7236 Federal Register / Vol. 60, No. 25 / Tuesday, February 7, 1995 / Notices

1 15 U.S.C. 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1991).

3The Amex received approval to amend Rule

109, on a pilot basis, in Securities Exchange Act

Release No. 30603 (April 17, 1992), 57 FR 15340

(April 27, 1992) (File No. SR–Amex–91–05) (‘‘1992

Approval Order’’). The Commission subsequently

extended the Amex’s pilot program in Securities

Exchange Act Release Nos. 32185 (April 21, 1993),

58 FR 25681 (April 27, 1993) (File No. SR–Amex–

93–10) (‘‘April 1993 Approval Order’’); 32664 (July

21, 1993), 58 FR 40171 (July 27, 1993) (File No. SR–

Amex–93–22) (‘‘July 1993 Approval Order’’); and

National Association of

Manufacturers Corporate Finance

and Management Committee,

Executive Vice President Legal and

External Affairs, International Paper

Seasoned Issuer Proposal

Mr. Christopher J. Murphy III,

Chairman, Association of Publicly

Traded Companies, to be

accompanied by Mr. Brian T.

Borders, President, Association of

Publicly Traded Companies

Reasonable Basis In Fact Proposal

National Association of Securities and

Commercial Law Attorneys—

[witness to be named].

Opt-in Proposal

Harvey Pitt, Esquire—Fried, Frank,

Harris, Shriver & Jacobson

Disimplication Theory

Professor Joseph Grundfest, Stanford

University School of Law

1:00 pm: Break

1:30 pm: Professor Joel Seligman,

University of Michigan Law School,

Carl Schneider, Esq., Wolf Block

Schorr & Solis-Cohen, Securities

Registration Standing Committee of

the Association of the Bar of the

City of New York—[witness to be

named]

2:00 pm: North American Securities

Administrators Association—

[witness to be named]

2:30 pm: New York Stock Exchange

[witness to be named], American

Stock Exchange—Mr. James F.

Duffy, Executive Vice President and

General Counsel, National

Association of Securities Dealers—

Mr. Joseph R. Hardiman, President

and Chief Executive Officer.

3:15 pm: Bell Atlantic Corporation, Mr.

P. Alan Bulliner, Vice President,

Corporate Secretary and Counsel,

MCI Corporation, Mr. John R.

Worthington, Senior Vice President

and General Counsel, Legent

Corporation, Mr. John Burton,

President, Storage Technology

Corporation, Richard Bland, Esq.,

Deputy General Counsel

4:00 pm: American Institute of Certified

Public Accountants—Mr. Phillip B.

Chenok, President and Richard

Miller Esq., General Counsel, Price

Waterhouse LLP, Mr. Arthur Siegel,

Vice Chairman, Audit and Business

Advisory Services, to be

accompanied by Andrew J. Pincus

Esq., Mayer, Brown and Platt

4:45 pm: United Brotherhood of

Carpenters, Mr. Edward Durking,

Director Special Programs

Department, International

Brotherhood of Teamsters, Mr.

Bartlett Nayor, National

Coordinator Office of Corporate

Affairs

5:15 pm: State of Connecticut,

Christopher Burnham, Treasurer

Tuesday, February 14, 1995

10:00 am: American Electronics

Association—[witnesses to be

named], Manufacturers Alliance,

Mr. Francis W. Homan, Jr., Vice

President and Secretary, Business

Software Alliance—[witness to be

named], Software Publishers

Association—[witness to be named]

11:00 am: Business Roundtable—Mr.

John A Georges, Chairman of the

Corporate Governance Task Force

and Chairman and CEO of

International Paper, to be

accompanied by Joseph

McLaughlin, Esquire, Brown &

Wood

11:30 am: National Venture Capitalists

Association

11:45 am: Association for Investment

Management and Research, Mr.

Tom Moore, CFA, Chair, Corporate

Information Committee and Senior

Vice President, State Street

Research and Management Co.,

National Investor Relations

Institute, Mr. Louis M. Thompson,

Jr., President and CEO

12:20 pm: University of Michigan

School of Business Administration,

Douglas Skinner The Conference

Board, Dr. Carolyn Brancato,

Research Director, Corporate

Governance

B. The San Francisco Hearings

Thursday, February 16, 1995

10:00 am: Disimplication Theory

Professor Joseph Grundfest, Stanford

University School of Law

Seasoned Issuer Proposal

Mr. George Kadonada, Vice-Chairman,

Association of Publicly Traded

Companies, to be accompanied by

Mr. Brian T. Borders, President,

Association of Publicly Traded

Companies

Reasonable Basis in Fact Proposal

National Association of Securities and

Commercial Law Attorneys—

(witness to be named later), Bruce

Alan Mann, Esquire, Morrison &

Foerster

11:30 am: Software Publishers

Association—(witness to be

named), Software Industry

Coalition(witness to be named),

ITAA—Douglas C. Jerger, VicePresident American Software

Association

12:30 pm: Break

1:30 pm: California Public Employees’

Retirement System, Ms. Kayla J.

Gillan, Assistant General Counsel

2:00 pm: Western Association of

Venture Capitalists, Mr. Authur

Patterson, Accel Partners, Mr.

Douglas Carlisle, Menlo Ventures,

Mr. Philip Gianos, InterWest

Partners

2:45 pm: Hewlett-Packard, Robert P.

Wayman, Executive Vice President

Finance and Administration/Chief

Financial Officer

3:00 pm: Sybase, Inc., Michael

Engelhardt, Vice President of

External Affairs

3:15 pm: Motorola—(witness to be

named)

3:30 pm: BankAmerica, Michael J.

Halloran, Executive Vice President

and General Counsel

[Release No. 34–35310; File No. SR–Amex–

95–01]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval to Proposed

Rule Change by American Stock

Exchange, Inc. Relating to an

Extension of Its Pilot Program Which

Permits Specialists To Grant Stops in

a Minimum Fractional Change Market

January 31, 1995.

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 January

11, 1995, the American Stock Exchange,

Inc. (‘‘Amex’’) or ‘‘Exchange’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

the proposed rule change as described

in Items I and II below, which Items

have been prepared by the selfregulatory organization.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Amex requests a four month

extension of a pilot program which

amended Exchange Rule 109 to permit

a specialist, upon request, to grant stops

in a minimum fractional change

market.3 The text of the proposed rule
Federal Register / Vol. 60, No. 25 / Tuesday, February 7, 1995 / Notices 7237

33791 (March 21, 1994), 59 FR 14432 (March 28,

1994) (File No. SR–Amex–93–47) (‘‘1994 Approval

Order’’). Commission approval of these

amendments to Rule 109 expires on March 21,

1995. The Exchange seeks accelerated approval of

the proposed rule change in order to allow the pilot

program to continue without interruption. See letter

from Linda Tarr, Special Counsel, Legal &

Regulatory Policy Division, Amex, to Glen

Barrentine, Senior Counsel, Division of Market

Regulation, SEC, dated January 31, 1995.

4See 1994 Approval Order, supra, Note 3.

5When a specialist agrees to a floor broker’s

request to ‘‘stop’’ an order, the specialist is

obligated to execute the order at the best bid or

offer, or better if obtainable. See Amex Rule 109(a).

6Amex Rule 127 sets forth the minimum

fractional changes for securities traded on the

Exchange.

7 15 U.S.C. 78f (1988).

8 15 U.S.C. 78k (1988).

9For a description of Amex procedures for

stopping stock in minimum fractional change

markets, and of the Commission’s rationale for

approving those procedures on a pilot basis, see

1992 Approval Order, supra, note 3. The discussion

in the aforementioned order is incorporated by

reference into this order.

10See supra, note 3.

change is available at the Office of the

Secretary, Amex 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 III 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

On March 21 1994, the Commission

extended its pilot approval of

amendments to Exchange Rule 109 until

March 21, 1995.4 The amendments

permit a specialist, upon request, to

grant a stop 5 in a minimum fractional

change market 6 for any order of 2,000

shares or less, up to a total of 5,000

shares for all stopped orders, provided

there is an order imbalance, without

obtaining prior Floor Official approval.

A Floor Official, however, must

authorize a greater order size or

aggregate share threshold.

During the course of the pilot

program, the Exchange has closely

monitored compliance with the rule’s

requirements; analyzed the impact on

orders on the specialist’s book resulting

from the execution of stopped orders at

a price that is better than the stop price;

and reviewed market depth in a stock

when a stop is granted in a minimum

fractional change market. The Exchange

believes that the amendments to Rule

109 have provided a benefit to investors

by providing an opportunity for price

improvement, while increasing market

depth and continuity without adversely

affecting orders on the specialist’s book.

The Exchange’s findings in this regard

have been forwarded to the Commission

under separate cover.

The Exchange is therefore proposing a

four month extension of the pilot

program which amended Rule 109.

2. Statutory Basis

The proposed rule change is

consistent with Section 6(b) of the Act

in general and furthers the objectives of

Section 6(b)(5) in particular in that it is

designed to promote just and equitable

principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market

and, in general, to protect investors and

the public interest. The Exchange

believes that the proposed amendments

to Rule 109 are consistent with these

objectives in that they are designed to

allow stops, in minimum fractional

change markets, under limited

circumstances that provide for the

possibility of price improvement to

customers whose orders are granted

stops.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The proposed rule change will impose

no 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. 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. Copies of such

filing will also be available for

inspection and copying at the principal

office of the Amex. All submissions

should refer to File No. SR–Amex–95–

01 and should be submitted by February

28, 1995.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange and, in particular, with

Section 6(b)(5) 7 and Section 11(b) 8 of

the Act. The Commission believes that

the amendments to Rule 109 should

further the objectives of Section 6(b)(5)

and Section 11(b) through pilot program

procedures designed to allow stops, in

minimum fractional change markets,

under limited circumstances that

provide the possibility of price

improvement to customers whose orders

are granted stops.9

In its orders approving the pilot

procedures,10 the Commission asked the

Amex to study the effects of stopping

stock in a minimum fractional change

market. Specifically, the Commission

requested information on (1) the

percentage of stopped orders executed

at the stop price, versus the percentage

of such orders that received a better

price; (2) whether limit orders on the

specialist’s book were bypassed due to

the execution of stopped orders at a

better price (and, to this end, the

Commission requested that the Amex

conduct a one-day review of all book

orders in the ten stocks receiving the

greatest number of stops); (3) market

depth, including a comparison of the

size of stopped orders to the size of the

opposite side of the quote and to any

quote size imbalance, and an analysis of

the ratio of the size of the bid to the size

of the offer; and (4) specialist

compliance with the pilot program’s

procedures.

The Exchange has submitted to the

Commission several monitoring reports

regarding the amendments to Rule 109.

The Commission believes that, although

these monitoring reports provide certain

useful information concerning the

operation of the pilot program, the

Commission must conduct further
7238 Federal Register / Vol. 60, No. 25 / Tuesday, February 7, 1995 / Notices

11When stock is stopped, book orders on the

opposite side of the market that are entitled to

immediate execution lose their priority. If the

stopped order then receives an improved price,

limit orders at the stop price are bypassed and, if

the market turns away from that limit, may never

be executed.

As for book orders on the same side of the market

as the stopped stock, the Commission believes that

Rule 109’s requirements make it unlikely that these

limit orders would not be executed. Under the

Amex’s pilot program, an order can be stopped only

if a substantial imbalance exists on the opposite

side of the market. See infra, text accompanying

notes 14–20. In those circumstances, the stock

would probably trade away from the large

imbalance, resulting in execution of orders on the

book.

12Beyond the one-day review, the Amex could

make this determination only for those stocks in

which the electronic display book had been

implemented. For other stocks, the Amex

determined how often an equivalent volume (i.e.,

the same number of shares as the stopped order)

was executed at the opposite side’s limit price by

the close of the day’s trading.

13See, e.g., SEC, Report of the Special Study of

the Securities Markets of the Securities and

Exchange Commission, H.R. Doc. No. 95, 88th

Cong., 1st Sess. Pt. 2 (1963).

14There is a direct relationship between such a

quote size imbalance and the likelihood of price

improvement. A large imbalance on one side of the

market suggests that subsequent transactions will

take place on the other side. In those circumstances,

it could be appropriate to grant a stop, since the

delay might allow the specialist to execute the order

at a better price for the customer.

15A relatively large order might begin to

counteract the pressure the imbalance on the

opposite side of the market is putting on the stock’s

price. Accordingly, it might not be as appropriate

to stop such an order.

16See letter from Claire P. McGrath, Senior

counsel, Legal & Regulatory Policy Division, Amex,

to Mary Revell, Branch Chief, Division of Market

Regulation, SEC, dated January 6, 1992

(Amendment No. 1 to File No. SR–Amex–91–05).

Amendment No. 1 formally incorporated the

requirement that the indicia of market depth

discussed below must, without exception, be

satisfied before a specialist is permitted to stop

stock in a minimum fractional change market.

17See Amex Information Circular Nos. 92–74

(April 24, 1992) and 93–333 (April 7, 1993).

18For further discussion of the relationship

between quote size imbalance and the likelihood of

price improvement, see supra note 14.

19 In extending a comparable pilot program on the

New York Stock Exchange, the Commission placed

similar emphasis on the critical nature of the

sufficient size standard when stopping stock in

minimum fractional change markets. See Securities

Exchange Act Release No. 33791 (March 21, 1994),

59 FR 14437 (March 28, 1994) (File No. SR–NYSE–

94–06).

20See supra, text accompanying notes 11–13.

21See supra, note 17.

analysis of the Amex data and, in

particular, of Rule 109’s impact on limit

orders on the specialist’s book, before it

can consider permanent approval

thereof. To allow the Commission fairly

and comprehensively to evaluate the

Amex’s use of its pilot procedures,

without compromising the benefit that

investors might receive under Rule 109,

as amended, the Commission believes

that it is reasonable to extend the pilot

program until July 21, 1995.

First, the Amex’s latest monitoring

report indicates that approximately half

of orders stopped in minimum

fractional change markets received price

improvement. The Commission,

therefore, believes that the pilot

procedures provide a benefit to certain

investors by offering the possibility of

price improvement to customers whose

orders are granted stops in minimum

fractional change markets. According to

the Amex report, moreover, nearly all

stopped orders were for 2,000 shares or

less. In this respect, the amendments to

Rule 109 should mainly affect small

public customer orders, which the

Commission envisioned could most

benefit from professional handling by

the specialist.

Second, the Amex states that the

amendments to Rule 109 have not

adversely affected customer limit orders

existing on the specialist’s book.11 This

conclusion is based on the Exchange’s

review of limit orders on the opposite

side of the market at the time a stop was

granted pursuant to this pilot program.

As part of its one-day review of the ten

stocks receiving the greatest number of

stops, the Amex determined how often

book orders which might have been

entitled to an execution had the order

not been stopped, in fact, were executed

at their limit price by the close of the

day’s trading.12 In addition to

aggregated data, the Amex provided a

detailed breakdown of the disposition of

each order.

The Commission historically has been

concerned that book orders may get

bypassed when stock is stopped,

especially in a minimum fractional

change market.13 Based on the Amex’s

prior experience, the Commission did

not have sufficient grounds to conclude

that this long-standing concern had

been alleviated. The Commission

acknowledges, however, that Amex’s

recent monitoring reports provide new

information on this aspect of the pilot

program. As a result, the Commission

finds that additional time is necessary

for the Commission to review such

information and to ensure that Rule 109,

as amended, does not harm public

customers with limit orders on the

specialist’s book.

In terms of market depth, the Amex’s

monitoring report suggests that stock

tends to be stopped in minimum

fractional change markets where there is

a significant disparity (in both absolute

and relative terms) between the number

of shares bid for and the number of

shares offered.14 That report also

suggests that, given the depth of the

opposite side of the market, orders

affected by the Rule 109 pilot tend to be

relatively small.15 The Amex repeatedly

has stated, both to the Commission 16

and to its members,17 that specialists

can only stop stock in a minimum

fractional changed market when (1) an

imbalance exists on the opposite side of

the market and (2) such imbalance is of

sufficient size to suggest the likelihood

of price improvement.18

In the Commission’s opinion, the

Amex data generally supports its

conclusions regarding market depth.

The Commission continues to believe

that the requirement of a sufficient

market imbalance is a critical aspect of

the pilot program.19 When properly

applied, such a requirement should help

the Amex ensure that stops are only

granted in a minimum fractional change

market when the benefit (i.e., price

improvement) to orders being stopped

far exceeds the potential of harm to

orders on the specialist’s book.20

Finally, the Amex report describes its

efforts regarding compliance with the

pilot procedures. To alleviate confusion

about how to evidence Floor Official

approval (which, as noted above, a

specialist must obtain to stop any order

for more than 2,000 shares, or a total of

more than 5,00 shares for all stopped

orders), the Exchange has developed

new manual and automated reports,

which serve as a written audit trail for

surveillance purposes. As a result, the

Commission believes that the Amex has

sufficient means to determine whether a

specialist complied with the

amendments’ order size and aggregate

share thresholds and, if not, whether

Floor Official approval was obtained for

larger parameters. The Commission also

notes the Amex’s ongoing effort to keep

its specialists properly informed about

the pilot program’s requirements. In this

context, the Amex has distributed

Information Circulars,21 and held

continuing educational sessions on the

pilot program and its requirements for

stopping stock in minimum fractional

change markets. The Commission would

expect the Amex to take appropriate

action in response to any instance of

specialist non-compliance with Rule

109’s procedures.

During the pilot extension, the

Commission requests that the Exchange

continue to monitor the effects of

stopping stock in a minimum fractional

change market and to provide additional

information where appropriate.

Moreover, if the Exchange determines to

request permanent approval of the pilot

program or an extension thereof beyond

July 21, 1995, the Amex should submit

to the Commission a proposed rule

change by April 1, 1995.
Federal Register / Vol. 60, No. 25 / Tuesday, February 7, 1995 / Notices 7239

22No comments were received in connection with

the proposed rule change which implemented these

procedures. See 1992 Approval Order, supra, note

3.

23 15 U.S.C. 78s(b)(2) (1988).

24 17 CFR 200.30–3(a)(12) (1991).

1 15 U.S.C. 78s(b)(1) (1998).

2 17 CFR 240.19b–4 (1994).

3See Securities Exchange Act Release No. 35014

(November 28, 1994), 59 FR 62429 (December 5,

1994).

4On January 10, 1995, the CBOE amended its

proposal to provide that fines imposed pursuant to

CBOE Rule 17.50(b)(7) are subject to review by the

Exchange’s Appeals Committee. See Letter from

Arthur B. Reinstein, Attorney, CBOE, to Sharon

Lawson, Assistant Director, Division of Market

Regulation, Commission, dated January 9, 1995

(‘‘Amendment No. 1’’). CBOE Rule 17.50(g)(7)

establishes a fine schedule for failures to submit

trade data on the trade date. See order approving

File No. SR–CBOE–94–50.

5The BCC has decision-making authority

concerning possible violations within the

disciplinary jurisdiction of the Exchange. The BCC

reviews CBOE staff investigatory reports and issues

statements of charges, accepts or rejects offers of

settlement and letters of consent, holds hearings

and conducts summary proceedings, serves written

decisions on the parties to proceedings, and, when

appropriate, imposes sanctions, including

expulsions, suspensions, fines, censures, and other

fitting sanctions.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of the notice of filing

thereof. This will permit the pilot

program to continue on an

uninterrupted basis. In addition, the

procedures the Exchange proposes to

continue using are the identical

procedures that were published in the

Federal Register for the full comment

period and were approved by the

Commission.22

It is therefore ordered, pursuant to

Section 19(b)(2),23 that the proposed

rule change (SR–Amex–95–01) is hereby

approved until July 21, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.24

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–2971 Filed 2–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35300; File No. SR–CBOE–

94–46]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

No. 1 to the Proposed Rule Change by

the Chicago Board Options Exchange,

Inc., Relating to Amendments to the

Minor Rule Violation Fine Plan

January 31, 1995.

On November 21, 1994, the Chicago

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

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘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 certain provisions of CBOE Rule

17.50, ‘‘Imposition of Fines for Minor

Rule Violations.’’

Notice of the proposed rule change

appeared in the Federal Register on

December 5, 1993.3 No comments were

received on the proposal.4

The CBOE proposes to amend CBOE

Rule 17.50 to (1) extend the ‘‘lookback

period’’ for determining certain

sanctions; (2) limit the number of

transactions for which a member may

request verification; (3) clarify appeal

procedures; (4) provide for the waiver of

certain fees for appeals; (5) conform

procedures for requests for review under

CBOE Rule 17.50 with other CBOE

rules; and (6) clarify certain provisions

of the rule.

Specifically, the Exchange proposes to

(1) amend CBOE Rule 17.50(g)(4) to

extend from nine to 18 months the

‘‘lookback period’’ for failure to submit

accurate trade information pursuant to

CBOE Rule 6.51, ‘‘Reporting Duties;’’

and (2) amend CBOE Rule 17.50(g)(5) to

create an 18-month ‘‘lookback period’’

for failure to submit trade information to

the price reporter pursuant to CBOE

Rule 6.51. The Exchange also proposes

to amend CBOE Rule 17.50(g)(6) to

provide that the maximum fine

authorized under the Exchange’s trading

and decorum policies may be imposed

for a first or second offense if warranted

under the circumstances in the view of

the Floor Officials Committee.

The CBOE proposes to amend

Exchange Rule 17.50, Interpretation and

Policy .03 to impose a cap on the

number of transactions during a

particular month for which a member

fined more than twice in an 18-month

period for failure to submit accurate

trade information or failure to submit

trade information to the price reporter

may request verification. Under

Interpretation and Policy .03, as

amended, a member fined more than

twice in an 18-month period may

request verification of the greater of 50

transactions during a month or 10% of

the number of transactions deemed not

to be in compliance with CBOE Rule

6.51.

The CBOE also proposes several

amendments to revise the procedures

applicable to the appeal and review of

fines imposed under CBOE Rule 17.50.

First, the CBOE proposes to amend

Exchange Rule 17.50(c)(1) to state

explicitly the rights of members fined

under the rule. The CBOE also proposes

to add paragraph (d)(1) to clarify the

procedures applicable to appeals from

fines imposed for trading conduct and

decorum violations to note that, among

other things, a person fined for such

violations may contest the Exchange’s

determination by filing a written

application with the Secretary of the

Exchange pursuant to CBOE Rule 19.2,

‘‘Submission of Application to

Exchange,’’ and that a hearing, if

requested, will be conducted in

accordance with the provisions of CBOE

Rules 19.3, ‘‘Procedure Following

Applications for Hearing,’’ and 19.4,

‘‘Hearing.’’ Under paragraph (d)(2), the

Appeals Committee may waive the

forum fee if the Appeals Committee

finds that the person charged is guilty

of one or more of the rule violations

alleged and the sole disciplinary

sanction imposed by the Appeals

Committee is a fine which is less than

the total fine initially imposed by the

Exchange.

In addition, the CBOE proposes to

amend CBOE Rule 17.50(c) to provide

the Exchange’s Business Conduct

Committee (‘‘BCC’’) 5 and the Appeals

Committee with the discretion to waive

the forum fee provided for if the

applicable committee finds that the

person charged is guilty of one or more

of the rule violations alleged and the

sole disciplinary sanction imposed is a

fine which is less than the total fine

initially imposed by the Exchange. The

CBOE believes that this amendment will

lead to a more equitable resolution of

certain appeals under CBOE Rule 17.50

in situations where the committees

believe that a waiver of the forum fee is

warranted; such situations arise, for

example, when a fine is reduced on

appeal.

The CBOE also proposes to amend

CBOE Rule 17.50(c)(3) and to add (d)(3)

to make the procedures applicable to

requests by the Board of Directors

(‘‘Board’’) for review by the Board of

determinations of the Appeals

Committee under CBOE Rule 17.50

consistent with the procedures

applicable to similar requests regarding

other decisions of these committee as

provided in CBOE Rules 17.10(c) and

19.5(a).

Finally, the CBOE proposes a

nonsubstantive change to clarify CBOE

Rule 17.50(g)(1), ‘‘Violation of position

limit rules,’’ by deleting a potentially

confusing reference to CBOE Rule 24.4,

‘‘Position Limits for Broad-Based Index

Options.’’ Currently, CBOE Rule

17.50(g)(1), which applies to violations

of all of the Exchange’s position limit

rules, only specifically references CBOE