[Federal Register Volume 60, Number 39 (Tuesday, February 28, 1995)]
[Notices]
[Pages 10884-10886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4858]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35403; File No. SR-CBOE-94-39]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval of 
Amendment No. 1 to Proposed Rule Change by the Chicago Board Options 
Exchange, Inc., Relating to Obligations to Furnish Information

February 22, 1995.
    On November 7, 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 proposal to amend CBOE Rule 15.9, ``Regulatory 
Cooperation,''\3\ to delineate the obligation of CBOE members and 
persons associated with CBOE members to furnish information in 
connection with inquiries arising from regulatory agreements that the 
Exchange has entered into with other regulatory and market institutions 
even in cases where the Exchange has not otherwise initiated an 
investigation.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
    \3\CBOE Rule 15.9(a) allows the Exchange to ``enter into 
agreements with domestic and foreign self-regulatory organizations, 
associations and contract markets and the regulators of such markets 
which provide for the exchange of information and other forms of 
mutual assistance for market surveillance, investigative, 
enforcement and other regulatory purposes.''
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    In addition, the CBOE proposes to amend CBOE Rule 17.2, ``Complaint 
and Investigation,'' to expand the set of circumstances under which 
members or persons associated with members are obligated, upon request 
by the Exchange, to appear and testify, respond in writing to 
interrogatories and furnish documentary materials and other 
information.
    The proposal was published for comment in the Federal Register on 
December 8, 1994.\4\ No comments were received on the proposed rule 
change.\5\

    \4\See Securities Exchange Act Release No. 35035 (December 1, 
1994), 59 FR 63397 (December 8, 1994).
    \5\On February 15, 1995, the CBOE amended its proposal to 
clarify that when the Exchange requests information from a member 
pursuant to CBOE Rule 15.9(b), the member has the same rights and 
procedural protections in responding to the request as the member 
would have in the case of any other request for information 
initiated by the CBOE pursuant to CBOE Rule 17.2(b). In addition, 
the CBOE notes that the proposal authorizes the CBOE to request 
information and compel testimony from its members or associated 
persons whenever the CBOE deems such a request to be appropriate and 
consistent with its agreements to cooperate with other regulatory 
organizations. The CBOE notes, further, that when the CBOE requests 
any such information or testimony on behalf of another regulatory 
body, the CBOE continues to be the requesting regulatory body in 
relation to the CBOE member and all such requests are subject to the 
CBOE's rules. See Letter from James R. McDaniel, Schiff Hardin & 
Waite, to Michael Walinskas, Branch Chief, Options Regulation, 
Division of Market Regulation, Commission, dated February 15, 1995 
(``Amendment No. 1''). [[Page 10885]] 
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    The CBOE proposes to amend CBOE Rule 15.9 to provide that as long 
as a CBOE member or person associated with a CBOE member is subject to 
the CBOE's jurisdiction, the CBOE member or person associated with a 
CBOE member is obligated to furnish testimony, documentary evidence or 
other information to the full extent provided in CBOE Rule 17.2(b), 
``Conduct of Investigation,'' whether or not the Exchange has initiated 
the investigation, if the information is requested by the Exchange in 
connection with any inquiry resulting from an agreement entered into by 
the Exchange with a domestic or foreign self-regulatory organization or 
regulator pursuant to CBOE Rule 15.9. A CBOE member or person 
associated with a CBOE member from whom such information is requested 
possesses the same procedural protections which would apply to a 
request made pursuant to an investigation initiated by the CBOE.\6\

    \6\Id.
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    According to the Exchange, the amendments to CBOE Rule 15.9 are 
designed to clarify the CBOE's existing rules, which do not clearly 
delineate the obligation of CBOE members or persons associated with 
CBOE members to furnish information when the provision of information 
is required in connection with regulatory agreements where the CBOE has 
not itself initiated an investigation.
    In addition, the CBOE proposes to amend CBOE Rule 17.2 to state 
clearly that each CBOE member and person associated with a CBOE member 
is obligated, upon the Exchange's request, to testify, respond in 
writing to interrogatories, and furnish documentary materials and other 
information requested by the Exchange in connection with an 
investigation initiated pursuant to CBOE Rule 17.2(a), a hearing or 
appeal conducted pursuant to CBOE Chapter 17 or an inquiry resulting 
from an agreement entered into by the Exchange pursuant to CBOE 15.9.
    The CBOE also proposes to amend CBOE Rule 17.2, Interpretation and 
Policy .01 to provide that the failure to furnish testimony, 
documentary evidence, or other information requested by the CBOE in the 
course of an Exchange inquiry within the time period specified by the 
Exchange shall be deemed to be a violation of CBOE Rule 17.2.
    The Exchange states that the amendments to CBOE Rule 17.2 delineate 
clearly the obligation of CBOE members and persons associated with CBOE 
members to furnish information in connection with an investigation 
initiated by the CBOE itself, including information requested in 
connection with a hearing or appeal or the Exchange's preparation for a 
hearing or appeal. The amendments to CBOE Rule 17.2 are designed to set 
forth the CBOE's longstanding interpretation of existing CBOE rules.
    The Commission believes 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, the requirements of Section 6(b)(5)\7\ in that it is 
designed to prevent fraudulent and manipulative acts and practices and 
to protect investors and the public interest. Specifically, the 
Commission believes that the proposed amendment to CBOE Rule 15.9 will 
strengthen CBOE Rule 15.9 and enhance the CBOE's disciplinary system by 
indicating clearly that the Exchange may require CBOE members and 
persons associated with CBOE members to furnish testimony, documentary 
evidence or other information pursuant to regulatory agreements entered 
into pursuant to CBOE Rule 15.9(a). At the same time, the Commission 
believes that the proposal maintains procedural safeguards for CBOE 
members by providing that members from whom such information is 
requested possess the same procedural protections that would apply to a 
request made pursuant to an investigation initiated by the CBOE.\8\

    \7\15 U.S.C. 78f(b)(5) (1988).
    \8\See Amendment No. 1, supra note 5.
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    By clarifying the obligation of CBOE members to furnish testimony 
and other information in connection with such investigations, the 
Commission believes that the proposal will facilitate investigations 
commenced pursuant to CBOE Rule 15.9, thereby furthering the protection 
of investors and the public interest by helping to ensure the prompt 
investigation of possible trading violations and other regulatory 
improprieties. In addition, the Commission believes that the proposal 
will help the Exchange to coordinate with domestic and foreign self-
regulatory organizations in implementing a surveillance system 
appropriate to today's increasingly linked and globalized markets.\9\ 
In addition, the Commission believes that the proposed amendments to 
CBOE Rule 17.2(b) will clarify the obligation of members to appear and 
testify, respond in writing to interrogatories and furnish information 
requested by the Exchange in connection with an investigation initiated 
pursuant to CBOE Rule 17.2(a), a hearing or appeal conducted pursuant 
to CBOE Chapter 17, or an inquiry resulting from an agreement entered 
into by the Exchange pursuant to CBOE Rule 15.9. The Commission 
believes that the amendments to CBOE Rule 17.2(b) and Interpretation 
and Policy .01 should protect investors and the public interest by 
facilitating the prompt resolution of disciplinary matters.

    \9\See Securities Exchange Act Release No. 28498 (October 1, 
1990), 55 FR 41286 (October 10, 1990) (order approving File No. SR-
CBOE-90-23).
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    Specifically, by clearly stating members' obligation to testify and 
to provide information requested by the Exchange, and by making 
noncompliance with such requests a violation of CBOE Rule 17.2, the 
Commission believes that the proposal will encourage CBOE members to 
comply fully with CBOE requests for information and will enhance the 
Exchange's ability to conduct investigations in a timely manner, 
without burdening the members being investigated. The Commission 
believes that the CBOE must have the ability to obtain such information 
so that the Exchange will have access to all relevant facts necessary 
for the Exchange to act on a fully informed basis when making decisions 
concerning the disciplining of members.
    At the same time, the Commission believes that the proposal is 
consistent with the CBOE's maintenance of a fair disciplinary process 
for its members. In this regard, the Commission notes that all existing 
due process safeguards relating to CBOE disciplinary proceedings remain 
in place.
    The Commission finds good cause for approving Amendment No. 1 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register because 
Amendment No. 1 clarifies the proposal and helps to safeguard the 
procedural [[Page 10886]] rights of members from whom the Exchange 
requests information pursuant to CBOE Rule 15.9(b). Accordingly, the 
Commission believes it is consistent with Sections 6(b)(5) and 19(b)(2) 
of the Act to approve Amendment No. 1 to the proposed rule change on an 
accelerated basis.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-94-39) is approved.

    \10\15 U.S.C. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\

    \11\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-4858 Filed 2-27-95; 8:45 am]
BILLING CODE 8010-01-M