(c)(2),11 due to the fact

that the members are contesting the fine

amounts and have sought an

adjudication on the violation which

includes the opportunity to have a

hearing.

For the same reasons, the CBOE has

also amended their new rule to state

that the acceptance of settlement offers

under this new procedure must be

reported on the Form BD 12 and Form

U–4. Both Form BD and Form U–4

require broker-dealers to report

violations of an SRO’s rules, except for

violations designated as ‘‘minor rule

violation[s],’’ under a plan approved by

the Commission. However, the

definition of a ‘‘minor rule violation’’ on

Form BD and Form U–4 states that rule

violations may be designated as

‘‘minor’’ under a plan if the sanction

imposed consists of a fine of $2,500 or

less, and if the sanctioned person does

not contest the fine. The Commission

believes that because under the

proposed rule change, the person

submitting the settlement offer is

contesting the fine amount, the

acceptance of a settlement offer under

the new procedures being adopted

herein must be reported on Form BD

and Form U–4 just like any decision in

a contested Exchange disciplinary

proceeding, even if the settlement

amount does not exceed $2,500.

Amendments Nos. 2 and 3 adequately

address this concern by requiring the

acceptance of a settlement offer to be

reported on Form BD and Form U–4 as

a contested Exchange disciplinary

proceeding.

In summary, the Commission believes

that the development of the interim step

of a settlement procedure for contesting

the fine amount for position limit minor

rule violations should help to make the

CBOE’s entire disciplinary process more

efficient by avoiding unnecessarily

burdening the formal disciplinary

process with such actions, while still

retaining adequate enforcement

measures for violations of the position

limit rules contained in the minor rule

plan. In addition, the fact that

acceptance of settlement offers under

the new settlement process will be

reported currently, rather than on a

quarterly basis, ensures that the

Commission receives adequate notice of

these contested fines.

The Commission finds good cause to

approve Amendment Nos. 1, 2, and 3 to

the proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically, as

stated above in greater detail, by

requiring current reporting of the

acceptance of settlement offers under

the new settlement procedure for

position limit violations, Amendment

No. 1 will ensure that the Commission

receives adequate notice of contested

fines which have been settled, while

still providing a mechanism for

effectively enforcing position limit

violations. Similarly, Amendment Nos.

2 and 3 ensure that the accepted

settlement offers will be reported on

Form BD and Form U–4, leading to

greater protection of the investors and

the public interest, by clarifying that the

acceptance of a settlement offer is a

decision in a contested Exchange

disciplinary proceeding for purposes of

the Form BD and Form U–4.

Accordingly, the Commission believes

that it is consistent with Section 6(b)(5)

of the Act to approve Amendment Nos.

1, 2, and 3 to the proposal on an

accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment Nos.

1, 2, and 3 to the proposed rule change.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rules

change that are filed with the

Commission, and all written

communications relating to Amendment

Nos. 1, 2, and 3 between the

Commission and any persons, 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 at the principal office of the

Exchange. All submissions should refer

to File No. SR–CBOE–96–57 and should

be submitted by April 22, 1997.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule change (SR–CBOE–96–

57), including Amendment Nos. 1, 2,

and 3, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8230 Filed 3–31–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38439; File No. SR–CHX–

96–31]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Stock Exchange, Inc., To

Amend Articles IV, VII, and XII of the

Exchange’s Rules To Modify the

Exchange’s Disciplinary Procedures

March 25, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on December 9, 1996,1