4874 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices

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

2 17 CFR 240.19b–4.

bankruptcy court of (i) the identity of all

of its affiliated persons who are parties

to, or have a direct or indirect financial

interest in, the transaction; (ii) the

nature of the affiliation; and (iii) the

financial interests of such persons in the

transaction.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–1484 Filed 1–17–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43827; File No. SR–CBOE–

00–60]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc. To Change Its Membership

Application Posting Process and

Clarify Its Membership Rules

January 9, 2001.

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 November

22, 2000, 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 Exchange.

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 CBOE proposes to change its

membership application posting process

and to make some clarifying revisions to

its membership rules.

Below is the text of the proposed rule

change. Proposed new language is

italicized and proposed deletions are in

brackets.

Chicago Board Options Exchange,

Incorporated—Rules

* * * * *

Chapter III—Membership

* * * * *

Application Procedures and Approval

or Disapproval

Rule 3.9.

(a)–(d) Unchanged.

(e) Within a reasonable time following

receipt of an application for

membership from an applicant that has

not been a member within 6 months

prior to the date of receipt of the

application by the Membership

Department[, an application to change

membership capacity statutes set forth

in Rule 3.2(b) or 3.3(b),] or an

application to change Clearing

Members, the name of the applicant and

the application request shall be

published in the Exchange Bulletin and

posted on the Exchange Bulletin Board.

The Membership Committee shall

determine for each type of the foregoing

applications the required time period

that the above information must be

posted on the Exchange Bulletin Board,

provided that in no event shall any such

required posting period be less than 10

days. Notwithstanding the foregoing, the

required posting period for a member’s

application to change Clearing Members

shall be waived if the Clearing

Member(s) that will no longer be

guaranteeing the member’s Exchange

transactions consent to such waiver in

a form and manner prescribed by the

Exchange. The Membership Committee

may also determine to implement a

posting period requirement for other

types of applications submitted

pursuant to paragraph (a) of this Rule.

The Membership Committee may

shorten or waive a required posting

period for an applicant if the

Membership Committee determines that

doing so is warranted due to

extenuating circumstances.

(f) The Membership Department shall

investigate each applicant applying to

be a member organization, each

associated person required to be

approved by the Membership

Committee pursuant to Rule 3.6(b), and

each applicant applying to be an

individual member (with the exception

of any associated person applicant that

is a current member, any [individual]

member applicant that [who] was a [an

individual] member within 6 months

prior to the date of receipt of that

applicant’s membership application by

the Membership Department, and any

member or associated person applicant

that was investigated by the

Membership Department within 6

months prior to the date of receipt of

that applicant’s application by the

Membership Department). The

Membership Department may [also]

investigate any applicant that is not

required to be investigated pursuant to

this paragraph (f) and any other person

or organization that submits an

application pursuant to paragraph (a) of

this Rule.

(g) Unchanged.

(h) The Membership Committee may

approve an application submitted

pursuant to paragraph (a) of this Rule

only if any applicable posting period

requirement pursuant to paragraph (e) of

this Rule has been satisfied, any

investigation pursuant to paragraph (f)

of this Rule has been completed, and

any applicable orientation and exam

requirements pursuant to paragraph (g)

of this Rule have been satisfied.

* * * Interpretations and Policies:

.01–.02 Unchanged.

* * * * *

Purchase of Membership

Rule 3.13.

(a)–(b) Unchanged.

(c) Payment. Not later than the second

business day following the acceptance

of a bid pursuant to paragraph (a) of this

Rule or the matching of a bid and offer

pursuant to paragraph (b) of this Rule,

the purchaser shall deliver to the

Membership Department a certified or

cashier’s check in the amount of the

purchase price made payable to the

Exchange [covering the purchase price

of the membership] or complete a wire

transfer in the amount of the purchase

price to an Exchange account

designated the Exchange.

Sale and Transfer of Membership

Rule 3.14.

(a)–(b) Unchanged.

(c) Transfer by Owner. The owner of

a transferable membership may transfer

the membership without adhering to the

provisions contained in Rule 3.13(b)

and paragraph (a) of this Rule so long as

one of the following qualifying

circumstances is applicable to and

descriptive of the desired transfer and

the transferee is approved to be an

owner or lessor:

(i) The owner of a transferable

membership (whether or not the

membership is registered for a member

organization) requests the transfer of the

membership to the member’s spouse,

brother, sister, parent, child,

grandparent, or grandchild;

(ii) The owner of a transferable

membership requests the transfer of the

membership to an organization which

has succeeded, through statutory

merger, exchange of stock, or

acquisition of assets to the business of

the transferor;

(iii) The owner of a transferable

membership requests the transfer of the

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices 4875

3The CBOE indicated that the circular will be

detailed and widely disseminated. The circular will

be attached to the back of the CBOE rule book and

made readily available to the public. Telephone

conversation between Arthur Reinstein, Associate

General Counsel, CBOE, and Sapna C. Patel,

Attorney, Division of Market Regulation,

Commission (Jan. 5, 2001).

membership to an organization in which

the transferor will maintain an interest

at least equal in value to the current

market price of the membership; or

(iv) The owner of a transferable

membership requests the transfer of

such membership to an individual or

organization which is a partner or

shareholder with a 50% or greater

interest in [of] the transferor as part or

all of a [liquidation] distribution of the

transferor.

(d)(i)–(d)(vii) Unchanged.

(viii) The grant of an Authorization to

Sell a membership shall include the

grant of a security interest (A) in any

proceeds from the sale of the

membership that the grantee of the

Authorization to Sell is entitled to

receive pursuant to Rule 3.15(v)[,] and

(B) in the membership to the extent

necessary to establish the priority of the

preceding security interest in such

proceeds. A [a] properly executed

Authorization to Sell form that has been

filed with the Membership Department

shall constitute a security agreement

which grants the foregoing security

interest to the grantee of the

Authorization to Sell. The grantee of an

Authorization to Sell may act to perfect

the foregoing security interest under

applicable law, which may include the

filing of one or more UCC–1 Financing

Statements. However, failure by a

grantee of an Authorization to Sell to

perfect the foregoing security interest

under applicable law shall not affect the

rights of the grantee under the Rules. In

the event of a cancellation of an

Authorization to Sell pursuant to

paragraph (d)(iv) of this Rule, the

grantee of the Authorization to Sell shall

promptly file a Termination Statement

with every filing authority where UCC–

1 Financing Statement were filed with

respect to the Authorization to Sell. The

grantee of an Authorization to Sell shall

promptly file with the Membership

Department a file-stamped copy of any

UCC filings made with respect to the

Authorization to Sell.

* * * * *

Member Death Benefit

Rule 3.24

(a) Unchanged.

(b) The following individuals shall be

eligible for the Member Death Benefit:

(i) any individual who is an active

member at the time of his or her death;

and

(ii) any individual who (i) was an

active member within 90 days prior to

the date of his or her death and (ii) was

an active member during at least 274 out

of 365 days preceding the date of his or

her last termination from active member

status.

(c) For the purposes of this Rule, the

term ‘‘active member’’ shall mean any

individual member [natural person] who

is a nominee of a member organization,

a Chicago Board of Trade exerciser, a

lessee of an Exchange membership, or

an owner of an Exchange membership

that is not being leased to a lessee.

(d)–(e) Unchanged.

* * * * *

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

Exchange 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

Exchange 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 this proposed rule

change is to change the Exchange’s

membership application posting process

and to make some clarifying revisions to

the Exchange’s membership rules.

CBOE Rule 3.9(e) requires that a

posting be included in the Exchange

Bulletin and on the Exchange Bulletin

Board with respect to any application

for membership, any application from a

current member to change membership

capacity statuses, and any application to

change Clearing Members (unless the

posting is waived under certain

specified circumstances in accordance

with the provisions of the Rule). CBOE

Rule 3.9(e) also provides that the

posting period on the Exchange Bulletin

Board be no less than ten days, and that

the Exchange’s Membership Committee

shall determine the required posting

period for each of these types of

applications in conformity with this

minimum time period. The posting

period for each of these application

categories is fourteen days. The posting

is required to set forth the name of the

applicant and the application request,

and its purpose is to provide members

with an opportunity to submit

information concerning an applicant

that may bear on the applicant’s

qualifications and fitness for

membership under the Exchange’s rules.

Under CBOE Rule 3.9(h), an application

may not be approved, among other

things, until any applicable posting

requirement has been satisfied.

There are two related factors that have

caused the Exchange to propose

changing its membership application

posting process. First, the Exchange

receives no submissions from members

in response to the postings for the vast

majority of applicants that are posted to

the membership on the Exchange’s

Bulletin Board as part of the posting

process. Second, the Exchange has a less

extensive and shorter application

process for current members that are

applying to change membership

capacity statutes and for member

applicants that have been a member

within the prior six months. In most

cases, the Exchange is able to process

these applications well before the

expiration of the posting period.

According, the vast majority of these

applicants are required to wait for a

period of time following the completion

of the processing of their applications

for their new membership capacities to

become effective. This results in

inefficiency in the conduct of business

on the Exchange as well as

inconvenience to these applicants.

As a result, the Exchange is proposing

to change its membership application

posting process in a manner that seeks

to eliminate this inefficiency and

inconvenience while at the same time

preserving the ability of members to

submit information concerning the

qualifications and fitness for

membership of applicants. Specifically,

the Exchange is proposing to amend

CBOE Rule 3.9(e) to eliminate the

requirement that there be a posting

period for current members that are

applying to change membership

capacity statuses and for member

applicants that have been a member

within the prior six months.

Additionally, the Exchange intends to

notify its membership via circular that

the Membership Department will accept

submissions concerning any current or

former member at any time (in contrast

to the current limited formal submission

period during the posting period) and

that these submissions will be retained

in the member’s membership file.3

Subsequently, if a current or former

member submits any membership

4876 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices

application and there is a submission

for that current or former member in the

membership file at the time of

submission of the application, the

submission concerning that current or

former member will be reviewed and

considered in the same manner that

occurs under the posting process.

The Exchange is proposing to retain

the posting period requirement for new

membership applicants (i.e., those

membership applicants that have never

been a member or that have not been a

member within the prior six months).

The posting period generally does not

result in a delay in processing these

applications because they are subject to

a more extensive and longer application

process that takes in excess of fourteen

days (during which there is adequate

time to complete a fourteen day

posting). In addition, the Exchange is

proposing to retain the posting period

for an application to change Clearing

Members (which in the vast majority of

cases is waived pursuant to the current

provision of CBOE Rule 3.9(e), which

provides for the waiver of this posting

period if the Clearing Member(s) that

will no longer be guaranteeing the

member’s Exchange transactions

consents to such a waiver).

The Exchange is also proposing to

make the following clarifying changes to

its membership rules:

First, the Exchange is proposing to

revise CBOE Rule 3.9(f) to clarify those

categories of membership applicants for

which the Exchange does not conduct a

background investigation due to the fact

that the applicant is a current member,

the applicant was recently a member, or

the Exchange recently conducted a

background investigation concerning

the applicant. Specifically, CBOE is

proposing to revise Rule 3.9(f) to clarify

that the Membership Department is not

required under CBOE Rule 3.9(f) to

investigate the following categories of

applicants: (i) Any associated person

applicant that is a current member, (ii)

any member applicant that was a

member within six months prior to the

date of receipt of that applicant’s

membership application by the

Membership Department, and (iii) any

member or associated person applicant

that was investigated by the

Membership Department within six

months prior to the date of receipt of

that applicant’s application by the

Membership Department. In addition,

CBOE is proposing to revise Rule 3.9(f)

to clarify that the Membership

Department retains the discretion to

investigate any applicant that is not

required to be investigated under CBOE

Rule 3.9(f) if the Membership

Department determines that a

background investigation is warranted

under the circumstances.

Second, CBOE is proposing to revise

Rule 3.13(c) to clarify that the Exchange

will accept payment for the purchase of

a membership by a certified or cashier’s

check or via a wire transfer.

Third, the Exchange is proposing to

clarify the provisions of CBOE Rule

3.14(c)(iv). CBOE Rule 3.14(c)(iv) sets

forth one of the four circumstances

pursuant to which a membership may

be transferred without going through the

normal auction process for the purchase

and sale of Exchange memberships.

Specifically, CBOE Rule 3.14(c)(iv)

provides that the owner of a transferable

membership may request the transfer of

the membership to an individual or

organization which is a partner or

shareholder of the transferor as part or

all of a distribution of the transferor.

Under CBOE Rule 3.3.01, the transferee

could also be a limited liability

company member if the transferor were

a limited liability company. CBOE is

proposing to clarify Rule 3.14(c)(iv) in

two respects. First, CBOE is proposing

to revise Rule 3.14(c)(iv) to clarify that

the transferee must have at least a fifty

percent interest in the transferor.

Without this provision, a person could

avoid the normal membership auction

process by becoming a nominal partner

or shareholder in a member organization

and then having the member

organization transfer the membership to

that partner or shareholder. Second,

CBOE is proposing to revise Rule

3.14(c)(iv) to delete the word

‘‘liquidation’’ due to the fact that it

results in confusion as to what

constitutes a liquidation distribution

and what constitutes a non-liquidation

distribution (given that an entity can

have partial liquidation in which it does

not distribute all of its assets and

continues in operation following the

partial liquidation). Because the

Exchange has interpreted Rule

3.14(c)(iv) to permit membership

transfers in connection with partial

liquidation distributions, and because

the Exchange believes there is no

meaningful distinction in this context

between a partial liquidation

distribution and a regular distribution,

the Exchange is proposing to delete the

word ‘‘liquidation’’ to make it easier for

members to understand CBOE Rule

3.14(c)(iv).

Fourth, the Exchange is proposing to

clarify the nature of the security interest

received by the grantee of an

Authorization to Sell under CBOE Rule

3.14(d)(viii). CBOE Rule 3.14(d)

provides an owner of a transferable

membership the ability to voluntarily

grant to another member an

Authorization to Sell the membership.

The grantee of an Authorization to Sell

is vested with all of the authority

provided for under the Exchange’s

Constitution and Rules relating to the

sale of the membership. The grantee of

an Authorization to Sell also has the

right on the sale of the membership to

submit claims against the grantor

pursuant to CBOE Rule 3.15(b), to be

satisfied out of the proceeds of the sale

of the membership, that are related to

the grantor’s Exchange business

activities. CBOE Rule 3.14(d)(viii)

provides that the grant of an

Authorization to Sell a membership

includes the grant of a security interest

in any proceeds from the sale of the

membership that the grantee of the

Authorization to Sell is entitled to

receive under CBOE Rule 3.15(b). The

exchange is proposing to revise CBOE

Rule 3.14(d)(viii) to clarify that the grant

of an Authorization to Sell also includes

the grant of a security interest in the

membership itself to the extent

necessary to establish the priority of the

security interest in the membership sale

proceeds the grantee is entitled to

receive under CBOE Rule 3.15(b). The

Exchange has interpreted CBOE Rule

3.14(d)(viii) to provide for such a

security interest in the membership

itself and believes that the grant of such

a security interest is fairly and

reasonably implied from the existing

language of CBOE Rule 3.14(d)(viii). The

Exchange is simply proposing to revise

CBOE Rule 3.14(d)(viii) to make the

language of CBOE Rule 3.14(d)(viii)

more explicit in this regard.

Finally, the Exchange is proposing to

revise CBOE Rule 3.24, the Exchange’s

Member Death Benefit Rule, to make

clear that the term ‘‘active member’’

under that Rule only includes

individual members and is not intended

to include associated persons who are

not individual members pursuant to the

Exchange’s Rules. Specifically, the

definition of the term ‘‘active member’’

in CBOE Rule 3.24(c) would be revised

to replace the words ‘‘natural person’’ in

that definition with the words

‘‘individual member.’’ The remainder of

the definition of ‘‘active member’’ in

CBOE Rule 3.24(c) would not be

revised. Thus, as revised, the definition

of ‘‘active member’’ contained in CBOE

Rule 3.24(c) would state that the term

‘‘active member’’ shall mean any

individual member who is a nominee of

a member organization, a Chicago Board

of Trade exerciser, a lessee of an

Exchange membership, or an owner of

an Exchange membership that is not

being leased to a lessee. CBOE Rule

3.24(b) provides that the following

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices 4877

4 15 U.S.C. 78f(b).

5 15 U.S.C. 78f(b)(5). 6 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Letter from Angelo Evangelou, Counsel,

CBOE, to Jennifer Colihan, Attorney, Division of

Market Regulation (‘‘Division’’), Commission, dated

January 2, 2001. (‘‘Amendment No. 1’’). In

Amendment No. 1, the Exchange clarified that the

Chairman may designate his authority solely to: (1)

another member of the FPC, or (2) or (2) two CBOE

floor officials.

4See Securities Exchange Act Release No. 42862

(May 30, 2000), 65 FR 36481.

5See Exchange Rules 6.8(a)(i) and 6.8(e). The

Commission recently approved a proposed rule

change by the Exchange to increase the maximum

size of RAES-eligible orders to seventy-five

contracts. See Securities Exchange Act Release No.

43517 (November 3, 2000), 65 FR 69082 (November

15, 2000).

6See Amendment No. 1, supra note 3.

7The Exchange has represented that the

minimum level to which the Chairman, or his

designee, may decrease the size of orders eligible

for entry into RAES pursuant to the proposed rule

is ten contracts. Telephone conversation between

Angelo Evangelou, Counsel, CBOE, and Jennifer

Colihan, Attorney, Division, Commission, on

September 8, 2000.

individuals are eligible for the member

Death Benefit: (i) Any individual who is

an active member at the time of his or

her death; and (ii) any individual who

(a) was an active member within ninety

days prior to the date of his or her

death, and (b) was an active member

during at least 274 out of the 365 days

preceding the date of his or her

termination from active member status.

2. Statutory Basis

The Exchange believes the proposed

rule change is consistent with Section

6(b) of the Act 4 in general, and in

particular, with Section 6(b)(5) of the

Act,5 in that it is designed to remove

impediments to and perfect the

mechanism of a free and open market

and to protect investors and the public

interest. The proposed rule change seeks

to revise the Exchange’s membership

application posting process in a manner

that will reduce inefficiency in the

conduct of business on the Exchange

and inconvenience to membership

applicants while preserving the ability

of members to submit information

concerning the qualifications and fitness

for membership of membership

applicants. The proposed rule change

will also clarify certain provisions of the

Exchange’s membership rules making it

easier for members to understand those

rules.

B. Self-Regulatory Organization’s

Statement on Burden Competition

The Exchange 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

The Exchange has neither solicited

nor received written comments on 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 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 statement 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–00–60 and should be

submitted by February 8, 2001.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–1407 Filed 1–17–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Releae No. 34–43829; File No. SR–CBOE–

00–10]

Self-Regulatory Organizations; Order

Granting Approval of Proposed Rule

Change by the Chicago Board Options

Exchange, Inc., and Notice of Filing

and Order Granting Accelerated

Approval of Amendment No. 1, to

Permit the Chairman of the

Appropriate Floor Procedure

Committee to Decrease the Size of

Orders Eligible for Entry Into the Retail

Automatic Execution System During

Unusual Market Conditions

January 10, 2001.

I. Introduction

On March 28, 2000, 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

that would grant the Chairman of an

appropriate Floor Procedure Committee

(‘‘FPC’’), or his designee, the authority

to decrease the size of orders eligible for

entry into the Exchange’s Retail

Automatic Execution System (‘‘RAES’’)

during unusual market conditions. On

January 3, 2001, the Exchange filed

Amendment No. 1 to the proposed rule

change.3

The proposed rule change was

published for comment in the Federal

Register on June 8, 2004.4 The

Commission received no comments on

the proposal. This order approves the

proposal.

II. Description of Proposal

Currently, the appropriate FPC of the

CBOE has the authority to determine the

size of orders eligible for entry into

RAES up to a maximum of seventy-five

contracts.5 In this proposal, the

Exchange is seeking to amend

Interpretation .05 to Rule 6.8, RAES

Operations, to allow the Chairman of

the appropriate FPC, or the Chairman’s

designee,6 to exercise the authority of

the FPC to decrease the size of orders

eligible for entry into RAES for option

classes during unusual market

conditions.7

In its filing, the Exchange represented

that it is sometimes necessary to

temporarily reduce the eligible order

size levels for RAES in situations where

unusual market conditions exist.

However, under the current Exchange

rules,a decision to decrease the eligible