[Federal Register Volume 60, Number 45 (Wednesday, March 8, 1995)]
[Notices]
[Page 12795]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5579]



[[Page 12795]]

SECURITIES AND EXCHANGE COMMISSION

[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'')<SUP>1 and Rule 19b-4 
thereunder,<SUP>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.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
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    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.<SUP>3 A legally 
qualified individual or institution may be appointed as successor 
trustee for this purpose.<SUP>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.

    \3\A physician who has personally examined or treated the trust 
member must certify in writing that the trust member has become 
disabled.
    \4\The 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).
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    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.

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

    \6\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\

    \7\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-5579 Filed 3-7-95; 8:45 am]
BILLING CODE 8010-01-M