Federal Register / Vol. 60, No. 45 / Wednesday, March 8, 1995 / Notices 12795

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

2 17 CFR 240.19b–4 (1994).

3A physician who has personally examined or

treated the trust member must certify in writing that

the trust member has become disabled.

4The successor trustee must transfer the

membership in accordance with the rules of the

Exchange and subject to the right of the Exchange

to offer the membership for sale in accordance with

Rule 3.14(b)(1).

5 15 U.S.C. 78f(b) (1988).

6 15 U.S.C. 78s(b)(2) (1988).

7 17 CFR 200.30–3(a)(12) (1994).

[Release No. 34–35430; File No. SR–CBOE–

94–48]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Granting Approval to

Proposed Rule Change Relating to the

Placement of CBOE Memberships Into

Trusts

March 1, 1995.

I. Introduction

On December 1, 1994, the Chicago

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

or ‘‘Exchange’’) submitted to 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 adopt new Rule 3.25, which

would enable an individual CBOE

member to place his membership in

trust for estate planning purposes,

subject to certain requirements.

The proposed rule change was

published for comment in Securities

Exchange Act Release No. 35220 (Jan.

11, 1995), 60 FR 3889 (Jan. 19, 1995). No

comments were received on the

proposal.

II. Description of the Proposals

The Exchange proposes to adopt new

Rule 3.25, which would permit

individual members to place their

memberships into trusts under certain

conditions. The proposed rule lays out

the framework of a permissible trust and

imposes substantive as well as

procedural obligations on a member

transferring his membership into a trust

(‘‘trust member’’).

The proposed rule provides the

structure of a trust into which a member

may transfer his membership. A trust

member must be the sole trustee and

sole beneficiary of the trust during his

lifetime. The trust member must remain

personally liable for all obligations and

liabilities associated with the

membership, which continues to be

subject to the rules of the Exchange.

Subject to the collateral deposit

requirements of Rule 3.14(c), a

membership in trust may be transferred

during the lifetime of the trust member

or at his death to an eligible family

member who is approved for Exchange

membership in accordance with Rule

3.14(c)(1) or during the lifetime of the

trust member to a member organization

in accordance with Rule 3.14(c)(3). A

membership in trust may also be

transferred back to the trust member to

be held directly and not in a trust.

The proposed rule imposes

substantive obligations on a member

who seeks to transfer his membership

by requiring that certain terms be

included in the trust agreement.

Specifically, a member’s trust agreement

must provide for a successor trustee for

the purpose of transferring the

membership in the event of the trust

member’s death, legal incompetence, or

any other condition that substantially

impairs the member’s ability to transact

ordinary business.3 A legally qualified

individual or institution may be

appointed as successor trustee for this

purpose.4 A trust agreement also may

provide the successor trustee with the

authority to continue holding the

membership in trust for the benefit of a

trust member during any period of his

legal incompetency or disability as long

as the membership is leased during that

period in accordance with Rule 3.16(b).

In addition, the proposed rule requires

trust agreements to exempt the

Exchange from liability for any actions

or inactions of the trust member or any

successor trustee with respect to the

administration of the trust or the

management of the trust assets.

The proposed rule also contains

procedural requirements in placing a

membership in trust. The proposed rule

requires an individual member who

seeks to transfer his membership into a

trust to provide the Exchange with a

copy of the trust agreement with a

certification by the attorney who

prepared the agreement stating that it

conforms to the requirements of

proposed Rule 3.25. The Exchange

reserves a right to disapprove the

transfer if it finds that the trust

agreement does not meet the

requirements of the proposed rule. The

Exchange will provide a member with a

written notification if the proposed

transfer is disapproved.

III. Discussion

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 the

requirements of Section 6(b).5 In

particular, the Commission believes the

proposal is consistent with the Section

6(b)(5) requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

prevent fraudulent and manipulative

acts, and, in general, to protect investors

and the public interest.

The Commission believes that the

new proposed Rule 3.25 achieves a

reasonable balance between the

Exchange’s interest in providing

members with the flexibility to plan

their estate and its interest in regulating

and protecting its membership. Under

proposed Rule 3.25, a member may

transfer his membership to a trust

provided that the trust agreement

contains certain provisions relating to

(1) the applicable procedures for a

subsequent transfer of the membership

contained in the trust and (2) the

exclusion of the CBOE from liability for

certain trust actions or omissions.

Moreover, the trust agreement must be

submitted to the Exchange for review

and such trust agreement can be

disapproved by written notice to a

member if it fails to meet the above

conditions or other requirements

imposed by the proposed rule. The

Commission believes that these

conditions are an appropriate means of

addressing the unique concerns in

maintaining and/or transferring an

exchange membership that is held in

trust form. The proposed rule change

does not affect the substantive

requirements and duties of a member

whose interest is held in trust. In

particular, a ‘‘trust member’’ shall

remain personally responsible for all

obligations and liabilities associated

with the membership and its use, and

the membership will remain subject to

all of the rules of the CBOE. Overall,

this approach allows the Exchange to

provide members with useful, but

appropriately controlled estate planning

flexibility.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,6 that the

proposed rule change (SR–CBOE–94–

48) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–5579 Filed 3–7–95; 8:45 am]

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